Q2 2021 Interpublic Group of Companies Inc Earnings Call
Good morning, and welcome to the Interpublic Group second 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.
Darwin.
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.
Good morning, Thank you for joining US we hope you are all well.
This morning, we are joined by our CEO from the quick housekeeping and by Alan Johnson, Our CFO.
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.
These are subject to the uncertainties and the cautionary statement that is included in our earnings release and the slide presentation and for.
Further details 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.
Now for greater transparency in the review of our financial and operational performance.
At this point it is my pleasure to turn things over to Felipe Krakowski.
Thanks, Jerry and thank you all for joining us this morning.
As always I'll start with a high level view of our performance in the quarter.
Allan will then provide additional details and I'll conclude with updates on key developments at our agencies to be followed by Q&A.
I'd like to begin once again by thanking our 53000 of fellow employees around the world.
For the professionalism and dedication the continue to see us through the many challenges of Covid.
These include the transition to work from home and now are planning for return to office in many parts of the world.
As well as the significant personal difficulties presented by the long course of the pandemic.
It's due to the efforts of our people.
Our commitment to their craft.
The clients and to each other and we can share with you today of these very strong results.
The performance that demonstrates our resilience represents remarkable rebound from the impact of the pandemic and is also the largest second quarter in our company's history.
Our strong results in the quarter build on Ipg's consistent record of industry outperformance and margin expansion.
Our growth across regions disciplines and client sectors.
Thanks to more than a recovering global economy. It underscores the elevated value that marketing and media partners can deliver.
The integration of creativity technology and data at scale.
The significantly increased velocity of digital transformation.
At Interpublic, we're confident that we are attuned to the powerful currents that are transforming consumer behavior and are required for business relevance.
And that we are increasingly delivering differentiated and higher in solutions that help our clients win in a world of accelerated technological and societal change.
That takes creativity and precision.
Data and accountability, all of which we're able to bring together and customized teams that day.
Of our talent from across our portfolio.
Ultimately our growth speaks to our ability to drive outstanding business results for our clients.
Our net organic revenue growth in the second quarter was 19, 8%.
That's against the second quarter of 2020, when as you will recall, our organic change was negative 9.9%.
Which while well ahead of our peer group did mark our steepest decrease of the recession.
It's also important to note that our 7.9% organic increase this quarter relative to the pre pandemic second quarter of 2019.
Compared to last year, our organic growth was at double digit rates around the world.
In the U S was 17 point for.
Growth in our international markets ranged from 14% in the Asia Pacific region to 49% and Latin America.
We also had a very broad contributions from our operating segments and disciplines.
Our I a N segment grew 25% organically with increases led by media data and technology and.
And with solid contributions from our global integrated networks.
There was also strength across most of our disciplines led.
The led by health care.
Our dextra segment organic growth was 15, 1% with strong increases from last year's heavily impacted Q2 across octagon in sports and entertainment and Jack Morton experiential offerings.
Looking at client sectors the <unk>.
Picture is also 1 of comprehensive of acceleration.
Each of our 8 major sectors had double digit increases from a year ago.
The auto retail and other sectors were up more than 20%.
Consumer goods Tech and telecom and healthcare increase in the mid to high teens.
Food and beverage and financial services were up in the low double digit range.
Turning to operating expense of profitability. Our team has once again demonstrated outstanding discipline.
And while remaining focused on appropriate cost control. We're also continuing to invest the support accelerating growth.
We continue to see the benefits of cost improvements from the strategic restructuring actions taken last year.
Notably in our payroll expense and our expense for occupancy.
We also continue to see the benefits of low variable expenses.
As a result of the highly restrictive global travel environment.
And from the cost efficiencies of of largely remote workforce.
As we look ahead to post pandemic work life.
It's worth noting that we can of course expect that expenses for travel.
<unk> office utilities, and the like will.
We will begin to return in the second half of this year, most notably in Q4 and of course into next year.
Our second quarter net income was $263.3 million as reported.
Adjusted EBIT was $405.8 million.
And adjusted EBIT margin on net revenue was 17, 9%.
Our results reflect significant operating leverage compared to both last year and the 2019 period on our expense for base payroll and our office and other expenses.
We de Levered on our expense accrual for our performance based incentive compensation plans.
The operating performance tracking well ahead of plan target.
Diluted earnings per share was <unk> 66 cents as reported and was 70 cents as adjusted for the after tax expense of the amortization of acquired intangibles.
As we look to the balance of the year Youll recall that in April we shared of full year 'twenty 'twenty 1 performance outlook.
Just on the assumption that they will continue to be of reasonably steady course of public health and global economic recovery.
At that time, we outlined our view towards full year organic growth of 5% to 6%.
And adjusted EBIT margin of approximately 15, 5%.
In light of our very strong second quarter and also having recently refreshed our bottoms up outlook for the second.
Half of the year based on conversations with our clients and operating teams.
We believe it's appropriate at the midpoint of this quite unusual year.
Precedented in fact to upgrade those expectations.
Of course, we do sadly need to recognize that the COVID-19 pandemic and the related risks to the macro environment are not yet behind us.
In particular as we look ahead, we all understand the lagging vaccination rates in many parts of the world.
And the emergence of new variants may entail of higher Covid risk.
That's something we'll watch closely as we enter the second half of the year, especially our seasonally important fourth quarter.
The predicated on the continued progress on public health issues, we believe that we can deliver organic growth for the full year of 9% to 10%.
And with that level of growth, we would expect to achieve 2021, adjusted EBIT margin of approximately 16%.
As such we see this as another year of strong value creation for all of our stakeholders.
We will of course keep you apprised of progress as the year develops and we look forward to those conversations.
On that note.
Like the handover the call of Ellen now for a more in depth view of our results.
Thank you I hope that everyone is safe and healthy I would like to join fully with our thanks to our people for their terrific accomplishments.
As a reminder, my remarks will track to the presentation slides that accompany the webcast.
Beginning on slide 2 of the presentation.
Second quarter net revenue increased 22, 5% from the here that with organic growth of 19, 8% of.
Adjusted EBITDA before a small restructuring adjustment was $405.8 million and margin was 17, 9% diesel.
These are levels that compare very favorably against any previous second quarter.
But the growth having accelerated certain variable expenses continue to lag.
Additionally, seeing the structural benefits of last year's restructuring program.
So it is earnings per share of <unk> 66 cents as reported and 70 cents as adjusted for the after tax impact of the amortization of acquired intangibles.
Turning to slide 3 you'll see our P&L for the quarter I'll kind of of revenue and operating expenses in detail in the slides the path.
Turning to the second quarter revenue of 1.5 per line.
Our net revenue in the quarter with 2.27 billion, an increase of $416.2 million from a year ago from.
Parents of Q2, 'twenty 'twenty the impact of the change in exchange, Inc. Was positive $3.1 per se, what the U S solar of weaker against the currencies, where most of our largest markets.
That's about the chairs of negative 40 basis points.
The organic net revenue increase of 19, 8%, which brings us to 10, 6% organic growth for the 6 months.
At the bottom of the slide we break out the segment revenue from the clutter.
Our Ian segment group, 25% organically, we had notably strong growth across our offerings and media data and Tech Mccann ex.
C D with health care of significant driver.
From low huge in Rds.
IPG the extra organic credits was $15.1 per ton, which reflects some recovery of the advancement of sports marketing offerings within the segment the <unk>.
Disciplines that have been more significantly impacted by the pandemic.
Our public relations of offering also had solid growth from the clutter.
Moving on to slide 5 which is the lift out of organic revenue change by region in.
In the U S, which was 63 per cent of net revenue in the quarter.
Organic growth of 17.4% revenue decreased 8 year of gout in the same period by 8%.
Year on year performance was very strong across the media data from attack.
<unk> driven by health care I P D dextra Mccann non loud and usage.
International markets of 37% for net revenue from the corner and increased 24, 4% organically yogurt calls at the same markets decreased $13.1 per cent of year ago in the second quarter.
Range by region between negative 10% of negative <unk> 15 per se.
Continental Europe grew 27.9 per se with notably strong growth in Germany, Spain and France.
For a number of the operating highlights from the region led by the media data attack the Cannes RGA and the extra.
The U K increased 18, 7% organically led by Mccann, the extra media data intact and RGA.
Asia Pac grew 14% organically.
Organic growth was paced by Australia, the Philippines, Singapore, Thailand handful of the App, while China and Japan decreased.
Our organic growth of Latam was 49% with exceptional results across the region, including Brazil, Mexico and Argentina.
The other markets group for $29.2 per cent.
Notably strong performance in the Middle East and Canada.
Moving on to slide 6 and operating expenses in the quarter.
Our operating expenses, excluding billable expenses, the amortization of acquired intangibles and restructuring charges increased only 11% from a year ago and 22, 5% growth of net revenue.
The result was second quarter margin expansion to 17, 9% from <unk>.
<unk>, 4% for a year of gout.
We continue to see efficiencies and the number of different expense categories. As we had it in this year's first quarter and these were both structural and variable.
And the structural category, we are seeing the benefit of the strategic restructuring actions, which we initiated in the second quarter of last year and continued to execute over the second half.
As a reminder, these actions involve the elimination of certain positions and the resulting head count reduction that will not return with revenue growth.
We also reduced our real estate footprint by 15% last year.
We are currently seeing the benefit of most of these actions and then the full run rate they will generate a hundreds of $60 million.
Annual cost savings.
We are also hard at over the course of the pandemic of sharp decrease in certain variable operating expenses I would call out specifically lower travel and related expenses, which was the case in the second quarter of 2020, and that's continued into Q2 'twenty 'twenty 1.
As you can see on the slide our ratio of total salaries and related expense as a percentage of net revenue of 65, 4%, which is significantly improved from the second quarter of 2020 when revenue have decreased sharply.
Underneath that we drove very strong leverage on our expense for base payroll benefits from tax which is 53% of net revenue in the quarter.
That reflects the benefit of last year's restructuring and the fact that the pace of new hiring rides are of significant revenue growth.
It has been the case in the past business cycles.
Our severance expense ratio also decreased sharply to only 40 basis points of net revenue compared to 3% in Q2.2020 searches have an elevated level due to the impact of the recession.
Going the other way our expenses for performance based incentive compensation increased to 6.4% consistent with our very strong operating results.
Expenses for temporary labor off the increase as a percentage of net revenue to 4 and a half of that as a result of servicing the top line as quick acceleration at.
At quarter end total worldwide head count was approximately 53000.
The 1.4% increase from a year ago and up 5.2 per se from the beginning of this year with hiring to support of our ground.
Also on the slide of office and other direct expense decrease as a percentage of net revenue by 380 basis points to 13, 3%.
Our occupancy expense decreased to 5% of net revenue, mainly due to the restructuring of our real estate as well as leverage from our revenue growth.
The average all other office and other direct expense by 220 basis points, which reflects the lower expense for bad debt and acquisition costs and will average as a result of our revenue growth.
Our SG&A expense was $1.3 per cent of net revenue with the increase from a year ago due to the higher unallocated performance based incentive expense and increased employee insurance expense, which was at a very low lap of the year ago.
On slide 7 the present detail on the adjustments to our reported second quarter results in order to provide greater clarity and a picture of comparable performance.
This begins on the left hand side with our reported results and steps through to adjusted EBITDA and our adjusted diluted EPS.
Our expense for the amortization of acquired intangibles and the second column was $21.6 million.
The restructuring of refinement from the corner for the benefit of 200000 to be key.
Earlier this is a small adjustments the estimates of the 2020 restructuring program.
Although operating expenses and calm for we had a pretax loss from the quarter of $1.7 million and the other expenses due to the disposition of small non strategic businesses.
At the foot of the slide you can see the after tax impact per day.
For the chair of these adjustments was for <unk> per share, which version of our diluted EPS as reported at <unk> 66 cents to adjusted earnings of <unk> 70 cents per diluted share the.
The appendix to our presentation and cause the similar group bridge on our diluted EPS for the 6 month period.
On slide 8 the churn to cash flow in the quarter cash.
From operations was $468.2 million compared with the use of $87.1 million of years out.
We generated $101.6 million from working capital compared to the use of $264.9 million last year.
Investing activities was $43.3 million in the quarter, mainly for capex of $34 million.
Financing activities is the 101.8 million mainly for our dividend.
Our net increase in cash for the quarter of $325.6 million.
Slide 9 is the current portion of our balance sheet. We ended the quarter with $2.3 for billions of cash and equivalents under current liabilities. The current portion of the long term debt. The first of all of our 500 million, 375% Senior note, which matures in October of this year the.
<unk> to repay these notes from cash on hand.
Slide 10 depicts the maturities of our outstanding debt.
Again, we have the maturity in October of this year, and then only 250 million due in April 2020 for thereafter for next maturity of not yourself 2028.
In summary on slide 11, our teams continue to execute at the high level and an unprecedented environment I would like to reiterate our pride in and gratitude for the efforts of our people the.
Strength of our balance sheet liquidity move that we remain well positioned both financially and commercially.
With that I'll turn it back for Felipe.
Thanks Ellen.
While we remain very pleased with our results it's worth reiterating as Alan just said, but this is the.
Unusual in fact unprecedented environment in which we're operating now.
Now importantly, it bears, noting that when compared to our non pandemic results from 2019.
Q2 results show our companies performing at a very high level.
We continue to feel this is the result of strategic decisions that we've taken the over a number of years the position of our company for the future.
Investments and actions that have created a sustainable advantage for our organization.
Today's IPG delivers addressable and accountable digital marketing programs.
Volume with a world class creative storytelling capabilities. These solutions make us higher value partners to our clients.
1 of our many priorities over the years has been the creation and the implementation of open architecture solutions, where.
Where we bring the best of IPG together and collaborate of teams that are customized of client specific business needs and.
And increasingly a key element of this approach.
<unk> architecture 2.0, as it were is axiom, whose data management expertise and data assets play a role in an increasingly broad range of our offerings.
In addition, <unk> powers, many of our applications and services that provide clients with the deep understanding of audiences in order to provide insights that inform creative work.
For media delivery.
In line of sight for the effectiveness of the work that we're doing together.
We saw this model come to life in the quarter with the Cigna account win which combined talent from Mccann Worldgroup initiative and RGA powered by cash so an axiom.
This is the continuation of several years of strong performance and integrated pitches, especially those that include creative and media as well as media and data.
And other key decision that's contributed to our success has been our continued investment and strong agency brands.
Which helps us attract and retain top talent.
And deliver breakthrough creative ideas across a range of marketing disciplines.
As a result of this strategy IPG companies across our portfolio.
The number of important accolades during the quarter most.
Most notably we had an impressive showing of the 'twenty 'twenty 1 kind of.
Sure.
International Festival of creativity.
IPG agencies took home 8 Grand Prix the festivals highest honor.
Wins across the network represented a broad range of clients cash.
<unk> agencies disciplines and geographies.
Fcb's performance was the standout is.
As the agency took home for Grand Prix and was named global network of the year.
The agency's creative community and its leadership.
Deserve credit for this terrific accomplishment.
FCB Health was also named healthcare network of the year.
An area of 23, and FCB Health Agency was named healthcare agency of the year.
Mccann client Microsoft was named marketer of the year at the festival, which is another major honor.
And the agency also 1 of the Grand Prix in brand experience and activation for its remarkable true name work for Mastercard.
Which empowers transgender and non binary cardholders to use their true name when using their credit card.
And PR Mccann, Paris, or the Grand Prix partnering with Weber Shandwick for a campaign that ran across the middle East, which teaches women the culturally sensitive way the perform self checks for early breast cancer detection.
FCB, Chicago and Weber Shandwick.
Team did to earn of Grand Prix for work for AB Inbev and.
And RGA continues to be recognized for it.
Ability to humanize technology, winning of Grand Prix in social and Influencer marketing for disruptive work. It did for read it from the Super Bowl.
On AD Age's annual analyst and creativity awards, both Deutsch La and the Martin agency were named to the prestigious a list.
<unk> was named media agency of the year in.
And FCB health CEO was recognized as our industry executive of the year.
At the holding company level, we made a number of announcements that.
The position us for further success.
Chief among them was the launch of IPG health earlier this month.
The move will align our top performing companies FCB health and Mccann health.
Under our new Global network IPG.
Led by a dynamic and proven CEO and of skilled executive leadership team.
In this new operating structure the distinct agency brands within FCB Health and Mccann Hill will remain active and continue to go to market independently.
They will also benefit from access to additional specialty services knowledge sharing proactive career management.
Shared investment in new capabilities and skill sets.
Ali complementary geographic coverage as well as an even higher level of collaboration.
Around the World Health care and wellbeing of our areas of growing importance for our clients and society at large as.
As an industry sector health care represents an increasingly vital part of the economy.
And 1 where innovation is becoming an ever more important driver of success.
So the alignment of Ipg's fully dedicated health care networks under the banner of IPG health strengthens our leadership position in this dynamic sector.
The scale reach and most importantly quality of our people and our work.
For an exciting combination.
And it's why we think this new offering will continue to deliver great things in the years to come.
This month, we also added to our strong roster of marketing technology and e-commerce providers with the launch of performance art.
The data led creative CRM agency.
The leadership team is known for delivering platform level of creative ideas.
Better of home and our clients E retail flow as they are in a 32nd spot.
Turning to performance at our agencies growth that I am in the quarter was once again highlighted by media data and tech and.
In FCB led by health care.
U M saw significant wins in the quarter of the enterprise Holdings Behr paint and most recently NYSE and company.
New York city's official marketing and tourism organisation.
<unk> also saw an important account retention of the Australian government.
The campaign agency of the year Awards UN earned the global Media agency of the year honors and U M. APAC was named Best Media network in that region.
At initiative. The agency was named 2000, Twenty's, most competitive network globally and media pitches.
So all of a major win in the UK with banking and insurance companies that West group.
We also continue to see terrific momentum of reprise, especially as it relates to their growing ecommerce capabilities.
Axiom can ask the matter of time for <unk>.
Also performing well.
And they are key to how we help clients thrive in the addressable media market.
Which requires flexibility given the quickly shifting landscape.
At axiom, we continue to invest behind innovative new products and services, such as customer data platforms and identity resolution with which we are seeing increased client adoption.
Another important development the axiom deploy their latest customer intelligence platform on the cloud with the key financial services clients.
At our creative integrated networks.
FCB Mccann and Mullen Lowe group were named to Act responsible Twenty-twenty good reported for <unk>.
<unk> ranking of the world's best use of Creative Communications, Inc.
Promote sustainability and social responsibility.
On top of its exceptional showing of ton at FCB Global the network continues to invest in talent.
The new offerings.
Looking ahead of data science and connections to expand its expertise in commerce data and technology of fuels creativity.
Mccann also continues to prove the creative powerhouse as we saw in the network was recently named Webby network of the year and.
And Mccann, New York was named the where the agency of the year.
MRM continues to leverage its more tech expertise.
And the thing strong growth with the same or M Commerce Division.
Which helped marketers drive engagement interaction and conversion of commerce platforms.
And Merlin low group media hub continues the strong new business momentum and during the quarter added.
Walmart parent company Crown media as.
As well as tally financials.
Mullen Lowe.
There's also a global leader in purpose driven work and we saw that as the continued to partner with governments and the number of countries around the world.
To inform people of the benefits of being vaccinated against COVID-19.
At RGA campaign named the London office of the U K 's digital agency of the year.
RGA in London added 2 new clients financial services company, Allianz and pullback of clothing.
We named the new CEO of huge who joins the digital agency. After a very successful tenure at initiatives, where he helped turn the agency into a leader in the media space.
During the quarter huge also straw strong new business activity, adding sub zero appliances wake from Jesus Foundation, and Nikko asset management.
The Martin Agency continues to impact culture, and drive strong business results for its clients.
Notably the agency sold of the city short film for door gas for Meredith.
Excuse me at the Tribeca Film Festival last month.
And the captured the resiliency of New York city's restaurants, and the role they play in the city of life.
IPG Dextro, we also saw recognition.
As the number of companies were called out for their ability to deliver creative solutions.
Weber Shandwick was the most awarded PR agency of ton this year.
Current global.
Demonstrated their commitment to closing the disability and inclusion GAAP by creating guidelines and toolkits for marketers so as to make content more accessible for consumers of site hearing or other cognitive impairments and this program was recognized as 1 of the fast companies world changing ideas for 2021.
Jack Morton launch, but they are referring to is the returns of live dashboard and that's the tool for brand marketers to access where when and how businesses in the U S can safely get back the hosting live experiences.
Golan continued its strong performance of new business.
The selected is linked in the global Social Media agency of record and also agency of record for Yamaha music going.
Volume was also named PR week's global agency of the year.
And at Octagon, the sports and Entertainment network won best in talent representation of the 2020, 1 sports business Awards.
Pivoting now back to the holding company.
Another key area of the bears mention is our long term focus on ESG, including diversity equity and inclusion.
As the leader in marketing services and the citizen of the communities, where our employees live work and vote.
We welcome the responsibilities too.
Operating sustainably and contribute to the healthier society and planet.
And all of our operations of activities, we're working to build on and more fully live into this commitment.
And this includes reassessing, how we hire train and promote of diverse workforce Inc.
Corporate rigorous practices around data ethics and media responsibility.
As well as reduce for.
Greenhouse gas emissions further around the world.
Key accomplishments on this front Inc.
The IPG being recently named by Forbes for their top 10 list of America's best employers for diversity.
During the quarter. We also created a new position our industry's first culture officer to focus on long term thought leadership relating to a broad range of social justice issues for underserved and under represented communities.
During the quarter as part of our integrated ESG efforts.
We also announced an action plan that consists of 3 climate goals.
Committing to set of science based target.
Sourcing of 100% renewable electricity by 2030.
And joining the climate pledge co founded by Amazon and global optimism.
In addition.
We've published our first SaaS we report.
Our agencies also contribute significantly to our ESG profile and.
And importantly here in the U S. We saw media brands take a leading role in the industry conversation about promoting greater media equity.
And they announced that they are committing to invest at least 5% of client budgets.
The black owned media by 2023.
Octagon launched an accelerator program with historically black colleges and universities for students interested in sports and entertainment as a career.
And RGA created an innovative program to raise money for environmental organizations through a dedicated Youtube channel.
The nature of videos, which.
The become hugely popular here in the same damage and of direct all of the AD revenues generated on this channel to environmental Ngos.
Now as we sit here at the halfway Mark of 2021 the success we've seen this.
Thanks to the talent efforts and commitment of our people.
And we continue to be highly focused on supporting their physical and mental well being as.
As we plan returned the office.
Like many of US I look forward to working live with colleagues and clients.
Especially given that we're an idea has driven the service business.
For culture, our capacity for innovation and the ways in which we combine creativity with technology and data are all enhanced by in person interactions.
Now here in the U S. We expect to have more people returning to our offices and a flexible hybrid model.
Gaining in mid September.
As is already the case in certain other parts of the world.
We will of course, the mindful of the public health situation and of the learnings we've accumulated during the past 16 months when it comes to flexible work practices.
We expect the costs associated with a lot of collaboration with colleagues as well as travel will begin to return as a normal part of how we work and therefore be reflected in our operating results.
For example, as we look forward to the remainder of the year, we expect an increase in travel costs in the fourth quarter, which could return to levels consistent with what we saw in the fourth quarter of 2019.
As we said earlier these are unprecedented times.
None of US has previously been required to adapt to the constraints of living and working through a pandemic and.
And likewise, none of US has experienced an emerging for 1.
Thankfully as a company, we are well positioned to do so.
Earlier on the call we shared our perspective on the balance of the year.
Based on the assumption that there will continue to be of reasonably steady course of macro recovery.
People continue to become vaccinated to protect themselves and their communities.
And that we're able to adequately mitigate the impact of dangerous new variants.
We've delivered a very strong first half of the year.
On top of the most challenging comps in our industry.
Further.
Despite continued macro uncertainty we have greater clarity to the balance of 'twenty 'twenty 1.
We therefore believe the current performance from.
And by the continued execution of our long term strategy.
Our significant drivers for the.
Sustained enhancement for value for all of our stakeholders.
As always we're committed to sound financial fundamentals, including debt reduction.
The well is continuing to grow our dividend.
We also remain focused on getting back to our share repurchase program.
And we will keep you apprised of our progress as the year develops.
As always we want to thank our clients and our people.
Where ultimately the 2 key pillars of our success.
I'd also like to thank you all for your time this morning, and with that ill turn the call over for questions.
Thank you at this time, if anyone would like to ask a question. Please ensure that your phone is on muted press star 1 and record your name clearly when prompted if you would need to withdraw your question you May press star 2.
Again to ask a question please press star 1.
Our first question is from Alexia <unk> with J P. Morgan you May go ahead.
Hi, Thank you very much I just have a couple of questions. If I might the first 1 is really kind of a broad question on the really impressive organic growth you guys delivered in the quarter I'm wondering what surprised you on the upside versus your internal budgets like where did you see kind of incremental growth for says that you expected and I guess all along those line.
I guess, how much do you think of the of the strong growth is IPG sort of gaining share of wallet you know the from your clients versus just the bounce back you know in there in the budgets for their spending.
Hi, Alexia.
Look I mean, I think those are terrific questions or things, we obviously think about and so if I were to track the progression for you what I'd say to you is.
If you think back to what we talked about the last time, we were altogether from February to April we clearly saw improvement in the broader economic environment, but also in the tone of you know what I guess I'd call client sentiment right.
And so as we went through the quarter that trend was clearly continuing to build over the course of of the second quarter right and so as we think about it is it a question of of surprised I mean, I think we said to you we felt confident in our offerings of specifically in ways, we can help clients too.
Stand apart in the to succeed in a digital first kind of economy. So now the growth is available. We're obviously pleased to see that we're capitalizing on the environment. So you start breaking down the results and what do you see you see whether it's geographies of practice areas.
You know content creation creativity of data and tech it was very very widely spread and so.
Matter of kind addressable media growing a very very strong grower for US health care continues to be an area, where we're seeing really really good result, and then perhaps if you're bracketing it having.
Decreased by you know north of 30%.
In.
The light of the pandemic, we clearly have experience and show an event.
Showing a real recovery, though they're they're not all the way back right.
<unk> to month in the quarter, we saw consistency.
So you know the.
That's something where in terms of projecting forward too.
We see that as encouraging and then you know as we forecast for the for the back half of the year. We also see that consistency and that ratable. There isn't there isn't a moment in time, where we're expecting there to be something dramatic to get us to what we've communicated to you which is that 9% to 10% number right and the 1 big caveat.
It is 1 that applies for all of us around the world, which is just theres a significant deterioration of the public health front.
And you know you really get it something because what I think we're seeing is we're seeing the overall environment stronger, but we're also seeing underlying factors that have to do with.
Strategic actions, we've been taking over a number of years, you know and they're aligned with trends that have been accelerated by the pandemic right. So.
You know whether that is addressable media of precision in the creative that we deliver e-commerce.
So those are all areas, where we're strong and we're and we're definitely seeing growth you know hard to tell you exactly.
No.
Given given that we don't know what some of our peers have done and that you know, we clearly believe that we're taking share as well as seeing net new opportunities because.
We're building new capabilities to take us into kind of new new addressable universe.
And I think last the thing for US is the management team. The strongest indicator is how relevant is an offering you know.
When you just benchmark off of the same period of 19, and you think about the 2 year stack from you know the Q2 'twenty 1 results.
That's what it's telling US you know the competitiveness of a specific part of our space or of IPG. All in you know of sustainable platform, where we feel like.
You know that's what gives us confidence that we can grow for the balance of the year and obviously beyond that.
And then just a quick follow up on margins sort of the also of high level question. You know you obviously have some great margin improvement. The here you know with the benefit of the expenses being and cut back and also deal with it but the bigger picture of them permanent cost of your cost cutting you took that you announced earlier on when you think about margins.
Longer term now I'm not sure. If you can still achieve margin improvement in 2020, given the comps but is there still the plan to continue to improve margins longer term dose of this year.
There is so let me actually why don't I, just talk to that out of.
You know fairly macro level, and then and then I think you know we should get into the conversation as well, but I mean, there were a lot of moving parts in terms of what's going on with our profitability in this.
You know in this calendar year, but it's good to see you know significant strides on margin performance like on the top line.
We're very committed to the savings that we have consistently shared with you all around the restructuring and so that's permanent annualized $160 million, we were tracking that and we're holding.
Ourselves and our and our operating teams accountable to that then there's the for.
Fact that I think we've got a consistent track record over time that we grow margin with revenue growth. So there's meaningful opportunity there.
And so operating leverage I think is a lever that stays with us in the into 'twenty, 2 and beyond and then lastly, you know as I mentioned.
In the answer of your revenue question.
The higher value.
Services and the new commercial models. I think are also are also an opportunity from from a margin perspective, let's see you know I mean anything out of Ellen can pull apart all of the ins and outs of this year.
Good morning, let's see how are you.
Thank you for the question.
I'll start with the actions that we took the last year as part of the restructure items and they were clearly structural in the strategic and that is why we are so confident in them and that we will realize the savings that we've committed to so if you break them down and you look at the fact that we took out 15% of our real estate portfolio or that we eliminated.
Certain regions all of our other layers of management to become more agile or that we were able to near shore offshore of certain roles that gives us great confident that those savings.
Savings of permanent and it will not come back with revenue revenue growth.
Turning to some of the more variable expenses and if you look of travel and meetings.
They they will come back and initially they may come back pretty full as there's pent up demand for people to get back together take it off of see clients and to see our people for training and development do they go back fully to pre pandemic levels that remains to be the scene I am hopeful that the learnings from the pandemic with using tech.
<unk> and really thinking carefully about the environment will help us be more efficient and prevent them from selling going back to pre pandemic levels and then I would just reiterate the fact that lets group said is that we've demonstrated over a period of time that we have with revenue growth, we can expand margins and incentivize.
To do so our incentives are largely based on organic revenue growth and margin improvement and that makes a pretty optimistic.
Thank you very much.
Thank you. The next question is from John Jenny Geneva is with Wolfe Research you May go ahead.
Thank you and good morning.
Hey, gentlemen, good 1 for you and I believe and maybe 1 for Felipe.
The fully maybe just to start you talked about lagging the vaccination rates with some of the renewed COVID-19 headlines in the areas of say Asia or Latin America or your agencies on the ground seeing any change and an outlet from clients in the I know theyre pretty small, but do you expect China and Japan to turn the corner of sometime later this year.
Well look I mean, you know to date, where we're seeing the benefits of the progress that.
Any number of places around the world have seen and then I think as we've discussed previously.
I think a of a.
Second or third wave or whatever it is the debt.
Any country might be experiencing is not going to necessarily be the same as the first because there is the sense that you are still making progress toward an outcome. So youre still either getting people vaccinated or in the case of many of our clients.
You've pivoted into and accelerated your ability to operate whether it's through E comm or other ways in which you're going direct to consumers youre clearly leaning more heavily into digital as part of your mix and in transforming your business. So I think that that again means that we don't necessarily see the.
The impact will be as significant.
And then the specific to certain markets for us as we've also said before.
Client mix can kind of a pretty significant impact for us on the ground in any given market.
So.
To my mind.
T V D as to whether we're getting there on those 2 markets.
They are fairly modest in size for us I think China is probably the 1 we focus on the most as a place where we want to be delivering for our for our global multinationals.
You know and we're doing some interesting things in that market.
With axiom in some of our relationships with some of the large platforms, there and what we can do with data.
So it's still work in progress, but I Couldnt I Couldnt put a date on that for you.
Okay, and then separately your attic wouldn't suggest it but are you seeing any notable impact on the business from wage or other of inflation and related to the hunter the $60 million of annual cost savings now.
Can you update us in terms of is there still of tail to those savings perhaps on the real estate side or have those been largely completed.
I'll, let Allen start with that piece of the question and then whatever she'd like to speak to on your talent question all of all sort of add.
Sure so starting with <unk>.
The question regarding our real estate savings 1 of the largely seeing the vast majority of them. This year, there will be some incremental ones next year as the remainder of the properties get sublease, but we're seeing a good portion of them are ready and they're on track versus our plan, which is great.
On the other placement question I mean to date, we haven't seen generalized wage inflation, but we're watching it closely it is something we talk about with our operators of the talent market is competitive and that's not a new thing.
We've been used to that for quite some time and I think what you are seeing is.
A little bit of higher attrition and whether that's because of people sat at home for 16 months and now have the ability to move around so.
So we're watching that closely as well, but we're being very innovative in the way, we recruit and retain talent for focusing on flexibility the quality of our return to office experience that we're planning a training and development and of course diversity equity and the inclusion which is something that we've been focused on for a very long time for now.
With that and I'll see what Felipe no look I mean, there's not a lot. The other I think it's a fair question I mean, we're in a professional services business. We've always been focused on the importance of talent is the driver of.
Our competitive advantage and we've been evolving the offerings. So clearly we've been dealing with the pressures of the talent market for the kind of digital and tech talent debt has been in demand for a while I think to Alan's point some of the Turner turnover numbers feel as if.
We've yet to see what it normalizes out too because of there. It does feel like they were they were lower in 'twenty. They are picking up now I think that you know.
People were understandably, you know sitting still last year and now that the world feels like a place where you might get out and about again youre looking.
And so it's a topic that comes up in our conversations with the operators.
We're keeping a close eye on it look into how we how do we manage it and how do we stay ahead of it to mitigate the impact of them.
We will keep you posted on kind of what we're seeing but you know people come to work.
Across our portfolio because of.
For a range of things.
You know that have meant that whether we were competing for talent the startups or with the large tech companies for the last few years, we've been fair.
Fairly successful items, so we got to just keep telling point.
Figuring out how we put what are our advantages to work in those conversations.
Alright, great. Thank you very much.
Thank you.
Your line is from Michael Nathanson with Moffett Nathanson you May go ahead.
Alright, Thanks for you guys here me.
Yeah, Hi, Michael.
Okay.
I have 1 of few of them I want maybe we're always going for you.
Just wondering when you when you sit down virtually with your clients today.
What are their priorities and the urgency of the priorities now versus maybe what it was pre pandemic right. So what has changed in the conversation maybe the speed to innovate and transform and then more broadly given how well youre doing and given the balance sheet.
What what is the company waiting for.
In terms of buybacks. It seems like you guys are true.
Really.
Got it over the hurdles of COVID-19 in terms of performance.
Balance sheets pristine why not start leaning into the buyback.
Sooner than later.
Alright, I will take the first 1 I guess for both to your point take take the second 1 will say well, we'll be vehemently an agreement on the second 1 Illinois.
Look I think it's any number of things, which you would assume so.
Clearly the need to be conversant in and to put into effect programs. So that you are.
Call. It what you will so you know people call. It E comm and Theres a lot going on there I mean, social is becoming a big part of what happens somewhere in the in the funnel in the middle of the funnel actually in moving upstream in the funnel. So everybody is clearly wanting to talk about and engage in conversations around.
Call of digital marketing, calling E com et cetera.
Kris singly everybody. It's also you know we've had some really interesting conversations with <unk>.
The regional clients in the CPG space for example of you might not.
Think of who are very very focused on data and on either.
Assessing their their first party data assets and understanding how they get organized so that they can begin to put them to work or if they are further behind in terms of the the readiness. There you know how do you take business as the traditionally have not been particularly data rich and begin to.
Sort of interact with consumers, so that youre going to basically pull pull of those that kind of information in to the question. Alexia asked earlier you know in the experiential event space, we're clearly seeing the need to get more digital and to use that as a way to so from my mind those of the 2 really big questions that have risen to the.
Top of most everybody's list right.
And then in terms of of the balance sheet question. You asked is as I said, we are committed to.
We've return.
What is it the $4.8 billion, we believe that's a big part of our story.
And how it is that we should be thinking about kind of balanced growth for the company. So we're clearly focused on that.
And I loved your reference to a pristine balance sheet and that's something that we think is extremely important as well.
Our solid investment grade rating, but a balanced program of capital return, which includes the dividend, which we've grown consistently and share repurchases has been something that we've always believed in and we look forward to getting back to as we mentioned we are planning on paying off 500 million dollar notes down in October of the.
The air and we do have a really nice maturity profile. Thereafter. So nothing has changed you know we believe in balanced program and we look forward to getting back to it.
Okay. Thanks, you guys will come such a long way from way back win congratulations [laughter].
Okay.
Thank you.
Thank you. Our next question is from Julien Roch with Barclays. You May go ahead.
Yeah.
Yes, hi, good morning, good morning, Alan.
My question is on margin if I'm, if I may why would margin full in the second half of 'twenty, 1 versus the second half of 19, because if I put the same margin and you get $16.9 for the full year of 'twenty, 1 and I understand the you know travels of coming back.
People are going back to the office, but you're guiding to more cost than in 19, and so I I want to know why.
My first question on the auditing and then the the second 1 is the longer term question philosophically the ceiling of which are the clients are in place. We will say I want my share of of your of your margin for there's no limit to margin as long as revenue go into the off could you go through 18% margin of 22.
The margin.
A bit of a series of people question on the on whether there is the ceiling.
You will be dancing on the ceiling.
Well it isn't Alan go first on your first 1.
Sure.
Thank you for the question when.
When you're comping against last year, we have to remind ourselves of what was going on last year at this time.
And there was everything from taking salary cuts to furloughs to government subsidies that were Comping eke out of there was zero travel there was zero going back to the office.
I think it's important that we remind ourselves that and as we mentioned you know we are envisioning a second half where people are returning back to the office to the extent, we can and the safe manner, where people are beginning to travel and meet again and you know we will be salary and wage cuts you know and that is all.
All gone in the labs, and we will be hiring against revenue growth. So I think those are the ins and outs that it's very important when you just look at the second half comp looking I think you know there's pent up demand as we were saying.
Jon's question around potential turnover I think there's pent up demand.
No for travel absolutely. So I think that you know you you'll see people wanting to.
There is definitely things that they'd get done when we are working to physically together that are much harder to do remotely.
And then there is growth and we want to be sure that that's getting staffed appropriately and that we've got.
Clients, who are giving us these new remits or new net new clients to us.
You know, we're getting the appropriate level of service in terms of the philosophical question. It's interesting because I don't know that I would call it philosophy, but.
You know as we said the restructuring positions US well, we've said all along we want to come out of the pandemic of stronger company and I think we're showing that we're well on our way there.
And then you do begin to see the transformation into certain of the of the areas, which.
We think we'll be accretive because they'll they'll take us to more performance based kinds of models into higher value ore.
Instances in which in which our IP can can.
Can be licensed out or can give us access to so I think to my mind, it's not philosophy, because I can't give you of a tenant that says this will be good forever I can tell you that at the moment, we see continued opportunity and upside.
And therefore, whether it's in 'twenty 2 'twenty 3 that's going to be what we're what we're.
Making our objective to Ellen's point, that's also how we reward our people.
And if there comes a point at which we began to believe we received the the ceiling that you mentioned is there then as always we're going to be very transparent and walk you collectively through what we're seeing and why what we believe is what we believe but I can't say something now that is that is going to be kind of evergreen in that way because.
You know our business is in the midst of evolving and you know right now we see we see opportunity.
Okay.
Very clear thank you.
Cheers.
And that was our final question I'll now turn it back to Felipe for any final thoughts.
Well just thank you all for the time. This morning again, we're looking forward to continuing the conversation we're hugely appreciative of.
Sort of when in the sales thanks to the hard work that our colleagues are doing and to our clients and I hope everybody is staying healthy.
Thank you and that does conclude today's conference you may disconnect at this time.
Yeah.