Interpublic Group of Companies, Inc. (The)

Good morning and welcome to the Interpublic Group second quarter 2025 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 Leshne, 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 10Q 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 financial and operational performance. At this point, it is my pleasure to turn things over to Philippe Krakowski.

Thanks, Jerry, and thank you all for joining us. This morning, I'll begin with a high-level view of the quarter and the strong progress we're making on our program of strategic transformation. Ellen will then add details on our performance, and I'll conclude with an update on the tone of the business and where our clients are focused as well as on the status of our acquisition by Omnicom and the significant value the combination will drive for all of our stakeholders. Starting with revenue in the quarter, our organic decrease was 3.5%, fully consistent with a revenue outlook and phasing we shared with you earlier this year. As we've discussed on previous calls, organic growth this year is being pressured by the impact of account activity that concluded in 2024. As expected, those headwinds intensified sequentially from our first quarter. Our three largest losses in 2024 weighed on growth by approximately 5.5% in Q2, which is reflected in our results across a number of geographic regions and disciplines, with the greatest impact on media and healthcare. That said, Our growth underlying those headwinds showed sequential improvement precisely in those historically strong areas of media and healthcare. New business performance in 2025 is showing marked improvement as well. And further, we believe that the significant changes we've already made in the business combined with a very strong strategic fit with the capabilities and geographies at Omnicom means that our resulting offerings will be significantly strengthened on the other side of the acquisition. In the quarter, client sector growth was led by strong increases in the food and beverage, financial services, and tech and telecom sectors. Headwinds due to prior period losses weighed on the retail, healthcare, and consumer goods client sectors. Turning to expenses and profitability in the quarter, Adjusted EBITDA was $393.7 million with a margin of 18.1%. That's a very strong result that reflects significant structural cost reduction due to our program of strategic transformation as well as the strong underlying performance in media and healthcare. During the quarter, we continued to demonstrate significant progress in greater functional centralization. leveraging our enterprise-level focus on tech-driven platform benefits in key areas, including client-facing capabilities, such as production and analytics, as well as corporate functions, such as IT, finance, and HR management. As is clear in our report today, these initiatives have traction across the organization, and we expect to exceed our initial objectives for enterprise redesign, client service delivery enhancements, and ongoing operating efficiencies. Charges for restructuring in the quarter were $118 million. Our adjusted EBITDA excludes those charges, as well as $11 million of deal expenses related to the combination of Omnicom, which appear in our SG&A expense. Our diluted EPS in the quarter was 44 cents as reported, which includes the restructuring investment while our adjusted deleted EPS was 75 cents. During the quarter, we returned $98 million to shareholders under our share repurchase program, bringing total year-to-date share repurchase to $188 million. We currently expect to repurchase shares consistent with recent levels and the $325 million annual cap in our merger agreement. Turning to some observations on our outlook for the full year, the macro environment has been more volatile than anticipated as we entered the year. And we are, of course, staying close to clients. This in turn allows us to report that marketers as a whole are not reacting reflexively to the changing business and geopolitical landscape. In fact, clients are assessing developments very methodically and continue to engage with us constructively in order to evaluate their alternatives, whether that means assessing investment levels or messaging, channel mix, or the mix of marketing disciplines required to deliver against their desired business outcomes. This is specific to each of their business situations, whether due to the industry, geography, or competitive dynamic of the sector in which each of them operates. And that means that while there can be puts and takes by individual clients, our overall experience in Q2 and the first half has netted out at levels that are consistent with what we expected, and we've not seen a marked change in net client activity. We therefore remain on track with a four-year target for organic net revenue that we shared earlier this year, which is an organic decrease of 1% to 2%. On a full-year 2025 adjusted EBITDA margin, our transformation work and evolving business mix have put us ahead of plan. At our expected level of revenue, we're confident that our actions to date, along with ongoing expense discipline, can drive adjusted EBITDA margin for the full year that is well ahead of the 16.6% we had shared with you previously. I'll come back with an update on the status of our acquisition by Omnicom, the compelling growth benefits of the new company for clients, and the resulting value creation that we see in the combination. I'll also share some observations and examples to illustrate the growing pace at which AI is becoming core to our offerings and the opportunities that represents. But at this point, I'll turn things over to Ellen for a more in-depth view of our results in the quarter.

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 in net revenue for the quarter was 3.5% in line with our expected performance. Adjusted EBITDA in the quarter was 393.7 million. and margin on net revenue was 18.1 percent, which is a historic high for a second quarter. Adjustments exclude our charges for restructuring and deal expenses in SG&A related to our acquisition by Omnicom. Earnings per diluted share in the quarter was 44 cents as reported, while earnings were 75 cents per diluted share as adjusted. We repurchased 4 million shares, returning 98 million. We concluded in the quarter in a strong financial position with 1.6 billion of cash on the balance sheet and with only 1.9 times gross financial debt to EBITDA as defined in our credit facility. 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 2.2 billion. It decreases 6.6% from a year ago. Compared to Q2 24, the impact of the change in exchange rates was positive 30 basis points. The impact of our net divestitures, mainly RGA and UGE, was negative 3.4%. Our organic net revenue decrease was 3.5 percent in the quarter, which brings us to a decrease of 3.6 percent in the year's first half. Further down the slide, we break out segment net revenue performance in the quarter. Our media, data, and engagement solution segment decreased 3.1 percent organically. Client activity in 2024 which we've identified previously, weighed on our ability to grow segment revenue in the quarter. MRM's decrease was diluted to the overall performance of the segment. The organic decrease in our integrated advertising and creativity-led solution segment was 6.3%. That performance largely reflects the decision of a single client in the healthcare sector. Apart from that loss, our healthcare specialty operations had solid growth in the quarter. However, aside from healthcare, we had generally soft performance across our more traditional consumer-facing agencies. At our specialized communications and experiential solutions segment, our organic growth was 2.3%, which was led by Octagon and Momentum in our experiential group and Golan in public relations. Moving on to slide five, our net revenue change by region in the quarter. Most regions reflect the impact of prior account activity. The U.S., which was 66% of net revenue in the second quarter, decreased 2.6% organically. IPG Media Brands was able to post growth domestically despite the significant trailing client headwinds. Our experiential group in Golan grew as well. International markets accounted for 34 percent of our net revenue in the quarter and decreased 5.4 percent organically. Our three largest account losses from last year weighed on performance in each of our regional markets. Moving on to slide six and operating expenses in the quarter. Our fully adjusted EVTA margin in the quarter was 18.1%, which is an increase of 350 basis points from a year ago. That strong result is ahead of plan and is consistent with our conviction that there's continued opportunity for margin and cash flow growth in our business. I want to acknowledge and thank our teams around the world for their focus, professionalism, and high level of execution in on our strategic transformation program, which continues. Our adjusted EBTA margin is before restructuring expenses and Omnicom deal costs in SG&A. The charge for restructuring was $118 million, of which $37 million is non-cash, while deal costs in the quarter were $11 million. We drove operating leverage from a year ago on every major expense line. Our ratio of total salaries and related expenses improved 350 basis points to 63.4 percent of net revenue. Compared to a year ago, we have leveraged on base payroll, benefits and taxes, incentives, and severance expense. We ended the quarter with headcount of approximately 51,300 and organic decrease of 6% from a year ago. Our office and other direct expenses decreased as a percent of net revenue by 40 basis points to 15%. Occupancy expense decreased by 30 basis points as a percent of net revenue, while all other office and other direct expenses decreased 10 basis points. Our SG&A expense was 2.1% of net revenue, compared with 1.2% a year ago. That comparison reflects continuing investments in centralized systems, technology and software, and also includes Omnicom deal costs that added 50 basis points to this increase. Turning to slide seven, we present detail and adjustments to our reported second quarter results in order to give you transparency and a picture of comparable performance. This begins on the left-hand side with our reported results and steps through to adjusted EBTA and our adjusted diluted EPS. Our expense for the amortization of regards and tangibles in the second column was $21.1 million. Charges for restructuring, $118 million. Deal costs pertaining to the planned acquisition by Omnicom were $10.9 million. The low operating expenses or net gain due to sales of non-strategic businesses were $1.9 million. At the foot of the slide, you can see the after-tax impact per diluted share of each of these adjustments, which bridges the second quarter diluted earnings per share as reported of 44 cents to adjusted earnings of 75 cents per diluted share. On slide eight, we turn to cash flow for the quarter. Cash used in operations was 96 million and cash generated was 206.3 million before working capital changes. As a reminder, our operating cash flow is highly seasonal and can be volatile by quarter due to changes in the working capital component. In our investing activities, we used a net $21.3 million primarily for our capital expenditures. Our financing activities used $223.2 million mainly for our regular quarterly dividend and share repurchases in the quarter. Our net decrease in cash for the quarter was $300.5 million. Slide 9 is the current portion of our balance sheet. We ended the quarter with $1.6 billion of cash and equivalents. Slide 10 depicts the maturities of our outstanding debt and our diversified maturity schedule. Total debt at quarter end is $3 billion, and our next scheduled maturity is not until 2028. In summary, our strong financial discipline continues, and the strength of our balance sheet and liquidity means that we remain well-positioned both financially as well as operationally. And with that, I'll turn it back to Philippe.

Thank you, Ellen. As mentioned earlier, our organizational structure continues to evolve as we enhance the parts of the business that are growing, address areas of the portfolio where we see opportunity to embed precision and performance more fully into those service offerings, and continue to focus on transforming our ways of working to benefit from centralization, platforming, and new technologies. Since its launch, IPG's Interact platform has been a key driver of our success. Interact delivers significant value by democratizing data and making AI accessible and scalable across our agencies, operational teams, brands, and partners. The platform is automating complex marketing workflows, and that empowers our agencies to deliver even greater impact for client brands to drive business results. Our teams are leveraging Interact for consumer insights and market analysis, creative ideation, content creation, and message testing via synthetic audiences. All of this is in support of areas of the business that were not as far along on their data and AI journeys 12 months ago as early adopters such as our media business. As we continue to upscale our employees in using AI as a core component of their jobs, Interact is equipping them with a tool to enhance efficiencies but also to deepen insights and unlock new ways to deliver more innovative and effective solutions for our clients. Every component of Interact is informed and connected by a foundational layer built on our best-in-class global Axiom data set and our real ID product, which is the industry's most comprehensive customer identity solution. Lately, there's been a lot of focus on the industry's pivot to an AI-informed future, so I thought I'd spend a few minutes this morning on how the integration of AI into the creative side of our business enhances value for clients as well as creating opportunity on the revenue and profitability side for us. One is to enable direct client transparency and custom level control. Interactive SaaS enabled, which allows clients to access the platform as part of their engagement with our teams or to perform work directly on their own. The clients who opt into this second aspect of Interact, we now have an avenue to generate technology and software fees, not only remuneration for labor time. The second way that AI has facilitated the integration and automation of creative has to do with optimizing workflows, eliminating gaps, and speeding value to our clients. We're able to bring all creative assets into the system a version at scale, and connect the outputs to custom audience segments that we might find otherwise in media or a contact plan, a consumer journey. As with media, where technology allowed us to automate activation and execution, we're now able to target and to iterate creative executions based on the data that we're getting and that we then feed back into the systems. And increasingly, we can also create and deploy teams of AI agents that learn from the functional experts across our company. Those agents work together to solve for client opportunity at scale, speed, and complexity that was not previously possible. Again, that greatly shortens time to value, raises effectiveness, and lowers the cost to serve our clients. This is all relevant as it relates to the questions that are being asked about the potential impact of AI on our industry. But perhaps being missed in much of those conversations is the unlock of new opportunities for us. Those include performance-based compensation models, as well as tech-enabled SaaS-like components to our compensation. And I'd remind you that the parts of the business into which we have embedded greater technological know-how such as machine learning and data decisioning tools, are precisely those that have performed best for us for some time, allowing us to become higher value partners to clients by solving business and not just marketing challenges, as well as evolving our commercial models to incorporate asset and outcome-based compensation models. The adoption levels we're currently seeing for Interact across Interpublic are very encouraging. We now have more than half of our employee population using the platform and 40% of our colleagues doing so daily. So far this year, we've processed well over a million prompts resulting in the creation of 10,000 purpose-built agents and of hundreds of thousands of images, consumer journeys, media plans and other tools that make our people's work faster, better and more effective to the benefit of our clients. Later today, we'll be announcing the launch of ASC, which stands for Agentic Systems for Commerce. This is a net new offering that helps CPG brands manage the vast and complex commerce ecosystem in ways that are not possible without automation and artificial intelligence. ASC does this by using our proprietary agentic system and the powerful data from Intelligence Node, the company we acquired earlier this year. The ASC platform captures data signals for every product and its competitors down to the SKU and store level, ingests insights into consumer searches, digital shelf position, product page content, pricing, inventory levels, and more, all in the service of optimizing sales and margin performance across the digital commerce ecosystem on behalf of a brand. That problem presents too big a set of variables and communications outputs to be solved without an AI toolkit. And ASC is already being piloted by almost two dozen of our global clients with results to date that have shown double digit improvements in impressions and sales. We believe products like ASC can become a new revenue stream for us. And it's another way in which we can use AI to scale our expertise and expand our business beyond our core capability set of marketing communications and media into solutions that deliver quantifiable results. On his call last week, John mentioned that our integration planning process with Omnicom has been progressing. As we expected, we're finding that our respective capabilities in areas such as platforms, data, commerce and AI development are highly complementary. And this gives us a high degree of confidence that the combined assets will be extremely powerful and differentiated in the marketplace. As John and I have also noted previously, the capacity that the new Omnicom will have to continue to invest and build out on its leadership position in the tech and AI space will be considerable and will further differentiate these offerings over time. As we talk about our platform capabilities, it's also essential to note that we continue to put ideas and craft at the heart of how we build brands and businesses on behalf of clients. When they're integral parts of audience-led and accountable marketing solutions and sales programs, world-class creativity has a multiplier effect in driving business outcomes. Last month, we saw the creative firepower of Interpublic recognized at the Cannes Film Festival of Creativity, where we won 107 lines, including one titanium and five Grand Prix. The most celebrated work was Caption with Intention by FCB Chicago for the Academy of Motion Picture Arts and Sciences, which leverages AI to reimagine closed captions through color, motion, and dynamic typography. Other Grand Prix winners include a campaign by FCB India for the Indian Railway System, which transforms train tickets into daily lottery entries to combat fare evasion, and that are multiple gold lions, as well as the Grand Prix NPR, as well as McCann Paris' documentary, which honored the copywriter behind L'Oreal's iconic Because I'm Worth It positioning and tagline. and that won the film Grand Prix and the Gold Lion in entertainment. Additionally, IPG Health was named Healthcare Network of the Year, and Area 23 earned Healthcare Agency of the Year, both for the fifth consecutive year. FCB was also recognized as the Con Lion Regional Network of the Year for North America for the seventh consecutive year. and these accomplishments underscore the sustained excellence of these two organizations. Outside of Cannes, Interpublic was named the most effective holding company at the US Effie Awards, and we were honored for the second consecutive year as the creative holding company of the year at the One Show. Turning now to highlights in the quarter, IPG Media Brands continued to demonstrate significant industry leadership earning recognition as a global network of the year by campaign, and being ranked by RECMA as the number one media network in Latin America and Canada. The network deepened its retail media capabilities through a new partnership with T-Mobile Advertising Solutions, which provides enhanced access to first party data for our clients. And IPG Media Brands also won significant new accounts during the quarter. being a media AOR for the US by Paramount CBS, AI leader Anthropic, and 7-Eleven. The network also secured an important three-year renewal with its client Merck and company incorporated. Axiom saw significant partner activity, including launching a new Salesforce practice with Raptor One to provide a connected Salesforce ecosystem for data-driven AI insights. And at Cannes, we announced the collaboration with Snowflake that brings Axiom's comprehensive suite of data and identity solutions as well as an interact platform directly into any company's Snowflake environment. As I mentioned, IPG helped continue to lead the industry and it also added client relationships such as Acadia, B1, and Ionis during the quarter as well as expanding its relationship with Novartis. During the quarter, the network introduced an industry-first AI-focused group called Living Mirror, a full-service MedComms agency called VIO, and it also further strengthened its sector-leading influencer ID offering. And that influences, excuse me, leverages genuine voices in social media and among health influencers. Relevance and impact. Among our creative agencies, FCB not only won the Cannes recognition that I mentioned, but was also named Network of the Year at the prestigious One Show, the Art Directors Club, and the D&AD Awards, which is a very rare sweep in our industry. Golan, Ellen talked about their performance. Golan was named PR Week's 2025 Global Agency of the Year. During the quarter, PepsiCo chose the agency as its global data and analytics partner for communications. And the agency also introduced a new offering called First Answer, which leverages the critical role of earned media in AI search results. During the quarter, Weber Shanwick won the biggest industry pitch of the year in the social and influencer space when it was named Global Earned Media Agency of Record for Mars. The major driver of that result was Webber's proprietary data-driven approach to winning in culture called Cultural Choreography, which leverages Axiom data and interact for this earn-first solution. The company also launched an AI workspace called Halo, and it's purpose-built to help communicators jumpstart learning, strengthen and accelerate the work, which upskills all of Webber's employees globally. Now, as we look at the remainder of the year, among our more advanced offerings, we continue to see a solid pipeline, new business opportunities, and our finalists in several large ongoing reviews. These opportunities, along with organic growth from our existing client base and accelerating the development of new capabilities in areas such as proprietary media trading, agentic commerce, and data-led influencer work, we'll continue to have our full focus as we look to deliver the best top-line outcome for the year. Based on our track record to date, we would also expect to enter 2026 with tailwinds thanks to our new business performance. As mentioned earlier, we continue to be on track to deliver the target for organic net revenue that we had shared with you previously, which is an organic decrease of 1 to 2 percent in net revenue. And at this level, we expect to drive significantly enhanced adjusted EBITDA margin well ahead of the 16.6 percent we had previously shared. This increase reflects the significant progress to date on our strategic transformation efforts, as well as improving underlying performance at some of our stronger offerings. The charge associated with our transformation program, which we'd previously estimated at $350 million, will likely increase to $375 to $400 million, which, as you know, has a substantial non-cash portion. It's encouraging to see this work trending so positively. And over the long term, the additional benefits will accrue to the new Omnicom. And moving through this transformation process, it was always our ambition to make Interpublic the strongest possible company as it came into the merged organization. And we're clearly making good on that goal. Finally, I'd like to close with a few words about our proposed acquisition by Omnicom. We've now secured antitrust clearance in all but four of the jurisdictions required, having been cleared in Australia last week. Importantly, this includes FTC clearance in the U.S., which took place in late June. We therefore remain solidly on track to see the transaction completed in the second half of the year. Notwithstanding noise from certain competitors about distractions or inward focus, since the acquisition was announced, we've never lost sight of the needs of our clients and the teams that deliver value to marketers around the world. The level of interest and support from clients continues to be extremely strong, and there's eagerness on the part of practitioners across both organizations to unlock the value that the combination will create. By bringing together our deep pools of talent and our complementary capabilities, geographic strengths, and platform assets, what we need KnowWill Result is an organization with unmatched ability to deliver business outcomes for marketers in every industry sector around the world. Together, we'll be creating a company that can drive growth for clients with the most comprehensive and powerful range of marketing and sales solutions that incorporate creativity, data, and technology. It's an exciting vision, And as you heard from John, one that will become a reality in the near future. As always, we thank our people and our partners, as well as those of you on this call, for your support. And with that, let's open the floor to your questions.

Thank you. At this time, if you would like to ask a question, please press star 1 on your phone. Please ensure that your mute is off and state your name clearly when prompted. Our first question comes from David Karnofsky of JP Morgan. Sir, your line is open.

Hi, thank you. For me, for Ellen, last quarter you had identified, I think, annualized savings over $300 million, but you chose to maintain the margin outlook. Can you speak to what allowed you to realize maybe some of those benefits faster? Is there any overlap with the Omnicom deal synergies? And then I know you spoke to the full year margin now significantly ahead of that 16.6, but I wanted to see if you could put any guardrails around that, because if we look to your kind of typical seasonality for margin, it would imply a fairly large lift for all of 25. Thanks.

That's a lot at one go, so I guess maybe in reverse order, I realize you're building a model, so I'd say north of 100 basis points on your last question. And then on your two prior questions, look, we said when we started this process that it was going to be a strategic process and a comprehensive process. So what we were looking for is not a restructuring that focused on costs without an understanding of where we're trying to take the business and how we're trying to make the business stronger. And as I said, obviously, make it as strong as possible from a capabilities set as we come into this new organization. The restructuring has been focused on kind of improving service delivery as well as delivering structural efficiencies. And I think transformation is organizational change, which is hard for people. There's probably three things that have helped us move it along at the rate that we have. I mean, we obviously prepared for it. We sort of let you know that we were doing this and that we've been looking at it towards the back half or, you know, more or less the back half of last year. But I think that industry pace of change, so there's clearly a lean in and an understanding on the part of folks across our organization for the need to do this. And obviously, there's some IPG-specific issues, you know, given the top-line challenge, and we've adjusted to that on a sort of capabilities and offerings point of view. But I think that driving to a moment in time, knowing that the acquisition is there has also helped us move, you know, at the rate that we've done. And so I think it's a streamlining and modernizing of the business model and it's trending very positively. And so, you know, kind of the read across would be that a thing that we've talked about for a long time, which is that we think that there's earnings power, in our model, and then I think there's, you know, clearly going to be, you know, more, if you think about the longer term, kind of the business model can continue to progress both top and bottom line.

Just one more, if I can. Philippe, your guide from here does imply an inflection in organic. I just don't know if you can segment that out between kind of lapping that, or at least lapping part of that account loss headwind versus underlying improvement?

Well, look, I mean, we don't excuse ourselves for the losses, right? But, I mean, I think that if you, you know, we said impact Q1 was 4.5, impact in Q2 was 5.5. That's kind of consistent with what we'd seen and what we'd modeled. I think, you know, we're pleased to see that underneath that you're seeing that there's, you know, real growth and that there are parts of the business that are performing well, if you basically take away those three sizable, you know, two in media, one in pharma, you then have our two largest and historically strongest performing units, both, you know, sort of showing up in a way that if you think about kind of broader industry context is pretty solid. So we knew that that would be how the year phased out. And then you saw sequential improvement in the US quarter to quarter, which is obviously important given the scale that has in our business and the fact that it is a leading indicator for sort of broader macroeconomics. And then we're liking what we're able to show up with the integration through Interact, obviously having moved fast to build a very modern kind of approach to buying is resonating in market. And all of that probably really has modest impact in the back half for us. But, you know, hopefully that helps also give you some context on that, David.

Thank you.

Thank you. Our next question comes from Stephen Cahill of Wells Fargo. Your line is open.

Thank you. So, Philippe, I think Omnicom said that their creative was slightly down through the first half of the year. And I know your integrated advertising and creativity faced some idiosyncratic losses that you've just been cycling through. But I was wondering if you could just give us an update on the context of how creative is performing overall, maybe excluding some of that account churn that you're seeing. It just seems like we've had a long-term industry tailwind from media, probably due to consumer fragmentation. And I don't know if that has an equally negative impact on creative as attention spans on things like TikTok and YouTube. maybe devalue creative a little bit. So I'd love to just get your check in on creative. And then on the outcome-based work that you're doing, I think you said that that's a growing trend. Could you help us maybe think about what percentage of the business is outcome-based today and where you think that can go over time? And is that a better financial business to be outcome-based versus sort of time-billings-based than I think the preponderance is today? Thanks.

All right, that's a lot in one go. So I guess I'd point out to you that IAC for us is, as you put it, idiosyncratic because it has our, quote, traditional creative assets in it, and it also has our healthcare specialty business in there. And I think one of the very sizable losses from last year impacted them. So there's probably the largest single impact on a year-to-year basis from the three losses is in IAC, and it's probably not where you would expect it to be because it's not in the, quote, traditional advertising parts of the business, as we called out, respectively, Alan and I in our script. The healthcare specialty business is performing well, and so if you essentially just sort of strip out or at least look through that one-time event. I think that the challenge on traditional creative, which is industry-wide, broadly speaking, is something that we will kind of address through, and maybe it's the sort of segue into your second question. It's something that we'll address because, as I said, and I think you've all heard me say this before, if you take the value and the impact, I mean, we were just in a In a pitch not long ago, we were talking to the client about all the uplifts that we can deliver. We were essentially doing a lot of a kind of metric modeling for them and showing them where and how we can help them achieve a growth target for their business overall. And pieces of it had to do with what we can drive through data and pieces of it had to do with how we can kind of optimize on the media and the precision side of the business But a piece of it also does have to do with the fact that the creative work, when it's connected to all of this, so it's informed by those audience insights, it's tailored and targeted to those growth audiences, and then you connect it back through your production spine to the taxonomies and the KPIs and so on and so forth, you begin to be able to do... you know, something that we've done in those precision and the media businesses, which is that we're much, much more kind of focused on and connected to outcomes. And so to answer the last part of your question, you know, outcomes-based components on the media side, you know, are baked into more than 50% of the contract. And so I think it's a journey, and I think that that part of the business across the industry is still, you know, in the early innings. But you can do, you know, you can clearly do asset-based work because now you're doing much, much more work that still comes out of that content engine. And then you're able to understand the impact it's having in market. And then you can tie that, you know, in the way that, you know, you've heard us say for a long time that media for us is consistently, you know, margin accretive and growth accretive. So our traditional consumer ad agencies inside of IAC definitely dragged, and I think it's about this broader sort of industry issue. But we're leaning into how we connect them through into the data stack. And as I said, the usage on Interact with the kind of the talked a bit about obviously kind of what we're doing at some of the PR agencies to create models that allow us to connect that craft to the stack all the way from, you know, data for understanding the business opportunity, data for understanding the audiences, and then moving it all the way through. So, you know, work in progress.

Thank you. Thank you.

Thank you. Our next question comes from Adam Berlin of UBS. Sir, your line is open.

Yes, hi. Good morning there. Three quick questions, if I can. Following up on the earlier question, so it looks like H2 is going to be broadly flat. Can you give us, just to get to the bottom end of the guidance range, can you give us some indications of how that's different between Q3 and Q4? I'm assuming that you get a sequential improvement, but is that right? Or is there anything, are they going to be kind of similar, Q3 and Q4, in terms of organic net sales growth? Second question is, can you just clarify where we are today in terms of run rate cost savings versus the original $250 million savings? target and where you think you'll be at the end of the year. And then thirdly, Philip, you made a comment that you expect, uh, 2026 to have some tailwinds from the net wins you've had this year. Can you give us any sense of the size of that?

Uh, on the third one, it's too early in the year. I mean, I, I think we obviously have six months to go, give or take, and that requires that we'd be super focused on clients. Um, And as I pointed out, we've got some of our competitors happily talking about how we're distracted, which apparently we're not. And so there's too much that needs to happen, whether it's continued focus on clients. And there's still a solid amount of new business activity going on out there. I mean, I think that the pipeline is middle of the road, but it's inconsistent. Media is very active. Healthcare, despite maybe some specific policy challenges in certain parts of the world, is also active. And then integrated pitches that call upon the holding company and ask us to bring all of these things together and tie them together with the tech and the data are definitely taking place. But in other areas, activities may be trending a bit light. So I think there's just too many variables for us to give you specificity it was just a you know a broader point as we think about you know there's a lot of uncertainty in the world and we obviously have some competitors kind of reading the macro and the client situation differently than we are so we want to put that in there and then in terms of the other two points I think Ellen will correct me You know, but I think in-year savings about 300 and run rate north of 300 from the restructuring activity. And then on Q3, Q4 revenue, I think it's actually kind of fairly, I mean, I think it's definitely a stronger back half, but I think Q3 and Q4 are kind of more or less at the same level. And you had us at flat, I think that's about right.

And sorry, just one more, Philip, which was the run rate of savings at the end of Q2.

I mean, I think, like I said, we think about it, it's a long-term thing. So it'll be 300 in-year this year and more than 300 as ongoing structural savings beyond that point. Thank you.

Please.

Thank you. Our next question comes from Adrian D. St. Tiller. Your line is open, and he is from Bank of America.

Yep. Hello. Thank you. Good morning, Ellen. So I just have a few questions, if you mind, on the topic of... Adrian, we're not hearing you.

I don't know if you've got a mic nearby, but we're just not going to be able to pick you up.

Is that working now?

Much better. Thank you.

Okay. Okay. Sorry about this, Philippe. So thank you for squeezing me in. So a couple of questions, please, on the margin points. As the business returns back to growth, hopefully next year, do you think you will need to stuff up again? Or do you think you can basically hold the business where it is today, 51,000 people? And maybe related to that, I mean, did I hear you correctly, Philippe, that you think your model can basically deliver better operational leverage than it historically has? And if I can squeeze in one last question, you touched on that on healthcare, so lots of talks on policy reforms, as you said, in some parts of the world. I'm just wondering how that's impacting marketing spending for those clients, and if you think that there's going to be a pullback in healthcare marketing spending as a result of those policy reforms.

Apparently every question this morning gets answered kind of backwards. So on the healthcare side of things, I'd say that it is – there's a lot of sort of volatility and lack of clarity. And I think that some of those policy challenges have really hit in very specific ways. So, you know, we've got some, in some of our marketing services businesses, we've got parts of a federal or, you know, national government that are charged with communicating about broader public health, for example, and that's clearly got a big question mark around it. Or, you know, if you kind of compare and contrast where things would have been a few years ago, say around vaccines. So I think right now we're seeing it, but it's showing up in pockets. But there's the bigger kind of question about is there going to be some some meaningful kind of policy change. And when we think about that, it's harder to mitigate for what might be happening to a specific client at a moment in time. We feel much more comfortable with a bigger question because our position in the market is very significant. The expertise that sits inside of that organization is very powerful. And the need for those clients to reach consumers at a time when they're clearly empowered and when there's a great deal of fragmentation. If you think about what's gone on over time, we've been able to flex and evolve and advise clients on how to make that happen. So if there are ultimately changes in terms of how you reach, um, the, all of the stakeholders in the healthcare ecosystem, we feel like we'll be able to navigate that and help our clients navigate that successfully. The one-offs around something that maybe really kind of turned on or off due to some of these kind of more kind of policy or political things, that's a little bit kind of beyond our control. And then your other questions were around I mean, long term, I think we have always, as Interpublic, shared with you that we saw the opportunity to continue to improve margins. And so against a bigger platform, the joint company, not for me to speak on behalf of what's going to be possible there. But as I said, I think if you see the fact that we've done well with our program, my read across would be that there's a lot of earnings power in this larger entity. And obviously that's sort of TBD and will be fleshed out for you all kind of in due course. And then the last question, I guess, I'll let Ellen sort of speak to your kind of headcount question. I mean, I think the industry overall has clearly seen some contraction, and you've seen that we are definitely adopting technology in ways that is definitely making us more efficient. A lot of what we're doing is around centralization and platforming.

Sure. I mean, what we've done is very structural. As Philippe said, implementing common systems, reengineering processes, automation, rightshoring. So those things, you know, are structural and should be enduring. At some point, you know, with growth, you will need to add heads, but different heads. And we think that we're really seeing the benefits from the extensive transformation efforts that will be done faster. The other thing which we've seen and experienced is because of the reengineering of our processes, we've been able to close previously budgeted open positions and we haven't needed to fill backfill attrition. So again, we think all of those things are structural and permanent and will accrue to the benefit of margin going forward.

Very clear.

Thanks, both. Thank you.

Thank you. Our last question comes from Jason Bessonet of Citi. Your line is open.

I just had a quick question on the pro forma entity. Um, can you just spend a second and talk about maybe the two or three areas you're most excited about as a pro forma organization? These would be the capabilities that standalone IPG has today. And then and then are there any gaps that you see? Or even if you put these two companies together, you know, you still feel like some of your rivals might have a better solution in the marketplace. Thanks.

I mean, look, I think it's something that you'll have heard, I think, John and I talk about together. I mean, strategically, we really believe and we see immense power here. And so I would say to you the, you know, I was talking a bit about it. So the data assets that we bring combined with the commerce capability that, you know, resides inside of Omnicom at this point. I think that, uh, if you listen to, you know, one of our competitors who, you know, who's French, whose English is French inflected, he talks a lot about the scale that he has on the media side. And so obviously, you know, those things combined in, in our case will be, um, you know, we think really, really powerful and we'll, we'll do a lot to help our clients win in the marketplace. I think, um, There's a lot geographically where, you know, when you deal with clients on a very regular basis and you think about kind of where you wish that you had more resource or deeper resource, there's a really, really strong fit in that regard. I think I talked a bit about the fact that this industry is moving really fast, so the capacity to invest on the side of the platforms and in AI will be meaningful and really powerful. So to my mind, it's not that, I mean, sitting here in this moment, the portfolio is very complete. And as I think I said in my remarks, I don't think anybody will have anything that compares to it in terms of the kinds of problems we can solve and the talent that we can bring to bear and the tools and, you know, the data and tech. And then it does move fast, but I think it'll be, you know, the new entity, as it were, will be very, very well positioned to ensure that it can continue to invest both organically and then, if and as required, in things that fill in you know, any opportunities. And I think there'll be opportunities. There won't be gaps per se. There'll be areas where you see something and you want to move to kind of build that into your stack. So hopefully that helps, Jason.

That's great. Thank you.

Please. You know, as I mentioned, we appreciate the support and the interest, and we look forward to keeping you up to date.

Thank you. This concludes today's conference.

You may disconnect at this time. Thank you and have a good day.