Q3 2020 Interpublic Group of Companies Inc Earnings Call
Good morning, and welcome to the Interpublic Group third quarter 2020, <unk> Conference call. All parties are in a listen only mode until the question and answer portion at that time, if you'd 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 Lenny.
Senior Vice President of Investor Relations, Sir you may begin.
Thank you. Good morning, we hope you are all well thank you for being with US This morning.
This morning, we are joined by Michael Roth.
Alan Johnson and Felipe quick housekeeping.
We have posted our earnings release on our slide presentation on our website Interpublic dotcom.
We will begin our call with prepared remarks to be followed by Q anyway.
And plan plan to conclude before market open at 930 eastern.
During this call we will refer to forward looking statements about our company.
As our 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 SEC.
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 Michael Roth.
Thank you Jerry and thank you all for joining US this morning, as we review our third quarter performance.
I would like to start by saying that I hope that you and your families have a main safe and healthy during this pandemic.
Our focus this year has been and continues to be held the health crisis has impacted our people our clients and our business as well as on driving disciplined and effective response to a challenging environment.
While navigating the many professional and personal challenges of this unprecedented period of time.
Our people have delivered on our strategic priorities stay.
Staying close to clients continuing to develop and invest in our talent and all things managing operating expenses to revenue and positioning into public to emerge and even stronger company on the other side of the the session.
Our results in the quarter underscore once again that our offerings and our people are best in class and.
Third quarter, our organic change of net revenue was negative 3.7%.
As expected that result continues to show the effect of the pandemic and global economic contraction, so perhaps not to the extent anticipated.
Our fully adjusted EBITDA, which excludes a charge for restructuring increased 5% and our adjusted diluted EPS increased 8.2% over comparable year ago earnings.
This is a strong accomplishment and accretive to our management teams.
Against the challenging business environment. These results make once again to the strength and resiliency of our offerings.
Flexibility of our business model and the exceptional quality of our talent.
Across our service portfolio, the pandemic has affected our business differently, but.
But nearly all of our agencies and disciplines showed improved growth from the second quarter.
Our events practices have been hit hardest by the pandemic for the obvious reasons.
Events as we've shared previously was 4% to 5% of our revenue base last year.
Clients continue to engage with us on alternative models that will leverage technology for hybrid remote and in person experiences to maintain the brand power of collective experience and net working under their brands.
The performance of our many creatively led integrated global and domestic agency brands varied in the quarter.
Which reflects the different mix of clients and regional footprints.
Our immediate data and technology offerings together grew in the quarter compared to a year ago our head.
Our health care disciplines continued to grow and take market share.
Our largest clients again outperformed in the quarter.
Our open architecture go to market continues to win in the marketplace as a collaborative platform for our best in class agencies to elevate the scope and value of our services with the top tier of marketers.
Among client sectors, our top performers, where again, the retail sector and the healthcare sector.
At the other end of the spectrum the sectors, most impacted by the recession, where the industrial clients within our other category and the auto and transportation sector, which is also similar to a second quarter.
In terms of sequential changes, it's worth noting that both auto and industrial less challenged than what we saw in the second quarter.
By region, the U.S. decreased 2.4% organically and with 65% of our revenue mix in the quarter.
Our international markets decreased 6% organically with a broad range of performance marked by Continental Europe at plus 2.3% and.
In Asia Pac at negative 15.2%.
Turning to operating expenses and margin our teams continue to manage it very effectively as reflected in our results.
Our net operating expenses decreased by 6.9% from a year ago before the charge for restructuring which come.
Which compares with the 5.2% decrease in net revenue.
Both of our principal cost lines decreased.
We drove significant leverage on our expense for base payroll and our office and other expense and are beginning to see the impact of structural cost reductions.
I would emphasize that alongside these operating efficiencies we continue to invest in people, making some notable headline hires that show our ongoing position as the destination for the industry's top talent.
In addition, we continue to enhance the tools and distinctive offerings, which it made us the growth leader on industry over a period of many years. This.
This includes initiatives from a diversity and inclusion group such as a new free group counseling sessions for the IPO see employees it.
It also includes our investments and continued innovations and new products in our data and Tech Group for example, which we will address later this morning.
As we anticipated on our conference call in July we took.
We took additional actions in the third quarter to structurally lower operating expenses and to further transform our business.
These actions are result of a strategic review of our operations that will continue into the fourth quarter and resulted in the third quarter restructuring charge of $47.3 million.
Of the total charge 28 million is not cash.
Along with the actions we've taken in the second quarter, our restructuring actions to date are expected to result in total annualized savings of approximately $110 million to $130 million that a permanent which is approximately 140 basis points of full year 2019 that revenue.
We plan to take additional actions in our fourth quarter.
The majority of which will be related to real estate and will be noncash charges. These.
These are also expected to result in significant restructuring expense and additional structural savings and to conclude our program.
In the third quarter, our adjusted EBITDA margin was 13.8% and was 16.2% excluding restructuring charges.
Which is a 150 basis points better than last year.
Diluted earnings per share was 71 cents as reported and was 53 cents as adjusted for the restructuring intangible amortization and other items that are below operating income.
As we look to our seasonally important fourth quarter, we're confident in the strength of our model and the competitiveness of our offerings.
It's important to note that last year, we had a strong fourth quarter with organic growth in excess of 5% as adjusted for headwinds all.
All of this continued to face a range of wasn't loans related to the pandemic and its impact on the global economy.
This will weigh on the significant volume of project assignments that are the norm for a holiday season.
Covidien as we are painfully aware remains a threat to everyday life and regrettably is picking up in many key global markets.
Unemployment, while a better picture than earlier this year remains historically high.
The status of important government support programs is unresolved, especially in the U.S., but globally as well.
All of this makes client decision, making for the holiday season difficult to forecast, it's very likely that any improvement growth. We do see of course are industry will not be linear by quarter. This is just to acknowledge economic reality.
Despite these unknowns I P.G. remains well positioned to continue its outperformance of the industry.
We are hearing from clients that they write a decisive juncture for brands.
They will be enduring consumer changes as a result of the pandemic.
Including the mix shift to E commerce, the emergence of digital consumer experience and the deeper accountability for brands authenticity and purpose.
We are distinctively well resourced with outstanding talent and tools to help marketers rethink and reimagine their brands.
Further with technology, playing an ever increasing part in day to day life, we're seeing increased demand for data management and marketing technology expertise at the level of the enterprise.
Acxiom Internet so now integrated with our service offerings, we are in a strong position.
Accordingly, we are confident that we can resume our growth in an improving economy and continue forward as an engine of value creation for all our stakeholders.
I'll have additional closing thoughts before acumen eight along with sleep, but at this point I'd like to turn it over to element for additional color on our results. Thanks.
Thank you Michael I hope that everyone is safe and healthy as you've seen in our results. We are increasing profitability with our team is doing a terrific job in managing expenses now.
Notwithstanding the current challenges it continues to invest in our people and our differentiated offering.
Balance sheet and liquidity continue to be further areas of strength.
Finally, we ended the quarter I'm not talking about first we paid off our 500 million maturing senior notes with cash on hand.
We are well positioned to churn in the quarter out of the recession has an even stronger company.
More detail on our results in the quarter you cannot aside two in the presentation.
Our organic revenue change was negative 3.7%.
Well that says the pandemic is still with US it is notably improved from the second quarter and reflects sequential improvement in our major agencies, most world regions and in several client sectors.
Third quarter adjusted EBITDA.
269.9 million enlist 317.2 million before the restructuring charge compared with 302 million a year ago.
Our adjusted EBITDA margin on net revenue was 16.2% which is before restructuring.
For the quarter diluted earnings per share was 71 cents as reported.
Well, our adjusted to the different names for share was 53 cents.
The adjustments exclude the after tax impacts of the amortization of acquired intangibles, they charge for restructuring and non operating losses on sales of certain small nonstrategic businesses as well the discrete net tax benefit in the quarter.
Our liquidity continues to be strong at 3.6 billion of casting committed credit facilities at quarter and again, we used 500 million. This october 1st to repair maturing.
Turning to slide three you'll see our pan out for the quarter I'll cover revenue and operating expenses in detail in the slides that follow.
Turning to Q3 revenue on slide four.
Our net revenue was 1.95 billion.
Compared to Q3 2019, the impact of the change in exchange rates was negative 30 basis points.
Net divestitures with negative 1.2%.
Just the impact of the disposition of certain small non strategic businesses.
Past 12 months.
These reviews are ongoing and we expect to take additional small dispositions as we move forward.
Our organic net revenue change that's a decrease of 3.7%.
As you can see on the right that brings our organic change for the nine months to negative 4.5%.
At the bottom of this slide we breakout our segments.
The organic change in our EMS segment with a decrease of 1.4% as.
As a reminder, in includes our global and domestic creatively led integrated agencies, our media data and technology offerings and our digital specialists.
At our CMG segment of marketing service specialists, yeah organic change was negative 16.5%.
Which reflects the disproportionate mix of events and sports marketing within Sanjay.
Moving on to slide five organic revenue came back region.
In the U.S. their art third quarter organic decrease was 2.4%.
Relative to our international markets U.S. continue to perform better in the pandemic, which reflect differences in the mix of client sectors.
In our international markets, which were 35% of net revenue in the quarter.
Organic change was negative 6%.
All regions improved from the second quarter with the exception of Asia Pac organic growth in Continental Europe was positive at 2.3%.
Spain, France, and Germany, showing notable increases.
We increased 60 basis points and they're not all other for it which is comprised of Canada, the middle East and Africa.
Well that has decreased by 30 basis points UK was negative 10.3%.
Asia Pac was negative 15.2% conditions in the region continued to be challenging as we experienced decreases in each of our largest national markets.
Moving on to slide six operating expenses in the quarter, which continues to be a priority for us.
Our net operating expenses decreased 6.9% from a year ago, when excluding the restructuring charge, our adjusted margin expanded by 150 basis points.
As you can see on this slide our ratio of total salaries and related expense as a percentage of net revenue you leveraged by 30 basis points from a year, though this is due to an increase in our accruals for incentives due to improved performance compared to a local in Q3 2018.
Strong operating leverage that's at our expense base payroll benefits and tax at 150 basis points.
Which reflects decreased headcount temporary salary reductions across a broad range of our agencies and employees in response to the pandemic.
<unk> expense for incentive compensation was 4.4% of net revenue.
Parents and 2% in last year's third quarter for the nine month or expense for incentive it's roughly equivalent to last year.
Severance expense increased by 20 basis points to 0.8% of net revenue from a year ago and temporary labor was 3.5% of net revenue compared with 4.2% last year.
At quarter end total worldwide headcount was approximately 50500.
7% decrease from a year ago, including the impact of disposition.
Our office and other direct expense decreased to 15.8% from 17.8%, which is especially notable change.
It reflects that our office and other expense 60 million less than a year ago.
Approximately half of that was due to the sharp decline in our travel and entertainment costs.
Occupancy expenses decreased by approximately 11 million, mainly due to the restructuring.
Our <unk> expense was 50 basis points and net revenue, which is flat with last year.
As you can see on the lower right hand side of this slide are charged to restructure headcount and real estate was 2.4% of net revenue in the quarter.
The charge was 47.3 million of which 28 million is non cash you expect to realize annualized savings 30 to 40 million from these actions that brings the total annualized permanent savings we expect from the restructuring so approximately 140 basis points when men.
Sure it against 2090 Internet revenue.
During the quarter, we identified additional opportunities to expand the size of the restructuring program and related savings. We expect to continue our restructuring into our fourth quarter with additional significant actions and structural savings, which will also mark the conclusion of our program.
As Michael noted, we expect the majority of our fourth quarter actions will be related to real estate.
Turning to slide seven presents a detail on adjustments to our reported third quarter results in order to give you better transparency and the picture of comparable performance.
This begins on the left hand side with our reported results in steps through to adjusted EBITDA, excluding restructuring and our adjusted diluted EPS.
<unk> expense for the amortization of acquired intangibles in the second column was $21.3 million.
The restructuring charge was 47.3 million and the related tax benefit was 10.8 million.
Below operating expenses in column four we had a loss in the quarter of 8.6 million and other expense due to the disposition of a few small now street non strategic businesses.
Finally, we had an adjusted for a 10 net tax benefit in the quarter of 132.6 million due to the settlement of prior years tax because I haven't nations.
At the foot of the slide you can see the after tax impact diluted share each of these adjustments, which bridges our diluted EPS as reported at 71 cents to adjusted earnings of 53 cents per diluted share.
On slide eight we show similar adjustments for the first nine months, which bridge to adjusted earnings of 87 cents per diluted share.
On slide nine we turn since third quarter cash flow cash.
Cash from operations was 689.3 million.
Compared with the 224.6 million a year ago.
We generated 376.8 billion from working capital in the quarter, a very strong result, compared with the use of $47 million last year.
Investing activities used 39.2 million in the quarter for Capex.
Financing activities used 115.4 million, mainly for our common stock dividends.
Our net increase in cash for the quarter was 543.3 million.
Well I can get the current portion of our balance sheet as of September Thirtyth we.
We ended the quarter with 1.63 billion of cash and equivalents.
The current liabilities. We include the October 1st maturity of our 3.5% 500 million senior notes that were going to be repaid with cash on hand.
Well I'd 11 depicts the maturities of our outstanding debt and our diversified maturity schedule.
Total debt at quarter end was 4 billion again, that's on September Thirtyth.
In summary on slide 12, our teams continue to execute at a high level and unprecedented environment the strength of our balance sheet and liquidity I mean that we remain well positioned both financially and commercially I would want.
I would once again like to reiterate our pride in our people and with that I'll turn it back to Michael.
Thank you Ellen.
With so much uncertainty and so much change both for marketers and their agency partners. We're proud of our accomplishments during the quarter we are.
We are continuing to report results that demonstrate the quality of our talent the strength of our long term strategy, especially early adoption of data centric digital first tools across the entire organization and the distinctive culture of course agency collaboration.
In many areas of our business our company continued to outperform the industry.
Hi, BG was named one of America's best employers for women by Forbes most.
Most recently, we were named to the puts and for good index for the second year in a row in recognition of our company's strong U.S.G. practices.
In addition, like BG was named the most effective holding company of the year that the 2020 ft U.S. awards, marking the fourth year in a row. We received this key industry recognition.
Turning now to the performance across our portfolio.
One sector that continues to hold up for us is health care.
As you know like the GE has significant operations in health care marketing totally more than a quarter of the portfolio.
This includes our dedicated global healthcare networks, as well as significant health care client relationships and activity at our media and public relations operations and within some of our U.S. independence.
Health care marketing is not only an area in which we are strong across much of the portfolio. It's.
It's a sector in which there is a high degree of technical expertise and specialization, which makes these higher value services.
It's an industry that we believe we continued to grow well in the foreseeable future and it's a part of the business that has been very receptive to our cost them multi agency open architecture solutions.
Whether its specific areas of knowledge specific to a condition where disease.
Teams with the requisite experience complimentary geographic strength or other ways in which our agencies can collaborate for the good of the client.
With care and former marketers want us to bring the best capabilities from across I P. G to bear on the challenges and opportunities are.
Our ability to do so is another reason, we're very well in the space despite depends on mix.
As we've discussed on prior calls at I.P.G., we developed a vision for building digital data first marketing company early on you know turn around that.
That strategic vision has meant that our media data and technology segment has been a key driver performance. It I'd be g. for a number of years now.
And then there's also fundamental to our growth prospects going forward.
As someone who is help us lead the charge I'd like to ask Felipe to share an update on developments in that sector.
Thank you Michael.
As Michael mentioned, a key factor in our success has been our commitment to meeting the needs of an evolving landscape in which technology marketing and data or increasingly converging.
That led us to embed digital expertise across the portfolio.
Philip a media model that lead into consultative skills as much as investment scale.
And he commitment to data management expertise and data ethics that was significantly enhanced with the acquisition of axiom.
This quarter as Michael mentioned, we continued to see a high degree of engagement with major clients.
Cross media brands, two largest brands you and initiative.
Well there has been stabilization in the media marketplace and digital channels have benefited from the improvement in macroeconomic conditions, there's still uncertainty, particularly in certain regions of the world.
During the quarter you continue to lead in regards to Brent safety launching the partnership for responsible addressable media alongside marketers agencies publishers and tech firms and trade Association.
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.
The agency saw a significant win early in the quarter when it added salesforce to it roster.
And also notable is the rate at which <unk> reprise has developed its E commerce offerings, which are growing across multiple regions and.
We will not only be vital to the success of our media agencies, but we'll also be key to cross agency holding company solutions.
[noise] Canetto marked its first anniversary by launching a developer community and making it a p. eyes available to third parties.
We believe this will lead to more innovation in the space on the part of our partners and our own agencies all in the service of our clients and with the I.P.G. application layer at the core.
With this approach we also make it easier for all of our clients and agencies the access.
The access high quality data in a way that is privacy compliant and customized to their specific needs.
At matter kind, we're seeing strong demand for the kinds of advanced solutions that help clients optimize their media investments across the entire addressable ecosystem.
Acxiom continues to meet our expectations in terms of their performance.
A key to IP juice future success will be our ability to make our data and technology offerings, a foundational element for I.P.G. overall.
As such we saw good progress in our work to further align.
Axiom can esso and Mediabrands.
Finally.
Well I mentioned that our data media and tech assets are working more integrated ways with each other they are also increasingly engaged with the entire IP GE portfolio.
Notably matter kind in Canetto played significant roles in new business pitches over the quarter partnering with our creative CRM piece.
PR and other marketing services agencies as well as with our media networks. So.
So for example connect those data science offerings are currently active on more than 30 pitches and it played key roles in 2020 wins at FCB Deutsch MRM and the can as well as through our open architecture offerings.
There's still work to be done to fully develop and integrate these capabilities and we expect that our progress will further accelerate once or people are able to more fully collaborate with one another in person.
But the teams are engaged and enthusiastic about this transformational work, which we believe can be a significant growth driver going forward.
And with that I'll pass things back to Michael Thank you for.
Thank you Felipe.
Turning now to our global Creative Agency network it's.
It's not surprising that growth at FCB in the quarter was driven by FCB health.
The net working new brand assignments over the quarter extended deep client engagements with global Biopharma Giants, including the waters.
For Pfizer, Lilly Genentech, and Sanofi and.
In fact today FCB health now works with 19 of the worlds top 20 pharma companies.
On the consumer advertising front FCB was recently awarded the Grand Effie for its Whopper detour work for Burger King and.
And FCB six continues to work with Terrata book and the hashtag meet to launching hashtag <unk> to a digital platform to take action against sexual violence.
At Mccann Worldgroup, we announced the planned leadership succession, elevating Bill Cole who had been named COO earlier, this year to chairman and CEO Iris.
Our Simon who has been with I.P.G. for nearly two decades played a part in this process, which dovetails with his decision to retire at year end.
We think Harris for his service to our company our people and our clients and we're confident that bill will be a strong leader for world group's future evolution and success.
Elsewhere within Mccann the network was named most effective creative network at the global level and its New York Office mean, most effective agency office by the U.S. Effie Awards.
These are among the most significant distinctions are quoted in our industry and they recognize the effectiveness of our work.
The networks Digital agency MRM was named the fast company best workplace for innovation and recently hired a new Chief Technology Officer.
During the quarter Mccann also appointed a new female CEO for China operations, and named a new North American President at Mccann Health.
We've once again seen great creative coming out of Mullen Lowe this quarter, the key points, including Unilever fair and accurate.
Mullen Lowe London continues to receive extremely positive response to its work on behalf of the government's COVID-19 efforts. Most recently the test and trace them and meet.
And media hub continues to be a standout in new business [noise].
As you May have seen we recently moved oversight of the Compass point agency over to media hubs the management team there.
Thereby expanding the agency's footprint in the Midwest and adding some clients sector expertise through their capabilities.
Archie a promoted to very highly talented executives into the roles of Chief Creative Officer, and Chief experience Officer, and created a new senior role to integrate diversity equity inclusion of course the agency.
On the new business front the agency brought in an exciting new wins with the National Women's soccer leagues latest professional team Angel city, which adds to its impressive roster of wins this year.
Clients continue to look to them into our other digital specialists huge for internet innovation around the intersection of marketing and technology.
At C.M.G. the management team continued to build out a core collaborative business model to bring together its expertise of course, such here such as employee engagement crisis and issues health care PR and more.
Highlights include Golans continued new business Street, bringing in notable wins from Micron technology, an open often they're open architecture when with Weber Shandwick in MRM as.
Assignments from the C.D.C., Johnson, and Johnson, Neutrogena, clean and clear and the vino brands as well as general Mills.
Weber Shandwick is honored as agency of the year, a TR, we purpose awards last week.
The agency also welcomed the industry's first Chief War workforce innovation and operations officer to the team.
Another notable honor was earned by our sports marketing from Octagon, which was recently named best in corporate consulting marketing and claims services, but the 2000 Twentys Sports business Awards.
Are you less integrated independent agencies round out the portfolio.
They deliver the full suite of marketing services to their clients in a regularly combining with the rest of like DG offerings on our collaborative open architecture solutions.
Thanks to the work instead of occasion of our people I P. G continues to perform better than another sector overall.
Our new business pipeline continues to be active and is in fact modestly stronger than it was earlier this year, but visibly is still challenged as we head into our most important quarter, which includes the crucial holiday shopping season.
The biggest risk to recovery continues to be public health challenges and then.
And as the as the headlines around the World recently have shown us the risk of Lockdowns in key markets is likely to continue for foreseeable future.
As mentioned, we have taken significant cost saving measures across our entire organization.
You've seen their impact beginning this quarter.
Alongside sharp reductions in discretionary expenses and we plan to take further actions chiefly on real estate in the fourth quarter.
In our current state, we feel well positioned with our client relationships and then we remain in a very strong position to capitalize on opportunities when recovery takes hold fully.
We are confident as well that the investments in talent and.
Capabilities that we continue to make physicians RPG 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.
With all the challenges we've seen over these past six months, we have great opportunities that help it head to help clients deepen their relationships with their customers doing so efficiently creatively and its scale.
Are highly relevant offerings and track record of collaborative open architecture claims solutions, coupled with our data and text offerings continue to be Differentiators for IP Jude.
As such we also remain well positioned for continued long term value creation for all our shareholders.
We will of course keep you posted on key developments share.
Share our perspective on our visibility into the evolving landscape and those old as always we look forward to answering your questions, but before I turn to questions I'd have to recognize major transition occurring it like BG and that is the announcement we made.
Now lets move me made with respect to Felipe taking over the role of CEO as of January one.
I don't want him to blush, So I'll leave all the accolades about Felipe you know press release that we stated, but clearly working these many years with fully I am highly confident in the board is highly confident in seat in fleets or capabilities and taking over the role of CEO I'm really excited about the transition.
And I really look forward to working with Felipe and management as we continue to manage through the COVID-19, and shaping the I.P.G. for the future with that I will turn it over to QNX.
[noise]. Thank you as a reminder, if you'd like to ask a question. Please press star one our first question comes from Alexia Quadrani with Jpmorgan. Your line is open.
I. Thank you very much and congratulations Mike on the very impressive Paradise peachy merits and congratulations.
My My first question is really Michael you're probably anticipating.
I, sometimes things about the quarter [laughter] I'm, a little bit more detail you <unk>. Thank you for all the disclosure you gave about the Q3, where auto transports still a challenge but that are unhealthy obviously strong I'm curious if you look at other major verticals in the quarter are you seeing.
You know positive growth and a lot of the other verticals now I think parents and their organic number which suggests you are seeing positive trends and some others that helps but I'm curious if there's any more color you can give.
Other verticals, yes. Thank you Alexis look clearly this is a good quarter for us and the tone of the business was clearly better than the last.
Then the last quarter and you see that across all the regions. In fact, most of all the regions were better than last quarter, except for Asia, Pac or but with respect to sectors. We see a growth in retail in particular, although auto and transport is still down we've seen improvements in auto.
In transportation and government and industrials other sectors, obviously health care continues to be very strong financial services, and we saw consumer goods, a little bit of growth between second quarter, two and three which is positive. The two sectors that we did see slowed down in the third quarter were food and beverage and.
Tech and telecom, but were confident that we have offerings in all of these sectors and you know so much of this is both regional and client specific so when you look at Continental Europe, where we had positive growth.
Gross a we saw strength in our media offerings as well as Mccann and it was very client specific in continental Europe.
Asia Pac, we just sort a a across the board reduction give.
Given with respect to what's happening over there, but overall the tone is positive and and like I said.
You know, we we believe that we will strongly continued to beat our competitive set.
Throughout the year, but the fourth quarter is our biggest quarter and as you know and it's not just projects you know typically the questions that come up with but How's Your <unk> project business project businesses like the you know the Jack Morton Ziosk to guns, Momentums that makes a 4% to 5% of our business, but when we referred to projects.
Right now you know clients are very very proud.
Project oriented and holiday shopping is a very good example, and until we see how our clients are going to respond to the holiday environment, it's difficult for our visibility into the quarter. So projects is a little bit more than just the event business and I think that's the important point that we have to take into consideration.
That said, we're working with our clients on opportunities. They continue to believe that they have to invest in their brands certainly in the E commerce environment that we're in and we certainly have offerings.
We'd between our media and our agencies and our consulting capabilities on E. Commerce that will help our clients compete in this very competitive E commerce environment, because in the ecommerce environment, It's the brand authenticity and.
And why would why should you buy brands other than the lower cost of providers and it's our job to do combine our technology, our creative capabilities to get those brand messages and frankly moving towards direct to consumer is a part of that as well. So if you look at the oral our capabilities.
And all the things that we're doing with our clients. Currently we're confident that we have the tools and the resources to continue on a path to exceed our sector.
And just a follow up.
Police comments on that data analytics and I'm sure it's over timing you've done such a great job with those.
Assets and clearly they've been very accretive additive to your existing business model I'm, Karen said over time, there's other ways to monetize your strength.
That's probably.
Its profitability sort of different from the existing kind of cost for model Oh.
Oh for sure I mean, our whole structure is based on value services and the formation of Ah can esso and putting it together with Mediabrands and matter kind and the open architecture with the the rest of our offerings. It's all based on value services and that that's where the margins come in and.
Where we can really distinguish ourselves in the marketplace and that's that's part of the strategy as Felipe said in his comments I mean, that's where we've made significant investments in the Felipe I don't know what you want to add anything to that I think it's exactly that I mean, essentially its its revenue streams that would take us to places where the two.
The technology can be licensed where where the IP can be valued in different ways or we find partnerships, who can add value to our underlying you know layer of technology and then also true performance models I think as Michael was saying in E. Com. If you if you link up what were building there with our marketing technology capabilities and then.
Media addressable media and data I think you can do some interesting things around performance.
[noise] anyway, and we have existing contracts that had those kind of performance metrics already in there.
All right. Thank you that's very much. Thank you for your support Aloxi.
Likes it.
Thank you. Our next question comes from John Janedis with.
Research Your line is open.
Thank you Michael I was quite a run congratulations I think in the early days I used to say that by the fourth quarter. A January maybe that's still the case [laughter].
I was wondering as we move toward some normalcy to what extent.
Seeing changes in client behavior in terms of their relationship with the agency as you know oftentimes, there's an expectation from investors and others step function change coming out of downturns and I was wondering if you're seeing anything worth noting.
Yeah and by the way good call I'm, putting a buy on us and John Congratulations.
[laughter] and thank you.
Look we're constantly what's interesting about this remote working is is we have probably probably more plain consultations that we ever had before you know we don't have to get on airplanes to how these meetings. So there are there are a lot of you know conference calls and relationships with our clients.
That focus on brand building, and Brandon said authenticity and whats necessary for them to compete in this marketplace. So we have those capabilities and we can through our open architecture model. You know we have sitting at the table. When we have these conversations with our clients are mediabrands connect so ARPU.
PR are experiencing a lot creative obviously, none of this works unless we have creative capabilities that are unique to the platforms and since digital is such and such a you know continues to outperform a in terms of both the media spend Oh and performance we have to have unique technology capability.
These that we've been investing in all of this while so yeah I think the conversations lend itself for our clients to spend to gain market share and that's what they're interested in and that's why you saw an improvement in frankly and consumer goods.
Because our clients are very much in a very competitive environment and the conversations that we have with them is how we can help them gain market share both regionally as as well as head to head with their competitors.
Got it and then maybe separately for Ellen.
The margin expansion that it seems like you're able to execute quicker on the restructuring that I would have expected I just wanted to clarify I think you said the current run rate a permanent savings of 110 to 130 and that the fourth quarter actions will be out of them. Just wanted to ask you what will those hit in the fourth quarter and any way you can give a range.
Of course, a permanent savings on that on the fourth quarter actually.
Uh huh.
Good morning. Thank you for the question, Yes first of all you heard it correctly. We in fact, we estimate 110 to 130 million from the savings to date, which we're saying it's about 140 basis points. When you measure it against 2019 revenue as far as the actions in the fourth quarter and we are looking for additional opportunities.
As we mentioned they will be primarily relate to real estate and it will be a met you know in order to be able to action that right and can we actually were looking around the world personal I'll just give you a perspective in all major cities to really take the learnings that weve had from that period of time right. The office will remain a very.
Importantly place, but there are definitely some key learnings and we can have more hybrid models, so with that well really encouraging our agencies to really take advantage of that opportunity and we're looking at exiting smaller leases you know they are under way. So we're going to try to accomplish as much as we can the caught our with <unk> and the program you know what.
An impressive is how the agencies are rethinking their foot.
Their footprint and whats necessary and working with Ellens group, a really fine and our real estate group really looking at opportunities to be more efficient on the real estate front, obviously, London.
In Europe, and the United States are key areas for opportunities given our present, a large presence there but across the globe. We have to look at how our offices are going to operate in the future and clearly this working from home you know prior to this environment maybe.
Maybe 5% of our people were working from home I don't think there's any question that in the future we're going to see a more flexible structure in terms of people working from home and coming into the offices. So the the workplace environment is going to be different and.
And what we're trying to do is really position ourselves to take whatever a structural changes need to be made now so that when 2000 2021 comes along we are really well positioned this happened in 2008 and nine we took a lot of.
We took a lot of actions and when the recovery came.
We obviously outperformed and we were off and running so our goal is to be in the same position and there is a lot of money in terms of looking at the real estate footprint last quarter. We took 500000 square feet out obviously, there's more to be had and as we said the bulk of the restructuring charge in the fourth quarter.
It's going to be real estate and non cash.
Thank you very much.
Your next question comes from Dan Salmon.
Now your line is open.
[laughter], Gary good morning, everyone.
Michael two agencies that have flourished your your time as CEO or our GA and your hometown shops huge and with the shift to E commerce moving faster than ever.
Those two firms expertise in helping clients in that area, it's even more important than ever. We've also seen a little bit of management transition lately could you elaborate on that short term issue, but also the long term opportunity in ecommerce sealing machines and one other quick one so somebody basketball.
Yeah, I think I've already said there is a long term prospects of ecommerce are critical and and and it takes a combination of digital media creative technology, all working together because E. Commerce is a very unique offering and we're very well positioned between the privacy expertise of axiom canal.
So matter kind and our creative agencies, plus our digital agencies like huge and RJ, they're all part of the open architecture structure that we have and we did have some management changes at huge as well as our GA.
And and but I think Ah what's clear now certainly at our G. I think our GA will continue to be a a shining light in terms of the capabilities there on a new business win.
A run at RJ and I think as Sean is is really got his management team in place. He has added some new people and their their their presence in our open orcas open architecture and dealing with our existing clients is very strong so I'm confident that our GA.
Notwithstanding some of the management changes its part of Republic whenever there's a new CEO. These is a repositioning of certain people and go to market strategies and they've they've spent a lot of time looking.
Looking at that and then the same with huge so I believe huge a and R.J. will continue to be a very important assets within the RPG portfolio and as you know, particularly on the E Commerce and digital and business transformation. Those are the areas that these organizations could really bring expertise to [noise].
Great and thanks, Michael you're you're still going to be chairing the board. So you're always welcome to come back and join US every once in a while so well [laughter] well, yeah, I mean executive chairman little different yeah, I'd say I'm really excited about working with Felipe in the management team going forward and look Weve. This we've been through this together I've said this from day.
One vis vis vis this is an amazing team that we have at I.P.G.I. I can't tell you how proud I am of all the people and the things that we've been able to accomplish and obviously felipe.
We'll put together his team and moving forward as CEO, but as executive Chairman I really am excited about working with the whole team and continuing to manage through this environment and do what I can to help us shape the future of IP Jeez I mean, that's that's the difference between executive Chairman and chairman and I'm pretty much excited about it but.
Felipe and his team they are ready to go I know that and we're excited about the opportunity.
So so Felipe and I guess easy question for you how do you take the time on that and convince everyone that I could use a tech company no really you, let axiom and the acquisition there you're leading the development of that so I think you feel strongly that that it is indeed more the technology.
Companies. So we just as you are.
Take the Baton here can you just comment broadly on the idea of IP GE is a tech company or the very least a tech services company relative to a marketing services company.
Dan I think we've talked about this I think that's probably an overstatement to say, it's a tech company, but I think as you say to evolve the model such that we have no. Michael said, we've got you know exceptional strength in marketing services. So whether it's you know ideation and what our creative agencies do clearly.
What happens in the healthcare space. So I think I think the challenge is actually to have it be a technology that enables the services. So that the services are more valuable and so that we can ultimately be more valuable for the clients.
And also as we were as we were saying one of the earlier calls so that by embedding this layer of technology and data into the business into the services.
Yeah, we don't risk leaking value out to the platforms are to the software company. So I I don't think it's as simple as saying are we flip a switch we go from one to the other what we clearly do is we build and we've become stickier and we've become more precise and there's more accountability to what we do and that's that's where I see us evolving.
The business model, you know I'd. The open architecture model lends itself to that that's the whole point of open architecture and you know we started open architecture. Some 14 years ago, Okay, and and it really is resonating well in the marketplace. If you look at our new business wins most of.
Them have open architecture structures within them and the health care side of the business. They talk to us about open architecture and it really resonates in the marketplace and the ability to bring in the resources the weekend, coupled with the creative capability and the PR capability is a compelling.
Offering and when you have best in class assets and best in class people sitting around the table taking on business challenges in an open architecture environment, you're part of the team of the client and that lens for better relationships.
A better performance at hopefully a performance based compensation, which is a win win for all of us.
Well thank you both.
Thank you. Our next question comes from Tim Nollen with Macquarie. Your line is open.
Great. Thanks, a lot let me just add my congratulations both to you Michael for doing what few people thought possible, which was turned this company around when you came on in 2005, and all sort of sleep for them for the new rule.
My question is perhaps more for Felipe following on a couple of the previous ones here you know, there's some very big changes coming still two out.
Marketing technology, you know you've got.
Google now being investigated by the D. J, you've got changes party clump cookies eliminations of.
Identifiers on Apple devices, and so forth I just want to understand if some if a given the position that IP GE has with axiom and the other assets do you do you feel you have what you need to manage these changes.
Or is there more of what can we expect what can we expect you to do and what more changes could come with these major major fundamental changes in the online marketplace. Thanks.
Four minutes that remain on this call yeah exactly [noise].
Look I think that when we did the act axiom acquisition, we were clear that.
Data management first party data management expertise and scale with something that we thought was important and that we thought we needed in order to get to the future I don't believe that you can get there without partnerships and so ultimately when you look at something like what we just did with can s. So to open up the A.P. eyes and together.
Yet your partners developing as well you know I think it's going to be a bit of both I think we have what we need but that doesn't mean that we're not going to be able you know if for every client.
Opportunity for everything we're solving for as Michael said with an open architecture solution, where we got all of the touch points you find that you need to partner up with different kinds of providers, depending on the sector, depending on the use case et cetera. So you know I think a as I said for the four minutes Weve got its a very very big.
Question and you know if if it's something that we as a management team could spend some time with you on him in greater detail. We can clearly unpack, what's currently going on across the group.
Let me just say the fact that.
We on the acquisition side Weve historically not done transactions till we deal we did the axiom transaction. Another part of your question is do we see any big transactions on the horizon that we need to fill any gaps within EPG and the answer to that is no where were actually going right. After this into.
Our strategy conversation with our board of directors after that and when we look at our capabilities and so on you know a couple of years ago, We had out there data and analytics a wish list and that wish list was solved when we bought axiom. When we look at our wish list now we don't see any big transactions that are necessary.
For us to compete obviously, we will continue to be a strategic and we'll do bolt on acquisitions in markets or expertise or people that we need but there aren't any large acquisitions that we're looking at that we think we need to continue to lead our sector.
In terms of growth and margin expansion.
Thank you very much.
Thank you our last question from Mike Matson.
<unk>.
Oh. Thank you since the last question I'll be brief.
Michael Congratulations it's been an amazing run a flu congratulations to you made some big big bets and they've worked out I guess I'll give you a lay up at the end Michael given what you just said about you know you're going into your your planning meeting.
Given where interest rates are.
Stability of your business.
Dividend costs, you why not take advantage of where the stock prices.
And be more aggressive on buyback and pretty much you know just I know you've made some problems with the ratings agencies [laughter] I'm trying understand you know why wouldn't you know your congratulated John <unk> has upgraded why wouldn't you take advantage of kind of what you know about your business.
Do you know about financial markets to become more aggressive on the equity here.
You know one of the things that I. Appreciate the question what one of the things that we've always been is transparent and and you know we borrowed a fair amount of money to do the axiom transaction, we want to make sure our balance sheet is in the right position.
Maintain our investment grade status. There's no question that when we get to that right point, we'll get back to buybacks, but right now were focusing on dividends.
And obviously, our balance sheet is strong enough and the business of prospects to continue and we will be getting about the buybacks I think it's a valid question. The question is when is the right time and you know you can always argue what price the stock is at and so on but you have to look at buybacks on a long term basis. If you look at the history of what we've done there.
Buybacks, we spend a significant amount of money for it.
For in total between dividends and buybacks about $4 billion and we understand the importance of buybacks in the marketplace and that conversation will take place every year with our board of directors and looking at the allocation of returning our excess capital to our shareholders, whether it be in the form of dividends or buybacks.
It's a legitimate question and we will continue to look at it.
Thanks, Mike.
Well. Thank you all and these safe and look forward to the next call. Thank you very much.
That concludes today's conference. Thank you for participating you may disconnect at this time.