Q2 2022 Interpublic Group of Companies Inc Earnings Call
Speaker 2: Good morning and welcome to the Inter-Public Group 2nd quarter 2022 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.
Speaker 2: This conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Mr. Jerry Lushney, Senior Vice President of Investor Relations. Mr. Jerry Lushney, Mr. Jerry Lushney, Mr. Jerry Lushney, Mr. Jerry Lushney, Mr. Jerry Lushney, Mr. Jerry Lushney, Mr. Jerry Lushney, Senior Vice President of Investor Relations,
Speaker 3: Good morning. Thank you for being with us.
Speaker 3: This morning we are joined by our CEO , Felipe Krakowski, and by Ellen Johnson, our CFO .
Speaker 3: We have posted our earnings release and our slide presentation on our website, interpublic.com.
Speaker 3: We plan to begin our call with prepared remarks to be followed by Q&A.
Speaker 3: We plan to conclude before market opens at 930 Eastern.
Speaker 3: During this call we will refer to forward-looking statements about our company.
Speaker 3: These are subject to the uncertainties and the cautionary statement that is included in our earnings release and the slide presentation.
Speaker 3: and further detailed in our 10Q and other filings with the SEC. and other filings with the SEC.
Speaker 3: 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.
Speaker 3: At this point, it is my pleasure to turn things over to Felipe Krakowski.
Speaker 3: Thank you, Jerry, and good morning. I hope you're keeping well.
Speaker 4: These days that's no small ask.
Speaker 4: Before turning to our results, it's important to acknowledge that as individuals, we're living through, and as organizations, we're operating in quite unusual and challenging times.
Speaker 4: In all our conversations with clients, the question of purpose is something that increasingly comes up.
Speaker 4: That topic is also at the forefront of our thinking.
Speaker 4: And it's essential that we as IPG continue to be clear about our values because living into those values is something that our colleagues across the company take very seriously.
Speaker 4: which is particularly important when you consider that we're a talent-based business focused on ideas, creativity, and IP.
Speaker 4: so i wanted to call out to the teams across inter-public that are making contributions to alleviating the impact of crises such as the war in ukraine and the political appeal in Sri Lanka and the political appeal in Sri Lanka and the political appeal in Sri Lanka and the political appeal in Sri Lanka
Speaker 4: as well as to all our people who are leaning into our equity and inclusion efforts and are playing their part in programs that seek to address other key areas of ESG which remains an important priority for us.
Speaker 4: I think that was evident after the Supreme Court decision on Roe v. Wade, when we assured our people that we would update our healthcare benefits to provide funding for travel to ensure consistent and equal access to healthcare, including reproductive choice for all our employees.
Speaker 4: We understand that decisions regarding healthcare and our families are by their nature ones that each of us makes with a great deal of thoughtful deliberation.
Speaker 4: and in keeping with our individual circumstances and beliefs. As an organization, we want to ensure that we live up to our values of mutual trust and respect, which have been core to our longstanding commitment to inclusion and equity.
Speaker 4: Turning now to the immediate purpose of this call, we'd like to share with you our Q2 and first half results.
Speaker 4: as well as updates on the highlights at our agencies and on the tone of the business to be followed by answers to your questions.
Speaker 4: We're pleased to report a strong second quarter in H1 in which we continue to build on our industry-leading performance over a period of many years.
Speaker 4: Second quarter, organic net revenue growth was 7.9%.
Speaker 4: Worth noting that's on top of very strong 19.8% growth a year ago.
Speaker 4: And this brings our three-year organic growth stack over the period of the COVID crisis to 16.5% in the second quarter, which is well ahead of industry norms.
Speaker 4: Over the first six months of the year, our organic growth was 9.6 percent.
Speaker 4: which brings three-year growth to 15.2% for the first half.
Speaker 4: We saw consistent growth both in the US and our international markets.
Speaker 4: Domestically, organic growth for the quarter was 8.3% on top of 17.4% in last year's second quarter.
Speaker 4: organic growth in our international markets was 7.1%.
Speaker 4: highlighted by growth in every region of the world.
Speaker 4: and on top of 24.4% growth a year ago.
Speaker 4: Griffin the quarter was also broad-based across our portfolio of solutions, with reviewed by segments, agencies, or marketing disciplines and client sectors.
Speaker 4: This reflects the increasingly integrated nature of our offerings.
Speaker 4: and progress in infusing more of our portfolio with data led thinking.
Speaker 4: Specific to segments and agencies, it's important to call out the fact that growth at each of our segments compounds double-digit growth a year ago.
Speaker 4: Our media data and engagement solution segment grew 6.2% organically, which adds to 25.1% growth last year.
Speaker 4: a strong performance.
Speaker 4: was led by double digit increases in our media, data and tech and e-commerce offerings.
Speaker 4: Our digital specialist agencies were dilutive to this result as we saw deceleration in certain specular client categories and related project work.
Speaker 4: At our integrated advertising and creative creativity, the organic growth was 8.5%. The organic growth was 8.5%.
Speaker 4: We had growth at all of our largest agencies, significantly outpaced by FPG Health.
Speaker 4: followed by strong growth at Mullen Low and FCB.
Speaker 4: In our specialized communications and experiential segment, organic growth was 11.1 percent.
Speaker 4: highlighted by double digit growth in our experiential solutions and solid single digit increases across the public relations discipline
Speaker 4: As you'll recall, when we launched this enhanced disclosure,
Speaker 4: We believe the new segments are important in that they reflect the key areas of activity in which we are providing services to our clients.
Speaker 4: and the broader evolution we are seeing across the industry.
Speaker 4: However, we remain a highly client-centric culture and organization, and our major engagements with clients involve custom solutions.
Speaker 4: which draw on services from all segments in integrated open architecture teams.
Speaker 4: growth in the quarter was also broadly shared across client sectors.
Speaker 4: We were led by double digit percentage growth in our other sector of leisure, government, and industrial clients.
Speaker 4: as well as by double-digit growth in the financial services and healthcare sectors.
Speaker 4: Turning to operating expenses and margin, our results again reflect our leadership team's demonstrated capacity to run their businesses with the appropriate discipline while at the same time continuing to invest behind key areas that will drive further growth.
Speaker 4: And while our comparisons to last year continue to reflect the ins and outs of the pandemic,
Speaker 4: It's encouraging that we're driving margins at levels well above seasonally comparable periods prior to the pandemic.
Speaker 4: Then income in the quarter was $229.6 million as reported.
Speaker 4: Our adjusted EBITDA was $370.1 million, resulting in a net revenue margin of 15.6 percent.
Speaker 4: As expected, and as shared with you on our last call, that is below last year's second quarter of 17.9%.
Speaker 4: when our growth had begun to accelerate very significantly.
Speaker 4: Yet certain variable expenses were historically low due to the effects of the pandemic.
Speaker 4: compared to a year ago and under our organic growth of 11.4% over the trailing 12 months.
Speaker 4: our headcount has grown approximately 9%.
Speaker 4: Variable expenses have recovered to higher levels as well.
Speaker 4: as we resume travel and return to office in far greater numbers.
Speaker 4: It's worth pointing out that margin in the quarter of 15.6%
Speaker 4: compares quite favorably to margin in the pre-pandemic second quarter of 2019, which was 13.4%.
Speaker 4: That's a result of both our growth and the benefits of the strategic restructuring actions taken in 2020. The strategic restructuring actions taken in 2020.
Speaker 4: Our diluted earnings per share in the quarter was 58 cents as reported and 63 cents as adjusted.
Speaker 4: for intangibles, amortization, and dispositions.
Speaker 4: Under our share repurchase program, reauthorized earlier this year, we repurchase 2.7 million shares in the quarter using $84.8 million.
Speaker 4: A differentiator of our performance in the quarter and over a period of many years now has been our ability to bring together creativity, digital technology and data.
Speaker 4: to create higher order marketing and media solutions.
Speaker 4: that are responsive to the evolving business transformation needs of our clients.
Speaker 4: The growth you're seeing is driven largely by these very relevant capabilities.
Speaker 4: with which we can solve an expanding set of marketer needs for more precise, personalized, and accountable engagements with their audiences. and accountable engagements with their audiences.
Speaker 4: at an individual level.
Speaker 4: with respect for data ethics and consumer privacy.
Speaker 4: Looking ahead, we fully appreciate that we're at a moment of macroeconomic and geopolitical uncertainty.
Speaker 4: In this environment, it's fair to say there is a high degree of volatility, and visibility is challenged for every company. That's no less true for us at IPG, given that we're a global and diversified client service business.
Speaker 4: Despite these uncertainties however...
Speaker 4: And having very recently refreshed our bottom-up outlook for the year in meetings with our operators, we have not seen macroeconomic concerns significantly weigh on the growth outlook for the year that we shared with you back in April .
Speaker 4: While we appreciate the environment is dynamic, the demand we're seeing for our services remains broadly strong.
Speaker 4: and we are committed to delivering on our growth expectations for the year.
Speaker 4: Your call that in April we upgraded our 2022 organic growth expectations to 6%.
Speaker 4: Given our growth through the first half of the year, we see upside to that and believe we will exceed 6.5% organic growth for the full year. 6.5% organic growth for the full year.
Speaker 4: We continue to expect that we'll deliver adjusted EBITOP margin of 16.6%.
Speaker 4: While there are always puts and takes as we progress through any given year, we've not to date seen anything of the size or significant that would put us off those objectives.
Speaker 4: We are, of course, staying close to our people and our clients.
Speaker 4: Carefully managing expenses and as always, we'll keep you apprised as the year develops.
Speaker 4: Understandably, clients are considering how best to factor the slower macroeconomic picture into their plans for the balance of the year. Understandably, clients are considering how best to factor the balance of the year. Understandably, clients are considering how best to factor
Speaker 4: But that very significantly on an industry by industry basis.
Speaker 4: And marketers are also giving consideration to the disadvantages of being out of market during a slowdown.
Speaker 4: especially if one doesn't fully materialize or is short-lived.
Speaker 4: our diverse business model.
Speaker 4: which as you know encompasses about 5,000 clients, 100 plus countries, and a full range of marketing, media, e-commerce, and data services is a core strength of our model. It means we're always working across a broad range of client strategies and addressing an even broader range of evolving consumer behaviors.
Speaker 4: Marketers remain focused on leading with strong brands.
Speaker 4: which can help mitigate the impact of higher inflation.
Speaker 4: and brands are critical to their continued transformation and DTC at scale.
Speaker 4: All of which matches up well with our strong portfolio of agency brands.
Speaker 4: Field by top industry talent.
Speaker 4: differentiated capabilities and data, and the ability to customize our offerings on an open architecture platform.
Speaker 4: The skill and commitment of our IPG colleagues has helped us to reach the halfway point of the year on a strong footing.
Speaker 4: and therefore like to...
Speaker 4: In this part of my remarks, again, recognize and thank our people for their work on behalf of clients and in support of each other.
Speaker 4: as well as their engagement on vital societal issues consistent with our culture and values. Abs?
Speaker 4: One additional important item.
Speaker 4: As you'll have seen, there's significant news related to senior leadership within our organization, which we will be releasing a bit later this morning.
Speaker 4: Our people are key to IPGs long-term success, and another thing that's core to our culture is the ability to develop outstanding talent and find new opportunities for colleagues across our organization.
Speaker 4: So it's gratifying to have elevated a number of our most exceptional and experienced leaders to new roles within two of our key business units.
Speaker 4: Carol Lee, who's been most recently serving as the CEO of IPG Media Brands, has been named the CEO of McCann World Group.
Speaker 4: I'll link here in and see you at UM Worldwide will succeed Darrell at IPG Media Brands and at Mechan World Group. Bill Cobble will continue in his role as a Networks Chairman. Bill Cobble will continue in his role as a Networks Chairman. Bill Cobble will continue in his role as a Networks Chairman.
Speaker 4: We know they'll all contribute to the future success by PG&R clients.
Speaker 4: At this point, I'd like to hand over the called Allen for more in-depth view of our results. For more in-depth view of our results.
Speaker 5: Thank you. I hope that everyone is well. I would like to join Philippe in the recognition of our people and add my thanks to them.
Speaker 5: As a reminder, my remarks will track to the presentation slides that accompany our webcast.
Speaker 5: Beginning with the highlights on slide two of the presentation, our second quarter net revenue increased 4.7% from a year ago.
Speaker 5: with our GANIC growth of 7.9%. Organic growth was 8.3% in the US and growth was 7.1% in our international markets. and growth was 7.1% in our international markets.
Speaker 5: Organic growth was 9.6% in the first half of the year.
Speaker 5: Second quarter, adjusted EVTA with 370.1 million, and margin was 15.6%.
Speaker 5: Deleted earnings per share, the 58 cents as recorded, and 63 cents as adjusted.
Speaker 5: Adjustments exclude the Outro Text Impact, the Amortization of a Quiet Intangible. The Amortization of a Quiet Intangible.
Speaker 5: and non-operating losses associated with the disposition of certain small non strategic businesses. Good evening.
Speaker 5: We repurchased 2.7 million of our common shares during the quarter for 84.8 million, bringing repurchases to 4.5 million shares through the first six months of the year.
Speaker 5: Turning to slide three, you'll see our P&L for the quarter. I'll cover up in you an operating expenses in detail in the slide, so follow.
Speaker 5: On slide four, we present second quarter revenue in more detail.
Speaker 5: Our net revenue in the quarter was $2.38 billion, an increase of $105.9 million.
Speaker 5: Compared to 2 to 21, the impact of the change in exchange rates was negative 2.6%, with the dollar stronger against currencies in nearly all of the international markets.
Speaker 5: Next, the best of certain small, non-strategic agencies were negative 60 basis points.
Speaker 5: All organic net revenue increase was 7.9 percent.
Speaker 5: At the bottom of the slide, we break out segment revenue performance.
Speaker 5: media data and engagement solution segment with 6.2% organically on top of 25.1% in the second quarter of 2021.
Speaker 5: As you can see on this slide, the segment is comprised of IBG Media Brands, Axbium, Kinesso, and our Digital and Commerce Specialist Agency, which include MRM, RGA and UG. The which include MRM, RGA and UG.
Speaker 5: Media, data, and tech and MRM grew at double digit percentage rates in the quarter, while we experienced softness at RGA in huge.
Speaker 5: Organic growth at our integrated advertising and creatively led solutions to EGMEN was 8.5%, which is on top of 16.1% a year ago.
Speaker 5: As a reminder, the segment is comprised of McCann, IBG Health, Monello Group, FCB, and our domestic integrated agencies. And our domestic integrated agencies.
Speaker 5: A growth was led by double-divit increases in IPG health and FCB.
Speaker 5: At our specialized communication and exponential solutions segment, organic growth was 11.1%, which compounds 15.5% in last year's second quarter.
Speaker 5: The segment is comprised of IBG Dexter and Dexter Health, Weber-Shamlick, Solan, Jack Morton, and the momentum and octagon.
Speaker 5: We were led by double-digit increases in our experiential solutions and had mid-single-digit growth in the PR discipline.
Speaker 5: Moving on to slide five, organic revenue growth by region.
Speaker 5: In the U.S., which was 66% of net revenue in the quarter, all are guaranteed increased with 8.3%. All are guaranteed increased with 8.3%.
Speaker 5: That was driven by very broad base growth across segments, agencies and clients sectors.
Speaker 5: International markets with 34% of our net revenue in the quarter increased 7.1% organically.
Speaker 5: We grew in every international region.
Speaker 5: Continental Europe increased 8.3%.
Speaker 5: It's worth noting that's on top of 27.9% a year ago.
Speaker 5: We have double-digit growth in Germany, France, Italy, Portugal, and Switzerland, as well as several other bar smaller markets.
Speaker 5: The UK increased 4.4% organically.
Speaker 5: Our performance was mixed in the market with notably strong growth in media data and tech, exponential and IBJ health, and with softness at certain other parts of the portfolio, which was due to client-specific actions.
Speaker 5: AESAPAC grew 4.8% organically.
Speaker 5: Among our largest national markets, we have strong growth in India, Japan, Australia and Singapore, while China decreased from a year ago.
Speaker 5: Our organic growth in lap times was 8.8%, which is worth noting is on top of 49% growth in a year ago. Our increases were led by media and by youth.
Speaker 5: Our other markets group, which is Canada, the Middle East and Africa, will 11% let by very strong performance in Canada. We are 11% let by very strong performance in Canada.
Speaker 5: Moving on to slide six, operating expenses and margin in the quarter.
Speaker 5: Our adjusted EVATA margin was 15.6% in the quarter, which I've expected decreased from 17.9% a year ago. The EVATA margin was 15.6% in the quarter, which I've expected decreased from 17.9% a year ago.
Speaker 5: It's worth noting that margin in the quarter compares to 13.4% in the pre-pandemic second quarter of 2019.
Speaker 5: You'll recall that last year's second quarter margin benefited from several transitory effects, which were due to both the sharp acceleration of revenue growth in the quarter and to the impact of the pandemic on our operating expenses.
Speaker 5: A year ago, certain expenses were running at unusually low levels.
Speaker 5: Those include expenses due to travel, meetings, and office work.
Speaker 5: You'll also recall that our hiring lag behind top line growth.
Speaker 5: Compared to 2019, this year's second quarter margin is significantly higher, which reflects both leverage and growth and the ongoing savings from our 2020 restructuring program.
Speaker 5: As you can see on the slide, our total, our ratio of total salaries and related expenses as a percentage of net revenue was 66.9% in the quarter compared to 65.4% a year ago.
Speaker 5: Underneath that, as a result, we delivered on our expense for base payroll, benefits, and tax due to the hiring that was required to support our 11.4% organic growth over the trailing 12 months.
Speaker 5: Head count increased approximately 9% over the same period.
Speaker 5: So in the other way, our expense for performance space and play and center comp decreased from a year ago, from 6.4% to 4.5% of net revenue.
Speaker 5: At quarter end, total worldwide headcount was approximately 57,600.
Speaker 5: Also on the slide, our office and other direct expense was 14.7% of net revenue compared to 13.3% a year ago.
Speaker 5: Underneath that, we continue to leverage our expense for occupancy, which is 4.8% in that revenue, and improvement at 20 bases going from a year ago.
Speaker 5: all other office and other direct expense with 9.9% of net revenue, compared to 8.3% a year ago.
Speaker 5: The comparison reflects the return of variable expenses that I referred to earlier as a result of increased level of business activity, although now up to the pre-pandemic levels.
Speaker 5: Our SGNA expense was point 8% of net revenue, a decrease of 50 basis points from a year ago.
Speaker 5: On slide seven, we presented detailed unadjusted and story reported second quarter results in order to provide better transparency and a picture of comparable performance.
Speaker 5: This begins on the left-hand side with our reported results. We then step through to adjust an EVCA and our adjusted diluted EPS. TheNI has also proposed Thermal Control Depots.
Speaker 5: Are expense for the amortization of acquired and tangible in the second column with 21.1 million?
Speaker 5: Below operating expenses and shown in column 4, we have lost a 4.2 million in other expense due to the disposition of a few small, non-strategic businesses.
Speaker 5: At the foot of the slide, you can see the AfterTech impact per diluted share of each adjustment, which bridges our diluted EPS at $0.58 to adjusted earnings of $0.63 per diluted share. For more information, visit www.fema.gov
Speaker 5: Slide 8 depicts similar adjustments for the six months, again, for continuity and comparability. The diluted earnings per share was $1.10 for the period.
Speaker 5: On slide nine, we turn to cashflow in the quarter.
Speaker 5: Cash used in operations was $90.8 million, which was due to a working capital use of $382.1 million.
Speaker 5: Operating cash flow before working capital was $291.3 million.
Speaker 5: As a reminder, operating cash flow is both highly seasonal and can be volatile by quarter due to the changes in the working capital component. As summary, Pay?? subscriber Print is under lending by cram Thermal reasons are given through direct Capital Component.
Speaker 5: The magnitude of our receivables and payables means that the timing and collection of payments within any single quarter can significantly vary and affect the working capital result.
Speaker 5: With that, it's worth noting that over the past three calendar years, we have generated cumulatively $2 billion from working capital and that our CAF position at the second quarter end was historically high, exceeded only once in the past 20 years. In our investing activities, we use $61 million mainly for CapEx and the deconsolidation of the subsidiary in which you hold a minority interest.
Speaker 5: Our financing activities in the quarter use 233 million primarily for our common stock dividend and sharey purchases.
Speaker 5: Our net decreasing cash for the quarter was 418.6 million, and our cash position at quarter end was 1.99 billion.
Speaker 5: Slide 10 is the current portion of our balance sheet.
Speaker 5: So I'd 11 to pick the maturity about outstanding death. As you can see on this schedule, shortage hisrol measure of lever Barbie's eldest son. Middleie this period, with a stimulus model that would end your major 3 billion. you
Speaker 5: Our next maturity is April 2024 for only 250 million. Their after our next maturity is not until 2028.
Speaker 5: Growth Financial Death to Event DA, as defined in our credit facility covenant, was 1.68 times a quarter-hand.
Speaker 5: In summary, on slide 12, our teams continue to execute at a high level and have us well positioned to deliver on our expectations for the year.
Speaker 5: I would like to reiterate our pride and gratitude for the efforts of our people.
Speaker 5: The strength of our balance sheet liquidity means that we remain well positioned, both financially and commercially. And with that, I'll turn it back to Felipe.
Speaker 4: Thanks, Ellen.
Speaker 4: Turning down the highlights from the quarter.
Speaker 4: Much of the demand we're seeing, and in many cases converting into growth, comes from more transformational services as clients seek to tap into the areas where IPG has made significant investments in recent years.
Speaker 4: The business transformation agenda crosses all client sectors and the consumer sits at the center of these changes.
Speaker 4: We're being asked by marketers to address not only the all important questions regarding the positioning and articulation of their brand, which are key long term equities.
Speaker 4: but also the activation of that brand's value proposition in ways that engage with consumers and drive marketplace performance.
Speaker 4: That combination of our creativity and expertise in marketing services, coupled with the use of data and technology to identify and understand audiences, means we have an important role to play going forward in helping companies define their businesses and unlock growth.
Speaker 4: The key component of that formula is our Continuitability to deliver best in class creativity across all marketing disciplines and around the world.
Speaker 4: Are very strong. Showing is a conestible of creativity.
Speaker 4: just a month ago, demonstrates that our capabilities in this regard continue to be world class.
Speaker 4: as IPG agencies want 110 lions at Cone, including five Grand Prix and one Titanium Lion.
Speaker 4: Earlier this year, as you'll recall, we were also the number one holding company in North America at the F.D. Awards.
Speaker 4: It's recognized the effectiveness of the programs we create for our clients.
Speaker 4: And I'm going success story for us is IPG help.
Speaker 4: which continued to deliver very strong business performance in the quarter. And at CON, their creative strength was also on full display. As the network marked its one year anniversary by winning 17 lines, more than any other healthcare agency group.
Speaker 4: FCV Health was named Healthcare Network of the Year, and McCann Health came in second in that category for an unprecedented showing atop those rankings at CUN. FCV Health was named Healthcare Network of the Year, and McCann Health came in second in that category for an unprecedented showing atop those rankings at CUN.
Speaker 4: Area 23, also an IPG health company, was named Healthcare Agency of the Year and won the Grand Prix for Good, which recognizes campaigns for nonprofits that use creativity to make a positive impact in society.
Speaker 4: The creative success of IPG health comes as the group continues to leverage its broader reach, scale, and diverse talent to evolve its capabilities.
Speaker 4: In the second quarter, the network launched a new agency offering called 90 North.
Speaker 4: which is a software-based advisory that enables pharmaceutical, biotech, and life sciences companies to tackle complex issues beyond traditional marketing communications.
Speaker 4: Another standout for us at CUN this year was FCB.
Speaker 4: which despite a more modest number of entries than many much larger global agencies, was honored as the number two network overall, following up on last year's number one overall ranking.
Speaker 4: In North America, SCB was the Con Network of the Year for the fourth consecutive year.
Speaker 4: The network took home the Creative Effectiveness Grand Prix for its work for Michelob Ultra, which is a remarkable campaign in that it's a platform idea that seeks to impact long-term sustainability and goes well beyond traditional advertising.
Speaker 4: FCB Lisbon won Portugal's first ever Grand Prix in the design category for work that directly addresses the country's history of fascism.
Speaker 4: and FCB Inferno, based in London, won a titanium line in their partnership with Virgin Group and LinkedIn for their effort to make this lexic thinking recognized as a term that should be celebrated and a skill set that should be valued.
Speaker 4: No worthy developments at the can, other than those I called that a bit earlier, during the quarter included several new business ones.
Speaker 4: Prudential financial selected mechanics as a to lead agency, Creative Agency of Records following a competitive pitch.
Speaker 4: The agency won creative duties from MacArthur Glenn, which is Europe's leading owner of designer outlets.
Speaker 4: And in collaboration with Golan, McCann expanded its remit with Nomad Foods, Europe's top frozen food company, to support the development of a sustainability marketing strategy and communications framework for 2023.
Speaker 4: The can also won a grand pre-it con for its serious and thought provoking work.
Speaker 4: related to global food shortages, which was done on behalf of the Swedish Food Federation.
Speaker 4: And Mullen Low Group, the New York office, was named USAR from Fires, Kane Reliever, Alive. And in the UK, Mullen Low Group successfully renewed their remit for the National Health Service, following a highly competitive review.
Speaker 4: highlighted media brands in the quarter include continued strongly business performance.
Speaker 4: As the network helps clients make data-driven decisions that are central to effectively investing marketing dollars in an increasingly complex, digital and addressable media landscape.
Speaker 4: We saw initiative when significant US assignments in Spain, Canada, Australia, and the UK during the quarter, including media planning for Meal Kid Delivery Giant, Hello Fresh.
Speaker 4: UM was named media agency of record for Upwork, the platform that connects companies and freelancers.
Speaker 4: In April .
Speaker 4: Magnet held its second annual equity upfront, which seeks to accelerate support of diverse owned media businesses. By enabling collaborative workshops between brands and media owners, as well as arming those media owners with the tools to engage with major marketers.
Speaker 4: media brands is helping upstream investments take hold with media that are minority-owned or those that serve critically important diverse audiences.
Speaker 4: During Cannes, IPG also announced a partnership with Spring Hill, the global entertainment company created by LeBron James and Maverick Carter.
Speaker 4: While additive to our own creative capabilities, this partnership will provide a new avenue for our clients. This partnership will provide a new avenue for our clients.
Speaker 4: to access Spring Hills exceptional range of diverse creators.
Speaker 4: We're active across the breadth of communications channels and formats.
Speaker 4: We've already seen strong interest in demand for this new partnership, notably from the MediaBrent Content Studio, which is a high growth unit within MediaBrent.
Speaker 4: Media also continues to benefit from close connectivity with our ACSUM unit.
Speaker 4: and news that acts during the quarter includes the enhancement of its marketing cloud practice with new offerings in both the Salesforce and Snowflake environments.
Speaker 4: During the quarter, Kinesso continued to focus on its marketing intelligence engine suite of technologies, which helped brand manage all the data, marketing software, and ad tech services required for growth.
Speaker 4: In bringing those complex capabilities into one comprehensive offering, Kineso is helping our clients connect with audiences in a flexible and respectful way, deriving insights that can power creative campaigns as well as media investment decisions.
Speaker 4: During the quarter, MediaHub, which is another very dynamic IPG media agency, was appointed by Lyft to handle US media planning, buying analytics and measurement duties. And for this win, MediaHub worked in close collaboration with Axiom to understand and identify key consumer audiences for the transportation company.
Speaker 4: Media Hub also won US Media for Amazon's new line radio app AMP. And in Australia, the agency was named MediaAR for Global CPG brand Arla.
Speaker 4: MRM Commerce continued its strong growth performance, winning assignments from General Mills in Electronic Arts.
Speaker 4: as well as an enterprise level assignment in CRM and first-party data integration with Johnson & Johnson.
Speaker 4: Among our specialized communications agencies, we continue to see strong marketplace performance.
Speaker 4: An integrated cross-discipline Dextra health team was appointed by Moderna as the brand's global enterprise agency of record.
Speaker 4: This solution draws on talent and expertise from Weber Shandwick, Golan, and Jack Morton.
Speaker 4: and they've been tasked with enhancing Moderna's reputation globally as well as expanding awareness of Moderna's leadership in mRNA technology.
Speaker 4: WebberShanwood continued to win significant assignments for major brands, including expanded responsibilities from client Mars for their Skittles, Orbit, and Extra brands.
Speaker 4: Group Black, immediate collective and accelerated rooted in the advancement of Black and media properties, also recently announced that it had hired Weber-Shambler to lead its external marketing and communications activities.
Speaker 4: All our PR agencies continue to stand out for their creativity and effectiveness during the quarter. At Cannes, Weber won 20 Lions, including three Grand Prix. And at this year's North American Sabre Awards, we are honored to announce that the
Speaker 4: Our PR agencies combined the Wayne 14 awards, which was more than any other holding company. And this was led by Golan, which...
Speaker 4: was named both Large Agency of the Year for the second consecutive year, as well as Overall Agency of the Year.
Speaker 4: In terms of notable developments on the ESG front, we published our 2021 ESG report, which covers a range of environmental, social, and government's topics.
Speaker 4: This report is the first from a US-based advertising holding company to receive limited external insurance on certain ESG data.
Speaker 4: And the first to disclose an accordance with the recommendations of the task force on climate-related financial disclosures. of the task force on climate-related financial disclosures.
Speaker 4: This work builds on our evolution of enhancing disclosure following our 2020 report, in which IPG became the first company globally to publish an alignment with the sustainability accounting standard boards advertising and marketing standard.
Speaker 4: to mouthful. In summary, we are pleased with our quarterly results as they contribute to a strong first half of 2022, which comes on top of exceptional 2021 comps, especially in Q2 of last year.
Speaker 4: And despite increased volatility and growing caution due to macroeconomic concerns, the tone of the business is broadly strong, and we remain net new business positive.
Speaker 4: As stated earlier on the call, we believe organic growth for the year will exceed 6.5%, along with our expectation for an adjusted EBITDA margin of 16.6%.
Speaker 4: Given the macro uncertainty that does exist across multiple economic and geopolitical factors, we're clearly going to stay very close to our clients and our people just to be in position to respond as required if there are unforeseen developments.
Speaker 6: a key value.
Speaker 4: creation of an area of value creation, I think which Helen just pointed out, remains a strong balance sheet in liquidity.
Speaker 4: And our ongoing commitment to capital returns was underscored by another increase to the dividend earlier this year and the resumption of share repurchases. And I think these initiatives also reflect our board's confidence in the longer term prospects for Interpublic.
Speaker 4: Going forward, our teams remain highly focused on operational execution, just as our companies continue to provide the kind of higher order business solutions to clients that can help them drive growth across a range of marketing activities and economic conditions.
Speaker 6: With that, I'd like to just...
Speaker 4: thank our client partners, our people, and those of you who are on this call for your continued support, and open the floor to questions.
Speaker 2: Thank you. To ask a question, please press star one, unmute your phone, and record your name clearly.
Speaker 2: If you do withdraw your question, press star 2. Again, to ask a question, please press star 1.
Speaker 2: One moment for the first question.
Speaker 3: Our first question is from Tim Nalen with Macquarie. You may go ahead. Hi. I guess the obvious first question I'll kick off with is about the MACR outlook, which just seems to be so conflicting between what you and your peers are saying you've seen thus far and what clients are telling you and then everything we're reading in the press. I just wonder if you could just maybe help us understand why the numbers seem to be so strong. And really what should we think about for the second half?
Speaker 3: business, just very broadly if you wouldn't mind kind of zooming out and giving us your opinions on what all of this might mean for your business positive or negative.
Speaker 3: zooming out and giving us your opinions on what all of this might mean for your business positive or negative. Thanks. Thanks for watching.
Speaker 4: That's a lot of cool. So I don't know that I can, you know, human nature is what it is, right? So I think the headlines are the headline, and I think it's about sort of a broader mood, whether it's, you know, the combination of headlines around, you know, inflation around what and where governments around the world are gonna be doing, you know, about that. So I can't reconcile why...
Speaker 4: I wouldn't suggest, as you said, that quote, what clients are telling us in a broad sense. I mean, my sense is, yes, some clients are asking us to think about contingency plans, but many more are still committed to any number of things. They're committed to figuring out how to get the most from brand-led creativity and combining that with performance marketing, or they're committed to a digital transformation journey.
Speaker 4: or really taking control of their first party data and building out an ID graph. So I mean, I guess the first half relative to second half question to my mind comes down to.
Speaker 4: You know, you look at very strong first half performance.
Speaker 4: You think about we come in north of six and a half on top of 12, that's strong performance for the year, right? And, you know, our comps are very challenging, and I'll take that. I think it's good to be able to keep saying, as we do, our comps are very challenging. So I think a lot of that is just the math. And I'd reiterate that the momentum in the business is healthy, and as we said, the demand for what we do is healthy, right? So, you know, I think that's a good thing.
Speaker 4: I'd look at again on the back half Q3 21 we're up against maybe a 15% growth number Q4 we're up against 12% and on a two years stack that's probably I don't know 11 and six give or take so it would stand a reason to me that You'd expect to see some deceleration against that independent of the macro and to my mind what that means is the macro is manageable And I think that's why we're telling you that we see
Speaker 4: what we see for the back half of this year. And again, we're clear on more visibility into Q3 than Q4, and the fact that there's some, you know, there's definitely uncertainty. But I can't reconcile for you why the noise doesn't necessarily connect into what we're seeing in the business, which is, as we said, broadly speaking, the noise doesn't connect to what we're seeing in the business.
Speaker 4: you know strong demand and it is variable you do get different
Speaker 4: Different.
Speaker 4: on a client basis, on a sector basis, in different parts of the world, there are folks for whom some of these signals lead to more caution or action than others. Your second question, to my mind, is,
Speaker 4: You know, I think we've always thought that...
Speaker 4: A number of things we're gonna come together that would get us to a moment in time when... that would get us to a moment in time when...
Speaker 4: there would be appropriately a focus on...
Speaker 4: consumers having control and agency as relates to their data. And, you know, again, to our mind, that's kind of consistent with a series of things that we've done going back a long time, whether that's agnostic relative to media, whether clearly that's, you know, a strong first party and data management capability at the core of what we do. And I think that clients are...
Speaker 4: intelligently focused on how they are going to continue to reach, you know, the right people, whether it's the right cohorts of people or whether it's the right individuals, and how they're going to activate the data that they do have, or how they're going to pool data with like-minded clients or interesting, you know, sort of partners, second-party partners. You know, so again, I think to our mind, none of what's happening strikes us as if it's...
Speaker 4: surprising and we continue to see it as opportunity and we see
Speaker 4: The need to have...
Speaker 4: both the consultative, authoritative, you know, authoritative, consultative capabilities, and a partner to go on that journey with. But none of that strikes me as if it puts us off our view that all those capabilities and services are only gonna become more valuable to our clients. And so, I'm gonna go on that journey. Thank you.
Speaker 3: Great, thanks for the answer, it's really.
Speaker 2: Thank you. The next question is from Steve Keahal with Wells Fargo. You may go ahead.
Speaker 3: Thank you. Felipe and Ellen, the guidance implies a big slowdown in the second half. As you said, we know some of that is conservatism in the comps. I think there's also been some announced agency reductions, places like RGA and Huge. I guess my question is, are you proactively managing headcount in anticipation of a slowdown, or is the business actually still pretty strong? Those are more idiosyncratic agency announcements, and things would kind of have to get worse from here before you started.
Speaker 7: taking sort of aggressive action on the cost base. And then the second question is, if we do see a bit of a slowdown, particularly into next year, how should we think about eBay margins? They're up a lot from where they've been historically, even with a good growth this year. They're kind of staying flat. So I guess the question is, if growth kind of decelerates in the future, what does that kind of mean for margins from here? Thanks.
Speaker 4: Sure, I mean, why don't we maybe we'll split them? I mean, I think the business is growing, right? And you've seen that with that growth, we've been bringing people into the organization. I think I've talked about the fact that the skill sets were bringing in.
Speaker 4: may not necessarily be the ones that we would have been bringing in had, you know, we've been talking about this couple three years ago, but you know, they're, you know, in the high growth areas and disciplines, there is still need on our part and so I'd say we've largely caught up on hiring relative to what 21 represented, but there isn't a
Speaker 4: proactive need to do what you suggest and you know the two the two examples you called out are you know whether you call it idiosyncratic or there you know there there's specific to things going on within those entities or the client base um... you know at those agencies um...
Speaker 4: And then, you know, I'll sort of segue into, or maybe hand off to Ellen in thinking through the margin question, but I think that we also have, you know, the variability of costs like temp labor and, you know, clearly the fact that our incentive programs are really, really synced up to how it is that we give you visibility into the business and what our goals are, which is to grow organically and to improve margins. So I think those,
Speaker 4: provide a lot of what we need to continue to manage the business you know as we look to the to the back half of the year right in terms of margins go forward I'll pass it over to Ellen start
Speaker 5: Sure, thank you. I would say start with our track record, right? We do have a track record of being able to manage our margins very effectively in a variety of different circumstances. And Philippe mentioned, I think some of the things that really help us do that is that our flexible cost structure. So whether as Philippe mentioned, it's temporary help versus permanent labor or our performance-based incentive comp, which provides variability as well or buffers. Absolutely help us.
Speaker 5: We're very disciplined on how we manage costs. As Sleep also mentioned, our intentions are aligned with that. And we're continuously looking at offshoring and year-shoring in other ways that will make us more efficient in addition to the fact that we're growing our higher value services, which should also help us expand our margins. We should also help us expand our margins. We should also help us expand our margins.
Speaker 5: So yes, we do believe that we can expand our margins going forward.
Speaker 7: Great, thank you.
Speaker 8: Thank you. Thank you.
Speaker 4: So, growth leads hiring over the last 12 months probably by a couple of percentage points, right? And as I said, there's still a bit of hiring to be done, you know, but if you think about that delta, it goes to what we said to you, which is that we see that as manageable. And then, I think the other thing I'd sort of call out on the most evident place where inflation is impacting us is that if I had to give you kind of a qualitative sense of it, the pressure on labor markets is less evident than it would have been a quarter ago, right? So, I'd say that hasn't fully abated, but it's definitely slowing. And then, in terms of other places in our cost base where we'd see inflation, I don't know if there's anything Ellen would want to call out, but obviously, you know, SRS for us is, you know, an important part, you know, it's where we get the folks we need to make the model work. So, I don't know if anything else would be a lagging component of inflation in our world. No, and I would just add that, you know, again, we're always focused on continuing to offshore and nearshore, and there's, you know, things that we're looking at that will also help mitigate. Yeah, the internal transformation efforts are definitely going on in a number of places, and, you know, how we do a lot of the back end on media, and how we do production, and how we automate that, and how we connect that back to the data stream. So, yeah, I mean, I think it really is, you know, I think you're seeing, you know, we've been talking about it, and it's the one we would obviously stay focused on and be very vigilant about. And how about revenues?
Speaker 4: Would you say that's sort of lagging or coincident? So far as I've said, I think clients continue to see marketing as a way to mitigate that and we do have the capacity in many cases contractually to share that with them as we see it impact.
Speaker 4: Again, I don't see it impacting revenue at this point. Okay, okay. Super helpful. Thank you. All right. Well, as always, we appreciate the time and the interest, and we will keep you posted as we go forward. And, you know, very, very focused on execution for the back half, and everybody on the team is on the same page with us. So thanks again.
Speaker 2: This concludes today's conference. You may disconnect at this time.