The Interpublic Group of Companies, Inc.

Good morning and welcome to the Interpublic Group third quarter 2020 conference call. All parties are in a listen-only mode until the question and answer portion. At that time, if you'd like to ask a question, you may press star 1. This conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Mr. Jerry Lanise, Senior Vice President of Investor Relations. Sir, you may begin.

Thank you. Good morning. We hope you are all well. Thank you for being with us this morning. This morning we are joined by Michael Roth, Ellen Johnson, and Philippe Krakowski. We have posted our earnings release and our slide presentation on our website, interpublic.com. We will begin our call with prepared remarks to be followed by Q&A and plan to conclude before market open at 9.30 Eastern. During this call, we will refer to forward-looking statements about our company. These are subject to the uncertainties in 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. We will also refer to certain non-GAAP measures. We believe that these measures provide useful supplemental data that, while not a substitute for GAAP measures, allow for greater transparency in the review of our financial and operational performance. At this point, it is my pleasure to turn things over to Michael Roth.

Thank you, Jerry, and thank you all for joining us this morning as we review our third quarter performance. I would like to start by saying that I hope that you and your families have remained safe and healthy during this pandemic. Our focus this year has been and continues to be how the health crisis has impacted our people, our clients, and our business, as well as on driving discipline and effective response to a challenging environment. While navigating the many professional and personal challenges of this unprecedented period of time, our people have delivered on our strategic priorities, staying close to clients, continuing to develop and invest in our talent and offerings managing operating expenses to revenue, and positioning into public to emerge an even stronger company on the other side of the recession. Our results in the quarter underscore once again that our offerings and our people are best in class. In our third quarter, our organic change of net revenue was negative 3.7%. As expected, that result continues to show the effect of the pandemic and global economic contraction, though perhaps not to the extent anticipated. Our fully adjusted EBITDA, which excludes a charge for restructuring, increased 5%, and our adjusted diluted EPS increased 8.2% over comparable year-ago earnings. This is a strong accomplishment and a credit to our management teams. Against the challenging business environment, these results make, once again, to the strength and resiliency of our offerings, the flexibility of our business model, and the exceptional quality of our talent. Across our service portfolio, the pandemic has affected our business differently, but nearly all of our agencies and disciplines showed improved growth from the second quarter. Our events practices have been hit hardest by the pandemic for the obvious reasons. Events, as we've shared previously, was 4% to 5% of our revenue base last year. Clients continue to engage with us on alternative models that will leverage technology for hybrid remote and in-person experiences to maintain the brand power of collective experience and networking under their brands. The performance of our many creatively-led integrated global and domestic agency brands varied in the quarter, which reflects their different mix of clients and regional footprints. Our media, data, and technology offerings together grew in the quarter compared to a year ago. Our healthcare disciplines continue to grow and take market share. Our largest clients again outperformed in the quarter. Our open architecture go-to-market continues to win in the marketplace as a collaborative platform for our best-in-class agencies to elevate the scope and value of our services with the top tier of marketers. Among client sectors, our top performers were, again, the retail sector and the healthcare sector. At the other end of the spectrum, the sectors most impacted by the recession were the industrial clients within our other category and the auto and transportation sector, which is also similar to our second quarter. In terms of sequential changes, it's worth noting that both auto and industrial were less challenged than what we saw in the second quarter. By region, the U.S. decreased 2.4% organically and with 65% of our revenue mix in the quarter. Our international markets decreased 6% organically with a broad range of performance marked by continental Europe at plus 2.3% and Asia-Pac at negative 15.2%. Turning to operating expenses and margin, our teams continue to manage very effectively as reflected in our results. Our net operating expenses decreased by 6.9% from a year ago before the charge for restructuring, which compares with the 5.2% decrease in net revenue. Both of our principal cost lines decreased. We drove significant leverage on our expense for base payroll and our office and other expense and are beginning to see the impact of structural cost reductions. I would emphasize that alongside these operating efficiencies, we continue to invest in people, making some notable headline hires that show our ongoing position as the destination for the industry's top talent. In addition, we continue to enhance the tools and distinctive offerings which have made us the growth leader on an industry over a period of many years. This includes initiatives from our diversity and inclusion group, such as our new free group counseling sessions for our BIPOC employees. It also includes our investments in continued innovations and new products in our data and tech group, for example, which we will address later this morning. As we anticipated on our conference call in July, we took additional actions in the third quarter to structurally lower operating expenses and to further transform our business. These actions are a result of a strategic review of our operations that will continue into the fourth quarter and resulted in a third quarter restructuring charge of $47.3 million. Of the total charge, $28 million is not in cash. Along with the actions we've taken in the second quarter, our restructuring actions to date are expected to result in total annual life savings of approximately $110 to $130 million that are permanent, which is approximately 140 basis points of full-year 2019 net revenue. We plan to take additional actions in our fourth quarter, the majority of which will be related to real estate and will be non-cash charges. These are also expected to result in significant restructuring expense and additional structural savings and to conclude our program. In the third quarter, our adjusted EBITDA margin was 13.8% and was 16.2% excluding restructuring charges, which is 150 basis points better than last year. Diluted earnings per share was 71 cents as reported and was 53 cents as adjusted for the restructuring, intangible amortization, and other items that are below operating income. As we look to our seasonally important fourth quarter, We're confident in the strength of our model and the competitiveness of our offerings. It's important to note that last year we had a strong fourth quarter with organic growth in excess of 5% as adjusted for headwinds. All of this continued to face a range of unknowns related to the pandemic and its impact on the global economy. This will weigh on the significant volume of project assignments that are the norm for our holiday season. COVID, as we are painfully aware, remains a threat to everyday life and regrettably is picking up in many key global markets. Unemployment, while a better picture than earlier this year, remains historically high. The status of important government support programs is unresolved, especially in the U.S., but globally as well. All of this makes client decision-making for the holiday season difficult to forecast. It's very likely that any improvement, growth, we do see across our industry will not be linear by quarter. This is just to acknowledge economic reality. Despite these unknowns, IPG remains well positioned to continue its outperformance of the industry. We're hearing from clients that they are at a decisive juncture for brands. There will be enduring consumer changes as a result of the pandemic, including the mass shift to e-commerce, the emergence of digital consumer experience, and a deeper accountability for brand authenticity and purpose. We are distinctively well resourced with outstanding talent and tools to help marketers rethink and reimagine their brands. Further, with technology playing an ever increasing part in day-to-day life, we're seeing increased demand for data management and marketing technology expertise at the level of the enterprise. With Axiom and Kineso now integrated with our service offerings, we are in a strong position. Accordingly, we are confident that we can resume our growth in an improving economy and continue forward as an engine of value creation for all our stakeholders. I'll have additional closing thoughts before our Q&A, along with Philippe. But at this point, I'd like to turn it over to Ellen for additional color on our results.