Interpublic Group of Companies, Inc. (The)

Good morning and welcome to the Interpublic Group fourth quarter and full year 2020 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 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 Lushney, Senior Vice President of Investor Relations. Sir, you may begin.

Good morning. Thank you for being with us. This morning, we are joined by Philippe Krakowski, our CEO, and by Ellen Johnson, our Chief Financial Officer. As usual, 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 Philipp Krakowski.

Thank you, Jerry, and thank you all for joining us this morning. I'll begin with a high-level view of our performance in the quarter and for the full year. Ellen will then provide additional details. I'll conclude with some updates on our agencies and be followed by our usual Q&A. First and foremost, I hope that you and your families continue to remain safe and healthy during the pandemic. As we all know, across much of the globe, the virus is still very much a presence in our daily lives. As such, our first priority continues to be to mitigate the impact of the health crisis on our colleagues and our clients as well as on our business. It's important to acknowledge the fact that over the past year, across IPG, our people have been subject to a range of extraordinary challenges. Their achievements have been remarkable, and I want to very clearly express our admiration for their resilience, and our appreciation for their ongoing commitment and effort. Moving now to our results, we are pleased to report a solid fourth quarter under conditions that continue to be challenging and full-year performance that once again should place us at the top of our sector. In the fourth quarter, our organic growth change of net revenue was negative 5.4%. You'll recall that our Q4 2019 result was organic growth of 2.9%, which included significant headwinds from certain client losses. So, for context, it's worth noting that our continuing book of business from last year's fourth quarter, which we were essentially lapping in Q4 2020, was a 5.6% growth number. In the U.S., the organic decrease in the quarter was 1.8%, against a similarly challenging underlying U.S. comp of 6.4 percent growth in Q4 2019. In international markets, our organic decrease for fourth quarter 2020 was 10.5 percent. For the full year, our organic net revenue decrease was 4.8 percent. As you'd expect, those results continue to reflect the effect of the pandemic. which has had widely varying impacts on our businesses and clients. Our event companies in particular, which were typically strong in the fourth quarter, continue to bear the brunt of the health situation, given that restrictions on public gatherings remain in place in most markets around the world. Conversely, during the quarter, we continue to build positive momentum in disciplines such as media planning and investment. Additionally, Client sectors such as healthcare and retail, which have been our growth leaders for the duration of the health crisis, continued to perform strongly in the fourth quarter. With respect to operating expenses, our teams once again demonstrated outstanding discipline. As a result, we're pleased to report that our adjusted EBITDA margin for the quarter, which excludes a charge for restructuring, increased 70 basis points from a year ago, from 21.1 percent to 21.8 percent. For the quarter, our diluted earnings per share was 28 cents as reported and was 86 cents as adjusted for restructuring and other items. As is evident in our results this morning, we also continue to execute through to the close of the year with respect to our restructuring program. We had previously mentioned to you that our focus would be on driving strategic long-term actions, and expense reductions as we evolve our business model to new operating realities. A key component of that thinking is moving to a hybrid workplace environment with a reduced need for real estate and an increased role for work from home in the delivery of our services. During the year, our team was diligent in identifying a wide range of restructuring opportunities and related savings, so as to better position the business going forward into 2021 and beyond. As you can see, this led to a fourth quarter charge that was significant, though it is largely non-cash. We now expect that our restructuring actions for the full year will yield permanent annual operating expense reductions in the range of $160 million. While remaining very disciplined with respect to our expense structure, It's important to point out that we continue to invest in our business during the year in order to accelerate strategic development in areas of strongest secular opportunity and growth. That investment continues to result in differentiated capabilities and offerings, which are in demand and are driving success in the marketplace. We're aware that, as a result of the pandemic, the velocity of change picked up even further last year in the digital space. That's where consumers increasingly interact with brands and businesses. We're encouraged that our ability to create marketing and media solutions that bring together creativity, technology, and data is resulting in growth with existing clients as well as new client wins. For some time now, we have spoken about the importance of our culture in making IPG a destination for top industry talent. This includes our commitment to strong agency brands with clearly defined identities and core capabilities. In recent years, we have developed very strong and differentiated data resources and data management capabilities. We bring these offerings together on behalf of clients in customized integrated solutions for our open architecture platform, which has been evolving over a period of many years. Another key pillar of our culture is our commitment to doing better when it comes to equity and inclusion. This is something I will remain focused on personally in my new role. It also bears mention that IPG has taken a strong position when it comes to transparency and ethics in all of our business practices, well ahead of the current scrutiny on the digital media ecosystem and growing concerns regarding consumer privacy. These are our strategic priorities going forward. And at this point, I thought it might be helpful to provide a few highlights of how they are coming together in the work we do on behalf of our clients. As you know, in May of last year, we launched Matterkind, an innovative offering that optimizes client media investment holistically and in real time across all addressable media channels. With access to unique data resources at Axiom, and patented algorithmic software created at Kineso. Matterkind played a role in several new account wins and client retentions during the back half of last year. In the auto sector, a leading global OEM awarded an open architecture team several multi-year contracts to oversee their CRM activity. The first in North America, as well as two others in China. some of Asia's largest national markets. This resulted from a pitch that included teams from our global ad networks and digital specialty agencies, as well as capabilities from Axiom, Kineso, and our global production studio. In the creative arena, we had a sizable healthcare win with an existing global client in Q4, which brought together a number of our specialist healthcare and consumer advertising agencies, again backed by Axiom in an open architecture pitch. Also within the creative space in the CPG sector, we expanded our remit and doubled the size of our client relationship by using data-driven insights to generate creative ideas tailored to specific audiences. In tech and telecom, we proactively proposed an integrated solution to an existing domestic client of one of our large PR and one of our independent advertising agencies. This resulted in adding responsibility for media, as well as a data layer to inform all marketing decision-making, again, nearly doubling our projected annualized revenue on this engagement. The common denominator in each of these examples is our ability to broaden the range of business issues that we can help clients address. Our goal is to become a more strategic partner, supporting client needs as they seek to derive more value from connecting marketing and technology to power their businesses. Over time, we believe this should also have the effect of opening new performance and IP-based revenue streams for us. Another key area of focus for us is e-commerce and connected commerce. where we deliver on the promise of digital business transformation by bringing together marketplace analysis, data services, tech-enabled creative and customer experience work, systems integration, and performance media offerings. This is another area where open architecture is a vital approach, since those capabilities reside within a range of our digital and media specialist agencies. It's also an area that has seen significant acceleration as a result of the health crisis. Heading into 2021, we are confident of the strength and competitiveness of our offerings and the talent within our group. The range of services we provide is growing in terms of the potential impact it has for our clients and their businesses. This means that looking ahead, we remain well positioned to fully participate in a global economic recovery. There remains, however, significant uncertainty driven by macro conditions that are beyond any of our control because the timing and magnitude of economic recovery clearly hinges on the resolution of the health crisis. We fully expect to return to positive organic growth over the course of this year and to post full year 2021 growth consistent with the industry on top of our relatively stronger 2020 performance. But from our vantage point today, based on our bottom-up approach to building a financial plan, as well as conversations with clients, it's fair to say that visibility to the full year 2021 remains challenged. To be clear, this is a question of timing and a function of the macro situation. and not of the caliber or relevance of our offerings, which we feel are both strong and complete. We will, of course, continue to align expenses with realized revenue in the disciplined way you've come to expect of us. Further, we will see the benefit of significant expense savings from our restructuring. As always, during our quarterly calls, we will regularly review our perspective and provide details on the year as it unfolds. Underscoring our confidence in our longer-term prospects, we are pleased to announce this morning our Board's decision to raise IPG's quarterly dividend by 6% to 27 cents per share. This marks our ninth consecutive year of dividend increases, over which time our quarterly dividend per share has more than quadrupled. In summary, we believe that the drivers of long-term value for all of IPG's stakeholders are in place. namely the quality of our people and our resources, our operating capabilities, and that together these will continue to fuel our collective success. On that note, I'll now hand things over to Ellen for a more in-depth view of our results.

Thank you. I want to reiterate Philippe's comments in hoping that everyone is safe and healthy. As a reminder, my remarks will track to the presentation slides that accompany our website. Beginning on slide two of the presentation, our organic net revenue change was negative 5.4 percent in the quarter. In the U.S., our organic decreased, improved sequentially, and was only 1.8 percent. While in our international markets, that decrease was 10.5 percent. The U.S. outperformed international. due to a mix of client sectors and offerings in the U.S. that were less impacted by the current macroeconomic environment. And with the effects of the pandemic and lockdowns in the U.K., Europe, and in some parts of Asia Pacific, which weighed on revenue. Fourth quarter adjusted EBITDA margin was 21.8% before restructuring charges compared to 21.1% a year ago. Our EBITDA was $244.9 million and was $498.8 million before the restructuring charge, compared with $512.7 million a year ago. For the quarter, diluted earnings per share was $0.28 as reported, while our adjusted diluted earnings per share was $0.86. The adjustments exclude the after-tax impact of the amortization of acquired intangibles, the charge for restructuring, and non-operating losses on the sales of certain small, non-strategic businesses. Our cash flow from operations was strong for the year at $1.8 billion, and our liquidity continues to be solid at $4.5 billion of cash in committed credit facilities at quarter end. Our restructuring program resulted in charges of $413.8 million during the year, which we expect will result in annualized permanent expense savings of approximately $160 million. We have concluded our actions under the program. This morning, as Philippe noted, our Board approved a 6 percent increase to our quarterly dividend to 27 cents per share. Turning to slide three, you'll see our P&L for the quarter. I'll cover revenue and operating expenses in detail in the slides that follow. Turning to Q4 revenue on slide four. Our net revenue in the quarter was $2.28 billion. Compared to Q4 2019, the impact of the change in exchange rates was positive 10 basis points. Net divestitures were negative 80 basis points. which is the impact of the disposition of certain small, non-strategic businesses over the past 12 months. Our reviews are ongoing, and we expect to continue to have additional small dispositions as we move forward. Our organic net revenue change was a decrease of 5.4%. As you can see on the right-hand side of the slide, that brings our organic change for the full year to negative 4.8%. At the bottom of this slide, we break out our segments. The organic change in our IAN segment was a decrease of 3.8%. As a reminder, IAN includes our global and domestic creatively-led integrated agencies, our media, data, and technology offerings, and our digital specialists. IPT Dextra, the rebranded CMG, is our global group of highly collaborative marketing service specialists. the organic change in the quarter was negative 15.1 percent, which reflects the disproportionate weight of live events and sports marketing within the segment, which has been most significantly impacted by the pandemic. Moving on to slide five, organic revenue change by region. In the U.S., which was 61 percent of our fourth quarter net revenue, our organic decrease was 1.8 percent against challenging comparisons from a year ago. The international markets, which make up 39 percent of our net revenue in the quarter, declined organically 10.5 percent. By region, our organic change to net revenue was negative 17.4 percent in Asia-Pac, negative 9.7 percent in the U.K., negative 7.3 percent in continental Europe, and negative 14 percent in our other market group. LATAM increased 2.3 percent organically. Moving on to slide six, and operating expenses in the quarter. Our net operating expenses decreased 7 percent from a year ago when excluding the restructuring charge and amortization, which was more than our decrease in revenue, and as a result, our adjusted margin expanded by 70 basis points. As you can see on this slide, our ratio of total salaries and related expense as a percentage of net revenue was 58.9%, unchanged from the fourth quarter of 2019. Underneath that, our expense for base payroll, benefits and tax in absolute dollar terms decreased by 4.6%, although the ratio increased to the lower net revenue. We had very significant leverage on our expense for performance-based incentive compensation, which was 3.3 percent of net revenue, compared with 4.7 percent a year ago. And we delivered on our expense for severance and temporary labor. At quarter end, total worldwide headcount was approximately 50,200, a 7.6 percent decrease from a year ago as a result of our restructuring, regular severance and attrition, and business disposition. Also on this slide, our office and other direct expenses decreased 130 basis points to 16% of net revenue. We continue to have a significant decrease in our expense for occupancy and T&A. Our SG&A expense was 1% of net revenue, which is the same as a year ago. As you can see on the lower right-hand side of this slide, our charge to restructure headcount and real estate was 11.1%, of net revenue in the quarter. Slide seven is a summary of the restructuring program we executed in order to make structural changes to our real estate footprint and headcount over the last nine months. As you've seen, the total charge was $413.8 million, of which $265.6 million was non-cash. As we went through the year, our teams continued to identify opportunities and we were ultimately able to reduce our real estate footprint by 15%. Between our real estate and headcount actions, we expect to realize a significant level of permanent annual savings of approximately $160 million. Turning to slide 8, we present detail on Adjustment 12, reported fourth quarter results, in order to give you better transparency and a picture of comparable performance. This begins on the left-hand side with our reported results. and stepped through to adjusted EBITDA, excluding restructuring and adjusted diluted EPS. Our expense for amortization of acquired intangibles in the second column was $21.5 million. The restructuring charge was $253.9 million, and the related tax benefit was $56.9 million. The low operating expenses in column four we had a loss in the quarter of $15.2 million in other expense due to the disposition of a few small non-strategic businesses. At the foot of the slide, you can see the after-tax impact for diluted share of these adjustments, which bridges our diluted EPS, as reported, at 28 cents to adjusted diluted EPS of 86 cents. Slide 9 depicts similar adjustments for the full year Again, for continuity and comparability. Our amortization expense was $85.9 million. Full-year restructuring charges were $413.8 million. This position over the course of the year resulted in the book loss of $67 million. The impact of the discrete items was a benefit of $122.6 million. The result is adjusted full-year diluted EPFs of $1.73. Note that our adjusted effective tax rate for the full year was 26.5%, which is at the low end of the range we had targeted. On slide 10, we turn to cash flow for the full year. Cash from operations was $1.8 billion, which is the highest level in our company's history. That compares to $1.5 billion a year ago. The comparison includes $900 million generated from working capital in 2020, compared with $443 million in 2019. While working capital can be volatile, as we pointed out in the past, a couple of factors drove a particularly strong result for the year. One was a return to growth in areas of our business that with growth typically generate cash from working capital, notably in our seasonably strong fourth quarter. On the other hand, some of our businesses that use working capital with growth have yet to fully recover from the ongoing impact of the pandemic. We continue to focus on and invest in insight and management of this area. Our investing activities use $216 million in a year, mainly reflecting our CapEx of $168 million. Our financing activities use $346 million. You'll recall that we raised $646 million in March with the issuance of our new long-term debt That pre-funded the repayment of $504 million of long-term debt that matured in October. We used $398 million over the course of the year for our common stock dividends. Our net increase in cash was $1.3 billion. Slide 11 is the current portion of our balance sheet. We ended the year with $2.5 billion of cash and equivalents. Our $500 million, 3.75%, senior notes, which is in October of this year, and is reflected under current liabilities. We plan on repaying these notes with cash on hand. Slide 12 depicts the maturities of our outstanding debt and our diversified maturity schedule. Having paid off October maturity, our total debt at year end was $3.5 billion. In summary, on slide 13, our teams continue to execute at a high level in an unprecedented environment. And 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. And with that, I'll turn it back to police.

Thanks, Mary. As you know, a hallmark of our long-term strategy has been to invest behind our people and our agency brands and to embed digital across the portfolios. so as to create a level of expertise that allows for greater collaboration when we activate integrated teams to address client opportunities. During the quarter and for the year, we continued to see evidence of the vibrancy of our brand and the evolution of our talent strategy. Highlights at our creative integrated networks were led by FCB, which was named Global Agency of the Year by Adweek in recognition of the agency's bold creative work and highly collaborative model, as well as its embedded data and CRM capabilities. The health operations at FCB continue to be the key driver of growth for the network, and we saw both FCB Health New York and FCB Cure named 2020 Best Places to Work by healthcare industry publication MM&M. Low and low group closed the year with a number of new business wins, notably at Media Hub with the addition of the NBA account after a very competitive pitch. The group was also named Network of the Year at the UK's IPA Effectiveness Awards. The lone low group UK was recognized by Campaign in its 2020 agency new business rankings as the market's top performer with net new billings that were two and a half times those of its nearest competitors. At McCann World Group, we implemented a succession plan that sees a long-term executive with broad experience across the company step into the CEO role, and the elevation of key team members into leadership roles in executive management, as well as senior strategy and client leadership roles. At MRM, the agency's CEO added the title of Global Chairwoman, and she brought in a highly regarded Global Chief Creative Officer to the agency. At Media Brands, we saw the launch of the Media Brands Content Studio, which pulls together creative capabilities from agencies in 12 key markets, ranging from long-form documentaries and branded content at UM and Initiative to dynamic digital content from Reprise. This offering meets the increasing need we're seeing in the market for custom, multi-form content that's strategically integrated with media and brand purpose. In January, Initiative continued the new business streak that has seen it named as RECMA's fastest-growing media agency with a notable addition of T-Mobile. Our view is that culture drives commercial success, so it's also worth noting that the agency was named a Best Place to Work by Ad Age. In LATAM, Initiative took home Agency Network of the Year honors in that region's Festival of Media Awards competition. And at UM, it was recently announced that the agency had won a major automaker's pan-European media planning and buying duties after a highly competitive review. At Axiom, as I indicated earlier, the company's tools, expertise, and data assets continue to play a role in an increasingly wide range of our offerings. Axiom provides the foundational data layer for our holding company, And along with Kineso, which is the technology applications layer, these are becoming core to our open architecture model with existing clients as well as in much of our new business activity. RGA added a number of new business wins in Q4, including Uber and Beam Centauri. At CES, in partnership with IPG, the agency hosted a virtual leadership innovation lounge featuring top entrepreneurs women leaders from clients like Ally Bank, MeToo, and Reddit. At Huge, the agency secured further global CRM business for SK2 and announced work with Verizon to launch Full Transparency, which is a blockchain verification system that has the potential of transforming the way in which companies disseminate news to their principal audiences. Huge and RGA were listed among the top 30 agencies for clients to work with in 2021 by R3 Worldwide, the independent consultancy, which also cited both agencies in the top three spots in its latest U.S. New Business League rankings. MRM, RGA, and Huge also earned a place in the 2020 Gartner Magic Quadrant for global marketing agencies. based on their ability to serve as key strategic business partners for clients and to execute on critical marketing priorities. The Martin Agency was named U.S. Agency of the Year by Adweek, and its Open for Delivery campaign for DoorDash was recognized as some of the best creative work of 2020. Adage also named Carmichael Lynch and Campbell Ewald to its industry list of best places to work. Turning to our IPG DEXTRA segment, during the quarter, Weber Shandwick unveiled a permanent hybrid model for its global workforce called JUICE, which puts employee flexibility at the core. The agency also announced new wins with existing clients, including work with the CDC to promote immunization across the lifespan of all Americans. Rowan named a new global chairwoman. and added General Mills and Roche to its client roster. The agency was also recognized at the 2020 ANA Multicultural Excellence Awards, along with FCB Canada, IW Group, and the Martin Agency. Turning to the holding companies, for many years we have made ESG, including diversity, equity, and inclusion, a key area of focus. As a leader in marketing services and a citizen of the communities where our employees live, work, and vote, we welcome the responsibility to operate sustainably, contributing to a healthier society and a healthier planet. We are working to build on and more fully live into this commitment, including by reassessing how we hire, train, and promote a diverse workforce, as well as further reduce our greenhouse gas emissions around the world. In recent years, we've made steady progress in sustainability planning, action, and reporting. As a result, during the quarter and for the second year in a row, IPG was named to the FTSE for Good Index, the global index that identifies top public companies with strong ESG practices. We were also included on the Dow Jones Sustainability Index in North America, which recognizes the top quintile of sustainability performers among the 600 largest U.S. and Canadian companies. In just this past month, we were recognized with two further ESG honors, including the Bloomberg Gender Equality Index for the second consecutive year and the Human Rights Campaign Corporate Equality Index for the 12th year running. As a business in which attracting top talent is vital to our success, whether in creative services or our growing technology capabilities, an intentional approach to ESG is an important part of our strategy. Another aspect of our strategy, going back several years, has to do with our decision to incorporate data expertise into the core of the company. Understanding data and its power is absolutely essential to the current and future success of every company, as is an ethical and conscious approach that respects consumer privacy and promotes brand safety, all of which will be crucial as we look ahead to increased regulation in the digital media space. Going forward, we'll continue to enhance the technology layer within our offerings and to build tech-enabled marketing solutions. informed by a holistic understanding of audiences. This is what will allow us to deliver personalized user experiences and more accountable marketing for brands. Ultimately, our vision for IPG is to be the key partner in ensuring that clients' businesses thrive in the digital economy. This is what makes us confident in our long-term prospects. Looking at the year ahead, we know IPG is well-positioned to participate in the global economic recovery. As I stated earlier, we fully expect to return to positive organic growth over the course of the year, in line with a macroeconomic recovery, and to deliver growth for the full year that's consistent with the industry, on top of our performance in 2020 relative to our peer group. The timing of our progress during the year does remain an open question, and this is in part due to the fact that last year's first quarter was largely unaffected by the pandemic, while this year's remain burdened by COVID. But it's especially true given the significant variables that we all face related to public health and economic policy decisions in major world markets. As we get better visibility through these larger issues, as well as the rate of recovery in industry sectors that have been most impacted by the pandemic, the pace of our progress will become clearer. As always, as the year unfolds, we will regularly review our perspective with you on our quarterly calls and we'll keep you updated on our expectations. We will, of course, continue to invest behind the growth of our businesses and in developing our people so as to further differentiate our offerings which is what ultimately creates value for clients and has helped us establish a position of leadership in our sector. In keeping with our long-standing focus on maintaining a strong balance sheet and financial flexibility, we intend to continue to pay down debt. Our ongoing commitment to the dividend is clear in the action announced by our board today, which also speaks to confidence in the longer-term prospects for our company. And return of capital remains a priority for us, and we look forward to being in a position to return to share repurchase as part of a balanced approach to sustained value creation. Thanks again for your time. We look forward to your questions next.

Thank you. At this time, if anyone would like to ask a question, please ensure that your phone is unmuted, press star 1, and record your name clearly when prompted. If you do need to withdraw your question, press star 2. Again, to ask a question, please press star 1. Our first question is from Alexia Quadrani with J.P. Morgan. You may go ahead.

Thank you so much, and welcome, Philippe. I have two questions. First, if you could elaborate a little bit on the softness in Europe. you know, really any color you can give us in terms of how widespread it is across client verticals or disciplines and, you know, any indication maybe if that softness has continued into the start of the year. I know it's really early. And I guess staying in that kind of vein, his account movements, you know, maybe pause a little bit now in Europe as well.

Hi, Alexia. Thank you for the question. Look, I think that the delta that you saw in the fourth quarter is, when it came to international vis-a-vis U.S. was really just a continuation of a trend that we'd seen during the course of the year. But I think it's really just a matter of degree and not something that's indicative of what we're going to be looking at or expecting. I wouldn't project that into 2021. And so in terms of sort of getting underneath that for you, I'd say that the key driver of that was really sector mix. So first and foremost, I'd point out that You know, healthcare was our strongest performer all year, and that skews very heavily to the U.S. by a factor probably of about two to one. And, you know, that's just a function of how Interpublic was built over time. And I think it's also reflective of the fact that direct-to-consumer advertising, obviously, is not something that exists in most world markets. So I would think of, you know, healthcare as a place where we had much more sale to the wind in the U.S. than elsewhere in around the globe in what is clearly one of our strongest client sectors. And healthcare also has a lot of Q4 project revenue, so we saw more of that realized here. The second piece of how I would think about that split is media was a strong performer for us in Q4. So we talked when the pandemic hit about the fact that that had been dialed back in Q2. Clients reacted to what was going on with the economic situation by shutting down largely the digital media. So we started to see that come back in Q3. It came back stronger in Q4. And so, again, there, by virtue of the fact that the U.S. is our largest market, there was more upside. And then the other two factors that I think have to do with this are, you know, Axiom has a significantly larger business in the U.S. than in the rest of the world. It's clearly a less cyclical business. So it was much less susceptible to what I guess you could call kind of a Q4 project squeeze than were the project-based businesses. And then lastly, you know, on a couple of our calls as we went through the year last year, you know, we did call out the fact that the pandemic was probably going to, you know, have an impact and there was a risk to Q4 project spend, right? And that definitely played out, and it played out to a much greater degree On the international side of things, and I think that there were clearly more pandemic restrictions on gatherings, on holiday-themed events, even actually on kind of retail-level activations. So experiential and events where, you know, as we've said to you, you know, it's about 5% of our business, and it was clearly impacted throughout the year. XUS, the impact of that was, again, about 2% to 1%. outside of the U.S. and clearly, you know, not in anybody's favor. So hopefully that will sort of get you a sense of, and then in terms of, you know, one of the things that's good about a succession that has a lot of continuity to it is that, you know, our clients and our people feel comfortable. I think one of the things that may be not so good is that I still have to tell you that we don't, you know, we're not planning on, kind of reporting on a quarter-by-quarter, you know, on a month-by-month basis. Sorry about that. So, you know, what we're seeing in the very early stages of 21 is, you know, it's a very limited small sample size and not something we're likely to give anybody insight into.

No, I understand that. No worries. And then just a quick follow-up is... On the buyback, I know you touched on it in your opening comments about capital return to shareholders and it will return at some point. Are there certain metrics that you look to, you know, whether it's return to, you know, positive organic growth or just really more clarity on the virus and the vaccines? I'm curious sort of what you look to to sort of make that determination of when do we start the buyback.

I'm going to ask Ellen to jump in here.

Good morning, Leslie.

How are you? Thank you for the question. Listen, return of capital, as we mentioned, remains a priority. I think you can see that by the actions the Board did today against our dividend. Our priority is to maintain a strong balance sheet. We plan on paying down our debt, but it's due in October. But share repurchases is something we are looking to get back to the resume so that we maintain the capital return mix that we have in the past.

We definitely want to get back to that balanced capital return.

Thank you very much.

Thank you. The next question is from John Genades with Wolf Research. You may go ahead.

Thanks. Good morning. You talked about the velocity of change and becoming more of a strategic partner. So can you talk about your share of wallet with larger clients? And based on some of the examples you gave, would it be fair to say that I don't know, 50 or 100 clients or so are growing organic at a rate faster than the overall company. And then separately for Ellen, you talked about the cost savings. Can you talk a little bit more in terms of is it split fairly evenly between salary and real estate? And on the real estate side, I assume that may take more time to flow in based on some lease expiration. So do those savings come in beyond 2021? Yeah. The supposition about share of wallet and about the fact that our top 100 or so clients are likely outpacing the rest of the portfolio is a fair one. I would say that that's definitely something that we're seeing, and that's something that we would like to see more of, obviously because it's a smarter way to grow than to be reliant on reviews and things of that nature. And then I also think that the fact of the matter is that that confluence of marketing and technology is having an impact, you know, in every company. And I think that, as you said, the pandemic has brought forward the need for companies in a very broad range of spaces to including companies and industries that are probably not as data rich or that, you know, were not as reliant on certain mechanisms to be reaching consumers or to be thinking about sort of lifetime customer value with consumers, things of that nature. So it's definitely something that we're very focused on, and it was one of the reasons I wanted to call out in the opening remarks, you know, and give some sort of detail and color to into the kinds of engagements and how, when you have media that allows you to really understand audiences and engage with them, and then when you bring data into the core and it informs everything from the insights that lead to the ideation all of the ways in which the messages are served out, and then you begin to have kind of essentially the capacity to optimize not just in some of the traditionally sort of digital capabilities where you could do that. Everything clearly is becoming more and more addressable. So that's definitely an area of focus for us and then, you know, for the management teams at the bulk of our agencies.

And then with regards to your question regarding restructuring, first of all, I have to say that our teams did an amazing job with the program. All throughout the year, they continue to look for opportunities to really take the learnings from this time period and take actions against it that would result in the permanent savings that we're projecting. So we do expect to see savings both on the SRS line and on occupancy as a result of it. The accounting for leases is neither intuitive or linear. So you will see some savings in 2021, but you'll see more thereafter as the leases start to get subleased. And leases, as you imagined, have longer paybacks, right, because they're over several years. But again, we're very confident that we'll realize these permanent savings and are really grateful for all the efforts of our teams in undertaking it.

Thank you. Thank you. The next question is from Julian Roche with Barclays. You may go ahead.

Yes, good morning, Philip. Good morning, Helen. Good morning, Jerry. My question is on media. You said it was strong in Q4. Helen talked about working capital, so it looks like it's a positive number in Q4 after being positive in Q3. So I was hoping you could give us more color on media performance in Q4. and the full year. And then staying on media, WPP did give us their media numbers. They invested their group and had grown 7.5% in the five years to 2019, 5.6 organic. I was hoping you could give us some color there as well. And then the last question is, I mean, if I had a dollar every time a client told me that you don't need an agency because you can go straight to Google and Facebook, I'd be retired by now. So media has been one of the best businesses of the agency space and I wanted to explain if you could explain to us why that is. Why has media been so strong and why the majority of investors which for the media has been an area of headwind along. Thank you.

Sure. I'm trying to figure out which maybe I'll go from the back to the front. So I think media has been an area where by virtue of the fact that you have very sizable budgets that are being invested, and by virtue of the fact that the shift to digital in recent years has allowed there to be greater precision and a degree of accountability, because I think that it's also fair to say that it is an opaque ecosystem and that some of the expectation of accountability that people had, it took a while for us to really understand what was going on there. But I think what we've had is we've had the ability to have conversations with clients in the media space that are about more than perhaps just the marketing side of their business. They're really, they're business conversations around the ROI around those investments. And so I think that across most of the groups, there's been investment behind that. We've taken a different approach perhaps than our peers, as you know, when it comes to building a model that was much more consultative in nature, and it was not really one that was predicated on volume. or at least our own programmatic trading debt, the data stack that we began to develop to the investment that we made into Axiom. So I think that, you know, those are all the logical reasons why media has been a growth driver and just the huge fragmentation that we've seen and the complexity that has come with the media channels. And, you know, as we all remember, Michael always used to say complexity is good. Complexity definitely created opportunity for us. to provide consultative services to clients. Now, on sector disclosure, that's a tougher one for me to, you know, I understand and respect that the question from your point of view is if I'm trying to analyze the space and to model performance, I clearly would want to buck it.

you know, integrate solutions in a layer of working together, right?

And so, you know, going back quite a few years now, you know, when the industry was becoming much more digitized, the number of our peers started to highlight this this percentage of digital revenue, and we didn't, and we believe that the best barometer to see whether the strategy is working and to gauge our performance is organic growth, right? You look at the last four to five years, five to six years even, and you have an average of four to five percent per year organic growth. So this is pre-pandemic, right? So I think you conclude from that that the performance of all of the agencies is quite solid. And, you know, we do hire on performers. So media, health care in recent years clearly have to be north of that range. But, you know, I would point out a time frame during that five- to six-year time frame. The creative agencies have posted growth, right? And, you know, when you look at a sector like health care, It's positively impacting not just our healthcare specialist agencies, but it's an important driver in media. It's in some of the ad agencies, right? It's in the PR space. So the focus for us is the client, their consumers, supporting the brands, and then driving to this collaboration.

So starting to pick the pieces apart, I think, runs counter to philosophically what we're trying to build. Okay. Yep. Thank you very much.

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

Thanks. Hi, Philippe.

How are you? I have two questions for you. One is on the U.S., and I think we've all been surprised by the speed of which spending has bounced back on digital and advertising. It's almost been V-shaped. But I wonder, and I know some businesses lag within agencies. When you look at your your portfolio within the U.S., where are you seeing the lag and what are the gaining factors to get some of those services back to growth? So that's in the U.S. And internationally, as you've mentioned, there's been moving back to lockdowns. Have client behaviors changed now versus the first lockdown scenario, given what's happened in terms of, you know, people who spent looks like they succeeded? So I just want to understand what's the psychology behind as markets return to lockdown versus where they were before? Hi, Michael. Thank you. Look, I mean, I think that in the U.S., and knowing that we, you know, came into the year, you know, comping against the year last year where there was growth, and, you know, we had those three pretty sizable client losses, you know, as you say, there has been, it's been really, it's been remarkably resilient, and obviously that might be because there's been a little bit less in the way of restrictions on certain kinds of behavior. And, you know, I think that, you know, there may be other extenuating factors. But I would think that, you know, what we're seeing here and what we're seeing in Europe vis-a-vis changes in behavior goes to, you know, people are definitely moving faster to trying to understand, you know, what is, e-com do for them? What is connected commerce? Sort of, you know, to what extent can you take social and other channels? And I think you, you know, probably just saw today, you know, TikTok kind of clearly making any number of things sort of shoppable on the platform. And so, you know, I think that it's fairly intuitive what's going on, which is that, you know, clients are either looking at ways to use e-commerce digital channels to drive commerce, or they're looking at ways to use their first party data and to do much more CRM-like activity. I mean, there's no kind of magic wand on this one. It's pretty much what you'd expect. And then, in terms of the psychology of it, I think it's part of what is contributing to just the caution that people have as they look to this year. I mean, you know, I would bet you that there isn't anybody I know, and I'm sure that, you know, these are pretty extraordinary circumstances, right? So would any of us have thought that we'd still be working from home or in lockdown a year after the pandemic began, right? So that's just informing the fact that people are being deliberate. I don't think people are reacting quite as – there isn't as much of a pullback as there was when the initial shock hit, but now there's this sense of even though we are beginning to see the light at the end of the tunnel, are we really going to get there on the timeline that we're hoping for or might there be some forks in the road on the way to that? So I think that psychologically it's just about people being thoughtful and a bit cautious, but people are still engaged.

Thanks, Lee.

Thank you. The next question is from Craig Huber with Huber Research Partners. You may go ahead.

Great. Thank you. I'm just curious. Can you just explain a little bit further, maybe even quantify it? The rate of decline of organic growth in the fourth quarter was obviously a little bit worse than what you experienced in the third quarter. If you took out the project-based piece of that, was it more in line with That's my first question. And then also I wanted to hear a little bit further in continental Europe, if you could just tell us the major countries there, if there's any wide disparity in the performance of Germany versus Italy versus France, et cetera. Thank you.

Look, I mean, I think that that's a lot in one go.

But the project-based businesses, as we pointed out, were the ones that were, most impacted, and so I think if you look at where the decline in the quarter was felt most, what dragged. So if you look at, again, not that for us the sectors are how we're running the business, but if you looked at what the CMG sector had, and then you think about where our overall performance was, you can see that that's where the disproportionate amount of the drag was. And then on a country-by-country basis in a market like Europe, you know, when you think about the fact that, you know, the continent for us is 8% of total revenue, you know, it's down 7.3%. Some of those markets are actually not really all that big for us, and so what you have happening there I think is less, kind of a macro or secular trend, and it's really, really very sector-specific. So it really comes down to client mix in some of those markets where if you have exposure to certain areas, you know, it hurts you more than others.

Thank you.

Thank you. And that was our final question. I will turn the call back to Philippe for any closing thoughts.

Well, thank you. Thank you all for joining us. We appreciate the interest. We appreciate the support. We look forward to continued conversations over the course of this year, and it's a long game.

So everybody stay safe. Thanks again.

Thank you. And this does conclude today's conference. You may disconnect at this time.