H&R Block, Inc. (HRB) Q1 2027 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the PPHC Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Will then hear an automated message advising your hand is raised. To withdraw your question, please press 1-1 again. Please be advised, today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matthew Manzanti. Please go ahead.

Thank you, operator, and good afternoon. With me today are Stuart Hall, our Chief Executive Officer Roel Smiths, our chief financial officer and Thomas Ginsmer, 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 will now turn the call over to Stuart.

Thank you, Matthew, and thanks to everybody for joining us as always this afternoon. Third quarter was another period of steady execution against a backdrop of an unpredictable policymaking and communications environment which, of course, led to increasing client demand. Third quarter revenue increased 13.2% to $55.2 million including organic growth of 5.1%, which was up from 3.9% in the second quarter. Adjusted EBITDA increased 11.1% to $12.8 million and that was achieved at a 23.2% margin. For the first 9 months, revenue is up 15.2%, to $157.5 million and adjusted EBITDA is up 9.9% to $36.2 million at a 23% margin. Right in the middle of our guidance range that we raised in August. We are on track for the full year today, and today, we are reaffirming that guidance that we raised last quarter. Roel is going to take you through the quarterly results and the underlying drivers in more details shortly. Beyond the numbers, there are a few highlights in the deck and recent news I want to point out. Some of the most exciting highlights of the period come directly from commercial momentum across our firms, including a few timely new offerings listed here and new AI enabled tools and advisory offerings that expand the services we make available to our clients. Our 2 M and A transactions in the third quarter are already being integrated into their respective segments, and are now making meaningful contributions. With our new government relations firm in Tallahassee, Florida now on board, we have market leading teams in California, Texas, and Florida, 3 of the 4 largest state economies in the US, and arguably the most critical that our corporate clients need to navigate outside of Washington DC. This combination of federal and state expertise is as critical as ever for our ongoing success, and it is never more so than now. Collectively, through 4 acquisitions so far in 2026, we have added approximately $33 million in annualized net revenue based on the figures disclosed at announcement time on each of those transactions. And at pretax margins above our average while adding important capabilities to our service offerings. Specifically, as it relates to our expanded offering in corporate communications, Thomas will talk a little bit about our approach here as well as our latest acquisition, Revemark. Which we closed just last week, and it significantly deepens our advisory expertise in crisis litigation and financial communications. Finally, before handing it over to Roel for a complete financial report, that should take a couple of minutes to cover last week's elections. And specifically to answer a question we often hear from investors new to our story. What do elections actually mean for PPHC? The short answer is that you have maybe heard me say and or others, in our business since we started reporting results. London 5 years ago that change--political change, institutional change of control-- is good for our business. Regardless of the partisan outcome of that change. Last week, voters made their voices heard. And now new agendas and some new political actors are already getting to work. This is our team's time to shine as always. And not only at the federal level, with 3 of our firms among the 25 largest in DC by revenue, last week's elections put 21 new governors in office and decided more than 6 thousand state legislative seats. So agendas in state capitals are being reset at the same time as Washington's. With our firms in Texas Florida, and California on the ground in those state. In 3 of those significant states, backed by multistates coverage across all 50 states. Few, if any, of our peers can match the state level reach that we can help our clients. Remember, we do not do campaign and elections work. Our firms are bipartisan by design and built to stay. Clients pay us to understand a dynamic new political and reputational landscape quickly. And position them to act within it. Every election brings new members and new priorities at federal, state, and local levels. And this year's elections have delivered that in some major and almost unprecedented ways. We help clients manage the risk and pursue the opportunities that emerge from environments like these. it is maybe worth me being quite specific about how our business segments respond to an election because they are all a bit different, but that is by design. Government relations is steady through transitions like this. it is roughly 58% of our total revenue at the moment, and our lobbying firms typically go into the year with about 90% of that revenue already identified. The work does not pause for an election. there is a lame duck session ahead. And the agenda before the new congress and the new state sessions is being written and articulated right now as we speak. Bottom line, government relations has grown 7.5% organically in the third quarter and is up 6.7% through the first 9 months. And we expect that steady base to continue to grow. As for our corporate comms and public affairs firms, in our experience over the past decade or more, once the political players and their mandates are established, our clients need for policy influence campaign, coalition management, expert public affairs--all grow, all grow as new agendas take shape. We saw this play out clearly the last cycle. The comm segment was softer through 2024 and then grew 9% organically in 2025 including 22% in the second quarter alone last year. As clients mobilized around the new agendas. You have seen this chart before. And the consistency in our growth over the past decade is something we are proud of. At the same time, we believe our positioning for future growth stronger than at any time in the past. So with that, I am going to hand it over for. To Roel for a closer look at the numbers. Roel.

Thank you, Stuart. First, to set things up, here's a quick overview. I would like to emphasize that we are really pleased with how this year has been progressing so far. We have grown our revenues by 15%, including a healthy dose of organic growth. And alongside, our profit has gone up, and we have controlled our margin in a way that aligns with the guidance we have been providing. Providing throughout this year. So let's look at the financial highlights. Here's a chart that captures our primary KPIs both for the 3 months and for the 9 months. As Stuart already mentioned, revenue in the third quarter was $55 million, up 13% year over year, which includes contributions from the acquisitions that joined this year. Organic growth in the quarter was 5%, up from 3.9% in the second quarter Now for the first 9 months, revenue was $157 million, up 15% with organic growth of 4.7%. Consistent with the approximately 5% average annual organic growth that underpins our outlook. So then let's look at EBITDA, adjusted EBITDA. For the Q3, our adjusted EBITDA was $12.8 million up 11% versus prior year. And we delivered that at a 23.2% margin, which compares to a 23.6% margin a year ago. Then for the first 9 months, adjusted EBITDA was $36.2 million, up 9.9% and delivered at a 23% margin compared to 24.1% a year ago. Firmly within our guidance range for 2026. Now as we already alluded to, in the announcement of our 6 month figures 3 months ago, the year over year margin difference is not driven by our member companies. But really by an increase in expense at the holding company level. In the first 9 months, our non allocated corporate costs increased by $3.9 million to $13 million primarily driven by our first year as a U. S. Public company and the associated continued build out of our central platform. Then moving to adjusted net income. Adjusted net income of $28.6 million for the first 9 months was up 12.8%. Now this was helped by the fact that in this period, our effective tax rate on adjusted profits was 11% only for the first 9 months. Compared to 15.5% last year. As I have explained also on previous calls, the phasing of our tax provision in the quarter was heavily impacted by our GAAP results So quarterly rates are not indicative of where the full year will end for our tax rate. Looking at the per share results on a GAAP basis, So for the quarter, we reported a net loss per share of $0.01 per share. Compared to a net loss of $0.45 per share a year ago. And we see the same type of steep improvements for the 9 months GAAP EPS. Now that improvement is mostly due to the noncash bargain purchase gain that we realized on this quarter's acquisitions. And this bargain purchase gain is an accounting outcome. it is not an economic 1. In the past, I have explained how we sometimes realize bargain purchase gain income because of the way that we structure our M and A transactions. And therefore, we have to account for those M&A transactions in a certain way that impacts our P&L. At the same time, the same restructuring reasons, we also have to take some of our M&A payments through our P&L in the form of post combination compensation charges. And finally, in Q3, our GAAP results still included the share based accounting charge that stems from our 2021 London listing and which is anticipated to fully roll off at the end of this fiscal year. So for all these reasons, we continue to believe that looking at the adjusted net income and adjusted EPS, alongside the stated GAAP results makes it easier to interpret our results. So let's look at the adjusted EPS on a fully diluted basis. They were $0.33 for the quarter compared to $0.36 last year. And for the first 9 months, there were $0.92 compared to $0.97 last year. The step-down in this adjusted EPS is not driven by the earnings. On the contrary, as we have just seen, adjusted net income went up decisively. it is driven by the share count Our average fully diluted share count increased by about 18% year over year, and that is primarily a result of the Nasdaq IPO in January 2026. At the same time, that dilution provided us the capital this year to do most of the 2026 acquisitions without adding any extra debt. So looking at free cash flow. Adjusted free cash flow for the 9 months period totaled $14.6 million compared to $21 million last year. That was helped by a $10 million contribution to our free cash flow in the third quarter. Now as we discussed already after Q2, the year to date shortfall in free cash flow is primarily due to cash deployments for working capital purposes. Primarily on the receivables side. Which increased $11.6 million over these 9 months. Now that increase in receivables was not only driven by the various acquisitions we have been doing, but also to some extent by organic factors. Now fortunately, we have been working hard on addressing the organic factors, and we have seen a material improvement in our receivables balances at the end of Q3 and now also in the beginning of Q4. And therefore, we are counting on our last quarter to be a very traditionally strong cash generating quarter. And that brings me to the balance sheet. We ended the quarter with $18 million of cash against a total debt of approximately $40 million for a net debt position of $21 million. And that is equivalent to approximately 0.4x our trailing adjusted EBITDA. Now that compares to $5 million of net debt at the end of June, that is not shown on this chart. And this increase you know, in Quarter 3 reflects closing payments that we have made for 10 credit and efficacy partners both acquisitions being funded from cash on the balance sheet. But comparing our net debt position to the same time last year, which was $38 million, We can say that we are really still in a position of real balance sheet strength with ample flexibility for continued earnings-accretive M&A. Now let's go to this next chart and look at the organic growth by segment a bit deeper. In this chart at the top, you see the organic growth for the past 4 years, and at the bottom, you see a quarterly breakout for the past 2 years. So just going from left to right, and 1 can see that government relations here depicted in dark blue and as Stuart mentioned, our anchor activity has approximately 58% of our total revenue. While that government relations has accelerated its growth, 7.5% organic growth for the first 9 months, and this 7.5% was recorded both for Q2 and Q3. At the same time, corporate communications and public affairs abbreviated to CCPA, has shown relatively muted growth these 9 months. At -1% year-to-date, and with the quarter so far being +3%, -3%, and -1%. As Stuart already alluded to, this soft performance is partially the effect of strong comparables in 25, as well as the traditionally slower pace in the lead-up to a new election. Finally, compliance and insight services which represents approximately 7% of our business, keeps growing at double digits. So far this year in the mid teens, really outstanding results. So then we go to the next chart. In last quarter, we introduced this new chart, and it does a very clear job of showing the reasons of our margin movements. In this case depicted for the 9 months When looking at the margin changes in our segments, we can see that government relations expanded its margin further. Which really reflects the stable pricing of our retainer contracts as well as some scale economies. Conversely, in CCPA, we see a margin reduction driven by the lower project volume that I already talked about. In an election year, against a strong prior year comparable. And finally, the CIS margin appears to be coming down, but I will admit that in this specific case, this is also driven by our cost allocation structure for this segment, and it does not really represent the fundamental weakening of the profitability of this segment. But when taking together the 3 segments in aggregate, we see a blended segment margin of 39.5%, which is very much aligned with last year, effective 2 ticks up. So overall, not a big change in the margins delivered by our member companies. But below that blended segment margin, 1 can see the impact of our holding company costs. Those holding company costs went from 7% of revenue last year to 8.5% of revenue this year. And as previously mentioned, this was primarily the result of the IPO cost, and all the associated investments we had to make in staff, and tech stack and our advisers. Finally, at the bottom of this chart, the bonus pool remains relatively steady around 8% of revenue. And taken together, these factors lead us to the adjusted EBITDA margin that we are presenting to you today, 23%. Now we believe that this overview very clearly demonstrates that the margin pressure we are currently experiencing is not so much a function of our business results, but is really a result of our holdco investments. And the impact of those holdco investments will diminish as we continue on the growth path. Now as I did last quarter, I am going to skip the charts covering the management P&L, the cash flow statement, and the net debt position. During this deck, and together with all the appendices for your future reference later. After reviewing these financials, I also would like to quickly reemphasize an observation we already made in previous quarters on our future GAAP results. So in this chart for illustration, we outlined a multiyear GAAP results, and they traditionally include a lot of non cash charges. Then at the bottom, we also show what those GAAP results would have looked like had it not been for the share based accounting charge. And as I have explained already earlier, these have been in our filings since the end of 21 because the share based accounting charge is a remnant of our 2021 London listing. It has no cash impact. It has no share dilutive impact. And at the end of 26, after 5 years, this amortization charge is scheduled to roll off. So as of 2027, this share based accounting charge is no longer going to be there, and that is going to greatly enhance our GAAP profitability. And that concludes my part and brings me to the guidance. With 9 months behind us, we are reaffirming our full year 2026 guidance. After raising it last quarter. So we continue to anticipate that our reported revenue is going to end up in the range between $213 million and $216 million And the adjusted EBITDA is going to end up in the range between $48.5 million and $50.5 million. A margin of between 22.5%-23.5%. We have not increased the guidance as a consequence of last week's Revemark acquisition, We chose not to do so because the profit contribution of the Revemark acquisition for the 2 months in 2026 is relatively small, would not materially lift us above the guidance that we already provided to you. So as always, our guidance does not take into account any future acquisitions. For us, the main variable for the fourth quarter in 26 is how much project work will follow the election outcome Across the rest of the business, our retailers are giving us good visibility on how that is gonna roll off. We continue to expect strong free cash flow conversion in the fourth quarter, consistent with our normal second half weighting of cash generation. And with that, I will hand it now over to Thomas Ginsmer.

Thank you, Roel, and thanks again for everyone joining us today. Stuart and Roel set it up nicely just how our core business segments are responding to change political environments and the economic conditions more generally. I will say it here again. PPHC is and will remain anchored in political communications. As many of you know, lobbying in public affairs is our origin story, and it remains our competitive advantage versus our closest competitors. Our addition of the advocacy partners, a leading Florida state lobbying firm, earlier in the third quarter is a clear statement of that commitment. So let me use the bulk of my time today to explain just how and why we are working to deepen the complementary capabilities in corporate and crisis communications. To expand our positioning and to be able to provide clients the best advice on their most critical challenges. And in turn, driving growth across the platform. As with the exciting deal announced just last week with Revemark, which is really a premier firm here in New York, We have been busy growing our litigation transaction and crisis communications capabilities. All that fit closely with our core services. Simply put, a company's reputation its legal positioning, and its regulatory exposure all collide in times like these. Trail Runner International, headquarters in Dallas, and with a network of offices from San Francisco to The Middle East, is now in its second financial year with us. And that team continues to shine for clients when the stakes are the highest. Big corporates, universities, sports franchises, asset managers. that is their bread and butter client. In July, Ken Tancredi joined as the first member of what we now call Trail Runner Group. Adding deep corporate crisis and litigation communications capabilities in London and across Europe. And now Revemark deepens our footprint and connectivity in the world's financial capital here in New York, as the second member of that group. As Stuart has said many times before, there is no such thing as a reputation problem that is not political. Or a political problem that is not reputational. Clients want 1 team that can handle it all, and increasingly, that team is ours. And finally, a word on our M&A pipeline. We remain active but are increasingly selective. Focusing on integration and cross selling of the current portfolio. We have dozens of quite specific opportunities at various stages of review and mostly to fit geographic gaps. Our criteria are unchanged. Firms with 10 to $30 million in revenue, margins that support our overall profile, and clear cross selling opportunities into the existing portfolio. Our pace of 2 to 4 transactions a year is proven by our recent activity and appropriate for our stated ambitions. With that, I will hand it back to Stuart.

Thanks, Thomas. And I will add that to support the pace of growth that we are discussing here, and Thomas was just talking about, Last week, we announced a new 5-year, $105 million senior secured credit facility with our longtime partners at Bank of America. We intend to increase it to $150 million through a syndication expected in January 2027, and it includes an uncommitted accordion of up to $50 million. Together with our strong operating cash flow that gives us the capacity to act on the right opportunities when they present themselves and it keeps leverage within our stated range of 1.5 to 2x adjusted EBITDA. To wrap up here today and to get to your questions, I wanna highlight the 4 core elements of PPHC's business profile in summary for those of you who may be new to the story. First, it is stability. Roughly 90% of our revenue is retainer based. Client retention is in the mid eighties. And no single client is more than 2% of the entire book. Second, profitability. Our EBITDA remains consistently high year over year along with the growth in the gains of our top line revenue as well. As a result, we convert that at a very good rate to free cash flow which we are able to reinvest in further M and A and other activities to grow and support the business. Third, it is growth. Organic growth in each quarter of this year, 4 acquisitions completed, a robust pipeline remains under consideration. And a new policy agenda that is forming at every level of government heading in 2027. When clients need to navigate that, it is PPHC companies that they are going to call. And fourth, most importantly, and I always end the calls this way, I am making this point. it is our people. Nearly half of our roughly 500 employees hold some form of equity in PPHC and more than 160 hold registered inactive shares. They think like owners because they are owners. This model is built around keeping our best talent. Bringing in the next generation into ownership, and aligning the interest of our employees with the success of the business. We appreciate your time today and your continued interest in PPHC. Operator, we will open the call for questions, and Thomas and Roel will be available to answer them. Thanks.

Thank you. Ladies and gentlemen, if you have a question or a comment, please press star then 1. To remove yourself from the queue, please press star then 2. We will pause for a moment while we compile Our first question comes from Eric Wold with Telsey Advisory Group. Your line is open.

Thank you. Good afternoon. A couple of questions for me. I guess, first off, with the 4 acquisitions completed this year so far, maybe give a little bit of color just on the kind of the progress of integrating those into the company and kind of what you have seen in terms of the rate at which those teams have been able to work and kind of cross work with other partners as well?

Sure thing, Eric. it is Thomas here. I will start on the sort of. there is 2 aspects to this. 1 is sort cultural and bringing teams together, and the other is sort of operational and financial Roel report happily that the well oiled machine on operations means that sort of financial aggregation starts at day 1 after deal. The cultural side is more interesting. In that it sort of we do not we do not change the flags above people's business cards. We do not issue new, you know, mandates for office space. We keep the continuity of the business while introducing the specializations into the other disciplines. And there is very little duplication despite the fact that the segmentation does cluster the firms. The example of Revemark last week is 1 that they are already on calls with some of their colleagues across the group on pending matters or shared clients that existed before the transaction. And, usually, we even lay the groundwork for that during our diligence, and that we want to get people ingratiated and use the value of our network as sort of part of the M and A story and getting people over the line or convincing them to go with us in case of competitive bids. Roel and operations and financial. Go ahead.

Yes. Hi, Eric. it is Roel. Indeed, we have principle that we would like our new acquisitions to be on our systems on day 1. Which, you know, for finance is basically always realized. So we have them on our system economy essentially the first day that they are part of us. And payroll that is also on day 1, if they are based in the US, while others are based outside the US like Tancredi,, then we leave them on their own payroll system. for the first few months. So that is basically our principle of getting, in any case, our hands around back office, and that has worked well. Obviously, these things can only happen in close collaboration both with the management team of the acquired company as well as the prior accountants. And that typically really happens pre closing of the transaction.

Perfect and then the. A follow-up question. You talked about having a robust pipeline and kind of looking at you know, dozens of companies in various stages right now. How would you kind of describe the kind of evaluation environment right now And then when we get into a period like, post the midterm, kind of this kind of big change in mindset, does that tend to be an environment where sellers in the government relations consulting segment you would want to sell? Or is it they kind of hunker down and go, you know, just deal with the busy work?

Yeah. On the first, I will say we remain an environment that most of our competition at scale and for these specialty assets are within private equity. And so the marks are not exactly on valuation. With that, I will also say that versus 12 and 18 months ago, valuations out there become more realistic. While there is still sort of premium players. there is there is, you know, less froth, shall we say, in what we look at. Again, these are small specialty assets in the world. Is quite small. On the second question when it comes to. Well, Roel, I will hand it to you if you have anything to add on the 2 parts.

Well, no. I think the way we structure our transactions is quite particular, and it is automatically always provides a derisking hedge if you want. On the valuation because we work not only with earn outs, but also those earn outs are paid part in cash, part in shares. And they are strictly dependent on the outcome of these future earn out payments on growth in profits. Realized after the day of completion. And that way, we are able to, I think, still be very competitive because those sellers who believe that they need a so low growth sitting in their company they will be happy to sign up, and they know that they can monetize their know, asset that they are selling. Yep.

On the lobbying side, just to circle back to the second half of your question, Eric, you know, it is a really fragmented market still.

And so more than 2.5 thousand individual sort of firms report at the federal level at least. And they make up such a broad spectrum of sort of both ideological and specialties, it is hard to sort of say whether the change. Know, everyone doubles down again in change. In times of change because, as we have always said, now is the time that we move from campaign operators to policy operators. It will be another inflection point as we look 2028 where some of the bigger firms like us in the top, call it, 30 or even 50, will. But the bipartisan stripes are where we both get to that scale and that stability because we weather the storm more. Exits will come and go. We have certainly seen more of our competition sort of coming to our core lobbying space in recent, you know, months. But those conversations, I think, will happen regardless of the steady state of the lobbying work is what makes it so interesting to build a platform like we have. it is just a. We all retained heavies steady workhorse in the portfolio.

Perfect. Thank you both.

Cheers. Thank you for your questions. 1 moment for our next question. Our next question comes from Jason Tilchen with Canaccord Genuity. Your line is open.

Good afternoon, everyone. Thanks for taking my questions. Apologies if you have covered this off already as I have been jumping between a few calls. Also appreciate that you have talked a lot about the high level impact of election cycles. On some recent earnings calls. But just curious, given the magnitude of the shift in the political landscape we saw last week, curious if you have any additional thoughts on how that may impact the various parts of your business. Thank you.

Right now, as Stuart said in the call, we see it as the cycles of the past. Like, we have. The media environment. I mean, it, you know, very dramatic. there is been other big majorities in 2092 and 2006 and otherwise. So when you look at the longer picture outside of the hysteria that is very much a Trump era phenomenon on both sides, we look at change as good. All the new committees, all the new members, and the fact that even despite the headlines you know, moderation won in this environment. So we see that as both good for business broadly for us and for the business economy broadly. Because you are gonna have maybe a slight quiet of the extremes that exist on both sides. Towards more places. You know, you look at Kansas, North Carolina, really close to elections in Florida. Yeah. It stayed Republican, but it is still a signal across the board that moderate will prevail. Maybe that will decrease some of the noise to speak, but it will not change the need for our clients to engage proactively and reactively in some cases, whether the correction in order with government at all levels. So we see the resounding sort of reminder of democracy in a way and the fact that sort of like it or not, the role of government with and for business is sort of part of the equation.

Right. that is very, very helpful. And I would like to do this every quarter because you guys are so active on the M and A front. If you could maybe just refresh where you stand today on the priority list, sort of your internal checklist that you are willing to at least, share with us, sort of top priorities, whether it be from a capability or geographic standpoint on a go forward basis here. Thank you.

Sure. I mean, we have now checked the state box domestically speaking, with the Florida acquisition this quarter, which we are very happy and it was a long time pursuit for those of you who have been with us for the London years, as we call them. We will say there is some deepening across those states, and we really think the state play, multistate and the individual actors is a really important piece of the portfolio going forward. So that being said on the on the GR side. Still, in the comm space particularly broader Europe. We are still not in Brussels in any full time capacity. And we have identified that as outstanding. We do have client interests and increased needs with depth in The Middle East and in parts of Asia, and so we are certainly opportunistic to leads in those spaces, and we do some networking both with clients and otherwise to deepen our early bets, particularly in The Middle East. But it is really main. Remained much the same. I will say with Revemark in particular, that thesis that we laid out both with TrailRunner 2 years ago and then sharpening with Tancredi in recent months, you know, on the litigation and sort of special events or transaction comms. Is really sharp now. We have gotten, you know, in addition to TrailRunner, we have added 2 regionally specific, sharp, sets of specialties in that. And so, you know, we never check a box because the market evolves so quickly, but we can sort of both focus more back to the policy and lobbying moats. We have we have to reassess and then there are the continued comms. Roel, you may have more to more to add on that if you will, please.

Yes, please. No, actually, 1 point, Jason, on the GR. M and a appetite. I know Thomas alluded to the state activities that we picked up over there. But I would like to state that clearly we would still be very interested in acquiring something that is in New York state. And, yeah, indeed, it is not anywhere in the world where there is a really well formed mature government relations markets we would potentially be interested in but they need first and foremost as Thomas already mentioned, is Brussels because the EU is our next big thing.

Right. Very helpful. Thank you very much. Have a good night.

1 moment for our next question. Our next question comes from Scott Schneeberger with Oppenheimer. Your line is open.

Thanks. Good afternoon, guys. I want to kind of dig in a little bit on the strength of GR in the third quarter. The organic revenue grew 7.5% year over year. Quite strong. it is been covered a little bit in overview, but just wanna dig in. How much is that potentially seasonal? Was there some unique activity ahead of the midterms? You know, maybe not direct, but indirect. And kind of where does it shake out? Was it federal? Was it state? Just kinda curious of where that was and for mostly federal. But just a layer deeper, please, if we could on the strong growth.

I will let me take that 1. No. It was very much spread between state and federal. And I should also highlight actually strength in London. The page field has been growing. it is a GR business quite substantially. So really, we saw it on all fronts. And, of course, that we are pleased about that because that also gives us more confidence in our basis for further growth in the future.

And I will just add the robustness in federal is higher than our, you know, what we have been doing that for 5 and 6 congressional cycles now in the long term, But DC. The dynamic of DC is different now in Trump 2 than it is been before. So just a higher engagement level by clients for a whole variety of reasons. And then, particularly, I was gonna add on California, just getting down. It was an extended cycle. Newsom was coming to the end of his term, is now at the end of his term. They had an extended cycle that dealt with a lot of tech issues. Some of the childhood safety issues, other things that were up. You know, was a very robust end to the August California legislative cycle, so it kept California firms very busy. Great.

Thanks, both of you. I am going to follow that with just what are the main drivers that you are seeing out there? You know, is it the AI evolution, you know, tariffs, crypto, you know, just what are some of the drivers that you have seen at the high level and how do you anticipate that changing with the with the change. The political changes from last week? On what may be at the forefront. More of the same, or do you see things rising up? That have not been there before? Thanks.

I mean, I think it is usually more of the same because gridlock in Washington will remain. You know, our job is sort of managing through gridlock And while we have a change of gridlock, there is still no 1 has control of all 3. Super busy has been on health care, on the broad speaking health care efforts or health care practice. there is a bunch of things that this state level in 2027 that was part of Trump's big beautiful bill. That will sort of will expire. And so at the both state level and where it impacts the federal money, the health care practice has been very. energy remains just front and center for obvious reasons. War, plus just the fact of energy and all things on that sector. Tech, I would mentioned before, from California to Washington has been a very active segment, and no question will remain and then the broad. As we broadly speaking, the AI tailwinds that we are feeling is always new players in Washington. So you have some new hyperscalers that are becoming sort of institutional players in Washington. That are net new to the overall economy. And then just the tentacles of that issue down into state local jurisdiction and every other thing is unlike other past entrants to the to the federal market. So I am firing that on federal and state level simultaneously or often starting at the township level at the data center and moving up very quickly. Is a new sort of growth phenomenon that is AI specific given the energy ties to it.

Yeah. No. I mean, Scott, I know that in the past, we have said that actually when you look at our revenue profile in the industry, we almost look like The US economy. And that is still the case. And right now, loads of attention to tech and AI, and, yes, we see that as well in our revenues and where new clients are coming from.

Thank you both again. And just a last 1 to clean up. Congratulations, 1, on the recent acquisition. They all look very good and very exciting. and the new credit facility. I am just curious, I think, Thomas, you mentioned in prepared remarks that the sweet spot is, I think, revenue of 10 to 30. Please correct me if I am wrong.

I did 10 to 30. Yeah. that is where, you know, there are some that live below and above that line in what we are chasing, but that-- Those are safe parameters that our that our model really works well for.

Yeah. I guess the question on that is, are there a lot of things up at the high end at the $30 million end? And now with a credit facility, I mean, it just makes it very easy and gives you added flexibility to go do that. Is that something we should be watching for? In 2027, or is that. It just not an appropriate read?

I will never say never and that, you know, this industry is broad and very fragmented, and so we find things that we do not know of today. But when we look at high margin sort of specialty comms or policy expertise, it is not getting to 30-plus scale that naturally. So trail runner was sort of the largest of its time in that, and it had a corporate wallet that, you know, is additive to our capabilities. As we look now at sort of deepening and then doing geography, never going to say never again, but it is our sweet spot and those that we build outbound relationships and networking with or in the things that we know we can digest and are sort of additive and not duplicative. We are not really looking for conflicts shops or other sort of scaled plays right now. We are really looking to fill in gaps we know we can have on-site. You know, outsized growth. So, you know, it is a it is a soft answer because we are open and because we have been doing this capital markets and otherwise, we are getting more and more inbound from folks that are helping along the way. Sorry for the firetruck. it is New York City. But, yes, that is where we are from a targeting perspective, and then the outbound sort of remains. We enjoy the sort of getting to know, and then we benefit from clients who introduce us to new capabilities and new geographies along the way too. Excellent. Thanks, guys. I will turn it over.

1 moment for our next question. Our next question comes from Samuel Dindal with Stifel. Your line is open.

Okay. Thank you. Good afternoon, guys. 2 questions for me, please. Firstly, on the AI tools, which you mentioned bring new subs to clients. So if you can get any color on what you are seeing there and how that is all driving new revenue. And then secondly, on cross selling, I appreciate the Trail Runner, and you have added to that with Tancredi and Revemark. This year. Just how are you going to ensure you sort of capture those growth opportunities and make sure everyone knows the services you now have given that sort of material step change in that business? Thank you.

I will take the first and give the second to my colleague. On the AI tools, you know, we are finding. 1, we are happy that we did not sort of build group wide capabilities in this at the start of the year or last year because the sand is shifting under all of our feet. Very quickly. And so we have we have used our federated model to really test different things both bespoke for client needs and then broadly speaking, where we see time-saving opportunities. So I have used before the example of congressional hearings. Used to take time to reach transcription that would then turn into look to client, you know, deliverables. Now we have sort of agents that are working for that. Across the sort of federal portfolio where we have the transcriptions up. that is just a very sort of small but meaningful use of time for our clients. We have seen in the comms businesses both on-route media monitoring and up to the research side that we are doing synthetic sampling. And synthetic message testing against things that used to just be focus group. We are political practitioners at heart, so we still do human contacts and human samples. But how you can bring insights to clients in cheaper, faster ways using AI tools is profound, and it is changing the research industry. So where those live, predominantly in our comms businesses, are seeing dramatic test and learn, but also a huge client appetite for bringing new product and new screens. Finally, I will just add, we have we have done something that is patent pending in 1 of the London operations around a reputation score called GPS, which is allowing people to sort of manage reputational risks across the different LLMs. And we have now sold it across, I think, 6 or 7 of the firms, so ranging from London to Sacramento and DC. it is something that can incubate within 1 aspect of the group, but then be sort of cross sold through, you know, the work we do bringing the colleagues together as sort of trusted references. So that is called the Pagefield GPS, and it now being sort of rolled out across some of the other companies.

Over to you, Roel. Sorry. No. that is all good. So your second question, Sami, was how do we capture the growth between acquisitions in general and between TrailRunner, Tancredi, and Revemark in particular. Yep. Exactly. Yes. And the answer to that is, Listen, we have got our sort of collection of tools that we continue to sort of further build out to encourage this collaboration between our companies. Because, obviously, that is where we you know, create a lot of our value. We do that through very regular business development calls you know, between various business development teams. And we have, you know, twice a year, like, summit. We actually had this quarter our first also NextGen summit, and basically bringing a lot of people together in Texas, 1 of the meetings that Thomas hosted. And, you know, in our business,, it is very important that people get to know each other and trust each other because when they want to share their clients with, let's say a sister company, they have to trust and know that the company will treat their clients in the right way. So from that perspective, you know, we are still small enough that we can have a lot of actual connections between our people, and that will drive you know, collaboration. And John Green, our chief client officer, is relentless in terms of pursuing a multi company client prospects. So prior prospects that are being pursued by 2 or more companies. And then, you know, as on the finance side, we try to measure this collaboration comfortably. And then, you know, we have talked in the past about how we measure the percentage of businesses referred, the percentage of business that comes from clients, that are being serviced by more than 2 of our companies. And we have trend lines in our monthly management reports. And as long as that trend line goes up, we know we are doing better than yesterday, but we also know that tomorrow we will still be doing better than today. And now with respect to that new group, the trail runner group in particular, you know, we can leave it to Jim Wilkinson to, you know, be very energetic when it comes to bringing these companies together, you know, for jointly developing our client opportunities. You know, Trailer Runner is a very specific new business culture which I am sure he will try to also infect the other companies with. And actually, we have already seen that. And they have been on joint roadshows to meet with a lot of law firms to basically solicit litigation communications business. I know that there is been roadshows in London, in Italy, So there is a lot going on already on this front, and we will keep doing it. Because this is, you know, frankly, where we add a lot of value there. Brilliant. Thank you.

Thanks for the question, Sami.

And I am not showing any further questions this time. As such, this does conclude today's presentation. We thank you for your participation. We hope you have a nice day. You may now disconnect, and have a wonderful day. Thank you.