Insiders ranked by realized 90-day signed return on their open-market trades at Stagwell Inc. Minimum 3 scored trades. Returns are signed - a sale followed by a rally counts against the insider.
Real-time Form 4 intelligence. Smarter insider tracking.
YoY shift: Lean +
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.31pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.07pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.69pp
Lean +
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
conflict+4
disrupt+2
adversely+1
failure+1
negatively+1
Positive rising
success+2
able+1
opportunities+1
successfully+1
effective+1
Risk Factors (Item 1A)
14,017 words
Item 1A. Risk Factors
You should carefully consider the risk factors set forth below, as well as the other information contained in this Form 10-K, including our Audited Consolidated Financial Statements and related notes. Any of the following risks could materially and adversely affect our business, results of operations, financial condition, cash flows, projected results and future prospects. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, results of operations, financial condition, cash flows, projected results and future prospects. These risks are not exclusive and additional risks to which we are subject include the factors listed under “Note About Forward-Looking Statements” and the risks discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K.
Risks Related to Our Business and Industry
Our revenues are highly susceptible to declines as a result of unfavorable economic conditions.
Advertising, marketing and communications expenditures are sensitive to global, national and regional macroeconomic conditions, including inflationary pressures, currency fluctuations, geopolitical uncertainty and elevated interest rates, as well as specific budgeting levels and buying patterns. developments such as inflation, evolving tariff and trade policies, or heightened economic uncertainty can reduce the demand for our services and pose a risk that clients may reduce, or spending on advertising, marketing and corporate communications projects. For example, inflation rates have increased in recent years, and the effects of increased inflation and other conditions on our customers have in the past resulted and may in the future result in decreased demand for our products and services, decreased revenue, increased operating costs (including our labor costs), and decreased , and may result in reduced liquidity and limits on our ability to access credit or otherwise raise capital. In cases of sustained inflation across several of our major markets, it becomes increasingly to effectively control increases to our costs. If we are to increase our fees or take other actions to mitigate the effect of the resulting higher costs, our business, results of operations and financial position could be impacted. In addition, in the past, some clients have responded to economic conditions with reductions to their marketing budgets, which include discretionary components that are to reduce in the short term than other operating expenses. This pattern may recur in the future and could have a material effect on our revenue, results of operations, cash flows and financial condition. In addition, elevated interest rates have had and may continue to have the effect of further increasing economic uncertainty and heightening these risks, as well as increasing the cost of capital.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
loss+4
decline+4
termination+3
divestitures+2
restructuring+2
Positive rising
strong+10
efficiency+7
improve+5
improved+5
innovative+3
MD&A (Item 7)
13,102 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Th e following discussion and analysis are based on and should be read in conjunction with our Audited Consolidated Financial Statements and the notes thereto included elsewhere in this Form 10-K. The following discussion and analysis contain forward-looking statements and should be read in conjunction with the disclosures and information contained and referenced under the captions “Forward-Looking Statements” and “Risk Factors” in this Form 10-K. The following discussion and analysis also include a discussion of certain non-GAAP financial measures. A description of the non-GAAP financial measures discussed in this section and reconciliations to the comparable GAAP measures are below.
In this section, the terms “Stagwell,” “we,” “us,” “our” and the “Company” refer to Stagwell Inc. and its direct and indirect subsidiaries. References to a “fiscal year” mean the Company’s year commencing on January 1 of that year and ending December 31 of that year (e.g., fiscal 2025 means the period beginning January 1, 2025, and ending December 31, 2025).
Table of Contents
Executive Summary
Overview
Stagwell conducts its business through its segments, which provide marketing and business solutions that realize the potential of combining data and creativity. Stagwell’s strategy is to build, grow, and acquire market-leading businesses that deliver the modern suite of services that marketers need to thrive in a rapidly evolving business environment. We believe Stagwell’s differentiation lies in its digital-first and technology-based roots and proven entrepreneurial leaders, which together with in technology and data, bring transformational marketing, activation, communications and strategic consulting services to clients. Stagwell leverages its range of services in an integrated manner, offering strategic, and solutions that are technologically forward and media-agnostic. The Company’s strategy is intended to the industry status quo, realize returns on investment, and drive transformative growth and business performance for its clients and stakeholders.
Our business depends on generating and maintaining ongoing, profitable client demand for our services and solutions.
Our revenue and profitability depend on the demand for our services and favorable margins, which have been and may continue to be negatively affected by numerous factors, many of which are beyond our control and unrelated to our work product. To increase our revenues and achievefavorable margins, we will need to attract additional clients or generate demand for additional services and products from existing clients, and such demand will depend on factors including clients’ and potential clients’ requirements, pre-existing vendor relationships, financial condition, strategic plans, internal resources and satisfaction with our work product and services, as well as broader economic conditions, competition and the quality of our Brands’ employees, services and reputation and the breadth of our services. In addition, developments in the markets we serve, which may be rapid, could shift demand to services and solutions where we are less competitive, or might require significant investment by us to upgrade, enhance or expand our services and solutions to meet that demand. To the extent that we are
Table of Contents
unable to generate sufficient and profitable client demand, our ability to grow our business, increase our revenues and achievefavorable margins will be limited, which could have a material adverse effect on our business, results of operations, financial condition and prospects.
Our business could be adversely affected if we fail to retain our existing clients.
Our ability to attract and retain clients is an important aspect of our competitiveness, and client loss, including due to competitors, as a consequence of client consolidation, insolvency or a reduction in marketing budgets due to recessionary economic conditions, or a shift in client spending could have a material adverse effect on our business, results of operations, financial condition and prospects. Many companies, including companies with which we have long-standing relationships, put their advertising and marketing communications business up for competitive review from time to time, and we have lost client accounts in the past as a result of such reviews. Our clients may choose to terminate their contracts, or reduce their relationships with us, on a relatively short time frame and for any reason, including as a result of such competitive reviews, a reduction in marketing budgets due to external factors such as economic conditions or their own financial distress or insolvency, competition from other marketing services providers, clients’ consolidation, a shift in their spending or clients’ dissatisfaction with our services, reputation or personnel.
A relatively small number of clients contributes a significant portion of our revenue, which magnifies this risk. In the aggregate, our top ten clients based on revenue accounted for approximately 18% of our revenue for the year ended December 31, 2025. No customer represented more than 4% of total revenue. Historically, client concentration has increased during election years due to the cyclical nature of our advocacy Brands. A substantial decline in a large client’s advertising and marketing spending, the loss of a significant part of their business or the loss of one or more of our largest clients could have a material adverse effect on our business, prospects, results of operations and financial condition.
We face significant competition.
The advertising and marketing services business is highly competitive and constantly changing. We compete on the basis of many factors, including the quality (and clients’ perceptions of the quality) of our work, our ability to protect the confidentiality of clients’ and their customers’ data, our relationships with key client personnel, our expertise in particular areas or disciplines, the differentiation of our offerings and our ability to provide integrated services at the scale clients require. Our Brands compete with a diverse and growing set of marketing services firms and consultancies including other large multinational companies. We are smaller than many of our larger industry competitors, and an agency’s ability to serve clients, particularly large international clients, on a broad geographic basis and across a range of services and technologies is an important competitive consideration. We also compete with smaller businesses that operate in local or regional markets, and because an agency’s principal asset is often its people, barriers to entry are minimal, and relatively small brands are, on occasion, able to take all or some portion of a client’s business from a larger competitor. Consolidation of companies in our industry, including through strategic mergers or acquisitions, may also result in new competitors with greater scale than ours. Competitive challenges also arise from rapidly evolving and new technologies in the marketing and advertising space, which create opportunities for new and existing competitors and a need for continued significant investment in tools, technologies and process improvements.
In addition, our competitors may compete for client engagements by significantly discounting their services. Price competition could force us to choose between lowering our prices (and suffering reduced operating margins) or losing a client’s business.
Our future financial performance is largely dependent upon our ability to compete successfully in the markets we serve. If we are unable to compete successfully, we could lose market share and clients to competitors or be forced to accept engagements with unfavorable economic terms, which could have a material adverse effect on our business, results of operations, financial condition and prospects.
Our success depends in part on our ability to adapt to ongoing changes in technology and offerings.
Our success depends in part upon our ability to continue to develop and implement services and solutions that anticipate and respond to rapid and continuing changes in marketing technology, consumer habits and industry developments, as well as offerings by new entrants, to serve the evolving needs of our clients. Current areas of significant change include search engine optimization, bots, search engine marketing, social media and influencer and affiliate marketing, email marketing, AR and VR applications, customer relationship and programmatic advertising, which involve the use of mobility-based software platforms, cloud computing, SaaS, and DaaS solutions, AI and generative AI content creation tools, machine learning and the processing and analyzing of large amounts of data. Technological developments such as these may materially affect the cost and use of technology by our clients and demand for our services, and if we do not sufficiently invest in new technology and industry developments, or if we do not make the right strategic investments to respond to these developments and successfully drive innovation, our services and solutions, our ability to generate demand for our services, and to attract and retain clients, and our ability to develop and achieve a competitive advantage and growth could be negatively affected.
We are making investments in new product offerings and technologies that are inherently risky.
We have made investments to develop new marketing services products and technologies, including The Machine, our Palantir partnership, products at The Marketing Cloud and other marketing data, campaign MarTech, AR and VR applications,
Table of Contents
and AI and generative AI offerings, and we intend to continue investing significant resources in developing and/or acquiring new technologies, tools, features, services, products and offerings. Our new initiatives are inherently risky, as each involves development of new software platforms or other product offerings, unproven business strategies and technologies with which we may have limited prior development or operating experience. We may also encounter significant technical or other challenges with respect to the development of these products. They may also involve additional claims and liabilities (including intellectual property claims), expenses, regulatory challenges, and other risks that we do not currently anticipate.
There can be no assurance that client demand for our new products, and technologies will exist or be sustained at the levels that we anticipate, or that any of these initiatives will gain sufficient traction or market acceptance to generate sufficient revenue to offset any new expenses or liabilities associated with these new investments. It is also possible that products and offerings developed by others will render our new products and offerings noncompetitive or obsolete. If we do not realize the expected benefits of our investments, our business, financial condition, results of operations and prospects may be harmed.
We are subject to risks related to our use of AI, including generative AI.
We are increasingly building generative AI features into some of our offerings, such as generative AI content creation tools, and are making investments in expanding our generative AI capabilities. As part of this process, we also utilize generative AI tools offered by third-party providers in the development and testing of our offerings. Generative AI is in the relatively early stages of commercial use and presents certain inherent risks. Generative AI algorithms are based on machine‑learning and predictive analytics, which can create or amplify unintended biases and discriminatory outcomes, and, their outputs may be incomplete, inaccurate or misleading. There is a risk that the generative AI tools we deploy could produce such outcomes or other unexpected results or behaviors that could harm our reputation, business, or clients.
In addition, the use of AI and generative AI involves significant technical complexity and requires specialized expertise. Any disruption or failure in our AI and generative AI offerings, or those of our third-party providers, could result in delays or errors in our operations, which could harm our business and financial results. The use of generative AI tools could also result in a greater likelihood of cybersecurity incidents, privacy violations and inadvertent disclosures of our intellectual property or other confidential information, any of which could directly or indirectly harm our business, operations and reputation.
The AI regulatory landscape is still uncertain and evolving, and the development and use of AI technologies, including generative AI, in new or existing content creation tools and other offerings may result in new or enhanced governmental or regulatory scrutiny, litigation, ethical concerns or other complications that could be costly and time-consuming and could adversely affect our business, reputation or financial results. Furthermore, the use of AI by bad actors presents increasingly complex and sophisticated security threats to our confidential Company data, and we must make additional efforts to maintain network security.
Our international operations are exposed to a number of risks.
We are a global business, with Brands operating in over 34 countries as of December 31, 2025. Operations outside the United States represent a significant portion of our revenues and represented approximately 23% of our revenues in 2025. The operational and financial performance of our international businesses are affected by global and regional economic conditions, competition for new business and staff, political conditions, differing regulatory environments and other issues associated with extensive international operations. Conducting our business internationally, particularly in developing markets in which we have limited experience, subjects us to risks that we do not face to the same degree in the United States. These risks include, among others:
• operational and compliance challenges caused by distance, language, and cultural differences, including, in some markets, longer billing collection cycles;
• the resources required to adapt our operations to local practices, laws, and regulations and any changes in such practices, laws, and regulations;
• laws and regulations that may be more restrictive than those in the United States, including commercial laws that can be undeveloped, vague, inconsistently enforced, retroactively applied or frequently changed, laws governing competition, pricing, payment methods, internet activities, real estate tenancy laws, tax and social security laws, employment and labor laws, email messaging, privacy, location services, collection, use, processing, or sharing of personal data, ownership of intellectual property, and other activities important to our business;
• competition with companies or other services that understand local markets better than we do or that have pre-existing relationships with potential clients in those markets;
• exposure to business cultures in which improper business practices may be prevalent;
• difficulties in managing, growing, and staffing international operations, including in countries in which foreign employees may become part of labor unions, employee representative bodies, or collective bargaining agreements, and challenges relating to work stoppages or slowdowns;
• fluctuations in currency exchange rates;
Table of Contents
• adverse tax consequences, including the complexities of foreign value added tax systems, and restrictions on the repatriation of earnings;
• increased financial accounting and reporting burdens, and complexities associated with implementing and maintaining adequate internal controls;
• difficulties in implementing and maintaining the financial systems and processes needed to enable compliance across multiple jurisdictions;
• potential changes to import and export restrictions, duties, trade regulation and economic sanctions;
• public health concerns or emergencies, such as the COVID-19 pandemic or other outbreaks of communicable disease, which have occurred in parts of the world in which we operate;
• war, conflict, geopolitical tensions and other political, social, and economic instability abroad, terrorist attacks and security concerns, such as escalating tensions in the Taiwan Strait and the ongoing conflicts in Iran and the Middle East, and between Russia and Ukraine; and
• reduced or varied protection for intellectual property rights in some markets.
These risks could adversely affect our international operations, which could in turn adversely affect our business, financial condition, results of operations and prospects. In addition, in developing countries or regions, we may face further risks, such as slower receipt of payments, nationalization, social and economic instability, currency repatriation restrictions and undeveloped or inconsistently enforced commercial laws. These risks may limit our ability to grow our business and effectively manage our operations in the countries that are affected.
We are exposed to the risk of client defaults.
Certain of our Brands often enter into contractual commitments with media providers and production companies and incur expenses on behalf of our clients for productions and in order to secure a variety of media time and space, in exchange for which they receive a fee. The difference between the gross production costs and media purchases and the revenue earned by us can be significant, and primarily affects our levels of accounts receivable, expenditures billable to clients, accounts payable and accrued liabilities.
We are generally paid in arrears for our services, and if we are unable to meet our contractual requirements, we may experience delays in collection of and/or be unable to collect our client balances. While we take precautions againstdefault on payment for these services (such as credit analysis, advance billing of clients, purchasing credit insurance and in some cases acting as an agent for a disclosed principal), such precautions may fail to mitigate our exposure to clients’ credit risk, and we may experience significant uncollectible receivables from our clients. If we are unable to collect our receivables or unbilled services, our business, results of operations, financial condition and cash flows could be materially and adversely affected.
We are impacted by geopolitical events, international hostilities, terrorist attacks and natural disasters.
Geopolitical events, international hostilities, acts of terrorism or natural disasters could negatively impact our business through, among other things, disruption of our and our Brands’ business operations, decreased demand for our or our clients’ services, disruption in the credit markets, heightened risk of cybersecurity attacks and disruptions to our information technology infrastructure, increased energy costs and labor and supply chain disruptions. This could result in suspension of our or our clients’ businesses in the affected region, which could impact client spending on our services. Any of these occurrences could have a material adverse impact on our business, results of operations, financial condition and prospects. For example, the conflict in Iran and the Middle East has disrupted travel to and from our Brands’ offices in the Middle East, could disrupt our Brands’ operations, and could result in a decrease in demand for our services in the region. The conflict in Iran and the Middle East is ongoing, and its duration is uncertain. We may not be able to accurately predict the impact of the conflict or other international hostilities on our businesses and operations.
We are impacted by seasonal fluctuations in marketing, research, communications and advertising activity.
Our revenue, cash flow, operating results and other key operating and performance metrics vary from quarter to quarter due to the seasonal nature of our clients’ spending on the services we provide. For example, clients tend to devote more of their advertising budgets to the fourth calendar quarter to coincide with consumer holiday spending, and we typically generate our highest quarterly revenue during the fourth quarter in each year. Political advertising and related activity have also historically caused our revenue to increase during election cycles, which is most pronounced in even years, in particular during the third and fourth quarters of such years, and to decrease during other periods. Seasonality could have a more significant impact on our revenue, cash flow and operating results from period to period as a result of declines in our growth rate or if seasonal spending becomes more pronounced.
Risks Related to Strategic Transactions
We may not realize the expected benefits from strategic transactions.
We may be unable to realize the benefits we expect from our past and future acquisitions and other strategic transactions for a variety of reasons, including due to our failure to effectively integrate newly acquired businesses into our operations,
Table of Contents
errors in our forecasting or factors that we do not control, such as the reactions of existing and potential clients, employees, investors and regulators.
Our integration efforts are subject to significant risks and uncertainties, including with respect to our ability to realize our anticipated synergies and cost savings, our ability to retain and attract executives, employees and clients, the acquired company’s technology that is not easily compatible with ours, or difficulty in retaining the clients of any acquired business due to changes in management, the diversion of management’s attention from other business concerns, and undisclosed, unknown or potential legal liabilities, including litigationagainst the companies we may acquire, for example from failure to identify all of the significant risks or liabilities associated with the target business. In addition, we may not accurately forecast the financial impact of an acquisition transaction, including accounting charges. Our failure to address these risks or other problems could cause us to incur unanticipated liabilities and harm our business generally.
Strategic transactions may result in dilution to our stockholders and consume resources that are necessary to sustain our business.
Our business strategy includes engaging in strategic mergers, acquisitions and investments to bolster our capabilities or expand our reach in particular areas. Through the acquisitions we pursue, we may seek opportunities to add to or enhance the services and solutions we provide, to enter new industries or expand our client base, or to strengthen our global presence and scale of operations. Our ability to complete these transactions may be subject to conditions or approvals that are beyond our control, including anti-takeover and antitrust laws in various jurisdictions. Consequently, these transactions, even if undertaken and announced, may not close. In addition, an acquisition, investment or new business relationship may result in unforeseen operating difficulties and expenditures.
Mergers or acquisitions may disrupt our business, divert our resources and require significant management attention that would otherwise be available for the development of our business. For one or more of those transactions, we may issue additional equity securities that would dilute our stockholders. For example, we issued 2.7 million shares of our Class A common stock, par value $0.001 per share (“Class A Common Stock”) as consideration for acquisitions that occurred in 2025. In addition, we may:
• use cash that we may need in the future to operate our business;
• incur debt that may place burdensome restrictions on our operations or cash flows;
• incur large charges or substantial liabilities; or
• become subject to adverse tax consequences, substantial depreciation or amortization expenses, impairment of goodwill and/or purchased long-lived assets, restructuring charges, deferred compensation or other acquisition-related accounting charges.
Any of these risks could materially and adversely affect our business, financial condition, results of operations and prospects.
Risks Related to Our Employees and Human Resources
Our business is highly dependent on the services of Mark Penn, our CEO and Chairman.
We depend on the continued services and performance of our key personnel, including our CEO and Chairman, Mark Penn. Although we have entered into an employment agreement with Mr. Penn, the agreement has no specific duration and constitutes at-will employment. The loss of key personnel, including Mr. Penn, could disrupt our operations and have an adverse effect on our business.
Our business is dependent on our ability to keep our supply of skills and resources in balance with client demand.
Employees, including creative, research and data acquisition, analytics and data science, media, technology development, content development, account and practice group specialists, and their skills and relationships with clients, are among our most important assets. Our success is dependent, in large part, on our ability to keep our supply of marketing services skills and capabilities in balance with client demand around the world and our ability to attract, retain, and motivate personnel with the knowledge and skills to lead our business and serve clients globally, respond quickly to rapid and ongoing changes in demand and the macroeconomic environment, and continuously innovate to grow our business. There is competition for scarce talent with market-leading skills and capabilities in new technologies, and our competitors have directly targeted our employees with such skills and will likely continue to do so. At certain times and in certain geographies, we have found and may continue to find it difficult to hire and retain a sufficient number of employees with the skills or backgrounds to meet current and/or future demand in a cost-effective manner. In these cases, we might need to redeploy existing personnel or increase our reliance on subcontractors to fill our labor needs, and if not done effectively, our profitability could be negatively impacted. Additionally, we may be unable to hire and retain people with the skills necessary to meet the increasing client demand, and we have in the past experienced and may continue to experience wage inflation and other increases to compensation expense, which puts upward pressure on our costs and may adversely affect our profitability if we are unable to recover these increased costs.
Table of Contents
We are particularly dependent on retaining management and leadership of our Brands with critical capabilities. Our ability to expand in our key markets depends, in large part, on our ability to attract, develop, retain and integrate both leaders for the local business and people with critical capabilities. If we are not successful in these initiatives, our business, results of operations, financial condition and prospects could be adversely affected.
Risks Related to Data Privacy and Cybersecurity
We face legal, reputational and financial risks from any failure to protect client data from security incidents or cyberattacks.
We and our third-party service providers, such as our cloud service providers that store, transmit and process data, rely on information technologies and infrastructure, which we use to manage our business, including digital storage of client marketing and advertising information and developing new business opportunities. Increased cybersecurity threats and attacks, such as security breaches, are constantly expanding, evolving, and becoming more sophisticated and pose a risk to our systems and networks. In addition, given the increasing difficulty of detecting cybersecurity threats, undiscovered vulnerabilities in our products or services could expose us or our clients to hackers or other unscrupulous third parties who develop and deploy viruses and other malicious software programs that could attack our products, services and business.
We are dependent on information technology networks and systems to securely process, transmit and store electronic information and to communicate among our locations around the world and with our people, clients, Global Affiliates partners and vendors. As the breadth and complexity of this infrastructure continues to grow, including as a result of the increasing reliance on, and use of, mobile technologies, social media and cloud-based services, the risk of security incidents and cyberattacks has increased. Such incidents could lead to shutdowns or disruptions of or damage to our systems and those of our clients, Global Affiliates partners and vendors, and unauthorized disclosure of sensitive or confidential information, including personal data and proprietary business information. Also, given the unpredictability of the timing, nature and scope of such cybersecurity threats and attacks, we may be unable to anticipate attempted security breaches and, in turn, implement adequate preventative measures. Our systems and processes to protect against, detect, prevent, respond to and mitigate cybersecurity incidents and our organizational training for employees to develop an understanding of cybersecurity risks and threats may be unable to prevent material security breaches, theft, modification or loss of data, employee malfeasance (including improper use of social media) and additional known and unknown threats. We have experienced, and may again experience, data security incidents resulting from unauthorized access to our and our service providers’ systems, misconfiguration of systems, phishing ransomware or malware attacks. In addition, certain of our clients may experience breaches of systems and cloud-based services enabled by or provided by us.
In providing services and solutions to clients, we often manage, utilize and store sensitive or confidential client or other data, including personal data and proprietary information, and we expect these activities to increase, including through the use of AI, bots and cloud-based analytics. Security breaches, improper use of our systems and other types of unauthorized access to our systems, data, and information by employees and others may pose a risk that data may be exposed to unauthorized persons or to the public. We have access to sensitive data, personal data, and information that is subject to various data privacy laws and regulations, which have obligations that are triggered in the event of a breach. Unauthorized disclosure of, denial of access to, or other incidents involving sensitive or confidential client, vendor, Global Affiliates partner or our own data, whether through systems failure, employee negligence, fraud, misappropriation, or cybersecurity, ransomware or malware attacks, or other intentional or unintentional acts, could damage our reputation and our competitive positioning in the marketplace, disrupt our or our clients’ business, cause us to lose clients and result in significant financial exposure and legal liability. Similarly, unauthorized access to or through, denial of access to, or other incidents involving, our software and IT supply chain or SaaS providers, our service providers’ information systems or those we develop for our clients, whether by our employees or third parties, including a cyberattack by computer programmers, hackers, members of organized crime and/or state-sponsored organizations, who continuously develop and deploy viruses, ransomware, malware or other malicious software programs or social engineering attacks, could result in negative publicity, significant remediation costs, legal liability, damage to our reputation and government sanctions and could have a material adverse effect on our results of operations.
We are subject to extensive data privacy laws and regulations.
Laws and regulations related to consumer privacy, processing of personal data and use of digital tracking technologies have been proposed or enacted in the United States and certain international markets (including the European Union’s General Data Protection Regulation, or “GDPR” and the California Consumer Privacy Act, as amended by the California Privacy Rights Act, or “CCPA”). Further in the United States, both Congress and state legislatures, along with federal regulatory authorities, have continued to increase their attention on advertising and the collection and use of data, including personal data. The SEC has issued rules governing disclosures regarding cybersecurity incident response, governance and risk management. At the state level, consumer data privacy laws continue to be proposed and passed in a number of states across the country. As more privacy legislation continues to be introduced, the Company could be subject to such laws regardless of whether the Company has operations or a physical presence in the applicable state. In the United States, the Federal Trade Commission (the “FTC”) and other regulators continue to seek greater regulation of the collection and processing of personal data, as well as restrictions and
Table of Contents
requirements for certain targeted advertising practices. We are also subject to evolving privacy laws on data processing activities related to cookies and online marketing. In the European Union, regulators actively enforce privacy requirements related to online behavioral advertising.
We continue to face increasing costs of compliance in an uncertain regulatory environment and while we have taken steps to comply with data privacy laws, we cannot guarantee that our efforts will meet the evolving standards imposed by governmental and regulatory agencies, and any failure or perceived failure to comply with these legal requirements could result in regulatory inquiries and penalties, governmental investigations and proceedings, potential consumer, business partner, or securities litigation, damage to our reputation, or other legal liabilities, as well as divert management’s time and attention, all of which could have a material adverse effect on our business and results of operations. Also, any such laws may also have potentially conflicting requirements that would make compliance challenging, as well as potentially resulting in further uncertainty and requiring the Company to incur additional costs and expenses in an effort to comply. Furthermore, these laws and regulations may impact our ability to collect and commercialize data, as well as the efficacy and profitability of certain digital marketing and analytics services we provide to clients, making it difficult to achieve our clients’ goals. These and other related factors could affect our business and reduce demand for certain of our services, which could have a material adverse effect on our results of operations and financial condition.
Risks Related to Litigation and Regulation
Litigation, investigations or other legal proceedings could expose us to significant liabilities and have a negative impact on our reputation or business.
From time to time, we have been and may in the future be party to various claims, litigation proceedings and regulatory inquiries. We evaluate these claims and litigation proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. Although we are not currently party to any litigation that we consider material, actual outcomes or losses may differ materially from our assessments and estimates. In addition, from time to time we receive and respond to regulatory inquiries and may be subject to regulatory or other government investigations, the outcomes of which are inherently uncertain.
We and certain of our Brands produce AI, software and e-commerce tools for clients, including The Machine, our partnership with Palantir, The Marketing Cloud and other marketing data, campaign MarTech, AR and VR applications, and AI and generative AI offerings, and such types of software and e-commerce product offerings have become increasingly subject to litigation based on allegations of patent infringement or other violations of intellectual property rights. In addition, the intellectual property ownership and license rights, including copyrights, surrounding AI technologies, including generative AI, have not been fully addressed by U.S. courts or other federal, state, or international laws or regulations, and the use or adoption of third-party generative AI technologies into our offerings may result in exposure to claims of copyright infringement or other intellectual property claims, which could harm our business and financial results. As we expand these product offerings, the possibility of an intellectual property claim against us grows.
In addition, regulatory investigations, putative securities class action lawsuits and derivative lawsuits and other stockholder claims are often brought against public companies for a variety of reasons, including but not limited to claims arising out of stock price declines, allegedbreaches of fiduciary duties, and acquisition, merger or other business combination agreements. We have been and may in the future be the target of securities and stockholder litigation or regulatory investigations.
Any such claims or investigations or other claimsagainst us, with or without merit, could result in costlylitigation or other proceedings and divert management from day-to-day operations and resources from our business. We cannot be certain that we would be successful in defendingagainst or resolving any such claims or other proceedings. Any such matters may result in an onerous or unfavorable judgment that may not be reversed on appeal, or we may decide to settle such matters on similarly unfavorable terms. If we are not successful in defending or resolving such matters, we could be required to rebrand, redesign or stop offering these products or services, pay monetary damages or fines, enter into or terminate royalty or licensing arrangements, satisfy indemnification obligations that we have with some of our clients or make changes to our business practices, any of which could have an adverse effect on our business, reputation, results of operations, financial condition and prospects.
Even when these matters are without basis, the defense of these matters may divert our management’s attention and may result in significant expenses. The results and timing of litigation, investigations and other legal proceedings are inherently uncertain, and adverse judgments or settlements in some of these matters may result in adverse monetary damages, penalties or injunctive relief against us, as well as adverse publicity and reputational harm, which could have a material adverse effect on our financial condition, cash flows or results of operations. Any such matters, even if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future.
Table of Contents
Furthermore, while we maintain insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as caps on amounts recoverable. Even if we believe a claim is covered by insurance, insurers may dispute our entitlement to recovery for a variety of potential reasons, which may affect the timing and, if the insurers prevail, the amount of our recovery.
We are subject to industry regulations and other legal or reputational risks that could restrict our activities or negatively impact our performance or financial condition.
Our industry is subject to government regulation and other governmental action, both in the United States and internationally. We and our clients are subject to specific rules, prohibitions, media restrictions, labeling disclosures and warning requirements applicable to advertising for certain products. Governmental entities, self-regulatory bodies and consumer groups may also challenge advertising through legislation, regulation, judicial actions or otherwise, for example on the grounds that the advertising is false and deceptive or injurious to public welfare. Moreover, there has recently been an expansion of specific rules, prohibitions, media restrictions, labeling disclosures, and warning requirements with respect to advertising for certain products. Any regulatory or judicial action that affects our ability to meet our clients’ needs or reduces client spending on our services could have a material adverse effect on our business, results of operations, financial condition and prospects.
Existing and proposed laws and regulations, in particular in the European Union and the United States, concerning user privacy, use of personal data and online tracking technologies could also affect the efficacy and profitability of internet-based, digital and targeted marketing. We are subject to laws and regulations that govern whether and how we can transfer, process or receive certain data that we use in our operations. For example, federal laws and regulations governing privacy and security of consumer information generally apply to our clients and/or to us as a service provider. These laws and regulations include, but are not limited to, the federal Fair Credit Reporting Act, the Gramm-Leach-Bliley Act and regulations implementing its information safeguarding requirements, the Junk Fax Prevention Act of 2005, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, the Telephone Consumer Protection Act, the Do-Not-Call-Implementation Act, applicable Federal Communications Commission telemarketing rules (including the declaratory ruling affirming the blocking of unwanted robocalls), the Federal Trade Commission Privacy Rule, Safeguards Rule, Consumer Report Information Disposal Rule, Telemarketing Sales Rule, Risk-Based Pricing Rule, Red Flags Rule, and the CCPA. Laws of foreign jurisdictions, such as Canada’s Anti-Spam Law and Personal Information Protection and Electronic Documents Act, and the GDPR similarly apply to our collection, processing, storage, use, and transmission of protected data. The European Union, for example, has tightened its rules on the transferability of data to the United States. Additional laws, such as the European Union’s Artificial Intelligence Act (Regulation (EU) 2024/1689) entered into force in August 2024 and has become applicable on a phased basis, including with respect to prohibited AI practices and, subsequently, broad compliance obligations for certain ‘high-risk’ AI systems and specified transparency requirements. Accordingly, these laws could require us to alter, restrict, or incur additional costs to process personal data or use AI-enabled tools and services, could increase our compliance, monitoring, documentation, and governance costs, expose us to enforcement actions or civil claims, and adversely affect our results of operations.
Collection, processing, and storage of biometric identifiers has come under increasing regulation and is the subject of class action litigation. Any failure on our part to comply with these legal requirements, or their application in an unanticipated manner, could harm our business and result in penalties or significant legal liability. The imposition of restrictions on certain technologies by private market participants in response to privacy concerns could also have a negative impact on our digital business. If we are unable to transfer data between countries and regions in which we operate, or if we are prohibited from sharing data among our products and services, it could affect the manner in which we provide our services or adversely affect our financial results.
Legislators, agencies and other governmental entities, as well as consumer groups, may also continue to initiate proposals to ban the advertising of specific products, such as alcohol, tobacco or marijuana products, and to impose taxes on or deny deductions for advertising, which, if successful, may hinder our ability to accomplish our clients’ goals and have an adverse effect on advertising expenditures and, consequently, on our revenues. Governmental action, including judicial rulings, on the relative responsibilities of clients and their marketing agencies for the content of their marketing can also impact our operations. We could also suffer reputational risk as a result of governmental or legal action or from undertaking work that may be challenged by consumer groups or considered controversial.
We are subject to export restrictions, economic sanctions, the FCPA, and similar anti-corruption laws.
We are subject to many laws and regulations in the United States and other countries in which we operate that restrict our international operations, such as applicable economic sanctions and export control laws and regulations administered and enforced by the U.S. Department of Treasury Office of Foreign Assets Control (“OFAC”), the U.S. Department of State, The U.S. Department of Commerce, the United Nations Security Council and other relevant authorities. Such laws and regulations prohibit or restrict us from engaging in certain operations, investment decisions and sales activities, including dealings involving certain countries, businesses, organizations and individuals. Despite our efforts to promote compliance with applicable laws and regulations, it is difficult to anticipate the effect such economic sanctions and export controls may have on us, and compliance with any further sanctions imposed or actions taken by the United States or other countries, as well as the
Table of Contents
effect of current or further economic sanctions (and any retaliatory responses thereto) may otherwise have an adverse effect on our operations.
We are also subject to the U.S. Foreign Corrupt Practices Act (“FCPA”) and anti-bribery and anti-corruption laws in the countries where we do business. The FCPA prohibits covered parties from offering, promising, authorizing or giving anything of value, directly or indirectly, to a “foreign government official” with the intent of improperly influencing the official’s act or decision, inducing the official to act or refrain from acting in violation of lawful duty, or obtaining or retaining an improper business advantage. The FCPA also requires publicly traded companies to maintain records that accurately and fairly represent their transactions and to have an adequate system of internal accounting controls. In addition, other countries have enacted anti-bribery and anti-corruption laws similar to the FCPA, such as the U.K. Bribery Act 2010. Some laws that may apply to our operations prohibit commercial bribery, including giving or receiving improper payments to or from non-government parties, as well as so-called “facilitation” payments. We operate in many parts of the world that have experienced government corruption to some degree, and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices, although adherence to local customs and practices is generally not a defense under U.S. and other anti-bribery laws.
Any violations of these or other laws, regulations and procedures by our employees, independent contractors, subcontractors and agents, including third parties we associate with or companies we acquire, could expose us to administrative, civil or criminalpenalties, fines or business restrictions, or other remedial measures, which could have a material and adverse effect on our results of operations and financial condition and would adversely affect our reputation and the market for shares of our Class A Common Stock.
Risks Related to Intellectual Property
Our business operations could suffer if we fail to adequately protect and enforce our intellectual property and other proprietary rights.
We rely on trademark, patent, copyright, trade secret and other intellectual property laws, as well as contractual provisions such as confidentiality clauses, to establish and protect our intellectual property and other proprietary rights, including in our Brands (and the trademark rights thereto) and our proprietary technologies. We cannot be sure that the actions we have taken to establish and protect our trademarks and other intellectual property rights will adequately protect us, and if our existing intellectual property rights are rendered invalid or unenforceable, or narrowed in scope, the intellectual property protections afforded our Brands, products and services would be impaired. Such impairment could impede our ability to market our products and services, negatively affect our competitive position, and harm our business and operating results. Even if we successfully maintain our intellectual property rights, we may be unable to enforce those rights against third parties.
We also rely on patents to protect our products, services and designs. We have applied for, and expect to continue to apply for, additional patent protection for proprietary aspects of existing and proposed processes, services and products. Our patent applications may not result in issued patents, and any patents issued as a result of our patent applications may not be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Additionally, we seek to maintain the confidentiality of certain trade secrets and other proprietary information to preserve our position in the market. We employ various methods to protect such intellectual property, such as entering into confidentiality agreements with certain third parties and our employees, and controlling access to, and distribution of, our proprietary information. However, our efforts may not be effective in controlling access to our proprietary information, and we may not have adequate remedies for the misappropriation of such information.
As we expand our service offerings and the geographic scope of our sales and marketing, we may face additional intellectual property challenges. Certain foreign countries do not protect intellectual property rights as fully as they are protected in the United States and, accordingly, intellectual property protection may be limited or unavailable in some foreign countries where we choose to do business. It may therefore be more difficult for us to successfullychallenge the use of our intellectual property rights by other parties in these countries, which could diminish the value of our Brands, products or services and cause our competitive position and growth to suffer. The lack of adequate legal protections of intellectual property or failure of legal remedies for related actions in jurisdictions outside of the United States could have an adverse effect on our business, results of operations, and financial condition.
We may be subject to an intellectual property infringement or misappropriation claim.
We may in the future be the subject of patent or other litigation. Our products and services, including products and services that we may develop in the future, may infringe, or third parties may claim that they infringe, intellectual property rights covered by patents or patent applications under which we do not hold licenses or other rights. Third parties may own or control these patents and patent applications in the United States and abroad. These third parties could bring claimsagainst us that would cause us to incur substantial expenses and, if successfully asserted against us, could cause us to pay substantial damages. Further, if a patent infringement or other intellectual property-related lawsuit were brought against us, we could be forced to stop or delay production or sales of the product that is the subject of the suit. From time to time, we may receive letters from third parties drawing our attention to their patent rights. While we take steps to ensure that we do not infringe upon,
Table of Contents
misappropriate or otherwise violate the rights of others, there may be other more pertinent rights of which we are currently unaware. The defense and prosecution of intellectual property lawsuits could result in substantial expense to us. An adverse determination of any litigation or interference proceeding to which we may become a party could subject us to significant liabilities. As a result of patent infringementclaims, or in order to avoid potential claims, we may choose or be required to seek a license from the third party and be required to pay significant license fees, royalties or both. Licenses may not be available on commercially reasonable terms, or at all, in which event our business would be materially and adversely affected. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, if we are unable to obtain such licenses, we could be forced to cease some aspects of our business operations, which could harm our business significantly.
Our products and services use open source software.
Some of our solutions use software made available under open source licenses, and we expect to continue to incorporate open source software in our solutions in the future. Open source software is typically freely available. While this may reduce development costs and speed up the development process, it may also present certain risks that may be greater than those associated with the use of third-party commercial software. For example, open source software is generally provided without any warranties or other contractual protections regarding infringement or the quality of the code, including the existence of security vulnerabilities. We cannot guarantee we comply with all obligations under these licenses. If the owner of the copyright in the relevant open source software were to allege that we had not complied with the conditions of one or more open source licenses, we could be required to incur significant expenses defendingagainst such allegations and could be subject to the payment of damages, enjoined from further use of the software, required to comply with conditions of the license (which may include releasing the source code of our proprietary software to third parties without charge), or forced to devote additional resources to re-engineer all or a portion of our solutions to avoid using the open source software. Any of these events could create liability for us, damage our reputation, and have an adverse effect on our business, results of operations, financial condition and prospects.
Risks Related to Our Capital Structure and Financing
Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or in our industry, expose us to interest rate risk to the extent of our variable rate debt, and prevent us from meeting our obligations under our indebtedness.
As of December 31, 2025, we had $1.3 billion of total consolidated indebtedness outstanding. Our outstanding credit agreement and notes are guaranteed by substantially all of our material domestic subsidiaries, and our outstanding credit agreement is secured by substantially all of the assets and stock of such subsidiaries. Our business may not generate sufficient cash flow from operations, and future borrowings may not be available to us in an amount sufficient to enable us to service all our debt, to refinance all our debt or to fund our other liquidity needs. If we are unable to meet all our debt service obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations. If we cannot make scheduled payments on our debt, we will be in default and, as a result, our debt holders could declare all outstanding principal and interest to be due and payable; the lenders under our outstanding credit agreement could terminate their commitments to loan us money and forecloseagainst the assets securing our borrowings; and we could be forced into bankruptcy or liquidation, which could adversely affect our business, results of operations, financial condition and prospects.
Our leverage could have important consequences for us, including:
• requiring us to utilize a substantial portion of our cash flows from operations to make payments on our indebtedness, reducing the availability of our cash flows to fund working capital, capital expenditures, development activity, and other general corporate purposes;
• increasing our vulnerability to adverse economic, industry, or competitive developments;
• exposing us to the risk of increased interest rates as borrowings under our credit agreement are at a variable rate of interest;
• making it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing our indebtedness;
• restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
• limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, and general corporate or other purposes; and
• limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who are less leveraged and who, therefore, may be able to take advantage of opportunities that our leverage prevents us from exploiting.
Table of Contents
Our outstanding credit agreement is floating rate debt. If interest rates increase, our debt service obligations on such indebtedness will increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease.
In addition, we may be able to incur substantial additional indebtedness in the future. As of December 31, 2025, we had $497.6 million of availability under our revolving credit agreement. In addition, we will be permitted to add, under such credit agreement, incremental facilities, subject to certain conditions being satisfied. Although the agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness as defined under our debt instruments. To the extent new debt is added to our current debt levels, the substantial leverage risks described above would increase.
We may need additional capital in the future, which may not be available to us. The raising of any additional capital may dilute holders’ ownership percentage in our stock.
As of December 31, 2025, we had unrestricted cash and cash equivalents totaling $104.5 million and a borrowing capacity under our credit facility of $750.0 million, with $497.6 million of unused capacity available. We intend to continue to make investments to support our business growth and may require additional funds if our capital is insufficient to pursue business opportunities and respond to business challenges. Accordingly, we may need to engage in equity, equity-linked or debt financings to secure additional funds. Any issuances of equity or convertible debt securities could cause our existing stockholders to suffer dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our Class A Common Stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, our ability to continue to support our business growth and to respond to business challenges could be significantly limited.
In addition, credit ratings are an important factor influencing our ability to access capital and the terms of any new indebtedness, including covenants and interest rates. If our credit ratings were downgraded, withdrawn or significantly weaker than those of our competitors, our ability to raise additional capital at acceptable cost could be harmed and as a result, our business, results of operations, financial condition and prospects could be adversely affected. Additionally, credit ratings may not reflect the potential effect of risks relating to the structure or marketing of our debt. Our clients and vendors may also consider our credit profile when considering whether to contract with us or negotiating contract terms, and if they were to change the terms on which they deal with us, it could have a further adverse effect on our business, prospects, results of operations and financial condition.
If our available liquidity is insufficient, our financial condition could be adversely affected and we may be unable to fund contingent deferred acquisition liabilities, and any put options if exercised.
We maintain our credit agreement, together with cash flow from operations and proceeds from our notes financing, to fund our working capital needs and to fund the exercise of put option obligations and contingent deferred acquisition payments. If credit were unavailable or insufficient under our credit agreement, our liquidity could be adversely affected, and our ability to fund our working capital needs and any contingent obligations with respect to put options or contingent deferred acquisition payments could be adversely affected. We have made acquisitions for which we have deferred payment of a portion of the purchase price, with the deferred acquisition consideration generally payable based on achievement of certain thresholds of future earnings of the acquired company. In addition, a noncontrolling equity holder in an acquired business sometimes has the right to require us to purchase all or part of such holder’s interest, either at specified dates or upon the termination of such holder’s employment with the subsidiary or death (put rights). Payments we are required to make in respect of deferred acquisition consideration and noncontrolling equity holder put rights may be significantly higher than the amounts we estimate because the actual obligation adjusts based on the performance of the acquired businesses over time. If available liquidity is insufficient, we may be unable to fund contingent deferred acquisition payments.
Our Up-C structure places significant limitations on our cash flow and, accordingly, we depend on distributions from OpCo to pay our taxes and expenses, including payments under the Tax Receivables Agreement.
As part of our umbrella partnership-C corporation (“Up-C”) structure, we are a holding company and our principal asset is our ownership of common units of our operating subsidiary, OpCo. This structure is designed to enable us to obtain certain tax benefits, and 85% of such tax benefits are payable to Stagwell Media under our Tax Receivables Agreement with Stagwell Media and OpCo. However, we have no independent means of generating revenue or cash flow, and our ability to pay taxes and operating expenses, and to service our liabilities, is dependent upon the financial results and cash flows of OpCo and its subsidiaries, along with the distributions we receive from OpCo. We intend, as OpCo’s sole manager, to cause OpCo to make
Table of Contents
cash distributions to us out of its available funds as required for our operations as a holding company subject only to limitations imposed under the agreements governing our indebtedness. Nevertheless, there can be no assurance that OpCo and its subsidiaries will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual restrictions will permit such distributions. Moreover, because of our Up-C structure, this financing arrangement can give rise to U.S. corporate income tax liabilities for us in respect of assets deemed contributed to OpCo on the formation of OpCo as OpCo makes cash distributions to us to the extent such distributions are subject to certain technical regulations regarding disguised sales, subject to certain exceptions in such regulations including for distributions of operating cash flows and leveraged distributions. In such an event, we would depend on further cash distributions from OpCo to enable us to pay such tax liabilities.
We also incur expenses related to our operations, which may be significant. We intend, as OpCo’s sole manager, to cause OpCo to make cash distributions to us as the owner of all OpCo membership interests so that we receive (i) an amount sufficient to allow us to fund all of our tax obligations in respect of taxable income allocated to us from OpCo and (ii) distributions to cover our operating expenses, including any obligations to make payments under the Tax Receivables Agreement. OpCo’s ability to make such distributions may be subject to various limitations and restrictions, such as restrictions on distributions that would either violate any contract or agreement to which OpCo is then a party, or any applicable law, or that would have the effect of rendering OpCo insolvent or exceed the amounts that OpCo is permitted to distribute under the agreements governing our indebtedness. If we do not have sufficient funds to pay tax or other liabilities or to fund our operations, we may have to borrow funds, which could materially and adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such indebtedness. To the extent that we are unable to make payments under the Tax Receivables Agreement for any reason, such payments generally will be deferred and will accrue interest until paid, but nonpayment for a specified period may constitute a material breach of a material obligation under the Tax Receivables Agreement and therefore accelerate payments due under the Tax Receivables Agreement. Any inability to pay tax or other liabilities or to fund our operations could have a material and adverse effect on our business, results of operations, financial condition and prospects.
Our Tax Receivables Agreement with Stagwell Media requires us to make cash payments to Stagwell Media (or its assignees) in respect of certain tax benefits to which we have become entitled, and we expect the payments we are required to make to be substantial, may be required to be made prior to the time that we recognize any associated tax benefits and may make our company a less attractive target to potential acquirers.
In connection with the closing of the Transactions, we entered into the Tax Receivables Agreement with OpCo and Stagwell Media, pursuant to which we are required to make cash payments to Stagwell Media equal to 85% of certain U.S. federal, state and local income tax or franchise tax savings, if any, that we actually realize, or in certain circumstances are deemed to realize, as a result of (i) increases in the tax basis of OpCo’s assets resulting from redemptions or exchanges by the other holders of OpCo’s common units, together with a corresponding number of shares of our Class C common stock, par value $0.00001 per share (the “Class C Common Stock”), for shares of our Class A Common Stock or cash, as applicable, and (ii) certain other tax benefits related to us making payments under the Tax Receivables Agreement. As of April 4, 2025, all of OpCo’s units and our Class C Common Stock formerly held by Stagwell Media have been exchanged for our Class A Common Stock. We expect the amount of cash payments that we are required to make under the Tax Receivables Agreement (or to assignees of its rights thereunder) to be significant. Any payments made to Stagwell Media under the Tax Receivables Agreement will generally reduce the amount of overall cash flow that may have otherwise been available to us.
The amount and timing of any payments under the Tax Receivables Agreement, will vary depending on a number of factors, including, but not limited to, the amount and timing of the taxable income that we generate in the future, the timing and amount of any payments we make under the Tax Receivables Agreement itself, the tax rates applicable for the year in which tax benefits arising from prior redemptions or exchanges of OpCo common units are utilized and the portion of our payments under the Tax Receivables Agreement constituting imputed interest. We expect that, as a result of the increases in the tax basis of OpCo’s tangible and intangible assets attributable to the redeemed or exchanged OpCo common units, the payments that we may make to Stagwell Media could be substantial. The amounts we may be required to pay under the Tax Receivables Agreement will be calculated based on the prevailing federal tax rates applicable to us over the life of the Tax Receivables Agreement (as well as the assumed combined state and local tax rate), and will generally be dependent on our ability to generate sufficient future taxable income to realize all of these tax savings.
Under its amended and restated operating agreement, subject to availability of funds and limitations imposed under the agreements governing our indebtedness, OpCo is generally required from time to time to make distributions in cash to us in amounts that are intended to be sufficient to cover the taxes on our allocable share of the taxable income of OpCo, without taking into account the tax savings realized by us that result in our obligations under the Tax Receivables Agreement. There is no guarantee that the amounts or timing of such distributions will be sufficient to cover payments required under the Tax Receivables Agreement, including in the event payments under the Tax Receivables Agreement are due prior to the time that we realize the associated tax benefits. In particular, the Tax Receivables Agreement provides that in the case of a change in control, a material breach of our obligations under the Tax Receivables Agreement, or if, at any time, we elect an early termination of the Tax Receivables Agreement, then the Tax Receivables Agreement will terminate and our obligations under
Table of Contents
the Tax Receivables Agreement would accelerate and become due and payable. In such a case, we would be required to make an immediate cash payment to Stagwell Media in an amount equal to the present value of all future payments (calculated using a discount rate equal to the Secured Overnight Financing Rate (“SOFR”) plus 100 basis points) under the Tax Receivables Agreement, which payment would be based on certain assumptions, including that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivables Agreement.
In addition, the distributions we receive from OpCo may at times exceed our tax liabilities and our obligations to make payments under the Tax Receivables Agreement. In the event excess cash is distributed to us, our board of directors (our “Board”) will determine the appropriate uses for any excess cash so accumulated, which may include, among other uses, repurchases of our Class A Stock under our stock repurchase program and the payment of other expenses. We have no obligation to distribute such cash (or other available cash other than any declared dividend) to our stockholders.
Risks Related to Accounting and Tax Issues
Our results of operations are subject to foreign currency exchange fluctuation risks.
Although our financial results are reported in U.S. dollars, a portion of our revenues and operating costs is denominated in currencies other than the U.S. dollar, and the functional currency of our foreign operations is generally their respective local currency. As a result, we must translate revenues and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, changes in the value of the U.S. dollar against other currencies, particularly the Canadian dollar, the British Pound and the Euro, will affect our revenues, operating income and the value of balance-sheet items, including intercompany payables and receivables, which are denominated in other currencies. These changes could cause our revenue and net income in U.S. dollars to be higher or lower than our results in local currency when compared against other periods and as a result may affect our financial results and competitive position.
In addition, certain of our expenses are incurred in currencies other than those in which we bill for the related services. An increase in the value of certain currencies, such as those listed above, could increase costs for delivery of services overseas by increasing labor and other costs that are denominated in local currency. Our contractual provisions or cost management efforts may not be able to offset their impact, and our currency hedging activities, which are designed to partially offset this impact, may not be successful. This could result in a decrease in the profitability of our contracts that are denominated in such currencies.
Our goodwill, intangible assets and right-of-use lease assets may become impaired.
We have recorded a significant amount of goodwill and intangible assets in our Audited Consolidated Financial Statements resulting from our acquisition activities, and we have in the past recorded, and may in the future record, significant charges for impairment of goodwill and intangible assets. We also have recorded a significant amount of right-of-use lease assets in our Audited Consolidated Financial Statements, and we have in the past recorded, and may in the future record charges for impairment of these assets. We test, at least annually, the carrying value of goodwill for impairment. The estimates and assumptions about future results of operations and cash flows made in connection with the impairment testing could differ from future actual results of operations and cash flows. If we conclude that any further intangible asset, goodwill and right-of-use lease asset values are impaired, whether as a result of underperformance in one or more reporting units, a potential recession or other disruption, interest rate increases or other factors, any resulting non-cash impairment charge could have a material adverse effect on our business, results of operations and financial condition.
We previously identified and remediated material weaknesses in our internal control over financial reporting and there can be no assurance that additional material weaknesses will not be identified in the future.
Management previously identified material weaknesses in our internal control over financial reporting for the fiscal year ended December 31, 2023. We remediated the material weaknesses during 2024 and concluded that our internal control over financial reporting was effective as of December 31, 2024 and December 31, 2025. However, there can be no assurance that additional material weaknesses in our internal control over financial reporting will not be identified in the future.
If we fail to maintain effective internal control over financial reporting, our ability to record, process and report financial information timely and accurately could be adversely affected, and we may fail to detect or prevent material misstatements in our annual or interim consolidated financial statements that may require prospective or retrospective changes to our financial statements. In addition, our past and any future misstatements or restatements of financial information could also expose us to increased risk of litigation or regulatory inquiries and could cause investors to lose confidence in the accuracy and completeness of our reported financial information, which could negatively affect the market price of our Class A Common Stock.
Our disclosure controls and procedures and internal controls may not prevent or detect all errors or acts of fraud.
We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Any control system, no matter how well
Table of Contents
designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. These inherent limitations include the reality that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
Our judgments or estimates relating to our critical accounting policies are based on assumptions that could change or be incorrect.
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make judgments, estimates, and assumptions that affect the amounts reported in the Audited Consolidated Financial Statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class A Common Stock. Significant judgments, estimates, and assumptions used in preparing our Audited Consolidated Financial Statements include, or may in the future include, those related to revenue recognition, business combinations, deferred acquisition consideration, noncontrolling and redeemable noncontrolling interests, goodwill and intangible assets, right-of-use lease assets, and income taxes.
We may be subject to adverse tax consequences.
We and OpCo are subject to tax in multiple tax jurisdictions. Significant judgment is required in determining our global provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis. While we believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible that jurisdictional tax authorities may take a contrary view, which may have a significant impact on our global provision for income taxes. Additionally, under OpCo’s LLC Agreement, OpCo is required to make periodic distributions to us, to enable us to pay taxes allocable to our investment in OpCo. If our or OpCo’s effective tax rate were to increase, such obligations to make tax distributions will correspondingly increase. See “—Risks Related to Our Capital Structure and Financing—Our Up-C structure places significant limitations on our cash flow and accordingly, we depend on distributions from OpCo to pay our taxes and expenses, including payments under the Tax Receivables Agreement.”
Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. If the U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, as well as OpCo’s obligations to make tax distributions, and our business, financial condition or results of operations may be adversely impacted.
We may face material adverse tax consequences resulting from the Transactions in Canada, the United States or other jurisdictions.
In connection with the completion of the Transactions, MDC completed a redomiciliation from the federal jurisdiction of Canada to the State of Delaware (the “Redomiciliation”). We believe that the Redomiciliation qualifies as a “reorganization” under section 368(a) of the Internal Revenue Code (the “Code”) and treated, for U.S. federal income tax purposes, as if MDC (i) transferred all of its assets and liabilities to a new U.S. corporation (“New MDC”) in exchange for all of such new corporation’s outstanding stock and (ii) then distributed the stock of New MDC that it received in the transaction to its stockholders in liquidation of MDC. Additionally, we believe the Transactions should be treated for tax purposes as a deemed transfer by New MDC of its assets to OpCo and an assumption of New MDC’s liabilities by OpCo in a transaction intended to qualify as a contribution to OpCo in exchange for OpCo’s common units or preferred units under section 721 of the Code, and that Stagwell Media’s contribution of its businesses to OpCo is similarly subject to section 721 of the Code.
We may face material adverse U.S. tax consequences as a result of the Transactions, and the Internal Revenue Service may not agree with or may otherwise challenge our position on the tax treatment of the Transactions or of internal restructuring transactions undertaken prior to, after, or in connection with the Transactions, which could result in higher U.S. federal tax costs than we anticipate, including a reduction in the net operating loss carryforwards of certain of our subsidiaries. We have not applied for a ruling related to the Transactions and do not intend to do so. Any adverse tax consequences resulting from the Transactions or our operations as a combined company could have an adverse effect on our business, results of operations, financial condition and cash flows. Moreover, U.S. tax laws significantly limit our ability to redomicile outside of the United States.
In addition, as a result of the Redomiciliation, we incurred a significant Canadian corporate tax liability and recorded a tax receivable of $10.9 million included in Other Assets in our Audited Consolidated Financial Statements. For purposes of the
Table of Contents
Canadian Tax Act, MDC’s taxation year was deemed to have ended immediately prior to it ceasing to be a resident of Canada as a result of the Redomiciliation. Immediately prior to the time of this deemed year end, MDC was deemed to have disposed of each of its properties for proceeds of disposition equal to the fair market value of such properties at that time and was deemed to have reacquired such properties for a cost amount equal to that fair market value. MDC was subject to income tax under Part I of the Canadian Tax Act on any income and net taxable capital gains which arise as a result of this deemed disposition (after the utilization of any available capital losses or non-capital losses) and was also subject to “emigration tax” under Part XIV of the Canadian Tax Act on the amount by which the fair market value, immediately before MDC’s deemed year end, of all of its properties exceeded the total of certain of its liabilities and the paid-up capital, determined for purposes of that emigration tax, of all the issued and outstanding shares of MDC immediately before such deemed year end.
The quantum of Canadian federal income tax payable by MDC as a result of the Redomiciliation depends upon a number of considerations including the fair market value of its properties, the amount of its liabilities, the Canada-U.S. dollar exchange rate, MDC’s stockholder composition, as well as certain Canadian tax attributes, accounts and balances of the Company, each as of the effective time of the Redomiciliation. We have not applied to the Canadian federal tax authorities for a tax ruling relating to the Redomiciliation and do not intend to do so, and the Canadian federal tax authorities may not agree with or may otherwise challenge our position on the tax treatment of the Redomiciliation, which could result in higher Canadian corporate tax liabilities than we anticipate. Any such adverse tax consequences could adversely affect our business, results of operation, financial condition and cash flows.
Risks Related to Ownership of Our Class A Common Stock and Our Status as a Public Company
Our stock price may be volatile.
The trading price of our Class A Common Stock has fluctuated and may in the future fluctuate substantially and may be lower than its current price. For example, since August 2, 2021 (the closing date of the Transactions), the trading price of our Class A Common Stock on the Nasdaq Global Select Market has ranged from a low of $3.83 per share to a high of $11.04 per share. The trading price of our securities depends on many factors, including those described elsewhere in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our securities since you might be unable to sell them at or above the price you paid for them.
If our operating and financial performance in any given period does not meet any guidance that we provide to the public, the market price for our Class A Common Stock may decline.
We have in the past provided, and may from time to time provide, guidance regarding our future performance that represents our management’s estimates as of the date such guidance is provided. Any such guidance is based upon a number of assumptions with respect to future business decisions (some of which may change) and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies (many of which are beyond our control). Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions that inform such guidance will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date such guidance is provided. Actual results have in the past varied, and may in the future vary from such guidance, and the variations may be material. Investors should also recognize that the reliability of any forecasted financial data diminishes the farther in the future that the data is forecast. In light of the foregoing, investors should not place undue reliance on our financial guidance and should carefully consider any guidance we may publish in context. In addition, in recent periods our operating or financial results have not met our guidance, or we have reduced our guidance. If in the future our operating or financial results for a particular period do not meet any guidance we provide or the expectations of investment analysts, or if we reduce our guidance for future periods, the market price of our Class A Common Stock may decline significantly. In addition, even though we have issued public guidance in the past, we are not obligated to and may determine not to continue to do so in the future.
A significant portion of our Class A Common Stock is held by our affiliates and these shares of Class A Common Stock may be sold into the market in the future, or should allow the affiliates to control decisions requiring stockholder approval, either of which could negatively affect our stock price.
As of December 31, 2025, affiliates of the Company beneficially owned approximately 64% of our outstanding shares of Class A Common Stock. Although the shares are subject to securities law restrictions on sales by affiliates, we and certain of the affiliates are party to a registration rights agreement and a securities purchase agreement pursuant to which, among other things and subject to certain restrictions, we are required to file (and have filed) with the SEC a registration statement registering for resale the shares of our Class A Common Stock that are held by, such affiliates, and to conduct certain underwritten offerings upon the request of holders of registrable securities, including direct and indirect transferees of such affiliates.
Table of Contents
As such, sales of a substantial number of shares of Class A Common Stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of Class A Common Stock.
In addition, this concentration of ownership and voting power could allow the affiliates to control our decisions, including matters requiring approval by our stockholders (such as, subject to certain limitations, the election of directors and the approval of mergers or other extraordinary transactions), regardless of whether or not other stockholders believe that the transaction is in their own best interests. Such concentration of voting power could also have the effect of delaying, deterring or precluding a change of control or other business combination that might otherwise be beneficial to our stockholders, could deprive our stockholders of an opportunity to receive a premium for their Class A Common Stock as part of a sale of our company and might ultimately affect the market price of our Class A Common Stock.
innovations
creative
innovative
challenge
Stagwell manages its business by monitoring several financial and non-financial performance indicators. The key indicators that we focus on are revenue, operating expenses, staff cost ratio, capital expenditures, net income (loss), net income (loss) attributable to Stagwell Inc. common shareholders, net income (loss) per share and the non-GAAP financial measures including Adjusted EBITDA, Free cash flow and Adjusted EPS, described below. Revenue growth is analyzed by reviewing a mix of measurements, including (i) growth by major geographic location, (ii) growth from existing clients and the addition of new clients, (iii) growth by principal capability, (iv) growth from currency changes, and (v) growth from acquisitions. In addition to monitoring the foregoing financial indicators, the Company assesses and monitors several non-financial performance indicators relating to the business performance of our networks. These indicators may include a network’s recent new client win/loss record; the depth and scope of a pipeline of potential new client account activity; the overall quality of the services provided to clients; and the relative strength of the network’s next generation team that is in place as part of a potential succession plan to succeed the current senior executive team.
Recent Developments
On January 30, 2026, the Company acquired Wavelength, a digital advocacy and communications company, for an estimated purchase price of $10.2 million, of which approximately $4.6 million was paid in cash and approximately $5.6 million was paid in 863,624 shares of the Company’s Class A Common Stock subject to post-closing adjustments. In connection with the acquisition, the sellers are eligible to earn contingent consideration up to a maximum value of $24.8 million, subject to continued employment and meeting certain future earnings targets, of which a portion may be settled in shares of Class A Common Stock, at the Company’s discretion.
On March 4, 2026, the Board authorized an extension and a $350.0 million increase in the size of our previously approved stock repurchase program (the “Repurchase Program”). Under the Repurchase Program, as amended, we may repurchase up to an aggregate of $725.0 million of shares of our outstanding Class A Common Stock, with any previous purchases under the Repurchase Program continuing to count against that limit. The Repurchase Program will expire on March 4, 2029.
On March 11, 2026, pursuant to a resolution approved by the Board, the Company repurchased 6,198,425 shares of Class A Common Stock at a price of $6.1677 per share, for a total of $38.2 million. The shares were purchased from executive officers and other employees to satisfy their tax obligations resulting from the Class C Exchange as described in Note 12 included in Item 8 of this Form 10-K.
Significant Factors Affecting our Business and Results of Operations
The most significant factors affecting our business and results of operations include national, regional, and local economic conditions, our clients’ profitability, mergers and acquisitions of our clients, changes in top management of our clients and our ability to retain and attract key employees. New business wins and client losses occur due to a variety of factors. We believe the two most significant factors are (i) our clients’ desire to change marketing communication firms, and (ii) the digital and data-driven products that our portfolio of marketing services firms, which we refer to as “Brands,” offer. A client may choose to change marketing communication firms for several reasons, such as a change in leadership where new management wants to retain a Brand that it may have previously worked with. In addition, if the client is merged or acquired by another company, the marketing communication firm is often changed. Clients also change firms as a result of the firm’s failure to meet marketing performance targets or other expectations in client service delivery.
Seasonality
Historically, we typically generate the highest quarterly revenue during the fourth quarter of each year. The highest volumes of retail related consumer marketing increase with the back-to-school season through the end of the holiday season. In addition, within our Communications segment, client concentration increases during election years due to the cyclical nature of our advocacy Brands.
Table of Contents
Non-GAAP Financial Measures
The Company reports its financial results in accordance with GAAP. In addition, the Company has included non-GAAP financial measures and ratios, which management uses to operate the business, which it believes provide useful supplemental information to both management and readers of this report in making period-to-period comparisons in measuring the financial performance and financial condition of the Company. These measures do not have a standardized meaning prescribed by GAAP and should not be construed as an alternative to other titled measures determined in accordance with GAAP. The non-GAAP financial measures included are “net revenue,” “organic net revenue growth (decline),” “Adjusted EBITDA,” and “Adjusted Diluted EPS.”
“Net revenue” refers to revenue excluding billable costs. The Company believes billable costs and their fluctuations are not indicative of the operating performance of its underlying business.
“Organic net revenue growth (decline)” reflects the year-over-year change in the Company’s reported net revenue attributable to the Company’s management of the entities it owns. We calculate organic net revenue growth (decline) by subtracting the net impact of acquisitions (divestitures) and the impact of foreign currency exchange fluctuations from the aggregate year-over-year increase or decrease in the Company’s reported net revenue.
The net impact of acquisitions (divestitures) reflects the year-over-year change in the Company’s reported net revenue attributable to the impact of all individual entities that were acquired or divested in the current and prior year. Beginning with the quarter ended September 30, 2025, we calculate the impact of an acquisition as follows: (a) for an entity acquired during the current year, we present the entity’s current period reported revenue as the impact of the acquisition in the current year; and (b) for an entity acquired in the prior year, we present an amount equal to the entity’s current year net revenue for the same period during which we didn’t own the entity in the prior year as the impact of the acquisition in the current year. Previously, we calculated the impact of an acquisition as follows: (a) for an entity acquired during the current year, we presented the entity’s prior year net revenue for the same period during which we owned it in the current year as impact of the acquisition in the current year; and (b) for an entity acquired in the prior year, we presented the entity’s prior year net revenue for the period during which we did not own the entity in the prior year as impact of the acquisition in the current year. We believe that this change in the method of calculating the impact of an acquisition results in a measurement of organic net revenue growth (decline) that better reflects the effect of our management of an acquired entity by including the revenue of the acquired entity in such measurement after we have owned it for 12 months. We calculate impact of a divestiture as follows: (a) for a divestiture in the current year, we present the entity’s prior year net revenue for the same period during which we no longer owned it in the current year as impact of the divestiture in the current year; and (b) for a divestiture in the prior year, we present the entity’s prior year net revenue for the period during which we owned it in the prior year as impact of the divestiture in the current year. We calculate the impact of any acquisition or divestiture without adjusting for foreign currency exchange fluctuations.
The impact of foreign currency exchange fluctuations reflects the year-over-year change in the Company’s reported net revenue attributable to changes in foreign currency exchange rates. We calculate the impact of foreign currency exchange fluctuations for the portion of the reporting period in which we recognized revenue from a foreign entity in both the current year and the prior year. The impact is calculated as the difference between (1) reported prior period net revenue (converted to U.S. dollars at historical foreign currency exchange rates) and (2) prior period net revenue converted to U.S. dollars at current period foreign exchange rates.
“Adjusted EBITDA” is defined as Net income (loss) attributable to Stagwell Inc. common shareholders excluding non-operating income or expense to achieve Operating income (loss), plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, impairment and other losses, and other items. Other items primarily includes restructuring, certain system implementation, working capital administrative fees and acquisition-related expenses. Adjusted EBITDA for our reportable segments is reconciled to Operating income (loss), as Net income (loss) is not a relevant reportable segment financial metric.
“Adjusted Diluted EPS” is defined as (i) Net income (loss) attributable to Stagwell Inc. common shareholders, plus net income (loss) attributable to Class C shareholders, excluding the impact of amortization expense, impairment and other losses, stock-based compensation, deferred acquisition consideration adjustments, discrete tax items, and other items (as defined above), based on total consolidated amounts, then allocated to Stagwell Inc. common shareholders and Class C shareholders, based on their respective income allocation percentage using a normalized effective income tax rate divided by (ii) the diluted weighted average shares outstanding. The diluted weighted average shares outstanding is calculated as (a) the diluted weighted average number of common shares outstanding plus (b) the shares of Class C common stock, par value $0.00001 per share (the “Class C Common Stock”) as if converted to shares of Class A Common Stock if not included because they were anti-dilutive.
All amounts are in U.S. dollars unless otherwise stated. Amounts reported in millions herein are computed based on the amounts in thousands. As a result, the sum of the components, and related calculations, reported in millions may not equal the total amounts due to rounding.
The percentage changes included in the tables in Item 7 herein that are not considered meaningful are presented as “NM.”
Table of Contents
Segments
The Company’s Chief Operating Decision Maker (“CODM”) uses Adjusted EBITDA as a key metric to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions.
On September 30, 2025, the Company reorganized its organizational structure to better reflect how the Company manages its business and goes to market, to simplify reporting and to provide clearer visibility into performance trends across its service offerings. The reorganization also seeks to enhance consistency in the Company’s portfolio of services and improve the transparency and comparability of financial information provided to investors.
As a result of the reorganization, the Company now has five operating and reportable segments: “Marketing Services,” “Digital Transformation,” “Media & Commerce,” “Communications,” and “The Marketing Cloud.” Prior years presented have been recast to reflect the reclassification of Brands within the reportable segments. Based on the segment analysis, management concluded that the operating segments do not exhibit similar economic characteristics or share other aggregation criteria. As a result, none of our operating segments are aggregated for reporting purposes. Further, as a result of the reorganization, certain reporting units have been redefined, and the composition of others has changed. The new structure fairly reflects the allocation of the Company’s resources, thereby improving comparability for investors and supporting the Company’s long-term strategic objectives. The composition of these segments is as follows:
• The Marketing Services segment delivers a broad range of services across four closely related client needs: creative, research, experiential, and social media solutions designed to build and elevate brands. Capabilities include developing breakthrough brand campaigns, providing consumer insights through advanced research methodologies, creating immersive experiential marketing programs and social engagement strategies that connect brands with audiences across digital platforms. By combining creativeexcellence, data-driven insights, and innovative experiences, Marketing Services empowers organizations to differentiate themselves in the marketplace, drive audience engagement, and achieve measurable business results. These services employ a wide variety of AI-powered services in the delivery, such as AI-powered creative production and data analysis. Brands in this segment include, but are not limited to, creative agencies 72 and Sunny and Anomaly, research agencies NRG and Harris Insights, experiential agency TEAM, and social agency Movers & Shakers.
• The Digital Transformation segment designs, implements and activates modern digital ecosystems that enable brand and customer experiences through the integration of strategy, design, and technology. This segment helps clients modernize their digital infrastructure, enhance customer engagement, and accelerate enterprise transformation. Its capabilities span the delivery of digital products and experiences that connect brand storytelling with technology, including website and content development, digital campaigns, product and platform design, AI-native strategies and integration, and implementation of marketing technology (“MarTech”) products and solutions for customers. It also provides managed services, staff augmentation, and engineering expertise across various delivery models, offering system integration, full-stack development, and ongoing platform management. Additionally, Digital Transformation connects digital ecosystems to physical experiences through innovative, technology-driven customer engagements, such as business-to-business (“B2B”) platforms and multimodal activations that blend physical and digital environments using augmented reality (“AR”), virtual reality (“VR”), and emerging technologies. Together, these capabilities empower organizations to transform their digital presence and drive sustained business growth. Brands in this segment include, but are not limited to, strategy and design agencies Code and Theory and Instrument, development and implementation agency TrueLogic, and digital activation agency Left Field Labs.
• The Media & Commerce segment delivers integrated AI-based data solutions that drive audience engagement and business growth through media buying, owned media platforms, commerce enablement, and Customer Relationship Management (“CRM”) strategies. Its capabilities include planning and executing media campaigns across global platforms, leveraging data-driven approaches to optimize reach and effectiveness across first-party data, second-party data, and third-party data, and providing commerce and CRM tools that connect brands with consumers throughout the purchase journey. The segment also offers specialized media platforms and translation services to support targeted communication and market expansion. By combining expertise in media strategy, commerce activation, and audience analytics, Media & Commerce empowers organizations to maximize their marketing investments and achieve measurably efficient commercial outcomes. Brands in this segment include, but are not limited to, media buying, owned media platforms Reach TV, and strategy agency Assembly Global, commerce and CRM agency Gale.
• The Communications segment provides a leading edge set of solutions designed to help organizations build, protect, and enhance their reputation across diverse audiences and channels. Its capabilities include strategic communications, public relations, and advocacy services that leverage AI and data-driven insights to craft compelling narratives and influence public perception. The segment also offers expertise in targeted communications, crisis management, and stakeholder engagement, ensuring clients can respond effectively to emerging issues and opportunities. Advocacy services encompass strategic political campaign management, grassroots mobilization, and fundraising expertise that reach across the political spectrum. By combining deep industry knowledge with innovative digital approaches to
Table of Contents
media and advocacy, Communications empowers organizations to connect with key audiences, shape conversations, and achieve their strategic objectives. Brands in this segment include, but are not limited to, strategic communications agencies Allison and Consulum, and advocacy services agencies SKDK and Targeted Victory.
• The Marketing Cloud segment delivers a comprehensive suite of technology solutions for in-house marketers, combining SaaS and DaaS offerings. Its key products cover a range of areas. Advanced research tools that enable real-time customer insights through syndicated and Do It Yourself (“DIY”) generative AI-drafted surveys, AI-driven text analysis, and predictive analytics. Communications technology that aggregates data from millions of sources, including news, social media, print, and TV/radio broadcasts, on a daily basis to monitor, analyze, and respond to market trends. Media studio products that leverage first-party, third-party, and proprietary data to provide actionable audience insights and attribution analytics and advanced media platforms that encompass audience engagement solutions such as AR, quick response (“QR”) codes, and loyalty programs, all designed to collect consumer data and generate actionable insights. Together, these capabilities empower marketers to understand, engage, and influence their audiences with precision and agility. Brands in this segment include, but are not limited to, QUEST, Unicepta and Smart Assets.
“Corporate, eliminations and other” consists of revenue generated by the Other business components, strategic investments in new technologies, elimination of certain intercompany revenue and expenses, and corporate office expenses incurred in connection with the strategic resources provided to the operating segments, as well as certain other centrally managed expenses that are not fully allocated to the operating segments. These corporate office and general expenses include (i) salaries and related expenses for corporate office employees, including employees dedicated to supporting the operating segments, (ii) occupancy expenses relating to properties occupied by all corporate office employees, (iii) other office and general expenses including professional fees for the financial statement audits and other public company costs, and (iv) certain other professional fees managed by the corporate office.
The following discussion focuses on the operating performance of the Company for the years ended December 31, 2025 and 2024 and the financial condition of the Company as of December 31, 2025.
Table of Contents
Results of Operations and Reconciliation of Net Income to Adjusted EBITDA:
Year Ended December 31,
(dollars in thousands)
Revenue:
Marketing Services
Digital Transformation
Media & Commerce
Communications
The Marketing Cloud
Corporate, eliminations and other
Total revenue
Operating income
Other income (expenses):
Interest expense, net
Foreign exchange, net
Loss on sale of business
Bargain purchase gain
Other, net
Income before income taxes and equity in earnings of non-consolidated affiliates
Income tax expense
Income before equity in earnings of non-consolidated affiliates
Equity in income of non-consolidated affiliates
Net income
Net income attributable to noncontrolling and redeemable noncontrolling interests
Net income attributable to Stagwell Inc. common shareholders
Reconciliation to Adjusted EBITDA:
Net income attributable to Stagwell Inc. common shareholders
Non-operating items (1)
Operating income
Depreciation and amortization
Impairment and other losses
Stock-based compensation
Deferred acquisition consideration
Other items, net
Adjusted EBITDA
(1) Non-operating items includes items within the Statements of Operations, below Operating income, and above Net income attributable to Stagwell Inc. common shareholders.
Table of Contents
YEAR ENDED DECEMBER 31, 2025 COMPARED TO YEAR ENDED DECEMBER 31, 2024
Consolidated Results of Operations
The components of operating results for the year ended December 31, 2025 compared to the year ended December 31, 2024 were as follows:
Year Ended December 31,
Change
(dollars in thousands)
Revenue
Operating expenses
Cost of services
Office and general expenses
Depreciation and amortization
Impairment and other losses
Operating income
Year Ended December 31,
Change
(dollars in thousands)
Net revenue
Billable costs
Revenue
Billable costs
Staff costs
Administrative costs
Unbillable and other costs, net
Adjusted EBITDA
Stock-based compensation
Depreciation and amortization
Deferred acquisition consideration
Impairment and other losses
Other items, net
Operating income (1)
(1) See the Results of Operations section above for a reconciliation of Operating income to Net income attributable to Stagwell Inc. common shareholders.
Revenue
Revenue for the year ended December 31, 2025 was $2,909.0 million, compared to $2,841.2 million for the year ended December 31, 2024, an increase of $67.8 million.
Table of Contents
Net Revenue
The components of the fluctuations in Net revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024 were as follows:
Net Revenue - Components of Change
Change
Year Ended December 31, 2024
Foreign Currency
Net Acquisitions (Divestitures)
Organic
Total Change
Year Ended December 31, 2025
Organic
Total
(dollars in thousands)
Marketing Services
Digital Transformation
Media & Commerce
Communications
The Marketing Cloud
Corporate, eliminations and other
Component % change
For the year ended December 31, 2025, organic net revenue increased by $2.6 million, or 0.1%. The increase was driven by growth in the Marketing Services and Digital Transformation segments, reflecting new client wins, expanded scope with existing clients, and increased demand for AI enabled offerings across the retail, financial, technology, and communications sectors. Growth was further supported by higher integrated media, technology, and data offerings within the Media Buying service line in Media & Commerce and increased platform utilization and subscription-based services within The Marketing Cloud.
These increases were partially offset by a decrease in the Communications segment, primarily reflecting lower Advocacy revenue due to political seasonality following the 2024 presidential election cycle, as well as more measured client spending and timing of project activity. Organic net revenue in Media & Commerce was relatively flat, as growth in the Media Buying service line was offset by lower revenue in the Commerce & CRM service line during a period of leadership transition and organizational realignment.
The increase in net acquisitions (divestitures) was impacted by the acquisitions of Jetfuel, Create, ADK, Consulum (Cayman) Limited (“Consulum”), L.D.R.S. Group Ltd. (“Leaders”), and Unicepta, which expanded the Company’s capabilities in experiential marketing, digital communications, integrated marketing in APAC, government advisory services in MENA, influencer marketing and social commerce, and media monitoring and analytics.
The geographic mix in Net revenue for the years ended December 31, 2025 and 2024 was as follows:
Year Ended December 31,
(dollars in thousands)
United States
United Kingdom
Other
Total
Expenses
Cost of services increased by $3.0 million. Excluding the decline in Billable costs of $63.2 million and the addition of expenses from acquired entities of $62.2 million, Cost of services increased $4.0 million.
Table of Contents
Office and general expenses increased by $20.5 million. Excluding the addition of expenses of acquired entities of $12.0 million, Office and general expenses increased $10.2 million, primarily attributable to higher software license fees due to investments in automation and AI intended to improve workflow efficiency and support future margin expansion and higher staff costs to support the growth in the business. This was partially offset by a decrease in Deferred acquisition consideration expense as explained below and a decrease in occupancy costs reflecting the Company’s real estate consolidation efforts including a lease termination during the first quarter of 2025 that resulted in a gain on termination of $3.5 million and the expiration of office leases in 2024.
Stock-based compensation increased by $1.9 million, primarily due to a greater proportion of the annual incentive compensation being allocated to stock-based awards compared to last year and a reversal of expense in the second quarter of 2024 associated with stock-based performance awards for which the performance targets were not met.
Deferred acquisition consideration decreased by $30.5 million, primarily attributable to a reduction in the fair value of the deferred acquisition consideration liability associated with certain Brands driven by performance timing, partially offset by the strong performance in certain Brands, causing an increase in the fair value of the deferred acquisition consideration liability of those Brands .
Depreciation and amortization increased by $19.6 million, primarily attributable to higher amortization related to increased investments in AI and automation to expand our offerings and services, improve workflow efficiency, and support future margin expansion of $15.4 million, and the amortization of intangible assets resulting from the acquisition of businesses of $8.4 million.
Operating Income
Operating income for the year ended December 31, 2025, was $159.0 million, compared to $133.1 million for the year ended December 31, 2024, representing an increase of $25.9 million. The increase in Operating income was primarily attributable to an increase in Net revenue partially offset by an increase in expenses, as discussed above. Operating margin for the year ended December 31, 2025 was 5.5%, compared to 4.7% for the year ended December 31, 2024, representing an increase of 0.8%, reflecting improved operational efficiency.
Interest Expense, Net
Interest expense, net for the year ended December 31, 2025 was $96.4 million, compared to $92.3 million for the year ended December 31, 2024, an increase of $4.1 million. This increase was primarily attributable to higher levels of debt outstanding under the Credit Agreement (as defined and discussed in Note 11 of the Notes to the Audited Consolidated Financial Statements included herein) used to support the growth in working capital attributable to the growth of Net revenue of the business, partially offset by a lower average interest rate.
Foreign Exchange, Net
The foreign exchange loss for the year ended December 31, 2025, was $1.6 million, compared to a loss of $1.7 million for the year ended December 31, 2024, nearly flat despite increased volatility in the primary currencies in which we operate.
Loss on Sale of Business
Loss on sale of business for the year ended December 31, 2025 was $2.2 million due to the sale of a Brand that was non-core to our prospective business operations in the Marketing Services segment.
Bargain Purchase Gain
Bargain purchase gain for the year ended December 31, 2025 was $9.9 million due to the acquisition of ADK to assist in expending our global footprint in APAC in the Media & Commerce segment. The Bargain purchase gain resulted primarily from acquiring ADK at a purchase price below the fair value of the identifiable assets acquired due to the sellers’ decision to expedite its exit from the market.
In come Tax Expense
The Company had an Income tax expense for the year ended December 31, 2025 of $38.3 million (on a pre-tax income of $68.8 million resulti ng in an effective tax rate of 55 .6%) compared to Income tax expense of $13.2 million (on pre-tax income of $37.7 million resulting in an effective tax rate of 34.9%) for the year ended December 31, 2024.
The difference in the effective tax rate of 55.6% in the year ended December 31, 2025, as compared to 34.9% in the year ended December 31, 20 24, was primarily due to a decrease in benefits from expired foreign tax credits, an increase in valuation allowance, and a decrease in the benefit of the disregarded entity structure due to the full exchange in April 2025.
Table of Contents
Noncontrolling and Redeemable Noncontrolling Interests
The effect of Noncontrolling and redeemable noncontrolling interests for the year ended December 31, 2025 was an income of $1.5 million, compared to an income of $22.8 million for the year ended December 31, 2024. The amounts were driven by the mix of income and loss derived from entities not entirely owned by the Company. Additionally, the change was driven by the Class C Exchange during the second quarter of 2025, which increased the income allocated to Stagwell Inc.’s common shareholders.
Net Income Attributable to Stagwell Inc. Common Shareholders
As a result of the foregoing, Net income attributable to Stagwell Inc. common shareholders for the year ended December 31, 2025 was $29.1 million, compared to a net income of $2.3 million for the year ended December 31, 2024.
Adjusted EBITDA
Adjusted EBITDA for the year ended December 31, 2025 was $421.9 million, compared to $417.4 million for the year ended December 31, 2024, representing an increase of $4.4 million, primarily driven by an increase in Net revenue, partially offset by an increase in expenses, as discussed above.
Earnings Per Share
Diluted EPS and Adjusted Diluted EPS for the year ended December 31, 2025 were as follows:
GAAP
Adjustments
Non-GAAP
(amounts in thousands, except per share amounts)
Net income attributable to Stagwell Inc. common shareholders
Net loss attributable to Class C shareholders
Net income attributable to Stagwell Inc. and Class C shareholders and adjusted net income
Diluted - Weighted average number of common shares outstanding
Weighted average number of shares of Class C Common Stock outstanding
Diluted - Weighted average number of shares outstanding
Diluted EPS and Adjusted Diluted EPS (1)
Adjustments to Net income
Amortization
Impairment and other losses
Stock-based compensation
Deferred acquisition consideration
Other items, net
Adjusted tax expense
(1) Adjusted Diluted EPS is defined within the Non-GAAP Financial Measures section of the Executive Summary.
Table of Contents
Diluted EPS and Adjusted Diluted EPS for the year ended December 31, 2024 were as follows:
GAAP
Adjustments
Non-GAAP
(amounts in thousands, except per share amounts)
Net income attributable to Stagwell Inc. common shareholders
Net income attributable to Class C shareholders
Net income attributable to Stagwell Inc. and Class C shareholders and adjusted net income
Diluted - Weighted average number of common shares outstanding
Weighted average number of shares of Class C Common Stock outstanding
Diluted - Weighted average number of shares outstanding
Diluted EPS and Adjusted Diluted EPS (1)
Adjustments to Net income
Amortization
Impairment and other losses
Stock-based compensation
Deferred acquisition consideration
Other items, net
Adjusted tax expense
Net income attributable to Class C shareholders
Allocation of adjustments to Net income
Net income attributable to Stagwell Inc. common shareholders
Net income attributable to Class C shareholders - add-backs
Net income attributable to Class C shareholders
(1) Adjusted Diluted EPS is defined within the Non-GAAP Financial Measures section of the Executive Summary.
Table of Contents
Marketing Services
The components of operating results for the year ended December 31, 2025 compared to the year ended December 31, 2024 were as follows:
Year Ended December 31,
Change
(dollars in thousands)
Revenue
Operating expenses
Cost of services
Office and general expenses
Depreciation and amortization
Impairment and other losses
Operating income
Year Ended December 31,
Change
(dollars in thousands)
Net revenue
Billable costs
Revenue
Billable costs
Staff costs
Administrative costs
Unbillable and other costs, net
Adjusted EBITDA
Stock-based compensation
Depreciation and amortization
Deferred acquisition consideration
Impairment and other losses
Other items, net
Operating income
Revenue
Revenue for the year ended December 31, 2025 was $1,134.8 million, compared to $1,077.6 million for the year ended December 31, 2024, an increase of $57.2 million.
Table of Contents
Net Revenue
The components of the fluctuations in Net revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024 were as follows:
Net Revenue - Components of Change
Change
Year Ended December 31, 2024
Foreign Currency
Net Acquisitions (Divestitures)
Organic
Total Change
Year Ended December 31, 2025
Organic
Total
(dollars in thousands)
Marketing Services
Component % change
The strong increase in organic net revenue of $41.3 million, or 4.6%, was primarily attributable to increases in the Creative, Research, and Experiential service lines. The Creative and Research service lines increased $39.0 million due to new client wins and expanded client relationships in the retail, financial, and technology sectors driven by the accelerating adoption of AI. The Experiential service line increased $7.9 million due to the Sport Beach event that connects athletes, brands, and creatives through lived experiences. The increase in net acquisitions (divestitures) was primarily driven by the acquisition of Jetfuel, an experiential marketing services agency.
Expenses
Cost of services increased $19.3 million. Excluding the increase in Billable costs of $2.7 million and the addition of expenses from acquired entities of $1.9 million, Cost of services increased $14.8 million, or only 2.7% compared to organic net revenue growth of 4.6%, reflecting strong operating leverage. This increase was primarily attributable to higher staff costs due to the growth in Net revenue, partially offset by a decrease in staff costs due to business optimization efforts through the use of AI and restructuring of agency teams.
The decrease in Office and general expenses of $14.5 million was primarily attributable to cost optimization initiatives related to the consolidation of our real estate footprint and a decrease in Deferred acquisition consideration.
Stock-based compensation expense increased $2.6 million, primarily due to an increase in the fair value of certain profit interest awards driven by strong performance in certain Brands and a greater proportion of the annual incentive compensation being allocated to stock-based awards compared to last year.
Deferred acquisition consideration decreased $10.2 million, primarily attributable to a reduction in the fair value of the deferred acquisition consideration liability associated with certain Brands driven by the performance timing of those Brands.
Other items, net decreased $10.0 million, primarily attributable to a lease termination during the first quarter of 2025 as part of the real estate consolidation initiatives resulting in a gain of $3.5 million and a decrease in severance of $4.5 million.
Operating Income
Operating income for the year ended December 31, 2025, was $132.6 million, compared to $77.9 million for the year ended December 31, 2024, representing an increase of $54.7 million. The increase in Operating income was primarily attributable to an increase in Net revenue, partially offset by an increase in expenses, as discussed above. Operating margin for the year ended December 31, 2025 was 11.7%, compared to 7.2% for the year ended December 31, 2024, representing an increase of 4.5%, reflecting improved operational efficiency.
Adjusted EBITDA
Adjusted EBITDA increased by $34.8 million, primarily driven by an increase in Operating income and an increase in operating margin, as discussed above.
Table of Contents
Digital Transformation
The components of operating results for the year ended December 31, 2025 compared to the year ended December 31, 2024 were as follows:
Year Ended December 31,
Change
(dollars in thousands)
Revenue
Operating expenses
Cost of services
Office and general expenses
Depreciation and amortization
Operating income
Year Ended December 31,
Change
(dollars in thousands)
Net revenue
Billable costs
Revenue
Billable costs
Staff costs
Administrative costs
Unbillable and other costs, net
Adjusted EBITDA
Stock-based compensation
Depreciation and amortization
Deferred acquisition consideration
Other items, net
Operating income
Revenue
Revenue for the year ended December 31, 2025 was $393.5 million, compared to $335.7 million for the year ended December 31, 2024, an increase of $57.8 million.
Table of Contents
Net Revenue
The components of the fluctuations in Net revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024 were as follows:
Net Revenue - Components of Change
Change
Year Ended December 31, 2024
Foreign Currency
Net Acquisitions (Divestitures)
Organic
Total Change
Year Ended December 31, 2025
Organic
Total
(dollars in thousands)
Digital Transformation
Component % change
The strong increase in organic net revenue of $29.8 million, or 9.2%, was attributable to increases in technology and communications sectors in the Strategy and Design and Development and Implementation service lines. The Strategy and Design and Development and Implementation service lines grew $28.7 million driven by AI-related services. The increase in net acquisitions (divestitures) was primarily driven by the acquisition of Create, a digital communications group in the Middle East.
Expenses
Cost of services increased $32.8 million. Excluding the increase in Billable costs of $14.9 million and the addition of expenses from acquired entities of $6.8 million, Cost of services increased $11.1 million, or only 5.6% compared to organic net revenue growth of 9.2%, reflecting strong operating leverage. This increase was primarily due to higher staff costs due to the growth in Net revenue, partially offset by the restructuring of agency teams to support business optimization efforts and the impact of competition in the labor market.
Office and general expenses increased $8.5 million. Excluding the addition of costs from acquired entities of $4.4 million, Office and general expenses increased $4.1 million, primarily due to higher Deferred acquisition consideration as explained below.
Stock-based compensation expense decreased $2.5 million, primarily due to a decrease in the fair value of awards granted in 2025 compared to 2024 and a decrease in the expense associated with awards issued in prior years that vested during 2025.
Deferred acquisition consideration increased $4.4 million, primarily attributable to the strong performance of a certain Brand, causing an increase in the fair value of the deferred acquisition consideration liability associated with that Brand.
Operating Income
Operating income for the year ended December 31, 2025 was $49.2 million, compared to $33.4 million for the year ended December 31, 2024, representing an increase of $15.8 million. The increase in Operating income was primarily attributable to an increase in Net revenue of $43.0 million, partially offset by an increase in expenses, as discussed above. Operating margin for the year ended December 31, 2025 was 12.5%, compared to 10.0% for the year ended December 31, 2024, representing an increase of 2.5%, reflecting improved operational efficiency.
Adjusted EBITDA
Adjusted EBITDA increased by $17.2 million, primarily driven by an increase in Operating income and an increase in operating margin, as discussed above.
Table of Contents
Media & Commerce
The components of operating results for the year ended December 31, 2025 compared to the year ended December 31, 2024, were as follows:
Year Ended December 31,
Change
(dollars in thousands)
Revenue
Operating expenses
Cost of services
Office and general expenses
Depreciation and amortization
Operating income
Year Ended December 31,
Change
(dollars in thousands)
Net revenue
Billable costs
Revenue
Billable costs
Staff costs
Administrative costs
Unbillable and other costs, net
Adjusted EBITDA
Stock-based compensation
Depreciation and amortization
Deferred acquisition consideration
Other items, net
Operating income
Revenue
Revenue for the year ended December 31, 2025 was $690.7 million, compared to $695.4 million for the year ended December 31, 2024, a decrease of $4.7 million.
Table of Contents
Net Revenue
The components of the fluctuations in Net revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024 were as follows:
Net Revenue - Components of Change
Change
Year Ended December 31, 2024
Foreign Currency
Net Acquisitions (Divestitures)
Organic
Total Change
Year Ended December 31, 2025
Organic
Total
(dollars in thousands)
Media & Commerce
Component % change
Organic net revenue decreased by $0.7 million or 0.1%. Organic net revenue in the Media Buying service line increased $22.6 million driven by integrated media, technology, and data offerings that contributed to new wins and expanded scope with existing clients. This was offset by a decrease of $24.8 million in the Commerce & CRM service line that was primarily attributable to leadership transitions and organizational realignment. The increase in net acquisitions (divestitures) was primarily driven by the acquisition of ADK, an integrated marketing company that expands our global footprint in the APAC region.
Expenses
Cost of services decreased by $8.7 million. Excluding the decline in Billable costs of $13.2 million and the addition of expenses from acquired entities of $4.7 million, Cost of services decreased $0.2 million, or less than 0.1%, compared to organic net revenue growth of 0.1%, reflecting consistent operating leverage.
Office and general expenses increased $20.0 million. Excluding the addition of costs from acquired entities of $7.7 million, Office and general expenses increased $12.4 million, primarily due to higher Deferred acquisition consideration as explained below.
Stock-based compensation expense decreased $2.1 million, primarily due to a decrease in the fair value of awards granted in 2025 compared to 2024 and a decrease in the expense associated with awards issued in prior years that vested during 2025.
Deferred acquisition consideration increased $10.8 million, primarily attributable to the strong performance of a certain Brand in 2025, causing an increase in the fair value of the deferred acquisition consideration liability associated with that Brand, and a decrease in the fair value of a certain Brand in 2024.
Operating Income
Operating income for the year ended December 31, 2025 was $34.1 million, compared to $49.0 million for the year ended December 31, 2024, representing a decrease of $14.8 million. The decrease in Operating income was primarily attributable to an increase in expenses partially offset by an increase in Net revenue, as discussed above.
Adjusted EBITDA
Adjusted EBITDA decreased by $6.9 million, primarily due to a decrease in Operating income, as discussed above.
Table of Contents
Communications
The components of operating results for the year ended December 31, 2025 compared to the year ended December 31, 2024 were as follows:
Year Ended December 31,
Change
(dollars in thousands)
Revenue
Operating expenses
Cost of services
Office and general expenses
Depreciation and amortization
Impairment and other losses
Operating income
Year Ended December 31,
Change
(dollars in thousands)
Net revenue
Billable costs
Revenue
Billable costs
Staff costs
Administrative costs
Unbillable and other costs, net
Adjusted EBITDA
Stock-based compensation
Depreciation and amortization
Deferred acquisition consideration
Impairment and other losses
Other items, net
Operating income
Revenue
Revenue for the year ended December 31, 2025 was $592.6 million compared to $703.1 million for the year ended December 31, 2024, a decrease of $110.5 million.
Table of Contents
Net Revenue
The components of the fluctuations in Net revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024 were as follows:
Net Revenue - Components of Change
Change
Year Ended December 31, 2024
Foreign Currency
Net Acquisitions (Divestitures)
Organic
Total Change
Year Ended December 31, 2025
Organic
Total
(dollars in thousands)
Communications
Component % change
The decrease in organic net revenue of $71.7 million, or 16.5%, was primarily attributable to a $62.7 million decrease in the Advocacy service line due to political seasonality following the 2024 presidential election cycle. The decrease in organic net revenue for Communications excluding Advocacy was $9.0 million or 4.0%. The decrease in Communications service line was primarily driven by broader industry headwinds, including client budget uncertainty, and delayed spending decisions during the pitch process. The increase in net acquisitions (divestitures) was primarily driven by the acquisition of Consulum, a pan-MENA government advisory consultancy.
Expenses
Cost of services decreased $71.0 million. Excluding the decline in Billable costs of $68.3 million and the addition of costs from acquired entities of $14.6 million, Cost of services decreased $17.3 million, or 8.6%, primarily due to lower Net revenue.
The decrease in Office and general expenses of $25.0 million was primarily attributable to a decrease in Deferred acquisition consideration as explained below and lower Net revenue, partially offset by the addition of costs from acquired entities of $7.7 million.
Stock-based compensation expense decreased $1.4 million, primarily attributable to a decrease in the fair value of a certain profits interest award due to performance timing.
Deferred acquisition consideration decreased by $25.8 million, primarily attributable to a decrease in the fair value of certain Brands due to performance timing, partially offset by the strong performance of certain Brands, causing an increase in the fair value.
Depreciation and amortization increased by $5.6 million, primarily attributable to the amortization of intangible assets resulting from the acquisition of businesses.
Operating Income
Operating income for the year ended December 31, 2025 was $73.7 million, compared to $93.9 million for the year ended December 31, 2024, representing a decrease of $20.3 million. The decrease in Operating income was primarily attributable to a decrease in Net revenue, partially offset by a decrease in expenses, as discussed above.
Adjusted EBITDA
Adjusted EBITDA decreased by $41.4 million, primarily due to a decrease in Operating income, as discussed above.
Table of Contents
The Marketing Cloud
The components of operating results for the year ended December 31, 2025 compared to the year ended December 31, 2024 were as follows:
Year Ended December 31,
Change
(dollars in thousands)
Revenue
Operating expenses
Cost of services
Office and general expenses
Depreciation and amortization
Impairment and other losses
Operating loss
Year Ended December 31,
Change
(dollars in thousands)
Net revenue
Billable costs
Revenue
Billable costs
Staff costs
Administrative costs
Unbillable and other costs, net
Adjusted EBITDA
Stock-based compensation
Depreciation and amortization
Deferred acquisition consideration
Impairment and other losses
Other items, net
Operating loss
Revenue
Revenue for the year ended December 31, 2025 was $106.5 million compared to $32.3 million for the year ended December 31, 2024, an increase of $74.3 million.
Table of Contents
Net Revenue
The components of the fluctuations in Net revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024 were as follows:
Net Revenue - Components of Change
Change
Year Ended December 31, 2024
Foreign Currency
Net Acquisitions (Divestitures)
Organic
Total Change
Year Ended December 31, 2025
Organic
Total
(dollars in thousands)
The Marketing Cloud
Component % change
The increase in organic net revenue of $11.1 million, or 34.3%, was primarily attributable to growth in the Research service line due to increased demand from new and existing clients, including a significant new engagement in the financial sector and higher platform utilization including the successful introduction of additional service offerings within a subscription model. The increase in net acquisitions (divestitures) was primarily driven by the acquisitions of Leaders, a digital agency specializing in influencer marketing, and Unicepta, a media monitoring and analytics platform.
Expenses
Cost of services increased $37.2 million. Excluding the addition of costs from acquired entities of $34.2 million, Cost of services increased $2.9 million or only 25.8% compared to organic net revenue of 34.3%, reflecting operating leverage.
Office and general expenses increased $20.5 million, primarily due to higher staff costs due to expansion of the business to support additional revenues and the addition of costs from acquired entities of $16.2 million, partially offset by a decrease in Deferred acquisition consideration expense as explained below.
Deferred acquisition consideration decreased by $9.6 million, primarily attributable to a decrease in the fair value of a certain Brand due to performance timing, partially offset by the strong performance of certain other Brands.
Depreciation and amortization increased by $11.0 million, primarily attributable to higher amortization related to increased investments in AI and automation to expand our offerings and services, improve workflow efficiency, and support future margin expansion, and the amortization of intangible assets from the acquisition of businesses.
Operating Loss
Operating loss for the year ended December 31, 2025 was $19.6 million compared to $24.9 million for the year ended December 31, 2024, as the segment approaches operating scale. The decrease in Operating loss was primarily attributable to an increase in Net revenue, partially offset by an increase in expenses, as discussed above.
Adjusted EBITDA increased by $9.9 million, primarily due to a decrease in Operating loss, as discussed above.
Table of Contents
Corporate
The components of operating results for the year ended December 31, 2025 compared to the year ended December 31, 2024 were as follows:
Year Ended December 31,
Change
(dollars in thousands)
Staff costs
Administrative costs
Adjusted EBITDA
Stock-based compensation
Depreciation and amortization
Impairment and other losses
Other items, net
Operating loss
Expenses
Staff costs increased by $13.3 million, primarily attributable to an increase in headcount to support the implementation of a standardized shared services platform to optimize cost structures and support the future growth and unusually higher healthcare related insurance claims.
Administrative costs decreased $3.0 million, primarily due to our cost savings initiatives. The implementation of the shared services platform optimized cost structures and reduced Brands administrative costs. Due to a higher allocation of Corporate's administrative costs to the Brands, Corporate’s Administrative costs decreased $14.0 million These costs include rent, IT services, accounting services, financial operations services, and business applications. This decrease was partially offset by an increase of $11.1 million in computer software and licensing fees due to investments in automation and AI intended to improve workflow efficiency and support future margin expansion.
Stock-based compensation expense increased by $5.5 million, primarily due to a greater proportion of the annual incentive compensation being allocated to stock-based awards compared to last year and a reversal of expense in the second quarter of 2024 associated with stock-based performance awards for which the performance targets were not met.
Operating Loss
Operating loss for the year ended December 31, 2025 was $111.0 million compared to $95.1 million for the year ended December 31, 2024, representing an increase of $16.0 million, primarily attributable to higher expenses, as discussed above.
Liquidity and Capital Resources:
The following table provides summary information about the Company’s liquidity position and capital resources:
Year Ended December 31,
Change
(dollars in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
The Company had cash and cash equivalents of $104.5 million and $131.3 million as of December 31, 2025, and December 31, 2024, respectively.
Operating Activities
Net cash provided by operating activities for the year ended December 31, 2025 was $291.0 million, an increase of $148.2 million, or 103.7%, compared to the prior year. This improvement was driven by higher operating income of $25.9 million and $150.7 million improvement in working capital primarily attributable to stronger working capital management driven by
Table of Contents
technology automation and improved billing and collection process, which resulted in favorable changes in advance billings of $48.2 million and expenditures billable to clients of $66.4 million. Additionally, there were net favorable changes in accounts payable and accruals of $35.5 million as a result of improved payment terms with significant service providers. This was partially offset by an unfavorable change in other current assets of $45.3 million due to an increase in certain prepaid media assets.
Changes in non-cash items included in operating income consisted primarily of a decrease of $30.5 million in the fair value of deferred acquisition liabilities driven by the performance timing of certain acquisitions and the Bargain purchase gain of $9.9 million from the ADK acquisition, partially offset by an increase of $19.6 million in depreciation and amortization resulting from higher capital investment in AI and automation related technologies as well as an increase in deferred income tax expense of $21.1 million, respectively.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2025 was $113.7 million, a decrease of $48.8 million, or 30.0%, compared to the prior year. This decrease was primarily driven by a $97.1 million reduction in acquisitions and $10.9 million in proceeds from the sale of a non-core asset. These decreases were partially offset by an increase in capital expenditures and capitalized software for investments in AI and process automation technologies of $24.8 million and $32.4 million, respectively. The capital expenditures include a $7.4 million purchase of office space.
Financing Activities
Net cash used in financing activities for the year ended December 31, 2025 was $210.0 million, an increase of $247.0 million compared to the prior year. This increase was primarily driven by an increase of $231.7 million in net payments under the Credit Agreement offset by an increase in share repurchases of $26.0 million. The increase was partially offset by a decrease in distributions to noncontrolling interests of $17.1 million.
Liquidity
The Company expects to maintain sufficient cash and/or available borrowings to fund operations for the next twelve months and subsequent periods. The Company has historically maintained and expanded its business using cash generated from operating activities, funds available under the Credit Agreement, and other initiatives, such as obtaining additional debt, equity and receivable financing. On April 23, 2025, the Company entered into an amendment to the Credit Agreement, which increased the limit of borrowing to $750 million and extended the maturity date to April 23, 2030, as described in more detail in Note 11 of the Notes included herein. As of December 31, 2025, the Company had $237.3 million of borrowings outstanding and $15.1 million of issued and undrawn letters of credit, resulting in $497.6 million unused borrowing capacity under the Credit Agreement.
The Company transfers certain of its trade receivable assets to third parties under certain agreements. Per the terms of these agreements, the Company surrenders control over its trade receivables upon transfer.
The trade receivables transferred to the third parties were $501.3 million and $435.6 million during the years ended December 31, 2025 and 2024, respectively. The trade receivables collected by the Company t hat were not remitted to the third parties under these arrangements were recorded in Accruals and other liabilities on the Audited Consolidated Balance Sheets and total $21.2 million as of December 31, 2025 and $19.5 million as of December 31, 2024. Fees for these arrangements were recorded in Office and general expenses in the Consolidated Statements of Operations and totaled $5.6 million and $5.8 million for the years ended December 31, 2025 and 2024 , respectively.
The Company may purchase shares of outstanding Class A Common Stock under its Repurchase Program. Under the Repurchase Program, share repurchases may be made at our discretion from time to time in open market transactions at prevailing market prices, including through trading plans that may be adopted in accordance with Rule 10b5-1 of the Exchange Act, as amended, in privately negotiated transactions, or through other means. The timing and number of shares repurchased under the Repurchase Program will depend on a variety of factors, including the performance of our stock price, general market and economic conditions, regulatory requirements, the availability of funds, and other considerations we deem relevant. The Repurchase Program may be suspended, modified, or discontinued at any time without prior notice. Our Board of Directors will review the Repurchase Program periodically and may authorize adjustments of its terms.
During the year ended December 31, 2025, 23.1 million shares of Class A Common Stock were repurchased pursuant to the Repurchase Program at an average price of $5.12 per share, for an aggregate value, excluding fees, of $118.4 million.
The remaining value of shares of Class A Common Stock permitted to be repurchased under the Repurchase Program was $51.1 million as of December 31, 2025. See Recent Developments above for information regarding the Board’s authorization to extend and increase the size of share repurchases under the Repurchase Program.
Table of Contents
The Company’s obligations extending beyond twelve months primarily consist of deferred acquisition consideration payments, purchases of redeemable noncontrolling interests, subsidiary awards, capital expenditures, scheduled lease obligation payments, and interest payments on borrowings under the Company’s 5.625% Notes (as defined in Note 11 of the Notes included herein) and Credit Agreement. The Company expects to make estimated cash payments in the future to satisfy obligations under our Tax Receivables Agreement (“TRA”) , which remains in effect after the final exchange of Class C Common Stock (see Note 17 of the Notes included herein for additional details). The amount and timing of any payments under the TRA are contingent on the Company achieving certain tax savings, if any, that we actually realize, or in certain circumstances are deemed to realize. Based on the current outlook, the Company believes future cash flows from operations, together with the Company’s existing cash balance and availability of funds under the Credit Agreement, will be sufficient to meet the Company’s anticipated cash needs for the next twelve months and subsequent periods. The Company’s ability to make payments will depend on future performance, which is subject to general economic conditions, the competitive environment and other factors, including those described in this Form 10-K and in the Company’s other SEC filings.
Total Debt
As of December 31, 2025, Debt, net of debt issuance costs, was $1,326.0 million, compared to $1,353.6 million outstanding as of December 31, 2024. See Note 11 of the Notes included herein for information regarding the Company’s 5.625% Notes and the Credit Agreement.
As of December 31, 2025 , t he Company was in compliance with all of the terms and conditions of the Credit Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with its covenants over the next twelve months.
If the Company loses all or a substantial portion of its lines of credit under the Credit Agreement, or if the Company uses the maximum available amount under the agreement, it will be required to seek other sources of liquidity. If the Company were unable to find these sources of liquidity, for example, through an equity offering or access to the capital markets, the Company’s ability to fund its working capital needs and any contingent obligations with respect to acquisitions and redeemable noncontrolling interests would be adversely affected.
Pursuant to the Credit Agreement, the Company must maintain a Total Leverage Ratio (as defined in the Credit Agreement) below an established threshold. For the period ended December 31, 2025, the Company’s calculation of this ratio, and the maximum permitted under the Credit Agreement, respectively, were calculated based on the trailing twelve months as follows:
December 31, 2025
Total Leverage Ratio
Maximum per covenant
These ratios and measures are not based on GAAP and are not presented as alternative measures of operating performance or liquidity. Some of these ratios and measures include, among other things, pro forma adjustments for acquisitions, one-time charges, and other items, as defined in the Credit Agreement. They are presented here to demonstrate compliance with the covenants in the Credit Agreement, as non-compliance with such covenants could have a material adverse effect on the Company.
Material Cash Requirements
To the extent required under a particular client engagement, Stagwell’s Brands enter into contractual commitments with media providers, production companies and other third parties on behalf of their clients at levels that exceed the revenue from the services. In most of these transactions, the Brands act as the clients’ “Agent for a Disclosed Principal” where the Brands’ risk is mitigated by sequential payment liability, i.e., the brands’ obligation to pay a third party is tolled until it receives the underlying payment from the client thereby safeguarding the Brand in the event of a client default. To further protect against client default, Stagwell takes additional precautions, including the procurement of credit insurance. While Stagwell has historically had a very low incidence of default, Stagwell is still exposed to the risk of significant uncollectible receivables from its clients and the risk of a material loss could significantly increase in periods of severe economic downturn.
Table of Contents
The following table and discussion below summarize current and long-term material cash requirements of the Company as of December 31, 2025. Certain of these requirements vary in the ultimate future amount payable because they are dependent on the future results of operations of the subject subsidiaries and/or the timing of when certain rights are exercised. Management anticipates that the obligations outstanding as of December 31, 2025 will be repaid with new financing, equity offerings, asset sales and/or cash flow from operations:
Payments Due by Period
Material Cash Requirements
Total
Less than
1 Year
1 – 3 Years
3 – 5 Years
After
5 Years
(dollars in thousands)
Indebtedness (1)
Operating lease obligations
Interest on debt
Deferred acquisition consideration (2)
Total
(1) Includes the principal amount of the 5.625% Notes which are due in 2029 and does not include borrowings under the Credit Agreement.
(2) Deferred acquisition consideration on the Consolidated Balance Sheets consists of deferred obligations related to contingent purchase price payments. The $26.4 million reflected in the above table is included in the Consolidated Balance Sheet as of December 31, 2025, and does not include $13.6 million expected to be paid in shares of Class A Common Stock. In addition, certain of the Company’s deferred acquisition consideration is tied to continued employment of certain personnel of the acquired subsidiaries. These arrangements are expensed over the respective vesting period (employment) period and therefore the expected, entire amount of payment is not reflected in the Consolidated Balance Sheet as of December 31, 2025. The Company estimates that the total amount to be paid related to such obligations was $30.9 million as of December 31, 2025, of which $16.4 million is expected to be paid in cash and the remaining in Company’s Class A Common Stock. The total amount of cash expected to be paid in the next twelve months related to these arrangements is $3.0 million. See Note 9 of the Notes included in Item 8 of this Form 10-K for additional information regarding contingent deferred acquisition consideration.
When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity. See Note 12 of the Notes included in Item 8 of this Form 10-K for additional information regarding noncontrolling interests and redeemable noncontrolling interests.
Certain of the Company’s subsidiaries grant awards to their employees providing them with an equity interest in the respective subsidiary (the “profits interests awards”). The awards generally provide the employee with the right, but not the obligation, to sell their profits interest in the subsidiary to the Company based on a performance-based formula and, in certain cases, receive a profit share distribution. The profits interests awards are primarily settled in cash, with certain awards having stock-settlement provisions at the Company’s discretion. The corresponding liability associated with these profits interests awards is included as a component of Accruals and other liabilities and Other liabilities on the Consolidated Balance Sheets. See Note 14 of the Notes included in Item 8 of this Form 10-K for additional information regarding these material commitments.
The Company enters into certain long-term non-cancellable contracts for services such as revenue or profit share arrangements, cloud-based services, or software licensing. See Note 13 of the Notes included in Item 8 of this Form 10-K for additional information regarding these material commitments.
Critical Accounting Estimates
Stagwell has prepared the Audited Consolidated Financial Statements in accordance with GAAP and pursuant to the rules and regulations of the SEC for reporting financial information on Form 10-K. Preparation of the Audited Consolidated Financial Statements and related disclosures requires us to make judgments, assumptions and estimates that affect the amounts reported and disclosed in the accompanying financial statements and footnotes. Our significant accounting policies are discussed in Note 2 of the Notes included herein. Our critical accounting estimates are those that are considered by management to require significant judgment, use of estimates and that could have a significant impact on our financial statements. An understanding of our critical accounting estimates is necessary to analyze our financial results.
Our critical accounting estimates include our accounting for revenue recognition, business combinations, deferred acquisition consideration, goodwill and intangible assets, and income taxes. The financial statements are evaluated on an
Table of Contents
ongoing basis and estimates are based on historical experience, current conditions and various other assumptions believed to be reasonable under the circumstances. Actual results can differ from those estimates, and it is possible that the differences could be material.
Revenue Recognition. The Company’s revenue is recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. See Note 5 of the Notes included herein for further information.
Business Combinations. Business combinations are accounted for using the acquisition method and accordingly, the assets acquired (including identified intangible assets), the liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values.
For each acquisition, the Company undertakes a detailed review to identify other intangible assets, and a valuation is performed for all such identified assets. The Company uses several market participant measurements to determine the estimated value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies. A substantial portion of the intangible asset value that the Company acquires is the specialized know-how of the workforce, which is treated as part of goodwill and is not required to be valued separately. The majority of the value of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, trademarks, developed technology and other intangible assets.
Deferred Acquisition Consideration . Certain acquisitions include an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent purchase price obligations for these transactions are recorded as deferred acquisition consideration liabilities on the balance sheet. Arrangements that are not contingent upon future employment are initially measured at the acquisition date fair value and are remeasured at each reporting period. Arrangements that are contingent upon future employment are expensed as earned over the respective vesting (employment) period. These liabilities are derived from the projected performance of the acquired entity. These arrangements may be dependent on future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period. At each reporting date, the Company models each business’ future performance, including revenue, EBITDA growth, to estimate the value of each deferred acquisition consideration liability. The liability is adjusted quarterly based on changes in current information affecting each subsidiary’s current operating results and the impact this information will have on future results included in the calculation of the estimated liability. These adjustments are recorded in the Consolidated Statements of Operations.
Goodwill . Goodwill (the excess of the acquisition cost over the fair value of the net assets acquired) acquired as a result of a business combination which is not subject to amortization is tested for impairment, at the reporting unit level, annually as of October 1st of each year, or more frequently if indicators of potential impairment exist.
For the annual impairment test, the Company has the option of assessing qualitative factors to determine whether it is more likely than not that the carrying amount of a reporting unit exceeds its fair value or performing a quantitative goodwill impairment test. Qualitative factors considered in the assessment include industry and market considerations, the competitive environment, overall financial performance, changing cost factors such as labor costs, and other factors specific to each reporting unit such as change in management or key personnel.
If the Company elects to perform the qualitative assessment and concludes that it is more likely than not that the fair value of the reporting unit is more than its carrying amount, then goodwill is not considered impaired, and the quantitative impairment test is not necessary. For reporting units for which the qualitative assessment concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if the Company elects not to perform the qualitative assessment, the Company will perform the quantitative impairment test, which compares the fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not considered impaired. However, if the fair value of the reporting unit is lower than the carrying amount of the net assets assigned to the reporting unit, an impairment charge is recognized equal to the excess of the carrying amount over the fair value.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The Company generally uses a combination of the income approach, which incorporates the use of the discounted cash flow (“DCF”) method, and the market approach, which incorporates the exercise of significant judgment about the use of earnings multiples based on market data and comparable companies. The Company applies an equal weighting to the income and market approaches for the impairment test. The income approach and the market approach both require the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates.
The DCF estimates incorporate expected cash flows that represent a spectrum of the amount and timing of possible cash flows of each reporting unit from a market participant perspective. The expected cash flows are developed from the Company’s long-range planning process using projections of operating results and related cash flows based on assumed revenue growth rates, EBITDA margins, long-term growth rates, and appropriate discount rates based on a reporting unit’s weighted average
Table of Contents
cost of capital (“WACC”) as determined by considering the observable WACC of comparable companies and factors specific to the reporting unit. The terminal value is estimated using a constant growth method which requires an assumption about the expected long-term growth rate. The estimates are based on historical data and experience, industry projections, economic conditions, and the Company’s expectations.
At each reporting period, the Company assesses whether it is more likely than not that the carrying amount of its reporting units exceed their fair value. As of October 1, 2025 (the annual impairment test date), the Company performed this assessment and determined that all reporting units (10) did not have an impairment. The Company utilized a long-term average growth rate ranging from 1.5% to 3% and a WACC ranging from 14% to 20.5%.
The Company believes the estimates and assumptions used in the calculations are reasonable. However, if there were an adverse change in the facts and circumstances, then an impairment charge may be necessary in the future. As a result, to the extent that, among other factors, (i) there is underperformance in one or more reporting units, or (ii) disruptions in the macroeconomic environment, the fair value of one or more of these reporting units could fall below their carrying value, resulting in a goodwill impairment charge. The Company monitors its reporting units to determine if there is an indicator of potential impairment.
Income Taxes. We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to be in effect when the differences are expected to reverse. The Company records associated interest and penalties as a component of income tax expense. The Company records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Management evaluates on a quarterly basis all available positive and negative evidence considering factors such as the reversal of deferred income tax liabilities, taxable income in eligible carryback years, projected future taxable income, the character of the income tax asset, tax planning strategies, changes in tax laws and other factors. The periodic assessment of the net carrying value of the Company’s deferred tax assets under the applicable accounting rules requires significant management judgment. A change to any of these factors could impact the estimated valuation allowance and income tax expense.
New Accounting Pronouncements
See Note 3 of the Notes included in Item 8 of this Form 10-K.
