PPHC Public Policy Holding Company Inc.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ('MAR'). Upon the publication of this announcement via a Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.

Public Policy Holding Company, Inc.

("PPHC", the "Company" or the "Group")

Unaudited interim results for the six months ended 30 June 2024

Strategic execution delivers positive financial and operational progress; full year expectations affirmed

Public Policy Holding Company, Inc., the leading government relations and public affairs group of companies providing a comprehensive range of advisory services, today announces its unaudited interim results for the six months ended 30 June 2024 ("H1 2024" or the "Period").

Financial Highlights

·      H1 revenue increased 8% to $71.1m (H1 2023: $65.7m), with organic growth contributing 1.2% and the balance driven by two earnings accretive acquisitions completed in the Period.

·      Underlying EBITDA of $17.4m, up 3%, was achieved at a 24.5% margin. This margin performance was achieved after the Group invested $1.8m into M&A advisory costs and further incremental investment in Concordant.

·      Underlying Profit after Tax of $13.2m is up 4% (H1 2023: $12.7m) with an increase in finance costs offset by a more favourable effective tax rate.

·      EPS of $0.113 was down 1%, primarily as a result of the average share count increasing by 5% (or 6% on a fully diluted basis).

·      The Group's balance sheet remains robust with strong free cashflow of $6.0m (H1 2023: $1.8m), enabling strategic progress via organic investment and earnings enhancing M&A.

·      Net Debt of $28.3m (H1 2023: $9.1m) reflects a prudent leverage ratio and the deployment of $23.7m to fund the H1 acquisitions.

·      The Board retains strong confidence in the Group's outlook and has declared an Interim Dividend of $0.047 per Common Outstanding Share, up 2% from last year's $0.046.

Operational Highlights

·      The Period showcases the Group's ability to successfully execute its stated growth strategy, with ten operating companies providing an enhanced complementary range of services to a now global client base:

o  Acquisition of London-based Pagefield, broadening the Group's operational presence outside of the US for the first time and providing significant revenue opportunity via the referral to and from the pre-existing Group.

o  Acquisition of California-based Lucas Public Affairs ("LPA"), expanding the Group's presence in a state that is characterised by a highly regulatory environment and would register as the world's fifth largest economy.

o  Integration of LPA has completed and the integration of Pagefield is being delivered as expected, with both companies already benefitting from client referrals via the wider PPHC network.

·      Revenue diversification further enhanced with the top 10 Group clients representing 7.6% of revenue in H1 2024 versus 8.4% at the end of FY23 and 10.0% for FY22.

·      By segment:

o  Government Relations grew strongly at 8% (4% organically) while Public Affairs decreased by 6% (13% organically) as a consequence of a reduction in project-based work due to pending elections and economic concerns. Diversified Services (Research and Compliance) grew strongly at 97% (32% organically), albeit from a lower base.

o  The revenue share of Government Relations remained stable at 71% (H1 2023: 71%); Public Affairs decreased marginally to 22% (H1 2023: 25%); and Diversified Services grew to 7% (H1 2023: 4%).

·      A broadening client base of c.1,200 Group clients is supported by sustained high retention rates, with the Group directly representing almost half of the Fortune 100 and a quarter of the Fortune 500, in addition to many more via trade associations.

·      The quality of PPHC's operating companies continues to be reflected in the 2024 Lobbying Disclosure Act rankings, with Group agencies, when aggregated, topping the rankings as the US market leader in both Q1 and Q2 2024, as well as for the previous 14 consecutive quarters.

Current Trading and Outlook

·      The performance delivered in H1 2024 has set the Group up well for the remainder of the year and it remains on track to meet full year market expectations, with Underlying EBITDA margin for H2 2024 expected to be at or slightly above the H1 2024 level.

·      The focus continues to be on driving client retention rates, new business generation following the outcomes of elections in the US and UK, and the continued cross-selling of services across the Group's broad operating company base to support organic growth prospects.

·      The market for public affairs and professional lobbying services in key geographies remains fragmented and the Board continues to view the Group as a natural consolidator with favourable bipartisan positioning.

·      The pipeline of acquisition opportunities under development in the US, UK and Mainland Europe remains strong in an active market for the government relations and strategic communications sectors. The Group is actively seeking to expand its portfolio of operating companies internationally with strategically and financially attractive opportunities while adding complementary specialisations.

·      The Board remains confident in the ongoing prospects for the Group and reiterates its medium-term guidance to achieve:

o  organic revenue growth between 5% and 10%;

o  incremental growth from future M&A; and

o  Underlying EBITDA margin between 25% and 30%.

Stewart Hall, CEO of PPHC, commented:

"I am pleased with the progress we have achieved in the first six months of the year as we continued to acquire excellent businesses complementing our wider growth strategy. We began our international expansion through the acquisition of Pagefield, giving us a foothold in the UK, while all ten of our operating companies are well positioned to benefit from increasing demand for their services as new governments and administrations are formed around the world, this year and next. Our ability to deliver organic growth in a period of impending elections is testament to the diversity of our revenue base and our high client retention rates.

"We have an exciting and robust M&A pipeline, both in the US and internationally, and are confident in our ability to deploy more capital to further accelerate our growth trajectory. I look forward to updating shareholders on our continued progress in the months ahead."

Enquiries

About PPHC

Incorporated in 2014, PPHC is a US-based government relations and public affairs group providing clients with a fully integrated and comprehensive range of services including government and public relations, research, and digital advocacy campaigns. Engaged by approximately 1,200 clients, including companies, trade associations and non-governmental organisations, the Group is active in all major sectors of the US economy, including healthcare and pharmaceuticals, financial services, energy, technology, telecoms and transportation. PPHC's services support clients to enhance and defend their reputations, advance policy goals, manage regulatory risk and engage with US federal and state-level policy makers, stakeholders, media and the public.

PPHC operates a holding company structure and currently has ten operating entities in the US and UK. Operating in the strategic communications market, the Group has a strong track record of organic and acquisitive growth, the latter focused on enhancing its capabilities and to establish new verticals, either within new geographies or new related offerings.

For more information, see www.pphcompany.com.

Operational Review

Introduction

The Group continued to make good progress in the first half of the year with organic growth supplemented by two earnings accretive acquisitions. With the Group's first international acquisition in Pagefield, we are closer to achieving our mission to provide effective government relations and advocacy services at a scale and sophistication level that has not previously been achieved, with professionalism and ever-broadening geographical reach.

Clients

PPHC provides a comprehensive range of government relations and public affairs services to its clients. As of 30 June 2024, the Group had c.1,200 clients. Every year around 75% of these clients renew their relationship with the Group, leading to revenue retention of c.85%. These numbers tend to be higher in our Government Relations and Diversified Services divisions, while lower in Public Affairs - where more work is done on a project basis.

In line with the trend we reported in 2023, we continued to see our operating divisions develop at different paces, with Government Relations - the largest of the Group's three divisions - increasing at 8%, of which 4% was organic, setting the Group up well for the remainder of the year. All three of the Group's lobbying firms, which sit within this division, maintained their consolidated number one position in the listing of Federal lobbyists, as according to quarterly and annual disclosures required by US Federal law and available to the public. Public Affairs decreased 6% (or 13% on an organic basis), primarily a result of reduced project work owing to uncertainty caused by impending elections as well as by sustained pressures on client budgets given the broader macro climate. The Group is extremely well positioned to capitalise on the uptake of client project work anticipated following the outcomes of elections and as macro pressures ease. Our newest division, Diversified Services, showed strong revenue growth of 97%, of which 32% was organic, albeit this does come from a low base and will moderate over time as the division grows.

A key focus of the Group remains on retained clients with greater than or equal to $100,000 annual spending. PPHC ended FY 2023 with 468 clients spending $100,000 or more and is on track to report growth in this KPI for FY 2024. This is supported by the internal referral awards and compensation programmes that are based on Group-wide performance. Other elements central to this growth strategy are (i) the start-up of Concordant which offers clients a single touchpoint to access a world-class strategic communications capability supported by a suite of PPHC services across all operating companies, and (ii) the leveraging of  premium non-lobbying services - such as compliance services for Federal and state-level lobbying, policy and trade research, stakeholder research, and a wide range of grant writing and procurement-related expertise.

The Group now directly represents nearly half of the Fortune 100 and quarter of the Fortune 500, in addition to many more via their trade associations that the Group serves.

Investing to accelerate growth

In Q2 2024, PPHC successfully completed the acquisitions of LPA and Pagefield. These were the Group's third and fourth significant acquisitions since IPO, the first being Sacramento-based KP Associates, which completed in 2022, and the second being MultiState Associates, which completed in 2023. Pagefield is a leading strategic communications and cross-party public affairs advisory firm in the UK, which is measured as the sixth largest global economy and, along with the EU, is at the forefront of global policy issues. LPA is a leading public affairs agency in California, the largest state economy in the US and is measured as the fifth largest global economy.

The acquisition of LPA strengthens the Group's position in a key US state and increases our expertise in critical sectors including technology, green energy, and healthcare, and the acquisition of Pagefield delivers on the Group's ambition to enter into international political capitals. LPA has now been fully integrated and the integration of Pagefield is progressing in line with our expectations. Both companies are successfully utilising the newly expanded PPHC network and have registered new business wins via intra-group client referrals.

The government relations and strategic communications markets remain active around the world and the Group is seeking to capitalise on the current pipeline of opportunities as it aims to further broaden its geographic base into key political geographies while adding complementary specialisations. The pipeline of M&A opportunities remains strong in the US, UK and Mainland Europe.

Current Trading and Outlook

·      The performance delivered in H1 2024 has set the Group up well for the remainder of the year and the Group is on track to meet full year market expectations, with the Underlying EBITDA margin for H2 2024 expected to be at or slightly above the H1 2024 level.

·      The Board retains its confidence in the ongoing prospects for the Group and reiterates its medium-term guidance to achieve:

o  organic revenue growth between 5% and 10%;

o  incremental growth from future M&A; and

o  an Underlying EBITDA margin between 25% and 30%.

Financial Review

In the first half of 2024, revenue grew 8% to $71.1m, demonstrating the stability of the Group's core business operations, the dedication of our management teams across our operating companies, the success of our acquisitions and the critical importance of our work to our clients.

Underlying EBITDA for the period of $17.4m, up 3% over H1 2023 ($16.9m), was achieved at a margin of 24.5% (H1 2023: 25.8%). As a result of the Group including all cash expenses in the underlying profit metrics, this Underlying EBITDA margin was impacted by an increase in M&A advisory expenses as well as the start-up investment into Concordant, totalling a $1.8m investment or 250bps of margin.

The Group's debt position at Period end of $33.8m, offset by cash of $5.5m, resulted in a Net Debt position of $28.3m (H1 2023: net debt $9.1m). The increase in debt related to the acquisitions of Lucas Public Affairs and Pagefield Communications in Q2 2024.

Underlying Profit & Loss Statement

Bridge from Underlying to Reported Results

Please refer to the section 'basis of preparation' for an explanation of the non-cash items excluded from Underlying Net Income.

Revenue

The Group's total revenue for H1 2024 increased by 8.0% to $71.1m (H1 2023: $65.7m). The organic growth rate was 1.2% and the remainder was driven by the acquisitions of Lucas Public Affairs and Pagefield Communications, as well as MultiState which completed in 2023.

Organic growth of 1.2% was the outcome of strong continued organic growth in Government Relations at 4% and Diversified Services at 32%, offset by a reduction in Public Affairs of 13%. The segments showing growth primarily contract through retainers and subscriptions, while the decline in Public Affairs stems from a reduction in project work, which is inherently more one-off in nature as described above.

In H1 2024, 71% of the Group's revenues stemmed from Government relations (H1 2023: 71%), 22% came from Public Affairs (H1 2023: 25%), and 7% from Diversified Services (H1 2023: 4%).

Profit

Underlying EBITDA of $17.4m was achieved at a margin of 24.5%, close to the Group's historic performance and ongoing guidance that margins will typically range between 25% and 30%. It should be noted that this half year's profit was impacted by $1.8m in incremental expenses with a one-off character, stemming from an increase in M&A advisory costs and also from start-up losses of Concordant. If adjusting for this, as has been done in the table below, the margin would have been 27.0%.

After interest and taxes, the Group's Underlying Net Income for H1 2024 amounted to $13.2m, up 4% from $12.7m in H1 2023.

Other

The Group's net finance costs for H1 2024 were $0.5m (H1 2023: $0.4m), illustrating the inclusion of additional debt on the Group's balance sheet at the time of the LPA and Pagefield acquisitions in Q2 2024.

The tax accrual for H1 2024 amounted to $3.7m (H1 2023: $3.8m), which represents a blended charge of 22% to Underlying Profit before Tax. This rate represents a slight improvement over the 23% effective rate in H1 2023 and is in line with the rate we recorded for FY 2023.

The Group ended 2023 with 333 employees and at 30 June 2024 this had increased to 367, primarily as a result of the acquisitions of LPA and Pagefield. The Group's average employee count during H1 was 330 (H1 2023: 294).

Cash flow

Adjustment to Presentation of Cash Flow

GAAP

During the Company's preparation of its consolidated financial statements for the six months ended 30 June 2024, management determined that certain cash flow items relating to payments made in respect of its acquisitions had been incorrectly classified within the consolidated statements of cash flows for the six months ended 30 June 2023 (unaudited) and the year ended 31 December 2023 (audited).  As a result, the Company has adjusted the GAAP statement of cash flow for its consolidated financial statements for the same periods in this interim filing. The Group anticipates that this will also be formally restated in its next Annual Report. Management emphasizes that these changes did not impact the Company's total assets, liabilities, equity or net profit or Earnings Per Share as of 30 June 2023 or 31 December 2023 or during the period or year then ended.

The adjustments all relate to the fact that, as part of the acquisitions that have been completed since PPHC's IPO in 2021, and in order to protect the interests of the Group, the shares and cash payable as part of these transactions can be clawed back and forfeited on certain events of termination of employment. In the P&L, the addition of these provisions to purchase price paid creates a post-combination compensation charge in accordance with accounting guidance under US GAAP (Accounting Standards Codification, ASC 805-10-55-25). In examining the accounting guidance in ASC 230, Classification of Certain Cash Receipts and Cash Payments, from this interim filing onwards, the Group will classify the cash flow impact of the post-combination compensation charges as cash used for operational purposes and in certain cases as cash used for financing purposes, as appropriate.

In addition, with respect to contingent consideration paid not within three months of the acquisition date, after examining the accounting guidance of ASC 230, Classification of Certain Cash Receipts and Cash Payments, from this interim filing onwards the Group will classify these payments as cash flow from financing activities (for the portion up to the acquisition date fair value of the contingent consideration liability) and cash flow from operating activities (for the portion in excess of the acquisition date fair value of that liability).

Non-GAAP

Notwithstanding the abovementioned adjusted GAAP presentation, as part of this Management commentary the Group will also continue to provide a non-GAAP summary of Cash Flows. In this non-GAAP summary, all acquisition-related payments will be clustered and reported under 'Cash Flow from Investments'. In addition, the Group now also presents, as part of Management commentary, the often used measure 'Free Cash Flow'.

Cash Flow summary

The Group recorded strong (non-GAAP) Cash Flow from Operations of $6.0m (H1 2023: $1.9m).  The generation of Cash Flow from Operations in the first half of the year tends to be muted as a result of the payment of annual bonuses across the Group in Q1 and seasonal working capital trends. Similar to prior years, management continues to expect the majority of Cash Flow from Operations to be generated in the second half of the year.

*See footnote 2 in footnotes to financials

Conversion Cash flow from Operations to Free Cash Flow

Balances end of period

The Group's debt position at the end of the Period was $33.8m, offset by cash of $5.5m, resulting in a Net Debt position of $28.3m (H1 2023: net debt $9.1m). The increase in debt relates to the acquisitions of Lucas Public Affairs and Pagefield Communications in Q2 2024.

Earnout obligations

As part of the typical structure applied for the acquisitions that were completed post-IPO, the Group also committed to making certain earnout payments. These earnout payments are based on a profit-driven formula and only materialise if the acquired company realises profit growth after the date of completion. Payments are typically made in a mix of cash and shares. In turn, each of these components of earnout payments may be subject to further vesting requirements and employment conditions, which keeps the recipients financially committed to the Group.

In relation to these earnout payments, the Group has liabilities recorded of $14.5m on its balance sheet, spread across the line items 'Contingent Consideration' and 'Other Liabilities'. This number is a reflection not only of the estimated foreseen nominal payments, but also of discount factors and fair value estimates.

In nominal terms, over the period 2025-2029, based on expected performance of each of the acquired companies, we anticipate having to make earnout payments of $43.6m, of which $24.5m payable in cash and the remainder in shares. The maximum earnout liability over that same period, which would only be reached if each acquisition meets very aggressive profit growth targets, would be $95.5m, of which $55.9m payable in cash and the remainder in shares. Generally, in order for an acquisition to reach maximum earnout payments, it would need to grow its profit by 25-30% annually over the earnout period.

Expected earnout liabilities - in nominal terms

Dividend

The Board of Directors of the Company has declared an Interim Dividend for 2024 of $0.047 per Common Share, which equates to an aggregate amount, based on the current number of outstanding Common Shares, of approximately $5.6m, payable to the holders of record of all of the issued and outstanding shares of the Company's Common Stock as of the close of business on the record date, 27 September 2024. The ex-dividend date is 26 September 2024. The dividend will be paid no later than 25 October 2024.

This interim payment is in line with the Company's intention to pay approximately one third of the expected total dividend for the year as an Interim Dividend. Going forward, the Group will continue to weigh the dividend payout against the need to preserve cash for M&A purposes and debt repayment.

Information per share

For the purpose of giving investors a useful view on Earnings Per Share, the Group computed EPS not only on a GAAP Reported Profit basis, but also on an Underlying Profit basis. As explained in the section below, for the latter calculation the Group includes in the denominator those shares that have been issued in relation to post-IPO acquisitions. While those shares are still subject to vesting rules, and therefore not part of the Common Outstanding share count per GAAP definition, they entitle the recipients to dividends and voting rights.

Note that the growth in weighted of average number of shares in H1 2024 (5% basic, 6% fully diluted) was not only driven by customary drivers such as LTIP issuance and M&A related issuances, but also by the one-off issue of 2.1m shares in the fourth quarter of 2023 in relation to the Alpine remediation plan.

Basis of preparation

The financial statements have been prepared in accordance with US GAAP (Generally Accepted Accounting Principles).

When the Company purchases services or goods on behalf of its clients (for example in the case of media purchases), the Group does not recognise the purchased goods as net revenue, but only the net fees earned on the purchases. Therefore, purchases on behalf of clients do not materially impact the top-line or the margins.

Management believes that Underlying EBITDA and Underlying Net Income are more useful performance indicators than the reported Net Income. Six elements distinguish our Underlying Net Income from our Reported Net Income:

(1) Share-based accounting charge: As already mentioned in the previous reports, shares issued to employee shareholders at the time of the IPO are subject to a vesting schedule; Also, their employment agreements contain certain provisions which enable cash derived from the sale of shares at the time of the IPO to be clawed back and forfeited on certain events of termination of employment. These items create a share-based accounting noncash charge in accordance with accounting guidance under US GAAP (Accounting Standards Codification, 718- 10-S99-2, compensation-stock compensation). Based on the value of the Company at the time of admission ($197m) and taking into account the 14.6% of pre-admission employee shares sold in 2021, the H1 2024 non-cash charge is $15.2m (H1 2023: $15.4m). This share-based accounting non-cash charge has no impact on either tax or Company operations.

(2) Post-combination compensation charge: In the acquisitions that have been completed since the IPO in 2021, the Group makes payments in cash and shares. In order to protect the interests of the Group, the shares issued as part of these transactions were made subject to vesting schedules. To a certain degree, the cash paid as part of these transactions can be clawed back and forfeited on certain events of termination of employment.

The addition of these provisions to purchase price paid creates a post-combination compensation charge in accordance with accounting guidance under US GAAP (Accounting Standards Codification, ASC 805-10-55-25). The H1 2024 charge was $4.7m (H1 2023: $3.0m). Again, this is a non-cash charge and has no impact on either tax or Company operations.

(3) LTIP charges. In 2022 the Group issued the first stock-based compensation units under the Omnibus Plan. This plan was introduced at the time of the IPO and allows the Group to issue up to a certain number of stock-related units (e.g. options, restricted stock). In H1 2024, PPHC issued 0.3 million (H1 2023: 0.6 million) stock options at a premium exercise price (market price at time of grant plus 20%), exercisable at the 3^rd anniversary of the grant. Also, the Group issued 2.9 million restricted stock units (H1 2023: 1.5m), 0.7 million restricted stock awards (H1 2023: 0.8m). No restricted stock appreciation awards were awarded (H1 2023: 1.9 million) as they are getting phased out. The charges relating to these issuances, $1.4m in H1 2024 (H1 2023: $0.7m), as reflected in our P&L were computed using the Black Scholes method.

(4) Amortization of intangibles: The non-cash amortization charge of $2.1m (H1 2023: $1.9m) relates to the amortization of customer relationships, developed technology, and noncompete agreements per ASC 805.

(5) Bargain purchase: As laid out in point 2, because a significant part of the purchase price of our acquisitions is tied to continued employment, this part has been accounted for as post-combination compensation in the Group's P&L. As a consequence, for certain acquisitions, the remaining book purchase price is lower than the tax purchase price. The reason for the bargain purchase gain is tied directly to the tax purchase price significantly exceeding the book purchase price and is not a reflection of a true bargain purchase of the actual intangible and tangible assets of these acquisitions. The income recorded relating to the bargain purchase was $2.4m in H1 2024 (H1 2023: $4.8m).

(6) Change in Contingent Consideration: The contingent consideration liability recorded as part of the acquisitions is adjusted at each reporting period for the change in the estimated fair value of that liability. The fair value changes over time based on management assumptions, the passage of time, payments made, and other external inputs, such as discount rates and volatility. The change in the estimated fair value of the contingent consideration is recorded as a non-operating expense of $2.3m in H1 2024. There was no change in the fair value of the contingent consideration in H1 2023.

For the calculation of Earnings per Share (EPS) based on GAAP Profit, as a denominator, the Group uses the weighted average number of Common Outstanding shares during the period. For the calculation of Earnings per Share (EPS) based on Underlying Profit, as a denominator, the Group uses the weighted average number of Legally Issued shares during the period. This comprises all the Common Outstanding shares, as well as those shares that were yet unvested but entitled the owner to dividends and voting rights (e.g. shares issued in relation to one of our post-IPO acquisitions). Consequently, the weighted average number of legally issued shares in H1 2024 was 116,439,545 (H1 2023: 111,323,766) and on a fully diluted basis (taking into account any issued stock instrument, regardless of exercise price), this number was 121,766,698 (H1 2023: 114,728,537).