Q3 2024 The Interpublic Group of Co Inc Earnings Call
Good morning and welcome to the inter-public group third quarter 2024 conference call. All parties are in a listen-only mode until the question and answer portion.
Speaker Change: 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 Leshne, Senior Vice President of Investor Relations. So you may begin.
Jerry Leshne: Good morning. Thank you for joining us. This morning we are joined by our CEO, Philippe Krakowsky, and by Ellen Johnson, our CFO. We have posted our earnings release and our slide presentation on our website interpublic.com.
Jerry Leshne: We will begin with prepare remarks to be followed by Q&A. We plan to conclude before market open at 930 Eastern Time.
Jerry Leshne: During this call, we will refer to forward-looking statements about our company.
Jerry Leshne: These are subject to the uncertainties and the cautionary statement that are included in our earnings release and slide presentation. These are further detailed in our 10K and other filings with the SEC.
Jerry Leshne: We will also refer to certain non-gab measures.
Jerry Leshne: We believe that these measures provide useful supplemental data that while not a substitute for gap measures allow for greater transparency in the review of our financial and operational performance.
Speaker Change: At this point, it is my pleasure to turn things over to Philippe Krakowsky.
Philippe Krakowsky: Thank you, Eric.
Philippe Krakowsky: As usual, I'll start to call with a high-level view of our results and the business overall. Ellen will then provide additional detail on the quarter.
Philippe Krakowsky: and I'll conclude with highlights that our agencies and some strategic comments to be followed by your Q&A.
Philippe Krakowsky: To begin, our revenue before available expenses was unchanged organically in the same period of year ago.
Philippe Krakowsky: In terms of clients, sectors, the quarter, which highlighted by very strong growth, and consumer facing industries like food and beverage, and consumer goods, as well as our other category of diversified and public sector clients.
Philippe Krakowsky: From the standpoint of disciplines, we saw solid growth at IPG Media Brands, Octagon, Axium, Doich, and our public relations offerings.
Philippe Krakowsky: However, our growth did flow from this year's first half, do mainly to the timing of an account loss that we've discussed previously, which weighed on growth in Q3.
Philippe Krakowsky: During the quarter, we also saw meaningful progress in the strategic ashings and actions that we had talked about in July to address underperformance at our digital specialist agencies.
Philippe Krakowsky: Reflecting where we are in that process, those assets became classified as held for sale.
Philippe Krakowsky: The note, third quarter performance brings our organic growth over the first nine months to one percent.
Philippe Krakowsky: Regionally in the quarter, the U.S. was flat organically.
Philippe Krakowsky: International Operations, we were paced by continued strong growth in Latin America, along with modest growth in our other market-scroup and continental Europe.
Philippe Krakowsky: As you pack and the UK de-creas from a year ago.
Philippe Krakowsky: Looking at our operating segments, IPG Media Brands and Axiom Jerome Gross at our media data and engagement solution segment.
Philippe Krakowsky: But that was tempered by results at MRN.
Philippe Krakowsky: We saw an organic decrease in our integrated advertising and creativity segment with mixed performance by agency.
Philippe Krakowsky: And in our segment of specialized communications and experiential solutions, growth in the quarter was driven by Octagon, whoever's Sandwick and going.
Philippe Krakowsky: In the standpoint of client sector performance, as mentioned, in addition to very significant increases in the food and beverage and consumer goods sector, we had solid growth and our other category.
Philippe Krakowsky: and some more modest increases in the healthcare, retail and financial services sectors.
Philippe Krakowsky: Meet creases in the auto and transportation and tech and telecom sectors were due to account losses in late 2023.
Philippe Krakowsky: Turning to expenses in margin, I should first note that our third quarter included non-cash goodwill and permanent expense.
Philippe Krakowsky: of $232 million, related to our digital specialist agencies and our progress in the sale process of our GA in huge.
Philippe Krakowsky: The adjusted operating metrics will cover it with you today, exclude that non-cash item.
Philippe Krakowsky: As you can see our teams continue to effectively balance cost discipline with ongoing investment in the evolution of our business.
Philippe Krakowsky: 3rd quarter adjusted EBITDA margin with 17.2%.
Philippe Krakowsky: which matches our strong performance a year ago, and adjusted EBITDA was $385.8 million.
Philippe Krakowsky: In part of the same period last year, we had leverage on base payroll, temporary labor and incentives.
Philippe Krakowsky: We also continue to invest at higher levels in technology, business transformation, and senior talent, particularly for centralized platform resources.
Philippe Krakowsky: which in turn resulted in increased office and other as well as SGMA expense.
Philippe Krakowsky: Deluded during this pressure in the quarter with five cents as reported, and a 70 cents as adjusted, but the right down the goodwill acquired intangibles, amortization, and the impact of net business positions and health for sale.
Philippe Krakowsky: During the quarter, we re-purchased 3.2 million shares, returning $100 million to shareholders.
Philippe Krakowsky: Turning to our outlook for the remainder of the year.
Philippe Krakowsky: There are several factors in play.
Philippe Krakowsky: Economic and Political uncertainty in the U.S. and in many of the largest international markets remains a significant consideration.
Philippe Krakowsky: This is especially relevant, given the relatively high levels of discretionary projects spend that characterize Q4 Mahalid A season.
Philippe Krakowsky: That said, a recent operating review is a strong pipeline.
Philippe Krakowsky: for Project Work in 2824.
Philippe Krakowsky: Excuse me, Project Work in Q4, as well as larger AR assignments that would take effect in the new year.
Philippe Krakowsky: We're focused on capitalizing on those opportunities, since we will be facing top line headwinds as we had in the 2025, due to the news flow we've seen on some recent large account reviews.
Philippe Krakowsky: Fallen for the balance of this year, we continue to believe we will deliver organic revenue growth of approximately 1%.
Philippe Krakowsky: and at that level of growth, we remain committed to our margin goal for the year of 16.6%.
Philippe Krakowsky: As I just mentioned, we're looking to close the year as strongly as possible.
Philippe Krakowsky: Equally important, we have clear line of sight to the structural and market-facing changes and we need to make to improve our growth profile.
Philippe Krakowsky: Any of you who have heard me speak for the need to change our asset mix?
Philippe Krakowsky: which currently leans more heavily to capabilities and have more limited growth rates than the asset mix.
Philippe Krakowsky: That when my find in some of our competitors.
Philippe Krakowsky: Also, in media, and area we have always excelled, the recent shift in trading terms that have seen many clients accept and even embrace principle buying has clearly impacted our business.
Philippe Krakowsky: Those are all areas on which we are focused and making progress in transforming the business.
Philippe Krakowsky: are very strong underlying financial position and our track record of operational delivery give us a solid foundation from which to drive the necessary changes in the composition and capabilities within the portfolio.
Speaker Change: I'll have more to add on that score, but for now I'll turn things over to Ellen for a more detail view of the quarter.
Speaker Change: Thank you for the hit.
Ellen Johnson: As a reminder, my remarks will track to the presentation slides that accompany our webcast.
Ellen Johnson: The getting with the highlights on slide two of the presentation are third quarter revenue before billable expenses or net revenue decreased to 0.9% with our guaranteed performance that the flat will be a year ago.
Ellen Johnson: Our organic net revenue was unchanged in both the U.S. and our international markets.
Ellen Johnson: Over the first nine months of the year, a consolidated organic revenue increase was 1%.
Ellen Johnson: 3rd quarter, adjusted EBITTA, was 385.8 million.
Ellen Johnson: and our adjusted margin was 17.2%.
Ellen Johnson: In the quarter, we recognized a non-cash charge in operations of 232.1 million, related to both the out of good will to fair value at the digital specialist agencies and the planned sale of our GA
Ellen Johnson: Our delighted earnings to share with five cents as reported in the 70 cents as adjusted.
Ellen Johnson: The adjustments exclude the after-text impacts of the non-cash, goodwill, and paramount charge, the commodisation of acquired intangibles, and the non-operating impact of sales of certain non-strategic businesses and operations help for sale.
Ellen Johnson: We repurchased 3.2 million shares during the quarter, returning a hundred million to our shareholders, and 7.3 million shares in the first nine months for a total of 230 million year to date.
Ellen Johnson: Turning to Slide 3, you'll see our P&L for the quarter. I'll cover revenue and operating expenses in detail in the Slide's Beth Island.
Ellen Johnson: Turning to third quarter revenue in more detail on slide 4.
Ellen Johnson: Our nap revenue in the quarter was 2.24 billion.
Ellen Johnson: Comparate to Q3, 23, to change the impact of the change in exchange rates on Revenue, with a negative 50 basis points.
Ellen Johnson: The impact of our net acquisitions and the buffs to the service was negative 2.4%.
Ellen Johnson: which includes the Health for South Classification of RGA in U.J. during the quarter.
Ellen Johnson: Organic Revenue was untamed.
Ellen Johnson: But the nine months are organic revenue increase was 1%.
Ellen Johnson: In terms of client sectors in the third quarter, performed by very strong performance in food and beverage where we have a notable talent from an account lens.
Ellen Johnson: and in consumer goods, as well as in our other sector, of diversified and public sector clients.
Ellen Johnson: The healthcare, retail, and financial service sectors, also grow in the quarter.
Ellen Johnson: Going the other way, we saw decreases in auto and transport and tech and telecom due to account losses in 2023.
Ellen Johnson: The bottom of the slide is a look at our segments.
Ellen Johnson: Our media data and engagement solution segment increased 1.2% organic lady.
Ellen Johnson: We again saw a solid growth at our media business and axioms, though that performance was partly offset by decreases at MRM.
Ellen Johnson: Our Integrated Advertising and Creativity Let's Solutions segment.
Ellen Johnson: Decreased organically by 1.9%.
Ellen Johnson: We have very strong ghosts at Joyce, but that was more than offset by decreases at IBG Health, McCann World Group, and McCann World Group, mainly due to revenue headwinds from trailing account lawsuits.
Ellen Johnson: At our specialized communications and exponential solution segment, organic growth was 1.2% led by very strong growth at Octagon in our exponential group and continued growth in public relations at Weber and Golem.
Ellen Johnson: Jack Martin and my men's in decreased in the quarter.
Ellen Johnson: Moving on to slide 5, which is a regional view of organic and equineprabenyu performance.
Ellen Johnson: BUS was 65% of net revenue in the quarter and was flat organically.
Ellen Johnson: We were led by very strong domestic growth at IVG Media Brands, Octagon, Weber Sandwick, George, and Solid Growth at Axiom.
Ellen Johnson: That was upset by decreases elsewhere in the portfolio, notably at IPG Health, MRM and McKam.
Ellen Johnson: International markets are 35% of the net revenue in the quarter, and we're also flat organically across a range of performance by region.
Ellen Johnson: The UK was 9% of net revenue in the quarter, and decreased 70 basis points organically.
Ellen Johnson: Strong growth by media brands was all set by soft performance elsewhere in the portfolio.
Ellen Johnson: Constinental Europe , which represented 8% of the net revenue, increased organically by 60 basis points in the quarter.
Ellen Johnson: Among our largest national markets on the continent, we saw advances of Spain and France, while Italy and Germany decreased.
Ellen Johnson: Asia PAC, with 7% of net revenue in the quarter, and decrease 7.4% organically.
Ellen Johnson: The Quarterly Smart by Decreases Across from our major markets in the region.
Ellen Johnson: Latam was 5% of net revenue in the quarter, an organic growth was 9.8%
Ellen Johnson: We were led by IBGE Media Brands and McKan, with increases across all major national markets.
Ellen Johnson: And our other market group, which is comprised of Canada, the Middle East and Africa, and was 6% of our net revenue in the quarter, we grew a 1.5% organically.
Ellen Johnson: Led by Groating Canada, well been Middle East, let's fly.
Ellen Johnson: Moving on to slide six and operating expenses in the quarter.
Ellen Johnson: All right, net at operating expenses, which excludes billable expenses.
Ellen Johnson: The amortization of required intangibles, and the non-castable impairment decreased 2.9% from a year ago.
Ellen Johnson: which was in line with our reported net revenue decrease.
Ellen Johnson: The result was our objective, E.B.T.A. margin was unchanged that 17.2% which historically is at the top ends of the range for third quarter in our seasonal business.
Ellen Johnson: As you can see on this slide, for total salaries and related expense as a percentage of net revenue was decreased by 100 basis points to 65.3% compared with 66.3% a year ago.
Ellen Johnson: Underneath that result, we have lower expenses as a percent of net revenue for base payroll, benefits and tax, as well as for temporary labor and incentives.
Ellen Johnson: Our 7th expense in the quarter takes up 10 basis points to 1.1% of note revenue.
Ellen Johnson: Our head count decreased 3% on his organic species for a year ago, and 4.4% in total.
Ellen Johnson: Each of these ratios is presented in the appendix on 531.
Ellen Johnson: Also, on the slide, our office and other direct expense, with 14.6% of net revenue, compared with 13.8% the year ago.
Ellen Johnson: Underneath Tekken Carrison is planned investment in technology and business transformation as we have highlighted previously.
Ellen Johnson: Our SNA expense is 90 basis points to our gravity, compared with 70 basis points a year ago.
Ellen Johnson: The Increased Reflects, I-R-Levels of Strategic Investment, and Senior Enterprise Leadership, and Platform Development.
Ellen Johnson: On 5-7, we present the detailed on a Jacksonance to our reported third quarter results.
Ellen Johnson: in order to provide better transparency and a picture of comparable performance.
Ellen Johnson: This begins on the left-hand side with a reported results and from left to right, steps through to adjusted EVETA and are adjusted to LUTIN EPS.
Ellen Johnson: Our expense for the amortization of acquired intangibles was 20.3 million.
Ellen Johnson: The non-castion paramount of Goodwill was 232.1 million.
Speaker Change: Hello, I'm Brady Encomme, Netball Office on Businesses Sold and Health for Set-out was 1.7 million.
Speaker Change: It's worth noting as well that this slide bridges are effective tax rate in the quarter as reported to the adjusted rate of 26.2%.
Speaker Change: At the foot of this slide, the branch of our diluted EPS, as reported, has five cents to adjusted earnings of 70 cents.
Speaker Change: Lied eight tracks to similar adjustments for the nine-month period.
Speaker Change: Joseph Deluded Learning's per share was a dollar 66 for the parent.
Speaker Change: On slide 9, we turn to cash flow in the quarter.
Speaker Change: Gastromoperations was 223.8 million. Compared with 242.7 million in the third quarter of the last year.
Speaker Change: Operating cash flow before working capital was 375.2 million, compared with 365.4 million a year ago.
Speaker Change: In our investing activities, we've been next 41.4 million, primarily for tap-ax.
Speaker Change: Our financing activities use 219.3 million. Primarily for our regular quarterly dividend and cherry purchases in the quarter.
Speaker Change: Our net decrease in cash for the quarter was 15.3 million.
Speaker Change: Lie 10 is the current portion of our balance sheet.
Speaker Change: We ended the quarter with 1.53 billion of cash in equivalents.
Speaker Change: Blight 11 to pick some of the majorities of our outstanding death.
Speaker Change: As you can see on this schedule, total debt at quarter-end was 2.9 billion and our next maturity is not until 2028.
Speaker Change: in summary on slideswells.
Speaker Change: are strong financial discipline continues and the strength of our balance sheet was quoted they mean that we remain well positioned both financially as well as commercially.
Speaker Change: I would like to express my gratitude for the efforts of our people and with that I'll turn it back to believe.
Speaker Change: Thank you, Ellen.
Speaker Change: As I mentioned on the call with you last quarter, our organizational structure continues to evolve.
Speaker Change: and we're investing in the stronger growth areas of our business and at the same time moving rapidly to address under performing areas of the portfolio.
Speaker Change: Once that forward on this front, that was announced just last week, with the launch of the next evolution of our marketing intelligence engine.
Speaker Change: which we're calling Interact.
Speaker Change: Interact is an end-to-end framework that integrates data flow across the campaign life cycle.
Speaker Change: from Brand Research, as well as audience insights and audience creation, all the way through to creative ideation, production, commerce, and personal and CRM programs.
Speaker Change: It also powers media activation and optimization, including earned-in-owned channels.
Speaker Change: Field by Axiom's privacy compliant and globally scaled data about actual people and our real ID identity resolution capabilities. Interact delivers.
Speaker Change: Connectivity across our agencies and global reach.
Speaker Change: It serves as inter-public's core technology infrastructure.
Speaker Change: Incorporating capabilities and tech from our partnerships with leading players in the AI space.
Speaker Change: and it connects the entire portfolio so that our agencies can drive better marketing results across media channels and touch points for our clients all in real time.
Speaker Change: This includes our unified retail media network solution.
Speaker Change: which is particularly relevant to the marketers increasingly look to make informed investment decisions.
Speaker Change: in this very dynamic space.
Speaker Change: Among the enhancements that we announced last week is a significant increase in speed to market.
Speaker Change: which we lead to improvements in business performance for our clients, especially in key sales channels.
Speaker Change: as we discuss.
Speaker Change: will continue to move to a more holistic solution driven from the corporate center into making greater personalization and performance of part of all of our service offerings.
Speaker Change: Interact is key to that vision, and it ensures that the entire portfolio is connected to the horizontal platform capabilities we've been talking about, the just data production, commerce, and media activation.
Speaker Change: Now, our data expertise and technology tools have been core to our media offerings for some time.
Speaker Change: and to the very strong performance of our media brand unit.
Speaker Change: That said, as of a bit over a year ago, we are clearly operating in a competitive environment where macro uncertainty and other economic factors put much greater premium on cost and efficiency.
Speaker Change: Given that marketplace evolution, we continue to scale our practice in principle, media money.
Speaker Change: This represents an incremental option for value creation for prospective clients.
Speaker Change: which has been a decisive factor in some large pitches.
Speaker Change: It's also an area of opportunity for growth with our existing client base.
Speaker Change: We're noting that when we all talk about, quote, unquote, principle medium, there's actually a broad range of activity, whether that's deal types, types of products that are available under the umbrella in order to generate volume-based value for marketers.
Speaker Change: Our principal buying solution is purpose-built for the current media ecosystem, meaning that it's an offering that includes the full range of inventory options. That includes connected TV, social, social search ads, retail media, and other digital media formats.
Speaker Change: We put in place the necessary guardrails to exclude low quality inventory.
Speaker Change: It's a bit like the skinny bundle approach taken by certain media owners that get consumers all of the content they need with advantage is pricing.
Speaker Change: The strategic approach gives us the ability to drive values for clients while also ensuring we can meet the needs of marketers who operate in highly regulated industries and those place a higher value in brand safety.
Speaker Change: and Flaunching this incremental dimension or practice area.
Speaker Change: Within the media offering, there's been strong interests from existing and prospective clients.
Speaker Change: We've seen some early whims and new business.
Speaker Change: and many of our clients have already opted in, fully opted in, to this new trading model going forward as of the new year.
Speaker Change: As we build scale, we'll also be well positioned to incorporate data and tech components into the value propositions.
Speaker Change: and then we place before marketers.
Speaker Change: Now, we've already discussed the performance at some of our stronger assets, media brands and axiom, but moving out of operating highlights from the quarter, axiom was recognized at the annual Mortec Breakthrough Awards for having the industry's best customer intelligence platform.
Speaker Change: The award noted.
Speaker Change: Our leadership and innovation when it comes to people-based marketing, inside it, acts in the capabilities, integrating high-performance audiences, the most comprehensive data sets, and advanced identity resolution to deliver actionable and impactful insights for on-the-channel experiences.
Speaker Change: and Media Brands, the support quarter saw the conclusion of the Unilever Global Media Review in which we retain existing assignments in global markets and one several additional new remits including Canada and North Africa from competitors.
Speaker Change: Um, new client FC Tap Media Hub as its video AR.
Speaker Change: and Media Branch also expanded its leadership position in healthcare marketing.
Speaker Change: by launching Media Brands Health, is a new offering that allows healthcare marketers to tap the full power of our media network.
Speaker Change: as well as capabilities within IPG health, solved, offering and axiom health, inter-public category specific customer intelligence data spine.
Speaker Change: At IPG Health we continue to lead the sector when it comes to recognition of the quality of our work for clients.
Speaker Change: Two weeks ago, we led all holding companies and trophies at the healthcare marketing industry's premier awards competition, winning 27 medical marketing and media awards, across a range of clients, including Tiva, Burringa Ingleheim, Pfizer and Jazz Pharmaceuticals, as well as categories, such as health tech innovation, best purpose-driven campaign, and use of influence
Speaker Change: The last of those was fueled by IPG Health recently created influencer ID unit.
Speaker Change: We provide tailored solutions for healthcare marketers as they seek to harness the power of influencers in the patient, care giver and digital opinion leader communities.
Speaker Change: Among our creative agencies, as mentioned earlier, Deutsch has been a standout this year. Based in Los Angeles, the agency recently completed a rebrand to Deutsch as a follow-on to our disposition of Deutsch, New York, and Hill Holiday earlier this year.
Speaker Change: The agency during the quarter also won bare paint and launched breakthrough work for long-term clients Dr. Pepper and Taco Bell.
Speaker Change: and McCam, the quarter included agency of record wins for peroni globally. And significant regional assignments on T4ARO Brands, Kinder and Tiktok.
Speaker Change: We also learned that the agency's documentary to honor the creator of the Because You're Worth It campaign, produced in partnership with Lionel, will be eligible for an Oscar nomination.
Speaker Change: Still within the IAC segment, we continue to see industry validation of the strength of our creative offerings.
Speaker Change: The recently released World Creative Ranking, saw FCB New York, take the top spot in this rewind with four other IPG agencies in the top 20.
Speaker Change: And during the quarter, we were also honored as 2024, holding company of the year at the New York Festival Awards, from a can with name network of the year.
Speaker Change: Turning to our SC and E segment, our Sports and Entertainment Division, Pactagon posted very strong growth.
Speaker Change: The agency secured a landmark player contract extensions for two clients, making them the highest paid players, individual players in the NBA and NHL.
Speaker Change: Octagon also assisted guy going securing the new MLB partnership.
Speaker Change: deported more than 50 talent clients participating at the Olympic Games, as well as a number of brand clients in activating their IOC sponsorships, including ABMbev, Tisco, Delta Airlines, and Toyota.
Speaker Change: In the earned media space, Weber Sandwick announced new client partnerships with Prime Mark, the Aspen Group, and a leading clinical stage by a pharmaceutical company bicycle therapeutics.
Speaker Change: Go and saw good growth in the quarter across the number of practice groups, including influence remarketing, content creation and social.
Speaker Change: Agency continues to invest in talent, bringing on board a new executive to lead global AI learning who will drive the design, development, and delivery of multimodal AI training programs for Golan's employees worldwide, as we've mentioned before, an area in which Weber does a lot of training with our client base.
Speaker Change: Other developments in note in the quarter and IPG level included our announcement of the arrival of a Chief Strategy Officer for Interpublic.
Speaker Change: An exceptional practitioner who understands the consumer landscape and the needs of modern marketers and who will help accelerate the rate at which all of our disciplines are leaning into data, audience led thinking, and our other central platform resources.
Speaker Change: We also look forward to welcoming an industry leader shortly who will helm content production strategy at in a public level.
Speaker Change: has mandated an efficient solution for our clients globally.
Speaker Change: We've unified all aspects of the content supply chain as a function of our agreement with Adobe announced earlier this year to use their generative AI technology as a common platform across Interpublic, and that is connected to the Interact Marketing Engine for data, insights and activation.
Speaker Change: Together, this allows us to enhance the work we're doing with clients on mass personalization and bring the same level of precision and accountability to the creative sides of the business that we've been delivering in media and CRM for some time.
Speaker Change: and by designating an owner and internal champion for production.
Speaker Change: which is another important platform layer of the business. We ensure that we're driving the best outcomes for our clients, but also maximizing our enterprise, investments and partnerships in technology and AI.
Speaker Change: The along with our chief client and business officer, and now IPG-level discipline, leaders and creativity, commerce and solutions architecture, these two appointments round out a strong senior corporate team that can move us forward as an increasingly integrated home.
Speaker Change: As discussed previously, we remain focused on finishing out the year strongly, have a strong pipeline in place of both Q4 activity and longer-term AOR opportunities.
Speaker Change: and remain focused on achieving our organic growth of approximately 1% and at that level, continue to target adjusted even on margin of 16.6%.
Speaker Change: Now, thinking beyond this year, to some of the topics mentioned in my earlier remarks.
Speaker Change: We've begun the process of streamlining the portfolio in 2024, with divestitures from among our independent agencies and the process that we brought you up to speed on with two of our specialized digital agencies, which is moving along.
Speaker Change: We're also closely looking at strategic options to drive incremental growth through internal combinations that help us to achieve scale or to connect complementary services.
Speaker Change: and we're looking at actions that would further rebalance the asset mixed through potential dispositions.
Speaker Change: We believe there's more to be done when it comes to our operational structure and profitability.
Speaker Change: That will mean better leveraging our platform services and growing investments at the enterprise level.
Speaker Change: Further refining ways of working and making even more effective use of near and offshoring.
Speaker Change: We're also assessing structural actions such as moving to unifying back office and leadership teams in many international markets.
Speaker Change: as well as our use of real estate to both improve collaboration and eliminate unnecessary costs.
Speaker Change: In terms of additional growth drivers going forward, we've gone into some detail this morning on the status of principal medium.
Speaker Change: That's the lever that not only impacts performance and competitive reviews, but will also allow us to offer existing clients a range of new products. And therefore represents a meaningful opportunity for organic growth within our current roster.
Speaker Change: with benefits in 25 and beyond as we scale its development.
Speaker Change: We achieved consistent strong organic growth for many years through investment in talent and we've limited tactical M&A with a one exception ding-axing, of course.
Speaker Change: M&A is an area in which we'll lean in and consider a range of actions that can help scale capabilities that are key-accompanied.
Speaker Change: Also, those which can help us accelerate the change in our asset mix and growth profile.
Speaker Change: Specifically, we see strategic opportunity and specialized data assets and commerce and retail medium.
Speaker Change: Also, companies with retail media technology platforms and reach.
Speaker Change: Given that the sector that's growing quickly and should continue to try to thrive.
Speaker Change: Tactical options to enhance the scale or media offerings, especially in certain international markets, are also one that we are going to take under consideration.
Speaker Change: Important to note, we've always been disciplined buyers and integrators of businesses. And we believe the type of M&A activity I'm alluding to here is a achievable consistent with our longstanding commitment.
Speaker Change: the Strong Capital Return.
Speaker Change: Our balance sheet and liquidity provide a strong foundation from which to move forward with this set of transformational actions.
Speaker Change: which represents significant drivers of value.
Speaker Change: Thanks for your time today, as always.
Speaker Change: Thanks also need to go to our client partners and our people.
Speaker Change: And at this point, let's open the floor to your questions.
Speaker Change: Thank you. To ask a question, please press star one, unmute your phone and record your name clearly. If you need to withdraw your question, press star two. Again, to ask a question, please press star one. One moment for the first question.
Speaker Change: and our first question comes from Adrian D. Seemhaler with Bank of America, you may go ahead.
Speaker Change: Hello, good morning everyone, thanks for the presentation. So I've got a couple of questions, please. So your guidance for 24 seems to imply that Q4 will improve a little bit from Q3, but we're spending the uncertainty that you talked about in the US. So just curious if you could double click a bit on what's driving that exactly, what's the recent tone of conversation with your clients. And then secondly, from what we know today, and I appreciate that we don't always know everything, but how big of a headwind you think in that new business is going to be for 2025 on your organic sales growth. Thanks a lot.
Speaker Change: Sure. I think tone of business.
Speaker Change: has been a bit of a journey this year, as you know we came into the year.
Speaker Change: called out that sort of geopolitical and social uncertainty at the global level. And then I think domestic fiscal policy in the U.S.
Speaker Change: being pretty much stock was creating a...
Speaker Change: Yo.
Speaker Change: An impact on the operating environment such that in the prior quarters we were saying to you.
Speaker Change: You know, things don't feel as if they're heading not dramatically, but not in the right direction.
Speaker Change: But at this point, we are definitely like the sense that things are improving.
Speaker Change: Um...
Speaker Change: You know, and I think clients seem to be looking past all of the...
Speaker Change: Pipeline, I spoke to and really can't speak, so we've got, um...
Speaker Change: You know, a number of...
Speaker Change: Steps forward, now that principles beginning to be...
Speaker Change: kind of core to or at least integrate it into our media offering. So we've got a couple of confirmed wins on the media side that were not yet announced.
Speaker Change: Per the client and therefore tonight it's not something we can speak to.
Speaker Change: and then on your broader question.
Speaker Change: It's hard to forecast the year ahead when you're still in October.
Speaker Change: and that's on honor.
Speaker Change: You know, on any given year, and this is a year where, you know, we've been clear that we've definitely had.
Speaker Change: A couple of headlines, reversals, whether it was early in the year with a pharmacline on the creative side, you know, obviously an Amazon decision that did not go as we would have liked to see it go. So, you know, last quarter we said we're neutral for new business at that point in time.
Speaker Change: Thank you, Philippe.
Speaker Change: No, thank you. Thank you, our next question is from David Karnovsky with JP Morgan. You may go ahead.
David Karnovsky: Hey, thank you. Philippe, you highlighted economic uncertainty as a consideration in your end. At the same time, you're giving good visibility into your end project work. Just wanted to see if you could square the two. Our market is just simply moving ahead regardless of whatever macro concerns are out there. And then on principle, media buying, can you just clarify right? You noted a couple of times this would be a benefit, not just in review, but accretive with existing clients. Can you expand a bit on why that is? Why is it additive to growth instead of clients just shifting and how they spend with it?
Philippe Krakowsky: Sure. On the first question I would say, you know, as to Adrien's question, the tone of the business is improving and so although the macro uncertainty was maybe an incremental negative to date this year, I think it's just been sort of baked in and people are just getting on with it. And so it does feel as if notwithstanding that noise, there's more conviction and as we said, we saw an improvement in the tone. And then on principle,
Philippe Krakowsky: Johnson.
Philippe Krakowsky: If I'm going to walk you through a series of sort of steps in the thought process, it's definitely driving more of the decision-making or it's a criteria criterion that has moved meaningfully upstream and used to be a don't do this now it's...
Philippe Krakowsky: It's part of the decision matrix for many clients.
Philippe Krakowsky: But what you have to understand is that it's a bundled solution, which is sort of at the intersection of inventory and data and technology, right?
Philippe Krakowsky: So what you're able to do to a client is not just say where does where does spend go but you know how will we take the budget into the marketplace to drive the greatest value for the client and that can then mean that you know as I said there's there's sort of product offerings that have not been part of what we've gone to market with which we can now bundle and take to them so that's why we see it as a as an you know drive of
Philippe Krakowsky: Incramanial Organic, not new business, but true organic opportunity with our existing clients.
Philippe Krakowsky: I think the other implications that it has are you have to be very joyful and thoughtful in terms of.
Philippe Krakowsky: Underline shift in the trading terms on the media side. Our model was very much one predicated on a consultative front end and total agnosticism on media. So in this last 12-ish, called 18-month period, as that shift has happened, others have been better positioned, but the other side of that coin is that, you know, as a fast follower, I think we've got a lot of upside ahead, one of our...
Speaker Change: Thank you. Our next question is from Tim Nolan with Macquarie. You may go ahead.
Tim Nolan: Hi, thanks. Philippe, I wanted to follow up on your question or your comments about some of the disinternal moves. Seems like there's been quite a bit going on already. I wonder if he'd give us a bit more in terms of organically, what's the scope of, you know, reorganizations and things that you're going to be working through. And then externally, we know that R.D. and Hugh are on the block. Are you looking at other potential divestitures? Could you give us an update on R.D. and Hugh? And what's your appetite for M&A? So kind of altogether internal and external reorganizations. Thanks.
Speaker Change: Well, I think we've got a group of assets that have worked very well. You are, you know, it's a service business and it's got a lot of scale and complexity to it. So as you're going to make changes, you want to be thoughtful and deliberate about it. I think we've been very direct and upfront with all of you about how we've moved through the thought process and what it has led us to. I think on huge NRGA. Thank you.
Speaker Change: We're obviously far enough along there that, um...
Speaker Change: The noise that you see on the goodwill side, you have a triggering event that says, okay, where and how are we sitting vis-a-vis that goodwill. But I think that we clearly feel that there is line of sight to a conclusion to that process. So it's a good ways down the track and I'll talk to you.
Speaker Change: We've talked about the fact that we see benefit when we create scale or combine centers of excellence, so I don't think we're going to try to recreate miniature versions of the holding company by putting things that are not alike together, but there's still way to go in terms of sorting through whether or not, like any company in our space, we're all carrying legacy. And the thing incumbent upon us to sort of push on, you know, whether some of these assets would perform better if they were.
Speaker Change: Centralized Leadership Leadership.
Speaker Change: Dispositions, I think.
Speaker Change: Openness 2 and we'll look at what makes sense and there is a bit of addition by subtraction when you've got things that are holding you back, I talked about, you know, are growth profiles as a function of our asset mix. So I think that's definitely going to be a filter we apply to a lot of decision-making around here going forward. And then, you know, on M&A, I think you've seen some of the benefits that...
Speaker Change: Competitors have you know, a crude, we've always been a, you know, build it.
Speaker Change: from the talent. It's worked out very, very well for us, but you look at something, you know, whether it's rate of change, post pandemic, whether it's clearly the scale and the opportunity that retail media and commerce activity that is connected to retail media. Now, you know, with our platform and with Gen AI, you can really combine, you can push, you can sort of just connect it all, you've got to through line across the group. So, you know, I think, as I said, that's another piece of the four or five key priorities that will push harder on in 25 still.
Speaker Change: Thank you so much for your time.
Speaker Change: Thank you.
Speaker Change: Thank you our next question comes from Stephen K. Hall with Wells Fargo. You may go ahead.
Speaker Change: Thank you. Maybe first just to follow up on those last statements, Philippe. So, you know, you mentioned the strong balance sheet and some of the things you're doing to look to improve the portfolio. I think I take that to mean organic, sorry, inorganic investments. So just wanted to, you know, see if you confirm that you are considering some potential inorganic growth, whether that's to drive principal media buying or retail capability or others. So is that correct? And if so, could you help us frame that? Maybe within the scope of what your appetite could be, could something be as big as axiom once was, or a bit more modest.
Speaker Change: And then Ellen just, just on the guide as we think about the 1% for the year, how do we think about what RGA and huge do with in that I think that you removed them from the quarterly organic growth, so I'm guessing they're out for the back half of the year. So is that correct and, and was there any real change to the underlying guide based on what happened with RGA and huge that we can interpret into the rest of the business? Thank you.
Ellen Johnson: I'll let Ellen go first on your question and I'll sort of pile on on my answer to the prior one. Sure, good morning. Our 1% does for the rest of the year exclude R.J. and huge. I don't think anything's fundamentally changed to the underlying business that we've guided you in July . We just became far enough along in the sales process that asset help for sale accounting applies. And we've been very consistent with our practice and convention with organic, removing it from the beginning of the quarter.
Ellen Johnson: It's something we've, you know, done throughout. It just so happens at this position's go. These are probably the larger than what you would have seen us doing in the past, because before, you know, prior, it was mostly the minimum clean up of small international operations. And on your prior question, I think inorganic definitely has a role to play. And I think the places where we are most focused are retail media.
Ellen Johnson: Tech platform assets.
Ellen Johnson: Obviously, you look around some of the deals that have been done in the space of late and around that space, you know, in the multiples are pretty rich, you know, but they're clearly
Ellen Johnson: Valuable assets, because I said, there's tech that comes with.
Ellen Johnson: You know, we're interested in, I also pointed out potentially incremental specialized data assets in and around that space. So I think those rise to two.
Ellen Johnson: You know, kind of meaningful prioritization. Principle, we're in a position to, you know, kind of put into effect. We have built it. It is now part of the offering. We'll be, as I said, sort of developing it and enhancing it by adding that data and technology layer to it by rolling it out in more markets. There's a very clear plan. To roll it out into six to eight international markets next year. So I don't think inorganic is particularly required there. If something opportunistic comes along, it makes sense. As I said, we'll look at it.
Speaker Change: That's very helpful. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you the next question comes from Michael Nathanson with Muffet Nathanson, you may go ahead.
Michael Nathanson: Thank you. Good morning, Philippe. Question if you want to add on. On the idea of being a fast follower or a personal media and then the point you made about having an open, you know, unencumbered billings slated ahead of you, do you talk a bit about what you're finding when you talk to your, to potential clients about your approach versus what competitors have done and anything you kind of help us with, you know.
Michael Nathanson: Potentially you don't pipeline ahead of as you go through those discussions, that's one.
Philippe Krakowsky: Sure, I mean, I tried to really untack all the component parts for you in the prepared remarks. But I would say to you that...
Philippe Krakowsky: sort of adoption as it were. So, you know, we had a sense of the overall U.S. Medi-Bran's client base, where we'd be at that point in terms of opt-ins and, you know, you're talking, you know, conversations in the, you know, 30, 40, 50 conversations that need to take place, because clearly people need to understand it. There's a lot of all of the, all of everybody.
Philippe Krakowsky: Clarity as to what everybody is choosing to engage and opting into. So we've found that those conversations have our tracking ad of where we thought there would be at this point. As I said to you, we've got kind of line of sight to the six or eight markets, XUS, where obviously they're the largest media markets in the world. So it happens that a number of them are ones where we have a very significant standing and scale.
Philippe Krakowsky: and whether that's...
Philippe Krakowsky: A couple of the big ones in Latin America with Australia others. So in that sense we feel like...
Speaker Change: Understand kind of where media owners heads are at, how deals are currently structured and where.
Speaker Change: Walking into the conversations at this point, we can think about them in ways that are kind of additive or whatever the current standard is. We also bring a very sizable data asset to the table and that and it also changes the nature of what you can do in the math a bit, but I mean, I can't really go into it much more than that because it's...
Speaker Change: and a proprietary enough that this is an awkward setting in which to give you much more than that. But we definitely see that, like I said, there are two sides to the coin and it's not been our friend to date, but at this point we do see how there's opportunity to...
Speaker Change: You know, there's kind of more upside than you might find, you know, if this was already a very mature capability.
Speaker Change: Okay, and then next year then.
Speaker Change: Sorry, the other, remind us of the other question.
Speaker Change: Well, the other question has, Ellen is going to be, you know, that was it for me to buy it. It'll better.
Speaker Change: Okay, if you're not exactly, I should have you too, and then for Ellen, Philippe, I was going to ask her, if you had to re-classify Eugene RJA for the year, what would your gang roast be, right? So if you give us kind of apples to apples back and out for the year, how much better would your gang roast rate be?
Ellen Johnson: You know, we'd have to go back and do that calculation. We've been very transparent up to this point of what the drag has been on RGA and you. When we gave our guidance, as I mentioned in July , we thought it was probable that it would get classified as as a helper sale, but you have to wait for the triggering event. And we've given you a lot of color on what we think about the tone for the rest of the year. So I think I'll leave it at that for now.
Speaker Change: There are not, thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Craig Huber with Huber Research Partners. You may go ahead.
Speaker Change: You have a thank you, um, just two questions first. I know you touched on this before, but maybe it thinks.
Craig Huber: 2024 ended today. What would be the headwind of the net losses for the year going into 2025? I mean, surely you have to have a number in your head. I'm wondering if you would be willing to share it. It's like a 3% headwind. If the year ended today, there's no one known doubt that you know what the year ended right now. The headwind for organic growth next year is roughly say 3% in points. That's my first question, please.
Craig Huber: I just want to get a sense where you just think it for 2025.
Speaker Change: That's not how it works, so it's not a question we can answer, right, in the sense that
Speaker Change: We build a plan that kind of goes from, as we close the year, all the ins and outs.
Speaker Change: It's not math that we've done and it's an awkward question because to answer it becomes like, well, what do you what's in and what's not and and gee, what do you have baked in for you know organic growth opportunities now that you can take more diversified product offering to clients on the media side?
Speaker Change: and then to answer it when you put a number out there and say, gee, might be less than that number might be that. You know, it's just simply slope of, you know, I can't answer the question because it's not how we run the business, and it's not actually, you know, I would assume how you would expect this. So as I said, I don't think that we can forecast a year ahead in October , whether it's this year or any year that I can ever remember and been a while that, you know, a number of us have been around this joint. So I understand the question, and it's a, and I guess that you're trying to, you know, get pretty on that, but with...
Speaker Change: A unified solution that has a tech component to it, but that's a very different answer than you're just sort of going purely on these three losses, which I'll ring fences, X, Y, and Z, what does that do? And that's not math it.
Speaker Change: It's super constructive in trying to figure out how we get IPG to a better place, so I don't think we have an answer to them.
Speaker Change: Okay. In my second question, if I could you just help us understand how your health care earlier did, organically, year over year, and also technology, put in the side, the huge and RGA issues, just what those two sectors did for you guys. Sure.
Speaker Change: Tech had a-
Speaker Change: You know, a huge Norgia issue as we always said, very significant waiting of their client roster and then we'd also talked about the fact that we had a handful of five of the largest tech companies in the world had kind of hit the brakes pretty hard on their activity. So I think if you take out the. Yeah.
Speaker Change: Losses, there's a...
Speaker Change: Mid Suss, sort of a modest loss on the media side going back that I think is in that category, but mostly it was the telco that we called out for you. If you take that all out, that sector clearly has found a floor and is, you know, looking as if there will be, as we said, a bit more conviction, we're definitely seeing more conviction at a macro across a whole client base. But I think that sector's gotten to where it's healthier, it's not thriving, growing, you know, kind of all caps, but that's a better place.
Speaker Change: and then healthcare is weighted by the one big.
Speaker Change: Klein, that then became a client reconsidering a...
Speaker Change: portion of that. So there was a large client in the healthcare space, which we I think unpacked for you. It had an impact in, you know, first quarter and it led us to consider our view to the year on the top line. But our healthcare, you know, asset has been a consistent strong performer. And so that's clearly the we're going to be sort of cycling out of that in the next couple of quarters.
Speaker Change: Okay, thank you.
Speaker Change: Thank you.
Speaker Change: Thank you and that was our last question. I'll now turn it back to Philippe for any final thoughts.
Philippe Krakowsky: Thank you, Sue. I think the questions kind of get to the core of where our thinking and our focus is, which is essentially...
Philippe Krakowsky: and I'm realigning the portfolio to where we see opportunities and where we see growth kind of continued go forward opportunity on structural actions that mean that from a longer-term priority point of view we're feeling like there's still runway and then positioning the more effectively leverage the differentiated resources again because that's clearly been something that we've been successful at but the last as I said 12 to 18 months have been more challenging so stay tuned and we look forward to talking in February .