The Interpublic Group of Companies, Inc.

Good morning and welcome to the Interpublic Group fourth 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 being with us. On our call today, 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-K 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 operating performance. At this point, it is my pleasure to turn things over to Philippe Krakowski.

Philippe Krakowski Thank you, Jerry, and thank you all for joining us this morning. I hope you're keeping well. As usual, I'll start with a high-level view of our performance in the quarter and for the full year. Ellen will then provide additional detail. I'll conclude with updates on key developments at our agencies to be followed by Q&A. We're pleased to share our very strong fourth quarter and full year performance. Before turning to the numbers, however, I want to begin by once again thanking our more than 55,000 colleagues around the world. Their professionalism and dedication continue to be central to another year of outstanding results. Our people are delivering on the complex integration of creativity, technology and data to clients across industry sectors and around the world. This in turn is driving the consistent levels of growth and margin that have distinguished Interpublic for a number of years now. Turning to our results in the fourth quarter, organic net revenue growth was 11.7%. That's against the fourth quarter of 2020, when, as you'll recall, our organic change was negative 5.4% due to the impact of the pandemic. It's also important to note that our two-year organic increase was positive 5.7% relative to the fourth quarter of 2019, which is a very strong underlying trend line. For the full year, organic growth was 11.9% and two-year organic growth was 6.5%. Compared to 2020, growth in the quarter was again broad-based across world regions and client sectors. Organic growth was 12.1% in the U.S. and 11% in our international markets. Among client sectors, we were led by double-digit percentage increases in our other sector of public, industrial, and services clients, as well as double-digit growth in the retail, auto, financial services, and tech and telecom sectors. We had strong growth, again, in healthcare and consumer goods. Staying in the quarter, both of our operating segments also grew at double-digit rates. Our IAN segment increased 11.2% organically, and there we were led by our media, data, and technology offerings, McCann, Mullen Low Group, FCB, RGA, and HUGE. At our DEXTRA segment, organic growth was 15.1%, reflecting strong increases by Jack Morton and Octagon, two of our offerings that were hardest hit by the pandemic a year ago. We also had strong performance by Weber Shandwick, Golan, and Future Brand. Turning to profitability and expenses, our teams continued their disciplined executions. And we were able to continue to invest in supporting our growth and further evolving our offerings. Fourth quarter net income was $357.9 million as reported. Our adjusted EBITDA was $491.8 million, which is before an adjustment in the quarter relating to the 2020 restructuring program. And our margin was 19.3%. That brings full year adjusted EBITDA to $1.53 billion and our margin to 16.8%, consistent with the expectation we shared with you in our October update. That compares to a margin of 13.5% a year ago and 14% in 2019. As has been the case throughout the pandemic, there were more than the usual number of moving pieces in our expense base this quarter. Our strong results led to a significant increase in performance-based compensation, as you'd expect. Expense for severance was also elevated, and that reflects actions that we chose to take during the fourth quarter to further improve the efficiency of our operations and to benefit our expense base going forward. Compared to last year, we delevered our expense for base payroll in the quarter, and that comparison reflects the temporary pay reductions that were still in effect a year ago, put in place due to the pandemic and which expired at the end of 2020, as well as increased investment in talent in 2021, largely to support our growth, but also due to tighter market conditions. For the full year, we had strong operating leverage on payroll expense. Our expense for temporary labor increased from a year ago as a direct result of our very strong revenue growth. We've made significant progress in staffing to levels consistent with revenue, so that's a cost that should abate going forward. Going the other way, in our office and other expense, we had significant leverage on our expense for occupancy. Our bad debt expense decreased from a year ago, while our travel-related expenses continue to track at very low levels relative to our longer history. So they were at higher levels than last year's fourth quarter. Fourth quarter diluted earnings per share with 90 cents as reported and with 82 cents as adjusted for several items. In sum, our fourth quarter completes a year of very strong financial performance against the key metrics of growth, adjusted EBITDA, and earnings per share. Further, we paid our maturing 500 million senior notes in October from cash as we continue to program of significant financial deleveraging related to the Axiom transaction in 2018. Since acquiring Axiom, we have grown EBITDA, paid down debt, and strengthened operating cash flow, resulting in material improvements to all key credit metrics. First, reflecting on the fact that since 2017, our last full year prior to Axiom, We've grown our adjusted EBIT by $574 million, a full 60% to $1.53 billion. Over the same four-year period, we've expanded adjusted margin by 400 basis points from 12.8 to 16.8%. And we've driven compounded organic growth of 16% over those four years, marking significant outperformance compared to our direct industry competitors. Our growth therefore reflects more than the cyclical economic recovery that we're seeing. We're successfully helping to move the business transformation journeys of our clients forward by delivering addressable and accountable marketing programs that are increasingly integrated with our world-class creative storytelling capabilities. Confused with data and technology, our solutions are driving higher value client relationships as marketers seeking growth amid a rapidly changing and complex landscape, look to adapt and enhance their business models. The success of our clients, as well as our own performance, validate our longstanding strategic focus and investments, and underscore the caliber of talent and client focus of our operating teams. Heading into 2020, we're confident that the continuing strength of our offerings has us well positioned in an environment of dynamic change for media and marketing, which is coupled with a solid global macroeconomic environment. Of course, we are aware that the year ahead has uncertainties and challenges, from COVID to inflation and geopolitical risk. Yet, as we look ahead, we anticipate that 22 will be another year of strong growth, on top of multi-year industry-leading comparables. As such, we are targeting full-year organic revenue growth of 5% in 2022. And with that level of growth, we expect that in 2022, we will consolidate the very significant gains achieved in adjusted EBITDA margin over the past 24 months at a level of approximately 16.6%. Our margin target incorporates a number of puts and takes as operations begin to normalize to a mostly post-COVID world. Certain expenses that have been running at unusually low levels during the pandemic should begin to return to levels closer to their historic norms. These include our travel and related costs and business development expenses, both of which are investments that build the future growth of the business. In light of the current environment, our outlook also includes a modest inflationary impact on our investment in employee compensation this year. which we're actively managing to support our strong growth. This is consistent with what I believe we're all seeing reported across a broad range of industries. We anticipate that our expense for employee performance-based incentives will retrace and fall within a more normalized range consistent with our longer-term history. That will help offset the trends in other categories. We also expect to continue to see the structural benefits of our 2020 cost actions, most of which we saw in 2021 and which will continue to be evident going forward. Further, we expect that the underlying healthy incremental margins generated with revenue growth, which we've consistently delivered over a period of many years, is a factor that remains at play. Under 5% organic revenue growth, we expect adjusted EBITDA margin of approximately 16.6% in 2022 and then continued opportunity to further expand margins with growth in the years ahead. Turning now to capital allocation, we have positive developments to share as well. Given the continuing strength of our operating results, We've announced this morning our Board's decision to once again raise IPG's quarterly dividend by 7% to 29 cents per share. This marks our 10th consecutive year of uninterrupted higher dividends, which continued through the period of pandemic. We're also pleased to resume our share repurchase program. You'll recall we had suspended share repurchase following our announcement of the Axiom transaction in order to focus more of our resources on financial deleveraging. We're now resuming the program under an authorization of our board of up to $400 million. And while we restart the program, we do plan to continue our commitment to operating in a manner that will maintain and enhance our balance sheet and financial flexibility, as well as our debt credit ratings. On that note, this seems like an appropriate time to hand the call to Ellen for a more in-depth view of our results.