Q2 2020 Interpublic Group of Companies Inc Earnings Call
[noise] good morning, and welcome to the Interpublic Group second quarter 2020 conference call.
Parties are in the listen only mode and so the question and answer portion at that time, if you would like to ask a question. You May proceed stalled one this conference is being recorded if you will see objections you may [laughter].
I would now like to introduce Mr., Jerry Leshne <unk> Senior Vice President of Investor Relations, Sir you may begin.
Good morning, we hope you are all well thank you for joining us.
This morning, we are joined by Michael Ross, Our chairman and CEO.
By Alan Johnson, our Chief Financial Officer.
And by Felipe Krakowski, our Chief operating officer.
As usual, we have posted our earnings release and our slide presentation on our website Interpublic Dot com.
We will begin our call with prepared remarks to be followed by Q and <unk>.
And plan to conclude before market open at 930 Easter.
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 our slide presentation.
And further detailed in our 10-Q 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 while 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 Mike Ross.
Thank you Jerry and thank you for joining us this morning I.
I would like to start by saying that I hope that you and your families have been safe and healthy during this pandemic, which has had such as severe impact on the entire global community.
The main topic of our call of course is how the crisis has impacted our people our clients and our business and crucially are focused and disciplined response to the profound challenges we're roll facing.
I would like to first recognize and thank our people at IP Gi and our agencies around the world for their outstanding and the highly effective work.
Bite of the countless changes concerns and pressures brought by cold it into everyday life.
These were unforeseeable, just a few short months ago.
Our people have continued in your dedication to one another to clients entered their communities, while making necessary changes and successfully adapting our business model.
As we navigate the pandemic at I.P.G., the safety health and wellbeing of our employees clients. Another key partners continues to be at the forefront of everything we do.
In recent months, we've also felt with renewed urgency the pain of racial discrimination here in the United States and around the world.
Society is facing the long term effects of racial injustice, which demands long overdue action.
And I PG, we know that we can make more of a difference we have could read committed to listening to learning and most importantly to action in support of social and economic Justice for Black Americans and for all people of color.
We are a company that lives in the culture and has a voice in the culture.
We understand that we have a responsibility and that the journey of rising to that obligation makes us a better company in every way.
We're taking actions within IP GE, and then the advertising and marketing messages that we create in order to further the cause of racial the quad equity.
Turning to the results we reported this morning, our second quarter as expected bears the imprint of the pandemic and its economic impact and the most challenged global operating environment in memory.
But during this period that was anything but typical our company marked a number of significant achievements in maintaining distinct distinctive quality of our services and creating even deeper client relationships, while effectively managing expenses, making structural changes and continue.
Soon to invest in our future.
These accomplishments underscore the strength and resiliency of our offerings the flexibility of our business model and again, the exceptional quality of our talent.
You will recall that in April we had shared that 95% of our people around the world We're working from home.
Today that is more varied reflecting conditions that have changed in some markets more than others.
Around 50% of our people in Asia back in the office at least some of the time.
30% to 40% in Europe around the only 10% in the U.S. and UK and less than that in Latam.
We had also shared in April that the revenue environment was uncertain.
And that the economic impact of the pandemic on our industry would clearly be significant in the quarter as market has navigated the sharp and sudden global macro contraction.
As you've seen this morning, our second quarter net revenue decreased 12.8% has reported with an organic decrease of 9.9%.
With that it was meaningful variation by client and by sector and the decrease overall was perhaps not as severe as we might have anticipated or to the extent seen elsewhere in our industry.
All in spending by our largest clients held up relatively well.
It was again clear that the investments we have made to differentiate our company, notably in the way we are structured and go to market with open architecture with top industry talent and with the most contemporary offerings led by data capabilities at scale continued to distinguish our performance in our industry.
Top performing client sectors in the quarter, where healthcare.
Retail food and beverage Tech and telecom.
On the other hand sectors hit hardest by the recession auto and transportation financial services and industrials.
By region, the U.S. was 66% of our revenue mix in the quarter.
Decreased 8% organically.
Our international markets decreased 13.1% organically in a range of approximately negative 10 to negative 15% by region.
While some margin contraction was to be expected our cost disciplines remained effective.
We managed our operating expenses to the reality of the rapidly developing recession in order to protect profitability to degree possible and further to position ourselves for strong recovery when revenue growth returns.
This is the commitment we went back to you earlier this year and we will of course continue.
In a people business. This has of necessity involved very difficult decisions.
That includes salary reductions furloughs and most regrettably layoffs.
We reduced staff across most of other agencies during the quarter.
This also means that our expense for severance was elevated in the quarter.
Our net operating expenses decreased by approximately 9% from a year ago before a charge for restructuring.
Each of our principal cost categories decreased including expenses for base payroll temporary labor performance based employee incentives and our office and other expenses.
With the actions we've taken in the quarter operating expenses of position to decrease further in the years second half.
As you've seen in our results. This morning, we also took actions in the quarter to lower operating expenses structurally and permanently.
Relative to revenue and to further accelerate the transformation of our business.
These actions are based on our recent experience and learnings independent MX and the strategic review of our operating expenses, which is ongoing.
They address our real estate and personal expenses personnel expenses, and notably accommodate a greater role for work from home in a hybrid office office home model in a post coated world.
Our actions resulted in a restructuring charge of 112.6 million in the quarter.
And we expect a significant financial return in the ongoing reduction of our occupancy and payroll expense.
The total charge 68 million is noncash.
These actions our plan to result in total annualized savings of approximately $80 million to $90 million, which have been approximately 100 basis points of fiscal year 2019 net revenue.
We will begin to see these savings in this years third quarter.
With our review continuing we anticipate that we will take additional strategic actions in the second half of the year geared towards further structural cost reductions.
These additional actions are expected to result in the second half restructuring expense in the range of $90 million to $110 million.
In the second quarter, our adjusted EBITDA margin was 3.4% and was 9.4% before the restructuring charge.
Diluted earnings per share was a loss of 12 cents as reported and was 23% as its 23 cents as adjusted for the restructuring and other items.
I would underscore that in a quarter that was clearly very challenging.
We continued our investment in talent tools and differentiated capabilities that have made us the growth leader in our industry over a period is married many years.
In the current environment that means first investing in health and welfare resources and programs with the objective of keeping our employees safe and healthy in every respect.
It also means that as we begin to formulate our return to office procedures around the world. We do so with safety as our primary and predominant objective.
On the product side, we launch matter kind.
In early May which is an offering of I can Esso technology unit and is the next evolution in media and addressable marketing.
Earlier this month, we launched axioms connections suite of digital transformation solutions.
I'll return to key agency developments in my closing remarks, and I'll ask Felipe to share an update on developments in media data and technology.
As we look to the balance of the year, we're confident in the strength of our model and the competitiveness of our offerings, even as marketers continue to face a range of material unknowns related to the pandemic.
These uncertainties include the spread of the virus its impact on the sentiment and behavior of consumers on income levels business supply chains, and the actions of government authorities, including economic stimulus and social support.
The environment remains unclear full as long as Colgate as a threat to everyday life.
As a result visibility to revenue remains challenging and client decision, making difficult to forecast.
Even the usual points of reference in marketing and media such as back to school the global Sports calendar media inventory in the holiday season have not come into focus.
On a positive note, we remain new business positive year to date, and trailing 12 months and our pipeline of business opportunities is quite solid which is indicative of pent up demand.
But given the prevailing uncertainty it is difficult to gauge the pace of client decisions and the related conversion to revenue.
As always we will manage the business appropriately and look to align expenses closely the changes in revenue and we'll keep you apprised as the year progresses.
Our return to positive growth is obviously tied to macroeconomic timing.
Marketers understand that this can be a decisive time for brands.
They will be enduring changes as consumers accelerate the use of ecommerce and amid profound social change hold brands accountable for with anticipated and purpose.
We are resource with best of breed talent and tools to help rethink and reimagine the brands that have the lifeblood of companies.
Further with technology, playing an ever increasing part of day to day life, we're seeing heightened demand for data management and marketing technology expertise at the level of the enterprise with axiom and can Esso now integrated with our service offerings.
We're confident that our offerings are meeting this moment.
With return of supportive macroeconomic environment macroeconomic environment, we're well positioned to resume our growth as the nexus of consumer relevance and performance accountability for brands and is an engine a value creation for all our stakeholders.
I'll have additional closing thoughts before our Q, an eight along with Felipe but at the end of this point I turn it over to Ellen create additional color on our results. Thank you Michael I hope that everyone is safe and healthy.
As you've seen in our results, we're protecting profitability to the extent possible in the face of the setting revenue downturn, we are seizing opportunities to improve the economics of our business for the long term our balance sheet liquidity continued to be further areas of strength.
As Michael emphasized they've continued to invest in our operating.
In short and thanks to our outstanding people, they are well positioned to navigate the uncertainty of an unprecedented business environment and emerge as an even stronger company.
Turning then to more detailed on our results in the quarter and the slides that accompany my remarks.
On slide two you'll see a summary of our result.
At a high level, our revenue change reflects the impact of the pandemic and then unprecedent than contraction in global economic activity.
Lowered our salaries and related expenses and our office and other expenses with disciplined cost management as well the inherent flexibility of our model. We took extensive restructuring actions that will raise our margins healing going forward.
In the second quarter, our net revenue organic change with a decrease of 9.9%.
Now I reported revenue decrease was 12.8%.
Q2, adjusted EBITDA was 62.3 million and was 174.9 million before the restructuring charge compared with adjusted EBITDA of 285.5 million a year ago.
Adjusted EBITDA margin on net revenue was 3.4% enlist 9.4% before restructuring.
For the quarter, our diluted earnings per share was a loss of 12 cents as reported while our adjusted diluted earnings per share was 23 cents.
The adjustments excluded the after tax impacts of the amortization of acquired intangibles the charge for restructuring non operating losses on the sales of certain small nonstrategic businesses and a discrete tax item in the quarter. Our liquidity continues to be strong at 3.1 billion of cash.
Okay committed credit facilities at quarter end.
Turning to slide three you will see RPL for the quarter I'll cover revenue and operating expenses in detail in the slides that file.
Turning to Q2 revenue on slide four.
Net revenue was 1.85 billion.
Compared to Q2 2019 impacted the change in exchange rate was negative 2.1%.
The U.S. dollar stronger against each of our regional World markets.
Net divestitures or negative 0.8%.
Which represents the disposition have certain small nonstrategic businesses over the past 12 months.
We continue to review our portfolio, which resulted in selected dispositions in the second quarter.
These reviews are ongoing and we expect to have additional dispositions of small non strategic agencies in the second half a year.
Our organic net revenue change was a decrease of 9.9% as you can see that brings our organic change for the six months negative 5%.
At the bottom of this slide we break out our operating it operating segments.
Organic change in our Ian segment was a decrease of 8.8%.
Ian includes our global and domestic creatively lad integrated agencies, our media data and technology offerings and our digital specialist.
At our CMG segment of marketing services, the organic change with negative 15.6%.
Which reflects a disproportionate weight of events in sports marketing in segment revenue.
Moving to slide five organic revenue change by region.
In the U.S., our second quarter organic decrease was 8%.
Relative to our international markets.
Performed better which reflects the differences in the mix of clients sector, and offering with which together or more resilient.
To note the us impact of revenue headwinds that we have previously discussed was 1% and we have now fully cycled those losses as of mid year.
In our international markets, which are 34% net revenue in the quarter.
Organic change was negative 13.1% with decreases across all disciplines.
As you can see on this chart Latam decreased 10.4% content of Continental Europe, 11.1%, and we decreased 14% to 14.7% across Asia Pac UK and other markets.
Moving on to slide sex and operating expenses in the quarter as Michael said earlier managing expenses closely to changes in revenue and positioning our company optimally for returned to growth has been an area of intense focus for us in light of the operating environment.
Our net operating expenses decreased 2.6% from a year ago and were down 8.6% excluding restructuring.
That compares with our reported revenue decrease of 12.8%.
It is worth noting that all of our ratios reflect the sudden revenue decrease in the quarter.
As you can see on this slide we delivered in our ratio of salary and related expenses to net revenue, 70.5% compared to 65%. This includes higher SAP higher expense for severance actions in the quarter.
Severance was 55 million in the quarter compared to only 10 million a year ago. This is normal course severance that as it related to our downturn in revenue and which is separate and distinct from the actions in our restructuring charge for permanent cost reduction.
Salary reductions furloughs severance and other actions, which are taken over the course of the quarter resulted in the 6% decrease to base payroll benefits and tax compared to a year ago.
Several cost categories decreased at a faster rate than revenue our expense for performance based incentive temporary labor and other salary unrelated are all down more than revenue.
At quarter end total worldwide headcount was approximately 52000, a decrease of about 4% from year ago. This decrease includes the impact of dispositions.
Our office and other direct expense decreased by 18.2% to 17.1% of second quarter net revenue compared with 18.2% a year ago improvement was driven by a very significant fall off across a range of expenses and traveling meals new business development.
Office supplies as well as tight controls and discretionary expenditures are SGN a expense was 20 basis points of net revenue compared with 80 basis points a year ago.
As you can see on the lower right hand side of this slide our charge for restructuring was 6.1% of net revenue in the quarter.
Turning to slide seven we show additional detail on the restructuring.
We initiated an extensive review of our operations in the quarter taking into account experiences of our people from around the world working from home in light of the pandemic and our success operating fewer production and support facilities.
We concluded that we could move forward with a reduction of structural costs that will not recur as revenue growth was back into the system.
The resulting second quarter actions are reflected in the charge of 112.6 million $68 million of which is non cash we expect annual savings at 80 to 90 million as a result of these actions that would be approximately 100 basis points of our full year 2019 that right.
Revenue.
We expect to see most fee savings beginning in this year's third quarter.
Our view is continuing and we have identified additional opportunities for structural cost reduction, which we will act on in the second half of the year.
We currently expect those will add an incremental 90 to 110 million to restructuring expense and also results in meaningful savings.
Turning to slide eight we present detail on adjustments to our reported second quarter results in order to give you better transparency and a picture of comparable performance.
This begins on the left hand side with our reported results and steps through to adjusted EBITDA and our adjusted diluted EPS.
Our expense for the amortization of acquired intangibles in the second column with 21.8 million.
The restructuring charge was 112.6 million and the associated tax benefit was 25.4 million.
Below operating expenses and column four we had a loss in the quarter of 19.9 million in other expense due to the disposition of a few small nonstrategic businesses.
Finally, we had one discrete tax item in the quarter, an expensive 10 million due to an international tax position and as usual or calling that out as well.
At the further this slide you can see the after tax impact per diluted share of each of these adjustments.
Their total is 35 cents per diluted share, which has different between the reported diluted loss per share of 12 cents and adjusted earnings of 23 cents per diluted share.
On slide nine we show similar adjustments to the first six months.
Which bridge to adjusted earnings of 34 cents per diluted share.
On slide 10, we turn to key to cash flow cash used in operations with 87 million compared with cash generated from operations of 293 million a year ago.
We used $265 million in working capital in the quarter compared with cash generation of $53 million last year due to the drop in revenue and billings in the quarter.
Investing activities. He is 33 million in the quarter.
Our capital expenditures were 27 million compared with $47 million a year ago.
Financing activities is 367 million, mainly due to decrease short term borrowings and for our dividend.
Our net decrease in cash for the quarter was 469 million.
Slide 11, as the current portion of our balance sheet.
We ended the quarter with 1.09 billion of cash and equivalents.
And our current liabilities. We include the maturity in October of our 3.5% 500 million senior notes.
Slide 12 depicts the maturities of our outstanding debt.
Total debt at quarter end was 4 billion with diversified term maturities.
We intend to pay off for October maturity with cash on hand.
It is worth noting again that our liquidity resources include 2 billion of committed credit facilities.
In light of the restructuring charges are supportive bank groups have agreed to amend our EBITDA leverage ratio to four on a quarter times for the remaining term of the 364 day facility and through the next 12 months for our 2024 facility. This should provide ample cushions further supporting happen.
And compliance.
In summary on slide 13, our teams continue to execute at a high level and an unprecedented environment the strength of our balance sheet and liquidity, meaning that we remain well positioned financially and commercially with that ill turn it back to Michael.
Thank you al.
This now question then all of us in the industry, both clients and agencies have faced unprecedented challenges in light of which we're proud of our achievements during the quarter.
We've seen our companies in our people pivot quickly to adjust to these uncertain times.
We are once again reporting results that demonstrates the caliber of our talent the strength of our long term strategies and a distinctive called culture across agency collaboration.
In the long run this is a combination that we believe positions I PG to succeed.
When it comes to meeting another vital issue that is confronting our society.
PG became the first holding company to publicly release the race engender composition across its management ranks.
We have long been a leader in diversity equity an inclusion.
But recent events dramatically underscore how far we have to go as a nation and the degree to which I PG and our industry as a whole had to significantly increase our efforts to promote diversity and improve opportunity for black Americans and people of color.
In other areas of our business IP GE continued to excel.
In April AD age announced its a list and IP GE led the industry in terms of the number of agencies recognized on that important annual ranking.
Our companies in the PR creative media and digital space, We're all recognized.
The one show also recognized IP G as creative holding company of the year.
Demonstrating the creative strength of our brands across all disciplines and channels.
Turning now to the performance across our portfolio, which I covered at a high level in my opening remarks, the sector that was held up best to date, despite the pandemic as healthcare.
We have significant operations in healthcare marketing totaling more than a quarter of our portfolio.
FCB health is our largest player in this space and posted a strong Q2.
Followed by solid results from Mccann health and the healthcare vertical within Weber Shandwick.
Mediabrands saw a number of significant wins and retentions of large healthcare clients and the sector is also performing well at some of our us independents as well as Mullen Lowe globally.
Our media data and technology segment has been a key driver of performance for IP G. for a number of years now and it is also fundamental to our growth prospects going forward.
I'd like to ill now ask will lead to share an update on developments in that sector.
Thank you Michael.
As you all know one of the key drivers of our success in recent years has been our commitment to meeting the needs of an evolving landscape.
In which technology media marketing and data are increasingly converging.
That's a trend that we identified early on which significantly informed our strategy.
As of some time ago, we therefore decided not to silo digital expertise.
But the integrated across all of the agencies within our portfolio.
To develop a highly consultative approach to our media operations that ultimately values intelligence over pure scale.
And to build out our own tech platform to guide investment decisions for digital and addressable media in a wholly agnostic manner.
These have been key differentiators for us as Michael mentioned, which contributed to the sector outperformance IP GE has posted for a number of years now.
After that we pivoted more deeply into data and began to prioritize investment in our proprietary stack.
For a number of years, our amp stack and agency analytics capabilities, we are central to the evolution and success of our media operations.
That's an area, which has been significantly enhanced with the addition of axioms full capability set.
During the quarter UN continued to prove out the value of this strategy as it once again topped the Forrester Media Agency wave report.
Where it was cited for its abilities to use data platforms to improve media execution and targeted creative messaging.
The agency recently when global media duties for Energizer and was named domestic air our for IGI Gallo.
Initiatives approach to connecting with consumers with a combination of cultural insights and data have allow the agency to carve out a distinctive competitive positioning.
Agency, one of the Salesforce account as well as Onboarding, a major new pharma client during the quarter.
[noise] Mediabrands also took a leadership position recently in the public debate around responsible use digital media platforms.
Our social media content moderation advertiser responsibility principle.
Set out a standard to which the entire industry should hold platforms in order to ensure brand safety and minimize concerns that media budgets will fund the content that is harmful to the greater good.
This effort has been well received by clients and it's consistent with our longstanding commitment to transparency.
As well as a very high standards were now able to bring to privacy issues as a result of axiom expertise.
There are a number of additional milestones worth reviewing when it comes to our media data and tech offerings in the quarter.
First we continue to be pleased with axioms performance on a standalone basis.
Managing clients first party data and their marketing infrastructure is essential in this very challenging economic environment.
It will become even more vital going forward.
As marketers deal with a world in which there is ever more complexity and consumers become more demanding of personalized experiences that deliver real value. While also respecting their privacy rights.
In terms of the integration of data capabilities with our media offerings.
That's another area, where we feel a lot has been accomplished.
By combining the known at World of first party data in which axiom excels.
As well as they are powerful infobase data asset.
What we do in channel planning media modeling and AD Tech.
We're now able to precisely identify audiences that can be activated to drive better business outcomes for our clients.
Whether it's by enhancing the efficiency or the effectiveness of their marketing investments.
This is helping us to redefine values through the media ecosystem.
The newest phase of our efforts has to do with net new products and solutions powered by can Esso technology, such as those Michael mentioned in his opening remarks.
Matter kind is an optimization engine fueled by strategic data assets from axiom that incorporates all addressable media channel.
It Optimizes holistically and in real time and opens additional doors for us with clients to true pay for performance models as well as the licensing of our applications and IP.
The connections suite of solutions will allow us to make digital transformation expertise from Mediabrands and connect so available to axiom clients.
Finally, it bears mentioned that the advanced capabilities, we are building within our media data and technology assets aren't only working in more integrated ways with each other but that we've been to make good progress across the IP portfolio.
Matter kind is working closely with.
With a number of our us independent agencies on a dozen current new business opportunities in the media space.
Can esso and axiom are playing a part in all of our open architecture pitches.
A novel behavioral science methodology for combining granular consumer data to drive creative insights recently helped one of our global advertising networks, when a significant new account.
And data driven audience segmentation work.
Power to new process for consumer journey planning that health one of our digital agencies secure a multi year CRM project from a major advertiser across the U.S and Canada.
There's still plenty to be done to fully develop and integrate these capabilities that the teams are very engaged and enthusiastic about this transformational work, which we believe can be a significant growth driver going forward.
And with that I'll pass expect to Michael.
Thank you fully.
Turning now to our global Creative agency networks growth at FCB in the quarter was driven by FCB health with work with which works with most of the top 20 pharma companies and has to date assisted our clients and launching a 11, new drugs with its talented employee population working from home.
The advertising agency also expanded its relationship with several large clients, notably GSK and Kimberly Clark and it was exciting to see FCB named as the top network and creativity in the most recent ranking from the one club.
Mccann Worldgroup received the number of accolades this quarter, notably network of the year at the Webby Awards and campaign magazines inaugural Global agency of the year Awards.
For the third year in a row. The network was named the most creatively effective agency network by the fees.
On the new business front SCS named the network is global brand agency partner.
Mccann health expanded relationships with Astrazeneca and Novartis and MRM was selected to drive digital customer experience for JNJ vision care.
We've seen great creative coming out of Mullen Lowe this quarter.
The hash tag always proud worked for X. celebrates the LGBTQ communities and the PSC for the advocacy group March for Moms calls attention to demands on mother's during the pandemic.
Media hub continued to be a standout.
Where the pitch and independently or is a key partners to Mullen Lowe building on joint recent wins, such as Navy Federal credit Union in constellation brands.
Oakland base huge continues to specialize in consumer experience, especially in response to the cold 19 crisis and the agency launched its new post isolation precise as tool kit for businesses are GA produced innovative and relative work that sparked important conversations the agencies latest slope has no.
Labels campaigns for the Ed Council Movingly questions, what freedom really means Black Americans.
RG also continued its pop popular merchant aid initiative.
Connecting artists with small businesses that have unexpectedly shuttered due to cope with 19.
At CMG the management team for this segment continued to build out a more collaborative business model to bring together its expertise across such areas as hybrid events employee engagement crisis in issues healthcare PR and more.
Weber Shandwick was honored as North American agency of the decade at the 2020, North American Sabre Awards and named APAC consultancy of the year at the PR Week Asia Awards.
The agency also one recognition in major European in Latin America industry competitions.
At goal in the agencies, New global CEO was working to build on the agencies recent success.
Well, let Jack Morton in Octagon, whose businesses have been seriously impacted by global Lockdowns. The teams are developing new digital offerings, such as a recent campaign for Jamison.
In which the whiskey brand partners with hip hop artist to create a virtual Mentorship program for mute emerging musicians and work for Cisco called the match champions for charity, a virtual event, featuring Tiger Woods, Phil Mickelson, Tom Brady and Peyton Manning.
Our us integrated independent agencies round out our portfolio.
They deliver the full suite of marketing services to their clients and irregularly combining with the rest of the HVPG offering on our collaborative open architecture solutions.
Overall, while IP GE is performing better than our sector coal with 19 continues to have profound impact on the global economy and the remains a great deal of uncertainty.
While our new business pipeline is stronger than it was earlier this year, which would indicate pent up demand.
Visibility is still significantly challenge for our clients and for us.
Unsurprisingly busy vigorous risk through recovery has to do with pulp public health challenges that are beyond our control.
As such why we had initially seen some signs that the second quarter would prove to be the bottom of the economic decline there was still too many variables in play to make that determination.
As mentioned, we've taken significant cost saving measures across our entire organization.
We're prepared to take further actions as warranted by economic conditions.
But we also need to protect client relationships and be in a position to capitalize on opportunity when a recovery begins to take hold.
We are confident that the restructuring actions, we've taken position IP G well for the future.
This is an unprecedented time.
But we have a sound financial foundation in place underpinned by the strength of our balance sheet.
Given the actions we have taken to date and the potential for economic recovery late this year or into 2021, we do not think action on the dividend is currently required.
Of course, we will continue to assess this decision in light of limited macro visibility and keep you apprised on this important topic.
We are focused on helping clients, we will be disciplined in managing the business and taking actions to adjusting to the revenue reality.
Our people are doing their part using the full range of our company's expertise to drive business results for our clients and where possible do good in the face of the crisis.
Our highly relevant offerings and track record of collaborative open architecture client solutions positions us to leverage opportunity once the macroeconomic situation stabilizes and the recovery strip strengthens.
As such we also remain well positioned for continued long term value creation.
We will of course keep you posted on key developments share our perspective on our visibility into the evolving landscapes and as always we look forward to answering your questions. At this point, let open up to Tonight.
Thank you we will now begin the question answer session. If you would like to ask a question. Please press Star Wars. Please UN mute your phone referrals are for soon listening clearly when prompted really moving parts into future question to withdraw your question.
Once again at this time, if you would like to ask your question. Please press star one.
And our first question is from Alexia Quadrani with JP Morgan Your line is.
Thank you, Brian Max will help everybody.
I have just a couple of question first one.
Michael as you probably anticipated.
For closing the monthly project.
Yes.
Thank you.
Improvement as the quarter.
When true.
Yes, you any that at the beginning of the quarter and I wanted to circle back on your your commentary just now about green I totally understand library.
Pardon.
Call a trend in this environment, but are there any particular signs that might make you more cautious about Q.
Or is it trending better and you're just sort of sang now.
Thanks.
Yes.
Thank you Alexia and always appreciate your questions.
First of all I'm not giving you the next month's results [laughter] as you usually as.
What's what's interesting about this environment is what we say on one day you know clients are very reactive to what's happening in the world today. Okay. So for example, you will see results that were published today on financial service companies right and that will be indicative indicative of how they have to protect their own margins and obviously that's how they.
Look to this spend so what looks like where we had projects on board, it's likely that potentially there'll be a delay in those projects. So so it's very hard for us to predict on a monthly basis, where it is I will give you this comfort though.
If you look at Duke.
The.
Results for the quarter.
What's interesting about what I said that we thought the second quarter was going to be the worst.
The good news is that the second quarter wasn't as bad as we thought it was going to be okay. So thats, a positive and I attribute that to the of all the resources that we have available to us the work that our people are doing with our clients the data and the axiom in the work that Felipe talked about working with the open architecture solutions. There is no question in.
My mind that that is the way we have to market our services going forward and I believe we're positioned the best in the business to respond to that so in terms of the trend. If you will I'll give you that the United States in Continental Europe was somewhat better in June in June.
Then in May.
Does that indicate that July therefore is good to be better I can't answer it but that but the shoe to there we have a good pipeline in terms of new business. We just were informed that were in finals of some other pictures that are going on right now where net new but new business positive. So all those indications on the normal.
Circumstances would indicate that we will see a recovery.
The balance of the year, whether it's in the third quarter fourth quarter. We can't comment there are indications that in the fourth quarter, there seems to be a bit of a slowing down but that that's just the reaction to what's happening today. The key takeaway I think what you have to walk away from is if when you compare our results.
In this quarter to our competitors.
We are outperforming the market in terms of our revenue growth, we're outperforming the market in terms of net new business.
We're winning more than we're losing and what's really adding to our strength is our sector allocations. When you look at our sectors in terms of healthcare and retail and tech and Ted technology.
These are very strong sectors that were very well position was also encouraging is to see that our top.
20 clients, our top hundred clients is performing better.
Then the results that we reported.
Thats another positive sign if you want to look at it. So overall I can't tell you whether it's the third quarter, the fourth quarter, but I do believe that when this when this.
Koby the experience turns around we have positioned IP GE for 2021 better than you can possibly believe and when this this does turn around we will be lean mean and in a position to continue to outperform our sector.
Yes.
That's very helpful. Thank you I'd just one quick follow up.
In the areas, where you saw relative weakness in the quarter, whether it's the auto vertical or.
Industrials financial services or maybe the event business.
Are you seeing some signs of improvement and some of those areas at this point.
Well clearly look our big our biggest hit was on the events side of business and we've said this before.
4% to 5% of our overall businesses in the event site.
Obviously until we see recoveries.
In that in that side of the business, we can count on recovery are they working on digital.
Responses, yes, all week, we've seen golf for example come back to TV do we play a role there yes, do we see major league baseball coming back when as you start seeing more of that youre going to see more of recovery in our event business in terms of the other verticals, obviously auto and transfer.
Station.
Cruise lines some of our businesses have really adversely affected particularly the airlines.
We have a good cross section of airlines were not going to see a recovery in those businesses until there's a solution to covert 19, the strength of IP GE is that our sectors are well dispersed and in this sectors that are performing really well. We're outperforming both are in terms of CLI.
Representation and in terms of delivery and in fact, we have new business opportunities that are out there right now, which we're very excited about which is would be net new business to us it's not business that said risk.
Hi, Thank you very much thank you Alex.
Our next question is from John to news.
Your line is over.
Thank you.
Michael It seems like every time, we hit a recessionary downturn.
My question the business model. So can you talk about your attitude positioning for the future unique to change the business competition.
The offerings go to market strategy or anything else for that matter once things stabilize going into the next cycle and then separately you talked about the cost disciplines.
On revenue normalize to set the 80 to 90 million one well back into the cost structure will the additional actions in the back half of the year.
From article that number as well.
While the answer to that is yes, [laughter]. Okay. It may not be is high because some of those expenses are going to be in Europe.
And as you know the payback with respect to European actions is a little bit longer, but but the as Alan mentioned the expense actions. We expect for the rest of the year, we'll give rise to sizable savings they may not be it the magnitude of the first half, but again, it's by geographic location, we've been working our model now for years.
Okay.
And and if you really want to go back and since you know our industry. We started working on our model when we started talking about open architecture.
And Thats, where we bring the best of IP GE to the solution a significant amount of the wins and in the healthcare clients that were talking about our open architecture models, where we have all the disciplines you heard Felipe talk about the data media. The technology that's brought to they play an important role in every one of those engagements.
Creative capability from Mccann FCB Mullen Lowe, our independents are all sitting at that table, you add to that our PR expertise and the and the event expertise when it comes back it is a compelling offering that I believe when this market recovery turns around we will be best.
Suited to recover and conduct continue to outperform our sector that is the model of the future I think we started at 14 years ago.
And now obviously, our competitors are trying to a copy it but I've been on global calls in terms of the open architecture, where the clients of referring to US is open architecture and they're using it in their own model.
So I don't believe we have to change our strategy at all in fact, the last 14 years, we've been focusing on a strategy and now it's showing its strength in is in this environment and when the recovery comes a more comfortable than ever than that model is going to prevail in the marketplace.
Yeah.
Alright, thank you.
Our next question is from Dan Salmon with BMO capital markets. Your line is over.
Okay, great. Good morning, everyone. Thanks for taking the questions.
For Michael or fleet I, just wanted to follow up on the comments about initiative.
Hard pressed to remember mediation see having to run a new business like with [laughter] you just talked about the breadth of the client list across verticals. There are there obvious open slots that can be sold spill or should we expect initiatives have started having met high class problem bumping up against more conflicts situations.
And then second for maybe so we specifically going a bit more high level, we get a lot of questions about what changes, Google and apple or making to the platforms with regard to pride eightys.
And the question for IP Gn axiom is often about the bowel potential risks to the third party data business.
Versus the opportunity to help clients more with with first party data management, there's a lot of different directions, you can take that but to put it simply do you think platform changes from Apple and Google.
But.
Negative.
I'll, let felipe take most of that but let me just comment one of the reasons, we bought axiom in the first place was because we saw the importance of first party data and the potential and add to Apple and Google.
Limited access with respect to cookies and things like that we use a first party data in all the technology that fully talked about becomes much more relevant. So we are positioning ourselves to be in a position competitively not to need.
The access to the googles and the and the apples is with respect to initiative initiative is a great story in terms of that come back and I'll, let I'll, let Felipe talk about initiative.
Look I think initiative has been a reinvention and.
A repositioning with an eye to some of the things that we've been talking about in terms of where the business is going.
We're very pleased with what has been accomplished but there's still opportunities. There. So they are not blocked in a number of pretty significant categories.
And there is also a lot more that they can do too.
Bring the all of all of the specialist capabilities that we we have across mediabrands and across can esso to their clients. So so we still think theres quite a bit of running room and then relative to your question about Deprecating third party cookies.
As Michael said with the expertise that we have it can esso and then given what axiom provides we clearly you know for saw that this was something that was we're going to need to solve for and we were going to need to be able to stand on our into fee and in essence, if and as required.
Wired help clients.
Deal with this new world, so whether its opportunity for everybody in the space TBD, but when you've got the expertise we've got in data and as we've always said an agnostic model, we think that that is definitely upside.
You know to the complexity in the in the platforms, but yes.
I think the availability of first party data and their willingness of clients to share first party data and opportunities that have created there can really provide a significant.
Advantage when dealing with Wouldnt, Google and Apple were to shut down because that's where the data rich information can be and the head to technology and connect some capabilities and a new products and value added.
We believe will be very well positioned to handle that.
Great. Thank you both.
Thank you.
Our next question is from Michael Nathanson with Monster.
Your line is open.
Thanks, I have two from Michael Michael Im sure Im sure you know this but when you laid out what percentage of your staff is back in the office now look at your organic revenue from those regions have amazing that the market where people work most from home outperform markets, where people are still going going to works on wonder stepping back.
How you thought about needed your need for office space and supports now post crisis is this business courses given your chance really rethink maybe go where you guys built your agencies north of headcount Anda.
And square footage for anything on that and then.
Looking at your billable expenses and you mentioned the event.
Now we till we get that is not the bulk of the downturn bullets months was that mostly just from the events not not calling through was there anything else in there that you should call them well that when ZZ the bulk of that isn't from that that's the pass through.
Let me tell you about space part of the restructuring we've taken a very seriously look at what it office is required and so on we've taken 500000 square feet out in terms of the structural changes in terms of the hit that we are already indicated and there is no question.
That that the use of office will change in the future and we're taking advantage of when we talk about positioning IP G. for 2021 were anticipating a change in the footprint of our organization significantly.
And we are continuing looking at what space you know our initial reaction was because of the social this unsi, we're going to need more space right, because you're going to need six feet apart and saw if in fact, it's the exact opposite.
We will stagnate people coming to work.
The use of office space in the ability for people to work at home. We're doing surveys every month in terms of how thats working and as a result, the 500000 square foot.
Reduction net as part of the structural changes that we're taking these a permanent changes. These aren't these aren't coming back we're not about all of a sudden so taking space.
Okay in terms of the marketplace, I know or the real estate people aren't going to like the here that but yes, I think the way we're going to do business in the future is going to be materially different and that we're taking advantage of this right now we're learning from our people. We're learning who has to be in the office. We're learning what people can do things from home it's.
Voluntary it's we will never asked people to come back to work. If they are uncomfortable the biggest issue for coming back to work frankly is transportation mass transportation, we're very cognizant of that we're spending a great deal of work with our people understanding the dynamics of that but you're correct. The footprint of the agency business is going to.
Change period, and the actions that we've taken already you think about it we've already taken 500000 square feet at of what is 11 million square feet, we've done that in a matter of months.
So as we take a look at this closer as we go forward I think there's good to be more opportunities there and it's across the world World. It's not just New York I don't want the New York people to go Crazy that we took rollout in New York. This is all over the country all over the World and I do believe the model has changed and we've learned from this and we will continue to.
Learn from it.
Thanks.
That was our final question for today I'll turn it back over to Mark.
Well I. Thank you all very much for your support I Hope you realize that we're working very hard on our investor behalf and we will continue to do that it's a difficult time, but I can tell you how proud I am of our people.
And the way they stepped up to the challenges and I look forward to our next call. Thank you very much.
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