The Interpublic Group of Companies, Inc. — 2024 Q1
Transcript
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Good morning, and welcome to the Interpublic Group First Quarter 2024 Conference Call. [Operator Instructions] This conference is being recorded. If you have any objections, you may disconnect at this time.
Good morning. Thank you for joining us. This morning, we are joined by our CEO, Philippe Krakowsky 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 a.m. Eastern time.
Thank you, Jerry. As usual, I'll begin our call with a high-level view of our performance in the quarter, and Ellen will then provide additional details. I'll conclude with some highlights at our agencies and key strategic updates to be followed by your Q&A.
Thank you, Philippe. I hope that everyone is well. As a reminder, my remarks will track to the presentation slides that accompany our webcast.
Thanks, Ellen. As mentioned, the results we're reporting today are in line with our forecast coming into the year. We continue to see strength at our media offerings in health care and marketing services and at those agencies that are leading in the adoption of audience-led capabilities enabled by our data spine.
[Operator Instructions] Our first question comes from Adrien de Saint Hilaire with Bank of America.
Philippe, Ellen and Jerry for the comprehensive presentation. I've got a few questions, if you don't mind. Philippe, I think in your intro, you said that tech has largely stabilized. Could you see that segment growing in Q2 and later on this year? Or is it too early at this moment to talk about growth for that space?
No, please. I don't know that I can help you with the middle question just because, as you know, we don't really speak to the particulars or things that are proprietary relative to our clients. And there is one large review ongoing that you called out, which is very important to us, but there are clearly others where we are theoretically a beneficiary where we're not defending.
Our next question is from David Karnovsky with JPMorgan.
Philippe, I know you're generally hesitant to talk about any clients on these calls, but you did call out the impact of a significant client decision to '24 organic growth. So I wanted to see if you could unpack a bit more what happened in this particular instance, given it's not very common to see large accounts shift over short periods? And then it would seem there's an extended offboarding period here. I don't know if you and Ellen can frame how to think about the organic impact in 2024 versus what might show up in the out year.
On the large client, there's -- we don't speak for our clients. We don't disclose proprietary information. And that's obviously as it should be. So I'm not sure there's much we can add to the news that's out there already.
Our next question comes from Steven Cahall with Wells Fargo.
Philippe, you talked about strong long-term performance expectations at data and tech and health care and experiential. So I was wondering, first, if you could just talk about how health care is performing year-to-date in line with that comment? I think data and experiential were both kind of flat organically in the first quarter. So should we also think that those will probably accelerate as you move through the year?
Sure. So on health care, I'd say IPG Health, in all likelihood, largest in the space, recognized as a leader in the space; to your point, accretive to our overall results for some time and very, very broad penetration. We work with pretty much every major pharmaceutical company in the world. There's opportunity there because we've got a range of agencies inside of that group.
Yes. The question was kind of do you expect those to accelerate a bit this year, assuming the creative is probably going to decelerate a little bit.
I mean, look, they have been. And as we said, we see them continuing to. We see PR performing well as well.
Great. And working capital?
Yes. As far as working capital, it's an area of focus for us. It always is. We're very consistent to our approach, very disciplined starting from when we take on new clients to how we manage payables. As I talk about very frequently, it's volatile. Whether you get paid on the 31st, you get paid on the 1st, it creates volatility, but doesn't really impact the underlying result.
Our next question comes from Craig Huber with Huber Research Partners.
Two questions, if I could. Can you talk a little bit of updated thoughts on AI and the opportunity on your side for more efficiencies, but also enhanced products and services you guys put out there? And I guess on the same token, do you feel that it might be an added competitive threat out there for third parties entering this space perhaps hurting you? That's my first question.
I guess maybe we'll do the latter first because it's relatively straightforward. You see the size it represents relative to our overall. So in absolute terms, in a small quarter, you're not talking about a huge dollar amount. And it was just small -- there's no one event that took place. It was a lot of smaller cuts with a broad range of clients across the region and the exception being India, where we have significant scale and a lot of very strong agency brands and capabilities. I mean, I'm not sure, Ellen, if there's anything else on Asia that...
No, I think you've covered it with 7% revenue.
And then the AI question is obviously a very broad one. And on our last call and even in the prepared remarks, we talked a bit about the extent to which it has been part of our business for some time in the places where you have more data, a more precision, the ability to do addressable work, a lot of modeling doing -- being done to identify not only audiences but business opportunity.
Our next question comes from Jason Bazinet with Citi.
I just had a quick question on M&A since you called it out in your prepared remarks. Other than the strategic fit, are there any sort of financial guidelines that are important to you if you do M&A, like additive to organic growth or helpful to margins or accretive to adjusted earnings?
I mean, look, I think we've always been very disciplined in the way that we approach this. And I think that notwithstanding the fact that obviously the -- you need something which strategically is going to, as I said, enhanced capabilities or be complementary to what we do in the areas where we're seeing more demand from clients, but we're always going to be disciplined in keeping some of the parameters you laid out in mind.
Our next question comes from Tim Nollen with Macquarie.
I have actually 3 questions, and curious how it ties into your work specifically [ suite ]. I'm wondering about Google's decision to delay the deprecation of the Chrome cookie, which they announced last night. Just wondering, in general, like what kind of work are you doing with brand advertiser clients to prepare for deprecation of the cookie? And how, if at all, does this delay affect your business?
Well, look, I think to your point, it's not news in that this is something that was announced and that has now been delayed a number of times. I think marketers have been thinking about and asking for advice on how it is that we're going to continue to get the benefits of a certain kind of data.
Our next question comes from Cameron McVeigh with Morgan Stanley.
Just a couple of quick ones. Curious if you could quantify the very strong growth in media that you saw this quarter? And then secondly, the increase in SG&A due to some senior enterprise leadership investment in IT, just maybe any more color on that and if we should expect increased investment over the year.
See, as I can't help you on the first one because as you know it's not really a -- Ellen can unpack the latter for you in detail.
Sure. SG&A will be higher going forward, as we are making strategic investments, as Philippe mentioned in his remarks and senior enterprise talent and technology, that should lead to both increased growth and efficiency going forward. These were all considered, as you mentioned in the guidance that we've given. Q1 was slightly higher due to discrete items. But in general, that ratio should be higher this year.
And given the nature of the work that we do, there's definitely an increased need for -- we've always talked about integration of services and open architecture. But now as we're saying, you're talking about the need to centralize some of these horizontal capabilities at scale, a data layer, a production and GenAI sort of driven content layer.
And that was our last question. I'll now turn it back to Philippe for any final thoughts.
Thank you, Sue. Thank you all for the time. Obviously, some progress but work in progress. So we look forward to reporting back again next quarter.
Thank you. And that concludes today's conference. You may disconnect at this time.