Interpublic Group of Companies, Inc. (The)

Good morning and welcome to the Interpublic Group fourth quarter and full year 2024 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. 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 with prepared remarks to be followed by Q&A. We plan to conclude before market open at 9.30 Eastern time. During this call, we will refer to forward-looking statements about our company. These are subject to the uncertainties and the cautionary statement that are included in our earnings release and the slide presentation. These are 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 operational performance. At this point, it is my pleasure to turn things over to Philippe Krakowski.

Philippe Krakowski Thank you, Jerry, and thank you for joining us this morning. As usual, I'll start with a high-level view of our results in the quarter and for the full year, as well as our operating outlook for the year ahead. Ellen will then add additional detail, and I'll conclude with thoughts on the compelling strategic benefits of our proposed acquisition by Omnicom. Turning to performance and beginning with revenue, our organic revenue decrease in Q4 was 1.8%, bringing us to full year organic growth of 20 basis points. Our revenue change in the fourth quarter was largely due to the impact of the account activity over the previous 12-month period, which we had discussed with you on prior calls. Those headwinds intensified during the quarter which was expected but at a somewhat greater rate than we'd anticipated. As a result, the full year fell shy of our forecast. While we saw the impact of those headwinds broadly across a number of disciplines and geographic regions, that was partially offset by notably strong growth in the food and beverage sector as well as the return to solid growth in technology and telecom. As discussed on our last two calls, the underlying tone of business in the quarter did pick up from earlier in the year. It's also worth noting that we had several headline wins to close the year, including Amgen, Little Caesars, and Volvo on the media front, as well as Pizza Hut and the Kimberly Clark Creative Consolidation, which took place in mid-January. This represents solid new business momentum, but those wins are too recent to have benefited our fourth quarter and won't fully be online until a bit later in the year. Turning to operating expenses and profitability in the quarter, our adjusted EBITDA margin was 24.3%. And with that performance, we delivered against the full-year margin target of 16.6%. that we'd set at the beginning of 2024. That sustained level of profitability reflects strong operating discipline by our teams, notwithstanding a challenging year, while continuing our significant investment in talent and our technology and platform capabilities. Fourth quarter diluted earnings per share was 92 cents as reported and was $1.11 as adjusted for acquired intangibles amortization, some initial deal expenses related to our planned combination with Omnicom, and the non-operating impact of non-strategic businesses sold or held for sale. Full year diluted earnings per share was $1.83 as reported and $2.77 as adjusted. That compares to $2.99 in 2023. As a reminder, our EPS in full year 23 included the benefit of a 17 cent per share related to the resolution of routine federal income tax audits of previous years. Over the course of the year, total capital returned to shareholders between dividends and share repurchased was $727 million. We suspended repurchases in the fourth quarter due to the tendency of the merger and given regulatory limitations, we expect to be back in the market after our shareholder meeting. It's also worth noting that while historically we've raised our dividend per share at this time of year, as we work towards the acquisition by Omnicom, both parties contractually agreed to no increases through the pre-merger period. As you heard last week in John's remarks, the expectation is that the free cash flow of the combined companies will be very substantial. And as such, he expects to increase Omnicom's historical capital allocation for dividends and share repurchases while also being able to invest meaningfully into the combined business to further enhance its strength in key areas such as technology and talent. As we look ahead to 2025, of course, one very significant focus is our commitment to bringing the merger to full effectiveness. A number of our competitors are clearly concerned enough about the combination that they've spent a lot of airtime talking about our being distracted. But our frontline talent is fully focused on clients, which is obviously as it should be, and we have a small and clearly defined group here at corporate that will be working on the day-to-day activities required for a successful integration. In the meantime, IPG will of course continue to operate independently. So it's appropriate that we continue to share our standalone outlook with you as part of these calls. Entering the new year, we've seen that clients remain focused on the need to drive growth. And that means investing in the ongoing evolution of their businesses. especially around solutions at the intersection of media, creativity, technology, and data. Yet global macroeconomic and geopolitical uncertainty, which we had seen abate in the latter part of 2024, remains. And that is showing up in a somewhat more cautious and deliberative approach to budgeting on clients in certain industry sectors. During this year, we'll also continue to navigate the weight of trailing wins and losses on our top line. As we've discussed previously, we are on the wrong side of the outcome in defending a number of very significant media accounts. It's worth reminding everyone that the decisive factor on those largest decisions was principal media, and specifically the commercial terms enabled by principal media at scale. In one other important account shift in the healthcare vertical where our capabilities have led the market for many years, a competitor was able to leverage its much greater size to win a significant portion of a large creative account that we'd been awarded not long prior. Looking at just the three largest of those decisions, together they will weigh on our growth for this year by four and a half to five percentage points. Factoring in that headwind and with an offset of otherwise sound underlying performance, we are therefore targeting an organic decrease for 2025 of 1 to 2 percent. We estimate that quarterly revenue phasing will be significantly more challenged in the first half of the year with a net impact of wins and losses easing in the year's second half. It's important to highlight that our proposed combination with Omnicom will position us with greatly strengthened solutions for more competitive and better client outcomes. Turning to our outlook on expenses and margin for the year, as most of you know, we've consistently challenged ourselves with respect to our opportunities to evolve the architecture of our company, both for client service as well as operating efficiency. You've heard me speak before are the structural changes that we need to make to improve our growth profile, namely investing in higher growth capabilities, increasing the integration of our offerings, and constantly simplifying what it means to work with us. This also applies to our ways of working and our organizational structure. With an eye on the rapid evolution of our industry and its impact on our business, over the course of the back half of last year, we undertook a wide-ranging strategic analysis that included multiple avenues to rethinking our operating structure. This strategic review has been focused on maximizing opportunities as an independent IPG, but these efforts will also clearly benefit us when it comes to the combination of our company into Omnicom. Our outlook for 2025 therefore includes a programming of restructuring over the course of the year designed to transform our business, enhance our offerings and drive significant structural expense savings. This is a blueprint for accelerating change that includes speeding our progress on strategic centralization of many corporate functions, greater offshoring and nearshoring in both corporate services and certain areas of client service delivery. with the latter centers of excellence focused on platform benefits in key areas such as production and analytics. We will also continue to improve efficiency of the operational structure at a number of our agencies, as well as further improve real estate efficiencies. Specifically, we expect that our program will generate in-year savings of approximately $250 million in 2025. The associated charge should be of an equivalent amount with a significant portion being non-cash. We will recognize most of those expenses in the first and second quarters and we'll call those out for you in our P&L. And we plan to provide additional details on this plan with our first quarter report in April. To be clear though, we believe these actions have very limited overlap with a $750 million of cost synergies anticipated as part of our proposed combination with Omnicom. As you heard in some detail from John last week, those savings are enabled largely by the combination of our two companies and the areas of focus he called out are not those that I just identified. Additionally, as John mentioned on his call, the $750 million of synergies excludes revenue synergies, synergies from automation, and incremental onshoring and offshoring. The restructuring is required given the opportunities for greater efficiency within our company and will allow it to become a part of the new Omnicom in the strongest possible position. In terms of 2025, with these strategic actions on costs along with our usual strong operating discipline, We're targeting adjusted EBITDA margin of 16.6% under our expected organic revenue decrease of 1 to 2%. As we look ahead, we remain confident in the many fundamental areas of strength within our company and the enormous potential of our plan combination with Omnicom. I'll come back with thoughts on the acquisition, but at this point, I'd like to turn things over to Ellen for a more in-depth view of our results.

Thank you. I hope that everyone is well. As a reminder, my remarks will track to the presentation slides that accompany our webcast. Beginning on slide two of the presentation, our organic decrease of net revenue in the quarter was 1.8%. That brings our organic revenue growth for the year to 20 basis points. Adjusted EBITDA in the quarter was 591.2 million. and margin on net revenue was 24.3%. Adjustments exclude the amortization of acquired intangibles and a 9.3 million of deal expenses in SG&A related to our acquisition by Omnicom. For the full year, our adjusted margin was 16.6%. Our diluted earnings per share in the quarter was 92 cents as reported and $1.11 as adjusted. Below the line, we have adjusted for non-operating losses from both the disposition of non-strategic businesses and assets held for sale. Our adjusted diluted EPS was $2.77 for the full year. We concluded the year in a strong financial position with $2.2 billion of cash on the balance sheet and with only 1.7 times gross financial debt to EBITDA. as defined in our credit facility. Our share repurchases during the year totaled 7.3 million shares, which returned 230 million to our shareholders in 2024. As Philippe noted earlier, we suspended our activity in the fourth quarter due to the planned acquisition by Omnicom. 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 fourth quarter and full year revenue on slide four. Our net revenue in the quarter was 2.43 billion, a decrease of 5.9% from a year ago. Compared to Q4 23, the impact of the change in exchange rates was negative 50 basis points. The impact of net dispositions and assets held for sale was negative 3.6%. Our organic net revenue decrease was 1.8%, which brings us to organic growth of 20 basis points for the full year. Further down the slide, we break out segment net revenue performance. Our media, data, and engagement solution segment decreased 60 basis points organically. Very strong growth at Axiom, was offset by continued decreases at MRM. Media brands decreased slightly in the quarter, less than 1%, due to the significant impact of trailing account losses. Organic growth for the full year of this segment was 20 basis points. The organic decrease at our integrated advertising and creativity-led solution segment was negative 4.7%. In large measure, performance reflects the decision of a single sizable client in the healthcare sector early in the year. We continue to have strong growth at Deutsch, and we had solid performance in the quarter at McCann, notably in the international markets. For the year, the segment decreased organically by 20 basis points. At our specialized communication and experiential solutions segment, organic growth was 1.3%, We had growth at Golan in public relations and at Momentum and Octagon in experiential offerings, which were more than offset by softness elsewhere in the segment. For the year, the SE&E segment grew 1.3 percent organically. Moving on to slide five, our revenue growth by region in the quarter. The U.S., which was 60 percent of our fourth quarter net revenue, decreased 3.2 percent organically. Reflecting the impact of certain accounts lost in late 23 and during 2024, they weighed on our growth broadly across our domestic operations. International markets were 40% of our net revenue in the quarter and increased 30 basis points organically. In the UK, which was 9% of our revenue in the quarter, the organic decrease was 3.3%. Growth at Axiom and Golan was more than offset by decreases elsewhere in the portfolio. Continental Europe was 10% of our net revenue in the quarter and decreased 3% organically, which was against 11.7% growth a year ago. Declines in regional spending by global clients weighed on performance, with the results notably soft in Germany and France. In Asia-Pac, which was 8% of net revenue in the quarter, our organic decrease was 7.9%. The loss of certain global accounts weighed on results across the region. In LATAM, which was 6% of net revenue in the quarter, we grew 10.4% organically on top of 15% a year ago. Our strong growth was led by IBG Media Brands and by market was led by Mexico, Argentina, and Colombia. Our other international markets group, which consists of Canada, the Middle East, and Africa, was 7% of net revenue in Q4 and grew 12.1% organically. Performance was due to strong growth in the Middle East, where business rebounded from the impact of the events the year before. Moving on to slide six and operating expenses in the quarter. Our fully adjusted EBITDA margin in the quarter was 24.3%, which is the same level we attained in the fourth quarter of 2023. Our ratio of total salaries and related expenses improved 70 basis points to 58.7%, compared with 59.4% in last year's fourth quarter. We had leverage on base payroll and temporary labor partially offset a higher expense for performance-based incentive programs due to the timing of accruals over the course of the year, and increased severance expense. We ended the year with a headcount of 53,300, which reflects an organic decrease of approximately 5% from a year ago, and a total decrease of 7%, including our net business dispositions. Our office and other direct expense increased as a percent of net revenue by 20 basis points to 13.8 percent. Occupancy expense was flat as a percentage of net revenue, while all other office and other direct expense increased by 20 basis points, mainly due to higher levels of investment in technology. Our SG&A expense was 1.8 percent of net revenue, an increase of 90 basis points from a year ago due to 9.3 million of expenses related to the planned acquisition by Omnicom and strategic investments in senior enterprise talent and platform development. These expense ratios for the full year are available in the presentation appendix and reflect the same drivers that were at work in the fourth quarter. Strong leverage on salaries offset by greater technology investments and increased strategic hiring in SG&A. Turning to slide seven, we present detail on adjustments to our 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 steps through to adjusted EVTA and our adjusted diluted EPS. Our expense for the amortization of acquired intangibles in the second column was 20.4 million. The small restructuring reversal was 6.4 million. Deal costs pertaining to the plan to acquisition by Omnicom were 9.3 million. Below operating expenses are net loss due to assets held for sale and the sales of non-strategic businesses with 57.8 million. At the foot of this slide, you can see the after-tax impact per diluted share of each of these adjustments, which bridges fourth quarter diluted EPS, as reported, at 92 cents to adjusted earnings of $1.11 per diluted share. Slide eight similarly depicts adjustments for the full year, again for continuity and comparability, bridging diluted earnings per share, as reported, of $1.83 to our adjusted $2.77 per share. It's also worth noting that shown on this schedule, our adjusted effective tax rate for the full year was 25.2%, which is in line with our expectations. On slide six, we turn to cash flow for the full year. Cash from operations was $1.06 billion and was $1.22 billion before changes in working capital. Our investing activities used $151.1 million, mainly for CapEx, of $141.8 million. Our financing activities used a billion dollars, mainly as shown here, for dividends on common stock and the repayment of debt in April, and repurchases of our shares. Our net decrease in cash for the year was $198.7 million. Slide 10 is the current portion of our balance sheet. We ended the year with $2.2 billion of cash and equivalents. Slide 11 depicts the maturities of our outstanding debt and our diversified maturity schedule. Total debt at year end was $3 billion, and our next scheduled maturity is not until 2028. In summary, our strong financial discipline continues, and the strength of our balance and liquidity means that we remain well-positioned both financially and commercially. And with that, I'll turn it back to Philippe.

Thanks, Ellen. As you've heard from us previously, until we have regulatory approvals and the proposed combination with Omnicom is complete, we continue to be in market as an independent company. So I'll review the particulars of our performance as I would on any other quarterly call. An important announcement during Q4 related to the continued enhancement of Interact, the suite of integrated end-to-end technologies across our portfolio, and that's the latest evolution of our core technology infrastructure and marketing engine. This operating system integrates data flows across the consumer journey from research and insights to creative ideation, production and commerce, as well as powering media activation. Built and developed by our in-house product team, Interact represents many years of investing, refining and unifying core capabilities to ensure we can drive sustainable growth for our clients, whether in marketing or sales channels. And it's a foundational element of our go-to-market strategy It's being used by a growing number of interpublic companies on behalf of their clients. In the quarter, we also announced the planned acquisition of IntelligenceNode, a leading e-commerce intelligence platform known for its data accuracy and global reach, specific to retail data. IntelligenceNode's technology leverages AI to aggregate and analyze billions of data points across thousands of retail categories in over 30 global markets, delivering dynamic insights into consumer sentiment and a range of product attributes, including pricing, product availability and inventory levels, as well as retail media. This move significantly enhances our existing commerce capabilities, providing clients with real-time intelligence to understand shopper trends, optimize performance in digital retail marketplaces, and drive sales growth. In terms of operating unit level performance during 2024, IPG Media Brands posted solid growth and we saw a number of sizable new business wins to close the year. In the fourth quarter, Amgen and HelloFresh tapped Media Brands as their AOR and Volvo chose Initiative as its global media agency. The network also retained Unilever and LATAM and grew the business in Canada and MENA as part of that client's global media review. Media Hub was named AOR for Little Caesars, and earlier this month, Alaska Air tapped UM as its US media partner. Axiom also posted good growth for the full year and in the quarter, which featured four large new business wins across industry sectors, including technology, financial services, healthcare, and the public sector. These new engagements reflect Axiom's expertise in leveraging first and third party data to solve complex business challenges and helping clients maximize their own tech investments. We also consolidated all of IPG's Salesforce cloud services under Axiom, which now offers clients consulting implementation and operational services across the full suite of Salesforce clouds as part of IPG's centralized platform services. IPG Health continued to be the best in class creative network in its space, winning top honors at the M&M Awards and the London International Awards. The network also expanded partnerships with clients, certain key clients in the quarter including AstraZeneca, Merck, Regeneron and Edwards Life Sciences. Our earned media solutions continued to evolve with leading offerings. Weber Shanwick launched a differentiated influencer offering that marries Axiom data with cultural and commercial impact. And the company has added nearly a dozen new clients' assignments in the area using this tool and also won the Effie Award for the year's most effective influencer campaign for its work on behalf of Kelanova. During the quarter, Golan committed to being the first fully AI integrated PR agency by the end of this year. and over 80% of Golan's staff are now using AI as part of their daily workflows, with more than 100 brands and clients benefiting from Golan's AI-assisted workforce. Our creative agencies continue to deliver powerful ideas that are winning in the marketplace for their clients. We've increasingly seen significant wins when we bring together creative data and production with audience-led thinking and identity resolution powered by Interact. This includes Kimberly-Clark, which recently expanded its relationship with Interpublic as part of their global consolidation review process, with FCB as a lead agency and support from both Mullenloh and McCann. And this was the second sizable win for us with this integrated team and offering after the Calenova consolidation last year. Notably, work from FCB for another such client, Budweiser secured the number one spot in the USA Today Ad Meter ranking for best commercial in this weekend's Super Bowl. Of course, given the requirements of sophisticated modern marketers, we have to not only maintain our commitment to great talent and tech-enabled capabilities, but give thoughtful consideration to new structures and ways of working. As mentioned in my opening comments, Q4 saw us finalize plans for the organizational restructuring we will be undertaking this year. This program will include streamlining efficiencies within our agencies, centralization of a number of corporate functions, focus on greater offshoring and nearshoring, accelerating our progress on strategic centers of excellence in areas where platform services can benefit delivery and cost, such as production and analytics, as well as further improving our real estate footprint. These actions are necessary to ensure that a standalone IPG is in the strongest possible position despite our top line challenges. While some of the cost savings we generate will be invested in talent and technology capabilities in areas such as AI, identity resolution, content management platforms, commerce and data, the strategic restructuring and transformation will deliver savings in 2025 that position us to maintain margins this year and expand them going forward. These actions are independent of and importantly complementary to our proposed combination with Omnicom, which will create the industry's most dynamic and well-resourced company. As I called out earlier, we believe there is limited overlap between the impact of these efforts and the synergies identified as a result of the proposed acquisition by Omnicom. Turning now to slide 12, we outline the full range of benefits that a combined Omnicom and Interpublic will deliver to our various stakeholders. For our clients and our people, expanded and enhanced products and services will mean significant value. Our combined operations will be positioned to offer clients multiple advantages that are unduplicated and superior to anything currently in market. They include media offerings that leverage an unparalleled scope and quality of investment, data, and technology. The proposed transaction will also enhance our collective commerce offerings and technology investments, bringing together specialized capabilities on both sides. In addition, our companies have highly complementary geographic footprints and a shared foundation of common values and culture. With respect to technology, the combined company will have exceptional identity resolution and commerce offerings based on a deeper understanding of consumers than any other provider. In terms of Gen AI technologies, like some of our competitors at Interpublic, we've moved well beyond testing and are applying LLMs and proprietary tools across media, creative, experiential agencies and other areas of our business. Together with Omnicom, we would be able to bring to market the combined resources of both companies, focusing our investment and then amplifying it against the larger platform. For clients, this means a foundation of compelling benefits, creating a seamless ecosystem where data, technology and creativity come together to drive innovation and deliver measurable business growth and outcomes against clearly defined KPIs. That's why we believe the differentiated offerings that will result from the combination will drive exceptional future revenue growth opportunities. I think it needs to be said because there's been so much that has been said by others who are not part of the proposed transaction. that our partners have been enthusiastic about our combination with Omnicom. Our client-facing colleagues within Interpublic, from those who create ideas to those who advise clients on their investment decisions to those who innovate with tech and data, they are all looking forward to the wider array of capabilities that we would be able to bring to marketers. Our teams appreciate that nobody in the industry has as comprehensive a solution as we will together with Omnicom. As you'd expect, we've also spoken with our top clients. They see the benefits and understand that our partnerships and the value we can deliver for them will be meaningfully enhanced. So while we understand that our competitors are trying to disrupt what we are looking to build, it bears repeating that the integration will remain very focused and not get in the way of the services we deliver to clients every day. You've heard about the financial benefits, both when we announced the deal and on Omnicom's call last week. From the revenue and cost synergies to the powerful balance sheet that will support capital return and accelerate innovation to the accretive nature of the deal, it is a very compelling proposition. In terms of timing, the regulatory process is moving forward. We are progressing in the HSR review, and on February 10th, we refiled our HSR filing to continue that process, which is commonplace for transactions of this type. Foreign filing processes are also well underway, and the special shareholder meetings to approve the transaction are scheduled for March 18th. We continue to expect to close in the back half of this year. In the interim, as we've outlined for you today, we are taking steps to keep Interpublic competitively positioned for future success. Our strategic actions will bring us into the combination as the strongest possible company and will continue to build on our ability to deliver integrated client-focused services and solutions and further align and extend key data and technology capabilities, as well as remain true to our long-standing commitment to operational discipline and a strong underlying financial foundation. Thanks for your time today, and at this point, let's open the floor to your questions.

Thank you. To ask a question, please press star 1, unmute your phone, and record your name clearly. If you need to withdraw your question, press star 2. Again, to ask a question, please press star 1. One moment for the first question. Our first question is from David Karnovsky with JP Morgan. You may go ahead.

Hey, thank you. Maybe just first with Philippe. On the underlying conditions, I think you noted improvement through last year, but maybe some incremental caution now due to the macro, especially in certain sectors. I wanted to see if you could expand on this a bit and also touch on tech, where I think you said you would turn to growth. And then second for Ellen, On the accelerated business transformation, the $250 million of net cost savings, can you help us understand that figure against the flat margin guide? What is actually realized this year versus items like severance that will show up in adjusted EBITDA? And then is it reasonable to be extrapolating those savings out to, say, 26 with the implication that you would see a notable step up in margin assuming steady revenue? Thanks.

On the revenue question, I mean, I think what I would just do is, you know, we've tried to give you a clear line of sight to the ups and downs of 25 and the degree to which just a number of those very large losses are weighing on the performance. So, if you're looking at four and a half to five of drag Clearly, the underlying business is getting us back to the guide, not that we're happy that that has to be the guide. In terms of the fourth quarter, the runoff of certain of the accounts we mentioned was probably greater than expected. So, you know, cumulative weight in Q4 of, again, just a few trailing losses was about 4% in the quarter. So all of that says to us that there's no new news, it's really timing. And then at a macro level, you know, I think you heard us say towards the back half of the year that it looked as if people were looking past and beginning to really get comfortable with the reality that they needed to just start to make plans and invest in growth. You know, there's one or two client categories or there's just, you know, you look at the degree to which there's some geopolitical macro that is uncertain. So I think it's just giving people kind of, it's just a slight downshift. It's nothing dramatic.

Okay. Good morning, David. Thank you for your question. Regarding the business transformation and how it relates to the restructuring, I would say it's a continuation. All through 2024, we talked about how we were implementing common systems and standardizing our processes, which enables you to create centers of excellence. And a lot of what the restructuring is doing is doing just that, which is allowing us to be more efficient in the ways that we operate and more effective in the ways we service our clients. And those are the types of things that we call that prepared remark. As far as expenses and savings. We said we think the charges in 25 will equate approximately to the savings in the year, with more to come in future years, which will lead to expanded margins going forward.

Thank you. Our next question is from Michael Nathanson with Moffett Nathanson. You may go ahead.

Good morning, Philippe. Thanks. Hi, Michael. Good morning. It was notable that you called out principal media as a factor for some of the client losses. Can you talk a bit about your ability, if this deal is done, how quickly do you think you could integrate their principal media business with media brand? So this seems like a big opportunity on the top line to maybe fix some of the losses. Can you talk about your thesis on on why it was better to merge than to build at that point for principal media?

Look, I mean, I don't think that you would, I wouldn't reduce there are so many parts of and so many strategic benefits to the merger to, you know, yes, for us in 24, our media business, which had been a very strong performer for a long time, ran into challenges and that was an area that we felt was of concern. So, to the extent that you got in our, you know, perspective, soon-to-be partner, a great deal of expertise in that regard. And then presence, because you heard from us that we felt good about the rate at which we were able to bring, you know, build a principle ourselves domestically, kind of in the U.S., the opt-ins we were getting from clients, the degree to which we were able to put together a very sophisticated contemporary service offering and products there. I think that marrying that up to connecting it given the fact that Omnicom is sophisticated in that regard that they do this well and that they do this globally clearly benefit. But I think that there's just so much more about what and how the companies fit together There's so much that's complementary. The opportunity is much greater than, which is not to say that this is not one of the opportunity areas.

Okay. Thanks, Luke.

Sure.

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

Yes, good morning, Philippe. Good morning, Hélène. My first question is, in the proxy statement, you presented forecasts where you have 110 basis points of margin improvement in 26 and 100 basis points in 27, which is well above consensus. So can you confirm those forecasts? And do you need more than the 250 of savings you announced today to get there, i.e. we'll get another round of cost-cutting next year? or with today's announcement, that's how you get to those margin improvements. That's my first question. The second one is, as you said that those savings you've announced today are largely independent from the 750, kind of philosophically, if I take the, to get the EBITDA for the combined group, do I take what you have in a proxy statement forecast and just add 750 to get combined EBITDA? Some clients are telling me that you'll have some cost creep and I shouldn't do it like that. And then the last one, both John and yourself have said that client-facing would be absolutely fine, would be better because they have better tools once you've combined, and that the merger benefit were mostly merging the back office. But if you do that and you do not consolidate any brands, you will end up as a combined company with eight global media agencies and eight global creative agencies. Is that the right number? Thank you.

That's an awful lot to wrap one's head around in the time that we've got. So I guess I will start with... The modeling that you would have seen in the filings was billing for IP standalone. And clearly it reflects the work that we shared with you that we are doing now. You've seen us in the past enact programs like this and you've seen that they lead to tangible success. The degree to which having gone through the exercise that led to the cost synergies around the acquisition, the merger, with John and his management team, we do understand these to be, there's very limited overlap there. And then you start asking questions about running a very sizable enterprise. And so the benefits of all of the things that John called out around putting these two large companies together, the corporate compensation, the corporate DNA, clearly our presence in market and vendor cost savings, shared services, things of that nature. They're very, very significant. Our people and our clients are responding very, very well because, as I've said, and I laid it out, I think, in a fair amount of detail, they see that as our businesses continue to evolve and the investment that needs to happen in technology, you know, the fit that we've got from a geographic point of view what Flywheel and Axiom can do together, the strength that, you know, Omnicom has through Credera, you know, on the Adobe, there are just many, many things that fit together to the point of, you know, the answer to Michael's question. I think that the, you know, sitting here now and kind of going to a kind of, gee, how many brands, what's the optimal approach, organizational structure. I think what I would just point out to you is, you know, direction of travel, and you used the word philosophically, we're very aligned with Omnicom in terms of the fact that we have a commitment to strong agency brands. We win with talent by giving them the opportunity to come into the company and within the cultures of those brands, and then that talent wins for us with clients. Clearly, at the holding company level, we pick the strongest agency providers and put them into the teams that solve for the client. And increasingly, you've heard us talk about how we combine like for like to create centers of excellence, and how then that ties into the platform services. So I don't know that answering the question about, gee, how many is the optimal number at this point is super productive. But I think that we will be able to go to clients and give them options and very strong options in every one of the capability areas that matter. And we've got very complementary capabilities. So again, the revenue... quote-unquote synergy, the revenue opportunity is meaningful, and we'll sort out the flying formation, but I don't think we'll do it, you know, next three minutes on this call. But, you know, hopefully that gives you line of sight. That was a lot of questions in a finite period of time, so I think I covered most of what you asked.

No, you did. Sorry for being too ambitious, but thank you for an excellent summary.

All right. Thank you.

Thank you. Our next question is from Jason Bazinet with Citi. You may go ahead.

I just had one quick follow-up on the 250 of savings. Can you talk a little bit more about the cost to achieve those? I was just a little bit confused there. when you called out the non-cash component of those costs to achieve being significant?

I think it's equivalent, as we said, and there will be some real estate, and there will be some degree to which we might also, as we rationalize and standardize, to Ellen's point, some of our tech investments, we might be writing off an asset or two there, but nothing dramatic.

There's nothing on the stock-based compensation side or anything now?

No.

Okay, thank you.

Please.

Thank you. Our next question is from Cameron McVey with Morgan Stanley. You may go ahead.

Thanks. Hey, just curious how healthcare is trending, you know, when you exclude the impact of recent account losses. And then, you know, secondly, When you think of a given CMO in a pitch, I'm curious how their priorities have shifted at all recently. Is principle-based media buying, is that the most important capability now to win or retain new business? How are you thinking about that? Thanks.

Sure. Healthcare, independent of that one sizeable swing, we see healthcare as growing this year. And as you know, it's one of our largest sort of operating units. It's a modicum of, I mean, I think everybody, whatever it's been, four, five, six months or so, was asking questions around that, and we were clearly giving you a line of sight into, you know, we've got every channel covered. We've got very, very deep subject matter expertise. And so if the playing field changes, all of those clients are still going to need to be in market. They're still going to need to be reaching not just consumers, but all of the other participants in the healthcare ecosystem, whether that's caregivers, whether that's doctors, whether that's, you know, so on and so forth. And so there'll be some share shift in terms of how you reach them, and that might have an impact on the media owner side. But we were clear that we didn't see that as a meaningful concern sitting where we are. And then on the CMO question, I think that we've called that principle because we'd built a media business that was very much about kind of consultative, highly database, sort of helping clients make the smartest possible investment decisions. That piece has come into the equation and for us is something we call out. I think it's important, clearly, but I think that you see the largest opportunities around media because that's where you have the fusion of technology, a lot of data. Clearly now commerce is a very important part of this and there's conspicuous strength in commerce on the Omnicom side and we see a big opportunity connecting Flywheel and Axiom. And you see some sizable integration opportunities like a Calenova or a Clark for us in the last six months. So no, I think it's more sophisticated than that, but that clearly has become a part of the decision matrix. Got it. Thank you. Thank you.

Thank you. And our last question comes from Craig Huber with Huber Research Partners. You may go ahead.

Thank you. Philippe, I'd like to hear a little bit more, if I could, about how three sectors are doing. The healthcare, technology, and retail slash e-commerce. Maybe you could give us how that organic growth for each, or lack thereof, did in the fourth quarter, and maybe touch on your outlook for the new year for each of those. Thank you.

I mean, it's... You're touching upon two in which, you know, we had these sizable losses, right? So obviously, you know, we've talked a bit about the big healthcare win that turned into a much smaller healthcare win for us and is impacting our results. You know, the biggest media decision of the year last year was in the retail space. So as I said, I think independent of that one big swing item in health, we have healthcare growing this year, and it touches other parts of our world. You see healthcare clients in the media business. We've got a sizable healthcare practice on the PR side. Retail is just going to be muddied for us just because it's going to be the one very sizable loss there. And then tech and telco, as mentioned, has come back and is now growing for us. So I think that that probably covers it as best as I can. You're happening to pick two where we've got one very sizable item that's going to distort the result.

Fair enough. Obviously they're important components. sectors for you guys and elsewhere. Ellen, if I could just ask you a nitpick question. The $250 million of in-year 2025 cost savings, what is that on an annual basis as we exit 2025? Is that more like $350 million? How should we think about that, please?

It's clearly going to be high. We don't have a full year of the benefit in 2025. And I would just reemphasize that it's incremental to the synergies that we've called out in relationship to Omnicom. I mean, what we're really talking about here, as I mentioned, was creating centers of excellence, which also allows offering and nearshoring, and just creating a lot more efficient operating structure, streamlining some of the operations that are agencies. So that should continue to benefit our margins, but again, very separate and apart from the deal synergies that we called out.

And then, Philippe, if I could just squeeze in one more here before the market opens. Sure. I'd love to hear from you the tone of business out there, putting aside the various losses that you've talked about here. How do you feel about the tone of business right now, the macro environment, versus, say, a year ago right now? What are your feedback from clients on that front? Thank you.

Well, I mean, as we said to you, if you go all the way back to a year ago, there was a measure of caution. Then as we moved through 24 things, you know, meaningfully better, and we felt that people were leaning in towards the latter part of the year. And broadly speaking, I'd say that, you know, that's still the case, but there are one or two, you know, big items that are pending in terms of the macro. But I think as we tried to call out in the remarks, we're seeing, you know, clients engaged. We're seeing a fair bit of opportunity terms of new business flow there's there's some you know bigger than not opportunities so so it feels it feels pretty solid i'd say great thanks you're sort of you're asking me it's last year kind of had enough swing in it quarter to quarter that when you say compared to last year i don't want to say compared to what point in the year last year

Yeah, I'm just trying to get a sense from you what you're hearing from your clients versus how they were feeling a year ago about their spending levels for the upcoming year.

Like I said, I mean, it does, you know, sector to sector, you don't necessarily get the same read. But it feels like, again, pending one or two kind of open macro items that are geopolitical, things are progressing. Very good. Thank you. Thank you.

Thank you.

Appreciate the time today and look forward to speaking to you all again in April.

Thank you. This concludes today's conference. You may disconnect at this time.