Q4 2019 Earnings Call
Good morning, and welcome to the Interpublic Group fourth quarter is full year 2019 conference call. All parties are you need listen only mode until the question and answer portion.
At that time, if he would like to ask a question you May press star one.
This conference is being recorded.
Any objections you may disconnect at this time I would now like to introduce Mr., Jerry listening senior Vice President of Investor Relations. Sir you may begin.
Thank you good morning, Thank you for joining us.
Hosted our earnings release, and our slide presentation on our website Interpublic Dot com.
This morning, we are joined by Michael Ross and Alan Johnson.
We will begin with prepared remarks to be followed by acumen.
We plan to conclude before market open at 930 am eastern time.
During this call we will refer to forward looking statements about our company.
These are subject to the uncertainties in the cautionary statement.
It is included in our earnings release and slide presentation.
In further detail in our 10-K and other filings with the FCC.
We will also refer to certain non-GAAP measures.
We believe that these measures provide useful supplemental data that well not a substitute for GAAP measures.
Allow for greater transparency in the review of our financial and operational performance.
At this point it is my pleasure to turn things over to Michael Rob. Thank you Gerry. Thank you for joining US. This morning, as we review our results for the fourth quarter and 2019.
Recently joined this morning by our CFO Ellen Johnson.
I will start or call by covering the highlights of our performance as well as our outlook for the new year.
Alan will then provide additional details and I'll conclude with an update on our agencies to be followed by acumen.
We're very pleased to report strong performance for both the quarter and full year.
At the top of a financial highlights net revenue organic growth was 2.9% in the fourth quarter, which builds on the challenging 7.1 person calm in the fourth quarter of 2018.
That brings organic growth for the full year to 3.3%, which exceeded the high end up my targeted range for the year and again places us at the forefront of our industry.
Regionally fourth quarter U.S. organic growth was 2.1%, which is on top of the 6.3% U.S. organic growth in the fourth quarter of the prior year.
It's also worth noting that our growth in the U.S. This quarter includes at is in spite of the headwinds. We have described in prior calls, which drags on U.S. growth like 4.3% in the quarter.
International organic growth was 4.1%.
Which on top of 8% growth a year ago also represents continued strong performance.
I grew up next organically across the UK Continental Europe led Tam, Canada, the middle East with Asia Pac the sole exception.
[noise] globally, we saw solid Q4 increases.
Both our Ian and CMG segments, which reflects very broad participation of course agencies and disciplines.
Our growth was led by media data services and check.
We also saw contributions from our creatively led global integrated networks.
Among our marketing service specialists fourth quarter growth was aided by sports and entertainment marketing and experience will marketing.
On top performing claims sectors were tech and telecom.
Healthcare retail financial services, and food and beverage.
For the year, it's worth noting that every client sector grew other then auto where we're contending with the headwinds.
Turning to our operating income and EBITDA fourth quarter operating income was $491 million.
EBITDA was 513 million in Q4, compared with adjusted EBITDA of 504 million a year ago.
EBITDA margin was 21.1%.
For the full year adjusted EBITDA was $1.2 billion, an increase of 11.3%.
Adjusted EBITDA margin was 14%.
Increase of 50 basis points from a year ago, attaining the high end of our target range for the year.
Full year diluted reported earnings per share was $1.68 and was $1.93 as adjusted which is comparable to $1.86 per share a year ago.
Our results for the year further demonstrates the strength of our client centric integrated offerings and the quality of our people a combination that is for does leading organic growth and margin improvement over a period of many years.
Proud of our consistent level of achievement.
Significant change in our industry and the dynamic environment in which we are all operating.
Along with strong performance, we've continued our investments in outstanding talent across our agencies and in the tools and capabilities that keep us on the leading edge of our industry.
This is especially true and care key areas like digital data services and analytics strategy and creative.
On the strength of these results and confidence in our future prospects.
Please to announced this morning, a boards decision to raise itcs quarterly dividend by 9% to 25 and a half since for share.
This marks our eighth consecutive year of dividend increases over which time, our quarterly dividends per share as more than quadrant.
As we turn to our outlook for 2020, we do so with the foundation of highly competitive agencies collaborating effectively in are open architecture framework.
Inverting revenue growth to operating profit and margin accretive rates.
Further we are extremely well resourced with data science capabilities that are fundamental to a future of high order offerings.
From a capital allocation standpoint, we continue to be focused on organic investment in our business. The mid teen growth leadership on deleveraging our balance sheet. Following the axiom transaction and as demonstrated in interactions. This morning on returning capital to shareholders.
All of these priorities further our commitment to driving shareholder value.
As is apparent in our results.
Worldwide tone of business among our clients remain solid through year end.
While there are a macro issues that require continued attention, including the sustainability of economic expansion.
State of international trade and global political developments the backdrop. Nonetheless appears sound as we entered the new year.
In addition, like all global companies, we're concerned about the Corona virus outbreak and we want to convey our deepest support and commitment to the people of China.
Naturally we are focused on the wellbeing and safety of our own people as we have 2500 employees in greater China, and thousands more partners clients and suppliers.
Most of our people in China are working from home and are subject to travel restrictions.
We have technology in place that makes it easier for people to work remotely.
We're closely monitoring the situation and we'll take every necessary precautions to safeguard our people.
Nonetheless, we continue to see opportunities for solid growth in 2020.
Even as we're comparing once again against industry, leading growth rings, and we'll continue to contend with revenue headwinds in the first half of the year.
For 2020, we are targeting organic growth of 3%.
We'll cycle through our large headwinds by mid year, and we're well positioned with world class offerings, a distinctive go to market strategy any unique high value added resources.
Turning to EBITDA margin for 2020, we also expect to continue to add to our longstanding record of margin expansion in the upcoming year.
We are targeting EBITDA margin expansion of 20 basis points over a 2019, adjusted EBITDA margin, which would bring us to 14.2% in 2020.
As always as the year unfolds, we will regularly review our perspective on the year during a quarterly calls.
Summary, we believed that the drivers of shareholder value creation or the quality of our people and resources revenue growth.
Margin expansion and show dividends. They all will continue to work well and into public as we enter new year.
At this stage ill turn things over to Ellen for additional detail on on performance and then I'll return with an update and highlights of our businesses Ella.
Thank you Michael and good morning, as a reminder, my remarks will track I presentation that accompanies our website.
On slide two.
Yes, I mean I mean.
Fourth quarter organic rose, 2.9% on top of stronger here again.
You asked organic growth two quick ones.
The international organic growth was 4.1% for the full year organic revenue was 3.3%.
For EBITDA was 513 million EBITDA margin net revenue was 21.1%.
Our adjusted EBITDA was 1.2 billion and adjusted EBITDA margin expanded 50 basis points to 14%.
The quarter, our adjusted diluted earnings per share.
He said.
Well the year adjusted diluted EPS was at Donlin and gives me.
The core since 2019, we retired debt and then the amount of 400 million gross leverage at year end 2.3 times 2018, adjusted EBITDA as defined.
As Michael mentioned, we announced this morning that airport has once again restrict common share dividend.
It was 59% increase to 25 and a half centsper share.
Turning to slide three you'll see our piano for the quarter.
Cover revenue and operating expenses.
In the sites.
Turning to revenue for fourth quarter net revenue was 2.43 billion compared to Q4 2018.
After the change in exchange rates was negative 1%.
Impact of net disposition was a negative 1.1%.
Melting organic revenues increased interest.
Net revenue growth for the full year for 7.4%.
This thing up 3.3% organic growth and a positive when 8% from that acquisition.
Currency listen negative, 1.7% net acquisitions for the year cheaply axioms revenue over the first time.
Left the impact of certain small nonstrategic.
Axiom growth was included organic change beginning with the fourth quarter.
As you can see on the bottom half of this slide Q4 organic breads integrated agency network segment.
0.9% growth and Ian is led by a range of offerings, including IBT Mediabrands Internet, though axiom Macau.
FCB, notably FCB health, no engage and our CMG segment organic growth for 3.3 person in the quarter.
By strong performance I think on sports and entertainment marketing group.
Hi, Jack Morton friendship.
The year organic growth was 3.5 percentage.
2.3% and CNG.
Moving onto slide by revenue by region in the U.S. organic growth.
1%, Slickwater, which includes a rent and you have been helpful engines or anything at this point.
Oh that previously.
The growth was led by a range of offerings ethylene media technology and data services healthcare FCB Mccann and our creatively lets services.
For the full year U.S. organic growth was 1.9%.
That's on top of 5.1 person a year ago and includes the impact of headwinds of 3.3% and again the headwinds will begin to diminish in Q2.
Centrally cycle that midyear.
Looking at our international markets, we had another strong quarter for me.
With 4% organic growth you recall, that's on top of 9.6% growth in Q4 in 2018, we continued to see contribution to growth across a number of our offerings and agencies, notably I did you Mediabrands, Jack Morton and usage for the full year UK organic growth of three point.
In person.
Alan increase against 9.7% in 2018.
Patents on your organic growth was 6.2%.
It was highlighted by increases in most of our largest national markets, namely, Spain, Germany and France.
Forecast, an outstanding year of 7.3% organic growth on the continent.
Asia Pac a primary concern as Michael mentioned earlier, the safety and wellbeing of our colleagues as well as all those affected by the CRO to fight.
Looking at our results in the region organic revenue decreased 3% consistent with recent quarters. We continue to see mixed performance in our largest regional markets revenue in China, and Australia decreased India was flat in the quarter in Japan.
Our organic change in the region was negative 30 basis points for the full year.
The 17.1% organically in Q4, which is on top of 17.4% here again.
We continue to see growth across the region led by our offerings in Brazil, and Mexico powered by both new client wins in growth existing clients.
Organic growth was 21.8%.
And our other markets group organic revenue growth was 4.7% in the quarter led by increases in the middle Eastern Canada.
Full year organic growth was 4.6%.
Slide six is look at the expense drivers of on margin expansion in the quarter and the year.
I will focus my remarks on the full year.
Ratio total salaries and related spends to net revenue for the full year was 64.6%, which is an improvement of 140 basis points.
Underneath that we improved in all major expense.
These payroll benefits attacks performance based incentive compensation temporary labor.
At year end I companywide headcount was approximately 54003 countries, which is an increase of less than one person from a year ago.
Our office and other direct expense was 18.1 person for the full year net revenue compared to 16.9% year ago increases mainly due to the consolidation of axiom for full year, which has a relatively more investment in technology.
That's seen a expense decreased 1.1% in 2019.
2.1 person as reported in 2018.
Leading acxiom deal expenses from 2018.
See any ratio was 1.7%.
Change mainly reflects greater expense allocation towards agencies in 2019, you didn't including vaccine for the full year and lower expense for performance based incentive compensation in as Jean.
Our depreciation expense for depreciation was 2.2% of net revenue in 2019.
That's an increase of 20 basis point.
The amortization of acquired intangibles was 1% in 2019 compared to a half a 1% 20 Mg.
For both depreciation and amortization increases due to the consolidation of axiom and the full year in 2019 compared to only the fourth quarter.
Turning to slide seven.
We present detail on adjustments for reported fourth quarter results in order to get these better transparency and a picture comparable performance.
This begins on the left hand side with our reported results and steps through operating income to EBITDA or adjusted diluted yes.
Oh amortization expense for acquired intangibles was 21.4 million, resulting in EPS, yet a 512.7 million.
Oh operating expense.
During the quarter $24 million other expense.
They did to the disposition of it a few small nonstrategic businesses.
In our tax provision, we recorded a net benefit in the quarter valuation allowance reversals totaling 25.3 million.
Between backed out here well in adjusting item you allowance reversals.
Fundamentally improved operating performance in a really good luck.
At the credit. This line you can see the after tax impact.
Diluted share of these adjustments the total was four cents per share.
France between 84 cents reported diluted EPS and 88 cents I suggest.
Well I'd hate to pixel adjustments for the full year again for continuity in comparability. It's also brings in the attached to the restructuring charge from Q1.
Our amortization expense 86 million.
Once when he 19 restructuring charges like 32 million.
Business dispositions over the course of the year resulted in a book loss of 46 million.
The impact of discrete items from tax for the benefit of 39.
Result, as adjusted full year adjusted EPS of $1.93.
No at our adjusted effective tax rate for the full year 20, 520%, which is at the low end of our targeted 20, 628% range in 2020 <unk> forecast for our normalized effective tax rate is unchanged at 26% to 20%.
On slide nine they tend to cash flow for the full year.
Cash from operations 1.5 billion compared to 555 million.
The comparison includes 443 million generated from working capital compared with 431 million used in working capital in 2018, as we pointed out on previous calls.
In capital can be volatile from year to year due to the variation and timing of collections and payments, even but only a few days and timing that was on paper, but for late 2018 resulted in a benefit to us and 29 team.
Investing activities with $162 million in here.
Shifting our capex of 199 million.
Many 18 it includes the axiom acquisition.
From financing activities.
843 million, which is mainly 403 million for the repayment of long term debt.
363 million far common stock dividends.
In 2018 proceeds from long term debt issuance related to the axiom acquisition.
Our net increase in cash was 519 million.
Slide 10, if the current portion of our balance sheet. We ended the year was 1.2 billion cash and equivalents.
500 million three and a half person senior notes matures in October this year and is reflected under current liabilities.
Slide 11 to fixed maturity schedule of outstanding debt.
Total debt at yearend was 3.3 billion.
The reductions of approximately 400 million from a year ago, and 500 million and see axiom of financing in October twentyth.
In summary on slide 12, we're pleased with our performance.
In the quarter and the year, our teams executed very well achieving strong revenue growth in spite of significant headwinds while maintaining expense discipline.
Our balance sheet continues to be strong and a meaningful source of value creation as evident me actions announced fanboy today that leaves us well positioned entering 2020 with that I'll turn it back to Mike [noise].
Thank you relative.
While we were pleased to have achieved strong results for 2019 highlighted by organic revenue growth at once again leaves the sector.
In each of the past five years, our growth rate as top the industry average.
This continued outperformance speaks to our talent.
Offerings and the differentiated holding company model.
Sometimes we've seen our key role as supporting and nurturing strong agency brands. So that they can continue to produce great advertising for our clients.
Simultaneously, we have never lost sight of the evolving landscape and the disruption taking place in marketing media and communications.
To address these challenges we've invested in key areas to create and IP G. Those positions for the future.
These have included embedded digital expertise across the portfolio.
Leading edge media and data capabilities and open architecture solutions.
All of which have helped us build a future facing something.
Today, I PG isn't a preeminent position to help brands reach consumers in a highly efficient and relevant way.
Our company can unite data with creativity to deliver advertising that is valued by consumers and valuable for brands.
We can help business leaders find tomorrow's growth through the combination of technology.
Craft and collaboration.
We have created a modern holding company with a culture of integrity and transparency, we're like PG sets the standard regarding conscious and respectful privacy accountability and brand safety.
As we've noted on prior calls understanding data and its power is absolutely essential.
And it's been a priority for us over many years well before we acquired axiom.
Today's IP GE has the ability to help companies optimize the value of their own first party data and the service of enhancing the customer experience.
Helping our clients reach that business goals.
Thanks to our long term strategy. There are many more use cases with which we are increasingly involve ranging from powering E commerce to the execution of omni channel media.
Sometimes the job is to help a company determine if the data. They hold has been sourced in a way that meets the most rigorous ethical and regulatory regulatory standards.
Other times the challenge is to put first second and third party data to work to drive new insights and innovation.
To further enhance our media and data services and check offering last quarter, we launch connection.
A marketing technology company that Leverages, our data science skills to provide services that help market has made media activation faster and more effective.
Can esso is currently working in close partnership with Mediabrands, where there was the most adjacency and therefore the greatest opportunity.
Axiom and can esso capabilities of being brought to bear on all our major clients and new business opportunities.
We have coupled these strategic moves with strong financial management.
Consistent with recent years during 2019, we demonstrated our ability to remain disciplined on costs and to deliver against our stated financial goals.
Our record of sustained long term margin improvement is something we're very proud of.
Our board's decision today to increase the dividend shows the continued commitment to return value to shareholders as well as confident in our future prospects.
In addition in the future as we return our debt levels to more historical ratios, we will return to including share buybacks in our capital allocation programs.
To provide a progress report on the key developments within our portfolio.
Let's now turn to the performance at the agency levels during the quarter.
At our integrated agency network Mediabrands close the year with a very strong performance.
UN retained its relationship with Gopro and added on rule recently acquired by existing client Energizer.
At age has just named U.M. best place to work in 2020.
Initiative also posted a very good quarter end of year.
The agency so a notable wins with valvoline.
At CES like BG Media lab was again on the convention floor identifying the most exciting and relevant innovations in products and providing guided experiences for our clients.
Be also grew in the quarter driven by strong performance from its health operations.
FCB health was named Global Health care network of the year for the third consecutive year, an area 23 named global agencies year and regional agency of the year into 2019, New York festivals Global Awards.
Mccann Worldgroup.
Growth globally, as well as an important industry accolades, notably global agency of the year awarded by a week and network of the year at the Epic Awards.
In addition, we can't work from Microsoft.
During the first female and openly gay NFL coach and Super Bowl history.
Has been wildly heralded as one of the best of the broadcast topping the major rankings.
Mullen Lowe group close the year with a number of new business wins, including being named the global agency partner for Bayer.
In the U.S. Taxact and the Avis budget group were but both added to moans roster.
Collaborating with the group's integrated media, our media hub Mullen Lowe, one media and creative duties for Hawaiian Airlines and media have also added interest.
After a year with ice Fiji axiom continues to expand its role with clients and our agencies.
Today, our data in Tech solutions I was seat at the table and creating value with both existing and new clients.
As mentioned earlier in the fourth quarter I PG launch can Esso marketing intelligence engine powered by axiom.
So furthers ITC jeez vision as brands trusted partner and data science by bringing together top data and technology talent with addressable media experts.
Turning to CMG for the first time for the fourth time in six years. The homes report name Weber Shandwick Global agency of the year.
Weber Shandwick and its consultancy United minds launch a new suite of expanded offerings to help companies excess access cultural risk within their organizations.
Golan headed trio business wins in the quarter, including Lego Twitter and me so robotics.
Agency also restructured leadership naming a new CEO from within its rings.
Octagon also had a solid quarter announcing new business wins as several sporting conferences.
The agency is coming off a successful Super Bowl, which represented three players in the game, many corporate clients and manage multiple activations in Miami.
All in at the agency level ICICI continues to have many of the industry's most vibrant brands.
Last month, I Fuji agencies and people sweat the inaugural campaign U.S. agency of the year awards, taking hold more on his and all other holding companies combined.
These awards, which are unique in that they are judged by clients.
Recognized leadership creative excellence and business performance.
We've also focused on creating a holding company. The model that is not just differentiated by over offerings, but by our culture and our commitment to diversity and inclusion as well.
2019, IP GE joined the business round table redefining the purpose of the corporation.
Setting a new standard at how accompany should operate.
As we continue to generate long term value for our stakeholders through innovation transparency and corporate responsibility.
In addition, our focus on U.S.G. continues to be a part of up business priorities.
According to the management tough 250 ranking.
TG ranked as one of the best managed companies in 2019.
It was the only company from the advertising industry included in the list.
Well, it's by the Drucker Institute and the Wall Street Journal ranking measures corporate effectiveness through customer satisfaction employee engagement innovation, social responsibility and financial strength.
Additionally, IP GE was named the top company the workforce by Lincoln and was the highest ranked company in the advertising sector on the list, which compiled the most the 50 most sought after companies where people want to work and develop their careers.
Our differentiated culture and strategy.
Key reasons, our long term performance has been strong notably in organic growth performance as this metric shows the foundational strength and competitiveness or operations.
It goes without saying that we remain focused on evolving the ICICI offerings, but our results demonstrate how well positioned we are for the future with a company that remains highly relevant to market is that an increasingly crowded and complex media environment.
Looking forward the tone of the business remains sound.
New business activity is solid.
The strength of our portfolio positions us well to grow with our existing clients as well as participate in the pitch opportunities we see today.
Our hard work to create a modern highly collaborative company ensures that we are positioned to profit from opportunities that may come from outside our traditional arena going forward.
In light of these factors, we believe that we should continue to see organic revenue growth and we therefore targeting growth of 3% the 2020.
Along with this level of growth, we expect to further improve EBITDA margin by an additional 20 basis points, which would bring us to 14.2% in 2020.
On top of our recent success, we feel that it remains significant potential for value creation and enhance shareholder value over the long term for our company.
As always we thank our clients or people, who have been the foundation of our long term success and we look forward to updating you on a progress.
At a first quarter cool.
That I'll open it up two questions.
Thank you will now begin our question and answer session. If you would like to ask a question. Please press Star then one and record your name clearly when prompted if you need to withdraw. Your question you may do so by pressing Star then to one moment as a way for the first question.
Okay.
And our first question comes from Alexia Quadrani from JP Morgan. Your line is now open.
Hi, Thank you. Thank you very much I'm a couple questions first it sound like God business was so strong across the board in the quarter, but I'm wondering if there was one particular area that really outperform that surprised you guys on the upside and then secondly, do you see that sort of momentum or maybe there would be the healthy.
Then environment in general sort of continuing into 2020, when you speak with your clients in their sense of optimism and then I might add one more follow thank you.
Thank you are likely.
Well the fourth quarter, obviously came in strong and frankly it was across the board art. Our integrated networks came in strong as I'd mentioned Jack Morton.
And octagon came in strong and obviously, a mediabrands data axiom.
Pretty much FCB health and all are units performed well in the fourth quarter. So that gave rise to our our strong growth in them into fourth quarter notwithstanding the headwinds.
We came in I mean, it sets the tone for 2020, when we set a target of 3% for 2020.
You know, it's still we continue to have very difficult comps year on year, which is a good thing as we continue to set the pace for the industry. We still are setting goals on top of that.
And you know as Ellen indicated we still have headwinds.
In the first half of 2020, so what we set a goal of 3% for the full year of 2020 that reflects.
Cycling through those headwinds so we continue to feel that the told the business.
Continues to be solid and the conversations.
With our clients indicate that we are offering a value proposition to our clients that that moved the needle and obviously that bodes well.
With respect to our open architecture approach to meeting our clients' needs now of course, there a wild cards out there.
The Corona virus you know.
I know the question is how is that could impact us China is roughly 2% of our total revenue.
It's important to us because our clients are there.
In terms of revenue, it's not that significant but what.
Remains to be seen is what impact this will have on our suppliers and chain.
The supply chain and what impact that would have on us companies and other global companies.
There's still some wild cards out there with respect to 2020, but the tone continues to be solid is as we move into certainly the first quarter.
And just a quick follow up on the new business, you mentioned and we see that from our data that there's headwind Joe on the first half of the year, but do you think I'm. When you look at the back half from from what's happened there been announced I'm sort of to date, you find that you're going to teach in actual tailwinds are to be more neutral in terms of the good wins you've had more more recently.
Last fall yeah. Thank you.
If we were forecasting a 3% I've got a growth we hope we got some tailwinds, but we do have some recent losses that were the project business that Hill Holliday pad was of bank of America should tail off.
In the second part of the here for the year, but we have new business wins coming on stream that should offset that so when we look at a target we look at into we take into consideration.
Business wins potential.
Business wins that we have in the pipeline and as well as losses that we realized so all of that gets factored into both the organic growth target as well as and margin expansion.
Thank you very much thank you.
Thank you and our next question comes from Ben Swine Burn from Morgan Stanley. Your line is now open.
Hey, good morning, everyone.
Michael could you just give us an update on the axiom integration I know, obviously you've had the asset now for some time, but just you had talked about revenue synergies or revenue opportunities I'm just wondering.
If you're starting to see those actually flow into the numbers, if the 3% has any sort of.
Axiom bump for lack of a better for is and how that's all tying into Knesset, which you mentioned in your prepared remarks, and then just for maybe for Ellen in the fourth quarter. You had a your incentive comp was down I think as a percent of revenue. So that some nice leverage there based pay was up offsetting that can just remind us sort of how the bonus accrual.
All process works and where that shows up in the piano. When you guys have a year as strong as you did last year. Thanks.
Look up outperform what you're seeing action is our performance based compensation. Some some business units to perform well some didn't deliver on their targets.
And remember last year or are we exceeded our goals of much higher than than this year. So the incentive comp was working exactly is supposed to be working and that is those all those units that are outperforming were compensated those that didnt reflected so the the incentive comp number that you see.
Also in the fourth quarter, because we do it on a full year basis, we had a catch up and reflected in our final numbers. So the incentive comp worked exactly as we expected it to with respect to pay for performance.
As far as axiom goes.
You know I've said in the last call. We're very happy with first of all how the integration is going the integration is pretty much done.
In terms of all the necessary.
Physical a legacy accounts and all the different comp plans at all the things that integration for mechanical point of view.
Need to be done, but more importantly, the integration of axiom.
With BG and our offerings and the seat at the table that axiom has with respect to our existing clients as well as a potential new business is real and they have a seat at the table along you know as part of that so as well.
With all business pitches and with our major clients. So.
As we indicated that was one of the if you look at Acxiom.
First is the management of first party data. Okay. So that business continues to be solid as we said in the third quarter, it's performing consistent with our business case in terms of acquisition I think we used to like a 5% growth for that business <unk> routes that use that it continues to perform well and we're very happy with the first party.
The management into core business.
Yes.
On top of that with the formation of can Esso, where we have putting together the AD tech the martech into service business and obviously axiom provides the date of backbone, but can esso is the technology part of that.
And then we have cadreon in there, which would focus on the activation.
And we're really pleased with how well that proposition is working both with respect to new business pages.
And getting the attention of our existing client base. So of course into 3% number for 2020, we continue to bake into a solid performance for axiom.
Solid performance with connect so what we said last time last year that we will start.
Introducing new products have to connect so in terms of value based offering.
And we do have a pickup in a part of the organic growth for 2020, which reflects the synergies between the connect so the axiom and the Mediabrands in particular because.
What we said was we were going to focus on Mediabrands initially process the logical place for them to come together.
Then eventually we'll roll it out to our creative agencies as well. So we're very pleased with how axiom is performing I think it's very clear to us that it was the right decision for us to acquire axiom and it gives us a competitive advantage.
Dealing with the full integrated offering an open architecture I mean, the stuff that could esso is doing with respect to.
Focusing on high value audiences.
And the value that it creates.
Creates an immediate impression with clients.
Because they frankly haven't seen that type of offering.
And we're really pleased and excited about the future of that.
Thanks, Michael Thank you.
Our next question comes from Dan Salmon from BMO capital markets. Your line is now open.
[noise], Thanks, and good morning, everyone.
Michael one for you and one for Ellen.
Over the last year, so with that so that.
[laughter].
There's plenty I could ask about axiom are kinda. So then I think Ben covered a lot of it there I wanted to ask maybe about arch yet.
It's never easy to see an industry legend, Oh ease out of an agency, but the transition which was Bob Greenberg.
Or that's played out there over the last year that agency has been such a huge contributor to your gross over the last.
Okay, it or sell it just love to hear an update on how that's going and then Alan the Michael's comments I think of the press release reiterated the intention to get back to share buyback at some point I know you won't give us a timeline for that but just maybe remind us what are the milestones with your balance sheet that you're you're watching your executing on.
Cash flow generation for the company overall, what are the things you want to check the box on before you think that's not again thanks.
Unfortunately take that one kill [laughter], that's a topic very close somebody hard [laughter] well then we do believe me we have Ellen then the entire all the finance team and the board and the board we address decisions very carefully.
In my remarks, I commented that our goal.
For 2020 is to continue to pay down debt, we have a 500 million dollar.
Tower, there that we look to reposition and pay down in one form or another and frankly, when you get to a the levels that we were previously at in terms of maintaining our investment grade.
We see given the cash flows that sometime next year, we should be reaching those those levels. So I think it would be reasonable to think that old all things happening the way, we want them to we could be back into market buying shares sometime next year, obviously that requires board approval I will talk to rating agencies, which is very important to us.
And we'll take into consideration in the overall market conditions, but it's certainly we believe strongly.
That one of the shareholder value creation opportunities for us is to continue.
To return cash to our investors up until axiom, you know we had a good mix between buybacks and dividends, we pay debt, we distribute $4.4 billion already in terms of that type of mix and we're very pleased with it. So the so that we can get back to the mix between dividend increases as we saw we did this year.
And share buybacks to better we believe it is for our shareholders and we will continue to focus on that opportunity.
Thank you for asking about RJ, we have a new CEO showing lions.
He is a.
Beefed up his team and reposition some of the individuals within you'll get it organization, they're looking at the go to market strategy on a global basis.
As any new CEO, Sean is taking a look at the entire organization in more markets, they should be and what offerings. They have particularly in terms of the consulting side of the business is a strong opportunity for them, they're making investments in that and they are selling very good attraction in that area. So we continue to be excited about RJ of key.
Course, Bob Greenberg is in fact, the legend there are many legend real true legends in the business.
And he continues he will be part of RG proud frankly forever.
But I'm really excited about what Sean and his team putting together in terms of the go to market strategy leveraging the expertise in the traditional.
Strong base.
Leadership have been Greenberg, so RJ will continue to be a strong contributor to the overall performance of IP too.
Great. Thanks, Michael Thank you.
Thank you and our next question comes from 10 million from Macquarie. Your line is now open.
Well thanks.
They do have another axiom question if that's okay.
I just wanted to ask about with so much concern amongst the market. These days about data privacy and googles changes to cookies could you just give us a rundown of axioms work with first as well as third party Cook is I think there might be misunderstanding out there about axiom is just a third party data seller.
I think that's a vast are very minority big minority of the business I just wondered English no sort of terms of doing your work that is very much more about the first party data management and then in terms of the actual sales just if you could just give us a sense of how much is the of the importance comes from the first party versus the third party. Thanks.
Oh about that.
Called sales two thirds approximately two thirds of axiom businesses, just managing first party data and we don't say that likely just managing remember that their management a first party data is best in class.
As far as their gives it the five star rating, it's well known in terms of their expertise in privacy. They are trusted manager first party data in fact, though you know in the UK when they introduce GDPR.
Seeing played an important role of working with the regulators and executing a those type of rules and regulations and advising clients. So.
When we when we bought axiom everyone misunderstood it to be frankly, the installed base, which is the third party data management part of.
Of their offerings, everyone focused on that part of the business, but the two core business of axioms first party data and this year that added new logos. Their performance has been as I said very consistent with our business plan in terms of the acquisition and that's a core competencies that frankly, you don't see.
Anywhere else and.
It was sort of scratching the surface in terms of having EISG access to the first party data management clients that actually them as and vice versa, and we wanted to make sure that we roll this out on a very even basis without overwhelming the axiom people. So the core first party data business.
Is it Jim and its well respected and frankly now with the the California privacy rules and more more privacy rules throughout the United States, we see their expertise even more in demand.
And just buttresses effect that this will be a to a game changer for us as we move forward. So the first party data is critical the success of vaccine the third party data.
You know puts together sources from all over the globe.
Distinguishes axiom frankly from the competition and one of the questions. That's come up as you know we don't have to use the installed base mediabrands. It has a amp their own date or source, which which uses other third party data. So it's up to our clients to make sure which one is best suited for them, but we certainly.
You have all the tools and resources with respect to third party data.
At our at our that are.
Demand, if you will and it's being used very effectively with penicillin axiom together in terms of the value based proposition and bringing to decline and candidly and no. One of the questions is existing hunting and the answer is yes. It is you know we had a number of client wins, particularly on the media site.
Where can esso working together with the media brands as well as a axiom had made a difference in terms of the success of the pitch.
Plus the strength they have when they sit at the table with existing clients. I mean, this is the kind of stuff that clients are looking for.
And we have them sitting at the table at the role of our top to top and open architecture positioning with respect to cookies no everyone's writing about it.
We've been worried about the cookies and.
In the end you regulatory environment with respect to Google now for three years, and we're building a ways to work around that we're highly confident that we working with axiom and can esso and all the other tools and resources that we have that we will have a solution.
In place to address that issue and we're working closely with Google and the other providers to make sure that in fact happens.
But but that was one of the purposes of us buying axiom as well so I think we're really well positioned.
To the changes in the environment Thats coming and in fact more than ever clients' needs. The expertise that we bring to the to the table.
Which is why we're so excited about not just axiom and can esso, but all of the offerings. We have an IP Jay when you put together on a team.
In terms of an open architecture, the creative capability the activation capability experience will that PR.
The media capabilities and the secret sauce that comes out and that's so in terms of value propositions, it's a very compelling offering and I think you see the results in our organic growth.
That's great. Thanks, Michael Hi, slipping a quick follow up which is also an action about the cost side, just maybe give us a a quick a review of what cost lines it impacts and sort of what is the cost to run and maintain and invest in axiom. All this while I'll let Alan.
[laughter].
It doesn't act him isn't great that's probably about the topline and Bottomline very pleased that.
Their business mix, a little bit more heavy weighted and opposite and general than SGN at all that's taken into account and then MPC and the forecast, but it's a great.
Top and bottom line, yeah, incidentally, one of the other differences actually and actually it has a different incentive plan and it's a little different.
And then we traditionally have in our business. So that's also reflected in some of the numbers in terms of whether the Oh Gee is up.
Whether the incentive comp is a little different because they do have and different incentive plans.
And cost profiles.
That's great thanks, very much sure.
Thank you and our next question comes from Michael Nathanson from Lafayette Nathanson. Your line is now open.
Thank you I have to a one and axiom, especially on one for Alan.
So Michael what one of the concerns I think we're early on with axiom was with that two thirds of business Magic People's First party data that the non hybrid she clients would would tend to leave just because the be concerned about about being in the same let's say marketing vertical as a competitor maybe I would you care.
Right. So are you seeing any type of.
Of client push back from from the the action clients are non RPG clients. That's one and then for Ellen you talk a bit about what our working capital swing implies the big benefit you had our deal terms you know improving a bid or does that imply a huge media spend in the fourth quarter anything kind of underlying the up.
Huge improvement working capital for the quarter.
Let me, let me address the.
We see zero conflict [laughter].
That was part of our due diligence when we did our due diligence on axiom. It's a legitimate question, but if you look at financial services for example, which is one of the.
Again part of the axiom business.
We don't see any potential conflict, where clients are worried about that.
And in fact, sometimes it add to their expertise right. If you're if you have a if you pretty much all into sector and you had in the financial service sector, where axiom Amanda's. His first party data for is.
Probably most of the top financial service companies.
That's an expertise that it's hard to come by its their trusted.
And in the due diligence we tested not only we did we test or existing client relationships. They were onboarding, a new client and we tested to see how the new clients reaction to this so the question of conflict with the axiom first party data, it's totally as an opportunity for us and not a conflict okay.
And you know working capital I'll, let Alan. Thank you said this is elements first call [laughter] I'll, let Alan answer the working capital [laughter] now working capital to something that we manage them very closely but it's fallen off so if you remember back in the 2018, we had a bigger usage.
In capital and in 2019, it was a benefit and the days that you get the collections and disbursements around year end can vary from time to time and caught that volatility, but nothing has really changed any underlying either way, we manage working capital defined the things that we're seeing.
Terms.
Okay. Thanks felt things like you know you know let me let me just sneak another point I know all the questions or an axiom and it should be because axiom is providing a significant advantage.
It was in the competitive marketplace.
But we have the rest of our business [laughter] and the rest of our business is doing pretty well I mean, there we have leading creative agencies in the world. A we have each of our global networks. For example have different go to market strategies. When we put together our open architecture, we have the luxury of picking and choosing the best people.
In the business.
That have expertise into in the client sector and we can put them together on a seamless basis in open architecture and if you look at Mccann you look at FCB, you look at Mullen Lowe and you look at our independence. The Hill holidays. The Martin agencies. These are world class creative.
Agencies that bring to the table.
The secret sauce that puts all of this together.
And yes axiom is great and its you know it's when you look at as percentage of our overall business. You know, we don't want to lose sight of our PR business and all the other businesses that we have within our portfolio and candidly the strength of our results. This year has been it's not just the axiom, it's all of our businesses.
That had those kind of capabilities and when you look at our go to market strategy using open architecture.
I mean, it's compelling when you put them all together in a room and the ability for us to replace one versus the other I mean this is real time, if one of the agencies is not performing well.
These clients on the open architecture engagements say, we're having a problem with X y Z in this country.
We have the ability to pull in expertise under the open architecture model that is best in class and we see it a lot into health care side of the business, we have expertise with between FCB health and Mccann health that a world class and they can focus on specific diseases and med Ed and all these capable.
Deliveries and we have the luxury of being able to bring all these resources together on an open architecture basis, and that's what's driving our results. So I I don't want everyone to lose sight of that part of the lifetime with one more question Jeff.
Your next question. My final question comes from Jason Bazinet from Citi. Your line is now open.
Can I hate to do this because I just go back and ask on the working capital side.
I know you guys out you know how to begin flowing the fourth quarter, but sometimes you look back on the outflows for Q1 and it can be as low as 200 million, sometimes at 800 million and as we all try and figure out sort of the cadence of your debt reduction in the pivot towards.
Buybacks.
Is there any any color that you can provide in terms of expectations on working capital drag for the year.
No I think normal I mean, if you look back on a year to year basis last year, we were negative when we had a strong in the first quarter. So it's a timing and it's all generated from our media business in particular, when we look at our cash flows we look out on a full year basis, when we look to paying down debt. It's based on our expected cash flow on a full year basis.
And where we're going to end up at year end and I think it's reasonable to assume that we will continue to pay debt get significant amounts so that by year end, we'll be in a strong position.
To take a hard look at getting back into the buyback side of the business and maintaining a strong investment grade rating and getting all of our ratings to where they should be in terms of solid investment grade. So we look at it in a full year basis.
There are anomalies on quarter to quarter and a lot of it has to do with the media side as a business, which is very robust for us. So that's a positive.
All right, that's how we manage it.
Alright, well look forward to the buybacks when they come up [laughter], yes, I know [laughter], okay, well, thank you very much and again.
We appreciate all the support and we look forward to our first quarter Corp. Thank you.
Thank you.
And this concludes today's conference you may disconnect at this time.