The Interpublic Group of Companies, Inc.

Good morning and welcome to the Interpublic Group second quarter 2022 conference call. All parties are in a listen-only mode until the question and answer portion. At that time, if you would like to ask a question, you may press star 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 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 plan to begin our call with prepared remarks to be followed by Q&A. We 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 Philippe Krakowski.

Philippe Krakowski Thank you, Jerry, and good morning. I hope you're all keeping well. These days, that's no small ask. Before turning to our results, it's important to acknowledge that as individuals we're living through and as organizations we're operating in quite unusual and challenging times. In all our conversations with clients, the question of purpose is something that increasingly comes up. That topic is also at the forefront of our thinking. And it's essential that we as IPG continue to be clear about our values because living into those values is something that our colleagues across the company take very seriously, which is particularly important when you consider that we're a talent-based business focused on ideas, creativity, and IP. So I wanted to call out to the teams across Interpublic that are making contributions to alleviating the impact of crises such as the war in Ukraine and the political upheaval in Sri Lanka, as well as to all our people who are leaning into our equity and inclusion efforts and are playing their part in programs that seek to address other key areas of ESG, which remains an important priority for us. I think that was evident after the Supreme Court decision on Roe v. Wade, when we assured our people that we would update our healthcare benefits to provide funding for travel to ensure consistent and equal access to healthcare, including reproductive choice for all our employees. We understand that decisions regarding healthcare and our families are by their nature ones that each of us makes with a great deal of thoughtful deliberation and in keeping with our individual circumstances and beliefs. As an organization, we want to ensure that we live up to our values of mutual trust and respect, which have been core to our longstanding commitment to inclusion and equity. Turning now to the immediate purpose of this call, we'd like to share with you our Q2 and first half results. as well as updates on the highlights at our agencies and on the tone of the business to be followed by answers to your questions. We're pleased to report a strong second quarter in H1 in which we continue to build on our industry-leading performance over a period of many years. Second quarter organic net revenue growth was 7.9 percent. It's worth noting that's on top of very strong 19.8 percent growth a year ago. And this brings our three-year organic growth stack over the period of the COVID crisis to 16.5% in the second quarter, which is well ahead of industry norms. Over the first six months of the year, our organic growth was 9.6%, which brings three-year growth to 15.2% for the first half. We saw consistent growth both in the U.S. and our international markets. Domestically, organic growth for the quarter was 8.3 percent on top of 17.4 percent in last year's second quarter. Organic growth in our international markets was 7.1 percent, highlighted by growth in every region of the world, and on top of 24.4 percent growth a year ago. Growth in the quarter was also broad-based across our portfolio of solutions, whether viewed by segments, agencies, or marketing disciplines and client sectors. This reflects the increasingly integrated nature of our offerings and progress in infusing more of our portfolio with data-led thinking. Specific to segments and agencies, it's important to call out the fact that growth at each of our segments compounds double-digit growth a year ago. Our media, data, and engagement solution segment grew 6.2 percent organically, which adds to 25.1 percent growth last year. This strong performance was led by double-digit increases in our media, data and tech, and e-commerce offerings. Our digital specialist agencies were dilutive to this result as we saw deceleration in certain speculative client categories and related project work. At our integrated advertising and creativity led segment, organic growth was 8.5%. we had growth at all of our largest agencies, significantly outpaced by IPG Health, followed by strong growth at Mullen Low and FCB. In our specialized communications and experiential segment, organic growth was 11.1 percent, highlighted by double-digit growth in our experiential solutions and solid single-digit increases across the public relations discipline. As you'll recall, when we launched this enhanced disclosure, We believe the new segments are important in that they reflect the key areas of activity in which we are providing services to our clients and the broader evolution we are seeing across the industry. However, we remain a highly client-centric culture and organization and our major engagements with clients involve custom solutions which draw on services from all segments in integrated open architecture teams. Our growth in the quarter was also broadly shared across client sectors. We were led by double digit percentage growth in our other sector of leisure, government, and industrial clients, as well as by double digit growth in the financial services and healthcare sectors. Turning to operating expenses and margin, our results again reflect our leadership team's demonstrated capacity to run their businesses with the appropriate discipline while at the same time continuing to invest behind key areas that will drive further growth. And while our comparisons to last year continue to reflect the ins and outs of the pandemic, it's encouraging that we're driving margins at levels well above seasonably comparable in periods prior to the pandemic. Then income in the quarter was $229.6 million as reported. Our adjusted EBITDA was $370.1 million. resulting in net revenue margin of 15.6 percent. As expected, and as shared with you on our last call, that is below last year's second quarter of 17.9 percent, when our growth had begun to accelerate very significantly, yet certain variable expenses were historically low due to the effects of the pandemic. Compared to a year ago, and under our organic growth of 11.4 percent over the trailing 12 months, our headcount has grown approximately 9 percent. Variable expenses have recovered to higher levels as well, as we've resumed travel and returned to office in far greater numbers. It's worth pointing out that margin in the quarter of 15.6 percent compares quite favorably to margin in the pre-pandemic second quarter of 2019, which was 13.4 percent. That's a result of both our growth and the benefits of the strategic restructuring actions taken in 2020. Our diluted earnings per share in the quarter was 58 cents as reported and 63 cents as adjusted for intangibles, amortization, and dispositions. Under our share repurchase program, reauthorized earlier this year, we repurchased 2.7 million shares in the quarter using $84.8 million. A differentiator of our performance in the quarter and over a period of many years now has been our ability to bring together creativity, digital technology and data to create higher order marketing and media solutions that are responsive to the evolving business transformation needs of our clients. The growth you're seeing is driven largely by these very relevant capabilities with which we can solve an expanding set of marketer needs for more precise personalized and accountable engagements with their audiences at an individual level with respect for data ethics and consumer privacy. Looking ahead, we fully appreciate that we're at a moment of macroeconomic and geopolitical uncertainty. In this environment, it's fair to say there is a high degree of volatility and visibility is challenged for every company. That's no less true for us at IPG. given that we're a global and diversified client service business. Despite these uncertainties, however, and having very recently refreshed our bottom-up outlook for the year in meetings with our operators, we have not seen macroeconomic concerns significantly weigh on the growth outlook for the year that we shared with you back in April. While we appreciate the environment is dynamic, the demand we're seeing for our services remains broadly strong, and we are committed to delivering on our growth expectations for the year. You'll recall that in April, we upgraded our 2022 organic growth expectations to 6 percent. Given our growth through the first half of the year, we see upside to that and believe we will exceed 6.5 percent organic growth for the full year. We continue to expect that we'll deliver adjusted EBITDA margin of 16.6 percent. While there are always puts and takes as we progress through any given year, we've not to date seen anything of the size or significance that would put us off those objectives. We are, of course, staying close to our people and our clients, carefully managing expenses, and as always, we'll keep you apprised as the year develops. Understandably, clients are considering how best to factor a slower macroeconomic picture into their plans for the balance of the year. but that varies significantly on an industry-by-industry basis. And marketers are also giving consideration to the disadvantages of being out of market during a slowdown, especially if one doesn't fully materialize or is short-lived. Our diverse business model, which as you know, encompasses about 5,000 clients, 100-plus countries, and a full range of marketing, media, e-commerce, and data services, is a core strength of our model. It means we're always working across a broad range of client strategies and addressing an even broader range of evolving consumer behaviors. Marketers remain focused on leading with strong brands, which can help mitigate the impact of higher inflation, and brands are critical to their continued transformation to DTC at scale, all of which matches up well with our strong portfolio of agency brands, fueled by top industry talent, differentiated capabilities and data, and the ability to customize our offerings on an open architecture platform. The skill and commitment of our IPG colleagues have helped us to reach the halfway point of the year on a strong footing. I'd therefore like to, in this part of my remarks, again recognize and thank our people for their work on behalf of clients and in support of each other, as well as their engagement on vital societal issues consistent with our culture and values. One additional important item As you'll have seen, there's significant news related to senior leadership within our organization, which we will be releasing a bit later this morning. Our people are key to IPG's long-term success, and another thing that's core to our culture is the ability to develop outstanding talent and find new opportunities for colleagues across our organization. So it's gratifying to have elevated a number of our most exceptional and experienced leaders to new roles within two of our key business units. Daryl Lee, who's been most recently serving as the CEO of IPG Media Brands, has been named the CEO of McCann World Group. Eileen Kiernan, CEO at UM Worldwide, will succeed Daryl at IPG Media Brands. And at McCann World Group, Bill Kolb will continue in his role as the network's chairman. We know they'll all contribute to the future success of IPG and our clients. At this point, I'd like to hand over the call to Ellen for a more in-depth view of our results.