Public Policy Holding Company, Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. Thank you, operator, and good afternoon.

With me today are Stewart Hall, our Chief Executive Officer, Roel Smits, our Chief Financial Officer, and Thomas Gensemer, our Chief Strategy Officer. Before we begin, please note that the following remarks and presentation include forward-looking statements and non-GAAP financial data. Forward-looking statements about the company, including those related to earnings guidance, are subject to uncertainties and risks, factors addressed in the company's SEC filings. For further details of the non-GAAP financial figures discussed in this presentation, including reconciliations to the nearest GAAP figures, please refer to the financial appendix in the investor presentation available on our website, investors.pphcompany.com. With that, I'll now turn the call over to Stuart.

Thanks, Matthew, and thanks to everyone who's joining us this afternoon. The first half of the year developed broadly as we expected, and we're pleased with both the performance of the business and the progress we've made against our overall strategy. At the highest level, revenue in the first half increased 16.3% year-over-year to $102.3 million. That was organic growth included in that of 4.4%. Adjusted EBITDA increased to $23.4 million, up 9.3%, representing a margin toward the top end of the range that we previously had communicated. Just as importantly, the business strengthened as the half progressed as it usually does. In the second quarter, we delivered revenue of $52.1 million, continued organic growth and an Adjusted EBITDA margin of 23.5%, an improvement from the first quarter and consistent with the seasonally adjusted numbers that we discussed on our last call.

Following this performance and our recent acquisitions, we're raising our full-year revenue and Adjusted EBITDA guidance. Roel will take you through that more thoroughly in our quarterly results and revised outlook and the underlying drivers in greater detail shortly. Halfway through the year, we're delivering how we said we would. The outlook for the business has strengthened, and we retain the balance sheet capacity to continue executing our strategy. Additionally, on results, we reported a GAAP loss of $3.7 million in the quarter, a nearly 35% improvement year-over-year. I want to take a moment and really discuss that number because the direction of travel is significant here, and especially as we enter the second half of 2026 and the beginning of 2027. The story behind it hasn't changed, but it's worth repeating plainly.

The largest difference between our GAAP and our management P&L is the approximately $30 million a year non-cash share-based comp charge that resulted from our 2021 London listing, subjecting shares issued at that time to employee owners to a five-year vesting schedule. This charge will fully amortize at the end of this year, and we are looking forward to it dropping off and the positive effect we believe it will have on our GAAP financials. Roel, again, will jump into this in a bit more detail. On M&A, we continue to execute a disciplined strategy. We closed on three deals this year, including our long-desired presence in Florida with the addition of The Advocacy Partners on August 1st. All three transactions follow the same principles we stick to in M&A. We added a differentiated capability with each acquisition. They were margin accretive. They extended our reach where clients need us, and they link future purchase consideration to future performance.

Thomas will go into these in more detail as well toward the end of the call. Before we go into the financials, a word on AI. It is a question that we hear from investors often, and it deserves a very direct answer from us. We believe PPHC is very well positioned for the continued adoption of AI across industries for three main reasons. One is our business structure. Two is the demand that AI clients and AI issues are generating for our services. And three, the operating leverage that AI itself provides for our senior-heavy workforce. First, let us talk about structure. We do not do hourly billing, but in a very, very small percentage of our engagements.

By default, firms that bill by the hour are built on a pyramid of junior staff that sell output that any capable model can reproduce now in seconds. And they are in an existential period, and they need reinvention. That is not our model. Roughly 90% of our revenue is retainer-based, and our annual client retention of that revenue is 80%-85%. That remaining revenue that we do take in on top of that is project-based, but what that just means is that it is a short-term engagement by design tied to deliverables, but it is not billed against hours. Our clients buy senior counsel that drives outcomes and on issues that are vital to their businesses, not billable time, not consumer-oriented campaigns, and not markup on entry-level hours. There is no pyramid at PPHC for AI to compress. Unlike sectors where the fear is shrinking the fee pool, our core market is expanding.

Federal lobbying spending set a record last year, roughly $5 billion, and grew at its fastest pace since 2008. Second, demand. When we look at AI, we do not see a threat to defend against. We actually see a tailwind driving our growth. AI is now one of the most active policy issues in the country at every level of government. At state level, we have tracked over 1,800 AI-related bills in 47 states, and that is a twelvefold increase over three years. Since 2025, our firms have been engaged by roughly 60 new clients whose core business itself is AI. That is everyone from model developers and AI native companies to the chip designers, hyperscalers, and data center builders behind them. Companies that need some subset of our services, often very early in their journey.

And also it's important to note, clients across energy technology, healthcare, and financial services are retaining us to work on the same issues, because AI now touches their regulatory agenda, whether they build the technology or simply deploy it. Third is operating leverage. We're deploying AI workflows inside our own business. So our senior advisors spend less time assembling research and more time on judgment, strategy, and the advocacy services clients hire us for. Virtually none of our revenue depends on reselling the hours that AI eliminates for other firms. Commodity work gets automated. The work we do, senior led, built on client trust, is worth more as AI proliferates, and that's where PPHC sits. In conclusion, we think the environment remains favorable for our business. Federal lobbying continues at record levels. State-level activity remains intense. The 2026 midterm cycle is adding to client demand for intelligence, advocacy, and strategic communication support following this election cycle.

This is exactly the operating backdrop the company was constructed for, and we continue to execute against quarter after quarter. With that, I'll hand it over to Roel for a closer look at the numbers.

Roel? Thank you, Stewart. I'm going to focus on four areas.

On overall growth and profitability, on our results by segments, on our cash generation. Today I'm going to start with our guidance. We are very pleased to update our financial guidance for the full year 2026, following the several M&A transactions that we've announced. I'm really referring to WPI on April 1st, Tancredi on July 1st, and as of last week, the acquisition of The Advocacy Partners in Florida as of August 1st. Based on our ongoing expectation that we will deliver approximately 5% organic growth in combination with the aforementioned acquisitions, we're now anticipating reported revenue to come out in the range of $213 million to $216 million, and Adjusted EBITDA in the range of $48.5 million to $50.5 million at a margin between 22.5% and 23.5%.

Compared to our previous guidance, this represents approximately an additional $8 million in revenue, $2.5 million in Adjusted EBITDA, and a margin range that is 50 basis points higher than our previous guidance. What has not changed is that we continue to expect strong free cash flow conversion in the balance of the year, consistent with our normal second half weighting. First, to set things up, a quick overview emphasizing that we're really pleased with how the year has been progressing so far. We've grown revenues by 16.3%, including a healthy dose of organic growth. Alongside, our profit has gone up and we've controlled our margin in a way that we're able to reiterate and strengthen the guidance that I just gave you. So let's look at the financial highlights. Here's a chart that captures our primary KPIs, both for the three months and the six months.