Q1 2021 Interpublic Group of Companies Inc Earnings Call
Yeah.
Good morning, and welcome to the Interpublic Group first quarter 2021 conference call.
All parties are in a listen only mode until the question and answer portion.
At that time, if you would like to ask a question you May press star one this.
This conference is being recorded if you have any objections you may disconnect. At this time I would now like to introduce Mr. Jerry <unk> Senior Vice President of Investor Relations, Sir you may begin.
Thank you good morning.
We hope you are all well thank you for joining us.
This morning, we are joined by the lead quick housekeeping Interpublic, CEO and by Ellen Johnson our CFO.
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&A and plan to conclude before market open at 930 eastern.
During this call we will refer to forward looking statements about our company.
And these are subject to the uncertainties and 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 measure.
We believe that these measures provide useful supplemental data that while not a substitute for GAAP measures allow for greater transparency and the review of our financial and operational performance.
At this point it is my pleasure to turn things over to Felipe Krakowski.
Thank you all for joining us this morning.
I'll start with the high level view of our performance and the quarter.
Allan will then provide additional details and I'll conclude with updates on the highlights that our agencies to be followed by Q&A.
First and foremost as Jerry said I hope that you and your families are keeping well.
As we all know around the world. The pandemic is still with us for a significant degree.
With all of that entails it bears mentioned that our people continue to navigate the many challenges both personal and professional presented by the health crisis.
Their extraordinary resilience and capacity for innovation as.
As well as the care for one another and their commitment to our clients are inspiring.
Against the business conditions that continue to be demanding our peoples of driven the solid growth and the high level of first quarter profitability and we are reporting today.
Turning to those results beginning with revenue we are pleased with our start for the year.
First quarter organic net revenue growth was one 9%.
That reflects solid performance and the U S and organic decrease of 20 basis points and strong international growth of six 3% with increases and every world region.
And the U F. Youll recall that we are comparing to very strong underlying performance and the first quarter of 2020, when we faced headwinds of nearly 4%.
Due to certain 2019 client losses that we previously identified.
Domestically during this year's first quarter, we saw increases in the areas such as media data services and technologies and our health care specialist agencies.
Our international performance was paced by 12, 4% growth and Continental Europe.
We had strong start to the year by our media data and tech offerings as well as Mccann Worldgroup.
Worldwide, our healthcare and retail clients sectors, which were consistent outperformer of last year, where again, our growth leaders and the first quarter.
From the standpoint of our operating segments, our IAA and segment grew three 2% organically led.
Led by media data and technology and by the healthcare specialty agencies.
As expected and comparison to last years, largely pre pandemic first quarter.
Global conditions, and Q1 continued to weigh most heavily on the events and sports marketing disciplines.
And on certain project, driven businesses, and both I and and Dextera.
Nonetheless, while the environment understandably retained the strong the caution across our offerings and client sectors. The lows, we're generally not and gloves.
Clients are finding their footing amid a global economy that is increasingly showing signs of recovery.
And as better days ahead begin to come into focus conversations with clients of generally become more positive and constructive.
Turning to operating expense and profitability our teams once again demonstrated outstanding discipline.
Given the uncertainty that prevailed in 2020, we made decisions and took a series of actions during the year necessary, but in many cases no less difficult.
To ensure the long term health of the overall business.
Our expenses in the quarter reflect much of the benefits of the.
The strategic restructuring.
Executed over the course of last year.
Notably and our expenses for base payroll and occupancy.
We continue to be highly confident that over time, we are well positioned to realize the full level of permanent operating expense savings and we've talked about previously which as a reminder, annualized at $160 million.
Along with the return to growth and the benefits of our restructuring actions.
Our Q1 results were further helped by variable expense categories that continue to run at very low level given.
Given the many of our activities are still restricted by the pandemic.
These include significantly lower expenses for business travel and meetings as well as the associated costs.
Our first quarter net income as reported was $92 million, which includes the expense of certain non operating items.
Our adjusted EBIT was $266 million of level, which is approximately two five times the first quarters of recent years.
Our adjusted EBIT margin was 13, 1%.
Diluted earnings per share was 23 as reported and was 45.
As adjusted mainly for our loss on the early extinguishment of debt the disposition of certain small non strategic agencies, both of which are non operating expenses.
And our expense for the amortization of acquired intangibles.
During the quarter, we refinanced a portion of our outstanding debt and very favorable terms, while extending our debt maturity profile.
This level of financial flexibility.
<unk> as well and the event there is a volatility as the global economy moves through recovery.
We're pleased to be able to share with you the strong set of results, which build on our company's long term record of industry outperformance and consistent margin expansion.
<unk> mentioned that we continue to invest and our people and our capabilities and as a result of further differentiate our offerings and the areas of strongest opportunity and growth.
This has been particularly relevant since we are seeing growing client demand for technology and data services.
And the mid accelerating.
The accelerating transformational change and marketing and media.
Our ability to create marketing and media solutions that bring together creativity.
Technology and data and.
In order to solve for higher order of client opportunities for.
And what drove growth in the first quarter.
Given the complexity of the media and consumer landscape.
Marketers are looking for partners, who can help them build their businesses through more precise personalized and accountable engagement with individuals.
For the deprecation of third party cookies, all businesses are increasingly focused on realizing value from their first party data for <unk>.
<unk> partners with whom they can pool data assets.
And as important this needs to be done and a way that is respectful of people's privacy and anticipates likely regulatory development.
We remain well positioned to benefit from those opportunities.
Of course, our first quarter is seasonally our smallest and most of the year still remains ahead of us.
We also appreciate the heightened degree of business uncertainty, it's part of the current reality facing all companies.
And of business like ours translates into more challenging visibility to the for year.
As a result, we're seeing.
And very close to our people and our clients.
Asking our teams for frequent financial updates and continuing to carefully manage expenses.
The date, we're seeing cautious optimism from clients and the tone of business has firmed in the last few months.
Rio openings fiscal stimulus and the vaccination programs and a number of our largest markets.
The providing of tangible lift to economic activity and marketing demand.
As we mentioned to you on our last call we remain confident in those areas we can control.
Namely the strength and competitiveness of our offerings and the people and talent within our group.
We are seeing that the most contemporary services, we provide for growing in terms of the receptivity from clients and prospects.
Given our strong start to the year and based on the assumption that they'll continue to be a reasonably steady course of public health and global economic recovery.
We believe that we can deliver organic growth for the full year and the range of 5% to 6%.
With that level of growth, we would expect to achieve 2021, adjusted EBIT margin of approximately 15, 5%.
As such we see this as another year of strong value creation for all our stakeholders.
We will of course keep you apprised of our progress as the year develops.
On that note I'll hand, the call over to Ellen for a more in depth view on our results.
Thank you and hope that everyone is safe and healthy.
I'd like to join Felipe and recognition and candidly admiration of our people for their terrific accomplishments and the very difficult circumstances.
A reminder, my remarks will track the presentation slides that accompany the webcast.
Beginning on slide two of the presentation.
The first quarter net revenue increased two 8% from a year ago with organic growth of one 9%.
First quarter adjusted EBITDA before the small restructuring adjustment with $265 9 million and.
The margin was $13 one per cent.
The levels that compare very favorably against any previous first quarter for you.
The return to growth with variable expenses, they are lagging the recovery and revenue and we are additionally, seeing the structural benefits of last year's restructuring program.
Diluted earnings per share was 23 cents as reported and 45 cents as adjusted.
Adjustments exclude the after tax impact.
Amortization of acquired intangibles.
Small restructuring of the refinement and non operating losses and sales of certain small non strategic businesses and the non operating losses from the early extinguishment of debt.
During the quarter, we refinanced $1 billion of senior notes that had been scheduled to mature over the next few years, we placed the $1 billion and new notes maturing and 10 and 20 of tranches the.
Timing of those transactions initiated in mid February with favorable in light of the subsequent rise in market rates.
I appreciate the value of the support and the reception and we received.
As you may have seen and late March we also received upgrades to our outlook from both S&P and Fitch.
Turning to slide three you'll see our P&L for the quarter.
I'll cover of revenue and operating expenses and detail and the slides that follow.
Turning to Q1 revenue on slide four our net revenue in the quarter of $2 3 billion and increase of $55 6 million <unk>.
Compared to Q1, 2020 the impact of the change and exchange rates was positive one 5% with the dollar weaker against the currencies and most of our largest markets.
Net divestitures or negative 60 basis points.
And our organic net revenue increase was one 9%.
At the bottom of the slide we breakout segment revenue in the quarter.
Our Ian segment grew three 2% organically of terrific results against last year, largely non COVID-19 first quarter, we saw solid growth IRA offerings, and media data and tech and FCB and Mccann Worldgroup.
And IPG the extra the organic change and the quarter is negative four 8%, which reflects the weight of lots of events and sports marketing within the segment. The disciplines that have been most significantly impacted by the pandemic with that that's just performance of the sharp sequential improvement.
For the for fourth quarter, especially and the public relation of disciplines.
Moving on to slide five which is the look at our organic revenue change by region.
And the U S, which was 65% of net revenue in the quarter. Our organic decrease was 20 basis points against the challenging comparisons underlying our headline number from the year ago.
Compared to Q1, 2020, we did see continued pressure on the events and sports and.
Well of certain project work.
That's been the case throughout the pandemic.
International markets for 35% of our net revenue and the quarter and an increase of six 3% organically.
And every international region, which is a notable improvement from Q4.
Continental Europe grew 12, 4% with increases in every major national markets, including Spain, Germany, Italy, and France, driven by increased spend from existing clients with double digit growth. There are a number of our operating highlights and the region Inc.
The strong increases and media amtech and Yep and can.
The U K increased three 5% organically and again this is net of continuing headwinds and the events discipline.
Solid growth at Mccann, and our media data and the check offerings and at non loss.
Asia Pac grew three 4% organically among the largest regional markets, we had strong gains in Australia, and Singapore, while China and India as revenue declined.
Our organic growth and Latam was 5% with particularly strong results across the Mexico, Colombia, Argentina and Chile.
Our other markets group grew seven 3% with notably strong performance and the Middle East.
Moving on to slide six and operating expenses and the corner.
Our net operating expenses, excluding the billable expenses and the amortization of acquired intangibles decreased 6% from a year ago, and just two 8% growth of our net revenue.
The result, with first part of margin expansion to $13 one per cent from four 9% a year ago.
We had significant year on year of expense savings and the number of different categories.
Most notably our restructuring savings and payroll and occupancy and Inc.
The decrease of certain variable operating expenses.
And the latter category I would call out specifically the sharply lower travel and related expenses for the obvious reasons and significantly reduce bad debt expense, which was at an increased level and the first quarter 2020.
As you can see on the slide our ratio of total salaries and related expense as a percentage of net revenue improved by 340 basis points to 68, 7% compared with 72 point of 1% a year ago.
Underneath that and drove very strong leverage on our expense for the base payroll benefits and tax which improved by 360 basis points.
We have lot of lower severance expense ratio, which was the only 30 basis points of net revenue compared to 120 basis points and Q1 and 2020.
At quarter and total worldwide head count was approximately 51200, a decrease of $6 one per cent from the year ago. As the result of our restructuring and regular severance actions taken over the course of the last year as well as our business dispositions.
Also on the slide our office and other direct expense decreased as a percentage of net revenue by 480 basis points to $14 four per cent.
We continue to have a significant decreases and our expenses for occupancy driving the year on year leverage of 110 basis points.
We leverage all other office and other direct expense by 370 basis points, which includes the decreased expense for travel and bad debt.
Our SG&A expense was one 4% of net revenue and the increase of 30 basis points.
On slide seven we present detail on adjustments to our reported first quarter results in order to provide better transparency and the 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 and the second column with $21 6 million.
The restructuring charges for $1 3 million to be clear. These are small adjustments the estimates related to our 2020 restructuring program. The we concluded at the end of last year.
Although operating expenses and columns, three and we had a pre tax loss in the quarter of $12 5 million and the other expenses due to the disposition of a few small non strategic businesses.
For the right is that a pre tax losses and the early extinguishment of debt was $74 million, which relates to the refinancing and extending the maturities of the $1 billion of our senior notes.
At the front of the slide you can see the after tax impact per diluted share of each of these adjustments, which bridges our diluted EPS as reported at 23.
The adjusted earnings of 45 cents per diluted share.
On slide eight we turn to cash flow and the quarter cash.
Cash used in operations was $249 8 million compared with the use of $277 1 million and Q1 and 2020.
As a reminder, our operating cash flow is highly seasonal.
And typically generate significant cash from working capital and the fourth quarter and use of cash in the first quarter.
During this year's first quarter cash used in working capital was $496 9 million and followers.
<unk> of fourth quarter of last year, when we generated over $1 billion from working capital.
And our investing activities, we used $28 million for Capex and the quarter, which was essentially offset by the net proceeds from the south of the investments.
Our financing activities and the quarter is $212 7 million, which reflect the redemption and the issuance of long term debt and our common stock dividends.
Our net decrease in cash for the quarter of $492 7 million.
Slide nine is the current portion of our balance sheet. We ended the quarter of $2 2 billion of cash and equivalents compared with 155 billion a year ago.
And the current liabilities the current portion of the long term debt and refer to our 500 million 375 per cent senior note, which matures in October this year.
And on repaying these notes from cash on hand.
Slide 10 depicts the maturities of our outstanding debt and our diversified and extended the maturity schedule volume.
Our activity and the first quarter again, we have the maturity in October this year, and then only $250 million due in April 2020 for thereafter.
And thereafter for next maturity is not until 2028.
In summary on slide 11.
<unk> continue to execute at a high level and and unprecedented environment and.
And I'd like to reiterate our pride in and gratitude for the efforts of our people the.
The strength of our balance sheet and liquidity means that we remain well positioned both financially and commercially and with that I'll turn it back to Felipe.
Thank you Ellen.
It's worth repeating the Q1 is our smallest seasonal quarter for <unk>.
Nonetheless, we are pleased by our start to the year.
The return of organic revenue growth is a sign that our clients have begun to pivot to an investment mindset as they look to build their brands and grow their businesses in line with the broader economic recovery.
Our performance is also a reflection of the strength of our people our offerings and of long term strategies that have helped us drive consistently strong performance over time.
We all know that the pandemic has accelerated our range of underlying trends, whether and business for society at large.
As a result of many of our clients are undertaking meaningful transformation of their companies.
It means adopting new ways in which they go to market.
Order to keep pace with rabbits, digitization of consumer behavior and economic activity.
And the world is more clutter than ever with messages and channel all volume for our retention the.
The most critical challenges to combine great ideas that come from the human storytelling side of our business with strategies and the insights that can be generated by our technology and data capabilities.
We are increasingly seeing the amount of time people spend online.
Speaking of content, that's engaging informative entertaining or some combination of all three.
Content is undoubtedly more important than ever and that's what makes the creative side of our business. So vital.
Equally important is getting those messages to people and ways that are relevant.
Respectful of their privacy, and ultimately connect with them and meaningful ways.
It's also key to take the information flow of that results from all of those digital interactions and apply.
At every step along the process from audience definition.
The creative ideation and.
In order to better understand the impact of our clients' communications are having on their businesses.
Our differentiated capabilities include a range of data driven offerings. The can do this both the scale and at speed.
As you know we've been developing of data and tech infrastructure that underpins the full portfolio of our agencies and deliver solutions to a broad range of business problems through what we call. The open architecture model.
All of our major clients Youre seeing the benefits of this integrated approach as our prospective clients during.
During the quarter. It was gratifying to see that the Knesset of behavioral sciences teams are engaging with more of our advertising and marketing services agencies and then.
Any time since we launched those offerings.
Despite the challenging external circumstances that we continue to deal with in the quarter.
Certain key elements of our business remain constant.
We will always succeed by adapting rapidly.
And our ways of working and how we are meeting the needs of clients.
Since the start of the year.
We on boarded are promoted top talent across the organization.
Once again received high levels of industry recognition.
And saw solid new business performance.
While we remain net positive for the past 12 months.
As you've seen and our results growth and the quarter was driven by contemporary offerings and which we've consistently invested.
Including media data and Tech health.
Health care and digital user experience.
Another area, where IPG and has invested significant resources.
Our environmental social and governance programs.
For some time, we focused on building a culture of high ethical standards by adhering to a set of values centered around respect for every individual.
As a company responsible for creating some of the world's most well known marketing campaign.
We have an obligation to ensure that the work, we do as well as how we deliver it.
And supports the long term wellbeing of our communities.
This quarter.
<unk> released six annual sustainability report.
Using the global reporting initiative standards framework.
The report can be found on our website and it represents another step forward for us and our commitment to ESG.
In terms of climate action retract Ipg's global energy usage and greenhouse gas emissions across our entire portfolio.
Next month, we plan to announce several strategic priorities focused on tackling climate change, including a science based targets for reducing our emissions globally.
The report also and lines of the UN global compact and focuses on human capital disclosures.
Further we make clear that we operate for the core expectation and individuals deserve control over their data.
And that we are responsible for promoting high ethical standards in terms of data privacy and security.
Equity and inclusion also remain areas of focus for us.
Our agencies are attuned to this priority and they are held accountable because we have to show further progress when it comes to diversity and our ranks.
Ipg's the latest MSCI ESG ratings report.
Which is of key ESG data provider for our various stakeholders dawn.
An increase in our companies score two and a rating.
Our improvement was the result of increased disclosure and when it comes to human capital management.
Our position and capabilities related to the data privacy.
And certain governance and hip.
More recently, we joined Civic Alliance as well as many of our clients and <unk>.
Calling for the protection of voting access here in the United States.
We continue to be committed to promoting democracy.
And we'll work to support safe accessible and fair elections.
As well as to encourage our employees to participate and civic life.
As the business and which tracking top talent and advising clients is crucial to our success of robust approach to ESG is a key part of our long term strategy.
And important to all stakeholders.
Turning now to highlights from our portfolio during the quarter, we issued our second media responsibility audits.
The dressing and a structured and consistent manner one.
One of the most topical issues and the digital media ecosystem.
This framework and the principles of it sets for.
Continue to be well received by clients as well as key industry groups.
Media brands Magnet unit also hosted the first of its kind of equity upfront.
For a week long event and tended to raise visibility and rest of the activity.
For Black and media and media that serves black audiences.
In addition, the network announced that it would be joining forces with tic toc for creator and content accelerator.
Two of our most dynamic units were in the media space, where we continue to leverage our deep data resources and capabilities.
We're seeing strong growth and matter of time, which is customizing addressable media activation at scale for more of our clients.
At reprise Commerce, we have rapidly scaled operations on a global basis, as we address growing needs and e-commerce, particularly for insights content and analytics.
Following a series of new business wins initiative elevated its U S leader to global CEO.
We believe she will have even greater impact from the network success at.
That you and during the quarter.
We added the global rental car client as.
As well as and auto OEM, and EMEA and HBO, Max and Latam.
AUM was also named an outstanding company for working mothers and three of its executives were named Adweek media all stars assisting.
And the distinction that was also earned by leaders reprise and media hub.
And our creative integrated global agencies, both Mccann Worldgroup and FCB were named to the top five most awarded networks of 2020.
And the drums world create of rankings.
Both also had work and the Super Bowl and was well received and a number of your Poles and rankings.
Following the implementation of our succession plan at the end of 2020, Mccann Worldgroup posted a solid first quarter.
Along with most awarded network of 2020 in the drum rankings Mccann New York came in at number for on that list.
In terms of the top 100 and agencies worldwide.
And MRM. The agency was again named the leader and gardeners 2021 magic quadrant for global marketing agencies based on their ability to serve as a key strategic business partners for clients and to execute and critical marketing priorities.
Huge and RGA also featured on that list.
The health operations of Mccann and FCB performed strongly in the quarter and <unk>.
Continue to take share and the marketplace.
The notable program I'd like to call out the FCB health launch of the trial for hashtag clinical and quality.
The shine a light on racial bias and clinical oncology trials.
And Mullen Lowe group.
Media hub continued on its new business streak with the addition of global wins slack and tally as.
And as well as new balance and the U K.
Media hub also introduced its inaugural diversity on the media day.
And revamped its U S leadership team with a series of internal promotions.
The Mullen Lowe advertising network continues to be a leader and purpose driven work.
Partnering with several independent casting agencies. The agency recently launched a campaign for Unilever's Dove, and promote inclusivity and commercial casting.
And the U K. The agency has continued to do important work on behalf of the government to inform and educate the British public concerning the pandemic.
The campaign U S agency of the year Awards. The Martin Agency was recognized with multiple honors.
And the agency also teamed with media hub for and integrated win of Terminix and Q1.
Huge posted strong results during the quarter and saw two big wins.
Adding coppertone and wait for them to its client roster.
The agency also announced the return of its huge ex D School.
For the renewed equity centered purposes.
The seeks to use education to increase the participation of underrepresented identities in the design industry.
And then RGA the agency's venture studio program announced the launch of a new coalition venture studio for.
And the mission to support Black startup counters.
IPG the extra companies continue to deliver specialized capabilities and integrated solutions for clients and our evolving world.
Bowen was once again of standout and new business Arena.
Weber Shandwick was named PR agency of the year of the campaign and U S Awards.
And the agency also launched for the planned VX open playbook of Communications program, the draws and extensive vaccination and public health communications expertise.
And to help companies play a role and getting America vaccinated.
And octagon the leader in sports marketing, we recently promoted a longtime executive.
The role of CEO.
Performance of the axiom was consistent with our expectations and in line for a year of solid growth and 2021.
The company continues to carve out of position of and authority and the integration of marketing and advertising technology.
During the quarter axiom expanded its partnership to better manage and measure campaign execution through the cloud in order to provide tangible improvements and campaign efficiency and speed.
Axiom is also accelerating its development and client verticals, where it sees opportunity.
Recently fortune named Axiom, one of 2021 best workplaces in technology.
Working closely with the axiom data teams and also deployed its enhanced identity solution with half of dozen large clients.
This has already driven double digit and lifts and campaign efficiency.
And that's sort of also expanded its range of direct data integrations with prominent platforms and AD Tech companies.
As I mentioned earlier, we are pleased to see the <unk> API connecting data and analytics capabilities across more of the IPG portfolio.
Since you see this as a growth driver for our business and a source of potential new revenue streams.
The next gem connect saw and matter of time.
We're working together to bring and the end data and identity solutions to clients and.
And collaboration with a number of IPG agencies.
We've seen the impact of the base recently, and new wins and expanded assignments and the telecom auto healthcare and financial services sectors.
Looking forward, we will stay focused on unlocking the enormous opportunity that exists due to the changes and disruptions that of accelerated during these past 12 months.
We've worked over the years to embed digital capabilities throughout our organization.
And bill the foundational layer of tech data and infrastructure and informs all of our work.
As a result, we.
We have a deep understanding of audiences at the individual level.
Based on the strong legacy of ethical data practices.
Personalization privacy and accountability are only going to grow in importance and value going forward.
Our vision is therefore for IPG to become a key partner and.
And ensuring the client's businesses thrive and the digital economy.
The success, we've seen at the start of the year's thanks for the talent.
<unk> and commitment of our people.
As you would expect we are focused on supporting their physical and mental well being.
And listening to them and.
Planning of return to office.
That's the likelihood to begin the meaningful degree in September.
Pendant on continued progress.
The matters related to resolving the public health crisis it.
It will be of gradual and iterative process and which we obviously, we're going to have the test and learn as we go.
As such from the cost drivers of go hand in hand, with a lot of collaboration with colleagues.
As well as calling on clients in person.
Which of of course and reduce the reserve the excuse me reduced as a result of Lockdowns.
We'll begin to work their way back into our ways of working as well as our operating results.
We've already shared with you our perspective on the balance of the year.
Which is based on the assumption that they will continue to be of reasonably steady course of macro recovery.
As is clear we view, our current performance and long term strategy as significant factors and we'll continue to enhance shareholder value.
As always we're committed to sound financial fundamentals, including debt reduction.
As well as continuing to grow our dividend.
We also remain focused on getting back to our share repurchase program when appropriate.
We will of course keep you apprised of progress as the year develops.
And as always.
And very much want to thank our clients and our people who are the key drivers of our success.
Thank you all for the time this morning, and with that let's open the call for questions.
Thank you at this time, if you would like to ask a question. Please ensure that your phone is on muted press star one and record your name clearly when prompted.
If you would need to withdraw your question. Please press star two.
Again to ask a question please press star one.
One moment for our first question.
Our first question is from Alexia <unk> with J P. Morgan you May go ahead.
And thank you very much.
My first question really is on the the guidance sort of clarifying and a bit more of 5% to 6% organic revenue growth. I think you mentioned I think Mike just mentioned sort of the steady recovery is the assumption behind it but I'm wondering if you're anticipating you know things like sports and events come back later and the year sort of hit.
And your assumptions for that guide and then just a follow up question is really on the new business activity and I'm wondering if there was and maybe a lull and in 2020 and that has created kind of the pent up demand or backlog.
And more robust pipeline potentially for 2021, which could ultimately have a going in and.
And outside of and Cowen and.
To the full year organic growth.
Thanks Alexia.
Let me start I guess, it doesn't matter, which one we take first right and so as you know our sports and events are actually a fairly small part of the portfolio I think we're talking about sub 5% of overall revenue and so in essence, we do believe that there's going to be some resumption in net.
Area, probably towards the third quarter definitely and the fourth quarter, but I don't think thats a significant factor that impacted.
Where and how we got to that.
Expectation about what we think the year looks like you know I think Alan and I, both mentioned and our remarks, the frequency with which we meet with the operators to discuss financial forecast.
It was way up last year, we've largely kept to that cadence so that and client conversations is whats really informed our belief of what we can discover what sorry, what we can deliver for for the full year.
I think that's really the function of it and then obviously the underlying revenue trends, which we talked about whether it's.
Geographic whether its client driven or the progression over the course of.
Of the first few months of the year and then in terms of the new business I think that there is a general consensus that the last year. There was as you say.
Kind of a damping down in that regard just because obviously.
Going through that process, whether you're either going through it in a kind of locked down purely virtual setting or whether it's just not of disruption that clients were really I think particularly.
Open to given that there was so much uncertainty. So I think we have begun to see.
And in increase and uptake in that regard.
And it's to be seen whether that continues I think that at the moment.
That's the expectation, we're seeing some indications of that but you know.
And there may be more to come.
How many of the non bank to ask one more on the buyback is that still we should still think about that and sort of maybe something for zoom.
And then in 2022 of the tail end of this year had a cash how do we think about the timing for that.
Well look I mean, you know you know that we've got a very strong track record when it comes to capital return and I think as we've been very very clear that that continues to be something we're very focused on and the priority I'm going to I'm going to quote al and she said something on our last call about revenue, which was you know it is not if but when and so.
I'm going to say the same applies to the share repurchase I'm not sure of that you know what what else selling with the care to add in that regard in terms of balance sheet or how we're thinking about the progression.
And that listen I will reiterate that we believe capital return is very very important and I believe we have a track record of showing that and we.
And we were very pleased to see the rating agencies changed their outlook on us.
We have of debt pay down in October and we will continue to be focused and analyze the situation.
And yes, I really do believe it's it's not a question of if footwear and you saw as the increased dividend last year, notwithstanding the challenges and you know to our mind.
We want a balanced approach to this and so we do want to get back to that.
Great. Thank you very much.
Thank you. The next question is from John <unk> with Wolfe Research you May go ahead.
Thank you hi.
So your confidence level around the Hudson and $60 million of structural cost savings schemes.
Obviously, a pretty high given the margin outlook. So can you talk a little more around the time line of hitting it is there potentially some upside given the lower business travel and expenses, you talked about and to what extent, there's real estate create.
And maybe another potential further talent.
Oh look I mean, I think there are lots of ins and outs here. So we can obviously unpack that for you I would sort of say.
And you know we've been clear that debt that $1 60 as of commitment that we as the management team has signed up for it so that that's definitely the case.
And you see growth in Q1, so the strategic structural actions are beginning to kind.
Kind of in essence get leverage and so that's clearly very encouraging and then we also talked about the fact that.
A lot of that $1 60 would be evident in the 'twenty one results and debt.
Real estate actions would not all be realized that we'd see some in 'twenty two depending on the pace of of the sublease is right. So the stated objective of we want to emerge from the pandemic as the stronger company. It feels to me like we have early indications given the quarterly results of that that's clearly what we're doing and.
And then.
There are clearly other factors at play so the ins and the out of.
You know independent of the of the restructuring over a bunch of years, we've demonstrated the ability to grow margins with revenue growth. So there's growth now so there's some of whats in the results. Just shows you know what Ellen and her team and what our operators are able to do in terms of discipline and focus on operating leverage and then you know we're also starting to.
Get into some higher value services and revenue streams.
And the tailwind of that is I think the unknown is that you know.
Growth has come back prior to normalization of what I guess, we would call kind of pre pandemic business travel meetings and all of the costs that are associated with that and I think debt over time, that's going to reverse and go back to office would go back to in person interactions and those are positives I think there will be things that.
Come out of those ways of working that will be good for for the business and for what we're able to do with clients and if some of those and then costs come back into the model then.
Our real estate savings.
Materialize as we go into 'twenty two so so on all of those moving parts I think you know we've got more detail and the various categories that had significant positive impact on margin I think Ellen can probably unpack some of that with a lot of specificity for us sure.
Sure I mean, if you look at the first quarter, you know again I think it illustrates and demonstrates how comfortable you are that we can drive margin.
And if you look at it.
And we gained 480 basis points between base payroll benefits and tax and the occupancy and that was largely due to the restructuring and.
Philippe and as mentioned and I've said, the real estate is not linear so some of that benefit will accrue to next year as well and beyond just the sublease does take hold.
The unpacking some of the more variable costs like T and E. I mean, it did benefit US 150 basis points for the quarter. How quickly that comes back is really you know some things that are largely out of our control of depending upon the health crisis, but I do believe there will be learnings from this period of time and the pandemic that we will benefit from and the future.
And the ever come back to the extent that we traveled previously you know probably not.
The other one offs I would call and you know it.
Last year, we had elevated bad debt expense and the first quarter of her so that really created the tailwind this quarter another day.
Out of 130 basis points, and lastly, I would add that not only do we have a track record of managing margin, but we're incentivized to do so all of our incentive plans are aligned with the subjective.
It gives us even that much of our confidence that we'll get there.
That's helpful. Thanks, and then maybe if I could shift gears I was surprised that all of your international regions put up positive organic growth of us their headlines and some markets like India or Europe.
A round of COVID-19 resurgence is it your sense from your people on the ground that you've turned the quarter and that growth generally of sustainable.
Well I mean, I think there is an implicit answer and the fact that we're telling you what we think we can accomplish for the year.
And I think that international is interesting because.
The impact of the pandemic and so disparate and sector driven so.
I would look at a couple of things internationally that do give us comfort and give us reason to feel that.
There's something that's consistent here so the decision of top tier clients.
So if you look at Europe. For example, we saw we saw strength from a number of large clients and food and beverage in CPG and health care and and financial services.
And so in the sense I almost think of and this is anecdotal, but you said or is there anything you are hearing on the ground I think even round two of Lockdowns comes with less uncertainty and a sense, whether thats because clients have already pivoted to a better sense of how theyre going to connect the consumers and drive demand through.
Say E com or it comes with somewhat less uncertainty because the vaccines are out there and even though the pace at which vaccinations are.
Proceeding and a number of countries again thinking about about Europe, where we had a lot of strength.
People do have a sense that they are on a path to something whereas the first time around it was a lot of uncertainty and so you could understand where clients, where we're wary of making any kind of commitments. So so and a sense I do think debt that gives us a sense of internationally. We can we can continue to deliver and then the other thing and.
If you look at the offerings that are driving that strong international performance.
<unk> contributions whether it you know mediatek, whether its on the advertising side of things and Mccann or whether it's the health care agencies.
Alright, Thanks, a lot.
Sure.
Thank you. The next question is from Michael Nathanson with Moffett Nathanson you May go ahead.
All of a couple of so Felipe on your revenue guide of 5% to 6%.
And that kind of takes you back to where you guys were a.
A couple of years ago, when you were leading the industry and growth I Wonder you given your view of the future all of the moving pieces on e-commerce and changes in consumption.
Do you think youre of companies growth will will stay at that level of can you see acceleration structurally from some of the decisions you've made to reposition the company for maybe the faster growing segments. So I wonder of that and then secondly, you know the question of electric asked about buybacks.
And even return of buybacks.
Good amount of cash cushion that you guys will will build so can you talk a bit about your philosophy on M&A I know you of the architecture of the axiom deal.
Do you care for small tuck ins or should we expect you know.
Down the road, maybe another large acquisition to further reposition the company and so.
Most of my questions.
Two small questions well.
So I guess on the latter of Michael I'd say to you that.
For quite some time, what we clearly believed was the right course of action was to invest in talent and to build the capabilities and embed them across the portfolio and so I think that largely speaking we're pretty we're confident in what.
We can control and so the the.
We don't see gaps and the portfolio, we see that we've got a full suite of offerings, we like the assets of those offerings and we think we've got great people.
And then you know.
The integration and open architecture feels like it's always going to be of work in progress, but relatively we see it is the strength and then underlying that now we have kind of data and tech powering all of that so I would assume that we will get back to and M&A.
Posture that is that is more of what you would have anticipated for us from us in the past.
And we will definitely look for areas where of the.
The technical skills that are required are the rates of growth were seeing are such that we do want to.
Make beds to supplement what we've got going on and you know it could be that a you know an area of like E. Com is one of them, but I don't I don't see some of the need for something really dramatic and significant at this point and a few years from now we'll ask again.
In terms of.
And it kind of the first question.
Okay.
We are compounding kind of a number of years of consistent outperformance and clearly we're seeing a shift in where.
The demand is but to answer the question about whether we can get to these consistently you know kind of next level or higher growth numbers. This early in the stages of kind of an economic recovery feels like it is.
Probably premature to make that determination right I mean, it's clearly aspirational, Inc. We see that as I said higher value services are definitely something we want to lean into but.
Everything works well, because it's part of and integrated whole right and so you know we've been successful because we've evolved the offerings not because we've kind of tried to jump to a whole other model of how we.
Sort of clients and how do we deliver value for clients. So I think that we'll see that play out over time.
Okay. Thanks.
Thank you. The next question is from Julien Roch with Barclays. You May go ahead.
Yes, good morning, Sidney and then Jerry.
And that's from the result of especially the margin.
My first question is on the organic and the second one on the margin anything that would change the the two year run rate in Q2, so in Q1.
0.3, Austria, one point line this year, so about 2%.
The run rate, which would put the Q2.
It's about 12% and flooring lost and minus 10, and so is 12% of better real estate and Q2 and that's my first question.
And then the second one is the on the margin what has changed in terms of your thinking regarding margin the new full year 'twenty one guidance quite ahead of consensus could.
Could it be that return to work is taking longer so the savings out of that for long ago and in 2021 and the.
And if that is the main explanation could margins for next year, what would the Dx is flat so some more color on the <unk>.
The significant.
Upgrade and the margin perspective, thank you.
Well I'm going to reiterate that on margin we committed to all of you that we would come through this crisis and.
As a company that was stronger and in a sense more fit for purpose, given where the world is going and so as I said, we're pleased that we're seeing early indications because a lot of those restructuring decisions that were made were strategic in nature of there were of bad how do we make our companies and they need.
Embler, how do we make them able to provide service to clients, but in a way that is more contemporary so I do think that there is something that's happening and thats underlying here.
But as I think I mentioned when Alexia asked the question it with so many ins and outs.
You're asking a very fair question, you're asking the question, we're asking yourselves, but.
I don't know that we've got a clear line of sight as to when of those costs going to start coming back in as Alan said earlier.
What is going to be a new normal in terms of.
And in person engagement travel and things of that nature. So we clearly believe that where we're going is a better place the extent to which we can give you that level of granularity right now Alan and I don't know what else you'd care to add on that margin question. Yeah listen you know given you know the.
The big assumption right that the economic recovery and the steady and and we feel pretty confident and the 5% to 6% revenue growth and with that and we feel pretty confident that we can deliver the 15 and the half margin.
And and that's from a bottoms up approach and I'm meeting with our operators very frequently and so and we will continue to do that and then I think that becomes the floor from which the there and ask ourselves what is possible beyond that because I think I also said earlier.
And we've got a long track record of where there is growth we find ways to grow margin.
Now on your on your revenue question I think.
And there's just there's a lot of kind of from a quarter to quarter basis Theres a lot of noise in the system in the sense. So obviously you know are not that I would trade out of the position we're in but our comps are quite challenging relative to peers.
But we still feel strong enough that we're saying to you of what we think the year looks like and then the thing that is maybe masking the strength of the U S finishes rolling off at the end of Q2.
But sequentially every region U S included.
The improvement.
And then in the sense, the underlying book of business and the U S.
With the plus eight which was maybe but I think probably 300 basis points better than kind of the other end of the spectrum for Q1 last year and then those 19 losses. So the underlying book of business and the U S grew about four and a half. This this quarter international you've seen and we talked of.
And unpack a bit about what's driving that and then you know I'd say that.
You know theres improved tone in terms of conversations with clients and operators as the quarter progressed.
But we don't we don't manage quarter to quarter. So I'm not sure I can tell you precisely I think that as I said, we're gonna see recovery and then there's and it's not going to be linear.
Okay. Thank you very much.
Thank you and that was our last question and I'll now turn the call back over to Felipe for any closing thoughts.
Look thank you all for joining us. This morning, we are pleased with these results.
We are appreciative of the support and we look forward to taking you through.
Our results when we meet again until then and I hope everybody stays well.
Okay.
Thank you. This concludes today's conference you may disconnect at this time.