Interpublic Group of Companies Q3 2022 Earnings Report

Interpublic Group of Companies EPS Results

• Actual EPS: $0.63
• Consensus EPS: $0.59
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: N/A

Interpublic Group of Companies Revenue Results

• Actual Revenue: $2.30 billion
• Expected Revenue: $2.29 billion
• Beat/Miss: Beat by +$6.79 million
• YoY Revenue Growth: N/A

Interpublic Group of Companies Announcement Details

• Quarter: Q3 2022
• Date: 10/21/2022
• Time: N/A
• Conference Call Date: Friday, October 21, 2022
• Conference Call Time: 8:30AM ET

Interpublic Group of Companies (NYSE:IPG) (NYSE: IPG) is a leading global provider of marketing solutions and communications services. Through its portfolio of agencies and specialized networks, IPG delivers a broad spectrum of services, including advertising, digital marketing, media planning and buying, public relations, branding, and data analytics. Its creative agencies develop integrated campaigns that span television, print, social media, mobile, experiential and other emerging channels, while its media networks leverage proprietary tools and strategic partnerships to optimize audience targeting and performance.

Since its formation in 1961 as one of the first marketing services holding companies, Interpublic has expanded through strategic acquisitions and organic growth to become one of the so-called “Big Four” advertising conglomerates. The company’s origins date back to early 20th-century agencies such as McCann-Erickson, which was established in 1902 and later became the cornerstone of IPG’s Creative Boutique network. Over the decades, IPG has integrated a diverse mix of creative firms, media specialists and public relations consultancies to provide end-to-end marketing solutions for multinational clients.

Headquartered in New York City, Interpublic Group operates in more than 100 countries across the Americas, Europe, the Middle East, Africa and the Asia-Pacific region. Its global footprint allows clients to tap into local market expertise while benefiting from coordinated international campaigns. IPG’s media network, known as IPG Mediabrands, manages global media investments and deploys data-driven insights to maximize return on investment, while IPG Health focuses on healthcare and pharmaceutical communications. Additional units offer customer experience, commerce activation and crisis communications services.

Interpublic’s leadership team is anchored by Executive Chairman Michael I. Roth, who has guided the company’s strategic direction for over two decades, and Chief Executive Officer Philippe Krakowsky, who assumed the top operational role in 2021. Under their stewardship, the company has prioritized digital transformation, advanced analytics and diversity initiatives to meet evolving client needs. With a commitment to innovation and collaboration, IPG continues to shape the future of marketing by integrating creativity, technology and data across every discipline.

Interpublic Group of Companies Q3 2022 Earnings Call Transcript

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.

Presentation

[Operator]

Good morning, and welcome to the Interpublic Group third quarter 2022 conference call. All parties are in a listen-only mode until the question-and-answer portion. At that time, if you would like to ask a question, you may press star one. This conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Mr. Jerry Leshne, Senior Vice President of Investor Relations. Sir, you may begin.

[Jerry Leshne, Senior VP of Investor Relations at The Interpublic Group of Companies]

Thank you. Good morning. I hope you are all well. This morning, we are joined by our CEO, Philippe Krakowsky, and by Ellen Johnson, our CFO. We have posted our earnings release and our slide presentation on our website, interpublic.com. We plan to begin our call with prepared remarks to be followed by Q&A. We plan to conclude before market open at 9:30 A.M. eastern time.

[Jerry Leshne, Senior VP of Investor Relations at The Interpublic Group of Companies]

We'd like to remind you that during this call we will refer to certain non-GAAP measures. We believe that these measures provide useful supplemental data that, while not a substitute for GAAP measures, allow for greater transparency in the review of our financial and operational performance. To better align with the language in our financial statements, we will use the term revenue before billable expenses as well as the more familiar net revenue interchangeably.

[Jerry Leshne, Senior VP of Investor Relations at The Interpublic Group of Companies]

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

[Jerry Leshne, Senior VP of Investor Relations at The Interpublic Group of Companies]

We will also 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 Philippe Krakowsky.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Thank you, Jerry, and thanks for joining us this morning. I hope you're all keeping well. As usual, I'll start out by covering the highlights of our performance in the quarter and the nine months. Ellen 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.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

We're pleased to report a strong third quarter and nine months. Third quarter organic growth was 5.6%. That's on top of very strong 15% growth a year ago, and it brings our three-year organic growth stack over the period of COVID to 16.9% in the third quarter.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Over the first nine months of the year, our organic growth was 8.2% on top of 12% a year ago, which brings three-year growth to 15.7% for the first nine months. Those three-year numbers continue to lead the industry. We once again posted growth across our U.S. and international markets. Domestically, organic growth for the quarter was 4.4% on top of 14.7% in last year's third quarter.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

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 across our portfolio, whether viewed by segments, agencies, or marketing disciplines. Each of our segments compounds double-digit growth a year ago.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

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 two of our digital specialist agencies decreased from a year ago and are weighing significantly on the segment. At our integrated advertising and creative-led segment, organic growth was 6.7% on top of 12.8% growth last year.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

We had growth in all of our largest agencies with clear leadership again this quarter by IPG Health, followed by McCann Worldgroup. In our specialized communications and experiential segment, organic growth was 7.8%, highlighted by double-digit growth in our experiential solutions across Jack Morton, Octagon, as well as Momentum, along with solid single-digit increases in the public relations discipline.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

This result builds on the 18.5% growth in this segment that we saw last year. Across client sectors, our growth in the quarter was led by 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.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

As you know, our comparisons to last year reflect the ins and outs of the pandemic, though we continue to drive margins at levels that are well above seasonally comparable pre-COVID periods. Net income in the quarter was $251.8 million as reported. Our adjusted EBITA was $356.2 million, resulting in net revenue margin of 15.5%.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

As expected, that's below last year's third quarter when our growth had accelerated at a rate that was well ahead of hiring and when certain variable expenses were still at low levels due to the effects of the pandemic. Compared to a year ago, and with our organic growth of 9.1% over the trailing twelve months, headcount has grown approximately 7%.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Variable expenses have recovered to higher levels as well as we've resumed travel and return to office in far greater numbers. Our diluted earnings per share in the quarter was $0.64 as reported and $0.63 as adjusted for intangibles, amortization, restructuring adjustments, and our net dispositions. Under our share repurchase program reauthorized earlier this year, we repurchased 2.6 million shares in the quarter.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

We're gratified that our ability to deliver marketing and media solutions, which bring together creativity, technology, and data, continue to drive growth with existing clients as well as new client wins. The growth you're seeing is driven largely by these very relevant capabilities, which can solve for an expanding set of marketer needs for more precise, personalized, and accountable engagements with their audiences at an individual level.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

The strength of our company is bringing talented people together in our client-centric model to create customized solutions that meet these higher order client needs, whether those engagements are led by one of our powerful agency brands or through a collaborative IPG open architecture team. These strong and relevant offerings are important for our long-term future as well as at this moment of heightened macroeconomic and geopolitical uncertainty.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

The current environment is making visibility more challenging, but given our strong year-to-date performance, we are upgrading our expectation for organic growth for the full year to 7%. With growth at that level, we expect to achieve adjusted EBITDA margin of 16.6%. Notwithstanding this update to our outlook, we are seeing a more challenging macro environment going forward.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

On a question following our last call, you'll remember that I mentioned some clients were asking us to help them scenario plan 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 to engage in this kind of contingency planning, prioritization of activity, 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.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

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 downturns, reductions are generally short-lived.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

At IPG, our differentiated resources of creative and marketing talent, data and technology, as well as outstanding agency brands, along with our diversified and flexible business model and proven management teams, position us well. You can expect that we will hold true to our history of managing effectively even in more challenging times, while also continuing to invest in and advance our offerings for success in an increasingly digital economy. We are, of course, staying close to our clients and to our people.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

On that note, I'd like to close this part of my remarks by recognizing and thanking our people for their focus and their work on behalf of clients in support of each other, and also for their engagement on the many vital societal issues that are consistent with our culture and values. At this point, I'm gonna hand the call over to Ellen for a more in-depth view of our results.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Thank you. I hope that everyone is well. I would like to join Philippe in the recognition of our people and add my thanks to them. As a reminder, my remarks will track to the presentation slides that accompany our webcast. On slide two, our increase in total revenue, which includes billable expenses, was 3.8%.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Our third quarter revenue before billable expenses, net revenue, increased 1.5%, and organic growth was 5.6%. We grew organically across all regions. The three-year organic stack in the quarter through the pandemic period is 16.9%, which demonstrates a historically strong momentum. Third quarter adjusted EBITDA was $356.2 million, with margin of 15.5% on net revenue. Diluted earnings per share was $0.64 as reported and $0.63 as adjusted.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Adjustments exclude the after-tax impacts of the amortization of acquired intangibles, a restructuring adjustment, and a non-operating gain from dispositions of certain small agencies and a business investment. We repurchased 2.6 million of our common shares during the quarter for $73.7 million, bringing share repurchases to 7.1 million through the first nine months of the year.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Turning to slide three, this is our P&L for the quarter. I'll cover revenue and operating expenses in detail in the slides that follow. On slide four, we present net revenue in more detail. Our net revenue was $2.26 billion in the third quarter of 2021.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Compared to Q3 2021, the impact of the change in exchange rates was -3.6%, with the dollar stronger against currencies in nearly all of our international markets. The impact of net divestitures of certain small non-strategic businesses was -50 basis points. Our organic increase was 5.6%. The result was net revenue of $2.3 billion in this year's third quarter. Further down the slide, we break out segment net revenue performance.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Our Media Data Engagement Solutions segment grew 3.8% organically, on top of 15.9% in the third quarter of 2021. As you can see on this slide, the segment is comprised of IPG Mediabrands, Acxiom, KINESSO, and our digital specialty agencies. At one end of the spectrum, IPG Mediabrands grew at a double-digit rate organically.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

While at the other end, we experienced softness at R/GA and Huge, which weighed on our results both at the segment and IPG level. Organic growth at our integrated advertising and creatively led solutions segment was 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 in IPG Health and solid growth at McCann.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

At our specialized communications and experiential solutions segment, organic growth was 7.8%, which compounds 18.5% from last year's third quarter. The segment is comprised of Weber Shandwick, Golin, Jack Morton, Momentum, Octagon, and DXTRA Health. We were led by double-digit increases in our experiential solutions and had mid-single-digit growth in our PR discipline.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Slide five presents our organic change of net revenue by region. 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, IPG Mediabrands, Mediahub, Jack Morton, and Momentum.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

International markets were 34% of our net revenue in the quarter and increased 7.8% organically. That is on top of 15.4% a year ago. Continental Europe increased 4.7%. 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 U.K. increased 4.9% organically.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Our performance was led by media, experiential, and IPG Health. Asia PAC grew 5.6% organically, with broad-based growth across our largest markets, including Australia, India, Singapore, and China. Our organic growth in LatAm continued to be strong at 19.8%, which, it's worth noting, is on top of 20% growth a year ago.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

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 and solid growth in Canada. Moving on to slide six and our operating expenses. Our adjusted EBITDA margin on net revenue was 15.5% in the quarter, which, as expected, decreased from 16.3% a year ago.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

You'll recall that last year's margin benefited from several transitory effects, which were due to both the sharp acceleration of revenue growth during 2021 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.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

I would point out that our Q3 adjusted EBITDA margin is well above the pre-pandemic third quarter of 2019, which was 14.7%. This slide depicts our principal expenses as a percent of net revenue this year and last year. As you can see, our ratio of total salaries and related expense as a percentage of net revenue was 67.4% in the quarter, compared to 66.8% a year ago.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Underneath that SRS result, we delevered on our expense for base payroll, benefits, and tax due to the hiring that was required to support our 9.1% organic growth over the trailing twelve 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 decreased significantly.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

At quarter end, our total worldwide headcount was approximately 58,500. Also on this slide, our office and other direct expense was 14.3% of net revenue, compared to 13.3% a year ago. We continue to leverage our expense for occupancy, which was 4.8% of revenue, an improvement of 20 basis points from a year ago.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

All other office and other direct expense was 9.5% 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 not fully up to pre-pandemic levels. Our SG&A expense was 0.8% of net revenue, a decrease of 60 basis points from a year ago.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

On slide seven, we present the detail on adjustments to our reported third quarter results in order to provide a picture of comparable performance. This begins on the left-hand side with our reported results and steps through to adjusted EBITDA and our adjusted diluted EPS. Our expense for the amortization of acquired intangibles in the second quarter was $20.2 million.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Our restructuring adjustment was a $5.8 million credit, which here we have adjusted out of our results. Below operating expenses, and shown in column five, we had a net gain of $15 million due to the disposition of a few small non-strategic agencies and a business investment.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

At the foot of the slide, you can see the after-tax impact per diluted share of each of these adjustments, which bridges our diluted EPS as reported at $0.64 to adjusted earnings of $0.63 per diluted share. Slide eight depicts a similar set of adjustments for the nine months, again, for continuity and comparability. Adjusted diluted earnings per share was $1.73 for the period. On slide nine, we turn to cash flow in the quarter. Cash provided by operations was $65.6 million.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Cash used for working capital was $276.1 million. Operating cash flow before working capital was $341.7 million. As a reminder, our operating cash flow is both highly seasonal as well as volatile by quarter due to changes in the working capital component. This is largely a function of the variability in the timing of our collections and payments.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

In our investing activities, we used $36.4 million, mainly for CapEx, partially offset by the sale of a business investment. Our financing activities in the quarter used $209.8 million, primarily for our common stock dividend and share repurchases. Our net decrease in cash for the quarter was $211 million, and our cash position at quarter end was $1.77 billion. Slide 10 is the current portion of our balance sheet.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Slide 11 depicts the maturities of our outstanding debt. As you can see on this schedule, total debt at quarter end remains at $3 billion. Our next maturity is April 2024 for only $250 million. Thereafter, our next maturity is not until 2028. Gross financial debt to EBITDA, as defined in our credit facility covenant, was 1.7 times at quarter end.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

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. The strength of our balance sheet and liquidity mean that we remain well-positioned both financially and commercially. With that, I'll turn it back to Philippe.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Thanks, Ellen. Our growth thus far this year builds on a record of success that goes back some time, and embedding digital across the portfolio, as well as adding a layer of data and tech to our offerings, have been important parts of that playbook, along with our commitment to talent and strong agency brands.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

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.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

To date, we've been successful in helping our clients create engaging and effective customer experiences across a range of physical and digital environments. During the quarter, we took another important step along this journey when we announced our acquisition of RafterOne.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

The company is a leading Salesforce implementation partner that works with marketers and brands to deliver personalized content that engages and converts in a measurable, precise, and repeatable way across a range of marketing technology channels. With over 25 years of experience building digital journeys for clients and with more than 500 employees, RafterOne is a Salesforce Summit partner, and that's the highest tier awarded to implementation partners.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

By bringing IPG and RafterOne together, we're significantly enhancing our commerce capabilities on a key marketing technology platform in both the B2C and B2B Salesforce clouds. Now, RafterOne will continue to work independently with their own roster of clients, as well as work directly with IPG agencies, bringing specialized commerce capabilities, whether that's in strategy, service, data, or CX implementation to clients across our entire portfolio.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Commerce and other forms of business transformation work can be a significant growth driver for us going forward, and the addition of RafterOne is an important step in rounding out our offerings in this space. Turning to highlights of performance across the group in the quarter, a key sector that continues to show strength is healthcare.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Reputationally, we continue to be the leader in this dynamic sector. IPG Health won Healthcare Network of the Year at the 2022 MM+M Awards. 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 aligns eight agencies to create what we believe is the industry's most comprehensive and interconnected med comms offering.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

This type of specialized offering available to all of our healthcare clients 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 grow with existing clients, including AstraZeneca, Pfizer, Teva, and Boehringer Ingelheim. IPG Health was also a key part of a successful integrated media consolidation with Merck.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

In IPG Mediabrands, we continue to see a high degree of engagement with many of the world's most sophisticated marketers. During the quarter, we onboarded new clients, including Nike, and expanded our relationships with Merck and Teva. Last week, IPG Mediabrands shared the fourth iteration of its Media Responsibility Index, which is proprietary research on the relative safety and fairness of media platforms.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

This helps our clients make their media planning decisions in ways that are responsive to issues such as disinformation and misinformation. Notably, we also promoted Eileen Kiernan, who's exceptionally client-focused and strategic, naming her Global CEO of IPG Mediabrands. In this regard, Eileen becomes the first female leader of a major media management group in the industry.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Staying in the media space, as we see travel continue to bounce back, Celebrity Cruises just selected Mediahub as its media agency of record for North America. Acxiom played a significant role in this win, as the teams will develop custom audiences through addressable media to power this client's highly personalized marketing efforts.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

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 and Fortune naming the company a best workplace in technology and a best workplace for women. As Ellen indicated, the performance of two of our specialist digital agencies has been challenged as a result of the macroeconomic uncertainty that we're seeing.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Both of these agencies are in the midst of evolving their premium offerings, which is a requirement to stay ahead in their space. When it comes to the strength of our brands in the creative advertising space, McCann, FCB, and MullenLowe continue to distinguish themselves. During the quarter, we announced a new global CEO for McCann, Daryl Lee, who has a remarkable breadth of experience that spans all facets of our industry and the full range of IPG.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

As such, Daryl's extremely well-positioned to advance the success of the network and drive it to further achieve its ambition, which is to be the global leader of creativity that drives growth for clients. We saw several wins in the quarter at McCann, including Beefeater Gin, McArthurGlen Designer Outlets, and Hankook Tire.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

The Global Effie Effectiveness Index named McCann Worldgroup the most effective agency network for the fourth year running. McCann was also named Network of the Year by the Gerety Awards, where an all-female jury rewards the highest standard of creative excellence in advertising and communication. At FCB, the creative network won new assignments with existing global clients, including Kimberly-Clark, Clorox, and AB InBev.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

FCB's Global Chair and Chief Creative Officer was honored by the AEF, the ANA's Educational Foundation, with the Inspire Award, recognizing her commitment to education and inspiring young talent as it makes its way into our industry. MullenLowe 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 Tic Tac and Nutella candy brands.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

MullenLowe continued to be recognized as one of the industry's most creatively effective networks as well for the eleventh year in a row, with the top-ranked network scored dollar for dollar in the Effie Effectiveness Index. During the quarter, we also created a new integrated agency called IX, which is based in London, to handle global creative strategy and advertising for new client Bentley Motors.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Our agencies that specialize in live events continued their strong return to growth. The industry is seeing budgets shift from more traditional marketing to the kinds of engaging experiences that allow consumers to build emotional connections and lasting relationships with brands, often connecting the physical and digital space. Having three of the industry's premier global sports and brand experience companies within our organization is a point of differentiation for Interpublic.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

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 a nationwide campaign highlighting The Home Depot's twentieth season sponsoring ESPN's College GameDay. Octagon and Rogers & Cowan PMK also worked with our Amazon client to kick off a campaign celebrating the launch of Thursday Night Football on Prime Video.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

The athlete representation group within Octagon negotiated an MLB record-breaking contract extension for Julio Rodríguez with the Seattle Mariners, making it the largest in baseball history. At Jack Morton, we saw significant wins with clients like McKesson, Siemens, Intel, Cigna, Riot Games, and McDonald's.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

The agency produced the Cadillac U.S. Open sponsorship at the USTA Billie Jean King National Tennis Center and brought to life several major events for the first time since the pandemic began, including auto shows, large retail activations, and wellness conferences.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

At Momentum, the network was named Adweek's Experiential Agency of the Year and brought Jimmy Fallon's The Tonight Show to Fortnite. Among our public relations firms, Golin won AOR duties for West Monroe, a Chicago-headquartered digital services firm. The agency was also named as PR agency in the U.K. for Specsavers, the optical retail chain.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

While at Weber Shandwick, new business wins included Bio-Thera in North America and working alongside Future Brand and Jack Morton as part of the DXTRA Health team. Weber was awarded a significant brand launch by life sciences company PerkinElmer. Our U.S. independents during the quarter.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

The Martin Agency stood out as it extended its run of new business by winning Santander, LegalShield, Bud Light NEXT, Bud Light Seltzer. Deutsch LA won Strava, the number one app for runners and cyclists, and Carmichael Lynch onboarded a new client in Hostess for a public relations remit. When it comes to our ESG programs, we continued to make notable progress during the quarter. We named our first chief sustainability officer.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

We announced a new process for evaluating energy and fuel clients, and we once again released our domestic workforce data, which is a transparency commitment IPG established and has now become an industry standard. Our ongoing work in this area speaks to our commitment to embrace issues that are important not just to our people and our planet, but to our clients and other key stakeholders.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

For the year, we remain in a positive position from a net new business standpoint, and our net new business pipeline continues to be sound. Activity in new business does seem to be increasing as we head into the new year. Despite a more challenging macroeconomic environment, as you've seen, our expectation is, given our strong performance through the first nine months, we are upgrading our view to organic growth for the full year to 7%.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

As you know, this compounds multiyear sector outperformance. Current results, combined with the continued execution of our long-term strategy, should remain significant drivers for sustained value creation going forward. Of course, given the macro, we're gonna stay committed to sound financial fundamentals, as Ellen was mentioning, and that's allowed us to grow our dividend for 11 consecutive years, and we're also committed to continuing our strong share repurchase program.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

We're confident as well that the investments in talent and capabilities we continue to make position IPG well for the future with highly relevant and differentiated offerings, underpinned by this sound financial foundation and a strong balance sheet. As always, we want to thank our clients and our people who are both essential elements of our success. Thank you as well for your time this morning. At this point, let's open the call for questions.

[Operator]

Thank you. To ask a question, press star one, unmute your phone and record your name clearly. If you need to withdraw your question, press star two. Again, to ask a question, please press star one. One moment for our first question. Our first question is from Steven Cahall with Wells Fargo. You may go ahead.

[Steven Cahall, Managing Director and Senior Equity Analyst at Wells Fargo]

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 fourth quarter, or is this more of a kinda longer-term comment reflecting the way clients are doing some of that contingency planning for 2023?

[Steven Cahall, Managing Director and Senior Equity Analyst at Wells Fargo]

Relatedly, when your clients talk about contingency planning, and you see them maybe pulling back a little bit in 2023, do you think they're just shifting the way they go to market, or is that more of a sort of material slowdown in what they might spend on marketing? Then I have a quick follow-up for Ellen.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

No, I think it's a shifting. I think it's just, as I said, it's being prepared and, you know, having both line of sight into how you're gonna prioritize and where you're going to invest in order to drive performance, you know, given the macro. I think that, you know, on the project side, it is. I think it's a fourth quarter comment more than anything else.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

I think what you are seeing is that, it's wanting to retain some optionality. 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.

[Steven Cahall, Managing Director and Senior Equity Analyst at Wells Fargo]

Great.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Yeah, 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.

[Steven Cahall, Managing Director and Senior Equity Analyst at Wells Fargo]

Yeah. Makes sense. 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. How do you, I guess Philippe and the board sort of feel about leaning more aggressively into the buyback now in a period of uncertainty as opposed to waiting till, you know, a period of rebound?

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Good morning, and thank you for the question. You know, we believed in our equity before the sell-off. We are very disciplined. We have a program that we execute against. We actively manage it, but it's a program. I think we'll stick with it, but definitely believe in the value of our shares.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Great. Thank you. Thank you.

[Operator]

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

[David Karnovsky, Managing Director and Head of U.S. Media, Entertainment, and Advertising Equity Research at JPMorgan]

Hi. Thank you. Just following up on the commentary about clients engaged in scenario planning. Philippe, can you just walk through a little bit more what that process looks like? Are clients looking to put kind of wholesale pauses into motion in case the macro suddenly gets worse? Or is this more about shifting brand into performance or, you know, building a lot more flexibility to adjust across channels?

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

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? Flexibility is a very big part of it at this point. Understanding the implications 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 gonna redeploy.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

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, knowing that we're heading into this moment in time. It is very kind of case dependent, and within some client categories are feeling it to a greater degree than others.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

I mean, I'd sort of point out that, you know, where the macro is impacting is clients who are particularly exposed to the changes that we're seeing. If high interest rates impact your business, if commodity input costs impact your business, then you're thinking this through.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

There isn't one answer, but I think it's around that set of conversations, just making, you know, the most informed decisions and getting the mix between brand and performance and up and down the funnel and actually linking those two increasingly and keeping some optionality, as I said earlier.

[David Karnovsky, Managing Director and Head of U.S. Media, Entertainment, and Advertising Equity Research at JPMorgan]

Okay. Philippe Krakowsky, you noted continued strength in healthcare. Can you remind us of your client split there in terms of sort of large pharma versus biotech? Just with biotech, how should we think about maybe the medium-term outlook, just given some of the kind of pressure that sector is seeing in the public markets, or is the kind of drug pipeline just really removed from the macro? Thanks.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Sure. I mean, in health, I'd sort of point out a couple of things. 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 you know the nature of what we've just done a year ago and how we've put that together. It's been a long-term investment that has led to that growth for us, right?

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

There are trends, underlying trends that are clearly you know tailwinds to all of that. We have some biotech, but we've got a very balanced portfolio. I'd say that specific to biotech, you know, have we seen the market dislocation have some impact on funding there? Sure.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Is that something that's having a significant impact from where we sit, given the breadth of what we do? Not really. Then beyond IPG Health, you know, there's sizable health business inside of Mediabrands, inside of marketing services. PR is very strong in that regard. IPG DXTRA, where we're bringing a lot of the marketing services agencies together. That continues to feel to us like it's an area that's gonna be pretty resilient.

[David Karnovsky, Managing Director and Head of U.S. Media, Entertainment, and Advertising Equity Research at JPMorgan]

Thank you.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Thank you.

[Operator]

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

[Michael Nathanson, Co-Founder and Senior Managing Director at MoffettNathanson]

Thanks. Philippe, I have two. One is, it feels to us that the macro in Europe and U.K. is obviously gonna get worse through the winter. I wonder, is the tone of business discussions different by geography there? So, again, can you talk about in terms of where the questions are coming about budgets, you know, as to Europe?

[Michael Nathanson, Co-Founder and Senior Managing Director at MoffettNathanson]

Then given the potential for slowdowns in those markets, what are you doing on the cost side to continuously plan, right? I know it's hard to, if you had to take people out of capacity, add it slower, but what are you doing thinking about just planning for budget expenses in 2023 and the growth of budgets in 2023? Thanks.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

The impact definitely is not only disparate when you think about client sectors, but you know, you can see it in our results where we've got you know, a really strong LATAM, Asia Pac, other markets. Although everything you know, does grow, every region was up. So there isn't a holistic answer that tells you what happens in each of those markets.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Although clearly, economically, you have to assume that that's a region that's gonna be kind of heading into something before the rest of the world or maybe heading into something that other parts of the world don't experience, right? On the cost side, you know, we're very clear, and we've been really consistent as to all of the ways in which we can address you know, those issues, right?

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

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, you know, the ways in which you bring people on and the ways in which you think about staffing are different in those markets just based on, you know, the local laws. You know, we're very, very focused and disciplined around open recs as we see change or more uncertainty in the macro, and that's consistent across the board anywhere we operate.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

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, you know, teams being together, which is important as we develop new capabilities.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

We'll look at those. Freelance is another place we'll look. You know, our incentive plan by its nature is gonna be a governor on some of that. It definitely, you know, has our attention, and it's just gonna require execution. There isn't, you know, a one-size-fits-all, but Europe is definitely an area of focus for us.

[Benjamin Swinburne, Managing Director and Head of U.S. Media Research at Morgan Stanley]

Mm-hmm. Thanks, Philippe.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Sure.

[Operator]

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

[Benjamin Swinburne, Managing Director and Head of U.S. Media Research at Morgan Stanley]

Thanks. Good morning.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Hey.

[Benjamin Swinburne, Managing Director and Head of U.S. Media Research at Morgan Stanley]

Maybe just shifting away from the macro for a minute, unless you wanna keep talking about it. We can-

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Everybody else seems to.

[Benjamin Swinburne, Managing Director and Head of U.S. Media Research at Morgan Stanley]

Right. Exactly. On RafterOne and sort of that kind of business broadly, Philippe, I know calling them system integrators is probably, you know, that's probably an old and limiting definition versus what they do today. Can you just talk about your strategy there, and like how big is that business? You know, any sense of sort of the size and profitability of that biz?

[Benjamin Swinburne, Managing Director and Head of U.S. Media Research at Morgan Stanley]

Not RafterOne per se, but the entire IPG, you know, set of service offerings in what we might call software services, software integration, would be interesting to hear. I'd be also interested in experiential and sponsorship, which you highlighted a bunch of successes at Octagon and Momentum.

[Benjamin Swinburne, Managing Director and Head of U.S. Media Research at Morgan Stanley]

That's an area where I would agree it seems like there's some secular growth. Is that an area you think the company, you know, may wanna get bigger in organically or inorganically over time? I'd be interested in on both those topics. Thank you.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Sure. I think commerce is an interesting one. I mean, you said, you know, software and obviously, you know, there's a technology layer at Acxiom and then there's what we're doing with data and tech with media. It's not by any means the only place where we've got.

[Benjamin Swinburne, Managing Director and Head of U.S. Media Research at Morgan Stanley]

Yeah

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

You know, businesses that are sort of services plus a software layer of some kind. On commerce, I guess, I mean, just breaking it down, you know, 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, 'cause you often really have all the way down to payment transactional stuff, right?

[Benjamin Swinburne, Managing Director and Head of U.S. Media Research at Morgan Stanley]

Yeah.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

For us, the leader in that space has been MRM, so they excel in those areas. To our mind, RafterOne kind of meaningfully bolsters that offering.

[Benjamin Swinburne, Managing Director and Head of U.S. Media Research at Morgan Stanley]

Mm-hmm.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

There's the marketplace side, and so that's where we optimize media. We do SEO, we leverage social commerce, you know, and you're sort of doing a lot of message amplification, and you're finding places where you intersect with the consumer. That for us sits inside of Reprise Commerce, so that's a big part of the story for us there.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Those are two sizable places where we've housed a lot of that capability. It all comes together on this umbrella of IPG Commerce, and then what we do is we activate, you know, a company like Chase Design for in-store, you know, campaigns, or as you said, Momentum for promotions and activations. We also have, you know, specialist agencies in influencer management, for example. You have paid placements. Another big piece of it is gonna be retail media.

[Benjamin Swinburne, Managing Director and Head of U.S. Media Research at Morgan Stanley]

Yeah.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

you know, we're very active. You saw, you know, Magna put out a, you know, how big is this? How big is it gonna get? I think it's net gonna be, you know, a growth area for brands and therefore for people who provide advisory services. We kinda draw that from a number of our agencies, and then that's kind of the martech side of it.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

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 to play into Acxiom and the data that's there, and you wanna decide, you know, where and how you get martech and ad tech working together. You know, that's why I said, we see it as a really big opportunity for us.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

And then-

[Benjamin Swinburne, Managing Director and Head of U.S. Media Research at Morgan Stanley]

Yeah

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

On the experiential piece, you know, when the pandemic hit, you know, we scoped that for you all to say, you know, circa maybe, you know, a little bit shy of 5% of our revenue. You know, it you know, the world closed, so that was clearly a very difficult time for them. We see that as something that is a differentiator for us, collectively those assets.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

The question for us is, you know, 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 gonna make the nature of what they do more precise and more accountable.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

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

[Benjamin Swinburne, Managing Director and Head of U.S. Media Research at Morgan Stanley]

Thank you.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Sure.

[Operator]

Thank you. Our next question is from Julien Roch with Barclays. You may go ahead.

[Julien Roch, Managing Director and Senior Equity Analyst at Barclays]

Yes. Good morning, Philippe and Ellen. Thank you very much for taking the question. Two, one for Ellen, one for Philippe. Ellen, on net interest, both Publicis and Omnicom said that that was fixed, so no impact on interest expenses, while either higher interest meant more interest income. What about IPG? Same, i.e., lower net interest. Could you quantify it? You have $1.8 billion of cash. Yield on cash went from zero to four, so $64 million benefits.

[Julien Roch, Managing Director and Senior Equity Analyst at Barclays]

And then Philippe, some agencies are saying that in case of downturn, some advertisers have learned their lessons from last couple of downturns and therefore will cut less. However, a recent survey from the World Federation of Advertisers polling 55 of the world's largest advertisers conclude that the economy will be the main driver of their budget next year for 74% of them, which would indicate they intend to cut the same. 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.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

I will start, and thank you for the question. Good morning. Yes. You know, as someone pointed out earlier, we do have a very strong, balance sheet and lots of liquidity, and we do sit with cash. We actively manage our cash, maximizing interest income.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

We also have a very nice, maturity profile with all fixed rate debt. Yes, I do believe it's a benefit. We can follow back up with you with, you know, some quantification, but it's something that, you know, all items on our balance sheet and liquidity, we put a lot of time and energy and manage it very carefully.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

The bigger question, as I said, you know, in the prepared comments, it is a conversation that's ongoing with the vast majority of our clients. There is an understanding and an acknowledgment that there's a meaningful benefit to staying the course.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

You know, we don't break this out for you, but you know, our top 20, say our top 40 clients, you know, have 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 certain factors that are impacting your business or your business model disproportionately. It's you know, interesting because even supply chain, we were talking about at the very beginning of the year with all of you, and we said, we don't see it.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

We don't, you know, think it's in the conversations with clients. It might be later in the year, and there are, you know, one or two categories where it's come into the conversation with clients. I do believe that clients understand it, and it'll be a function of where they sit if their company has the wherewithal to move through the period and stay invested.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

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, you know, have capabilities that can move much further down into the funnel or can do, you know, as the question earlier alluded to, can do work that connects brand and performance.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

It really is dependent on, you know, how significant a downturn would we be looking at, and whether people are in a position to do something that they know will benefit them in the long term, or whether they might have to take some action, kind of corrective action to get through a period that might be more challenging for them.

[Julien Roch, Managing Director and Senior Equity Analyst at Barclays]

Okay. Very clear. Thank you very much.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Thank you.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Thank you.

[Operator]

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

[Tim Nollen, Managing Director and Senior Analyst at Macquarie]

Good morning, everyone. Thanks a lot for taking the question.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Hey-

[Tim Nollen, Managing Director and Senior Analyst at Macquarie]

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, 2009 or 2001, 2002. In those days, you were very much a traditional media business, and now you're very much a digital media business doing lots of different things beyond measured media.

[Tim Nollen, Managing Director and Senior Analyst at Macquarie]

I wonder if you could help us understand maybe, if we all assume that, you know, measured media spending might drop in a recession, perhaps at similar rates as it did last time around, who knows? You do so many other things right now.

[Tim Nollen, Managing Director and Senior Analyst at Macquarie]

Is there a way to qualitatively or hopefully quantitatively assess what the spending might be, you know, with Acxiom, KINESSO, you know, on, you know, IT consulting, all those sorts of things beyond just traditional media?

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

I'm not sure that I can 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 and areas where you have line of sight to ROI and much more either clarity on that or ability to go directly to the consumer, I think, you know, those feel like they're gonna be areas that are gonna be less cyclical.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Acxiom, as you said, if you think about the fact that, you know, two-thirds of their revenue is long-term, you know, fixed fee contracts. And so those are all areas which we believe will stand up better when 2020 hit, you know, 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.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

All of those fared better. It's a big diversified portfolio. That does mean, to your point, that you wouldn't, I think, be looking at what we saw in 2008, 2009. You know, independent of whatever 2020 was, which to your point is sort of super anomalous and still, you know, kind of having impacts, you know, all through, you know, every part of economic life, right?

[Tim Nollen, Managing Director and Senior Analyst at Macquarie]

Thanks, Philippe. I just maybe one point of quantification then could be that all these things you're talking about. I mean, you probably have it in your slides, but 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?

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Look, I mean, that's a place where, you know, there have been times when folks in our sector said, you know, "Our digital revenue is X, you know, X percent, Y percent." Our point of view on that was always that it's so embedded into everything we do because we try to go to market when we engage with clients with something that's integrated and something that solves for them.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

And is right for their business that we then don't spend the time trying to unpick it. I can't give you a, you know, kind of a GAAP compliant measure that gives you that number. It is a, you know, it's a substantial part of our business. Our deal is that's what drives growth.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.

[Tim Nollen, Managing Director and Senior Analyst at Macquarie]

Okay, great. Thanks.

[Operator]

Thank you. Our last question comes from Craig Huber with Huber Research Partners. You may go ahead.

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Hey, Craig.

[Craig Huber, CEO and Founder at Huber Research Partners]

Hey there. Hi. Quick question. Let's go back to the cost outlook for next year. Let's say hypothetically, so let's not make any big bets here. Let's assume next year's organic revenue is flat. Ellen, I'd love to hear what levers you think you could pull to potentially keep your margins flat next year in a scenario like that. Do you have much leeway to be able to do that?

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

Hi, Craig. Sure. You know, you know, 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 of sight is we're an experienced management team that has, you know, navigated together through many economic environments.

[Ellen Johnson, EVP and CFO at The Interpublic Group of Companies]

As Philippe has pointed out, we have a flexible cost structure, right? Between open reqs, attrition, temp help and incentive comp, which varies very closely with performance, all those things will help. And then, you know, ultimately it will depend upon the revenue mix that causes that, right? It's something that it would clearly be in our objective, and we think we have line of sight too.

[Craig Huber, CEO and Founder at Huber Research Partners]

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

[Philippe Krakowsky, CEO at The Interpublic Group of Companies]

Thank you. I think we are out of time. Thanks again all for your time and interest. We are back at it, and we look forward to sharing with you how we can close the year.

[Operator]

Thank you. This concludes today's conference. You may disconnect at this time.

Participants

Executives

• Ellen Johnson, EVP and CFO
• Jerry Leshne, Senior VP of Investor Relations
• Philippe Krakowsky, CEO

Analysts

• Benjamin Swinburne, Managing Director and Head of U.S. Media Research at Morgan Stanley
• Craig Huber, CEO and Founder at Huber Research Partners
• David Karnovsky, Managing Director and Head of U.S. Media, Entertainment, and Advertising Equity Research at JPMorgan
• Julien Roch, Managing Director and Senior Equity Analyst at Barclays
• Michael Nathanson, Co-Founder and Senior Managing Director at MoffettNathanson
• Steven Cahall, Managing Director and Senior Equity Analyst at Wells Fargo
• Tim Nollen, Managing Director and Senior Analyst at Macquarie