Interpublic Group of Companies, Inc. (The)

Good morning and welcome to the Interpublic Group second quarter 2021 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 joining us. We hope you are all well. This morning we are joined by our CEO, Philippe Krakowski, and by Ellen Johnson, our CFO. We have posted our earnings release and our slide presentation on our website, interpublic.com. We 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 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. 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.

Philipp Krakowski Thanks, Jerry, and thank you all for joining us this morning. As always, I'll start with a high level view of our performance in the quarter. Ellen will then provide additional details and I'll conclude with updates on key developments at our agencies to be followed by Q&A. I'd like to begin once again by thanking our 53,000 fellow employees around the world for the professionalism and dedication that continue to see us through the many challenges of COVID. These include the transition to work from home, and now are planning for return to office in many parts of the world, as well as the significant personal difficulties presented by the long course of the pandemic. It's due to the efforts of our people, their commitment to their craft, our clients, and to each other that we can share with you today these very strong results. Performance that demonstrates our resilience, represents a remarkable rebound from the impact of the pandemic, and is also the largest second quarter in our company's history. Our strong results in the quarter build on IPG's consistent record of industry outperformance and margin expansion. Our growth across regions, disciplines, and client sectors speaks to more than a recovering global economy. It underscores the elevated value that marketing and media partners can deliver in the integration of creativity, technology, and data at scale amid the significantly increased velocity of digital transformation. At Interpublic, we're confident that we are attuned to the powerful currents that are transforming consumer behavior and are required for business relevance, and that we are increasingly delivering differentiated and higher-end solutions that help our clients win in a world of accelerated technological and societal change. That takes creativity and precision, data and accountability, all of which we're able to bring together in customized teams that draw talent from across our portfolio. Ultimately, our growth speaks to our ability to drive outstanding business results for our clients. Our net organic revenue growth in the second quarter was 19.8 percent. That's against the second quarter of 2020 when, as you will recall, our organic change was negative 9.9%, which, while well ahead of our peer group, did mark our steepest decrease of the recession. It's also important to note that our 7.9 organic increase this quarter relative to the pre-pandemic second quarter of 2019. Compared to last year, our organic growth was at double-digit rates around the world. In the U.S., it was 17.4, growth in our international markets ranged from 14 percent in the Asia-Pacific region to 49 percent in Latin America. We also had a very broad contribution from our operating segments and disciplines. Our IAN segment grew 20.5 percent organically, with increases led by media, data, and technology, and with solid contributions from our global integrated networks. There was also strength across most of our disciplines led by healthcare. In our DEXTRA segment, organic growth was 15.1% with strong increases from last year's heavily impacted Q2 across Octagon Sports and Entertainment and Jack Morton's experiential offerings. Looking at client sectors, the picture is also one of comprehensive acceleration. Each of our eight major sectors had double-digit increases from a year ago. The auto, retail, and other sectors were up more than 20%. Consumer goods, tech and telecom, and healthcare increased in the mid to high teams. Food and beverage and financial services were up in the low double-digit range. Turning to operating expense and profitability, our teams once again demonstrated outstanding discipline. And while remaining focused on appropriate cost control, we're also continuing to invest to support accelerating growth. We continue to see the benefits of cost improvements from strategic restructuring actions taken last year, notably in our payroll expense and our expense for occupancy. We also continue to see the benefits of low variable expenses as a result of the highly restricted global travel environment and from the cost efficiencies of a largely remote workforce. As we look ahead to post-pandemic work life, it's worth noting that we can, of course, expect that expenses for travel, meetings, office utilities, and the like will begin to return in the second half of this year, most notably in Q4 and, of course, into next year. Our second quarter net income was $263.3 million as reported. Adjusted EBITDA was $405.8 million and adjusted EBITDA margin on net revenue was 17.9%. Our results reflect significant operating leverage compared to both last year and the 2019 period on our expense for base payroll and our office and other expenses. We delivered on our expense accrual for our performance-based incentive compensation plans They were operating performance tracking well ahead of planned target. Diluted earnings per share was 66 cents as reported and was 70 cents as adjusted for the after-tax expense of the amortization required intangibles. As we look to the balance of the year, you'll recall that in April, we shared a full-year 2021 performance outlook based on the assumption that there will continue to be a reasonably steady course of public health and global economic recovery. At that time, we outlined our view towards full-year organic growth of 5 to 6 percent and adjusted EBIT margin of approximately 15.5 percent. In light of our very strong second quarter and also having recently refreshed our bottom-up outlook for the second half of the year based on conversations with our clients and operating teams, We believe it's appropriate at the midpoint of this quite unusual year, unprecedented, in fact, to upgrade those expectations. Of course, we do sadly need to recognize that the COVID pandemic and the related risks to the macro environment are not yet behind us. In particular, as we look ahead, we all understand that lagging vaccination rates in many parts of the world and the emergence of new variants may entail a higher COVID risk. That's something we'll watch closely as we enter the second half of the year, especially our seasonally important fourth quarter. But predicated on the continued progress on public health issues, we believe that we can deliver organic growth for the full year of 9 to 10 percent. And with that level of growth, we would expect to achieve 2021 adjusted EBITDA margin of approximately 16 percent. As such, we see this as another year of strong value creation for all of our stakeholders. We'll of course keep you apprised of progress as the year develops, and we look forward to those conversations. On that note, I'd like to hand over the call to Ellen now for a more in-depth view of our results.

Thank you. I hope that everyone is safe and healthy. I would like to join Philippe with our thanks to our people for their terrific accomplishments. As a reminder, my remarks will track to the presentation slides that accompany our webcast. Beginning on slide two of the presentation, second quarter net revenue increased 22.5% from a year ago with organic growth of 19.8%. Adjusted EBITDA before a small restructuring adjustment was $405.8 million and margin was 17.9%. These are levels that compare very favorably against any previous second quarter. With growth having accelerated, certain variable expenses continue to lag, and we are additionally seeing the structural benefits of last year's restructuring program. Diluted earnings per share was 66 cents, as reported, and 70 cents, as adjusted, for the after-tax impact of the amortization of acquired intangibles. 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 second quarter revenue on slide four, our net revenue in the quarter was $2.27 billion, an increase of $416.2 million from a year ago. Compared to Q2 2020, the impact of the change in exchange rates was positive 3.1 percent. with the U.S. dollar weaker against currencies in most of our largest markets. Net divestitures were negative 40 basis points. Our organic net revenue increase was 19.8 percent, which brings us to 10.6 percent organic growth for the six months. At the bottom of this slide, we break out segment revenue in the quarter. Our EN segment grew 20.5 percent organically. We had notably strong growth across our offerings in media, data, and tech, McCann, FCB, with healthcare a significant driver, Moemlo, UGEN RGA. At IBD Dextra, organic growth was 15.1%, which reflects some recovery of the events and sports marketing offerings within the segment, the disciplines that have been most significantly impacted by the pandemic. Our public relations offerings also had solid growth in the quarter. Moving on to slide five, which is a look at our organic revenue change by region. In the U.S., which was 63 percent of net revenue in the quarter, organic growth was 17.4 percent. Revenue decreased a year ago in the same period by 8 percent. Year-on-year performance was very strong across media, data, and tech, FCB-driven by healthcare, IPV Dextra, McCann, Monlo, and Uche. International markets were 37% of our net revenue in the quarter and increased 24.4% organically. You'll recall that the same markets decreased 13.1% a year ago in the second quarter, which ranged by region between negative 10% and negative 15%. Continental Europe grew 27.9%. with notably strong growth in Germany, Spain, and France. There were a number of operating highlights in the region, led by Media, Data & Tech, McCann, RGA, and Dextra. The UK increased 18.7% organically, led by McCann, Dextra, Media, Data & Tech, and RGA. Asia-Pac grew 14% organically. Organic growth was paced by Australia, the Philippines, Singapore, Thailand, and India, while China and Japan decreased. Our organic growth in LATAM was 49 percent, with exceptional results across the region, including Brazil, Mexico, and Argentina. Our other markets grew for 29.2 percent, with notably strong performance in the Middle East and Canada. Moving on to slide six and operating expenses in the quarter, Our operating expenses, excluding billable expenses, the amortization of acquired intangibles, and restructuring charges increased only 11 percent from a year ago, under 22.5 percent growth of net revenue. The result was second quarter margin expansion to 17.9 percent from 9.4 percent a year ago. We continue to see efficiencies in a number of different expense categories, as we had in this year's first quarter, and these were both structural and variable. In the structural category, we are seeing the benefit of the strategic restructuring actions, which we initiated in the second quarter of last year and continue to execute over the second half. As a reminder, these actions involve the elimination of certain positions and resulting headcount reduction that will not return with revenue growth. We also reduced our real estate footprint by 15 percent last year, We are currently seeing the benefit of most of these actions, and at a full run rate, they will generate $160 million in annual cost savings. We've also had, over the course of the pandemic, a sharp decrease in certain variable operating expenses. I would call out specifically lower travel and related expenses, which was the case in the second quarter of 2020 and has continued through Q2 2021. As you can see on this slide, a ratio of total salaries and related expense as a percentage of net revenue was 65.4%, which was significantly improved in the second quarter of 2020 when revenue had decreased sharply. Underneath that, we drove very strong leverage on our expense for base payroll, benefits and tax, which was 53% of net revenue in the quarter. That reflects the benefit of last year's restructuring and the fact that the pace of new hiring lags our significant revenue growth, as has been the case in past business cycles. Our severance expense ratio also decreased sharply to only 40 basis points of net revenue, compared to 3% in Q2 2020, which was at an elevated level due to the impact of the recession. Going the other way, our expense for performance-based incentive compensation increased to 6.4% consistent with our very strong operating results. Expense for temporary labor also increased as a percent of net revenue to 4.5% as a result of servicing the top line's quick acceleration. At quarter end, total worldwide headcount was approximately 53,000, a 1.4% increase from a year ago, and up 5.2% from the beginning of this year with hiring to support our growth. Also on this slide, our office and other direct expense decreased as a percentage of net revenue by 380 basis points to 13.3%. Our occupancy expense decreased to 5% of net revenue, mainly due to the restructuring of our real estate, as well as leverage on our revenue growth. We leveraged all other office and other direct expense by 220 basis points. which reflects lower expense for bad debt and acquisition costs and leverage as a result of our revenue growth. Our SG&A expense was 1.3 percent of net revenue, with the increase from a year ago due to higher unallocated performance-based incentive expense and increased employee insurance expense, which was at a very low level a year ago. On slide seven, we present detail on adjustments to our reported second quarter results in order to provide greater clarity and a picture of comparable performance. This begins on the left-hand side with our reported results and steps through to adjusted EVTA and our adjusted diluted EPS. Our expense for the amortization of acquired intangibles in the second column was $21.6 million. The restructuring refinement in the quarter was a benefit of $200,000. To be clear, this is a small adjustment to estimates of the 2020 restructuring program. Below operating expenses in column four, we had a pre-tax loss in the quarter of $1.7 million in other expenses due to the disposition of small non-strategic businesses. At the foot of the slide, you can see the after-tax impact per diluted share of these adjustments was $0.04 per share which bridges our diluted EPS, as reported, at 66 cents to adjusted earnings of 70 cents per diluted share. The appendix to our presentation includes a similar blue bridge on our diluted EPS for the six-month period. On slide eight, we turn to cash flow in the quarter. Cash from operations was 468.2 million, compared with the use of 87.1 million a year ago. We generated $101.6 million from working capital compared to a use of $264.9 million last year. Investing activities used $43.3 million in the quarter, mainly for capex of $34 million. Financing activities used $101.8 million, mainly for our dividends. Our net increase in cash for the quarter was $325.6 million. Slide nine is the current portion of our balance sheet. We ended the quarter with $2.34 billion of cash and equivalents. Under current liabilities, the current portion of long-term debt refers to our $500 million, 3.75% senior note, which matures in October of this year. We plan to repay these notes from cash on hand. Slide 10 depicts the maturities of our outstanding debt. Again, we have the maturity in October of this year, and then only $250 million due in April 2024. Thereafter, our next maturity is not until 2028. In summary, on slide 11, our teams continue to execute at a high level in an unprecedented environment. I would like to reiterate our pride in and gratitude for the efforts of our people. The strength of our balance sheet and liquidity needs that we remain well-positioned both financially and commercially. And with that, I'll turn it back to Philippe.

Thanks, Ellen. Well, we remain very pleased with our results. It's worth reiterating, as Ellen just said, that this is an unusual, in fact, unprecedented environment in which we're operating. Now, importantly, it bears noting that when compared to our non-pandemic results of 2019, Q2 results show our company is performing at a very high level. We continue to feel this is the result of strategic decisions that we've taken over a number of years to position our company for the future. Investments and actions that have created a sustainable advantage for our organization. Today's IPG delivers addressable and accountable digital marketing programs. Combined with our world-class creative storytelling capabilities, these solutions make us higher value partners to our clients. One of our many priorities over the years has been the creation and implementation of open architecture solutions where we bring the best of IPG together in collaborative teams that are customized to client-specific business needs. And increasingly, a key element of this approach, Open Architecture 2.0, as it were, is Axiom, whose data management expertise and data assets play a role in an increasingly broad range of our offerings. In addition, Kineso powers many of our applications and services that provide clients with a deep understanding of audiences in order to provide insights that inform creative work, segments for media delivery, and line of sight to the effectiveness of the work that we are doing together. We saw this model come to life in the quarter with a Cigna account win, which combined talent from McCann World Group, Initiative, and RGA, powered by Kineso and Axiom. This is the continuation of several years of strong performance and integrated pitches, especially those that include creative and media, as well as media and data. Another key decision that's contributed to our success has been our continued investment in strong agency brands, which helps us to track and retain top talent and deliver breakthrough creative ideas across a range of marketing disciplines. As a result of this strategy, IPG companies across our portfolio earned a number of important accolades during the quarter. Most notably, we had an impressive showing at the 2021 Time International Festival of Creativity. IPG agencies took home eight Grand Prix, the festival's highest honor. Wins across the network represented a broad range of clients, categories, agencies, disciplines, and geographies. FCB's performance was a standout as the agency took home four Grand Prix and was named Global Network of the Year. The agency's creative community and its leadership deserve credit for this terrific accomplishment. FCB Health was also named Healthcare Network of the Year and Area 23, an FCB health agency, was named Healthcare Agency of the Year. McCann client Microsoft was named marketer of the year at the festival, which is another major honor. And the agency also won a Grand Prix in brand experience and activation for its remarkable true name work for MasterCard, which empowers transgender and non-binary cardholders to use their true name when using their credit card. In PR, McCann Paris earned a Grand Prix, partnering with Weber Shandwick for a campaign that ran across the Middle East, which teaches women in a culturally sensitive way to perform self-checks for early breast cancer detection. FCB Chicago and Weber Shandwick teamed to earn a Grand Prix for work for AB InBev. And RGA continues to be recognized for its ability to humanize technology, winning a Grand Prix in social and influencer marketing for disruptive work it did for Reddit on the Super Bowl. On Adage's annual A-List and Creativity Awards, Both Deutsche LA and the Martin Agency were named to the prestigious A-list. The initiative was named Media Agency of the Year, and FCB Health's CEO was recognized as our industry's Executive of the Year. At the holding company level, we made a number of announcements that positioned us for further success. Chief among them was our launch of IPG Health earlier this month. the move will align our top performing companies, FCB Health and McCann Health, under a new global network, IPG Health, led by a dynamic and proven CEO and a skilled executive leadership team. In this new operating structure, the distinct agency brands within FCB Health and McCann Health will remain active and continue to go to market independently. But they will also benefit from access to additional specialty services knowledge sharing, proactive career management, shared investment in new capabilities and skill sets, highly complementary geographic coverage, as well as an even higher level of collaboration. Around the world, healthcare and wellbeing are areas of growing importance for our clients and society at large. As an industry sector, healthcare represents an increasingly vital part of the economy, and one where innovation is becoming an ever more important driver of success. So the alignment of IPG's fully dedicated healthcare networks under the banner of IPG Health strengthens our leadership position in this dynamic sector. The scale, reach, and most importantly, quality of our people and our work makes for an exciting combination. And it's why we think this new offering will continue to deliver great things in the years to come. This month, we also added to our strong roster of marketing technology and e-commerce providers with a launch of Performance Art, a data-led creative CRM agency whose leadership team is known for delivering platform-level creative ideas that are as home in a client's e-retail flow as they are in a 30-second spot. Turning to performance at our agencies, growth at IAN in the quarter was once again highlighted by media, data, and tech, and FCB led by healthcare. UM saw significant wins in the quarter with Enterprise Holdings, Fair Paint, and most recently NYC and Company, New York City's official marketing and tourism organization. UM also saw an important account retention for the Australian government. At the Campaign Agency of the Year Awards, UM earned Global Media Agency of the Year and UM-APAC was named best media network in that region. At initiative, the agency was named 2020's most competitive network globally in media pitches and it saw a major win in the UK with banking insurance company NatWest Group. We also continue to see terrific momentum at Reprise, especially as it relates to their growing e-commerce capabilities. Axiom, Kinesa and Matterkind are also performing well. and they're key to how we help clients thrive in the addressable media market which requires flexibility given the quickly shifting landscape. At Axiom, we continue to invest behind innovative new products and services such as customer data platforms and identity resolution with which we are seeing increased client adoption. Another important development saw Axiom deploy their latest customer intelligence platform on the cloud. with a key financial services client. At our creative integrated networks, FCB, McCann, and Mullen-Lowe Group were named to Act Responsible 2020 Good Report, a unique ranking of the world's best use of creative communications to promote sustainability and social responsibility. On top of its exceptional showing at Cannes, at FCB Global, the network continues to invest in talent and new offerings. hiring a head of data science and connections to expand its expertise in commerce, data, and technology-fueled creativity. McCann also continues to prove a creative powerhouse, as we saw when the network was recently named Webby Network of the Year, and McCann New York was named Webby Agency of the Year. MRM continues to leverage its MarTech expertise, missing strong growth with its MRM Commerce Division, which helped marketers drive engagement, interaction, and conversion on commerce platforms. And Mullen Lowe Group Media Hub continues its strong new business momentum and during the quarter added Hallmark's parent company, Crown Media, as well as Tally Financial. Mullen Lowe is also a global leader in purpose-driven work and we saw that as it continued to partner with governments in a number of countries around the world. to inform people of the benefits of being vaccinated against COVID-19. At RGA, a campaign named the London Office as the UK's Digital Agency of the Year. And RGA in London added two new clients, financial services company Allianz and Vollback Clothing. We named a new CEO at HUGE who joined the digital agency after a very successful tenure at Initiative. where he helped turn the agency into a leader in the media space. During the quarter, Huge also saw strong new business activity, adding Sub-Zero Appliances, Wake Fern, Tezos Foundation, and Nikko Asset Management. The Martin agency continues to impact culture and drive strong business results for its clients. Notably, the agency sold the city's short film for DoorDash premiered at the Tribeca Film Festival last month and it captured the resilience of New York City's restaurants and the role they play in the city's life. At IPG-Dextra, we also saw recognition as a number of companies were called out for their ability to deliver creative solutions. Weber-Shandwick was the most awarded PR agency at Cannes this year, Current Global demonstrated their commitment to closing the disability and inclusion gap by creating guidelines and toolkits for marketers so as to make content more accessible for consumers with sight, hearing, or other cognitive impairments. And this program was recognized as one of Fast Company's world-changing ideas for 2021. Jack Morton launched what they are referring to as the Return to Live Dashboard, and that's a tool for brand marketers to access where when and how businesses in the US can safely get back to hosting live experiences. Golem continued its strong performance in new business. It was selected as LinkedIn's global social media agency of record and also agency of record for Yamaha Music. Golem was also named PR Week's global agency of the year. And at Octagon, the sports and entertainment network won best in talent representation at the 2021 Sports Business Awards. Pivoting now back to the holding company, another key area that bears mention is our long-term focus on ESG, including diversity, equity and inclusion. 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 and contribute to the healthier society and planet. In all of our operations and activities, we're working to build on and more fully live into this commitment. And this includes reassessing how we hire, train, and promote a diverse workforce, incorporate rigorous practices around data ethics and media responsibility, as well as reduce our greenhouse gas emissions further around the world. Key accomplishments on this front include IPG being recently named by Forbes to their top ten list of America's best employers for diversity. During the quarter, we also created a new position, our industry's first culture officer, to focus on long-term thought leadership relating to a broad range of social justice issues for underserved and underrepresented communities. During the quarter, as part of our integrated ESG efforts, we also announced an action plan that consists of three climate goals. committing to set a science-based target, sourcing 100% renewable electricity by 2030, and joining the Climate Pledge, co-founded by Amazon and Global Optimism. In addition, we've published our first SASB report, becoming the first company in the advertising and marketing sector to publish in alignment with SASB's industry standards. Our agencies also contribute significantly to our ESG profile. And importantly, here in the US, we saw media brands take a leading role in the industry conversation about promoting greater media equity. And they announced that they're committing to invest at least 5% of client budgets in black-owned media by 2023. Octagon launched an accelerator program with historically black colleges and universities for students interested in sports and entertainment as a career. And RGA created an innovative program to raise money for environmental organizations through a dedicated YouTube channel that plays nature videos, which have become hugely popular during the pandemic. And it directs all of the ad revenues generated on this channel to environmental NGOs. Now, as we sit here at the halfway mark of 2021, the success we've seen is thanks to the talent, efforts, and commitment of our people. and we continue to be highly focused on supporting their physical and mental well-being as we plan return to office. Like many of us, I look forward to working live with colleagues and clients, especially given that we're an ideas-driven service business. Our culture, our capacity for innovation, and the ways in which we combine creativity with technology and data are all enhanced by in-person interactions. Now, here in the U.S., we expect to have more people returning to our offices in a flexible hybrid model beginning in mid-September, as is already the case in certain other parts of the world. We will, of course, be mindful of the public health situation and of the learnings we've accumulated during the past 16 months when it comes to flexible work practices. We expect the cost associated with live collaboration with colleagues, as well as travel, will begin to return as a normal part of how we work and therefore be reflected in our operating results. For example, as we look forward to the remainder of the year, we expect an increase in travel costs in the fourth quarter, which could return to levels consistent with what we saw in the fourth quarter of 2019. As we said earlier, these are unprecedented times. None of us has previously been required to adapt to the constraints of living and working through a pandemic. And likewise, none of us has experience in emerging from one. Thankfully, as a company, we are well positioned to do so. Earlier on the call, we shared our perspective on the balance of the year based on the assumption that there will continue to be a reasonably steady course of macro recovery, that people continue to become vaccinated to protect themselves and their communities, and that we're able to adequately mitigate the impact of dangerous new variants. We've delivered a very strong first half of the year on top of the most challenging comps in our industry. Further, despite continued macro uncertainty, we have greater clarity to the balance of 2021. We therefore believe that current performance combined with the continued execution of our long-term strategy are significant drivers for the sustained enhancement of value for all of our stakeholders. As always, we're committed to sound financial fundamentals including debt reduction as well as continuing to grow our dividend. We also remain focused on getting back to our share repurchase program and we will keep you apprised of our progress as the year develops. As always, we want to thank our clients and our people who are ultimately the two key pillars of our success. I'd also like to thank you all for your time this morning and with that, Turn the call over for questions.

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 would need to withdraw your question, you may press star 2. Again, to ask a question, please press star 1. Our first question is from Alexia Quadrani with JPMorgan. You may go ahead.

Thank you very much. I just have a couple questions, if I might. The first one is really kind of a broad question on the really impressive, you know, organic growth you guys delivered in the quarter. I'm wondering what surprised you on the upside versus your internal budgets. Like, where did you see kind of incremental growth versus what you expected? And I guess along those lines, I guess, how much do you think of the strong growth is IPG sort of gaining share of wallet from your clients versus just a bounce back in their budgets or their spending.

Hi, Alexia. Look, I mean, I think those are terrific questions or things we obviously think about. And so if I were to track the progression for you, what I'd say to you is, if you think back to what we talked about the last time we were all together, from February to April, we clearly saw improvement in the broader economic environment, but also in the tone of, you know, what I guess I'd call client sentiment, right? And so as we went through the quarter, that trend was clearly continuing to build over the course of the second quarter, right? And so as we think about it, is it a question of surprise? I mean, I think we said to you, we felt confident in our offerings, specifically in ways we can help clients to you know, stand apart and to succeed in a digital-first kind of economy. So now that growth is available, we're obviously pleased to see that we're capitalizing on the environment. So you start breaking down the results, and what do you see? You see, whether it's geographies or practice areas, you know, content creation, creativity, data, and tech, it was very, very widely spread. And so... Matterkind, addressable media growing, a very, very strong grower for us. Healthcare continued to be an area where we're seeing really, really good results. And then, you know, perhaps if you're bracketing it, you know, having decreased by, you know, north of 30% in light of the pandemic, we clearly have, you know, experiential and events, you know, showing a real recovery, though they're not all the way back, right? Month to month in the quarter, we saw consistency. So, you know, that's something where in terms of projecting forward to, you know, we see that as encouraging. And then, you know, as we forecast for the back half of the year, we also see that consistency and that ratable. There isn't a moment in time where we're expecting there to be, you know, something dramatic to get us to what we've communicated to you, which is that 9% to 10% number, right? Right. The one big caveat is one that applies for all of us around the world, which is just there's a significant deterioration on the public health front. And, you know, you really get at something because what I think we're seeing is we're seeing the overall environment stronger, but we're also seeing underlying factors that have to do with, you know, strategic actions we've been taking over decades a number of years, you know, and they're aligned with trends that have been accelerated by the pandemic, right? So, you know, whether that is addressable media, precision in the creative that we deliver, e-commerce, you know, those are all areas where we're strong and we're definitely seeing growth. You know, hard to tell you exactly, you know, given that we don't know what some of our peers have done and that, you know, We clearly believe that we're taking share as well as seeing net new opportunities because, you know, we're building new capabilities that take us into kind of new addressable universe. And I think last, I think for us as a management team, the strongest indicator is, you know, how relevant is an offering, you know – when you just benchmark off of the same period in 19 and you think about the two-year stack from, you know, the Q221 results, you know, that's what's telling us, you know, competitiveness of a specific part of our space or of, you know, IPG all in, you know, a sustainable platform where we feel like, you know, that's what gives us confidence that we can grow for the balance of the year and obviously, you know, beyond that.

And then just a quick follow-up on margins, sort of also a high-level question. You know, you obviously have some great margin improvement this year, you know, with the benefit of expenses being cut back and also the bigger picture permanent cost that you took that you announced earlier on. When you think about margins longer term, though, I'm not sure if you could still achieve margin improvement in 2020 given the comp, but is there still the plan to continue to improve margins longer term post this year?

There is. So let me actually, why don't I just talk to that at a fairly macro level, and then I think we should get Ellen into the conversation as well. But, I mean, there were a lot of moving parts in terms of what's going on with our profitability in this calendar year, but it's good to see significant strides on margin performance like on the top line. You know, we're very committed to the savings that we have consistently shared with you all around the restructuring, and so that's, you know, permanent annualized $160 million. We're tracking that, and we're holding ourselves and our operating teams accountable to that. Then there's, you know, the fact that I think we've got a consistent track record over time that we grow margin with revenue growth, so there's meaningful opportunity there. And so operating leverage, I think, is a lever that stays with us into 22 and beyond. And then lastly, you know, as I mentioned in the answer to your revenue question, you know, the higher value services and the new commercial models, I think, are also an opportunity from a margin perspective. And let's see, you know, I mean, Ellen can pull apart all the ins and outs of this year.

Good morning, Lexi. How are you? Thank you for the question. I'll start with the actions that we took last year as part of the restructuring, and they were clearly structural and strategic, and that is why we are so confident in them and that we will realize the savings that we've committed to. So if you break them down and you look at the fact that we took out 15% of our real estate portfolio or that we eliminated certain regional or other layers of management to become more agile or that we were able to nearshore or offshore certain roles, That gives us great confidence that those savings are permanent and they will not come back with revenue growth. Turning to some of the more variable expenses, if you look at travel and meetings, they will come back. And initially, they may come back pretty full as there's pent-up demand for people to get back together, to get out and see clients and to see our people for training and development. Do they go back fully to pre-pandemic levels? That remains to be seen. I am hopeful that the learnings from the pandemic with using technology and, you know, really thinking carefully about the environment will help us be more efficient and prevent them from fully going back to pre-pandemic levels. And then I would just reiterate the fact that what Philippe said is that we've demonstrated over a period of time that with revenue growth, we can expand margins And we're incentivized to do so. Our incentives are largely based on organic revenue growth and margin improvement. And that makes me pretty optimistic.

Thank you very much.

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

Thank you. Good morning. Hi, John. Hi, Philippe. And maybe one for Philippe. Philippe, maybe just to start, you talked about lagging vaccination rates. With some of the renewed COVID headlines in areas of, say, Asia or Latin America, are your agencies on the ground seeing any change in outlook from clients? And I know they're pretty small, but do you expect China and Japan to turn the corner sometime later this year?

Well, look, I mean, to date, we're seeing the benefits of the progress that any number of places around the world have seen. And then I think, as we've discussed previously, I think a second or third wave or whatever it is that any country might be experiencing is not going to necessarily be the same as the first because there is a sense that you're still making progress toward an outcome. So you're still either getting people vaccinated or, in the case of many of our clients, you've pivoted into and accelerated your ability to operate effectively Whether it's through e-com or other ways in which you're going direct to consumers, you're clearly leaning more heavily into digital as part of your mix and transforming your business. So I think that that, again, means that we don't necessarily see that the impact will be as significant. And then specific to certain markets for us, as we've also said before, client mix can have a pretty significant impact for us on the ground in any given market. You know, so to my mind, TBD as to whether we're getting there on those two markets, they're fairly modest in size for us. I think China is probably the one we focus on the most as a place where we want to be delivering for our global multinationals. You know, and we're doing some interesting things in that market with Axiom and some of our relationships with some of the large platforms there and what we can do with data. So it's still a work in progress, but I couldn't put a date on that for you.

Okay. And maybe separately, your outlook wouldn't suggest it, but are you seeing any notable impact on the business from wage or other inflation and related to the $160 million of annual cost savings? Can you update us in terms of, is there still a tail to those savings perhaps on the real estate side, or have those been largely completed?

I'd let Alan... Start with that piece of the question, and then whatever she'd like to speak to on your talent question, I'll sort of add on.

Sure. So starting with the question regarding our real estate savings, we're largely seeing the vast majority of them this year. There will be some incremental ones next year as the remainder of the properties get subleased, but we're seeing a good portion of them already, and they're on track versus our plan, which is great. On the inflation question, I mean, to date, we haven't seen generalized wage inflation, but we're watching it closely. It is something we talk about with our operators. The talent market is competitive, and that's not a new thing. We've been used to that for quite some time, and I think what you are seeing is a little bit of higher attrition, and whether that's because people sat at home for 16 months and now have the ability to move around more So we're watching that closely as well. But we're being very innovative in the way we recruit and retain talent. We're focusing on flexibility, the quality of our return to office experience that we're planning, training and development, and, of course, diversity, equity, and inclusion, which is something that we've been focused on for a very long time for now.

With that, I see what Philippe... No, look, I mean, there's not a lot to add there. I think it's a fair question. I mean, we're in a professional services business. We've always been focused on the importance of talent as a driver of our competitive advantage, and we've been evolving the offering. So clearly, we've been dealing with the pressures of the talent market for the kind of digital and tech talent that has been in demand for a while. I think to Ellen's point, some of those turnover numbers feel as if we've yet to see what it normalizes out to. because it does feel like they were lower in 20. They're picking up now. I think that people were understandably sitting still last year, and now that the world feels like a place where you might get out and about again, you're looking. And so it's a topic that comes up in our conversations with the operators. We're keeping a close eye on it, looking at how do we manage it, And how do we stay ahead of it to mitigate, you know, the impact? We'll keep you posted on kind of what we're seeing. But, you know, people come to work across our portfolio because, you know, of a range of things, you know, that have meant that whether we were competing, you know, for talent with startups or with, you know, large tech companies for the last few years, we've been, you know, fairly successful at it. So we've got to just keep to Ellen's point, you know, figuring out how we – put what are our advantages to work in those conversations. All right, great. Thank you very much.

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

Great, thanks. Do you guys hear me? Yep. Hi, Michael. Okay, hey, Philippe. Philippe, I have one for you, then I have one maybe broadly for both of you. I'm just wondering, when you... sit down virtually with your clients today, what are their priorities and the urgency of those priorities now versus maybe what it was pre-pandemic, right? So what has changed in the conversation, maybe the speed to innovate and transform? And then more broadly, given how well you're doing and given the balance sheet, what is the company waiting for in terms of buybacks? It seems like you guys have clearly – gone over the hurdles of COVID-19 in terms of performance, your balance sheet is pristine. Why not start leaning into the buyback sooner than later?

All right. I will take the first one. I guess we'll both, to your point, take the second one. We'll be vehemently in agreement on the second one, Ellen and I. Look, I think it's any number of things which you would assume. Clearly, the need to be conversant in and to put into effect programs so that you are, you know, call it what you will. So, you know, people call it e-comm and there's a lot going on there. I mean, social is becoming a big part of what happens somewhere in the funnel, in the middle of the funnel, actually, and moving upstream in the funnel. So everybody is clearly wanting to talk about and engage in conversations around you know, call it digital marketing, calling e-com, et cetera. Increasingly, everybody is also, you know, we've had some really interesting conversations with, you know, regional clients in the CPG space, you know, for example, you might not, you know, think of who are very, very focused on data and on either, Assessing their first-party data assets and understanding how they get organized so that they can begin to put them to work, or if they're further behind in terms of the readiness there, how do you take businesses that traditionally have not been particularly data-rich and begin to... interact with consumers so that you're going to basically pull that kind of information in to the question Alexei asked earlier in the experiential event space. We're clearly seeing the need to get more digital and to use that as a way to... To my mind, those are the two really big questions that have risen to the top of most everybody's list. Then in terms of the balance sheet question you asked, as I said, we are committed to, you know, we've returned, what is it, $4.8 billion. We believe that's a big part of our story and how it is that we should be thinking about kind of balanced growth for the company. So we're clearly focused on that.

And I loved your reference to a pristine balance sheet. That's something that we think is extremely important as well, you know, including our solid investment grade ratings. But a balanced program of capital return, which includes the dividend, which we've grown consistently, and share repurchases, has been something that we've always believed in, and we look forward to getting back to. As we mentioned, we are planning on paying our $500 million notes down in October of this year, and we do have a really nice maturity profile thereafter. So nothing's changed. We believe in balanced programs, and we look forward to getting back to it.

Okay, thanks. You guys have come such a long way from way back when. Congratulations. Thank you.

Thank you. Our next question is from Julianne Roche with Barclays. You may go ahead.

Yes. Good morning, Philip. Good morning, Ellen. Two questions on margin, if I may. Why would margin fall in the second half of 21 versus the second half of 19? Because if I put the same margin, you get 16.9 for the full year of 21. And I understand that, you know, travels are coming back, people are going back to the office, but you're guiding to more cost than in 19. And so I want to know why. It's my first question on margin. And then the second one, is a longer-term question. Philosophically, is there a ceiling at which either clients or employees will say, I want my share of your margin, or there's no limit to margin as long as revenue goes up? Could you go to 18% margin or 20% margin? A bit of a philosophical question on whether there is a ceiling or you will be dancing on the ceilings.

Why doesn't Alan go first on your first one?

Sure. And thank you for the question. When you comp against last year, we have to remind ourselves what was going on last year at this time. And there was everything from taking salary cuts to furloughs to government subsidies that we're comping against. There was zero travel. There was zero going back to the office. I think it's important that we remind ourselves that. And as we mentioned, you know, we are envisioning a second half where people are returning back to the office to the extent we can in a safe manner, where people are beginning to travel and meet again. And, you know, we will be salary and wage cuts, you know, and that is all gone and elapsed. And we will be hiring against revenue growth. So I think those are the ins and outs that it's very important when you just look at the second half comp.

Look, and I think, you know, there's pent-up demand, as we were saying, you know, John's question around, you know, potential turnover. I think there's pent-up demand, you know, for travel, absolutely. So I think that, you know, you'll see people wanting to, you know, there's definitely things that get done when we are working physically together that are much harder to do remotely. And then there is growth, and we want to be sure that that's getting staffed appropriately and that we've got clients who are giving us these new remits or net new clients to us are getting the appropriate level of service. In terms of the philosophical question, it's interesting because I don't know that I would call it philosophy, but... As we said, the restructuring positions us well. We've said all along we want to come out of the pandemic a stronger company, and I think we're showing that we're well on our way there. And then you do begin to see the transformation of the areas which we think will be accretive because they'll take us to places more performance-based kinds of models and to, you know, higher value or, you know, instances in which RIP can be licensed out or can give us access to. So I think to my mind, it's not philosophy because I can't give you a tenet that says this will be good forever. I can tell you that at the moment, we see continued opportunity and upside and And therefore, whether it's in 22, 23, that's going to be what we're making our objective. To Ellen's point, that's also how we reward our people. And if there comes a point at which we began to believe or see that the ceiling that you mentioned is there, then as always, we're going to be very transparent and walk you collectively through what we're seeing and why what we believe is what we believe. But I can't. you know, say something now that is going to be kind of evergreen in that way because, you know, our business is in the midst of evolving and, you know, right now we see opportunity.

Okay. Thank you. Thank you.

Cheers.

And that was our final question. I'll now turn it back to Philippe for any final thoughts.

Well, look, just thank you all for the time this morning. Again, we're looking forward to continuing the conversation. We're hugely appreciative of sort of, you know, winning sales thanks to the hard work that our colleagues are doing and to our clients. And I hope everybody is staying healthy.

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