Q1 2020 Earnings Call
[music].
Yeah.
Good morning, and welcome to the Interpublic Group first quarter 2020 conference call. All parties are in the listen only mode until the question and answer portion at that time, if you would like to ask a question you May Press Star. One. This conference is being recorded if you have.
Any objections you may disconnect at this time I would now like to introduce Mr., Jerry Lushly Senior Vice President of Investor Relations. Sir you May go ahead.
Thank you good morning.
Thank you all for joining us this morning, we hope Youre well.
This morning, we're joined by Michael Ross and Alan Johnson.
Shipping with social distant saying, we are each in different locations. So we would ask you to please bear with us should there be any minor delays.
As usual, we have posted to our earnings release and our slide presentation on our website Interpublic Dot com.
We will begin our call was prepared remarks to be followed by Q1 day.
And plan to conclude before market open at 930 am eastern.
During this call we will refer to forward looking statements about our company.
These are subject to the uncertainties in the cautionary statement that is included in our earnings release and the slide presentation.
And further detailed in our 10-Q and other filings with the FCC.
These forward looking statements may be affected by risks related to the spread and impact of the coated 19 pandemic.
We will also refer to certain non-GAAP measures.
He believes 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 Ross.
Thank you Gerry and thank you all for joining us this morning.
Above all we hope that you your families. Those you hold deal a safe and well.
Our fourth so with all of those who have been affected by this pandemic.
Sunlight health workers, and others will provide essential services and with our colleagues around the world.
These stressful times for society as a whole.
For the global economy and of course, the business, which means the appropriate focus on this call is on updating you on where we stand in dealing with and adjusting to the new realities that are being driven by this health crisis.
Our top priority has been.
Continues to be the safety health and wellbeing of our employees.
Appliance and other key partners.
Over 95% of our people globally are working from home.
They are safest against risk to that calls.
That has been the case for a bit over a month now.
Our associates have made an extraordinary transitions in their professional as well as personal lives.
We're fortunate to have a workforce that is comfortable leveraging technology.
Collaborating virtually and being part of a highly supportive set of networks, both within our company and with client organizations as well.
This means interpublic continues to actively serve clients across our agencies and disciplines and around the world.
We continue to help them navigate range of far reaching changes and complex challenges that requires a highest order of insight into human behavior and motivation.
Expertise when it comes to innovation in product and service delivery as well as creativity and commitment.
Anecdotally, there's mentioned that many of our senior teams a reporting that the intensity of what we are living through is leading to very deep engagement with clients.
Which couldn't time lead to even stronger and more productive relationships.
Another record and seen they're not conversation with clients is that they understand the value of our services and the importance of our work for their long term competitiveness and girls.
I've said this before but it deserves repeating.
We have amazing and talented people.
And it's been inspiring to see the way they rallied around one another and around our clients.
Many of our agencies in markets, such as the UK, Australia and markets across Asia, and Latin America.
I have also been actively involved in helping their governments and cool populations about the pulled the public health crisis.
We've done great work that is helping to change behavior, and which we hope will contribute to altering the trajectory of the pandemic.
Since the initial called the 19 outbreak.
Senior most like P.G. corporate team I've been in close and consistent contacted our medical advisors getting their guidance on key public health and policy issues. So as to ensure that we're taking the appropriate protective actions for the health and safety of our employees.
We've also been able to lean on a pre established business continuity planning and crisis preparedness to share information and communicate decisions across the company in a timely and effective manner.
Relying heavily on our risk HR I T and legal teams.
This has been given the fast changing nature of that helps situation.
It goes without saying that the speed at which this all has developed means that the most significant business challenge has been the very high level of uncertainty.
There's not much in the way of historical precedent to draw for our company or industry instead, the macro economic conditions that our clients most navigate.
Across all business sectors senior leaders understand that events have moved exceptionally quickly.
And we'll remain subject to major decisions driven largely by public health policy.
Going forward the actions of governments and regulators around the world will continue to be definitive in terms of their impact on the health crisis and the global economy.
In this environment visibility into marketing and media spend is to save the least challenging.
Given the uncertain duration and extent of macro economic pressure and pace of eventual recovery.
Questions about forecasting and targeting a difficult to answer and quantify.
Certainly we expect the very difficult second quarter.
After which we should have a better line of sight into the full year.
As always as we move ahead, we remain committed to the high level of transparency that you've come to expect from this management team.
We remain convinced that into public prospects for the future art sound, both in our ability to navigate the crisis and to take the actions that will allow us to emerge from need even stronger.
First as we navigate the near term it's noteworthy that our team has demonstrated over a period of many years.
We have the financial and management talent tools and business model to successfully managed through difficult times.
This steps being taken across our agencies and corporate group include deferred merit increases.
Freezes on hiring and temporary labor.
Major cuts in nonessential spending.
Furloughs in markets, where that option is available in salary reductions where possible or appropriate.
We're also taking advantage of any government programs that are available around the world.
Given the breadth and complexity of our portfolio.
Both in terms of the types of offerings.
Client mix and geographic presence the impact of the crisis will be quite different of course, many of our companies.
As such there was no one size fits all approach to the appropriate combination of cost actions.
At a number of our agencies salary reductions have been applied.
Ranging up to 25% a base compensation.
A few involve the entire employee population while it others. They are focused on senior leadership.
The management team that eight IP G immediately announced voluntary compensation cuts, but the balance of 2020.
These previously announced cuts have been increased and our deeper than anything else. We have seen in the industry since the <unk> direct reductions for our named executive offices will flow through to total compensation as well.
We have also that identifies very significant corporate center cost savings, which are already being actioned.
We are of course doing what we can to minimize the impact on our people to the greatest degree possible.
But as that you already have seen at some of our agencies, we will regrettably see it again in order to align costs with new revenue reality staff reductions will be unavoidable in the face of the pressure is most every business is facing.
Cost containment alone will not be enough to keep pace in a world where certain client sectors look likely to be at a standstill for the foreseeable future and large gatherings for cultural sporting or business events, they still be a ways in the offering.
We remain committed to providing a high level of support to our people.
Which is in keeping with our culture and with the knowledge that talent is our key asset.
This will ensure a strong foundation to resume our trajectory of industry, leading growth coupled with margin expansion in the macro economic recovery to follow.
A second vital area of focus during an economic downturn is liquidity and financial flexibility.
We have strong balance sheet, we began the year with $1.2 billion of cash.
And concluded the first quarter with $1.55 billion.
Our committed term credit facility is one and a half billion dollars supported by a group of leading banks and committed for several years into the future.
Further in late March we arranged an additional 500 million dollar 364 day committed credit facility with a consortium of banks.
In addition, we issued $650 million a floor and three quarter percent 10 years senior notes.
The strong market reception, our offering was upsized some $500 million.
This effectively prefunds, the 500 million dollar maturity coming due in October of this year.
These are proactive and prudent measures to further enhance our financial resources.
Of course, our cash flow disciplines are active and have been intensified as appropriate.
In addition to the extensive corporate cost actions I already mentioned, we've identified significant capex that can be deferred for a time without detrimental effect.
Working capital management has also been a priority for us.
Along with that collections and the historically high quality of our receivables also receive additional attention, especially in the most challenged economic sectors.
In this environment, the sustainability of or dividend at its current level is a reasonable question.
Given the level of visibility we have today the actions we've taken to date and the potential for economic recovery later this year and into 2021, we do not think that action on the dividend is required at this point in time.
Of course, we will continue to assess this decision given the current lack of visibility into upcoming corridors.
A third key area continues to be our focus on our clients and offerings.
During the past five years, we've established very solid momentum relative to relative to our peers in terms of our strategic differentiation go to market offerings revenue growth and account wins as well as industry recognition.
We're confident that our client centric culture.
Open architecture model and industry, leading data management capabilities will continue to develop and we will help to see us through this challenging period.
Every economic downturn is somewhat different.
And this one is of course unique.
All right P.G., the severe financial crisis and recession in late 2008 in 2009.
Was followed by a strong return to growth and margin expansion in 2010.
That chapter can be instructive as to how our model can work over the coming months with rigorous expense management and a flexible cost base that provides us with a buffer against some of the topline headwinds.
The bottom line is that during the last crisis, we managed expenses appropriately to our revenue reality.
And also had to notably strong years of cash flow from working capital during the downturn.
Exiting 2010.
Balance sheet was stronger.
And our commercial offerings had moved dramatically ahead.
It's unfortunate that are solid results in the first quarter cannot be indicative of the environment for the remainder of the year.
It is however, an indication of the competitiveness and the strength of our offerings and our people.
With that said in the first quarter, we posted net organic growth, a 0.3% and 4.9% EBITDA margin against both headwinds mainly in the U.S. and strong organic growth of 6.4% a year ago.
I will now turn this over to Ellen did take us through the results in greater detail.
We also continued to have business highlights to acknowledge which we'll I'll come back to in my closing remarks, followed by acuity.
Alan.
Thank you I'd like to begin by echoing micro sentiment on my hope that all of you and your family and loved ones I safe and healthy.
Before I turn to first quarter financial performance I want to underscore some of the key topics like about stock, notably that we have multiple costing castle refers to as Allen our business model and those are being deployed.
I finance teams are working Oh partnerships with our business leaders around the world.
Well, we the appropriate response to the crisis.
Our balance sheet and liquidity are strong.
We haven't enhances our position on both those funds in recognition of the fact that they can play a central role and ensuring that we are well positioned to come out of the storm haven't even stronger company.
Turning then to our results in the quarter and the slides that accompany my remarks.
On slide two we'll see a summary of our results.
At a high level revenue performance continued to show the impact of certain <unk> losses that we've spoken to previously.
He did begin to see some impact on client spending.
How does that make its well, notably in Asia Pac throughout the first quarter and in other markets as we look deeper into March.
Nonetheless.
Black operating expenses and deliver a solid margin results.
First quarter net revenue organic growth was 23%.
That includes.
And isn't quite as previously disclosed as.
With with Threeq like 7% Guinea, you lap in the quarter.
He is on top of strong organic growth of 6.1% a year ago.
You asked for organic growth was <unk>, 0.8% and is on top of 5.7% growth in Q1 2019.
International organic change with negative 0.7%.
Again, very strong growth of 7.7% a year ago.
Well the impact of that growing pandemic in the quarter on a revenue it's difficult to estimate with precision.
It was understandably significant in China as well as several other Egypt part countries.
Outside of Asia Pac we saw some impact March in the U.S. and you're off.
You on EBITDA was 97.2 million compared with adjusted EBITDA of 103.6 million a year ago.
<unk>.
Decrease reflects the impact the crying out and then we've described empire called let's have a disproportionate impact even here in our seasonally small perclot or.
He begins to partially cycles I had was in Q2 and look probably cycle, there impact and mid year.
Even more.
Net revenue was 4.9% in the quarter a strong result, given that just streak line item and the pandemic impact that we continue to face.
For the quarter, our adjusted diluted earnings per share was 11 cents.
Which excludes the after tax impacts of the.
Invasion of acquired intangible and the lock themselves a certain small nonstrategic businesses.
Different worlds market.
That is flat.
He adjusted 11 cents deluded share a year ago.
We were pleased by the market reception of our 650 million, 4.75% 10 year Senior note insurance.
Also added a new 500 million credit facility with a tournament 364 days to further strengthen our financial resources.
Turning to slide three no C.R.P., you know for the quarter.
Cover revenue and operating expenses in detail in the slides football.
I mean, you one revenue on slide for net revenue.
970 billion.
Compared to what you one's 2019 impacted the change in exchange rate with negative 1%.
With the U.S. dollars stronger against the every region.
[laughter] insurance what 0.9%.
<unk> disposition of certain small nonstrategic businesses over the past 12 months three.
The resulting organic revenue increase with 0.3%.
At the bottom of the slide break out our operating segments as you can see the organic change in our C.M. segments with negative 30 basis points.
That's again very strong organic growth is 7.4% a year ago.
They thought they had one in some impact and the pandemic.
<unk> segment organic was was 3.7% with most of our marketing service specialists contributing to growth in the quarter.
Moving onto slide by.
Organic revenue chained by region in the U.S. first Bordeaux organic revenue rose was 0.8% against 5.7% a year ago impacted revenue had one with 3.7%, it's worth noting and all kinds sectors in the U.S. increase excepted.
Two sectors with prior year, a client losses.
We saw from water for my little low and F.C.B. house as well as Hell holiday.
<unk> and tyranny.
M.D. contribute gross very broadly across circus specialties.
And the international market.
Chain of net revenue with negative 70 basis points, which is again, 7.7% growth a year ago.
In the U.K. organic or change with negative, 1.8%, which is compared to 5.7% grows year ago.
Confusing and other media operated with more than offset by Klein specific reduction in other parts of the portfolio.
In Continental Europe organic growth at 1.2% on top of 7.6% and Q1 2019 with growth glass by Mccann and C.N.G.
Largest market in the region, we were led by grows in Spain, France and Germany.
We did see some impact the revenue from depend that makes a supporter progress.
In Asiapac net organic revenue change is negative 5.3%.
The covert 19 virus, adding impact Lucifer national markets in the region.
Cancellation and marketing campaigns that were deferred or cancel.
As a result, China, Hong Kong, and Singapore, and double digits decreases in the corridor negative 5.3% quarterly results.
Cheapest decrease we've seen in this part of the world since the last recession.
Or people in China work from home for most of the quarter.
Most are now back in the office either fulltime on split chip.
Left town and 10.7% organically into one on top of 23.8% a year ago.
We had strong organic rose across the region and then most national market.
<unk> was led by Mccann media huge R.G.A.N.C.M.G.
No other markets group organic change with negative 2.4%.
Decreases in South Africa, upsetting solid performance in Canada.
The middle East was blah.
Moving I'm, just like sex and operating expenses, which were again well controls in the quarter.
Net operating expenses decrease 1.4% as adjusted for amortization and last year's first quarter restructure charge compared to our net revenue decrease of 1.6%.
A ratio of salary and related expenses can net revenue in our seasonally small thrust Porter was 72.1% compared with 70.9% a year ago <unk>.
Underneath that we do ever done or expense for base payroll and temporary labor.
Slow revenue growth in the quarter and are covered could spend with also elevated so the two year ago.
Any other way references or access for for for born space incentive compensation in the quarter and for all other salary.
Expenses.
A quarter and that'll has now is approximately 54500 and increasing 1%.
<unk>.
<unk> office and other direct expense was 19.2% first quarter net revenue.
Paired with 19.4% a year ago.
Within office and other direct directly at our expense for occupancy by 10 basis points.
That was more than offset by leverage I'd I'd Spencer travel meetings and office supplies.
R.S.G.N.A. expense was 1.1% of net revenue compared with 2.1% a year ago.
Reflects the decrease.
In space incentive compensation in S.G.N.A., and we're we're general expenses.
<unk> seven we presented detail on adjustments store reported <unk> first quarter results.
In order to give you better transparency and the picture of comparable performance.
If it came from the left him size is already imported results and that's true even C.A. and adjusted deluded Yeah.
D.N.A. expense includes 21.3 million really amortization of acquired intangible.
<unk> operating expenses you have lost in the quarter of 23.3 million in other expense.
Related to the disposition of you small nonstrategic businesses.
That's.
You can see them after tax impact 'cause alluded share to adjustments.
They're total is 10 cents per diluted share, which is the difference between recorded rooted E.P.F. of one fan and 11 such as the justice.
On Friday, we turned 61 couch, though that's used in operations.
177.1 million compare with the use of 93.5 billion a year ago.
Last year's results was unusually favorable for for first quarter you timing.
As a reminder, ER casually highly seasonal.
Additionally, subject to change, but only a few days.
<unk> and disbursement activity.
Typically generate significant has been working capital and the fourth quarter and use cash in the first quarter. During this year's first Florida cats used to working capital 371.6 million.
And the fourth quarter 20, nice and we've done already six 600 to three plus 1 million from working half of them.
Indefinitely activities, and 60.8 million and a quarter, including 44.6 million per capita.
A financing activity provided 744.4 million net mainly due to the proceeds of our note issuance in March and to increase in short term bar.
We use 100 million for our common stock dividends.
Oh net increases half of the quarter with 359.8 million.
<unk> is the current portion of our balance sheet.
We ended the quarter with 1.5 times a enough cash our current Viabilities includes immaturity of our 3.5%.
500 million senior notes due in October.
Right and they picked maturity of our outstanding debt.
But the new 4.75% 650 million maturity and 2030.
Total debt and quarter and 4.2 billion, but diversified maturity is going so.
In summary on slide 11 or teams continue to execute at a high level.
Despite the significant I'm certain tunes that you're seeing too busy unprecedented health care situation.
The strength of our bounds g. seven liquidity means that we remain well positioned the naturally and commercially.
With that alternative back to Michael's.
Thank you well and.
As I mentioned that the outfit.
<unk>, Oh decoded 19 crisis continues to grow.
Some among us has suffered painful losses of loved ones.
Family members or college.
Sympathy goes out to those who have been personally touched by the disease.
Or appreciation goes out to hold it'd be essential workers.
We're allowing us to stay home.
Stay safe and hopefully shorten the impact of the crisis.
In this context, it's inspiring to see our agencies continue to produce work in partnership with their clients that celebrates these true heroes.
The medical professionals transit employees grocery and pharmacy workers delivery people in more.
And the crucial services that they are providing.
Our company's also working closely with existing clients.
Help them me business goals, and we continue to when new business in many parts of our world.
There's no question that the impact of crisis is having on the global economy will be reflected in the revenue of our industry.
However, I wanted to mention the few notable wins and retention.
That occurred in March and April.
As examples of the resilience of our companies.
<unk> won a significant assignments from Sanofi pet store.
U.M. one show Noah.
Initiative brought in new international brands from per node record.
As well as a major new by a pharmaceutical company that we are not yet able to announce.
In addition, F.C.B. New York, one Mike's hard lemonade.
Joys selected Mccain, London, and moan, low Singapore landed that country's maybe account.
Of significant note.
Two of Mediabrands and connections largest global clients.
Also recently agreed.
To multi year extensions of this service agreements.
Is noteworthy is that all these accounts were one.
Retrained.
After the onset of the health crisis.
And demonstrates how even when working remotely.
We're able to move the business forward.
Obviously or companies are experiencing varied impacts.
Pendant on their geographic footprint.
The mix of services as well as whether they have greater concentration.
Listening clients in the most impacted sectors.
One notable friend that we are absorbing early in the crisis relates to health care.
Which as you know is our largest clients sector.
With significant expertise and presence at F.C.B.
Can see M.G., so holiday Marlon low and increasingly mediabrands.
The sector represents approximately one quarter of a revenue base.
It looks to be less dramatically impacted than many other industries.
Sectors outside of health care that was shown some strength include tech.
New economy.
Telecommunication clients, especially of Mediabrands in Mccann.
Other areas of relative stability within our client roster.
Consumer goods and those retailers focused on E. commerce.
Central consumer products and strong value propositions.
Clients like travel.
Fatality.
Some retail on the other hand have shown less resilience when it comes to plan marketing activities for the coming corridors.
In recent corridors you discuss with you.
<unk> benefits of an investment in data to help future proof, our company and make us a better partner to clients.
Another all important aspect of the business that should be recognized.
Is that our management Oh first party data.
At Axiom for example, two thirds of the company's business consists of long term contracts with client partners to manage their proprietary databases.
These are fundamental business relationships that are critical to helping companies drive sales and marketing.
As a result of these relationships, we lead believe that a business like axiom disposition to fair relatively better than others in a sector in a challenge macro environment.
And when combined with the offerings to connect so the data driven and highly targeted kinds of addressable media solutions, we are creating should be a particular interest to our clients in the current economic climate.
At C.M.G., we're seeing a range of outcomes there continues to be demand for the advisory side of the business.
Specially in the P.R. space.
This means we're seeing opportunities for crisis communications and strategic services from the group.
However, as you'd expect other parts of the business such as <unk> and sports marketing are being.
Agreed creative global networks are also seeing varied impacts.
Better dependent on client mix.
Nonetheless, we continue to see strong engagement with clients.
A limited amount of virtual new business activity.
Early indicators from Asia of what it will take to put up people back to work in a way that is both safe and productive.
These agencies have put new creative product into the market over the last six weeks.
Demonstrating our ability to execute high concept work, even when working remotely.
If you're like me, you're watching a lot of linear news.
And here in the U.S. you may have seen the new work from Mccann created from Microsoft teams.
As well as the pay it forward work pulverized.
Focused on helping small businesses.
F.C.V. has done a lot of outstanding work, including very timely work for Kimberly Clark Cottonelle cold share a square.
And longtime U.K. clients sport, England.
Marlon low work with Providence, one of the largest health systems in the United States to create a P.S.A. featuring the frontline workers in this crisis.
And the Martin Agency recently produced an inspiring campaign for the U.P.S. client cold.
For delivering.
Captured many case studies and posted them on our corporate website to showcase the kind of work being created in this new context.
One of the things that's coming into focus as we'd gone or consumer insights and develop new work.
Is that the ways in which we connect with consumers are fundamentally changing.
And brand purpose will be more important than ever.
That's true for I.P.G. as well.
How we work will also be is transformed.
In fact are covered 19 steering committee is begun various workstreams.
Examine whether it would look like for us and our people when we do start to return to the office.
From large questions such as who returns first.
We do so in shifts.
How we protect our more vulnerable colleagues to tactical issues like how many people can write in an elevator with one time.
The Golden answering all these questions is to do the absolute most to protect the health.
Wellness and security of our people.
Why we have a ways to go it is very encouraging that this work has begun.
As we look forward from the present day and the far reaching this location of the current crisis.
It is likely that many new consumer and business models will emerge.
Some of these for example will involve an acceleration of trends in technology and media that already begun underway.
There will be enduring transformations of social and commercial norms, and how consumers relate to brands media and one another.
We are looking forward to helping our market is adapt.
As a result, while the short term will clearly be a challenge.
We believe that the foundational role that we play as a unique resource for audience identification.
Unification planning ideation, and dependable execution will be strengthened and return to high demand.
We round into an economic recovery.
Complex challenges continue to escalate the need for high order innovation.
The culture, which had seemed as if it could move possibly any faster is only beginning to process, how would would adapt to the lasting effects of this systemic crisis.
Going forward, a passive market or without a strong point of view.
In a full range of communication tools and expertise will be are increasingly high risk.
Clients will want their voice heard interactions understood in ways that are relevant to consumers and also drive performance in the marketplace.
Marketers will therefore have to leverage the best expertise available in order to succeed in the years ahead.
We are optimistic that into public remains a distinctly well resourced partner with expertise of course digital channels data media creativity in a range of specialized services.
We also have moved proactively to bolster a strong balance sheets and liquidity. So as soon sure. We can move through the economic downturn and support the needs of our various stakeholders.
You heard engagement with clients is ongoing.
The talent and dedication interrupt people, many of whom while they're working from home working harder than ever is exceptional and deserving of our thanks.
This is an unprecedented time.
But we have a strong foundation in place.
We're focused on helping clients, we will be disciplined and managing the business and taking actions to adjust to the revenue reality.
Are people are doing their part.
Using the full range of our company's expertise to do good in the face of this crisis.
Are highly relevant offerings and track record of collaborative open architecture clients solutions.
Push it positions us to leverage opportunity now and once the macro economic situation stabilizes and the recovery begins.
As such we will also remain well position, but continuing long-term value creation.
We will of course keep you posted on key developments share a respect perspective on our visibility into the evolving landscape.
And there's always we look forward to answering your questions.
At this point I, Thank you and I'd like to turn it over to our operator.
Thank you have this time, if you would like to ask a question. Please press star followed by one.
We'll be prompted to record your name. Please state your name clearly so I may introduce your question again that is star followed by one to ask a question.
Our first question is from Oleksiak Quadrani with J.P. Morgan you May go ahead.
Hi, Thank you very much I, just I sort of Big picture question I have all up if you don't mind understanding the visibility is extremely limited can you provide what color you sort of what you've already now sort of what you've seen so far in this quarter in April tapas sort of to have a better understanding. The overall environment. You know for example, how much of.
The benefit has this re messaging work that you're doing update ads for your clients how much of that benefit us up into rabbit is under that continuing and so far you know as you look ahead. In Q2 is that what was really something you benefit for for a couple of weeks and now it's kind of waiting.
And then my follow up is can you give us a sense of sort of what percent of C.M.G. has come to complete standstill or cause like events or sports marketing.
Good morning, Alexia [laughter], Oh, you [laughter] morning, [laughter] Oh.
Oh I hope you guys are all Wow.
Same here, Yeah, you know, we well, we I I apologize for the length of our present not prepared remarks, but what we tried to do.
Within pits of paid a lot of questions. So given the difficulty of working remotely here, we <unk>, we can address them, but and and no surprise surprise you didn't ask me by week, how about businesses in a month of April okay.
Well I I <unk> I said on the call in terms of Bill I prepared remarks, the second quarter is not going to be pretty.
The reason for it is in the second quarter our clients.
Everyone else, it's hard to predict where this is going so if you want it you know if you want to call in schizophrenia. Good you know one day they get the cuttings dramatically. The next day. They feel it's a good time to build brands and get messaging out there. So the the second quarter is going to see a lot of ups and downs I I tried outline in my room.
Thanks, a lot of the good things we're doing we are working with a brand I think more recently brands are realizing that they have to start preparing work for when we do come out of this difficult position that they have to be position with a strong message and and there was where creativity and the data analytics that we have to reach the right.
Tumors with the right message are very relevant so what's encouraging as we start we're starting to see conversations like that with our clients, but on the other hand, we have sectors like airlines and ships you know cruise lines that has come to a standstill and we don't see that coming back until frankly, the economy is normal.
For whatever that definition is so it's it's no question that the second quarter. We believe based on we do a bottoms up attempt at what this is going to look like.
The second quarter should be the worst of the quarters, we have an assumption.
And again that changes by the hour based on the way our clients spend.
And and how they're looking at it but we see starting a recovery in the third quarter at some point and then seeing where you know a a stronger recovery you know somewhat in the fourth quarter going into next year or so our our our bottoms up approach to that is how we base whatever actions were taking now so that we're <unk>.
Position.
To match our costs with our revenues. So there are dialogues going on clients are spending we have some clients that you know we're doing quite well in this environment.
Emphasis on their healthcare started a business, it's actually 28% of our business and and and it's it's it's so far knock on wood is is performing well and we're we're actually involved in a lot of the new stuff that you're seeing on T.V. in terms of new innovations, obviously, a number of those companies, including J. and j. and and and.
And <unk> and and things like that we have a number relationships that we're working with those companies directly. So we're encouraged by that and we continue to focus on adding value to what the messaging is with our clients and and so second quarter strap.
On your helmet, but you know, which manageable we stress test our business. We go through a number of revenue streams in terms of down and and stress are working capital requirements are financing and I can tell you under the most difficult positions.
Which I don't believe we're going to see but we have to stress test we are financially very sound and our people in our resources are ready.
When that turned around occurs and that's what you would expect management to do so so we have stress test accompany from a cash flow point of view from a resource point of view and and our existing client demands are are still there and it's impressive.
We are delivering and good work in in this environment remotely and that's why it's frankly going to change the way we're going to work in the future 'cause candidly working remotely frankly, we did some surveys that are people enjoy that and and it's very effective.
Second question as far as a events and so on I think I've mentioned this before we have sports marketing we have events, we have a whole bunch of different services that obviously have come to a pretty difficult position right now and and depending on you know most notably sports on T.V. has as we all those.
Since we're watching old events like the old masters or not there. So clearly that part of the C.M.G. business is taking a hit we've said the the ratio of that sort of business of course, our business lines is into 2% to 5% range, depending on what you count as an event, but use that as a.
It is a guideline so as you know we're we're we're well we're well diversified in terms of our offerings and some of our businesses are up.
And continue it'd be strong even in this environment and some of our businesses are obviously at a standstill and that's why the benefit of a holding company or comes comes through in that were positioned in in whatever sector is is active.
I like how can I just ask you at the top on something you sad about how hoping to see.
Better or at least plastic kleindienst, better performance and Q3 verses cute too.
Based on on a sort of your via the economy or is it went well clients are saying you or is it based on maybe upfront cancellation 16 coming into May one I'm just curious if there's any other <unk> give us behind your your confident that we might see a little bit better performance you know 123.
Yeah, it's it's a tough one and obviously I wrestled with where they would make that common because the visibility isn't that clear and I got to put enough caveats on it but the conversations we'd have new clients ranged from yes, we think it's coming back in the third later part of the third quarter or some clients don't think it's coming back till the first part of the next year.
What we do is we did in a a review of all of our businesses as all or operators and to get their perspective, and they tend to be a little more positive about the outlook. So we do see anecdotally clients coming back and talking to us and using the third quarter as a as a straw person or event.
To start you know building brands again and coming back so that's where that comes from there's no scientific method of doing that we don't have the visibility to make that a a blanket statement, but for purposes of planning that's what we're using and obviously by stress testing is.
So that it doesn't occur till the fourth quarter or the the degree of of negativity in terms of the organic growth is higher than what we think it would be that's how we stress tests or business and that's how our C.E.O.'s or operating their businesses and each of our businesses have a different.
Perspective based on their clients mix, obviously some of our agencies are more waited in in in the airlines and and cruise just environment and clearly those are challenged more than others and and therefore whatever cost actions are necessary in those agencies frankly have already been taken.
So <unk>, it's not an exact the answer Oh I wish I can answer that question, but I think if you look at everybody else who's trying to forecast. The answers you can't but you have to at least take an attempt at at what you're hearing and seeing so I think it's a combination of of some optimistic clients because they're in the market that sees.
Consumer goods for example, you know one of the issues with our <unk> goods clients are they don't have supply. So why do you to advertise when you don't have supplied to deliver and the answer is because the brand has to be out there in the marketplace. Some of our brands don't need to advertise because they're they're in the e. commerce or yeah.
<unk> World and the business is doing well so it's a client by clients basis, It's a geographic issue.
And and it's inclines frankly, a wrestling with the timing of when they they Ah Ah come back or how they spend their dollars and that's why you see such variances can change daily Alexia in terms of whether clients are cutting or whether they're spending and and just we just have to be flexible in terms.
How we approach that.
Thank you that's very helpful. I really appreciate it.
Thank you will actually be safe.
Yeah.
Thank you. The next question is from Ben Swinburnes with Morgan Stanley You May go ahead.
Thanks. Good morning, it's good to hear everybody's voices I hope you well.
Thing here.
<unk> and I I know, they're totally understand his ability is what it is I get that so I'm gonna, but don't answer ask a question. This way you you live through the financial crisis as soon as we all did you know covering your company or most of us did and.
How would you compare this situation I know it's different in that it's a health issue, but economically <unk>. The the client reaction to that I mean, I'm looking back you guys had a couple of negative 15 per cent type quarters in O. nine that was sort of as bad as it got you know should we be thinking about that experience.
<unk> as relevant here.
And then to your point about he made the comment about schizophrenia changing by the hour how do you approach staff reductions.
Given that it that uncertainty because she obviously it to think about letting people go you may actually need in six months I just curious because obviously you you know how you approach costs really as important to how we think about the rest of this year into next year.
Yeah, It's a fair question better needless to say.
We ask ourselves the same question yet you know you have to look at all nine as as as this is different there's no question is there and by the way I.P.G. is a different company. Yeah. If you think about it in in in those days I think you know we had a 2 billion dollar difference in wherever you today were investment grade then then we weren't.
We were scrapping to raise <unk> capital in those days and we had some pretty interesting dead offerings that we <unk>. We participated in and now we we were able to tap the the markets and Upsized the dead an investment grade basis without a change in our ratings, so where are different company, but I think the difference between o. nine and now.
Now is the consumer demand issue.
<unk> was a capital question right right you couldn't have you couldn't have access to capital and and now was difficult and therefore clients were concerned and cut spending because they really had to focus on liquidity to survive.
Here, they're focusing on liquidity, but one of the reasons, they're focusing on liquidity is because they want to be able to maintain their people.
And and and and and that's different than it wasn't on nine if you look at the actions we took a no nine and we actually have the same management team. So the the benefit is we've been through this before right and we did we handled it pretty well they the the the size of the cost reductions that we had in nine versus what we.
I think we're gonna experience now are a lot different 80 different size company be we have a better line of sight in terms of the competitiveness of our offerings and frankly, we we're we're performing much better even before this crisis in terms of leading the sector in terms of winning new business and and and organic growth.
So from a company perspective, where a lot different so the cuts that were taken up by the way the cuts or not insignificant, but I I you know I listed all the areas of of our flexible cost base that we've taken and the last thing. We do is headcount reductions because we do believe this will turn around and we are focusing on maintaining our.
Existing base what was interesting you know Oh nine is we continue to invest in in in new offerings. You know nine so when the turnaround came we well positioned to do that.
We're doing the same thing now and and we're use I'd say, we're using more for a closed and salary reductions.
This time around than we did you know nine in no not we took significant headcount productions versus what we're doing now I know opera look any had headcount reduction is painful.
But if you compare what we're doing now versus what we did you know nine it's a lot different and we are focused look we spend a number of years investing for example in data and analytics with the axiom transaction. The formation of connect so these people are in demand and we want to make sure that we protect our employee base as well as our creative capability.
And all the different P.R. expertise that we've built up so we're we're not you know having been gone through this we're doing this on a very thoughtful way with a view towards our we position.
222, pounce on to turn around with the the strength of our offerings and I'm very comfortable that where we are today does not put us at a disadvantage at all as we come through this and frankly the culture of accompany the way, we're going about this where extending medical benefits for people.
We're giving them access to their of retirement plans without penalties were doing all the best practices. There are to make sure that our culture, which has always been very strong continues to be an attractive aspect of working with I.P.G. and all of its affiliates.
That's very helpful. Michael <unk>, So do we read into that the fact that you you don't have to make the cuts as deep which is great that you don't expect that revenue pressure to be as significant or maybe you just expected to be.
You know to be a shorter duration source or freshwater if your dad any thoughts there.
You know you tell me the answer to that.
Stress pets, we stress test it in different levels. So obvious right. If we're if we're wrong in our initial pass. There's there are additional action that's the benefit of our costs profile and a variable cost model and we've shown we'd be able to we've been able to act in that model, so we'd rather than doing.
You know the worst case scenario up front, we've chosen to to to take another look at it once we get better visibility into the second quarter. So we always have that as an ability for us. So yeah. I think we learned a lot you know nine in terms of how about how you go about doing this to preserve our talent which is critical.
So we're really looking at all the other costs that we have first.
Which is the right way to look at it that said in those sectors that are basically come to a standstill and and particularly in the event side in in in the sectors like airlines, and and and cruise ships and things like that you know it it a model dictates Ah staffing reductions in those environments and and.
Why we say we have a variable cost model.
That works, so that's where you're going to see the initial.
Headcount productions, and we're doing what we can in terms of voluntary salary reduction.
And for a close to make sure our employee basis is is is well treated.
And ready to to to perform in this crisis as well as the turn around.
Thanks, so much.
Thank you bye.
Thank you our last question comes from Tim Nolan with Mcquarrie you May go ahead.
Oh, thanks, very much and thanks for very thorough presentation, Michael I wanted to pick up on your comment on trends accelerating and in tech in media.
A couple of parts to the question I wanted to ask about axiom first off I think this is the first quarter or that you would consider it organic growth.
I don't know if it's possible or if you care to give us a figure on how axiom did and then as a as a as a follow up on the acceleration you know we've seen a lot of third party estimates comments on drops in traditional media spending I Wonder if you could talk a bit about the shift to more personalized marketing and more.
Automation in in media the role that axiom place their interest in general your direct you know you're personalize marketing efforts do you see that as a near term as well as a longer term.
I'm not trend and then how well your position for that thanks, Yeah by the way I think you know we already saw shift in media going more towards digital than linear I mean, although everyone's watching T.V. now alright, but the AD spend is down so viewership resolved, but it's been is down and it's much.
More flexible to deal with digital so there there's no question that there's a the the shift that we already saw a happening is accelerating on the digital side of the business and obviously, a data and analytics and connect so and and and axiom and the creative coupled with that gives us a tremendous advantage in terms of finding.
We know where the audiences are right now they're sitting home.
And they're screaming and some of the screaming products out there are AD supported social media is is we're seeing a lot of that search obviously, how do you buy those disinfectants you know when can you get it so all of that stuff that's going on right now.
Place to the strength of of of of our data analytics in our offerings that we have with the acquisition of axiom and the formation of Knesset working in conjunction with Mediabrands. It's it that was the you know the bet. We made in terms of the future the business and we're seeing it accelerates significantly during this period of time.
You know, we don't give out axiom numbers, but I I'll tell you in the first quarter axiom performed the way they should be in terms of our base case, and and and and so on and and the point I made about two thirds of their businesses first party data. If anything is essential first party data of companies is essential for them to run their businesses.
So we're a little more you know we're more comfortable with the two thirds of the first party day to business of axiom than some of the others, obviously, where it could impact is on new logos, you know and things like that but believe it or not we are pitching for new business right. Now I. You know we have some big pitches going on there were doing remotely, though I think what's happening right now.
Yes, it's an acceleration to digital no question about it.
The movement from the linear to digital it's easier now, but people still are spending on television because that's where the content is.
So it's it's it's it's affecting and that's where we add value in helping our clients no way to allocate between linear and digital so our entire business model is being tested right now and and we have great assets that going to answer the questions that clients and looking for answers. So I think that gives us a a leg up if you will.
In terms of what's happening in the marketplace and positions us not only to get through this but position does when we get when we are done with it.
The relationships and offerings that we have will be much more powerful.
So you know I I think where we were what the investments we've made and our creative capability. The stuff. We're doing on the creative side is just amazing and and that develop brand loyalty and so across the board I'm very proud of the people in the in the resources that we have and what we're delivering.
So with that I. Thank you for your participation and and obviously look forward to a a conversation about the second quarter and what the rest of the year, we'll look I look like I. Thank you for your support won't be safe now bye.
Yeah.
Thank you. This concludes today's conference you may disconnect at this time.
[laughter].
[laughter].
[laughter].