Interpublic Group of Companies Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
October 21, 2022

Key Takeaways

  • IPG posted 5.6% organic growth in Q3 and 8.2% in the first nine months, outpacing the industry and raising its full-year organic growth guidance to 7% with an expected adjusted EBITDA margin of 16.6%.
  • The company delivered a Q3 adjusted EBITDA margin of 15.5%, net income of $252 million, and adjusted EPS of $0.63, as operating expenses normalized with resumed travel and a 7% headcount increase.
  • IPG generated $342 million of operating cash flow before working capital, ended Q3 with $1.77 billion in cash, maintained a 1.7× net debt-to-EBITDA ratio, and repurchased 2.6 million shares for $74 million.
  • Amid rising macroeconomic uncertainty, clients are engaging in scenario planning, deferring some digital projects and shifting spending toward performance-driven marketing, but IPG views continued investment as a long-term advantage.
  • Key growth drivers include healthcare, commerce capabilities enhanced by the RafterOne acquisition, and strong momentum in experiential and digital solutions across IPG Health, Mediabrands, McCann and Jack Morton.
AI Generated. May Contain Errors.
Earnings Conference Call
Interpublic Group of Companies Q3 2022
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good morning, and welcome to the Interpublic Group Third Quarter 2022 Conference Call. 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.

Operator

Sir, you may begin.

Speaker 1

Thank you. Good morning.

Speaker 2

I hope you are all well.

Speaker 1

This morning, we are joined by our CEO, Philippe Krakowski and by Ellen Johnson, our CFO. We have posted our earnings release and our slide presentation on our website, interpublic.com. We plan to begin our call with prepared remarks to be followed by Q and A. We plan to conclude before market open at 9:30 Eastern Time. We'd like to remind you that during this call, we will refer to certain non GAAP measures.

Speaker 1

Question comes from the line of David. Please go ahead. We believe that these measures provide useful supplemental data that while not a substitute for GAAP measures questions allow for greater transparency in the review of our financial and operational performance. To better align with the language in our financial statements, we will use the term revenue before billable expenses as well as the more familiar net revenue interchangeably. Question comes from the line of John.

Speaker 1

They are identical measures and there has been no change to the method of calculation. As you will recall, billable expenses in revenue questions are offset dollar for dollar in our operating expenses and therefore have no effect on our results of operations. Question

Speaker 3

comes from the line of David. Please go ahead. We will also

Speaker 1

refer to forward looking statements about our company. These are subject to the uncertainties and the cautionary statement that is included in our earnings release and the slide presentation and further detailed in our 10 Q and other filings with the SEC. At this point, it is my pleasure to turn things over to Filip Krakowski.

Speaker 4

Thank you, Jerry, and thanks for joining us this morning. I hope you're all keeping well. As usual, I'll start out by covering the highlights of our performance in the quarter 9 months. Allen will then provide additional details, and I'll conclude with an update on our agencies and the tone of the business to be followed by your questions. We're pleased to report a strong 3rd quarter 9 months.

Speaker 4

3rd quarter organic growth was 5.6%. Question comes from the line of David. That's on top of very

Speaker 3

strong 15% growth a

Speaker 4

year ago, and it brings our 3 year organic growth stack over the period of COVID question comes from the line of the line of the call. Over the 1st 9 months of the year, our organic growth was 8.2% Q1 of 2019 on top of 12% a year ago, which brings 3 year growth to 15.7% for the 1st 9 months. Q3 numbers continue to lead the industry. We once again posted growth across our U. S.

Speaker 4

And international markets. Question comes from the line of John. Domestically, organic growth for the quarter was 4.4% on top of 14.7% in last year's Q3, and organic growth in our international markets was 7.8%, highlighted by growth in every region of the world, and that was on top of 15.4% growth a year ago. Our growth in the quarter was also broad based question comes from the line of David. Please go ahead.

Speaker 4

Thank you, David. Thank you, David. Thank you, David. Thank you, David. Thank you, David.

Speaker 4

Our Media, Data and Engagement Solutions segment grew 3.8% organically, which adds to 15.9% growth last year. Performance here was led by double digit increases at IPG Mediabrands, while 2 of our digital specialist agencies decreased from a year ago questions are weighing significantly on the segment. At our Integrated Advertising and Creative Led segment, organic growth was 6.7% question comes from the line of John. On top of 12.8 percent growth last year, and we had growth in all of our largest agencies with clear leadership again this quarter by IPG Health, Q1 followed by McCann World Group. In our Specialized Communications and Experiential segment, organic growth was 7.8%, Q1 2019 highlighted by double digit growth in our experiential solutions across Jack Morton, Octagon as well as momentum, question that we saw last year.

Speaker 4

Across client sectors, our growth in the quarter was led by healthcare, retail, Financial Services, our other sector of industrial and public sector clients and our auto sector. Turning to operating expenses and margin, our results again continue to reflect the strong cost discipline exercised by our operating teams as well as our ongoing investment behind key growth areas. As you know, our comparisons to last year reflect the ins and outs of the pandemic, Net income in the quarter was $251,800,000 as reported. Our adjusted EBITDA was $356,200,000 Q3, resulting in net revenue margin of 15.5%. As expected, that's below last year's Q3 Q1.

Speaker 4

Compared to a year ago and under our organic growth of 9.1% over the trailing 12 months, headcount has grown approximately 7%. Variable expenses have recovered to higher levels as well as we've resumed travel and returned to office in far greater numbers. Our diluted earnings per share in the quarter was $0.64 as reported and $0.63 as adjusted for intangibles, We repurchased 2,600,000 shares in the quarter. We're gratified that our ability to deliver marketing and media solutions, as well as new client wins. The growth you're seeing is driven largely by these very relevant capabilities, question comes from the line of John.

Speaker 4

Thank you, John. Thank you, John. Thank you, John. Thank you, John. Thank you, John.

Speaker 4

The strength of our company is bringing talented people together in our client centric model question comes from the line of the call. These strong and relevant offerings are important for our long term Q3 as well as at this moment of heightened macroeconomic and geopolitical uncertainty. The current environment is making visibility more challenging. Given our strong year to date performance, we are upgrading our expectation for organic growth for the full year to 7%. With growth at that level, we expect to achieve adjusted EBITDA margin of 16.6%.

Speaker 4

Notwithstanding this update to our outlook, we are seeing a more challenging macro environment going forward. On a question following our last call, you'll remember that I mentioned some clients were asking us to help them scenario plan question comes from the line of John. And think about how they might best redeploy media and marketing investment in the event of a downturn. A majority of our clients are now asking us question comes from the line of questioning and a focus on actions that will drive performance and sales. To a lesser degree, we are also seeing some deferrals of digital project work.

Speaker 4

Historically, we know that marketers that continue to invest through the cycle come out ahead in the long run with measurable gains in market share and growth. These days, that's a conversation that's ongoing with many of our clients. We also know that given the duration of past questions are generally short lived. At IPG, our differentiated resources of creative and marketing talent, question comes from the line

Speaker 5

of data and

Speaker 4

technology as well as outstanding agency brands, along with our diversified and flexible business model and proven management teams question is coming from the line of John. You can expect that we will hold true to our history of managing effectively even in more challenging times, questions. We are, of course, staying close to our clients and to our people. And on that note, I'd like to close this part of my remarks by recognizing and thanking our people question comes from the line of David. Please go ahead.

Speaker 4

Thank you, David. Thank you, David.

Speaker 3

Thank you, David. Thank you, David. Thank you, David. Thank you, David. Thank you, David.

Speaker 3

Thank you, David. Thank you, David. Thank you, David. Thank you, David. Thank you, David.

Speaker 3

Thank you, David. Thank you, David.

Speaker 4

Thank you, David. Thank you, question comes from the line of Michael Korsch. Please go ahead. So at this point, I'm going to hand the call over to Ellen

Speaker 6

question comes

Speaker 7

from the line of Alex. Thank you. I hope that everyone is well. I would like to join Philippe in the recognition of our question comes from the line of John. As a reminder, my remarks will track to the presentation slides that accompany our webcast.

Speaker 7

On Slide 2, our increase in total revenue, which includes billable expenses, was 3.8%. Our 3rd quarter revenue before billable expenses, net revenue increased 1.5% and organic growth was 5.6%. We grew organically across all regions. The 3 year organic stack in the quarter through the pandemic period is 16.9%, which demonstrates a historically strong momentum. Q3 adjusted EBITDA was $356,200,000 with margin of 15.5 percent on net revenue.

Speaker 7

Adjustments exclude the after tax impacts of the amortization of acquired intangibles, a restructuring adjustment question comes from the line of John. We repurchased question comes from the line of John. 2,600,000 of our common shares during the quarter were $73,700,000 bringing share repurchases to $7,100,000 the 1st 9 months of the year. Turning to Slide 3, this is our P and L for the quarter. I'll cover revenue and operating expenses in detail in the slides that follow.

Speaker 7

On Slide 4, we present net revenue in more detail. Our net revenue Q3 2021. Compared to Q3 2021, the impact of the change in exchange rates question was negative 3.6 percent, with the dollar stronger against currencies in nearly all of our international markets. The impact of net divestitures of certain small non strategic businesses was negative 50 basis points. Our organic increase question was 5.6%.

Speaker 7

The result was net revenue of $2,300,000,000 in this year's Q3. Further down the slide, we break out segment net revenue performance. Our Media Data Engagement Solutions segment Q3 grew 3.8% organically, on top of 15.9% in the Q3 of 2021. As you can see on this slide, The segment is comprised of IBG Mediabrands, Acxiom, Canessa and our digital specialty agency. At one end of the spectrum, IPG Media Brands grew at a double digit rate organically, while the other end, we experienced softness at RGA and Huge, which weighed on our results both at the segment and IPG level.

Speaker 7

Organic growth at our Integrated Advertising and Creatively Led Solutions segment question comes from the line of John Kerry with 6.7%, which was on top of 12.8% a year ago. As a reminder, this segment is comprised of IPG Health, McCann, MullenLowe, FCB and our domestic integrated agencies. Our growth in the quarter was led by strong increase question comes from the line of our Specialized Communications and Exponential Solutions segment, Organic growth was 7.8%, which compounds 18.5% from last year's Q3. We were led by double digit increases in our experiential solutions and had mid single digit growth in our PR discipline. Slide 5 presents our organic change of net revenue by region.

Speaker 7

In the U. S, which was 66% of net revenue in the quarter, Our organic increase was 4.4%. That is on top of 14.7% a year ago and was driven by disciplines and agencies across the range of our offerings. We were led by IPG Health, IBG Mediabrands, MediaHub, Jack Morton and Momentum. International Markets were 34% of our net revenue question comes from the line of John.

Speaker 7

Thank you, John. Thank you, John. Thank you, John. Thank you, John. Continental Europe increased 4.7%.

Speaker 7

We were led by growth across France, Italy, Spain and the Netherlands. Germany was down slightly in the quarter on top of 13% growth a year ago. The UK increased 4.9% organically. Our performance was led by Media, Experiential and IPG Health. Asia Pac question comes

Speaker 3

from the line of

Speaker 7

Singapore and China. Our organic growth in LatAm continued to be strong at 19.8%, which it's worth noting is on top of 20% growth a year ago. We grew across all of our principal markets, which include Brazil, Argentina, Mexico, Chile and Colombia. Our Other Markets Group, which is made up of Canada, the Middle East and Africa grew 10.6%. We were led by double digit growth in the Middle East quarter.

Speaker 7

Net revenue was 15.5 percent in the quarter, which as expected decreased from 16.3% a year ago. You'll recall that last year's margin benefited from several transitory effects, which were due to both the sharp acceleration of revenue growth Q1 and to the impact of the pandemic on certain operating expenses, which caused them to run at unusually low levels. These expenses include travel, meetings and in office work. You'll also recall that our hiring significantly lagged behind our top line growth last year. I would point out that our Q3 adjusted EBITDA margin question is well above the pre pandemic Q3 of 2019, which was 14.7%.

Speaker 7

This slide depicts our principal expenses as a percent to net revenue this year and last year. As you can see, our ratio of total salaries and related expense as a percentage of net revenue was 67.4% in the quarter Q1 compared to 66.8 percent a year ago. Underneath that SRS result, we delivered up delevered question comes from the line of our guidance on our expense for base payroll, benefits and tax due to the hiring that is required to support our 9.1% organic growth over the trailing 12 months. Headcount increased approximately 7% over the same period. Going the other way, Our expense for temporary labor decreased from a year ago and our expense for performance based employee incentive compensation Also on this slide, our office and other direct expense was 14.3% of net revenue compared to 13.3% a year ago.

Speaker 7

We continue to leverage our expense for occupancy, which was 4.8 percent of revenue, an improvement of 20 basis points from a year ago. All other office and other direct expense was 9.5 percent of net revenue compared with 8.3% a year ago. The comparison reflects the return of variable expenses that I referred to earlier as a result of increased levels of business activities, though question comes from the line

Speaker 3

of John.

Speaker 7

Our SG and A expense was 0.8 percent of net revenue, question comes from a year ago. On Slide 7, we present the detail on adjustments to our reported 3rd quarter results question comes from the line of David. In order to provide a picture of comparable performance, this begins on the left hand side with our reported results question was $20,200,000 Our restructuring adjustment was at $5,800,000 credit, which here we have adjusted out of our results. Below operating expenses and shown in column 5, we had a net gain of $15,000,000 due to the disposition of a few small question comes from the line of quarter reflects the impact of the diluted share of each of these adjustments, which bridges our diluted EPS as reported question comes from the line of the call at $0.64 to adjusted earnings of $0.63 per diluted share. Slide 8 question is $1.73 for the period.

Speaker 7

On Slide 9, we turn to cash flow in the quarter. Cash provided by operations was 65 Operating cash flow before working capital was $341,700,000 As a reminder, our operating cash flow question is both highly seasonal as well as volatile by quarter due to changes in the working capital component. This is largely a function of the variability and the timing question is partially offset by the sale of the business investment. Our financing activities in the quarter is $209,800,000 Q1 of 2019, primarily for our common stock dividend and share repurchases. Our net decrease in cash for the quarter was $211,000,000 and our cash position question at quarter end was $1,770,000,000 Slide 10 is the current portion of our balance sheet.

Speaker 7

Slide 11 depicts the maturities of our outstanding debt. As you can see on the schedule, total debt at quarter end remained at 3,000,000,000 28. Gross financial debt to EBITDA as defined in our credit facility covenant was 1.7x@quarterend. In summary, on Slide 12, our teams continue to execute at a high level and have us well positioned to deliver on our updated expectations for the year. I would like to reiterate our pride in and gratitude for the efforts of our people.

Speaker 7

The strength of our balance sheet and liquidity mean question comes from the line of

Speaker 4

Frank. Thanks, Ellen. Question comes from the line of Danfurn, Executive Vice President of Investor Relations. Please go ahead. Thank you, Danfurn, and good morning everyone.

Speaker 4

Now the convergence of media and entertainment with the impact of technology on the retail sector is leading to another major growth opportunity for brands, and that's the evolving world of commerce and direct to consumer business models. To date, we've been successful in helping our clients question comes from the line of David.

Speaker 3

The company is a

Speaker 4

leading sales force implementation partner that works with marketers and brands to deliver personalized content question that engages and converts in a measurable, precise and repeatable way across a range of marketing technology channels. By bringing IPG and RafterOne together, we're significantly enhancing our commerce capabilities on a key marketing technology platform question comes from the line of our call. Now RafterOne will continue to work independently with their own roster of clients question comes from the line of John. As well as work directly with IPG Agencies, bringing specialized commerce capabilities, whether that's in strategy, service, question comes from the line of the

Speaker 3

business transformation.

Speaker 4

Commerce and other forms of business transformation work question can be a significant growth driver for us going forward and the addition of RafterOne is an important step question comes from the line of John. Turning to highlights of performance across the group question comes from the line of John. In the quarter, a key sector that continues to show strength is healthcare. Reputationally, we continue to be the leader in this dynamic sector. IPG Health won Healthcare Network of the Year into 2022 and M Awards.

Speaker 4

Collectively, Our agencies took home 23 wins across 21 categories, making us the industry's most awarded network. During the quarter, we launched IPG Health Medical Communications, which aligned 8 agencies to create what we believe question is the industry's most comprehensive and interconnected medcoms offering. And this type of specialized offering available to all of our healthcare clients question is precisely the kind of benefit that we foresaw when we launched IPG Health just a little over a year ago. Importantly, the company's thought leadership and creative recognition also converted into growth as IPG Health continued to win new business and media brands, we continue to see a high degree of engagement with many of the world's most sophisticated marketers. Question comes from the line of the company.

Speaker 4

Last week's Media Brands shared the 4th iteration of its Media Responsibility Index, which is proprietary research questions such as disinformation. Notably, we also promoted Eileen Kiernan, who is exceptionally client focused and strategic, Celebrity Cruises just selected MediaHub as its media agency of record for North America. Acxiom played a significant role in this win During the quarter, Acxiom garnered recognition as a great place to work, with Fast Company naming it as one of the best workplaces for innovators question is from Fortune naming the company a best workplace in technology and a best workplace for women. As Ellen indicated, the performance of 2 of our specialist digital agencies has been challenged as a result of the macroeconomic uncertainty that we're seeing. Both of these agencies are in the midst of evolving their premium offerings, which is a requirement to stay ahead in their space.

Speaker 3

When

Speaker 4

question comes from the line of our industry and the full range of IPG. As such, Darryl is extremely well positioned to advance the success of the network question comes from the line of John We saw several wins in the quarter at McCann, including Beefeaters Gin, McArthur Glenn Design Outlets and Hankook Tire. The Global SE Effectiveness Index named McCann World Group the most effective agency network for the 4th year running. McCann was also named Network of the Year by the Garrity Awards, where an all female jury rewards the highest standard of creative excellence question

Speaker 3

comes from the line of the call.

Speaker 4

At FCV, the Creative Network won new assignments with existing global clients, call, including Kimberly Clark, Clorox and AB InBev. And SCB's Global Chair and Chief Creative Officer was honored question comes from the line of our business. Mullen Logue Group saw a number of new business wins in the U. K. Market, winning the co op retail chain as well as Morgan Stanley, Value Retail and the TikTok and Nutella candy brands.

Speaker 4

MullenLowe continues to be recognized as one of the industry's most creatively effective networks as well. For the 11th year in a row, the top ranked network scored dollar for dollar in the Affi Effectiveness Index. And during the quarter, we iced, which is based in London to handle global creative strategy and advertising question comes from the line

Speaker 3

of Bentley Motors. Our agencies

Speaker 4

that specialize in live events continued their strong return to growth. The industry is seeing budgets shift for more traditional marketing for the kinds of engaging experiences questions that allow consumers to build emotional connections and lasting relationships with brands, often connecting the physical and digital space And having 3 of the industry's premier global sports and brand experience companies within our organization is a point of differentiation for Interpublic. Notable highlights in the quarter here, at Octagon included the creation and management of Coca Cola's FIFA World Cup Trophy Tour as well as the nationwide campaign highlighting The Home Depot's 20th season sponsoring ESPN's College Game Day. Octagon and RNC PMK also worked with our Amazon client to kick off a campaign celebrating the launch question comes from the line of the line of the line of the line of the line of the line of the line of the line of with the Seattle Mariners, making it the largest in baseball history. At Jack Morton, we saw significant wins with clients like McKesson, question comes from the line of Timmons, Intel, Cigna, Riot Games and McDonald's.

Speaker 4

The agency produced the Cadillac U. S. Agency of the Year and brought Jimmy Fallon's Tonight Show to Fortnite. Among our public relations firms, Q1 of 2019 and working alongside Future Brand and Jack Morton as part of the DEXTRA Health team, Webber was awarded a significant brand launch by life sciences company, PerkinElmer. Our U.

Speaker 4

S. Independence during the quarter, the Martin Agency stood out as it extended its run of new business by winning Santander, LegalShield, Bud Light Next, Bud Light Seltzer.

Speaker 3

When it

Speaker 4

comes to our ESG programs, we continue to make notable progress during the quarter. And we once again released our domestic workforce data, which is a transparency commitment IPG established and has now become an industry standard. Question comes from the line of our clients and other key stakeholders. For the year, we remain in a positive position from a net new business standpoint, Our net new business pipeline continues to be sound. Activity in new business does seem to be increasing as we head into the New Year.

Speaker 4

Question comes from the line of David. We're upgrading our view to organic growth for the full year to 7%. As you know, this Quest compound's multiyear sector outperformance. And current results combined with the continued execution of our long term strategy Q1 of 2019. We continue to make position IPG well for the future with highly relevant and differentiated offerings question is underwritten by this sound financial foundation and a strong balance sheet.

Speaker 4

As always, we want to thank our clients and our people questions were both essential elements of our success. And thank you as well for your time this morning. And at this point, let's open the call for questions.

Operator

Question and answer session. One moment for our first question. And our first question is from Stephen Cahall with Wells Fargo. You may go ahead.

Speaker 8

Thanks. Good morning. Maybe first, Philippe, could you talk a little more about the deferral of some of the digital project revenue you talked about? Is this a lot of the project revenue that often comes in, in the Q4 or is this more of a kind of longer term comment reflecting the way clients are doing some of that contingency planning for 2023. And relatedly, when your clients talk about contingency planning And you see them maybe pulling back a little bit in 2023.

Speaker 8

Do you think they're just shifting the way they go to market? Or is that more of a sort of material slowdown in what they might spend on marketing? And then I have a quick follow-up for Ellen.

Speaker 4

I think it's a shifting. I think it's just, as I said, it's being prepared and having Drive performance given the macro. I think that on the project side, it is I think it's Q4 comment more than anything else. I think what you are seeing is that, it's wanting to retain some optionality. So my sense, I think, is that we won't necessarily have clarity or full commitment on some of those projects until a bit deeper into the quarter than we usually would.

Speaker 4

And so, yes, I don't think we're talking about something that is It's a long term trend. It's just a function of the current uncertainty.

Speaker 8

Yes, makes sense. And then Ellen, it sure seems like the stock is not reflecting some of the strength in the business. I've got it at about 10 times earnings. You've got a really healthy balance sheet. I don't think there's much in terms of maturity until 2028.

Speaker 8

So How do you and then and I guess Philippe and the Board sort of feel about leaning more aggressively into the buyback now in a period of uncertainty

Speaker 7

question. We believed in our equity before the sell off. But we are very disciplined. We have a program that we execute against. We actively manage it, but it's a program.

Speaker 7

And so I think we'll stick with it, but definitely believe in the value of our shares.

Speaker 8

Great. Thank you.

Speaker 4

Thank you.

Operator

Thank you. The next question is from David Karnovsky with JPMorgan. You may go ahead.

Speaker 2

All right. Thank you. Just following up on the commentary about clients engaged in scenario planning. Question comes

Speaker 4

from the line of Alex. Please go ahead. Can you just walk through a little bit more what

Speaker 2

that process looks like? Are clients looking to put kind of wholesale pauses into motion in case the Mac growth suddenly gets worse or is this more about shifting brand into performance or building a lot more flexibility to adjust across channel?

Speaker 4

Well, look, I think it's everything that you said and it really depends on where in our world we're having the discussion, right? But It's flexibility is a very big part of it at this point. Questions of the decisions you make. And ultimately, as I said, if it's a client where we're the advisor and the consultant on the media side of things, then it does focus on where and how they're going to redeploy. Question comes from the line of John.

Speaker 4

If it's an open architecture client where we're working with them in a really broad macro sense, then we might dial up certain capabilities Case dependent and within some client categories are feeling it to a greater degree than others. I mean, I'd sort of point out that particularly exposed to the changes that we're seeing. So if high interest rates impact your business, if commodity input costs impact question comes from the line of Chris. So there isn't one answer, but I think it's around that set of conversations, just making the most informed decisions and getting the mix between brand and performance and up and down the funnel and actually linking those 2 increasingly and keeping some optionality as I said earlier.

Speaker 2

And then Philippe, you noted continued strength in healthcare. Can you remind us of your clients with their question comes

Speaker 3

from the line of David. In terms of sort of large pharma versus biotech and then just with biotech, how should we think about

Speaker 2

maybe the medium term outlook question given some of the kind of pressure that sector is seeing in the public markets or is the country owned pipeline just really removed from the macro? Thanks.

Speaker 4

Sure. I mean, in health, I'd sort of point out a couple of things. So we're fortunate in that we are very, very well represented among the largest players in the space. IPG Health clearly has been a focus by The nature of what we've just done a year ago and how we've put that together, but it's been a long term investment that has led to that growth for us, right? And then there are trends underlying trends that are clearly No tailwinds to all of that.

Speaker 4

We have some biotech, but we've got a very balanced portfolio. I'd say that question comes from the line of John. That's specific to biotech. Have we seen the market dislocation have some impact on funding there? Question comes from the line of John.

Speaker 4

Sure. But is that something that's having a significant impact from where we sit given the breadth of what we do? Not really. And then beyond IPG Health, yes, there's sizable health business inside of media brands, inside of marketing services. PR is very strong in that regard, Dexter Health where we're bringing a lot of the marketing services agencies together.

Speaker 4

So that continues to feel to us like it's an area that's going to be pretty resilient. Thank you. Thank you.

Operator

Thank you. And the next question is from Michael Nathanson with MoffettNathanson. You may go ahead.

Speaker 2

Thanks. Philippe, I have 2. One is, it feels to us that the macro in Europe and U. K. Is obviously going to get worse through the winter.

Speaker 2

I wonder, is the ton of business discussions different by geography there? So again, let me talk about

Speaker 4

in terms of where are

Speaker 2

the questions The coming about budgets are skewed to Europe. And then given the potential for slowdowns in those markets, question. What are you doing on the cost side to contingency plan, right? I know it's hard to if you had to take people out capacity added is lower, but what are you doing thinking about just planning for budget expenses in 2023 and the growth of budgets in 2023? So thanks.

Speaker 4

The impact definitely is not only disparate when you think about client sectors, but you can see it in our results where we've got a really strong LatAm, Asia Pac, other markets, although everything Does grow every region was up. So there isn't A holistic answer that tells you what happens in each of those markets. Although clearly Economically, you have to assume that that's a region that's going to be kind of heading into something before the rest the question comes from

Speaker 3

the line of the question. The world are maybe heading into something that other parts

Speaker 4

of the world don't experience, right? On the cost side, We're very clear and we've been really consistent as to all of the ways in which we can address question Those issues, right? So whether you think about the fact that the model is flexible and that's clearly beneficial, Whether you think about the fact that you do approach some of those markets with the understanding that the underlying the ways in which you bring people on and the ways in which you think about staffing are different in those markets just based question comes from the line of John. And so we're very, very focused and disciplined around open recs as we see question comes from the line of John. Change or more uncertainty in the macro and that's consistent across the board anywhere we operate.

Speaker 4

We look very hard at discretionary expenses and clearly some of that has come back into the business in a way that I think is beneficial Because travel has meant seeing clients and getting together with colleagues and some of those costs have also been around Teams being together, which is important as we develop new capabilities. So we'll look at those. Freelance is another place we'll look. Our incentive plan by its nature is going to be a governor on some of that. But it definitely has our attention and it's just going to require execution.

Speaker 4

So there isn't a one size fits all, but Europe is definitely an area of focus for us.

Speaker 2

Okay. Thanks, Luke.

Speaker 4

Sure.

Operator

Thank you. Next is Ben Swinburne with Morgan Stanley. You may go ahead. Thanks.

Speaker 9

Good morning. Maybe just shifting away from the macro for a minute, unless you want to keep talking about it.

Speaker 4

Everybody else seems to.

Speaker 9

Right, exactly. On Raptor 1 and sort of that kind of business broadly, Philippe, I know calling them question comes from the line of Timna. That's probably an old and limiting definition versus what they do today. But can you just talk about your strategy there? And question comes from the

Speaker 3

line of David.

Speaker 4

Like how big is that business?

Speaker 9

Any sense of sort of the size and profitability of that business, not Raptor 1 per se, but the entire IPG set of service offerings in what we might call software services, software integration, it would be interesting to hear. And I'd be also interested on experiential and sponsorship, which you highlighted a bunch of successes at Octagon and momentum. That's an area where I would agree it seems like there's some secular growth. Is that an area you think the company may want to get bigger in Organically or inorganically over time, I'd be interested on both those topics. Thank you.

Speaker 4

Sure. And I think commerce is an question comes from the line of Chris. I mean you said software and obviously there's a technology layer at Acxiom and then there's what we're doing with data and tech with media. So it's not by any means the only place where we've got Businesses that are sort of services plus a service software layer of some kind. But on Commerce, I guess, I mean, just breaking it down, there's a D2C part, right, where clients need our help with everything from the design of a site, the build of a site, the content creation, the CRM piece And then business processes, because you often really have all the way down to payment transactional stuff, right?

Speaker 4

And for us, the leader in that space has MRM, so they excel in those areas. And so to our mind, RafterOne kind of meaningfully bolsters that offering. Then there's the marketplace side. And so that's where we optimize media. Question comes from the line of John.

Speaker 4

We do SEO, we leverage social commerce, and you're sort of doing a lot of message Amplification and you're finding places where you intersect with the consumer. And then that for us it's inside of reprise commerce. So that's a big part of the question comes from the line of John. So those are 2 sizable places where we've housed a lot of that capability. And it all comes together on this umbrella of IPG Commerce.

Speaker 4

And then what we do is we activate a company like a Chase design for in store campaigns question comes from the line of Alex. Or as you said, a momentum for promotions and activations. But we also have specialist agencies and influencer management, for example, you have paid placements. And another big piece of it is going to be retail media. And We're very active.

Speaker 4

You saw Magna put out a how big is this, how big is it going to get. And I think it's net going to be a growth area for brands and therefore for people who provide advisory services. So So we kind of draw that from a number of our agencies and then that's kind of the MarTech side of it. But when you follow the consumer along the purchase journey and you're going awareness purchase, but you're also going loyalty, lifetime customer value, then you want it question comes from the line of the question. And you want to decide where and how you get Martech And AdTech working together.

Speaker 4

So that's why I said we see it as a really big opportunity for us. And then on the experiential piece, When the pandemic hit, we scope that for you all to say circa maybe a little bit shy of 5% of our revenue. And it the world closed, so that was clearly a very difficult time for them. But we see that as something that is a differentiator for us collectively those assets. And the question for us is To get them more focused on where clients are going, which is ROI and accountability and the digital component, building out digital into and with those organizations, we think is going to make the nature of what they do more precise and more accountable.

Speaker 4

It's also a really interesting place to talk to clients about Using all of that activity as a way to onboard first party data about your customers in a way that's very, very transparent and therefore very, very compliant. So we do think that that's an area where there's the opportunity for growth for us. Thank you. Sure.

Operator

Thank you. Our next question is from Julian Roque with Barclays. You may go ahead.

Speaker 6

Yes. Good morning, Philippe and Alain. Thank you very much for taking the question. 2, one for Alain, one for Philippe, on Helen, on net interest. Both Publicis and Omnicom said that that was fixed, so no impact on interest expenses, while either higher interest More interest income.

Speaker 6

What about IPG, same I. E. Lower net interest, could you quantify it? You have €1,800,000,000 of cash, Yield on cash went from 0 to 4, so EUR 64,000,000 benefits. And then Philippe, some agencies are saying that in case of downturn, some advertisers have learned their lessons question comes from last couple of downturns and therefore we cut less.

Speaker 6

However, a recent survey from the World Federation of Advertisers, spotting 55 of the world's largest advertisers conclude that the economy will be the main driver of the budget next year for 74% of them, which would indicate they intend to cut the same. So If we go into a global recession next year, do you believe that advertisers would cut as in the past or will they behave differently? Thank you.

Speaker 7

So I will start and thank you for the question. Good morning. Yes, as someone pointed out earlier, we do have a very strong balance sheet and lots of liquidity and we do sit with cash. We actively manage our cash, maximizing interest income. We also have a very nice maturity profile with all fixed rate debt.

Speaker 7

Question on our balance sheet and liquidity. We put a lot of time and energy and manage it very carefully.

Speaker 4

The bigger question, as I said In the prepared comments, it is a conversation that's ongoing with the vast majority of our clients. There is an understanding and an acknowledgment that there's a meaningful benefit to staying the course. We don't break this out for you, but our top 20, say our top 40 clients We've been growing consistent with the overall growth of the company, although there are lots of ins and outs. Because as I said, if you've got question comes from the line of David. Certain factors that are impacting your business or your business model disproportionately.

Speaker 4

And it's interesting because even supply chain, we were talking about at the the client, it might be later in the year and there are 1 or 2 categories where it's come into the conversation with clients. So I do believe that clients understand it and so it will be a function of where they sit if their company question has the wherewithal to move through the period and stay invested. And then the other thing that we've also talked about is the tools available to clients and the ways in which we and some of our competitors have capabilities question that can move much further down into the funnel or can do as the question earlier alluded to, Can do work that connects brand and performance. So it really is dependent on question to do something that they know will benefit them in the long term or whether they might have to take some action kind of corrective action to get through a period that might be more challenging for them.

Speaker 6

Okay, very clear. Thank you very much.

Speaker 4

Thank you.

Operator

Thank you. Our next question is from Tim Nollen with Macquarie. You may go ahead.

Speaker 5

Good morning, everyone. Thanks a lot for taking the question. I'd like to actually ask the recession question again, if you don't mind, but in a different way. Let's ignore the Q2 2020 recession because that was such a sudden weird thing. And let's go back to like 'nine or 'one, 'two.

Speaker 5

In those days, you were very much a traditional media business and now you're very much a digital media business doing lots of different things beyond measured question comes from the line of Media. And I wonder if you could help us understand maybe, if we all assume that measured media spending might drop in a recession, Perhaps at similar rates as it did last time around, who knows? But you do so many other things right now. Is there a way to qualitatively or hopefully quantitatively assess question comes from the line of what the spending might be with Acxiom, Canessa, on IT consulting, all those sorts of things beyond just traditional media?

Speaker 4

I'm not sure that I can while quantitatively assess. I mean, I can point to some of the things we've been talking about. Healthcare likely a place that is more resilient. E Commerce question comes from the line of sight to ROI and much more either clarity on that or ability to go directly to the consumer. I think those feel like they're going to be areas that are going to be less cyclical.

Speaker 4

Acxiom, as you said, if you think about the fact that 2 thirds of their revenue is long term fixed fee contracts. And so those are all areas which we believe will stand up better when 2020 hit Areas where we had a more consultative business model, areas where we had more clarity around Accountability and outcomes, which also includes our media business. All of those fared better. And it's a big diversified portfolio. So that does mean to your point that you wouldn't, I think, be looking at what we saw in 'eight, 'nine, Independent of whatever 2020 was, which to your point is sort of super anomalous and still Kind of having impacts all through every part of economic life, right?

Speaker 5

Yes. Thanks, Felipe. And just maybe one point of quantification could be that all these things you're talking about, I mean, you probably have it in your This is half or more than half of all the business you do, right? The traditional measured media stuff is way less than half, isn't it?

Speaker 4

Well, look, I mean, that's a place where there have been times when folks in our sector said, our digital revenue is question is, X%, Y%. And our point of view on that was always that it's so embedded into question comes from the line of David. Everything we do because we try to go to market when we engage with clients with something that's integrated and something that solves for them And is right for their business that we then don't spend the time trying to unpick it. And so I can't give you a

Speaker 3

kind

Speaker 4

of a GAAP compliant measure that gives you that number, but it is a substantial part of our business, but our deal is that's what drives growth. So if our organic growth is strong, then you've got to assume that all of those things are a pretty big chunk of what we do.

Speaker 1

Okay, great. Thanks.

Operator

Question comes from Craig Huber with Huber Research Partners. You may go ahead.

Speaker 4

Hey, Craig.

Speaker 10

Hey there, hi. Quick question. Let's go back to the cost outlook for next year. Let's say hypothetically, not making a big bet here. Let's assume next question comes from the line of Alex.

Speaker 10

Alan, I'd love to hear what leverage you think you could pull to potentially keep your margins next year in a scenario like that. Do you have much leeway to be able to do that?

Speaker 7

Hi, Craig. Sure. If revenues were flat, given that scenario, it clearly would be our objective to be able to maintain our margins. The things that I would point to that give us line in sight is we're an experienced managed team that has navigated together through many economic environments. As Felipe has pointed out, we have a flexible cost structure, right, between open reps, attrition, Temp help and incentive comp, which varies very closely with performance.

Speaker 7

All those things will help. And then question comes from the line of Alex. Ultimately, it will depend upon the revenue mix that causes that, right? But it's something that it would clearly be in our objective and we think we have line in sight to.

Speaker 10

Great. That's all I had. Thank you.

Speaker 4

Thank you. I think we are out of time. So thanks again all for

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