Q3 2022 Interpublic Group of Companies Inc Earnings Call
Good morning, and welcome to the Interpublic Group third 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.
This conference is being recorded if you have any objections you may disconnect. At this time I would now like to introduce Mr. Jerry <unk> Senior Vice President of Investor Relations, Sir you may begin.
Thank you good morning, I Hope you are all well.
This morning, we are joined by our CEO Felipe Creek housekeeping and by Alan Johnson, Our CFO .
We have posted our earnings release, and our slide presentation on our website Interpublic Dot com.
We plan to begin our call with prepared remarks to be followed by Q&A.
Plan to conclude before market open at 930 eastern time.
Wed like to.
Remind you that during this call we will 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.
To better align with the language in our financial statements. We will use the term revenue before billable expenses.
As well as the more familiar net revenue interchangeably.
They are identical measures and there has been no change to the method of calculation.
As you will recall billable expenses in revenue are offset dollar for dollar in our operating expenses and therefore have no effect on our results of operations.
We will also referred to forward looking statements about our company.
These are subject to the uncertainties and the cautionary statement that is included in our earnings release.
And the slide presentation and further detailed in our 10-Q and other filings with the SEC.
At this point it is my pleasure to turn things over to Felipe quick housekeeper.
Thank you Jerry and thanks for joining us this morning, I hope, you're all keeping well.
As usual I'll start out by covering the highlights of our performance in the quarter and the nine months.
Allan will then provide additional details and I'll conclude with an update on our agencies and the tone of the business to be followed by your questions.
We're pleased to report a strong third quarter and nine months.
Third quarter organic growth was five 6%.
That's on top of very strong 15% growth a year ago.
And it brings our three year organic growth stack over the period of Covid to.
The 16, 9% in the third quarter.
Over the first nine months of the year, our organic growth was eight 2%.
<unk> was 12% year ago, which brings three year growth to 15, 7% for the first nine months.
Three year numbers continue to lead the industry.
We once again posted growth across our U S and international markets.
Mastic fleet organic growth for the quarter was four 4% on top of 14, 7% in last year's third quarter.
And organic growth in our international markets was seven 8%.
Highlighted by growth in every region of the world.
And that was on top of 15, 4% growth a year ago.
Our growth in the quarter was also broad based across our portfolio whether viewed by segment.
<unk> or marketing disciplines.
Each of our segments compound double digit growth a year ago.
Our media data and engagement solutions segment grew three 8% organically, which adds to 15, 9% growth last year.
Performance here was led by double digit increases at IPG media brands.
While two of our digital specialist agencies decrease from a year ago at our weighing significantly on the segment.
At our integrated advertising and creative led segment organic growth was six 7%.
On top of 12, 8% growth last year.
We had growth in all of our largest agencies with clear leadership again this quarter by IPG health.
Followed by Mccann Worldgroup.
And our specialized communications and experiential segment organic growth was seven 8% highlighted by double digit growth in our experiential solutions across Jack Morton Octagon as well as momentum.
Along with solid single digit increases in the public relations disciplines.
This result builds on the 18, 5% growth in this segment that we saw last year.
Across client sectors, our growth in the quarter was led by health care retail.
<unk> services are other sector of industrial and public sector clients and our auto sector.
Turning to operating expenses and margin our results again continue to reflect the strong cost discipline exercised by our operating teams.
As well as our ongoing investment behind key growth areas.
As you know our comparisons to last year reflect the ins and outs of the pandemic.
So we continue to drive margins at levels that are well above seasonally comparable pre COVID-19 periods.
Net income in the quarter was $251.8 million as reported.
Our adjusted EBIT was $356 2 million.
Resulting in net revenue margin of 15, 5%.
As expected that's below last year's third quarter, when our growth had accelerated at a rate that was well ahead of hiring and when certain variable expenses. We are still at low levels due to the effects of the pandemic.
Compared to a year ago.
And under our organic growth of nine 1% over the trailing 12 months.
Head count has grown approximately 7%.
Variable expenses are recovered to higher levels as well as we've resumed travel and return to office in far greater numbers.
Our diluted earnings per share in the quarter was <unk> 64 as reported in 63.
As adjusted for intangibles amortization restructuring adjustments and our net dispositions.
Under our share repurchase program reauthorized earlier this year, we repurchased two 6 million shares in the quarter.
We are gratified that our ability to deliver marketing and media solutions.
Bring together creativity technology and data.
To drive growth with existing clients as well as new client wins.
The growth Youre seeing is driven largely by these very relevant capabilities.
Which can solve for an expanding set of marketer needs for more precise personalized and accountable engagements with their audiences at an individual level.
The strength of our company is bringing talented people together and our client centric model to create customized solutions. It may.
These higher order client needs, whether those engagements are led by one of our powerful agency brands or through a collaborative IPG open architecture team.
These strong and relevant offerings are important for our long term future as well as at this moment of heightened macroeconomic and geopolitical uncertainty.
The current environment is making visibility more challenging.
But given our strong year to date performance, we are upgrading our expectation for organic growth for the full year to 7%.
With growth at that level, we expect to achieve adjusted EBIT margin of 16, 6%.
Notwithstanding this update to our outlook, we are seeing a more challenging macro environment going forward.
On a question following our last call, you'll remember that I mentioned, some clients were asking us to help them scenario plan.
And thinking about how they might best redeploy media and marketing investments in the event of a downturn.
The majority of our clients are now asking us to engage in this kind of contingency planning prioritization of activity and a focus on actions that will drive performance in sales.
To a lesser degree we're also seeing some deferrals of digital project work.
Historically, we know that marketers are continue to invest through the cycle come out ahead in the long run.
With measurable gains in market share and grow.
These days that's the conversation that's ongoing with many of our clients, who also know that given the duration of past downturns reductions are generally short lived.
At IPG are differentiated resources of creative and marketing talent.
And technology as.
As well as outstanding agency brands.
Along with our diversified and flexible business model and proven management teams position us well.
You can expect that we will hold true to our history of managing effectively even in more challenging times.
We're also continuing to invest in and advance our offerings for success in an increasingly digital economy.
We are of course, staying close to our clients and to our people.
And on that note I'd like to close this part of my remarks by recognizing and thanking our people for.
For their focus and their work.
On behalf of clients in support of each other.
And also for their engagement on the many vital societal issues that are consistent with our culture and values.
So at this point I'm going to hand, the call over to Ellen.
For a more in depth view of our results.
Thank you I hope that everyone is well I would like to join Felipe and a recognition of our people and add my thanks to them.
As a reminder, my remarks will track the presentation slides that accompany our webcast.
On slide two our increase in total revenue, which includes billable expenses was three 8%.
Third quarter revenue for billable expenses net revenue increased one 5% and.
Organic growth was five 6%.
We grew organically across all regions.
The three year organic stack in the quarter during the pandemic period is 16, 9%, which demonstrates our historically strong momentum.
Third quarter, adjusted EBITDA was $356 2 million with margin of 15, 5% of net revenue.
Diluted earnings per share of 64.
As reported in 63 cents as adjusted.
Estimates exclude the after tax impacts of the amortization of acquired intangibles.
Restructuring adjustment and a nonoperating gains from disposition of certain small agencies and a business investment.
We repurchased $2 6 million of our common shares during the quarter were $73 7 million.
Bringing share repurchases to $7 1 million during the first nine months of the year.
Turning to slide three you see our P&L for the quarter I'll cover revenue and operating expenses in detail in the slides that follow.
On slide four we present net revenue in more detail.
Our net revenue was 2.26 billion in the third quarter of 2021.
Compared to Q3 'twenty one the impact of the change in exchange rates was negative three 6% with the dollar stronger against currencies in nearly all of our international markets.
The impact of net divestitures of certain small non strategic businesses was negative 15 basis points.
Our organic increase was five 6%.
The result, with net revenue of $2 3 billion and this year's third quarter.
Further down the slide we breakout segment net revenue performance.
Our media data engagement solutions segment.
Grew three 8% organically on top of 15, 9% in the third quarter of 2021.
As you can see on this slide the segment is comprised of IPG media brands axiom connect sow and our digital specialist agencies.
At one end of the spectrum IPG media brands grew at a double digit rate organically, while the other end, we experienced softness at RGA and huge.
Which weighed on our results for the segment in IPG level.
Organic growth at our integrated advertising and creatively led solutions segment was six 7%.
This was on top of 12, 8% a year ago.
As a reminder, this segment is comprised of IPG health Mccann Mullen Lowe FCB and our domestic integrated agencies.
Our growth in the quarter led by strong increase in IPG health and solid growth at Mccann.
At our specialized communications and ex parental solutions segment.
<unk> was seven 8%, which compounds 18, 5% from last year's third quarter. The segment is comprised of Weber Shandwick Golin, Jack Morton momentum uptick on extra help we were led by double digit increases in on X parental solutions and had mid <unk>.
All digit growth in our PR discipline.
Slide five presents the organic change of net revenue by region.
In the U S, which was 66% of net revenue in the quarter, our organic increase was four 4%.
That is on top of 14, 7% a year ago and was driven by disciplines and agencies across the range of our offerings. We were led by IPG Health IPG media brands media hub, Jack Morton and momentum.
International markets with 34% of our net revenue in the quarter and increased seven 8% organically that is on top of 15, 4% a year ago.
Tom the Continental Europe increased four 7%.
By growth across France, Italy, Spain, and the Netherlands.
Germany was down slightly in the quarter on top of 13% growth a year ago.
The U K increased four 9% organically.
Our performance was led by media ex Bradshaw and IPG House.
Asia Pac grew five 6% organically with broad based growth across our largest markets, including Australia, India, Singapore and China.
Our organic growth in Latam continued to be strong at 19, 8%, which it's worth noting because on top of 20% growth a year ago. We grew across all of our principal markets, which include Brazil, Argentina, Mexico, Chile and Colombia.
Our other markets group, which is made up of Canada. The Middle East Africa grew 10, 6%. We were led by double digit growth in the middle East and solid growth in Canada.
Moving on to slide six in our operating expenses.
Our adjusted EBITDA margin on net revenue was 15, 5% in the quarter, which as expected decreased from 16, 3% a year ago.
You'll recall that last year's margin benefited from several transitory effects, which reduced both the sharp acceleration of revenue growth during 2021 and to the impacts of the pandemic on certain operating expenses, which which caused them to run at unusually low levels.
These expenses include travel meetings and in office work.
Also recall that our hiring significantly lagged behind our top line growth last year I would point out that our Q3 adjusted EBITDA margin is well above the pre pandemic third quarter of 2019, which was 14, 7%.
This slide.
Our principal expenses as a percent of net revenue this year and last year.
As you can see our ratio of total salaries and related expense as a percentage of net revenue was 67, 4% in the quarter compared to 66, 8% a year ago.
Underneath that Srs results, we deliver that de Levered and our expense for base payroll benefits and tax due to the hiring what is required to support our nine 1% organic growth over the trailing 12 months head.
Head count increased approximately 7% over the same period.
Going the other way our expense for temporary labor decrease from a year ago and our expense for performance based employee incentive compensation also decreased significantly.
At quarter end, our total worldwide head count was approximately 58500.
Also on this slide our office and other direct expense was 14, 3% of net revenue compared to 13, 3% a year ago, we continue to leverage our expense for occupancy, which was four 8% of revenue an improvement of 20 basis points from a year ago.
All other office and other direct expense was nine 5% of net revenue compared with eight 3% a year ago.
The comparison reflects the return of variable expenses that I referred to earlier as a result of the increased levels of business activities, so not fully up to pre pandemic levels.
Our SG&A expense was <unk>, 8% of net revenue.
A decrease of 60 basis points from a year ago.
On slide seven we present the detail on adjustments to our reported third quarter results in order to provide a picture of comparable performance. This begins on the left hand side with our reported results and steps through to adjusted EBITA and our adjusted diluted EPS.
Our expense for the amortization of acquired intangibles and the second quarter was $20 2 million.
Our restructuring adjustment was at $5 8 million credit.
Here, we have adjusted out of our results.
Below operating expenses and as shown in column five we had a net gain of $15 million due to the disposition of a few small non strategic agencies and business investments.
At the foot of this slide you can see the after tax impact per diluted share of each of these adjustments, which bridges our diluted EPS as reported at 64 cents to adjusted earnings of 63 cents per diluted share.
Slide eight depicts a similar set of adjustments for the nine months again for continuity and comparability.
Adjusted diluted earnings per share is $1 73 for the period.
On slide nine we turn to cash flow in the quarter.
Cash provided by operations was $65 6 million.
Cash used for working capital was $276 1 million.
Operating cash flow before working capital was $341 7 million.
As a reminder, our operating cash flow is both highly seasonal as well as volatile by quarter.
Changes in the working capital component.
This is largely a function of the variability and the timing of our collections and payments.
And our investing activities, we used $36 4 million, mainly for capex, partially offset by the salvage business investments.
Our financing activities in the quarter is $209 8 million, primarily for our common stock dividend and share repurchases.
Our net decrease in cash for the quarter was $211 million and our cash position at quarter end was 177 billion.
Slide 10 is the current portion of our balance sheet.
Slide 11 depicts the maturities of our outstanding debt.
As you can see on this casual total debt at quarter end remained at $3 billion.
Our next maturity is April 2024 for only 250 million thereafter, our next maturity is not until 2028 gross financial debt to EBITDA as defined in our credit facility Com Covenant was one seven times at quarter end.
In summary on slide 12, our.
Our teams continue to execute at a high level.
And have us well positioned to deliver on our updated expectations for the year.
I would like to reiterate our pride in and gratitude for the efforts of our people.
The strength of our balance sheet and liquidity means that we remain well positioned both financially and commercially.
And with that I'll turn it back to Lee.
Thanks Ellen.
Our growth thus far this year builds on a record of success that goes back some time in.
And embedding digital across the portfolio as well as adding a layer of data and tech to our offerings have been important parts of that playbook.
Along with our commitment to talent and strong agency brands.
Now the convergence of media and entertainment with the impact of technology on the retail sector is leading to another major growth opportunity for brands.
And thats, the evolving world of Commerce, and direct to consumer business models.
To date, we've been successful in helping our clients create engaging and effective customer experiences across a range of physical and digital environments.
During the quarter, we took another important step along this journey when we announced our acquisition of Raptor one.
The company is a leading salesforce implementation partner that works with marketers and brands to deliver personalized content that.
That engages and converts in a measurable.
<unk> and repeatable way.
Across a range of marketing technology channels.
With over 25 years of experience building digital journeys for clients and with more than 500 employees or after one is the Salesforce summit partner and Thats, the highest tier awarded to implementation partners.
By bringing IPG and Raptor, one together, we're significantly enhancing our commerce capabilities on our key marketing technology platform in both the BDC and <unk> Salesforce clubs.
Now Rafter won will continue to work independently with their own roster of clients as well as work directly with IPG agencies.
<unk> specialized commerce capabilities, whether that's in strategy service.
Data or CX implementation.
Clients across our entire portfolio.
Commerce and other forms of business transformation work can be a significant growth driver for us going forward.
And the addition of Raptor one is an important step in rounding out our offerings in this space.
Turning to highlights of performance across the group in the quarter a key sector that continues to show strength as health care.
Reputation Lee we continue to be the leader in this dynamic sector.
<unk> health, one healthcare network of the year into 2022, and Eminem Awards.
Collectively our.
Our agencies took home 23 wins across 21 categories, making us the industry's most awarded network.
During the quarter, we launched the IPG help medical communications, which aligns eight agencies to create what we believe is the industry's most comprehensive and interconnected med comms offering.
In this type of specialized offering available to all of our health care clients is precisely the kind of benefit that we foresaw when we launched IPG help just a little over a year ago.
Importantly, the company thought leadership and create a recognition.
The converted into growth as IPG help continued to win new business and grow with existing clients, including Astrazeneca.
Pfizer fever, and Boehringer Ingelheim.
IPG Health was also a key part of our successful integrated media consolidation with Merck.
And media brands, we continue to see a high degree of engagement with many of the world's most sophisticated marketers.
During the quarter, we on boarded new clients, including Nike and expanded our relationships with Merck and Tivo.
Last week media brands shared the fourth iteration of its media responsibility index, which is proprietary research on the relative safety and fairness of media platforms.
And this helps our clients make their media planning decision in ways that are responsive to issues such as dish and misinformation.
Notably we also promoted Eileen kiernan.
Is exceptionally client focused and strategic.
Naming her global CEO of IPG media brands.
In this regard I lean becomes the first female leader of a major media management group in the industry.
Staying in the media space as we see travel continue to bounce back.
<unk> cruises, just selected media hub as media agency of record for North America.
Axiom played a significant role in this win as the teams will develop custom audiences through addressable media.
Power this clients.
Highly personalized marketing efforts.
During the quarter axiom garnered recognition as a great place to work with fast company naming it because one of the best workplaces for innovators.
Fortunately the company a best workplace in technology, and the best workplace for women.
As Ellen indicated the performance of two of our specialist digital agencies has been challenged as a result of the macroeconomic uncertainty that we're seeing.
These agencies are in the midst of evolving their premium offerings, which is a requirement to stay ahead in their space.
When it comes to the strength of our brands and the creative advertising space Mccann FCB and Mullen Lowe continue to distinguish themselves.
During the quarter, we announced the new global CEO from Mccann.
Daryl Lee who has a remarkable breadth of experience spans all facets of our industry and the full range of IPG.
Such Gerald is extremely well positioned to advance the success of the network and drive it to further achieve ambition, which is to be the global leader of creativity that drives growth for clients.
We saw several wins in the quarter at Mccann, including Beefeater Gin Mcarthur Glen design outlets and Hencoop tire.
The global Effie effectiveness index named Mccann Worldgroup, the most effective agency network for the fourth year running.
And Mccann was also named network of the year by the Charity Awards were an all female jury rewards the highest standard of creative excellence and advertising and communication.
At FCB, the creative network, when new assignments with existing global clients, including Kimberly Clark Clorox and AB Inbev.
Fcb's Global Chair and Chief Creative Officer was honored.
E F D. A N a as educational foundation with the inspire award recognizing.
Her commitment to education, and inspiring young talent as it makes its way into our industry.
Mullen Lowe group saw a number of new business wins in the U K market, winning the co op retail chain as well as Morgan Stanley Val.
Value retail.
And the tick tock and nutella.
Candy brands.
<unk> continued to be recognized as one of the industry's most creatively effective networks as well.
The 11th year in a row was the top ranked network score dollar for dollar and the fee effectiveness index.
And during the quarter. We also created a new integrated agency called IX, which is based in London to handle global creative strategy and advertising for new client Bentley Motors.
Our agency that specializes in live events continue their strong return to growth.
The industry is seeing budgets shift for more traditional marketing for the kinds of engaging experiences that allow consumers to build emotional connections and lasting relationships with brands.
I'm, often connecting the physical and digital space and having three of the industry's premier global.
Sports and brand experienced companies within our organization is a point of differentiation for interpublic.
Notable highlights from the quarter here and Octagon included the creation and management of Coca Cola's FIFA World Cup Trophy tour as.
As well as the nationwide campaign, highlighting the home depots.
A seasoned sponsoring ESPN College gameday.
Octagon and RNC P. M. K also worked with our Amazon client.
To kick off the campaign celebrating the launch of Thursday night football on Prime video.
And the athlete presentation group within Octagon negotiated and MLB record breaking contract extension for Julio Rodriguez with the Seattle Mariners, making it the largest in baseball history.
Jack Morton, we saw significant wins with clients like Mckesson Siemens Intel.
Cigna riot games and Mcdonalds.
The agency produced the Cadillac U S bookings sponsorship of the U S Tennis center and brought to life. Several major events for the first time since the pandemic began including auto shows large retail activations and wellness conferences.
That momentum the network was named at weeks experiential agency of the year.
And brought Jimmy films Tonight show to Fortnite.
Among our public relations firms Golan, one AOR duties for West Monroe, Chicago headquartered digital services firm.
The agency was also named.
As PR agency in the UK for spec savers, the optical retail chain.
Well at Weber Shandwick, New business wins included bought hero in North America, and working alongside future brand and Jack Morton is part of the Dextra health team wherever it was awarded a significant brand launch by life Sciences Company Perkin Elmer.
Our U S independents during the quarter.
Martin Agency's stood out does it extend its run of new business by winning Santander legal shield Bud light next Bud light Seltzer.
The HLA when strava, the number went up for runners cyclists and Carmichael Lynch on boarded a new client and hostess for public relations agreement.
When it comes to our ESG programs.
We continued to make notable progress during the quarter, we named our first chief Sustainability Officer.
Now, it's a new process for evaluating energy and fuel clients and we once again released our domestic workforce data, which is a transparency commitment IPG established and has now become an industry standard.
Our ongoing work in this area speaks to our commitment to embrace issues that are important not just to our people and our planet and to our clients and other key stakeholders.
For the year.
We remain in a positive position from a net new business standpoint, and our net new business pipeline continues to be Sound Act.
Activity in new business does seem to be increasing as we head into the new year.
Despite a more challenging macroeconomic environment.
As you've seen our expectation is given our strong performance through the first nine months.
We're upgrading.
Our view to organic growth for the full year to 7%.
As you know just compiles multiyear sector outperformance.
And current results combined with the continued execution of our long term strategy should remain significant drivers for sustained value creation going forward.
Of course, given the macro we're gonna stay committed to sound financial fundamentals as Alan was mentioning and that's allowed us to grow our dividend for 11 consecutive years.
And we're also committed to continuing our strong share repurchase program.
We're confident as well that the investments in talent and capabilities, we continue to make.
The IPG well for the future.
With highly relevant and differentiated offerings underpinned by the sound financial Foundation, and a strong balance sheet.
As always we want to thank our clients and our people.
For both the central elements of our success.
As well for your time this morning.
And at this point, let's open the call for questions.
Thank you to ask a question.
Star one.
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 one.
One moment for our first question.
And our first question is from Steven Kay Hall with Wells Fargo. You May go ahead.
Thanks. Good morning, maybe first for me could you talk a little more about the deferral of some of the digital project revenue you talked about is this a lot of the project revenue that often comes in in the fourth quarter or is this more of a kind of longer term comment reflecting the way clients are doing some of that contingency planning for 2023.
And Relatedly when your clients talk about contingency planning.
And you see them, maybe pulling back a little bit in 2023.
Do you think they're just.
Shifting the way they go to market or is that more of a sort of a material slowdown in and what they might spend on marketing and then I have a quick follow up for Allen.
So I think it's a shifting I think it's just as I said, it's being prepared and.
Having both line of sight into how are you going to prioritize and where you're going to invest in order to.
Drive performance you know given the macro I think that you know the on the project side. It is I think it's.
A fourth quarter comment more than anything else I think what what you are seeing is that.
It's wanting to retain some optionality. So my sense I think is that we won't necessarily have clarity or full commitment on some of those projects until a bit deeper into the quarter than we usually would.
And Greg and then just to yeah, I don't I don't think we're talking about about something that is a it's a long term trend. It's just a function of the current uncertainty.
Yes makes sense.
And then Ellen it sure seems like the stock is not reflecting some of the strength in the business I've got it at about 10 times earnings you've got a really healthy balance sheet I don't think there's much in terms of maturity until 2028. So how do you and then and I guess for leap and the board sort of feel about leaning more aggressively into the <unk>.
Back now in a period of uncertainty as opposed to waiting until you know a period of a rebound.
Good morning, and thank you for the question, we believed in our equity before the sell off them. So [laughter], but we are very disciplined we have a program that we execute execute against we actively manage it.
But it's a program and so I think we'll stick with it but.
But definitely believe in the value of our shares.
Great. Thank you.
Thank you.
Thank you. The next question is from David Karnofsky with J P. Morgan you May go ahead.
Alright. Thank you just following up on the commentary about clients engaged in scenario planning can you just walk through a little bit more what that process looks like.
Our clients looking to put kind of wholesale pauses in promotion in case, the macro suddenly it gets worse or is this more about shifting brand into performance or building a lot more flexibility to to adjust across channels.
Well look I think it's everything that you said and it really depends on where and in our world, We're having the discussion right but.
It's <unk>.
Flexibility is a very big part of it at this point and then.
Understanding the implications of the decisions you make and ultimately as I said, if it's a client where whereas the adviser and a consultant on the media side of things than it does focus on where and how theyre going to redeploy if it's open architecture client, where we're working with them.
Them in a really broad macro sense, then we might dial up certain capabilities.
Knowing that we're heading into this this moment in time. So it is it's very it's very kind of case dependent and within some client categories are feeling it to a greater degree than others, I mean, I would sort of point out that.
You know where the macro is impacting is.
Clients, who are particularly exposed to the changes that we're seeing so if high interest rates impact your business if <unk>.
Commodity input costs impact your business than your than you were thinking this through.
So there isn't there isn't one answer but I think I think it's around that set of conversations just making you know the most informed decisions and getting the mix between brand and performance and up and down the funnel that actually linking those to increasingly and keeping some optionality as I said earlier.
And then briefly noted continuing strength in health care can you remind us of your clients split there in terms of sort of large pharma versus biotech and then just with biotech how should we think about maybe the medium term outlook just given some of the kind of pressure that sector has seen in the public markets or is the kind of drug pipeline just really removed.
From the macro.
Sure I mean in health I'd sort of pointed out a couple of things. So we're fortunate in that we are very very well represented among.
The largest players in the space.
IPG health clearly is been a focus by.
You know the nature of what we've just done a year ago and how we've put that together, but it's been a long term investment that has led to that growth for US right and then there are trends underlying trends that that are.
Clearly.
No tailwind as to all of that we have some.
You know biotech, but we've got a very balanced portfolio I'd say that that's specific to biotech.
Have we seen the market dislocation have some impact on funding there sure but is that something that's having a significant impact from where we sit given the breadth of what we do not really and then beyond IPG health, Yeah, there's they're sizable health business inside of media brands.
Inside of marketing services.
Was very strong in that regard the extra health, where we're bringing a lot of the marketing services.
<unk> together, so that continues to feel to us like it's and it's an area that's going to that's going to be pretty resilient.
Thank you.
Thank you. Thank you.
And the next question is from Michael Nathanson with Moffett Nathanson you May go ahead.
Thanks Lee.
I have two one is it.
It feels to us that the macro in Europe .
U K is obviously going to get worse through the winter I wonder if the tone of business discussions different by geography there.
So maybe you can talk about.
There were the questions are coming about budgets are skewed to Europe and.
Then given the potential for slowdowns in those markets. What are you doing on the cost side to contingency plan right I know, it's hard to if you had to take people out of capacity at its slower, but what are you doing thinking about planning for bunch of expenses in 'twenty, three and the growth of budget from 23.
The impact definitely is not only just Brett when you think about client sectors, but you know you can see it in our in our results where we've got you know really strong Latam Asia Pac other markets. Although everything you know does grow every region was up.
So there isn't there isn't a of a holistic answer that tells you what happens in each of those markets, although clearly economically you'd have to assume that that's a region that's going to be.
Kind of heading into something before the rest of the world or maybe heading into something that other parts of the world don't experience right.
On the cost side.
<unk>.
We are very clear and we've been really consistent as to all of the ways in which we can address.
You know those issues right. So whether you think about the fact that the model is flexible and that's clearly beneficial whether you think about the fact that you do approach some of those markets with the understanding that the underlying.
The ways in which.
You bring people on and the ways in which you think about staffing are different in those markets just based on the local laws and so we're very very focused and disciplined around open reqs as we see change or more uncertainty in the macro and that's consistent across the board.
The way we operate.
We look very hard at discretionary expenses and clearly some of that has come back into the business in a way that I think is beneficial because.
Because travel is meant seeing clients and getting together with colleagues and some of those costs have also been around you know team is being together, which is important as we develop new capabilities.
We will look at those freelance is another place will look you know our incentive plan by its nature is gonna is gonna be.
Governor on some of that.
But it definitely you know it has our attention and it's just going to require execution. So there isn't there isn't a one size fits all but Europe is definitely an area of focus for us.
Thanks.
Sure.
Thank you Nick.
Is Ben Swinburne with Morgan Stanley You May go ahead.
Thanks, Good morning.
Maybe just shifting away from the macro for a minute unless you want to keep talking about it.
Everybody else seems to right exactly.
On the on Raptor, one and sort of that that kind of business broadly sleep I know I'm, calling them system integrators is probably.
No, that's probably an old and limiting definition versus what they do today, but can you just talk about your strategy there and like how big is that business, you know any sense of sort of the size and.
And profitability of that there's not after one per se, but the entire IPG.
Set of service offerings in what we might call software services software integration would be interesting to hear.
It'd be also interested on experiential and sponsorship, which you highlighted a bunch of.
Successes at Octagon and momentum that's an area, where I would agree it seems like there's some secular growth.
Is that an area you you think the company you know may want to get bigger in organically or inorganically over time I'd be interested in on both those topics. Thank you sure and and I think commerce is an interesting one I mean, you said.
Software and obviously you know, there's there's a technology layer at axiom and and then there's what we're doing with data and tech with media. So it's not by any means the only place where we've got real busy.
Businesses that are sort of services plus a service. So it's a software layer of some kind, but on commerce I guess.
I mean, just breaking it down.
There's a D to C part right where clients need our help with everything from the design of a site to build a a site the content creation. The CRM piece and then business processes. Because you often really have all the way down to payment transactional stuff right and for us.
As the leader in that space has been MRM. So they they excel in those areas and so to our mind rafter won kind of meaningfully bolsters that offering.
And then there's the marketplace side and so that's where we optimize media, we do see Oh, we leveraged social commerce.
You know and you're sort of doing a lot of message amp.
Amplification, and you're finding places where you intersect with the consumer and then that for US it's inside of reprise commerce. So that's a big part of the story for US there. So those are two sizable places where we've.
Housed a lot of that capability and it all comes together on this umbrella of IPG Commerce and then what we do as we activate you know of.
A company like a chase designed for in store campaigns or as you said a momentum for promotions and Activations, but we also have specialist agencies and Influencer management. For example, you have paid placements and another big piece of it is gonna be retail media.
And so you know we're very active you saw you know magna put out a how big is this how big is it going to get and and I think it's not going to be.
Growth area for brands and therefore for people, who provide advisory services. So we kind of draw that from a number of our agencies and then that's kind of the martech side of it but when you follow the consumer along the purchase journey and you're growing awareness purchase, but youre also growing loyalty life.
Time customer value than you wanted to play into axiom and the data that's there and you wanted to decide where and how you get more tech and in AD Tech working together so.
That's why I said, we see it as a really big opportunity for us and then on.
The experiential piece you know when the when the pandemic hit we scope that for you all to say you know circa maybe you know a little bit shy of 5% of our revenue.
And you know it you know.
The world closed so that was clearly a very difficult time for them.
We see that as something that is a differentiator for us collectively those assets and the question for US as you know to get them more focused on where clients are growing which is ROI and accountability and the digital component building out digital into and.
With those organizations, we think is going to make the nature of what they do more precise and more accountable. It's also a really interesting place you know to.
To talk to clients about.
Using all of that activity as a way to onboard first party data about about you know your customers in a way that's very very transparent and therefore very very compliant. So we do think that that's an area, where there's the opportunity for growth for us.
Thank you.
Sure.
Thank you. Our next question is from Julien Roch with Barclays. You May go ahead.
Yes, good morning, Should've been Alan Thank you very much for taking the question two one further and once the Phillip Island on the interest a boost to be season. Nobody comes said that debt was fixed with no impact on the interest expenses what either.
Interest more interest income.
What about IPG semi you lowered net interest could you quantify it you have $1 8 billion of cash yield on cash went from zero to full so 64 million benefits.
And then Philip some agencies all seeing that in case of a downturn some advertisers I've learned the lessons from the last couple of downturns and therefore, we'd cut less however, a recent survey from the World Federation of merchandise is floating 55 of the world's largest advertisers conclude that the economy will be the main driver of the budget next year for 74% of them, which would indicate that.
Tend to keep the same so if we go into a global recession next year do you believe that advertisers would cut as in Nebraska or will they be if differently. Thank.
Thank you.
So I will start and thank you for the question good morning.
Yes, you know as someone pointed out earlier, we do have a very strong balance sheet and lots of liquidity and we do sit with cash we actively managed our cash maximizing interest income. We also have a very nice maturity profile with all fixed rate debt. So yes, I do believe it.
The benefit we can follow back up with you with that.
Quantification, but it's something that you know all items on our balance sheet and liquidity.
We put a lot of time and energy and manage it very carefully.
The bigger question as I said, you know in the prepared comments. It is a conversation that's ongoing with the vast majority of our clients there is.
Understanding and an acknowledgment that there's a meaningful benefit to staying the course.
Yeah, we don't we don't break this out for you but.
No.
Our top 20 say, our top 40 clients.
Growing consistent with the overall growth of the company, although there are lots of ins and outs because as I said, if you've got certain.
Factors that are impacting your business or your business model disproportionately and it's interesting because even supply chain. We were talking about at the very beginning of the year with all of you and we said we don't see it we don't you know.
I think it's in the conversations with clients. It it might be later in the year and there are you know one or two categories, where it's come into the conversation with clients. So I do believe that clients understand it and so it'll be a function of when.
Where they sit if their company has the wherewithal to move through the period and stay invested.
And then the other thing that we've also talked about is.
The tools available to clients in the ways in which we and some of our competitors.
You know have capabilities that can move.
Much further down into the funnel or can do you know is the question earlier alluded to can do work that connect brand and performance.
So it really is dependent on no.
How significant a downturn would we be looking at.
And whether whether people are in a position to do something that they know will benefit them in the long term or whether they might have to take some action kind of corrective action to get through a period that might be more challenging for them.
Okay very good.
Yeah. Thank you very much.
Thank you. Thank you.
Thank you. Our next question is from Tim Nolan with Macquarie You May go ahead.
Good morning, everyone. Thanks, a lot for taking the question.
I'd like to actually ask the recession question again, if you don't mind, but do it in a different way.
Let's ignore the Q2 2020 recession, because that was such a sudden weird thing and let's go back to like Oh nine or.
Oh, one O two.
In those days you were very much a traditional media business and now you're very much a digital media business doing lots of different things beyond measured media.
And I Wonder if you could help us understand maybe.
If we all assume that you know measured media spending might drop in a recession, perhaps at similar rates as it did last time around who knows but you do so many other things right now is there a way to qualitatively or hopefully quantitatively assess what the spending might be you know with axiom connect so you know on you know I T consults.
All those sorts of things beyond just traditional media.
I'm not I'm not sure that I can.
Well quantitatively assess I mean, I can point to some of the things we've been talking about health care likely a place that is more resilient.
e-commerce and in areas where.
You have line of sight to our.
Roy and much more either clarity on that or ability to go directly to the consumer I think you know those feel like theyre going to be areas that are going to be less cyclical axiom. As you said if you think about the fact that you know.
No.
Two thirds of their revenue is long term fixed fee contracts.
And so those are all areas, which we believe will we will stand up better win 20 hit.
The areas, where we had a more consultative business model areas, where we had more clarity around.
Accountability and outcomes, which also includes our media business.
All of those fared better and it's it's a big diversified portfolio.
So.
That does mean to your point that you Wouldnt I think be looking at what we saw you know eight or nine independent of whatever 20 was which to your point is sort of super anomalous and still.
Having impacts.
All through.
Every part of economic life right.
Yep. Thanks, Felipe just just maybe one point of quantification that could be that all of these things you're talking about.
Probably having a year.
But this is this is half or more than half of all the business you do lots of traditional measured media stuff is way less than half isn't it.
Well look I mean, that's a that's a place where you know there have been times when folks in our sector said you know our digital revenue is X.
X percent y percent and at our point of view on that was always that it's so embedded into.
Everything we do because we try to go to market when we engage with clients with something that's integrated and something that solves for them.
It is right for their business that we then don't spend the time trying to unpick it and so I can't give you a kind of a GAAP compliant measure that gives you that number but it is it is a.
It's a substantial part of our business, but both are our deal is that's what drives growth. So if organic growth is strong and you've got to assume that all of those things are a pretty big chunk of what we do.
Okay, great. Thanks.
Thank you our last question comes from Craig Huber with Huber Research Partners you May go ahead.
Greg Hi quick question just to go back to the cost outlook for next year, let's say hypothetically.
Not making any big bets or let's assume next year's organic revenue was flat at one I'd love to hear.
What levers you think you could pull to potentially keep your margins flat next year in a scenario like that do you have much leeway to be able to do that.
Hi, Craig.
Sure you know.
Yeah, if revenues were flat given that scenario it clearly would be our objective to be able to maintain our margins.
Things that I would point to that give us line of sight is where an experienced managed team that has navigated together through many economic environments.
First pointed out we have a flexible cost structure right between open racks attrition cant happen and incentive comp, which is very very closely with performance and all those things will help them and then ultimately.
Ultimately it will depend upon the revenue mix the classes that right, but it's something that it would clearly be in our objective and we think we have line of sight too.
Great. That's all I had thank you.
<unk>.
I think we are out of time. So thanks again all for your.
Your time and interest we are back at it and we look forward to sharing with you how we can close the year.
Thank you. This concludes today's conference you may disconnect at this time.