Q3 2021 Interpublic Group of Companies Inc Earnings Call
Good morning, and welcome to the Interpublic Group third 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 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.
This morning, we are joined by Felipe quick housekeeping, Interpublic's, CEO and by Ellen 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.
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 in the cautionary statement that is included in our earnings release and the slide presentation and further detailed in our 10-Q and other filings.
Fillings with the SEC.
We will also refer to certain non-GAAP measures.
We believe that these measures provide useful supplemental data that while not a substitute for GAAP measures allow for greater transparency in the review of our financial and operational performance.
His point it is my pleasure to turn things over to Felipe Krakowski.
Thank you Jerry and thank you all for joining us this morning.
I hope everyone is keeping well.
As usual I'll start with a high level view of our performance in the quarter.
Allan will then provide additional details.
Ill conclude with updates on key developments at our agencies and then we'll follow that with Q&A.
We're pleased to share our very strong third quarter performance.
But before turning to the numbers I'd like to begin by recognizing and thanking our people across all of interpublic.
We've continued to show a high level of dedication and support.
And through our clients into one another.
They are the principal reason, we can report such strong results again this quarter.
Our people are delivering insight and execution.
Wired for the complex integration of creativity.
Technology and data at scale.
And marketers across.
Industry sectors need in order to accelerate their business transformation journeys.
This kind of work is helping set a standard for our industry and further build on ipg's record of industry outperformance and margin expansion.
As we've moved through September and now into October.
Also.
Crossing boarding to begin welcoming our people back to office settings and to see many of our teams together again.
In the places where creativity collaboration and culture are ultimately rooted and regularly renewed.
Turning to our results in the quarter.
Our net organic revenue growth in the third.
Third quarter was 15%.
That's against the third quarter of 2020, when as Youll recall, our organic change was negative three 7%.
Due to the impact of the pandemic.
It is also important to note that our two year organic increase was 10, 7% relative to the third quarter of 2000.
And in 19, which is a strong result.
Compared to 2020, our growth in the quarter was again broad based by region of the world discipline as well as client sector.
Organic growth was 14, 7% in the U S and at range between 11 and 20%.
In our international regions.
Both of our operating segments also grew at double digit rates.
Our I a N segment increased 14, 4% organically.
With all major agencies contributing high single to double digit percentage increases.
We were led by media data and.
Technology.
RGA and huge.
As well as by Mullen Lowe Mccann and FCB highly.
Highlighted by notable contributions from their healthcare and advertising disciplines.
At our Dexterous segment organic growth was 18, 6%.
Reflecting double digit increases.
Creases across each of our dextera agencies and furthering the rebound from the sharp impact of the pandemic last year on our sports and entertainment.
Well as experiential businesses.
Looking at client sectors. The picture is also one of balanced growth.
Nearly every one of our major client sectors.
<unk>, increasing at a double digit percentage rate.
Led by the auto sector or other sector with government in industrials, and the tech and telecom retail and health care sectors.
Turning to profitability and expenses our results again demonstrate outstanding focus in execution.
Prior operating teams, even as we continue to invest to support areas of accelerating growth.
And to enhance our offerings.
Third quarter net income was $239 9 million as reported.
Our adjusted EBIT was.
With $369 5 million and.
Jim of adjusted EBIT before restructuring was 16, 3% compared with 16, 2% a year ago and 14, 7% in the third quarter of 2019.
There were several factors worth noting within those comparisons.
We had a solid.
Should operating leverage on our expenses for base payroll as.
As we continue to see the structural benefits of the strategic cost actions taken last year.
Those are reflected in our base payroll as well as our occupancy expense.
Date are very strong.
Topline growth is also outpacing the associated.
And therefore, our expense for temporary labor increased from a year ago.
Our travel and related expenses continue to track at low levels.
Still were somewhat higher than last year.
So as we look ahead teeny expense will pick up over the remainder of the year.
Our expense accrual for employee.
Performance based incentive compensation, however, increased as a percentage of net revenue, which is a direct result of our strong operating performance.
Third quarter diluted earnings per share was <unk> 60, <unk> as reported and was 63 cents as adjusted for the after tax expense.
So the amortization.
<unk> intangibles and other items.
In sum our quarter as well as our year to date speak to strong financial performance across the key metrics of growth EBIT and earnings per share.
Our growth reflects the cyclical economic recovery as well as the important structural.
Current that favor.
Kinds of higher order expertise with which we're well resource.
The work, we're doing solves for the increasingly complex world faced by our clients in a more.
<unk> and media environment, that's defined by a very rapid rate of change.
This is a validation of our long.
Term strategic focus.
On building offerings that help clients integrate brand experience across all consumer touch points.
Improve their capacity to apply data and the way their business goes to market and capitalize on the benefits of technology and digital channels.
Going back a number of years we've anticipated.
Transformational opportunities of this type of environment.
Other important drivers of our continued success our ability to deliver fully integrated solutions through our open architecture model and our emphasis on strong agency brands and best industry talent, so as to deliver breakthrough.
<unk> ideas and content.
We've also fostered a culture that respects.
The individual.
This transparent with respect to clients.
Accountable when it comes to data privacy and media responsibility.
Turning to our outlook.
With our seasonally important fourth.
Create are still ahead, we're pleased to increase our financial performance objectives.
We now expect that we can deliver organic growth for the year of approximately 11%.
Which is ahead of the 9% to 10% range, we had previously indicated.
With growth at that higher level.
And given our strong results through the nine months we.
We would therefore expect to achieve adjusted EBIT margin of approximately 16, 8%.
Which is an increase of 80 basis points over the level that we had previously shared with you.
Our outlook is based on expectations of a reasonably steady course.
The public health and global economic recovery.
We begin the fourth quarter, well positioned with strong operating momentum.
And the tone of the business remains solid as we head into the year end holiday season.
As such we see 2021 as another year of strong value creation for.
For all of our stakeholders.
And on that note I'll now hand over the call to Ellen for a more in depth view of our results.
Thank you I hope that everyone is safe and healthy I would like to join Felipe and thank our people for their terrific accomplishments.
As a reminder, my remarks will track the presentation.
Slides that accompany our webcast.
Beginning on slide two of the presentation third quarter net revenue increased 15, 7% from a year at that with organic growth of 15%.
Adjusted EBIT Ta before a small restructuring adjustment with three.
$369 5 million and margin was 16, 3%.
Diluted earnings per share was 60% as reported and 63 as adjusted for the after tax impact of the amortization of acquired intangibles.
Restructuring adjustment.
Net gains from the disposition of non strategic businesses.
On October 1st following the conclusion of the third quarter, we repaid our 500 million, 375% senior notes from cash on hand further deleveraging our balance sheet.
Turning to slide three you'll see our P&L for the quarter I'll cover revenue and operating expenses in detail in the slides that follow.
Turning to the third quarter revenue on slide four.
Our net revenue in the quarter was 2.2 dollars 6 billion, an increase of $307 1 million.
From a year ago.
Compared to Q3 2020, the impact of the change in exchange rates was positive one 1% with the U S dollar weaker than a year ago in all world regions with the exception of Latam net.
Net divestitures were negative 40 basis points are.
Net organic revenue increase was 15%, which brings us to 12% organic growth for the nine months.
At the bottom of this slide we breakout of segment revenue in the quarter.
Our Ian segment grew 14, 4% organically.
We had notably strong growth across.
Our offerings in media data and tech RGA huge Mccann Worldgroup FCB, driven by health and the Malibu group.
And IPG to extra organic growth was 18, 6%, which reflects double digit growth across public relations.
<unk> X brand show sports and entertainment and branding disciplines.
Moving on to slide five which is a look at our organic revenue change by region in.
In the U S, which was 65% of our net revenue in the quarter organic growth was 14, 7%.
The organic revenue.
<unk> decrease a year ago was two 4%.
Year on year performance was notably strong across both our Ian and Dextrous segments and almost all of our agencies led by media data and Tech FCB Mullen Lowe Mccann <unk> Weber and Jack Morton.
Internet.
Some markets with 35% of our net revenue in the quarter and increased 15, 4% organically.
Youll recall that the same markets decreased 6% a year ago.
C U K increased 13, 3% organically led by our offerings in media data.
Data intact.
<unk> Mccann and RGA.
Continental Europe grew up 11, 8%.
Among our largest national markets, we had notably strong growth in Germany, Spain, Italy and France.
There were a number of operating highlights in the region led by media data and tech.
Tax extra and RGA.
Asia Pac increased 17, 4% organically led by growth across most national markets, notably, Australia, Singapore, India, The Philippines, China and Japan.
Our <unk> organic growth in Latam.
With 23% with exceptional results in Brazil, Argentina, Colombia and Chile.
Our other markets group, which consists of Canada, the Middle East and Africa grew 17, 1% organically led by notably strong performance in Canada.
Moving on.
Hum six and operating expenses in the quarter.
Fully adjusted EBITDA margin was 16, 3% compared with 16, 2% a year ago and 14, 7% in the third quarter of 2019.
We continue to see efficiencies in our number.
I'm, just sort of an expense categories as we had in this year's first half 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 last year and continued to execute over the back half of 2020.
As we've called out previously we feel also had a sharp decrease in certain variable operating expenses from pre COVID-19 levels I.
I would call out specifically travel and related expenses, which will increase from the third quarter a year ago, we're still well below their level in 2019.
As you can see.
Of that slide our ratio of total salaries and related expense as a percentage of net revenue was 66, 8% compared with 65% in last year's third quarter.
The increase was due to higher expenses in two categories are rural for performance based incentive compensation.
And then was five 8% of net revenue and our expense for temporary labor, which was 5% of net revenue in the quarter.
We had strong leverage on our expense for base payroll benefits and tax which was 53, 9% of third quarter net revenue, which reflects the benefit.
<unk> of our restructuring actions and the fact that the pace of hiring lags our strong revenue growth, which has been the case in past economic expansions at.
At quarter end total worldwide head count was approximately 54608% increase from a year ago.
We have added net 4500 people year to date to support our growth.
Also on this slide our office and other direct expense decreased as a percent of net revenue by 250 basis points to 13, 3%.
That reflects lower occupancy expense mainly.
Mainly due to the restructuring of our real estate.
Ratio was 5% of net revenue, we also reduced all other office and other direct expense by 120 basis points compared to last year, which reflects lower expense for bad debt and leverage as a result of our growth.
Our SG&A expense was one 4% of net revenue with the increase from a year ago due to higher unallocated performance based incentive expense and increased employee insurance, which was at a very low level last year.
On slide seven we present detail on adjustments to reported.
Reported third quarter results in order to provide greater clarity and a picture of comparable performance.
This begins on the left hand side of the page with our reported results and steps through to adjusted EBITDA and our adjusted diluted EPS.
Our expense for the amortization of acquired intangibles.
<unk> in the second column with $21 5 million.
The restructuring of a refinement in the quarter was a benefit of $3 5 million to be clear. This is an adjustment to estimates of the 2020 restructuring program.
Below operating expenses and calm for we had a gain due to the.
This position of certain non strategic businesses, which was $1 7 million in the quarter as.
As to whether this slide you can see the after tax impact per diluted share of these adjustments was <unk> <unk> per share, which bridges, our diluted EPS as reported at <unk> 60, <unk> to adjust.
Adjusted earnings of 63 per diluted share.
The appendix to our presentation includes a similar bridge for diluted EPS for the nine month period.
On slide eight we turn to cash flow in the quarter.
Cash from operations was $390 2 million.
Compared to $689 3 million a year ago.
We generated $79 6 million from working capital compared to $376 8 million last year, which was an unusually strong seasonal results.
Besting activities used $72 million in the quarter mainly.
For Capex $61 3 million.
Financing activities used $153 3 million, mainly for our dividends.
Our net increase in cash for the quarter was $152 5 million.
Slide nine is the current portion of our balance sheet.
We ended.
The quarter with $2 5 billion of cash and equivalents.
Under current liabilities. The current portion of long term debt refers to our 500 million, 375% senior notes, which have matured since the balance sheet date, and we repaid with cash on hand.
Slide 10.
10 depicts the maturities of our outstanding debt again. This includes the October for US maturity. Our next maturity is $250 million to April 2024, and following that Theres nothing until 2028.
In summary on slide 11, our teams continue to execute.
At high level, and an unprecedented environment I.
I would like to reiterate our pride in and gratitude for the efforts of our people.
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.
The combination of our exceptionally talented people.
<unk> portfolio of offerings and capabilities continues to set the standard for growth in our industry.
The strategic steps, we've taken over the long term <unk>.
Have positioned IPG as a high value business partner to our clients.
We're able to combine.
At our creativity and narrative storytelling.
With the benefits of data and technology.
In order to deliver growth for marketers across a broad range of sectors.
These strategic steps are evident in our strong results and position us well going forward.
By helping clients to better understand.
Powell audiences and to engage with them with greater precision and accountability.
We can help companies succeed in the digital economy.
Today marketers are responsible for increasing business innovation building, new content platforms and e-commerce platforms, as well as adopting emerging tech and leveraging.
<unk> data.
All while complying with an evolving data privacy landscape.
Clients are also at the forefront of addressing societal issues and corporate purpose on behalf of their companies and brands.
As a partner, we're helping them solve for all of these challenges.
With our ability to deliver complex.
Lex integrations focused on business results and outcomes.
Our ability to help marketers proactively address these issues.
This further.
System by our intentional focus.
On ESG priorities as core business imperatives.
That's why we've been focused and working.
<unk> on ESG for many years at IPG.
We continue to build on our strong industry record in D. I initiatives, which are integral to nurturing the highest quality and most representative perspectives insights and creative voices across our company.
More recently, we've launched our first formal.
Price policy.
And our work with clients around social issues includes campaigns focused on LGBTQ plus right.
Mental health awareness ways.
Ways in which we can remove implicit bias from core datasets and also use data to increase the health of our planet.
As well as sustainable consumption models.
With respect to climate, we're now measuring our total greenhouse gas emissions around the world.
We're committed to setting a science based target and to reaching net zero carbon across our business by 2040.
We've also agreed to source, 100% renewable electricity by 2030 for our entire portfolio.
Now turning to the highlights of performance from across that portfolio during the quarter a key sector that continues to show strength for us is health care.
So as you know IPG has significant operations in healthcare marketing.
Totaling approximately a quarter of our total revenue.
This includes specialized global health care networks.
As well as significant health care activity in client relationships, and our media and public relations operations and within some of our U S independents.
Health and wellness continue to be a top concern for people companies and governments around the world.
We've seen an increased need for sound health care information.
Works to be delivered at speed in ways that are highly personal culturally relevant as.
As well as respectful privacy regulations.
Within the health care sector as well as across other client sectors, our ability to deliver open architecture solutions will continue to drive success for our company.
<unk> deep experience, providing customized integrated client service models to many of our largest client partners and.
And we continue to perform well and winning new business on this sort of work.
Especially in pitches that leverage the IPG data stack is a key part of the strategy.
This past quarter for example.
We have Morgan Stanley and E trade named media hub as media agency of record.
Following a highly competitive review.
Data strategy was a key component of the brief.
For this reason our customer intelligence company axiom.
With placed front and center in our winning proposal.
The media hub team.
Media strategy planning and activation in the U S leveraging axioms consumer data and expertise to fuel tightly tightly targeted and effective communication solutions.
And media brands, we continue to see a high degree of engagement with many of the world's most sophisticated.
Kitted marketers.
Across our two largest brands.
And initiative.
During the quarter initiative U S. One adweek prestigious media agency of the year honor for 2021.
Last year at this time within media brands, we launched reprise commerce.
The global specialty e-commerce offering.
And since then e-commerce revenue within that unit has increased significantly as we help clients build out holistic approaches to ecommerce include.
Including E retail.
Supply chain and warehousing.
Marketplaces and direct to consumer.
Consumer programs.
There's never been a more important time to connect the e-commerce opportunity with.
With a full power in clients media and marketing investments.
In addition.
We can create and deploy consistent cross channel experiences that dynamically adapt to consumer needs and goals in.
Time.
Thanks to outstanding creative and content capabilities.
This expertise is a key part of the news last week.
The owner of workers original Kansas Stork USA.
Had selected <unk> as its media agency of record.
U M takes on all strategy plans.
<unk> buying and analytics duties, including the implementation of Stuart's shopping commerce activity.
Our data and technology offerings continued to be key drivers of performance for us as well.
<unk> in all major open architecture.
And new business activity of significant scale.
This.
This month marks the third anniversary of axiom, becoming part of IPG.
During the third quarter axiom continued to post strong performance and to win in the marketplace bring.
Bringing in major new clients from the media retail infinite financial services sector.
Most recently.
A top 10 financial services company engaged axiom to build their unified enterprise data layer.
Which again shows the strength and depth of axioms technology expertise.
During Q3 <unk> launched.
What we're calling the Knesset intelligence identity products.
Also call that key and this is a new identity solution that works across the open web as well as the walled gardens.
And as already live with clients across a broad range of verticals.
Along with IPG media brands the trade desk was among the first media partners using key.
And the launch comes.
An important moment as brands and agencies work to create and bolster privacy first identity solutions that can assure addressed the ability of third party cookies and mobile AD Ids begin to be phased out.
He can match or brands first party CRM data and map it to key igen.
Jennifer hires.
Significantly increasing match rates.
And reducing the need for third party on borders.
When it comes to the strength of our brands and the creative advertising space.
Mccann FCB Mullen Lowe continued to distinguish themselves this quarter.
Mccann Worldgroup was named global.
A portion of the year at the 2021 guarantee awards.
Which recognizes the best creative communications from the female perspective.
Also notable Mccann worldgroup named the new President and global Chief Creative Officer.
Who joins us from Nike.
He served in senior brand marketing and creative leadership.
Networks for more than 20 years.
Most recently, leading nike's men brands globally.
During his tenure at Nike.
He was responsible for many of the world's best known and most iconic campaigns.
A range of marketing disciplines and channels.
At FCB.
Chip royalties Chicago Office was ranked as the top creative agency in North America, and the Lions creativity report.
And that same report FCB was ranked among the top networks in the world.
And STP was also named North American agency of the year at the 2021, New York Festival Awards.
Mullen Lowe was named the second most effective agency at the recent U S Effie Awards and.
And Mullen Lowe group was named the number two most effective network globally.
In both cases.
<unk> well above its weight against larger competitors.
During the quarter. The agency won the T J Maxx creative.
Okay.
And just this week media hub, one three Adweek media plan of the year's awards as well as seeing its U K office win.
When global media duties for Farfetch, which is a luxury fashion E Commerce brand.
RGA launched what they're calling a direct.
Avatar capability and Thats going to create virtual stories for brands within meta verse platforms, and that really sticks out new territory and direct to consumer sales.
On the growth front.
<unk> added projects for digital forward partners like total slack Cvs.
Cvs and Roku.
Huge also launched a new commerce offering.
She calls the experienced stack of the future.
And that's a tool that consolidates various elements of SaaS into an integrated growth solution for brands.
I think we're also going to see the agency's newly appointed CEO.
Further his plans to infuse data into huge its core offerings.
Ipg's extra growth in the quarter was broad based and it benefited from the return of live events.
Jack Morton, one new client assignments with Amazon and Twitch.
And along with Octagon sports and entertainment.
It was listed among event marketers ranking of the top 100 event agencies of 2021.
Audio social media App clubhouse.
Added Golan as its global agency.
Lead agency.
Weber was named the supplier of the year by GM.
And.
Security software company Mcafee also named Weber Shandwick its global.
Z a record to help redefine the firm as a consumer brand.
Lastly, Weber launch media Security Center in partnership with Blackbird AI to address emerging information perhaps.
And this is an offering thats built to offer.
Solutions to our business leaders say is it's a really leading reputation issue, which is the spread of misinformation and disinformation.
During the quarter. We also saw continued positive momentum at our U S independent agencies.
The Martin agency, when Hasbro's Nerf brand of products.
<unk> for Michael Lynche was named strategy and creative lead for H&R block, where they'll take on responsibility for strategy creative and social media as well as public relations and.
And Deutsch La added energy drink, Frank a shock to its roster.
All in we're in a positive position from a.
<unk> business standpoint for the year.
Our new business pipeline continues to be active.
As is typical at this time, we don't have full visibility on project work as we head into the fourth quarter, which will include the crucial holiday shopping season.
Now in line with the growth, we're seeing across much of the portfolio.
More companies are adding staff with a requisite contemporary skill sets.
As well as expertise.
So hiring has yet to fully keep pace with a very strong growth we've seen to date this year.
We began seeing travel restrictions lifted in certain key markets is infection rates decline.
And we.
Can you to use technology and practices developed during the pandemic to reduce travel and other carbon intensive parts of our business wherein as appropriate, but we believe that some of what we could call standard cost of doing business will return in Q4 and in larger measure in 2022.
Earlier on the call we shared with you our perspective on the full year and our updated expectation that we will deliver approximately 11% organic growth and.
And adjusted EBITDA margin of approximately 16, 8% for the full year 2021.
That view is predicated as we indicated on the assumption.
We can still continue to be reasonably steady course of macro recovery.
And we're very proud to have delivered a very strong nine months. Thus far this year on top of the most challenging comps in the industry.
Current performance.
Combined with the continued execution of our long term strategy should.
<unk> continue to be significant drivers for sustained value creation.
For all of our stakeholders.
We're committed to sound financial fundamentals as well as continuing to grow our dividend as we've consistently done including through the pandemic.
And returning to our share repurchase program also remains a priority.
As we turn our focus on planning for the upcoming year.
We will of course keep you updated on our progress on that front.
We're confident as well that the investments in talent and capabilities, we continue to make.
Physician IPG well for the future.
Yes.
<unk> said this is an unprecedented time, but.
But we have a highly relevant and differentiated set of offerings underpinned by a sound financial foundation and a strong balance sheet.
As always we want to thank our clients and our people.
Those are the key pillars of our success.
And we want to thank you as well for you.
As Alan good morning.
So now let's open the call for your questions.
Thank you to ask a question. Please press star followed by one on mute your phone and record your name clearly if you'd need to withdraw your question Press Star two again to ask a question. Please press star.
Time. This line one moment for our first question.
Our first question is from Alexia <unk> with J P. Morgan you May go ahead.
Hi. Thank you. Thank you Felipe you gave some great color in terms of where you're really standing out.
You know at ITG in terms of seeing this out.
Revenue growth and obviously the revenue growth has been sort of industry, leading for a while I guess my question really is when you look at the overall growth that you've been seeing as a company how much of this sort of outperformance do you think is due to the fact that you have leaned into areas.
<unk> made investments in like Axion, which clearly it is.
Thank you, Dave and I have made a difference in terms of winning incremental business or how much do you think you know again sort of high level is it here.
Here, just positioned very well to the recovery given your exposure to health care and such.
Uh huh.
No worries good morning Alexia.
Look I think it's obviously difficult to tell.
An example back what is behind some of the performance that our competitors are posting and I also don't know that I would separate health care.
Given that there was a moment in time when it was not the scale business that is for US and then a lot of what drives success in that business is.
It is analogous to what we've been doing across the portfolio, which is to say.
Can you help clients with a broader range of probable.
Problems can you give them.
More accountability and more clarity around when they're making investments or when they are putting a message out into.
Into the marketplace.
Who it is that youre trying to reach and how precisely it is that youre trying to to impact that potential consumer or that audience. So I think it's hard for me to pull it apart or to break it out for you I mean, I think it's fair to say that.
<unk>.
We do consistently call out for you that.
Whether it's media data and technology, whether it is the health care space.
Our digital agencies.
Yes. Those are all those are all clearly areas of strength for us and drivers of of that multi year now if you look at the compounded change.
We're clearly feeling like we're leaning into where there is demand and where there is opportunity in the space. The other thing that I think makes it difficult to answer. The question is that we think of it as as an integrated whole and so obviously you.
Can make the case to a client and you can prove the case to clients far more effectively.
If you've got a.
Our solution that encompasses.
As much of the ecosystem as possible. So that you are able to help them at every level in the funnel at every level in the process whether.
Are you using that data too.
Come up with the insights that will then inform of the messaging or the plans that informed the distribution of that message or then picking up on those signals pulling them back in and having them continue to sort of feed that loop. So I think to our mind.
Clearly the performance is indicative of the fact that some of the decisions. We've made going back now strategically with the right ones, but it's still.
Very much work in progress and to my mind, there's a lot of opportunity ahead, but I think we could do better in both put us pulling that together.
Clearly continuing to demonstrate that it works, but I can't tell you I can only tell you that in our world. That's what we're seeing get traction.
I guess quite a different way do you think you're sort of elevated growth rate that you've been seeing to a certain degree.
Sustainable maybe not to this level.
Where are you on a recovery, but you sort of envision that it's possible that ITG has an elevated growth rate organic growth versus what it did sort of pre pandemic given all the changes in your positioning and maybe thats a better way to ask the question I don't know that's a very that's a very fair question.
It's a very fair question as well I think that.
Our mind the industry is clearly.
Giving undergoing transformation there is an evolution that's taking place here, it's probably challenging to tell you again, given how much upheaval there's been.
Both last year and this year when or at what that level that will be established but thats clearly the aspiration.
Other it's by.
Really doing what we've done which is to build out. These these incremental capabilities to combine them in a way where you've got the marketing services component and then the data and technology component, which inform one another and then ultimately as you also know we're thinking that.
This approach should open new.
His dreams and <unk>.
New commercial models to us, which again, we believe would go to the point that you're asking so that's definitely where we're looking to get to.
And then maybe just a quick follow up for Allen on profitability.
Any any high level comments, you can give us in terms of how we should think about.
Revenue next year I know you've mentioned that the cost haven't kept up with the revenue growth. So I assume that you mean, you potentially see some contraction next year as things normalize, but any other sort of puts and takes we should be thinking about for profitability in 'twenty two.
Good morning, Alexia and thank you for the question.
Yeah.
About the margin goes.
For 2022, as we typically do we'll give you our view in February but I think it's really important to look at.
<unk> that we have been able to expand.
As long as we have to date and we believe that we have long term margin expansion capability.
I mean I go back to 2019 pre pandemic and if you look at our margin and it was about 14% lap.
Last year was our intention to emerge a stronger company as everyone knows we did a restructuring and committed to a $160 million of savings or about 180 190 basis points of 2019.
Revenue.
Seeing that savings, which makes us feel really good also I would point to we've had a consistent algorithm of being able to convert revenue growth to profitability and <unk>.
We expect that will continue as you point out this year and as I mentioned in my remarks, I'm hiring is lagging.
Revenue growth and that's not unusual in a period of time like this.
But also you know our temp help as a result is running high and because of our very strong performance and targets that we set in the very beginning of the year. Our incentive comp is also running at very high levels.
Which will reset at.
At the end of this year and the beginning of next year, so despite whether or not we have a difficult comp in the short term in 'twenty two and we fully believe we have more room to expand our margins going forward in the long term.
Alexia I would just add one thing, which is I think we closed if I recall correct correctly or.
<unk> call on a question that was actually pretty much.
On this very topic. So I think I'd say, we're pleased that we're making it necessary for the question to be asked again.
And as Alan says I think we're comfortable that we see continued.
Upside margin opportunity for the business going forward on a multiyear.
Thank you Bob.
Thank you. The next question is from John <unk> with Wolfe Research you May go ahead.
Thank you good morning.
Just one for you can you just talk about the competitive dynamics, you're seeing in the marketplace, that's coming out of the pandemic.
Are you seeing any changes in.
<unk> go to market strategies of either your traditional or non traditional competitors or any change in client behaviors as well.
Well, it's a very broad question.
Well look I mean, I think that.
The kinds of.
Questions and issues that need to be solved if you're running a business today and you're looking to.
Achieve whatever your your goals or imply that youre looking for partners that can help you.
Address kind of a range.
Things that are sort of digital economy related so whether that is your own business transformation, whether that is your data strategy at the enterprise level and then ultimately how you are going to take increasingly your own first party data.
And put it to use so that you are.
<unk>.
If there are I think increasingly being more.
Effective with your investment, but also more efficient and then lastly, how you show up and how you go kind of direct to the consumer and therefore ecommerce very very broadly construed right because I think that.
I know so much of what's happening now in E comm is happening.
In on.
On owned platforms and channels that companies and marketers own.
It's clearly going to be happening in areas that go sort of from the AD Tech World, where we generally are largely.
<unk> been focused as an industry for a number of years to Mar Tech.
But whether it's in the App world in the gaming World et cetera, So I think that.
It's both a fairly broad playing field you've got some.
Maybe smaller entities with deep specialization and some of those areas, it's interesting from where we sit because we.
It creates a broader kind of addressable marketplace.
And if you look at our immediate competitive set I mean, I think there clearly.
Looking at and thinking about sitting where they are and where the portfolio. They have how do they approach these things.
In terms of.
The bigger are there broader.
<unk> competitive set.
You see you see some activity, but I think the headlines are ahead of the reality there.
And then I think you need to figure out ways to.
The partner up.
Particularly kind of in the in the data in the Tech World because I think that.
Yes.
As everything changes there.
There's going to need to be universal identifiers, theres going to need to be kind of ways too.
In a privacy compliant way.
Engage with consumers and help again clients go to market and so that will.
Clearly imply being able to work with.
The folks who are solving for that whether it's from a measurement point of view or or from an activation point of view. So I don't know that I am seeing anything that we think is.
Unexpected I think probably if anything of the pandemic has probably.
Moved us forward faster along this track.
It's a direction or an avenue that we were heading down anyway.
Okay, great. Thanks, So maybe Alan a quick one for you just going back to the permanent cost savings. How are you tracking relative to plan on their real estate product from a from a timing and square footage perspective.
Okay.
Good morning.
Tracking well I think you see it coming through our numbers I think you'll see the leverage that we're getting from them.
So we're absolutely on target and on plan with that.
A lot of them already sublease and a few more to come.
We're feeling really good about it.
Alright.
Thank you.
Thank you.
Thank you. The next question is from Michael Nathanson with Moffett Nathanson you May go ahead.
Yeah, Good morning, Felipe <unk> one for Alan.
Hey.
First vivek of axiom, congratulations I know some of us.
Alright, great and the deal I Wonder when you look back on the three years.
How did it do versus maybe what you expected and looking forward.
The business was mostly U S. Based I believe are you seeing demand come from either new geographies or new client verticals.
There may be unexpected that's one.
Question, Alan I guess, the only thing I worry about.
<unk> just wage inflation.
And the lack of.
People to hire at this point or are you concerned at all we have not seen wage inflation in the U S. In a while or is that factored in at all to your thinking longer term about potentially some margin pressures down the road.
And then for my going first okay.
I think I think we're pleased with the way that the three years of gun I think that the integration went exceptionally well and that was clearly a focus of ours and particularly important when you consider that.
What axiom brought to us.
It was a level of credibility and trust when it comes to sizable marketing and client organizations.
Saying, okay as a as a holder of our first party data.
You can do that in a way that we know.
Is scaled is.
Four et cetera. So I think that that was that was clearly an important area of focus I think that you then.
Heard from Us and we have leaned into.
Ensuring that the connectivity there.
With media, which was the most obvious adjacency in the place where we've been building.
It was our <unk>.
Secure pre.
Pre axiom with axiom is a foundational piece of it or.
Whether it was.
The activation piece cadre on which is now matter kind of addressable across all channels.
But now we're definitely.
Seeing axiom pretty consistently across the board.
<unk>.
Focused on what we can do there in the health care space, We think there's a lot of opportunity there.
We definitely have it baked into as we've called out.
Anything that involves a scale opportunity that is complex or multi agency with a climb.
Client.
A lot of anything Thats, a top 20 IPG client.
I think if anything the thing thats been holding us back is likely.
That during the pandemic virtual.
Has I think been a bit.
Bit of a break on not specific or only in this space, but I think that.
Innovation internally.
Hard to do when people are not together.
And so it's definitely the case that I think that.
Whatever the next generation product wise is or the ways.
And which we can be even tighter and quicker on the integration as a place that I think will be focused on but I think it will unlock.
In large part because our teams are going to be able to gather together we had.
Product roadmap offsite with our axiom connected leadership per day, and a half and that was much more productive there was about a month and a half ago, we would have.
Been otherwise so I think I think all in plenty to do and still lots of upside, but I think that.
We're pleased with where we are on that.
Okay.
As far as inflation.
Not seeing materially higher broad based inflation.
In our numbers to date.
We're seeing what everyone else is seeing the talent market clearly has become more competitive.
Attrition is higher post the pandemic, we went through a period of time or no. One left so you are seeing I think.
A two year attrition rate this year and as a result.
Specifically because were growing so fast our hiring is not kept up so what we're focused on is really innovating our recruitment techniques. We're doing all kinds of different things on that front, including talent referral bonuses looking.
Different places for our workforce, including bringing them working.
Modest maybe back into the workforce. We're also trying to create opportunities for our people by creating promotion opportunities.
And it's not all about the compensation, although we do keep pay people.
Competitive play it's also really about the quality of the work environment that you provide training and development.
Your values that you stand for as a company, including to Eni in ESG So were real.
Really focused on all of those things.
One other thing I would point out is that our company typically our industry benefits from higher level of economic activity. So that could actually turn out to be a positive from a revenue perspective and.
And I think it's also important to note that we are investing in some of these more innovative ways of solving higher order client problems for our clients. So whether it's digital transformation are getting as Felipe said <unk>.
Direct to consumer e-commerce.
Thank all of those things, we will do well in this environment is wow outcome based marketing would clearly be.
Saying that would call to clients, if we get to a point where you know.
They're thinking hard about where and how to invest.
Thank you guys.
Thank you.
Thank you. The next question is from Julien Roch with Barclays.
Ahead.
Yes, good morning, Felipe good morning, and congratulation on the results My first question.
On the full year guidance in the two year stack. So if I look at your full year guidance, where you're guiding to 11% for the full year versus 2020 that is.
Is 8% in Q4, so that means that on a two year stack you would grow from.
11% growth in Q3, two 3% growth in Q4, which is an eight point slowdown.
Could get.
<unk> guidance.
Our guidance lead them to grow from minus two to minus five three points slowdown and previous guidance.
<unk> them to go from plus five to plus two or three point slowdown.
Again, all against 2019, so you eight slowdown omnicom and Publicis three points go down why are you. The most conservative when you are the best in class should you slow less than them.
My first question.
[laughter] that that is a big question I think it's an interesting question, but I think that.
We don't look at the year on a quarter to quarter basis. So I would ask that you then let me give you some broader context in answering it right I think that the variability that we see in the business on a quarter to quarter basis.
Reflects the flak that client activity has to do with their needs and their competitive situation and then also with the macro.
And so we've always framed up our expectations and we manage the business in terms of the full year right. So if I look at the full year with organic growth as we've seen.
The range of 11% on top of.
What are definitely the most challenging comps in the sector that has a very strong result, and if I look at a two year compound stack.
If that 11 comes in that's still has us at just under six win without.
<unk> in the mix the industry is probably flat.
I think if you get under that quarterly number and you think about the fluctuations I.
I think the point that you raise it feels to me like it's about timing from where I sit right and so.
Q4 last year timing clearly favors.
Q4.
Whether that's as obscured somewhat by the recessionary environment that we were navigating at that point. So you had pullbacks early in the pandemic.
Then our clients get their bearings they figure out how to go virtual they lean into a lot of what we've been talking about.
About digital E com.
And so there's pent up demand that clearly benefited Q4 from where we were sitting we saw in digital media spend very strong spending.
Spend in the retail category.
There was a lot of Covid related government communications work, which thankfully is going to hopefully be a little less necessary now.
And this year, we've seen this marked acceleration in Q2 and Q3.
And I think that reflects.
At the macro level the <unk>.
Progress that's been made broadly on public health and the fact that economic activity is up but also the acceleration of.
The digital behaviors, which.
IPG has been anticipating for many years with strategic actions and so those two quarters have been very very strong and so going into Q4, I would say to you that what we're seeing is.
The tone of the business is solid we're net new business positive but.
Delta has definitely created some uncertainty at the macro level.
Pent up demand that was a plus in Q4.
Isn't necessarily there.
And so that's where as I said to you we look at the year, we feel very comfortable with the year. We look at the two year stack, we think that that is various.
Very strong as well.
And so.
No.
To my mind.
I don't I don't see it as you I don't read it the way that you do.
When you then when we have a discussion about what 22 looks like than we have than we have the question that you put.
Yes.
No.
Thank you for that and I understand your answer but at the same time as both Omnicom and Publicis must feel the same thing as you in terms of the phasing and client going back early in Q2 and Keystone being strong is just that you have a far bigger slowdown than than the accounting for.
Put out.
We also have we also had a stronger Q2 Q3 and stronger comps in the prior year.
Yeah, Yeah no sure.
And then the next one because I know we're running out of time is on margin.
So you went from initial 15 five to $16 68.
So what.
But is the best margin you could do this year, if organic is better than I expected in Q4. So you know for instance, if.
Let me come and Publicis are right and you're wrong and so the slowdown is three points eight points and instead of doing 8% in Q4, you do 13% whats the maximum margin we can dream about.
What can we 17 for sure but $17 five I mean, what's the best outcome.
We're giving you our best line of sight into where the business is today and how we think we're going to finish the year.
If what you just suggest is conceivable then I think you will.
This year.
Further margin upside, but I don't know that it.
Constructive to sort of speculate on what that could be and again to Alexia as question at the outset.
We feel good about our long term.
Margin expansion case and we've.
Seen it and we think it will prove out but.
I don't know that I can speculate on that one I don't think I don't know that it as I said I don't see it as constructive.
Okay fair enough.
Thank you very much for your answers and looking forward to you beating guidance when you report Q4.
Thanks.
We've proven question.
Thank you and that was our last question I will now turn it back to fleet for any final thoughts.
Thanks Sue.
Well again, just we appreciate the time and the interest and the continued support and.
We will get back to work and focus on.
Thanks for the quarter, Thank you and I hope everybody has a.
Staying safe and well.
Yeah.
Thank you. This does conclude today's conference you may disconnect at this time.
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