Interpublic Group of Companies Q4 2024 Earnings Call Transcript

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February 12, 2025
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Operator

Good morning, and welcome to the Interpublic Group Fourth Quarter and Full Year twenty twenty four Conference Call. All parties are in a listen only mode until the question and answer portion. This conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Mr.

Operator

Jerry Leshni, Senior Vice President of Investor Relations. Sir, you may begin.

Jerry Leshne
Jerry Leshne
Senior Vice President-Investor Relations at The Interpublic Group of Companies

Good morning. Thank you for joining us. This morning, we are joined by our CEO, Philippe Krakowski and by Alan 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 and A.

Jerry Leshne
Jerry Leshne
Senior Vice President-Investor Relations at The Interpublic Group of Companies

We plan to conclude before market open at 09:30 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.

Jerry Leshne
Jerry Leshne
Senior Vice President-Investor Relations at The Interpublic Group of Companies

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 Prokowsky.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

Thank you, Gerry, 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. Alan 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

Our revenue change in the fourth quarter was largely due to the impact of the account activity over the previous twelve 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 twenty twenty four. 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 $0.92 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 2023 included a benefit of a $0.17 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 $727,000,000 We suspended repurchases in the fourth quarter due to the pendency 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

In the meantime, IPG will of course continue to operate independently, so it's appropriate that we continue to share our stand alone 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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've 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 4.5 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%. 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 that 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 near shoring in both corporate services and certain areas of client service delivery, with a 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

Specifically, we expect that our program will generate in year savings of approximately $250,000,000 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 and 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 the $750,000,000 of cost synergies anticipated as part of our proposed combination with Omnicom.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 $750,000,000 of synergies excludes revenue synergies, synergies from automation and incremental on shoring and off shoring. The restructuring is required given the opportunities for greater efficiency within our company and will allow us 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 planned combination with Omnicom.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

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.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

Adjusted EBITDA in the quarter was $591,200,000 and margin on net revenue was 24.3%. Adjustments exclude the amortization of acquired intangibles and $9,300,000 of deal expenses in SG and 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 $0.92 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.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

Our adjusted diluted EPS was $2.77 for the full year. We concluded the year in a strong financial position with $2,200,000,000 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 7,300,000.0 shares, which returned two thirty million dollars 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 and L for the quarter.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

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 $2,430,000,000 a decrease of 5.9% from a year ago. Compared to Q4 twenty twenty three, 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%.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

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 Solutions segment decreased 60 basis points organically. Very strong growth at Acxiom 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.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

Organic growth for the full year of this segment was 20 basis points. The organic decrease at our Integrated Advertising and Creativity led solutions 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 Deutsche 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.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

At our Specialized Communication and Experiential Solutions segment, organic growth was 1.3%. We had growth at Golin in Public Relations and at Momentum in Octagon in Exponential offerings, which were more than offset by softness elsewhere in the segment. For the year, the SE and E segment grew 1.3% organically. Moving on to Slide five, our revenue growth by region in the quarter. The U.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

S, which was 60% of our fourth quarter net revenue, decreased 3.2% organically, reflecting the impact of certain accounts lost in late 'twenty three and during 2024. We 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, Nine Percent of our which was 9% of our revenue in the quarter, the organic decrease was 3.3%. Growth at Acxiom and Zolund was more than offset by decreases elsewhere in the portfolio.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

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.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

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 twenty twenty three.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

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 by 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 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. 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.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

Our SG and A expense was 1.8% of net revenue, an increase of 90 basis points from a year ago due to $9,300,000 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 are offset by greater technology investments and increased strategic hiring in SG and 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 EBITDA and our adjusted diluted EPS.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

Our expense for the amortization of acquired intangibles in the second column was $20,400,000 dollars The small restructuring reversal was $6,400,000 Deal costs pertaining to the planned acquisition by Omnicom were $9,300,000 Below operating expenses, our net loss due to assets held for sale and the sales of non strategic businesses was $57,800,000 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 $0.92 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 $1,060,000,000 and was $1,220,000,000 before changes in working capital.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

Our investing activities used $151,100,000 mainly for CapEx of $141,800,000 Our financing activities used $1,000,000,000 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 $198,700,000 Slide 10 is the current portion of our balance sheet. We ended the year with $2,200,000,000 of cash and equivalents. Slide 11 depicts the maturities of our outstanding debt and our diversified maturity schedule. Total debt at year end was $3,000,000,000 and our next scheduled maturity is not until 2028.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

In summary, our strong financial discipline continues and the strength of our balance and liquidity meet that we remain well positioned both financially and commercially. And with that, I'll turn it back to Philippe.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 that'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. IntelligenceNodes 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 in LatAm and grew the business in Canada and MENA as part of that client's global media review. MediaHub was named AOR for Little Caesars and earlier this month Alaska Air tapped as its U. S.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

Media partner. Acxiom 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 Acxiom'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 Acxiom, 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 and M Awards and the London International Awards.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

The network also expanded partnerships with clients, certain key clients in the quarter, including AstraZeneca, Merck, Regeneron and Edwards Lifesciences. Our earned media solutions continued to evolve with leading offerings. Weber Shandwick launched a differentiated influencer offering that marries Acxiom 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 KalaNova. 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 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 MullenLow and McCann. And this was the second sizable win for us with this integrated team and offering after the Calanova 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 thoughts finalized 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 near shoring, 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 stand alone 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 GenAI 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 10, 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 18. We continue to expect to close in the back half of this year.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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.

Operator

Thank you. Our first question is from David Karnovsky with JPMorgan. You may go ahead.

David Karnovsky
David Karnovsky
Senior Research Analyst at JP Morgan

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 returned to growth. And then second for Ellen, on the accelerated business transformation, the $250,000,000 of net cost savings, you help us understand that figure against the flat margin guide?

David Karnovsky
David Karnovsky
Senior Research Analyst at JP Morgan

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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

On the revenue question, I mean, I think what I would just do is, we've tried to give you 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 4.5% to 5% 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 run off of certain of the accounts we mentioned was probably greater than expected. So cumulative way 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

And then at a macro level, I think you heard us say towards the back half of the year that it looked as if people were leaning past and beginning to really get what with the reality that they needed to just start to make plans and invest in growth. There's one or two client categories or there's just 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.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

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.

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

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 called out in the prepared remarks. As far as savings, we said we think the charges in 2025 will equate approximately to the savings in the year, with more to come in future years, which will lead to expanded margins going forward.

Operator

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

Michael Nathanson
Analyst at Moffettnathanson LLC

Hi, good morning, Philippe. Thanks.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

Hi, Michael.

Michael Nathanson
Analyst at Moffettnathanson LLC

Good morning. It was notable that you called out potential media as a factor for some of the client losses.

Michael Nathanson
Analyst at Moffettnathanson LLC

Can you talk a bit about your abilities if this deal is done, how quickly do you think you could integrate their Printful Media business with Media Brands? So that seems like a big opportunity on the top line to maybe fix some of the losses. So if you talk about like your thesis on why it was better to merge than to build at that point for me for Principal Media?

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

Look, I mean, I don't think that you would

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't I wouldn't

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

I wouldn't I wouldn't parts of and so many strategic benefits to the merger. Sort of, yes, for us in 2024, 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've got in our perspective soon to be partner, 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 build a principal 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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.

Michael Nathanson
Analyst at Moffettnathanson LLC

Okay. Thanks, Luke. Sure.

Operator

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

Julien Roch
Julien Roch
Managing Director at Barclays

Yes. Good morning, Philip. Good morning, Helane. My first question is in proxy statement, you presented forecast where you have 110 basis point of margin improvement in 2026 and one hundred basis point in '27, which is well above consensus. So can you confirm those forecasts?

Julien Roch
Julien Roch
Managing Director at Barclays

And do you need more than the $250,000,000 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 improvement? That's my first question.

Julien Roch
Julien Roch
Managing Director at Barclays

The second one is, as you said that those savings you've announced today are largely independent from the $750,000,000 kind of million dollars. 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 $750,000,000 to get combined EBITDA? Because 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, Bruce, 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, we're 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.

Julien Roch
Julien Roch
Managing Director at Barclays

Is that the right number? Thank you.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

of

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 fair amount of detail, They see that as our businesses continue to evolve and the investment that needs to happen in technology, the fit that we've got from a geographic point of view, what Flywheel and Acxiom can do together, the strength that Omnicom has through Credera, on the Adobe, there are just many, many things that fit together to the point of the answer to Michael's question. I think that the sitting here now and kind of going to a kind of gee, how many brands, what's the optimal organizational structure. I think what I would just point out to you is, 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 brand. We win with talent by giving them the opportunity to come into the company within the cultures of those brands and then that talent wins for us with clients.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 have we'll 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 synergy, the revenue opportunity is meaningful and we'll sort out the flying formation, but I don't think we'll do it in the next three minutes on this call.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

But 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.

Julien Roch
Julien Roch
Managing Director at Barclays

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

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

All right. Thank you.

Operator

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

Jason Bazinet
Jason Bazinet
Director at Citigroup

I just had one quick follow-up on the $2.50 of savings. Could you just talk a

Jason Bazinet
Jason Bazinet
Director at Citigroup

little bit more about the cost to achieve those?

Jason Bazinet
Jason Bazinet
Director at Citigroup

I was just a little bit confused when you

Jason Bazinet
Jason Bazinet
Director at Citigroup

called out the non cash component of those costs to achieve being significant.

Jason Bazinet
Jason Bazinet
Director at Citigroup

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.

Jason Bazinet
Jason Bazinet
Director at Citigroup

There's nothing on the stock based compensation side or anything? No?

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

No.

Jason Bazinet
Jason Bazinet
Director at Citigroup

Okay. Thank you.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

Please.

Operator

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

Cameron McVeigh
Cameron McVeigh
Vice President, Equity Research at Morgan Stanley

Thanks. Just curious how healthcare is trending when you secondly, when you think about given CMO in a pitch, curious how their priorities have shifted at all recently? And is principle based media buying, is that the most important capability now to win or retain new business? Or how are you thinking about that? Thanks.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

Sure. Healthcare independent of that one sizable swing, we see healthcare as growing this year. And as you know, it's one of our largest sort of operating units. Is a modicum of I mean, I think everybody, whatever it's been four, five, six months, so was asking questions around that and we were clearly giving you a line of sight into we've got every channel covered. We've got very, very deep subject matter expertise.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 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 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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 Acxiom. And you see some sizable integration opportunities like a Calanova or a King 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.

Cameron McVeigh
Cameron McVeigh
Vice President, Equity Research at Morgan Stanley

Got it. Thank you.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

Thank you.

Operator

Thank

Operator

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

Craig Huber
Equity Research Analyst at Huber Research Partners

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 retaile commerce. Maybe if you could give us how that organic growth reach or lack thereof did in the fourth quarter and maybe touched on your outlook for the new year for each of those? Thank you.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

I mean, it's you're touching upon two in which we had these sizable losses, right? So obviously, we've talked a bit about a big healthcare win that turned into a much smaller healthcare win for us and is impacting our results. 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

We've got a sizable healthcare practice on the PR side. Retail is just going to be muddied for us just because there'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.

Craig Huber
Equity Research Analyst at Huber Research Partners

Fair enough. Obviously, they're important sectors for you guys elsewhere. Ellen, if I could just ask you a nitpick question. The $250,000,000 of in year 2025 cost savings, what is that on an annual basis as we exit 2025? Is that more like $350,000,000 How should we think about that please?

Ellen Johnson
Ellen Johnson
CFO at The Interpublic Group of Companies

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 in near shoring and just creating a lot more efficient operating structure, streamlining some of the operations at our agencies. So that should continue to benefit our margins, but again, very separate and apart from the deal synergies that we called out.

Craig Huber
Equity Research Analyst at Huber Research Partners

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?

Craig Huber
Equity Research Analyst at Huber Research Partners

Thank you.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

Well, I mean, as we said to you, a year if you go all the way back to a year ago, there was a measure of caution. Then as we move through 2024 things meaningfully better and we felt that people were leaning in towards the latter part of the year. And broadly speaking, I'd say that that's still the case, but there are one or two 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 clients engaged. We're seeing a fair bit of opportunity in terms of new business flow.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

There's some bigger than not opportunities. So 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

And when you say compared to last year, I'd almost say compared to what point in the year last year?

Craig Huber
Equity Research Analyst at Huber Research Partners

Yes. 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.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

Like I said, I mean, it does 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.

Craig Huber
Equity Research Analyst at Huber Research Partners

Very good. Thank you.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

Thank you.

Operator

Thank you.

Philippe Krakowsky
Philippe Krakowsky
CEO at The Interpublic Group of Companies

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

Operator

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

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Earnings Conference Call
Interpublic Group of Companies Q4 2024
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