Q2 2024 The Interpublic Group of Companies Inc Earnings Call
Good morning, and welcome to the Interpublic Group second quarter 2024 conference call. All participants are in a listen only mode until the question and answer portion at that time, if you would like to ask a question you May press.
Star One this conference is being recorded if you have any objections you may disconnect. At this time I would now like to introduce Mr. Jerry <unk> Senior Vice President of Investor Relations, Sir you may begin.
Good morning, Thank you for joining us.
This morning, we are joined by our CEO Felipe quick housekeeping and by Alan Johnson, Our CFO.
We have posted our earnings release, and our slide presentation on our website.
Interpublic Dot com.
We will begin with prepared remarks to be followed by Q&A, We plan to conclude before market open at 930 eastern time.
During this call we will refer to forward looking statements about our company.
These are subject to the uncertainties in the cautionary statement that are included in our earnings release and the slide presentation.
These are further detailed in our 10-Q and other filings with the SEC.
We will also refer to certain non-GAAP measures. We believe that these measures provide useful supplemental data that while not a substitute for GAAP measures allow greater transparency in the review of our financial and operational performance.
At this point it is my pleasure to turn things over to Felipe Krakowski.
Thank you Jerry.
As usual I'll begin our call with a high level view of our results and the business overall.
Allan will then provide additional insights on the quarter and I'll conclude with highlights at our agencies to be followed by your Q&A.
This morning, we're reporting a solid second quarter highlighted by moderate acceleration of our growth as well as margin expansion from the same period a year ago.
To begin with revenue second quarter organic growth before available expenses came in at 1.7% bringing.
Bringing organic growth in the first half to 1.5%.
In the quarter, we were paced by growth in Continental Europe Latam.
Latam and the U K.
Followed by increases in our other markets group and the U S.
Each of our three operating segments grew organically from a year ago.
And underneath that consistent with our performance over some time.
We were again led by IPG health and IPG media brands.
We saw strong performance at <unk> as well at Deutsche L. A.
Golin and at Axiom, we saw solid growth in the quarter.
Also in keeping with recent quarter's underperformance at our digital specialty agencies weighed on our consolidated gross.
That drag was about 1% of organic growth in the second quarter.
From the standpoint of client sector performance growth was driven by health care food and beverage and consumer goods.
Retail was approximately flat.
And we saw decreases in financial services Tech.
Second telecom and auto and transportation.
As we've called out previously.
Tech and telecom sector continued to weigh on growth.
Approximately 1% organically in the quarter.
Most of that decrease was due to the loss of a large AOR assignment with a telco client late last year.
For the sake of clarity I would note that excluding double counting.
Tech and telco sector, and our digital specialist combined weighed on Q2 organic organic revenue growth by negative one 7%.
Turning to expenses and margins our teams continued to effectively balance cost discipline with it.
Ongoing investment in the evolution of our business.
Second quarter adjusted EBITDA margin was 14, 6%.
An improvement of 40 basis points from a year ago.
We had strong leverage on base payroll, which helped drive a 180 basis points of operating leverage on salaries and related expenses compared to a year ago.
That was partially offset by planned investments in technology business transformation and senior talent.
Particularly for centralized platform resources, which resulted in increased office another in SG&A expense.
Diluted earnings per share in the quarter was 57 cents as reported and 61 cents as adjusted for acquired intangibles amortization and a small impact from net business dispositions.
During the quarter, we repurchased two 2 million shares returning $68 million to shareholders.
On our last call with you we noted that due to a decision by a major and ongoing health care client in.
In late March related to their global consumer advertising work.
The high end of the 1% to 2% growth range that we had targeted as we entered the year would not be achievable.
As the year has progressed, we are seeing modest incremental uncertainty in the macro environment and in domestic consumer sentiment.
Our view is therefore that we expect to achieve approximately 1% organic growth for the full year.
And with that level of growth, we continue to target adjusted 2020 for EBITDA margin of 16, 6%.
Looking ahead.
We anticipate that the strongest and most consistent growth areas of our business such as our data and tech driven media offerings.
Specialist healthcare marketing expertise.
We are an experiential marketing capabilities are positioned to continue their strong performance.
The common thread in the growth of our two largest businesses.
IPG media brands and IPG health, which are also our most successful businesses.
Has to do with the specialized high value services that they provide to marketers.
He's rely on skill sets.
That are more technical.
Reach audiences with greater precision and lead directly to outcomes that we can assess and optimize.
As you've heard from us in the past these.
These include audience segmentation work.
<unk> analytics and data driven decisioning much of it powered by axiom.
And all of which has been built by in House engineering talent, creating technology solutions that rely on machine learning algorithms and more recently, new our AI capabilities.
The developments, we're seeing in general of AI will be equally fundamental to the transformation of a broader set of our offerings.
Collaborations with Adobe Amazon Blackbird, AI Getty images, Google, Microsoft and others have given us secure enterprise access to advanced AI tools and large language models, which are increasingly informing every area of our.
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Including insight generation creative ideation and production and work in our earned an experiential communications practices.
As well as further enhancing our media and precision marketing capabilities.
Over the past 12 months, our progress with these emerging technologies has been significant.
The ongoing upscaling of our people had been central to this process.
We see this as a strategic imperative and have made it the responsibility of every operating leadership team across the company.
Generative AI produces foundational capabilities and new canvases for us to work more expansively with our clients.
Overtime. This offers the promise of reigniting many of our creative offerings as engines of value creation.
As you heard last quarter. We recently became the first company to unite all facets of the content supply chain by integrating Adobe's Gen studio AI product into our marketing technology platform. The IPG engine.
That engine sits at the enterprise level.
It is a unified set of standards.
This is a technology layer, which in turn is built on consumer insights at scale fueled by our axiom data and identity products.
It seamlessly connects media strategies and targeting including predictive modeling of what we call high value audiences to creative concepts and messaging across all marketing disciplines.
We then moved from data all the way through activation.
By which we mean the production and dissemination of campaigns, whether on marketing technology platforms and earned media or unpaid media investments across all formats and channels.
Our engine when analyzing the impact of this activity.
For purposes of attribution and optimization.
This allows us to do with our communication strategies creative assets and all forms of marketing activity, what we've been doing in media.
Which is true personalization at scale.
This is an end to end solution.
Which helps our clients better engage convert and retain customers through the entire funnel.
Testing and understanding the value of their investments across media marketing and sales channels.
In a world in which data driven audience insights are key to delivering performance for our clients.
And one one which AI will play an increasingly important role.
Access to high quality proprietary data at scale will be essential to success.
Axiom continues to have the industry's top performing audience data to engage with customers at an individual level.
Without the need for cookies or other proxies.
Our tech stack and marketing engine optimize performance using this global data spine of two and a half billion real people with.
But the axiom I'd attributes that are meaningfully greater than those available from any other industry dataset.
And which we can match to significantly more global device Ids.
And our closest competitors.
The engine and axiom are now core to every significant engagement across the company and helped power many of the new business wins I'll cover later in my remarks.
Now, though let's turn things over to Ellen for a more detailed view of our quarterly results.
As a reminder, my remarks will track to the presentation slides that accompany our webcast.
Beginning with the highlights on slide two of the presentation.
Our second quarter revenue people are billable expenses or net revenue was flat for me right now with an organic increase of one 7%.
Our organic net revenue increase was one 3% in the U S and with two 6% in our international markets.
Over the first six months of the year, our consolidated organic revenue increase was one 5%.
Second quarter, adjusted EBIT da with $338 9 million.
And the increase of two 6% from a year ago.
And our margin was 14, 6%.
Paired with 14.2% a year ago.
Our diluted earnings per share were 57 as reported.
61 cents as adjusted.
The adjustments exclude the after tax impact of the amortization of acquired intangibles.
And then non operating gain on sales of certain small non strategic businesses.
It is important to note that our EPS in last year's second quarter included the benefit of 17 cents per share.
Related to the settlement of normal course federal income tax audits.
We repurchased two 2 million shares during the quarter four.
Four 1 million shares in the first half of the year.
Turning to slide three you'll see our P&L for the quarter.
I'll cover revenue and operating expenses in detail in the slides that follow.
Turning to second quarter revenue in more detail on slide four.
Our net revenue in the quarter with two <unk> three 3 billion.
Compared to Q2 'twenty three.
Impacts of the change in exchange rates was negative 60 basis points.
Our net divestitures well 1.2%.
Our organic net revenue was one 7%.
For the six months, our organic increase was one 5%.
In terms of client sectors in the second quarter.
Growth was led by very strong performance in health care, and then the food and beverage sector.
Consumer goods and our other category of public sector and diversified industrials also grow and acquire.
Retail was approximately flat.
Going the other way we saw decreases in the financial services Tech and telecom and auto and transportation sectors.
Lower revenue in the auto sector, what do you do a client loss at media brands at the end of last year and lower spend from existing clients.
The part of it aside slide if you look at our segments.
Our media data the engagement solutions segment increased organically by 80 basis points.
We again saw strong growth in our media businesses.
The outperformance was largely offset by decreases at our digital specialist agencies as Felipe noted and with decreased revenue on MRI.
Our integrated advertising creativity led solutions segment.
Increased organically by 3%.
We were led by strong growth at IPG House doing pillar.
But our specialized communication ex Bradshaw solutions segment.
Organic growth was one 3%.
Led by very strong performance that Colin and public relations.
Ex Pretzel group decreased in the quarter largely due to cost cutting by a major client that Jack Moore.
Moving on to slide five organic net revenue growth by region.
The U S was 66% net revenue was a quarter.
And grew one 3% organically.
We were led by strong outgrowth, and IPG media brands and IPG House.
We also saw notable contributions to growth from Deutsche L. A R P our offerings and axiom.
That was partially upset by headwinds at our digital specialists.
The group's revenue in MRM is a law.
Lots of the telecom client at Mccann late last year.
International market with 34% of net revenue in the quarter and Greg to your 0.6% organically.
The U K grew three 4% organically.
They were led by growth at our creative agencies and by growth in media and government and public relations.
Continental Europe grew six 3% organically in the quarter led by strong performance at the cab that included new business wins and increases with existing clients.
We had growth in each of our largest national markets.
Asia Pac decreased two 4% organically.
Strong growth in India, but we are the second largest holding company was paced by media brands and FCB.
That was more than offset the region by decreases in most other national markets.
Other group organic growth in Latam with poor quite 1% led by IPG media brands.
We continue to see notably strong growth in Mexico.
In our other markets group, which is Canada, the Middle East Africa, We grew one 5% led by growth in the Middle East.
It is worth noting as well that Israel grew in the quarter.
Moving on to slide six and operating expenses in the quarter.
Our net operating expenses, which exclude billable expenses the abbot.
Jason of acquired intangibles.
And restructuring adjustments decreased 50 basis points from a year ago.
Compared with reported revenues that was flat with last year.
The result was that adjusted EBITDA margin expanded to 14, 6%.
From 14, 2% a year ago.
As you can see ever slide our ratio of total salaries and related expense as a percentage of net revenue was 66, 9%.
Compared with 68, 7% a year ago.
And you need to have results.
Expense base payroll benefits and tax which was 57, 8% of net revenue.
That's at 59, 4% a year ago.
Our performance based incentive compensation increased slightly as a percentage of net revenues to three 5% from three 4%.
Severance expense.
It was one 5% of net revenue.
Which is somewhat elevated from typical levels when compared with one 7%.
Revenue a year ago.
Our actions in the second quarter address areas of the business. They procurements are flat.
Temporary labor expense was 3% of net revenue compared with three 2% in Q2 'twenty three.
Each of these ratios.
I visited the appendix on slide 31.
Yeah.
Also on this slide our Opex and other direct expense.
15, quite 4% of net revenues compared with $14 six.
And you need that comparison is planned investments in technology and business transformation.
We continue to leverage our expense for occupancy, which decreased 10 basis points from last year.
Our SG&A expense was one 2% of net revenue.
Compared with 60 basis points a year ago.
The increase reflects higher lever for strategic investments in senior enterprise leadership.
The implementation of centralized platform.
On slide seven.
The detail on adjustments to our reported second quarter results.
In order to provide better transparency and a picture of comparable compartment.
This begins on the left hand side with our reported results.
And from left to right Yep, sorry to adjusted EBIT da and our adjusted diluted EPS.
Alright expense for the amortization of acquired intangible.
In the second column was $20 4 million.
The other adjustment for the quarter are small.
And related to previous restructuring and sales of non strategic businesses.
What are the slide is the grids per diluted share.
E P F as reported at 57 cents to.
The adjusted earnings of 61 set.
Slide eight.
Pixar adjustments for the six months.
Adjusted diluted earnings per share with 96 cents or the carrier.
On slide nine we turn to cash flow in the quarter.
Cash from operations was $120 7 million compared with $35 2 million in the second quarter 'twenty three.
Operating cash flow before working capital with 249 1 billion.
Compared with the 246 million a year ago.
As a reminder, our operating cash flow is highly seasonal.
Can be volatile by quarter is it changes in working capital.
And our investing activities, we used a net 44 million.
Primarily consisting of $34 8 million in Capex.
Financing activities used $451 2 million.
This reflects the maturity of our $250 million senior notes in April, which we paid in cash as well as our regular quarterly dividend and share repurchases.
Our net decrease in cash for the quarter was $383 6 million.
On slide 10 is the current portion of our balance sheet.
We ended the quarter with 1.55 billion of cash and equivalents.
Slide 11 depicts the maturities of our outstanding debt.
As you can see on this casual total debt at quarter end was $2 9 billion.
Our next maturity is not until 2028.
In summary on slide 12.
Our strong financial discipline continues.
And the strength of our balance sheet and liquidity means that we remain well positioned both financially as well as nationally.
I would like to express my gratitude for the efforts of our people and with that I'll turn it back to Lee.
Thank you Ellen.
As I mentioned earlier, our organizational structure continues to evolve.
And we're working at pace to enhance the parts of our business that are growing.
And also to address underperforming areas of the portfolio.
Going forward, we're going to continue to move to a more holistic solutions and make greater precision and performance are part of all of our service offerings.
Our interactions with major marketers will also increasingly be guided by senior functional and client leaders at the corporate IPG level.
This ensures that we're connecting more of the portfolio to horizontal platform capabilities such as data.
Commerce media activation and production.
The common denominator across our strategic priorities is to broaden the range of business issues that we can help clients address with our best in class assets.
Our goal is to continue to become a more strategic partner.
Porting client needs as they seek to derive more value from connecting marketing and technology in order to power their businesses.
An example of this is retail media.
Which is one of the prominent growth sectors. We have mentioned to you previously.
As more retailers build digital media networks and increase their call for standards.
And as marketers look to increase investment in this dynamic space, we see this as a promising area of growth.
Ipg's unified retail media network solution, which is housed within media brands and grounded in axiom data.
It is differentiated in the market.
Because it allows our clients to evaluate their brands retail media buys.
Across audience measurement and optimization and business intelligence criteria.
So it's a determined which retail networks are performing best for their business objectives.
This solution played a significant part in our successful defense and expansion.
Assignment for Ulta beauty during the quarter.
Ulta beauty selected a bespoke unit within media brands, which includes teams from media hub.
Connect so an axiom to handle altice media needs in programmatic addressable and social.
As well as the marketers retail media unit, you be media, which had formerly been serviced by a competitor.
The client specifically noted.
The combination of a creative and data driven approach as assets.
In fostering connections with Ulta beauty consumers.
Ensuring consumer engagement and delivering business building results.
Another significant win announced earlier this week, we will see us take on creative production shopper and PR earned media responsibility.
For driving growth for a number of kellen novo's iconic priority brands.
As a result of an integrated offering combining FCB globally Weber and momentum.
Supported by Mullen Lowe and the Martin Agency in key international markets and uncertain brand assignments.
And as mentioned our production capability and the IPG engine also played important roles in our proposal to the clients.
Notable wins in the quarter saw generative AI search platform perplexity appoint U M. As its media agency of record.
After Levis had consolidated global media account with U M.
Which builds on a four year relationship between U M and Levi's in the Americas.
U N was also named media AOR by Alliance pharma.
Reckitt have Mccann content studios, which is a core component of our production offering as its social and Influencer agency of record for its U K health brands.
And a general Motors Buick appointed Mccann Worldgroup, China as its full service agencies.
Another of our core multinational clients Unilever named Golan its global PR agency of record for laundry detergents.
Top American Champagne maker Corabelle.
Chose Carmichael Lynch as its media and brand a R and Deutsche L. A we mentioned earlier continued to expand both its relationship with Adobe to include social work for.
Jenny I am Firefly acrobat Photoshop and other brands.
Weber Shandwick was selected by five hour energy as its partner on creative Media relations, social media and Influencer strategy.
And Mazda, Canada named FCB sixth to lead its strategy creative and tech work for CRM.
Of course.
Even in a world where technology and platform capabilities are so essential Cree.
Creativity remains at the heart of what many of our clients need in order to build their brands and business.
Integrating ideas into audience lead in accountable solutions is a must.
The creativity can be a differentiator and our performance at creative competitions.
Continues to indicate where belt well well placed when it comes to the talent and craft required to make work that makes a difference for ambitious marketers.
Speaker Change: Just last week, the New York festivals advertising awards named Interpublic as its holding company of the year.
This is a competition that.
Recognized as our industry's best and is judged by our peers, which makes it an important hallmark for the quality of our work.
In May we were also honored as creative holding company of the year at the one show.
And at the Cannes Lions Festival of creativity, which is our industry's largest global award show.
Interpublic also outperformed our peers, winning 10 of the festivals highest honors the Grand Prix.
More than any other company and almost twice as many as the nearest competitor.
Notable categories, where we won a Grand Prix include gaming life brand experience digital craft and data and enhance creativity.
In terms of client sectors, we one Grand Prix in both the health.
And pharma categories.
Also at the festival FCB was named regional network of the year in North America for the sixth year in a row.
IPG health was named healthcare network of the year for the third consecutive year and.
An area of 23, one healthcare agency of the year for the fourth year in a row.
Unique to the public relations arena, Golin and Weber Shandwick.
Both won multiple Grand Prix.
Our success going forward rests on our ability to combine this kind of creative excellence and innovative thinking with our deep data and tech capabilities.
And that's a key reason that during the quarter, we announced that we're further unifying our data engineering Martech and AD Tech resources under one leadership team.
This move fully aligns axioms data identity resolution and marketing cloud services with the teams responsible for the engineering behind Ipg's integrated marketing engine.
Within the centralized technology and data stack, we're powering workflow customer experience media commerce and production.
By unifying marketing on one platform, we can drive marketing performance for clients in real time as well as build brands for long term success.
As you know this combination of data tech and marketing expertise has been key to our long term success at IPG media brands.
And while our tech enabled media offerings are consistently ranked as best in class by marketers.
Speaker Change: During the past 12 months to 18 months, we have seen a number of clients place a greater premium on efficiency and costs.
Given that marketplace evolution.
We have pivoted and are now able to deliver value not only with advanced and effective media solutions, but also through our growing practice and principal media buying.
This new component of our media practice will take time to scale fully.
But represents an incremental option.
Speaker Change: For media value creation for current and prospective clients.
As well as a new Avenue for growth for what has consistently been our strongest performing business.
As mentioned at the outset of my remarks, we continue to see disparate performance across the portfolio.
Due in part to an asset mix that features more concentration in certain traditional practice areas.
And then some of our peers.
An area that's become a regular feature of these conversations is the performance of two of our specialty digital agencies.
RGA and huge.
Having made adjustments to the workforce at each of those operations.
And co located their headquarters within the IPG innovation Doc.
We are now formally evaluating strategic alternatives for.
These premium agency brands.
The right partner could help unlock greater value for their clients and people.
And this process as appropriate.
And those teams remained focused on delivering the top tier service and innovative solutions for their clients that they're known for.
As you know we spent a number of years outperforming the sector.
When it comes to topline growth and continue to consistently win many of the industry's most competitive pitches.
That said the challenges we are facing at certain of our agencies, coupled with a shift in the media landscape to principal buying have led.
Two recent losses that way.
Our results, particularly as we head into 2025.
Speaker Change: We have a solid new business pipeline for the remainder of this year.
Speaker Change: And or a finalist in several large ongoing reviews.
These opportunities are.
Organic growth in our existing client base.
And accelerating the development of new capabilities in areas, such as retail media and commerce.
Speaker Change: We will continue to have our full focus as we look to deliver the best outcome. This year and reignite a higher level of growth going forward.
Speaker Change: In certain high growth areas, where scale would benefit our competitive position and the company's overall growth profile such.
Such as Commerce retail media and business transformation.
We will also consider M&A as an avenue to effect, a more rapid transformation of our portfolio.
As mentioned earlier for the full year, we expect to achieve organic growth of approximately 1% and at that level continue to target adjusted EBITDA margin of 16, 6%.
Additional areas for value creation include our strong balance sheet and liquidity.
Speaker Change: As well as our long standing and ongoing commitment to capital returns.
As always we thank our partners and our people as well as those of you on this call.
And with that let's open the floor to your questions.
Thank you to ask a question. Please press star one on mute your phone and record your name clearly if you'd need to withdraw your question Press Star two.
To ask a question. Please press star one well, but for the first question.
Our first question is from Adrian D. Saint Hilaire with Bank of America, You May go ahead.
Yes, good morning, everyone. Thanks for those questions.
Speaker Change: So first of all you talked about three factors impacting organic sales grew in the second half I'm curious how do you think those factors impact 2025 as well.
And then the second question I would have is Europe has been outperforming the U S. A at IPG, but also with many peers and that also seems to be true across the market from my seat that seems a bit counterintuitive given the different GDP growths in euro versus the U S I'd be curious as to.
Why that is in your opinion.
Speaker Change: Sure. The first question I can unpack only obviously up to a point so what I think I would call out for you is we've obviously mentioned that.
With a number of the recent headline decisions.
Those are clients, who remain very important and sizable partners to us.
So the focus here is clearly going to be on delivering.
You know the best possible service and solutions.
Because unlike other quote unquote losses, there's clearly the opportunity to re grow some of those relationships.
Speaker Change: And.
The other thing I would point out is I think youre right that at this point.
The impact of wins and losses. So some are from a net new business perspective, sitting where we're sitting right now were essentially neutral.
So we had a pretty sizeable string of wins.
About a year ago.
And so the new business headwind is a question for 25 and yet we don't have a budget for 25, and it's kind of early to project that far out given that we've got about a half a year to go and so I think the focus is going to be the new business pipeline growing new Kay.
Abilities with existing clients, obviously, one that large telco loss. It is maybe 70% of what's in that segment.
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Down goes away.
Some recovery in tech would clearly be wind in our sails.
And then the strategic assessment of options that we've talked about for the you know digital specialists would also change the math a bit so I can't really quantify that for you I can just give you a sense of what the moving parts are and then I think I'm going to ask Alan to just sort of step in because on the Europe question.
And you know it gets you've heard this before it gets very very specific with us it's not a very big region. So it really becomes.
Client specific in a market that can that can have an impact sure. Good morning, Yes, Europe is about 9% of our revenue and we did see growth across all major markets, Spain, Germany, France in particular, we had some nice wins to our creative agencies are particularly Mccann.
So had growth at IPG house and really it was it was a decent breadth of the portfolio that ground. So both the class clients and client sectors. So it has been a relatively strong region for us.
Thanks Bruce.
Thank you.
Thank you. The next question is from David Karnofsky with J P. Morgan you May go ahead.
Alright, Thank you David spoke earlier.
Hi, you spoke earlier to.
Some incremental uncertainty and softening in consumer sentiment just wanted to see if you could expand on that a bit what you're hearing from clients in terms of their level of confidence and investment and then.
You also mentioned that capability in principal media as being a factor of reviews over the past 18 months as you are now scaling up your offering there do you see media brands.
Better positioned at this point to compete for new business. Thanks.
Well look I mean I.
Yes, I'll take them in order.
So on tone of the business I would.
Yeah.
Broaden the aperture fairly significantly and I would say to you that given the levels of uncertainty that we're seeing across the world and I'm talking geopolitically socially.
And then the sense that.
Domestically fiscal policy is kind of stuck in neutral.
It stands to reason that the operating environment has become more challenging and I know that you've heard as much from.
From a couple of our competitors right I think we're all seeing the same thing now.
To give you a bit more.
Speaker Change: Texture to that or detail granularity from the kinds of conversations youre talking about with clients I don't think it's like a year ago, where there was this pervasive.
Speaker Change: And almost universal feeling that there was a recession right around the corner.
But in the time since the last call that we had with all of you there is a bit more caution in the way we see it is.
No decisions on reviews decisions on client spend are either taking a bit longer to be made.
Or sort of delayed with a little bit of a hey, it's indefinite will get we'll get back to it and thats in certain areas of the business or some marketers it's not across the board.
But you know to the extent that it's become begun to be something that we're factoring into our thinking we felt that it needed to be called out.
Your principal buying question.
Yeah look I think it's I think it tracks.
And it's really consistent with discussions that we've had with.
Now you and with all of you what do we see each other in settings. Unlike this one.
<unk> completed our foundational work.
That incremental dimension to our media offering is now up and running it.
It is early it will need time to ramp up.
No, we will and are approaching clients and media partners in a way that's measured.
Because as that part of our buying mix increases steadily over time.
We're always going to be a client first organization. So it's essentially a question of which clients want to opt in.
You know, which what clients want to access the market in this mode. Our media business has been really really successful for a long time without that so there are plenty of folks in our portfolio who.
Sure.
Part of the franchise because they want.
The effectiveness of the tools. The data powered you know kind of decisioning in the platform approach to it.
But in essence, we're gonna be operating with multiple buying models. So we will definitely bring principal into pitch situations because we've seen circumstances.
I'd say going back to we mentioned.
A loss of media brands and in automotive last year were.
Clearly the nature and the quality of the product was not in question and yet.
The the premium on efficiency is something that as the world has become more uncertain and there's been a lot of this pressure on.
Client P&l's.
You know cost of money.
This broader uncertainty.
So.
Speaker Change: We definitely think it will be a benefit because we've seen it circumstances, where you know late in a in a process that's become a gating item.
And you know and a decision that obviously didn't go our way.
Thank you.
Thank you. Our next question is from Steven.
Steven Cahall with Wells Fargo you May go ahead.
Thank you Felipe but that was a lot of helpful context, there at the end around the shift in media buying to the more principle based model and how youre looking to reposition that with some of the internal changes you mentioned around centralization as well as inorganic opportunities in places like retail marketing could you just expand on how.
Or we should think about the time to do things internally, maybe specifically as it relates to the principle based media buying you were just discussing and then how significant your inorganic opportunity appetite is I think your last big deal with axiom that was very transformative.
Last glass I'm kind of going for folks who've been following us probably if you look at like a 20 year horizon, only but yep.
Yeah, that's yeah, that's true so only in you've Delever really quickly.
From that or at least shown that you can delever as needed so it.
It sounds like you're kind of teeing up potentially some bigger M&A to come. So I just wanted to make sure I'm understanding that correctly and that we're thinking about that correctly, and then where do you kind of think about the trend for creative and all of this I think some of our concern is that while creative is never going to go away, it's maybe being devalued, whether it's due to retail marketing expand.
Sharon or whether it's just due to some of the AI capabilities that makes it a little cheaper it's still a big part of the business, So where do you see the future of the creative part. Thank you.
Speaker Change: Sure that's a lot.
So on principle it will.
Take as I said, you know some time, we're very focused on it. We're obviously we have you have to go into the market you have to engage.
Engage where the media owners and secure the inventory in that way you've got to get clients who.
Opt into the model and understand the benefits and then obviously that volume yields a kind of benefit. So I think that that will be you know range and bearing over the course of the next year.
And we're going to go where to move thoughtfully, but you know.
Speaker Change: At pace as I said about a few other things.
On your M&A question, I think what I would say to you is that.
You know I do talk a bit about how our.
Asset mix.
Speaker Change: Doesn't until as heavily to some of these.
At least in terms of scale the capability sets are there we show up and win with them.
But.
Whether it's that.
Scale is valued by certain kinds of clients because you can sort of show up with something that's a very comprehensive solution and you know again efficiency not even in the media space.
But also clearly the more sales when you have the better. It is so we are going to look in commerce in retail media in particular, and then I guess the business transformation, but I would define it as.
Further down the stack sort of less focused on the comm side and more on.
On engineering.
Engineering and kind of.
How can you help clients rework processes, so that they can be much more digital in the ways that they work, including their marketing. So I think those are areas, where we would probably look.
For inorganic opportunities.
And I I look you you know us very well, we're very thoughtful about how we approach M&A. That's not gonna change were very balanced in that as you said, we de Levered very quickly we were very transparent with you about why we were doing it and how we were going to do it given the scale of it but I think that you could change.
Speaker Change: The growth profile of the business with.
You know something out there or maybe a one or two things that might not be at the scale of what we did with axiom, but they're clearly going to be larger than the very modest kinds of deals that we've been known for for some time, so hopefully that helps unpack.
The thinking I know you forgot forgot it and then you have the creative question.
Speaker Change: I guess my observation for you is.
That.
Creative is still very important and a big idea is still matters. If you look at you know the Killen Nova news. This this week clearly a client who.
We're excited about because they believe that big ideas can have a big impact.
For them in terms of <unk>.
Driving growth and what their mission is coming out of their spend so I think that creative is important but it is.
Speaker Change: Important that you integrated that you basically figure out how FCB has done a terrific job for us to plug into the data stack get more precise about what you do and have that.
In essence incorporated into your strategy and have your strategy be about where business opportunity sits and where business outcomes can be driven and then you engage all of the deep understanding of brands in the craft around creativity and then you can actually have.
Have you know pre.
Good outcomes right and so.
I think there's there's a way and then I think the other thing as I said at the outset also is.
If you incorporate.
Certain components of what Jen AI tools.
Provide and you can take creativity and bring it to bear and a lot of new ways, you can sort of.
Speaker Change: Do ideation faster and get to hypothesis good hypotheses.
Better hypotheses faster you can democratize creativity and distribute it in ways that reach a lot of your clients.
Ancillary audiences that.
Our partners that you might not have been able to do in the past.
So we're still focused there we probably as I said, that's one of those might we have more <unk>.
Exposure to traditional relative to some of our peers, yes, and the question is gonna be a version of both what I said, which is we're going to look at underperformance and think about what needs to be addressed or streamline but we're also going to keep pushing them to transform.
Speaker Change: Thanks for all that color Felipe.
Thank you.
Speaker Change: Thank you. Our next question is from Tim Nolan with Macquarie You May go ahead.
Hum.
Timothy Wilson Nollen: If you could comment please on the news this week that Google is not going to be deprecating cookies, and I'm asking I'm interested in Itg's perspective in particular because of all the work you do with axiom and first party data and.
The good stuff there so I'm just curious you know.
It seems like this is sort of a positive for the AD industry and that the risk of major disruption seems to have gone away, but for you guys. I Wonder is it positive or is it maybe a little less positive than if cookies had been removed and all the great stuff that axiom can do with first party data is maybe not quite as important as it was before.
I, just don't know how to interpret the news thanks.
Well stop start stop start right. So it is it is.
Not necessarily unexpected at this point, it's something that they've announced and <unk>.
You know kind of.
Pulled back on and redefine and even now I don't know that we know exactly how it's going to play out I think you've heard us say for a long time that.
We feel very comfortable with and prepared for a world where proxies go away and I think youre right that.
That would be a world in which axiom would be.
Even more valuable to clients.
And so you know.
When GDP are rolled out we lost less than 1% of our data, which I think speaks to the quality of what's there and then the knowhow in the in the first party data management space. So we would be more than happy I think youre right, we would welcome and it would probably be modest.
Accelerant, if that band aid eventually gets fully ripped off.
But what it what the stop start of it has done is that it's made it really clear to clients that they need to take control of their first party data and they need to have a lot more.
Kind of agency and autonomy when it comes to that so we're in a lot of conversations with clients, including some of the you know.
The wins that we called out that complexity, and then and then and the understanding that we can help figure help them figure out how to build and own their own idea graph means that we're still seeing the benefit of it and we're still seeing opportunity from it and.
And I think everybody has gotten used to the lack of clarity about whether or when it's really going to fully.
Happened Youre right I think if if if if if if we finally crossed that line it would be a modest incremental upside to us.
Okay.
Complex topic I appreciate the color. Thanks.
Thank you.
Thank you. Our next question is from Kamran Mcveigh with Morgan Stanley You May go ahead.
Cameron Thank you.
You mentioned a bit earlier about <unk>.
Personalization at scale with AI I'm curious if you're currently seeing any impact on creative revenue from AI tools.
What the potential opportunity looks like to increase the total volume of creative output.
Speaker Change: And what what success ultimately looks like to you in implementing some of these gen AI technology.
Sure Hey, look I mean, and you know I think I think.
Personalization mass personalization personalization at scale done right.
[laughter] there the demand for that is going to be significant for some time right because I think we are.
We've all gotten used to sort of a world where you say you know marketers always need more of everything.
I would break down the a I think maybe into a couple of buckets I'd say to you that.
There are parts of our business, where AI has been core to what we do for some time.
And we talk about that media data performance.
And so.
There that's going to help us keep up with a very very rapid rate of change and I think further accelerate what are already our most successful businesses.
Then.
Areas, where.
Platform and tech.
<unk> solutions are required like production and commerce and CRM I think.
Jenny I as an incremental opportunity because.
I can't think of any client who doesn't leave activities that they know need doing.
Undone due to some kind of constraints right. So either the tech is limited the output isn't what you wanted to be there are budget limitations you don't have the right talent. So even as you see like sort of the some of the economics of this you're kind of going okay.
The unit cost of whatever asset we're talking about goes down.
But the resources can be reinvested in you know we've seen this in our media business where.
<unk>.
Check allowed us to become a higher value partner to clients.
Speaker Change: Right and you saw that in the scale of engagements you saw that in.
Because we had a highly skilled folks with skill sets that clients couldn't find anywhere else.
What we were able to in essence command in the way of you know the labor hours get redistributed and they go upstream.
So I you know I think what youre going to sort of see as resources get reinvested the nature of the work changes the nature of the talent evolves and then what folks in our space bring.
And some of our clients, who are very very sophisticated and say we need.
People with a lot of experience people, who bring terrific judgment and understand how to use all of these tools.
Need your objectivity.
In some cases.
We also have the ability to to sell tools and tech.
You know, whether it's the licenses or something SaaS like there.
And then I think the last thing I'd point out is.
Back to the prior question.
Quality of data at scale is going to be really important.
Because once everybody begins to have all of these the same tool sets and then how you build and train the models and what you actually were able to give them that is.
That is you know unique data from which to now because you're going to be bringing a lot of the discipline that you've got into more quantity areas of the business too.
The content creation and the creative part of the business.
So again, there's a there's a ways to go but we do see areas. I mean, you know right now we're actually doing a lot of not only.
Insisting that our folks get trained but we're doing a lot of training for our clients and that's become a line of business for us.
So I can't tell you.
With kind of clarity that it's gonna be X percent vast and it's going to be X percent that but these are all places, where we're seeing conversations and opportunities showing up.
That's helpful. Thank you.
Thank you.
Thank you and our last question comes from Julian Roche with Barclays. You May go ahead.
Good morning.
Joey Thank you Chris.
Maine.
Julien Roch: First one is can we get organic on a revenue basis, rather than a net sales basis.
Give us both for the first half of 'twenty four.
Speaker Change: Second question is are your production capability unified under one roof like could you just repeat it now omnicom and how many employees do you have any production and then lastly, why move to 1% rather than the range Q4 is an adjustment quarter. So 1% is surprisingly to me.
I came in more like 0.714.
Once in them.
On the desk.
Before you answer I'm afraid I have to quite do as opposed to just the French once now, but there is no such thing as Mike and Jim.
That is all but you know what you know and it's what we call. It here. So I don't know what to tell you.
So.
Speaker Change: On production, we have a global integrated production engine.
Yeah in the last three or four years, it's evolved because <unk>.
Production used to be about creativity, and it's obviously become far more strategic and you've heard us talk quite a bit about.
The way in which we're moving to.
Scaled platform services data.
You know.
The engineering talent centralized.
Media activation retail media and commerce so production.
<unk> has been moving along that track for us for a while.
It is very strategic it has to be very upstream and the connectivity to what we do with axiom, what we do with our connect so teams.
What we now do with.
Adobe you know Jenny I studio, so that we can tag and get the right taxonomies sitting underneath that and go sort of from data all the way through to audiences all the right formats to push it out not just in the in.
In the AD tech ecosystem, but across Martech and earned media and then and then optimize in flight, while it's while it's alive.
So you know.
I called out you know what we've just done and then win with Reckitt. Obviously it was part of of the work that we've just won with Kellen Nova So.
Speaker Change: I think there is still going to be the need to we still have a few outliers here and there.
That have built specific production capabilities either.
With deep digital expertise or with some kind of domain expertise, but we're well down the way to having that operate as a as a unified hall. So that's one question I'm not sure I understood. The first question.
Because I mean, I'll I'll take a look at what.
I didn't know that we were.
Putting our our organic growth number out in any way that was different than somebody who is also reporting on a net basis.
Speaker Change: And then what was the Middle question remind me I apologize because you.
And the last question.
When I moved to one to 10, rather than the range with Q4 being an adjustment quarter one.
It sounds like a surprisingly precise so do you actually mean more like one seven to one two when you say, 1% or is it really 1%.
We said approximately I mean, I think we had taken 2% off the table the last conversation, which you know we're always very direct.
And there's definitely a bit more chop in the water at the moment it feels like there's a measure of uncertainty that has worked its way back into conversations since three months ago.
And so when we say approximately 1% that feels to us like there's still some rain genus to that but.
No. It's it's only in the middle of the year, so it feels to us as if.
No we're not.
We're not being that precise where we're telling you that it's kind of it's moved from one to two to closer to one.
Alright, Thanks, a lot thank.
Thank you very much for taking the time for my question. Thank you.
Thank you and I'll now turn the call back to Felipe for any final thoughts.
Felipe: Thank you Sue.
We appreciate the time and the interest we look forward to.
Updating you again in October thank you.
Thank you that does conclude today's conference you may disconnect at this time.