Q1 2025 The Interpublic Group of Companies Inc Earnings Call
Speaker Change: Good morning and welcome to the Interpublic Group First Quarter 2025 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 1. 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.
Sir, you may begin.
Good morning. Thank you for joining us.
Speaker Change: This morning we are joined by our CEO , Philippe Krakowsky, and by Ellen Johnson, our CFO .
Speaker Change: We have posted our earnings release and our slide presentation on our website interpublic.com.
Speaker Change: We will begin with prepared remarks to be followed by Q&A. We plan to conclude before Market
Speaker Change: During this call, we will refer to forward-looking statements about our company. These are subject to the uncertainties and the cautionary statement that are included in our earnings release and the slide presentation.
Speaker Change: These are further detailed in our 10Q and other filings with the SEC.
Speaker Change: 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 [inaudible]
Thank you, Jerry, and thank you all for joining us.
Philippe Krakowski: This morning, I'll begin with a high level view of the quarter and progress on our transformation program.
After which Ellen will add detail in our performance.
Philippe Krakowski: I'll then conclude with an update on the tone of the business, as well as on the status of our acquisition by Omnicom.
Speaker Change: Turning to Q1 results and starting with revenue, our organic revenue decrease was 3.6 percent.
Speaker Change: which is consistent with the outlook and phasing we shared with you earlier this year.
Speaker Change: Our revenue change was largely due to the impact of certain account activity over the previous 12 month period, which we've discussed with you on prior calls.
Speaker Change: As expected, those headwinds intensified sequentially from last year's fourth quarter due to the timing of trailing winds and losses.
Speaker Change: R3 largest losses weighed on growth by 4.5% to 5% David Karnovsky, David Karnovsky, David Karnovsky,
Speaker Change: Impacting results across a number of geographic regions and disciplines, notably the US, Europe and Asia PAC and our IAC and MD&E segments.
Speaker Change: Trailing account losses were partially offset by sound underlying performance, with notably strong growth once again by IPG Media Brands, Deutsch and Gollen.
Speaker Change: and regionally by growth in Lattam and our other markets group.
Speaker Change: My clients sector, we had very strong growth with our tech and telecom clients, as well as solid increases in food and beverage and financial services.
Speaker Change: Turning to expenses and profitability in the quarter, our adjusted EBIT was $186.5 million with the margin of 9.3%
Speaker Change: That result reflects continued operating discipline by our teams and a strong start to the strategic restructuring program that we described in our February call.
Speaker Change: Adjusted EBITDA excludes charges for restructuring in the quarter, which as you've seen were $203 million.
of which slightly more than half is non-cash. [inaudible]
Speaker Change: We also adjust for deal expenses related to the combination with Omnicom, which were $4.8 million in the first quarter and which appear in our S-G-N-A expense.
Speaker Change: The quarter marked meaningful progress towards the objectives of the transformational restructuring of our business.
Speaker Change: by both enhancing our offerings and driving significant structural expense savings.
Speaker Change: Operating expenses in the quarter, compared to a year ago, clearly tracked the strategic evolution of our model.
Speaker Change: with operating leverage in some areas alongside continued investments in technology to enable key platform services and solutions.
Speaker Change: As we outlined earlier this year, we're moving at pace to greater functional centralization.
Speaker Change: Increasing offshoring and near-shoring of centers of excellence, and an enterprise-wide focus on tech-driven platform benefits, and keep client-facing areas such as production and analytics.
as well as corporate functions, including finance and HR management.
Speaker Change: With the implementation of these changes well underway, we've identified further opportunities for transformation and structural redesign.
Speaker Change: With that increased scope, we currently expect the charges for restructuring this calendar year will be in the range of $350 million, a significant portion of which will remain non-cash.
Speaker Change: That will, in turn, yield run rate annualize expense savings of a similar magnitude as the eventual charge.
Speaker Change: as standalone IPG and the $750 million of identified cost synergies that will result from the merger of our company into Omnicom.
Speaker Change: Though the benefit of these increased structural cost savings should accrue to the newly merged entity in 2026 and beyond.
Speaker Change: Our diluted EPS in the quarter was a loss of 23 cents as reported due to the restructuring investment while our adjusted diluted EPS was 33 cents.
Speaker Change: Another important development during the quarter was that we were able to re-initiate share repurchases.
Speaker Change: Following the pause that had been required in connection with the early stages of the acquisition.
Speaker Change: Subsequent to our special meeting of shareholders on March 18th at which we received support for the transaction from over 99% of shares voted, we were able to re-enter the market for 3.4 million shares over the balance of the quarter returning $90 million to shareholders.
Speaker Change: Turning to our outlook, we know that macro-developments and their potential ramifications have moved front and center for all of us.
Speaker Change: The impact of this uncertainty is not yet clear, and the implications vary widely for our clients across industries and geographies.
Speaker Change: Our posture, as always, has been to take close to our clients, especially in periods of heightened uncertainty.
Speaker Change: As of now, marketers appear to be in a phase of scenario planning, assessing the implications of possible changes to the flows of global commerce.
and as they sort these developments.
Speaker Change: We know that, you know, we're all addressing these things and these changes that are taking place [inaudible]
Speaker Change: As we engage with clients in considering the decisions they may need to make when it comes to channel choices, investment levels, and the best mix of marketing disciplines required to deliver business outcomes.
Speaker Change: We will begin to get greater clarity on the impact of the macro on our sector and we will of course update you on that evolving landscape.
Speaker Change: Today, we can report that Performance in Q1 has been fully consistent with what we'd expected.
that we have not seen a mark change in client activity.
Speaker Change: and that we therefore remain on track with a full-year performance targets for revenue and margin that we shared with you a few months ago.
Speaker Change: Unorganic decrease of 1 to 2% in net revenue due to trailing account headwinds and adjusted EBITDA margin of 16.6%.
Speaker Change: Should there be a slowdown, we've shown that we're capable of navigating challenging circumstances.
Speaker Change: You continue to provide services that marketers require in order to deliver sales and business outcomes, regardless of where we are in the economic cycle.
Speaker Change: We also know that if the macro ultimately weighs on broader consumer sentiment and economic activity
Speaker Change: with a resulting impact to our revenue, we've consistently proven the benefits of our flexible cost model.
Speaker Change: We've also demonstrated our resilience in that we've rebounded strongly as we emerge from such cycles.
Speaker Change: We're entering this dynamic period with our program of strategic transformation and cost reduction well underway with strong underlying financial resources, and both should further solidify our position at a time of growing uncertainty.
Speaker Change: I'll come back with an update on the status of the acquisition by Amnacom, the compelling growth benefits of the new company.
and the resulting value creation we see in the combination.
Ellen Johnson: But at this point, I'll turn things over to Ellen for a more in-depth view of our results.
Thank you. I hope that everyone is well.
Speaker Change: As a reminder, my remarks will track to the presentation slides that accompany our webcast.
Speaker Change: Beginning on slide two of the presentation, our organic decreases net revenue in the quarter was 3.6 percent, which was in line with our expected performance for the quarter.
Speaker Change: Adjusted EVA TA in the quarter was 186.5 million, and margin on that revenue was 9.3 percent.
Speaker Change: It's worth noting that Q1 is our smallest seasonal quarter for revenue, while our operating expenses are recognized more than radibly across the year.
Speaker Change: Adjustments exclude our charges for restructuring of 203.3 million, amortization of acquired intangibles of 20.4 million, and 4.8 million of deal expenses in S.G.A. related to our acquisition by Amica.
Speaker Change: A reported loss per diluted share in the quarter with 23 cents.
We repurchase 3.4 million shares, returning $90 million.
Speaker Change: We concluded the quarter in a strong financial position with 1.9 billion of cash on the balance sheet and with only 1.84 times gross financial debt to either DA as defined in our credit
Speaker Change: Turning to slide three, you'll see our P&O for the quarter. I'll cover revenue and operating expenses in detail in the slides that follow.
Turning to first quarter revenue on slide four.
Speaker Change: Our net revenue in the quarter was $2 billion, a decrease of 8.5% from a year ago.
Speaker Change: Compared to Q-1-24, the impact of the change in exchange was negative 1.2%.
Speaker Change: The impact of our net divestitures, mainly RGA and UGE, was negative 3.7 percent.
or Organic Net Revenue Decrease, with 3.6 percent.
Speaker Change: Further down the slide, we break out the segment, net revenue performance in the quarter.
A media data and an engagement solution segment grew 2.2% organically.
Speaker Change: Strong growth at IBG Media Brands and growth at Axiom was offset by continued decreases at MRM.
Speaker Change: The organic decrease at our integrated advertising and creativity led solution segment was 10.3 percent.
Speaker Change: That performance largely reflects the decision of a single client in the healthcare sector and to a lesser degree, generally soft performance across a creativity led agencies.
We continue to have strong growth at Deutsch.
Arbolganic Decrease was 2.4% [inaudible]
Speaker Change: Modest girls in public relations, led by Golden's performance, was offset by decreases that are
Speaker Change: Moving on to slide five, our net revenue changed by region in the quarter.
Speaker Change: The US, which was 68% of our first quarter-net revenue, decreased organically by 4%. Reflecting the impact of certain accounts lost in late 2023 and during 2024 that laid on growth broadly across our domestic operations.
Speaker Change: IBD Media Brands continue to post strong growth in the quarter.
Speaker Change: International markets with 32% are net revenue in the quarter and decrease 2.6% organically.
Speaker Change: In the UK, which represented 8% of our net revenue in the quarter, the organic decrease was 6.1%, chiefly due to soft results across some of our advertising and experiential offerings.
Speaker Change: Constantinople, Europe is 8% of our net revenue in the quarter and decrees 40 basis points organically.
which was against 8.9% growth a year ago.
Speaker Change: Trailing net losses weighed on performance in the quarter, across several national markets.
Speaker Change: In Asia PAC, which was 6% of net revenue in the quarter, our organic decrease was 9%.
Speaker Change: The locks of certain global counts lead a result across the region.
Speaker Change: and Lahtam, which was 4% of net revenue in the quarter. We grew 3.1% organically.
Speaker Change: By market, our growth was led by Columbia, Chalet, and Argentina, while Brazil decreased in the quarter.
Speaker Change: Our International Markets Group, which consists of Canada, the Middle East, and Africa, was 6% of net revenues in Q1 and grew 2.9% organically. Performance was due to strong growth in Canada.
Speaker Change: Moving on to slide 6, an operating expenses in the quarter
Speaker Change: Her fully adjusted EBITDA margin in the quarter was 9.3%. That's a decrease of only 10 basis points from a year ago, not with the standing roller revenue.
Speaker Change: Our Adjusted EPA Margin is before expenses for our strategic restructuring and Omnicom Deal
Speaker Change: Our charge for restructuring was approximately 203 million, of which 109 million is non-cash.
Speaker Change: In general, expenses in the quarter reflect the continuation of our recent trend, with operating leverage on salaries and related expenses alongside increased investment in technology.
Speaker Change: Our ratio of total salaries and related expenses improved 120 basis points, the 70.9% of Net revenue.
Speaker Change: It's worth noting that all the expense ratios are against our smaller first quarter revenue base.
Speaker Change: Compared to a year ago, we have leveraged on base payroll, seven to expense, given the broader reset of our expense base, and temporary labor, which was partially offset by higher expense for our performance-based and sensitive competition programs.
Speaker Change: We ended a quarter with head count of approximately 51,550, an organic decrease of 6.5%.
Speaker Change: Our office and other direct expense increased as a percent of net revenue by 120 basis points to 16 percent.
Speaker Change: Occupancy expense decreased by 10 basis points as a percent of net revenue by all other office and other direct expense increased by 130 basis points.
Speaker Change: Mainly due to higher levels of investment in technologies, driving the enhancement of our services and the transformation of our company.
Speaker Change: Our S-GNA expense was 2% of net revenue compared with 1.7% a year down, with the Omnicum Deal of costs contributing to the increase in the quarter.
Speaker Change: Turning to slide seven, we present detail on adjustments for reported first quarter results in order to give you better transparency and a picture of comparable performance.
Speaker Change: This begins on the left-hand side with our reported results and steps through to adjust to EVTA and our Adjusted Deleted EPF.
Speaker Change: Our expense for the amortization of acquired intangibles in the second column was $20.4 million. Chargers for restructuring were $203.3 million.
Speaker Change: Gilpawks, pertaining to the planned acquisition by Omnicom, were 4.8 million.
Speaker Change: Below operating expenses are net loss due to the sales of non-strategic businesses was 36.4 million.
Speaker Change: At the foot of the slide, you can see the after-tax impact for deleted share of each of these adjustments.
Speaker Change: which bridges the first quarter to Luda Blasper's share as reported of 23 cents to adjusted earnings of 33 cents for Luda's share.
Speaker Change: On Slide 8, we turn to our cash flow for the first quarter.
Speaker Change: Ashuse in Operations was $37 million, compared with $157.4 million a year ago.
As a reminder, our operating cash flow is highly seasonal.
Speaker Change: We typically generate significant cash from working capital in the fourth quarter and use cash in the first quarter.
Speaker Change: During this year's first quarter, our working capital use was historically low at 86.1 million.
Speaker Change: It's worth noting that cash from operations before working capital changes was $49.1 million in the quarter.
Speaker Change: In our investing activities, we use 58.2 million in the quarter for acquisitions and catbacks.
Speaker Change: Our financing activities in the quarter use 248 million primarily for our common stock
Speaker Change: Our nefty grief and cash for the quarter was 319.8 million.
Speaker Change: Onside Dine is the current portion of our balance sheet. We ended the quarter with 1.9 billion of cash and equivalent.
Speaker Change: Vlad Ten to pick the maturities of our outstanding debt and our diversified maturity schedule.
Speaker Change: Total debt at quarter-end was $3 billion, and our next scheduled maturity is not until 2028.
Speaker Change: In summary, our strong financial discipline continues, and the strength of our balance sheet liquidity means that we remain well positioned both financially and commercially. And with that, I'll turn it back to Philippe.
Speaker Change: As we mentioned, the results we're reporting today are consistent with our forecast coming into the year.
Speaker Change: Against the net account, headwind is driven in large part by three significant losses in 2024.
Speaker Change: The underlying business is sound with growth of between one and one and a half percent on a net basis.
Speaker Change: Notable strength was evident in our media offering where we've been building proprietary trading capabilities.
Other areas of growth included Deutsch.
Golan, our IPG-level production unit, and Axiom.
Speaker Change: The impact of our large reversal with a healthcare client in the consumer advertising space in 2024 weighed on FCP and IPG health, which otherwise showed solid top line performance.
Speaker Change: In terms of profitability, we continue to demonstrate discipline as you can see in our margin delivery adjusted for the cost of the transformation program that we're undertaking.
Speaker Change: and specific to that program, we made a strong start to the restructuring efforts in both corporate functional areas, as well as centers of excellence focused on delivery of services to clients.
Speaker Change: The benefits of that program look as if they will exceed our initial forecast.
Speaker Change: with the upside accruing to the newly merged company, once our transaction with Omnicom is complete.
Speaker Change: Fences, we said earlier, there's almost no overlap between our efforts and the cost synergies that have been outlined as part of the integration of the two companies.
Speaker Change: Turning now to specific highlights from the quarter, operationally we've entered the year with a kind of consistently strong levels of industry recognition that we're known for.
and which validate the competitive strength there are offerings.
Speaker Change: On Fast Company's list of most innovative companies, which was announced during the first quarter, IPG was better represented than any other holding company group.
Speaker Change: with five of our agencies at the top of this ranking, including FCB, Golan,
Martin Agency, McCann and Weber.
Speaker Change: Just last week, we announced the appointment of a global head of AI commerce to advance our delivery of agentic commerce solutions, a new offering that enables clients to grow profitable share across on each channel media.
Speaker Change: The remit for this role includes integrating market-wide data signals provided by Intelligence Node, the acquisition we announced late last year, into these platforms and deepening our strategic partnerships.
with key players in the Commerce ecosystem.
Speaker Change: to create a more robust and cohesive suite of commerce solutions for our clients.
Speaker Change: The strategic move underscores our commitment to leveraging AI to enhance commerce and deliver superior results for our clients.
Speaker Change: The combination with Omnicom and their complementary capabilities, like their Flywheel platform, will further position us as a leader in innovation that can drive sales and business results for marketers in the commerce space.
Speaker Change: During the quarter, we also launched AI Consul, a personal AI agent available to all of our employees.
Speaker Change: AI consult is part of our Interact Marketing Platform that enhances productivity by enabling users to create custom AI agents.
Speaker Change: for the full range of capabilities we provide for our clients. Thank you very much.
Speaker Change: that just summarizing media plans, drafting press releases, and generating image mockups to name just a few examples.
Speaker Change: Beyond the foundational use cases that media brands and axioms have pioneered for us in AI through our interact software platform.
There are now thousands of Interpublic practitioners using Interact.
Speaker Change: and Soon AI Consul, the leverage AI to improve efficiency and creativity across all areas of our business.
Speaker Change: within our MD and E solutions, I mentioned Axiom, which saw renewals in the quarter and new business wins.
Speaker Change: with clients in the telco, STPG, financial services, insurance and healthcare sector.
Speaker Change: Nielsen and Axiom also announced a new collaboration whereby Nielsen will think Axiom real ID into their system for cross-platform and data-driven linear media.
Speaker Change: Acting and snowflakes on an expanded multi-year partnership agreement to power cloud modernization and data collaboration, as well as AI for leading brands.
Speaker Change: This allows clients to maximize the power of their first-party data in marketing while safe-marting privacy and security.
Speaker Change: Media Brands, as you've heard, posted strong growth in the quarter.
Speaker Change: Due to good regional new business across global markets and at all three of our media agency brands.
Speaker Change: Media Post also named IPG Media Brands as its media agency of the year.
Speaker Change: and Media Brands and UM are finalists for Campaigns Global Agency of the Year Awards.
Speaker Change: and the IAC segment. We shared previously that as part of its global consolidation review earlier this year, Kimberly Clark expanded his partnership with Interpublic with an integrated holding company solution led by F.C.B.
Speaker Change: FCB retained its top position in the one club for creativity's global creative rankings. This was announced earlier in the quarter and FCB finished 2024's Agency Network of the Year and FCB New York was again named Global Agency of the Year.
Speaker Change: In our healthcare space, IPG Health was named Network of the Year by Advertising Health and a number of its agencies led across a range of award categories and in the agency of the Year Distinctions.
Speaker Change: Forster released its 2025 evaluation of marketing, creative, and content services.
Speaker Change: and McCann was recognized in that ranking as a strong performer, betting the standard for creative vision with its mission to build enduring platforms through its truth-well-told methodology.
Speaker Change: Among our US-based creative agencies, the Martin agency saw wins in Q1 with Hershey's and
and Deutsche earned a spot on Adid's prestigious 2025 A list.
within our F-C-N-E segment.
Speaker Change: Powered by R.A.I. and Tech platforms. This integrates Axiom's data spine to transform how organizations use data, technology and AI in their earned, owned and social media campaigns. [inaudible]
IPG Axiom, a number of leading social networks, [inaudible]
Speaker Change: are also collaborating to develop capabilities designed to help marketers identify relevant and engaging creators and influencers and match them with their specific target audiences.
Speaker Change: The solution leverages actually in this real identity to address the challenges of effective
Speaker Change: By focusing on audience engagement, we're able to improve business outcomes in this high growth area.
Speaker Change: At the PR Week Awards, Weber was named agency of the year, and Warren Gollen won a range of awards, including best promotional event for Grubhub, best in arts, entertainment, sports, and media for Verizon.
Speaker Change: Best in Employee Engagement for McDonald's and Best Global Campaign, again for McDonald's.
and the experiential marketing space campaign named Momentum is…
Speaker Change: Experiencial Agency of the Year for the Second Year Running. The agency created a heralded ultimate fan experience in the Final Four with Coca-Cola, Powerade, and Dyco.
Speaker Change: Octagon continues to excel in sports and entertainment, which is an area that is highly differentiated
Speaker Change: and part of a sector within marketing that continues to grow in importance.
Speaker Change: The agency recently secured landmark partnerships for Bank of America and the Home Depot with U.S. soccer following their inaugural partnerships with FIFA for the 2026 World Cup.
These multi-year agreements represent two of the largest long-term investments.
in U.S. soccer history.
Speaker Change: Pivoting now and looking forward, we did not see anything in the first quarter for in April that would cause us to reconsider our expectations for the year, that we remain focused on delivering against the revenue and margin targets shared with you on our call in February .
Speaker Change: Strong Q1 growth at a number of our agencies mitigated the impact of the three large 2024 losses that as we've indicated will mute organic revenue performance this year.
and in terms of profitability and cost management, [inaudible]
Speaker Change: We had begun to write sides over the course of 2024.
with Associated Elevated Expense [inaudible]
Speaker Change: and have now made a strong progress in the transformation program we announced at the beginning of the year.
which speeds our progress on strategic centralization and platforming.
The macro is increasingly volatile, however.
Speaker Change: The we are staying very close to our clients as they plan for contingencies in light of the rapid pace of change and resulting uncertainty that we are all seeing.
Speaker Change: As we've seen in past periods when confronted with challenging economic cross-currents, the impact on our clients.
Can Very Widely [inaudible]
Speaker Change: Thumbcline industry sectors benefit from greater flexibility in their own operating models or greater access to localized or alternative sourcing.
Or a geographic exposure that can be beneficial in relative terms. [inaudible]
Though consumer sentiment has been resilient to date, [inaudible]
Speaker Change: Confidence is not at the levels we were seeing at the end as we entered the year.
from many marketers. [inaudible]
Speaker Change: that may require a shift in products and services and the potential for the greater emphasis on value.
Speaker Change: with our great resources in terms of talent, technology, and data.
Speaker Change: We are well positioned to help our clients should they need to activate a shift in focus, channels, and marketing activity.
Speaker Change: and as clients look to invest in marketing that directly impact sales,
Speaker Change: Axiom is a key factor in how we can help businesses win.
with the State of Foundation. [inaudible]
Our agencies and clients are operating on info-based.
Speaker Change: The world's largest, most secure, and most trusted core identity resource outside the
Speaker Change: Companies can get a single view of the consumer which in turn leads to increased precision and personalization in all marketing disciplines.
Leading to Conversion with Customers
Speaker Change: Some of our competitors are prone to sound by commentary when it comes to the benefits of their approaches or assets in the data space.
Speaker Change: Yet despite what they claim, there is no better data asset than axiom.
when it comes to delivering precision, transparency and trust.
Speaker Change: Axiom maintains direct integrations with a full range of media publishers, DSPs, SSPs, and marketing technology platforms.
David Karnovsky, John Chevedden,
Speaker Change: giving it end-to-end connectivity across the entire media and tech ecosystem.
Speaker Change: We align the cadeness of data refresh to the source systems of data that are relevant to a specific client and marketing situation.
Speaker Change: which means we refresh data anywhere from real time to weekly, depending on the data type and use case.
Speaker Change: and through our proprietary Axiom assets and our connected tech platform ecosystem, we reach virtually every addressable person and audience globally.
Speaker Change: The noise about reach as a percentage of global population is just that.
What's key to sophisticated marketers is calibrating the right message.
to the right audience [inaudible]
in the most effective Omni-Channel environments. [inaudible]
Speaker Change: In partnership with Leading Social Media Networks, we help clients identify the brand safe creators and influencers with the highest relevance and business impact for their growth audiences.
So, axioms, data and tools are real ID identity resolution capabilities.
Speaker Change: Combined with Interpublic Agency expertise are what help us deliver measurable ROI.
and that's vital in the current environment.
Speaker Change: which is why Interpublic continues to be a trusted partner at the heart of the growth agenda for many of the world's most ambitious businesses.
in terms of the acquisition by Omnicom.
Both companies garnered very strong support in our shareholder votes.
Speaker Change: and you know that we've cleared the regulatory bar in five jurisdictions.
Speaker Change: Across the board, clients continue to share that they're looking forward to the benefits. We will be able to deliver to them once our resources, geographic strengths and company cultures come together to create an unmatched portfolio of talent, services and products.
Speaker Change: Supercharging our creativity and delivering superior data-driven outcomes for the brands we work with.
Speaker Change: We remain confident regarding the completion of the deal in the second half of 2025.
Speaker Change: as well as in the value that the new entity can create for all our stakeholders.
Speaker Change: With that, I'd like to thank our partners and our people for their continued support.
and those of you on this call for your time.
Let's now open the floor to questions.
Thank you.
To ask a question, please press star 1.
Our first question comes from David.
Karnovsky of JP Morgan. Your line is open.
David: Thank you. We'd be great if you could dig in a bit more on the types of conversations you're having with clients right now.
David: I'm kind of recognizing that's going to differ a lot based on you know the vertical and geography and curious how marketers are thinking about deploying media spend I know you mentioned no mark change in activity. What kind of assuming that's a comment on overall levels are you seeing. [inaudible]
David: And he shifts within total outlays, so for instance, our clients, you know, pulling dollars from brand channels and into performance or, you know, maybe putting greater reliance on, you know, principle media buying just given the uncertainty. Thanks.
David: Sure. No, I mean, we haven't seen that change, so I think if you were to strip it back...
David: All of the channels, whether that's linear, digital, streaming or otherwise. I think that the conversations with clients go to some of what I tried to outline in the prepared remarks, which is that everybody is...
Obviously, the rate at which the…
David: Clearly is something that everybody kind of filters through whatever they're thinking about, right? So if you think about...
David: Groups with international sourcing, sort of client organizations. They're thinking about, you know, we've had something happen a few years ago where everybody thought about their supply chain and as you remember from that the supply chains were resilient for quite some time.
David: then you think about, you know, specific industry sectors that might also be impacted, but at this point it's what we said, which is that you've got
Clients thinking about contingencies
David: You know, we're going to sort of look bottoms up. I mean, when you think about prior cycles.
David: If the economy slows, you know, from a disciplined standpoint, where would we see it? We would see it in projects because they're somewhat more discretionary to your point. We might see it at...
You know, a kind of digital span that you can…
David: You know, the changes are fairly significant and they happen on a...
David: You know, on a sort of weekly, if not, you know, quicker than that basis. So I can't really give you more than either how we're thinking on the media side, what are we seeing, on the consumer side what are we seeing, specific to clients.
David: and their industry, their sector, their business model, and everybody's clearly focused on it, and there are a lot of discussions about what it is that is available to us. Are we seeing significant moves to your point?
David: to different channels or different tactics, disciplines, not at this point.
David: I think Ellen noted experiential off. I know events can be choppy, but it's also, you know, we would think one of the more discretionary offerings you have, so just wanted to understand a bit better the trend in that segment relative to the prior several quarters.
David: Cohen was the key driver of that and what you then have are three businesses that are...
David: You know, don't have such scale that you don't have specific client, client specific events that would kind of drive that contraction.
David: I don't know if we're failing his any. The only thing I would add to that is their performance was, you know, as we had expected entering the years. So, there was nothing that changed due to the macro that we're talking about.
Thanks for that clarity.
Speaker Change: Thank you. Our next question comes from Jason Bazinet from City. You may go ahead.
Jason Bazinet: I just had a quick question on a working capital. You called out that low capital use in the first quarter, but I was just going back in my model. I haven't seen a number that low over 20 years. So, can you just unpack that a bit? Is anything changed in the way you're running the business? Or is it a count loss related or what drove such a sound number?
You know
Jason Bazinet: First of all, thank you for the question, and thank you for noting the historical law. However, as we say, every quarter, working capital is volatile. We're very disciplined on how we manage it. That doesn't change from quarter to quarter, from when we onboard a client to the management of payables, extreme discipline and really consistent processes. Thank you very much, Jason. Thank you very much. Thank you very much.
Jason Bazinet: It's just volatile. And whether you get paid on the 30th or the 31st or the 1st or the 2nd makes a big difference. This quarter there was a slight influence from the restructuring that benefited a little bit, but it still was a low. But I don't think anything structurally changed. [inaudible]
I think you will see the volatility continue. Thank you.
Okay, thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from Cameron McVeigh from Morgan Stanley . You may go ahead.
Cameron McVeigh: Hi, thanks. Just had a couple. Cameron, how you characterize the pricing environment and how you're thinking about how pricing power is trending in the industry and at IPG specifically.
Cameron McVeigh: and then secondly, you know, just the lead is on any potential client conflicts, you may have seen with the transactions with Omnichom and whether that has impacted the guide or expectations at all. Thanks.
Speaker Change: You know, the conflict issue, the nature of what we do.
Speaker Change: The services we bring kind of work for to how companies do more than, quote, advertising, but ultimately, really, how they go to market across.
It's hard not to then be superstitious and say, hold on a minute, why do you ask me that question?
Speaker Change: Clients, as we said throughout, are very supportive, right? They see that they're going to be meaningful benefits.
Whether it's in terms of... [inaudible]
Speaker Change: You know, inclusive of media, which maybe goes to the question you asked, the first part of your question. The geographic complementarity, just a lot of the things that we've called out about the benefits.
Speaker Change: of bringing a range of capabilities that is both very, very broad and very, very forward looking and then being able to continue to invest behind those.
Speaker Change: So, you know, as we said, we take close to clients independent of the macro, but so far all the signals there are positive and then on your pricing question
I think we've been...
Speaker Change: Answering versions of that question for some time as an industry, where there was the kind of hay to what extent is.
Speaker Change: Procurement, a part of the conversations, to what extent do you have to demonstrate to clients that they're getting better, but they're also getting better with...
Speaker Change: The benefits of efficiencies. So I don't know that we're seeing anything and I'll happily ask Ellen to jump in on this, but I don't think we've seen anything that is...
Speaker Change: Now, I completely agree it's been competitive and it remains competitive but that's just part of the business.
Got it. Thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from Michael Nathanson, from Moffit, Nathanson. You may go ahead.
Thank you, Michael. Good morning, Phil.
Speaker Change: Philippe, I have a question for you. I asked John this question as well.
Speaker Change: Given the opportunity to create a bigger and better company, I kind of wonder what's new business activity look like in terms of pictures? I would think that it's clients.
await this combination.
I would hold off looking for...
Speaker Change: and your new partner. So if you talk a bit about the environment you're seeing, the new business activity for you all, then, to Ellen on the head count changes, is there any leads to to mention how much does that is organic versus tied to dispositions of those assets? Thanks.
Speaker Change: All right, I'll let Ellen take that one, and then I'll jump back in. Sure, we've said that the organic change was six and a half percent. So...
We are very focused.
as part of our Transformation Efforts.
in many things and many ways of becoming more efficient.
Part of that is a focus on greater centralization.
Speaker Change: We began that process well over a year ago by implementing common systems and technology, and now we're moving from a much more of a federated approach to a much more centralized operating model for many of our support functions, including finance, HR and IT.
Speaker Change: More also really looking at standardizing processes and creating centers of excellence, which will continue to yield greater efficiencies and give us more of an opportunity to focus
Speaker Change: In addition, on the agency side, we're really focused on driving platform benefits in key client-facing areas, which is production and analytics.
Speaker Change: and with streamlining and simplifying certain of our organizational structures, really optimizing spans and layers of management. So that's really where you're seeing the organic change coming from.
on your question around kind of new business.
You know, I think what's interesting is that it's-
Speaker Change: You know, we're new business is definitely the environment is I'd say sort of.
Speaker Change: Moving along, it's kind of happening at a level that's sort of a mid-range level.
Speaker Change: I think the macro might play a role as well and that if you sort of think about when we've gone through
Speaker Change: More challenging economic cycles and given that there's a lot of uncertainty out there right now, it does beg the question is about whether or not a marketer wants the incremental
sort of
Speaker Change: You know, challenge of changing partners or assessing partners. And then, as I think you've probably heard or read, John and I have spent, um...
Speaker Change: You know, kind of how we see the world and ultimately the ways in which the combined company will stand out and as we've said, we believe we'll bring an unmatched set of...
Speaker Change: of capabilities and skills, but we've also reiterated that in the interim and until such time as we get.
Speaker Change: All the way through regulatory, its business as usual and so if you are going to be in market
Speaker Change: You clearly should consider both companies, interestingly, I guess I misspoke because as we were here, we just cleared sixth.
So Singapore just gave us the green light.
So, I would say that the new business activity industry wide is...
Speaker Change: Solid, TBD, whether or not the macro will impact it, and then, you know, clients are pretty thoughtful, they're very sophisticated and they understand what the benefits.
Speaker Change: Wilby, Slash, could be when our companies come together and if that informs their decision about how and when to think about who their partner should be.
Speaker Change: That's clearly a decision that they will make, but we're not seeing dramatic change based on that.
Thanks.
Sure.
Speaker Change: Thank you. Our next question comes from Daniel Osley, from Wells Fargo. You may go ahead.
Let Ellen start. Sure. So, um...
Speaker Change: When we announce the transformational efforts or the restructuring in February , we said the
Speaker Change: The amount of the expected charge to 300 to 350 and on a run rate annualized basis were also increasing the benefits we're seeing to at least 3 to 350, which we say will accrue to the newly larger organization.
Speaker Change: and there's very little duplicational ad with the 750 that is related to the humnicum acquisition.
Speaker Change: We are just, you know, all the areas that I outlined, we're just seeing more opportunities and we're moving its speed to achieve them. So whether that's the centralization, whether that's optimizing spans and layers of management, whether that's streamlining, more opportunities to reduce our real estate footprint as well as rationalizing underutilized assets. [inaudible]
Speaker Change: So the more we're getting into the transformation efforts, the more opportunity we're finding and we're moving its speed to capitalize on them.
Speaker Change: There's nothing that new in terms of an area of focus for us.
Speaker Change: In terms of where we're centralizing, how we're standardizing, kind of where we're thinking about offshoring or what you could refer to as platforming. It's just that as the work has begun, we've just seen more opportunities to rethink.
whether it's structures or really whether it's ways of working. [inaudible]
Thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from Julien Roch, from Barclays. You may go ahead.
Julian Rock: Yes, good morning, Philippe, Ellen, Jerry. Thanks for taking my questions. No strategy, only numbers. So can we have an idea of how much of the three to three fifty restructuring is cash, which is non-cash. Looks like it was around fifty-fifteen Q1 but for Fulure and for next year.
Julian Rock: First question, then when will this cash restructuring take place all in 25 or some in 26? Can we have an idea of the phasing? And then an idea of the timing of the benefits between 25, 26 and 27?
Julian Rock: And then on FX, if the rate or the exchange rate don't change at all for the rest of the year, can we have an idea of the impact Q2Q3Q4? Thank you.
Julian Rock: Good morning. I'm going to start with the FX, which is the rates continue. We're projecting about negative 60 basis points for the full year.
as far as...
Julian Rock: The timing of the savings and cash and on cash. I'll start with cash and on cash first. I would expect the ratio that you saw in Q1 to continue through the full program. We're expecting to complete our program by the end of the year with the majority of the expense takeout or the charges to be realized in the first half.
Julian Rock: The savings for the in-year are, we believe, as the originally, but with larger savings on run-right basis in 26 and beyond. They are structural savings, so they should be enduring.
Speaker Change: Okay, but we're not going to get the whole 315-26, right? If you had to venture, how much of that will get in 26 buses later?
Speaker Change: The approximate $250 is what we're saying for $25, and the $300 to $350 should be in $26. And recurring beyond? Exactly.
Speaker Change: Okay, so we get the whole benefit from 26th and then obviously same number going forward. Okay, thank you very much.
Thank you.
Thank you.
Thank you.
Speaker Change: Our last question comes from Craig Huber of Huber Research Partners. You may go ahead.
Craig Huber: Thank you. Good morning. Thank you. I know you have a few minutes here. Can you just update us on your AI efforts? How are you feeling about that?
Speaker Change: in terms of services, enhancements, product enhancements, versus cost savings. Are you seeing those AI cost savings in the quarter we just finished? Thank you.
Speaker Change: I think Ellen can speak to, you know, if you think if you're asking on the efficiency side and then obviously I'm happy to talk about how it's integrated or sort of add to what was in the prepared remarks about.
Speaker Change: kind of how it's being integrated on the capabilities and client facing son.
Yeah, I mean, as we're moving to more common systems,
AI is a component of that.
Training across a lot of the corporate groups to really...
Speaker Change: Stimulate intellectual curiosity on all the different use cases. We're using it in our shared services centers to automate more processes. But as we continue to standardize and move into right shoring, there will be more and more AI capabilities baked in. So I say we're seeing some, but it's still earning early innings and there's a lot more to come. We're seeing a lot more to come. We're seeing a lot more to come.
Speaker Change: I think increasing quite dramatically in the last six to twelve months, I called out something that I actually just spent some time with some clients on.
Speaker Change: on the on the earned owned social side and how it's really become core to how we're going to market in...
Speaker Change: That whole part, the sector of the business, I think, across the consumer ad agencies.
Speaker Change: Weather at an FCB, at a Deutsch, at McCann, you're definitely seeing.
It being incorporated into a broad range of everything from...
Speaker Change: So that it's really a business conversation with a client all the way through to the kind of smart production.
Speaker Change: and Delivery of Content. And then, you know, the ability to then track that content and understand how consumers are interacting with that content, which I think is interesting because it will increasingly open the opportunity for more accountability and more...
Speaker Change: Signal back and therefore on the creative sides of the business I think a revenue model that's more performance based so I think we're pleased at the
Ellen Johnson: Degree to which AI is being incorporated to Ellen's point on the processes, how we run the business, but also the delivery of service and product to clients.
Bray, thank you both.
Thank you.
Speaker Change: I think I understood that to be the last question, so as I said, we appreciate the...
Speaker Change: Attention, we look forward to updating you again in a couple of months time and you know a lot can happen in those few months. Everybody here will be very focused on what we laid out which is just our clients and delivering for them. Thank you.
Speaker Change: Thank you. This concludes today's conference. You may disconnect at this time.