The Interpublic Group of Companies, Inc. (IPG) Earnings Call Transcript & Summary

Okay. Great. We're going to get started. I'm very happy to have back at the conference and first time in person, Philippe Krakowsky, CEO of Interpublic Group. Thanks so much for being here.

Thank you, David. It's a pleasure.

Okay. So you've been in the CEO role now for almost 18 months. I think your first day was actually Jan 1, 2021. Obviously, a very different environment when you started. But maybe high level, how have your strategic priorities and approach shifted over that period?

I'm not sure that the 18 months are the ones that I would -- I'd probably contextualize or kind of pull the aperture back a little further. So whether it's the COO role during 2020, which was obviously a pretty unusual period in which to operate and one in which -- I think we did a lot of structural. We took actions that we thought were going to make the company stronger sort of operationally. But then prior to that, having both run strategy for the group for many, many years and then having run the media and the data tech businesses, which have been a big part of our pivot or our transformation. So to my mind, it's less about the 18 months representing any kind of a directional shift. I think in some ways, the things that have happened during those 18 months are we've had confirmation that decisions that we took that involved ensuring that we had really strong digital assets across the portfolio and then decisions that we took that involve creating a data and technology layer that marries up to the marketing services layer. Those decisions have been largely confirmed as ones that position us well for the market. And the change in the 18 months, I would say, is really just about the pace at which this is all playing out and sort of an acceleration of those trends largely due to the pandemic. And so whether that's around consumer behavior and the ways in which we were seeing -- call it what you will. Whether it's sort of digital behaviors or whether it's more agency on the part of individuals in taking control over their interactions with companies, whether it's clients who are increasingly clear on the need to be active in these channels and have kind of a point of view, whether it's your e-com D2C strategy, whether it's -- how you're incorporating first-party data into all the work that -- all the outreach you do, whether it's product innovation, whether it's audience segmentation and definition. So for us, I think there isn't anything that's surprising. And the rate of change has increased. And I think it's both exciting because we think -- we see that as opportunity and challenging because we need to continue to move along that path and make sure that we're picking up speed as well.

Maybe just jumping into those secular drivers a little bit, right? I mean that did seem to come out in your Q1 results and commentary and from your peers as well. Can you maybe kind of dive into some of what you talked about with changing consumer habits, changing media habits? How much of this is sort of driving demand for your agency services in a way that didn't exist kind of pre-pandemic, right? How cognizant the marketers that this is sort of a unique time to sort of gain mind share?

I mean look, I think pre-pandemic, we were seeing demand for those services. So there's no doubt that as we built out our proprietary -- our data stack and then, obviously, ultimately decided to acquire Acxiom and make that part of that foundational layer. We were seeing it going back away. So I think that what you tended to see is a very different level of readiness on the part of client sectors. So some industries were far more developed and far more comfortable transacting in that way or using those tools to build their businesses and others meaningfully less so. And I think that also, I think, implies within some geographic markets. So I don't know that I could quantify the rate at which we're seeing an increase in that regard. But in a category like CPG, for example, where there would have been kind of the most obstacles, whether it's that as a major CPG player, I might not control the distribution that ultimately gets the sale closed or that I have very little data of my own to build these kinds of programs with. But with some of our larger multinational CPGs, there's now a real appetite to sit down and talk about how am I going to go direct to the consumer and build those relationships? Are the programs that you're working with us on the marketing services side driving that kind of interaction? And then how am I going to use a range of -- how am I going to get -- lean far more into digital media spend in an effort to begin to get some signal back or use other forms of my marketing and communication spend with an eye to having all of that outreach help me build that repository of data that's my own that I can then begin to action?

All right. And this probably would have been relative to a few years ago and that same CPG client might have been much more focused on procurement and cost, right?

Yes. Or to the extent that this was being discussed, it was sort of -- there was a certain amount of -- it was a bit of a head fake. It was like, "Hey, we're going to talk about it. But then we're going to go back to doing what we've always done."

So sticking on this theme of business transformation in e-commerce, can you kind of expand a bit on the scope of services that you provide to multinational? It doesn't have to just be CPG. Just more broadly and how that scope is growing.

Sure. I mean I think there are a couple of places where you look -- at least within our portfolio, I think clients need help with the strategy piece of this. So they need help understanding what's going to be required, understanding kind of the front end, the strategic front end, whether that's consumer journey mapping, whether that's an understanding of kind of media and channel behaviors but against these far more -- whether we're going to call them performance media, whether we're going to call them sort of different manifestations of e-comm. So you're still doing strategic growth on the front end. But then you're doing -- at some of our digital agencies, for example, you're building the actual experience. You're building the platform and the ecosystem in which all of those interactions are taking place. At something like within our media operation, you're getting a very clear understanding in the way that we have with other media for many years and maybe most analogous with something like search. You're getting a really clear understanding of what's happening across all of the shoppable platforms, Amazon being chief among them. But then you're also putting all of that together. You need a content strategy. You need to create the content that is going to work within those channels and then within all the social media that are now really tied into those channels. You need a measurement framework. So I mean I think the bulk of the work happens within our digital agencies and within media. But there's an Acxiom. There's a data component as well. And then on an as-needed basis, you pull in some of the other content creation capabilities.

And just kind of based on what you're describing as clients lean more into these areas, does that shift the nature of these types of assignments from project where -- which I think is what it's been largely for the past few years into more kind of sustainable agency of record-type services?

It can. I mean I don't -- I mean not -- it's definitely not a, "Hey, it definitively takes you from here to there." I think once you start sort of business transformation project, once you get more engaged in these things, I would say that the projects get more linked. So you know that once you've done a certain phase, you're clearly well positioned to being the provider to then see it through. I don't know that it's the case somebody says, "Hey, we're going to hire you to do kind of an AOR the way that you still occasionally get for very large client for a holistic assignment." But it definitely leads to follow-on work and the work is connected. And then the site needs to be updated. The taxonomies and the KPIs need to be refined so that you can be sure that you're getting yield. So there is ongoing work as a result.

Got it. We're in a period right now where there's obviously a lot of investor concern around macro and consumer risk. On your earnings call, you noted tone of the business remains positive. I know we're only a few weeks past that. But obviously, a lot of this has become heightened over that period. I want to see if there's any update you can provide on how client budgets and outlays are pacing through the quarter.

Well, I don't know that -- I mean, obviously, we don't provide that kind of information sort of intra-quarter. As we said just a little while ago, the results and a lot of conversations bottoms up direct with our operators and with clients. It led us to not just share those results but take our guidance or target for the year up. So it's a relatively finite period of time since that took place. Nothing has happened that is dramatic enough that we feel it's incumbent on us to further update to suggest that anything that's out there is something that is -- something we're not comfortable with. I think there's just a lot of moving parts. So yes, what we've all witnessed the last whatever, 10 days, clearly speaks to a heightened level of uncertainty. And yet, what led us to a perspective that said we see a 6% growth a year is still largely there. So the scale and the complexity of the clients we have get you to a place where as they operate in an inflationary environment, they're seeing the need and the opportunity that goes with sort of staying invested. Whether it's others won't and there'll be share gains, whether it's got to kind of stay in the game that way and be very precise and accountable with my marketing so that I can kind of protect margins by taking advantage of the benefit of what having an established brand and value propositions about. We're strong in the health care space. That's something we've invested in and built up organically for a lot of years. And that continues to look like it's holding up well. And then a number of these data and technology-informed capabilities that give you more granular, more precision, clearer line of sight to ROI, again, that we have seen thus far are holding up. And nothing is changed, to our mind, that would cause us to feel that what we said whatever it was, 3 weeks ago, 4 weeks ago, is not still what we're going to...

And so for the -- for that sort of core multinational client that you represent, we're still sort of in an environment where you pull back at a moment like this, that's probably a greater risk than anything. Or you could say that, that sort of overrides whatever macro concerns are out there?

Like macro with like all caps, I think we all then go, "Okay. What's going on in the world?" But within the macro flow and the ups and downs that currently exist, we're still seeing opportunity to do what we said we would do.

Got it. And anything you think worth pointing out on a category level or a regional level?

It's interesting because -- for us, as I said, health care is very strong. Tech and telco is strong. I'm just thinking about what else is significant. I mean the U.S. obviously is this preponderance. Or at least more than half of our revenue and -- that's probably a good thing as well. A couple of other regions have performed really well for us in recent years. And to the extent that people are pointing to a place where the potential recessionary -- where it will show up, that would probably be Europe. And for us, Europe is 8%, maybe 9% of revenue. So...

Got it. Maybe looking longer term, with media, IPG has historically highlighted complexity as a positive, right? And now we're in an environment where there's an increasing number of digital platforms, right? Everything is an ad network. And then you have everything going on with television with linear shifting to connected. How different is this dynamic relative to pre-pandemic, where it kind of seemed like everything which is converging into 2 platforms?

Well, yes. I guess -- I mean the pandemic clearly has accelerated many, many things. I think that the consolidation among non-platform media owners, which we've begun to see and which I think most people assume was going to continue, will likely result in there being fewer, larger. And then some of the media owners that are coming from the nontech side of things will look to approach the marketplace in the way that the platforms do, right? So they will want to be more digital, more addressable, more precise. And then the dynamics within the digital space seem to be interesting and maybe changing a bit in the sense that you're seeing TikTok come in and have an interesting and seemingly pretty dramatic impact. I think you're seeing the buildup of consumers being aware of -- and there's a certain amount of sort of -- I don't know what the right word is. But I mean there was a certain amount of, yes, there'll be a time in which privacy will matter. And so iOS changes have sort of brought that into focus to a certain degree. And now maybe it turns out that it is having an impact. So it feels as if it's possible that we'll end up with a media environment in which it's not just controlled by -- or tilting more and more and more heavily into 2 platforms. And I think broadly speaking, most people who are in the ecosystem, whether it's marketers, whether it's us on the agency side, obviously publishers, I think people think that will have a beneficial impact on the marketplace.

Maybe sticking with privacy. You sit in a position where you manage a tremendous amount of first-party data on behalf of clients. So how do you think about ethically deploying that through the media business to the benefit of the marketers you represent as they lose signal around cookies or IDFA?

Well, I think the perspective, the point of view that privacy was going to matter is it's been, for us -- we've been there for some time, right? And so in essence, if you conclude early on, say, 5 years ago that first-party data is going to be this incredibly powerful asset for every company and that first-party data management is an important capability, then I think -- for us, it was, well -- as soon as it passes through you, as soon as you're involved with it one way or the other, you take on all of that liability, all of that risk. So very early on, there was this sort of slightly odd -- I'm trying to be polite. Do you rent it? Or do you own it since -- some of our competitors? And the interesting thing is you do both, right? I mean you never have access to enough data. You always take, in our case, a foundational data set, working with a client, an understanding of who and what they're trying to accomplish as businesses. But you're always going to supplement it with other data. And third-party data is interesting because if it's proxy data or if it's data that you really don't understand the provenance of, that's a problem. But if it's a super tight, really valuable data set around a very specific population, pharmacists, I'm making it up but -- it can be really valuable. And so from where we sat, sitting as high as you -- in terms of credibility, in terms of all of the ways, I mean, Acxiom appealed to us because everything that we built at Acxiom has privacy at the core by design. So it's not just a question of engineers going off and saying, "Hey, here's this new functionality around how we take the company's first-party data and turn it into something that you can activate." It's actually, "Can we do that in a way that has privacy baked into it?"I mean they had a Chief Privacy Officer about 40 years ago, which is a long time before anybody else started thinking about this stuff. And then we -- the way the data is literally physically held. I mean the campus there has a massive facility in which basically each company's sort of racks are held and sequestered and secured. So I think it's a really important piece of -- it's a foundational piece. How you then do interesting, creative or sort of from a media perspective, super precise? What you do with it is as important. But that -- I mean you saw again that on our last call, we talked about how we're going to basically apply the California privacy law to all of the ways in which we build our solutions for clients, pre that becoming the norm across the country. When the privacy changes in Europe came 2 years ago, the leakage in terms of -- we lost like about 1 percentage point or slightly less than a percentage point of the data we were using for clients. So we feel like we're well positioned already to clear that hurdle and to advise the clients on how to build marketing programs that work that are based on data, where you then can also have confidence that the data is sound.

How does that first-party management plan to the review process, right? If you can demonstrate an immediate review that you could do better with a set of data versus your competitors, does that allow you to sort of cut through the traditional framework, where it's a procurement officer and that historic paradigm of what historically drove reviews?

It does, although it is not necessarily the norm in reviews at this point. So you get a very broad range. You get reviews in which clients will, in fact, require you to demonstrate what it is you can do with the data. So whether it's -- whether there's a match rate component or whether you're given first-party data and then asked to match it and then syndicate it out and see how effective that work is. And we are very happy when that happens. Whether there's a component to a review that has a kind of a deep dive on the underlying software, the tech that ties into or makes the data available to the marketers. And then there are reviews in which that's just not at all part of the deal, right? Where -- there were reviews where you told it is and then it turns out that they have farmed out the -- kick the tires piece to some third-party consultant who maybe isn't so. So we're enthused when that happens because then there's either an acknowledgment of how the value that we can bring to them in -- as sort of more than a pure marketing services really kind of a business solutions partner. And it also says that there's some alignment between the marketing side of the house on the client and the tech and performance side, which is not always the case either. And you get a full continuum. You get not at all, you get a full on and then you get different sort of...

Yes. You recently introduced 2 new products. One is Acxiom Partner Marketplace and then at Kinesso, you have Outcome Navigator. What stood out to us is that they -- correct me if I'm wrong. But they sort of break from the traditional cost-plus or FTE model that we tend to know for agencies. And I'm interested to know what type of traction you're seeing from clients with this so far, how these differ from a business model standpoint. And how are these going to maybe show up in the new reporting that you've broken out?

No. I mean there's -- it's definitely indicative of the -- a number of things that we've said, which is that, obviously, we had experience in -- Ellen and I in leading media brands and in the sort of early stages where we were building a programmatic trading desk there. You could see that adding a component that is technology and then obviously now data takes the professional service that we're providing upstream. And to then add these kinds of capabilities, which, as you say, do open up commercial models that are either true pay for performance. So Outcome Navigator is what it says, which is essentially if we use the data and then if we use the know-how, we've got an ad tech. And we apply it to other forms of marketing, other marketing budgets like affiliate marketing. We're able to, with a high degree of certainty, ensure that for certain kinds of clients, right? Because I don't know that if you're selling a chocolate bar, that may not work. But if you want to get people to test drive your car or if you want to fill airplane seats or cabins and cruise lines, it's a really, really interesting model. And it's a whole budget that in the past wouldn't have necessarily gone to any of the holding companies. So that's one that is sort of performance. And we're doing nicely with a range of clients, most of which fit the sort of category I just laid out there, although there are 1 or 2 more disruptive sort of D2C apparel companies that have sort of bitten on that and are starting to work with us there. And then something like Kii, which is the set of tools that we use to help clients kind of normalize all of the disparate data points in the ad tech ecosystem. We're getting a lot of uptake from very, very large clients kind of across the board. And as we said, it's -- we're interested in opportunities to also kind of license the thinking in the tech. And then Acxiom, the marketplace you mentioned, what you have there is just with InfoBase, which is very strong for us to create a marketplace where we can help clients enhance that data with J.D. Power data for geolocation with Catalina data for actual transactional data, et cetera. It just fills in gaps around where and how the client can see all the dimensions of the problem that we're working together and get closer to some kind of attribution is going to be kind of a little bit of a holy grail for a while yet. But we're getting pretty good at being able to factor in enough things that we can really see the impact our work is having. And again, there's going to be a few categories or a few circumstances where that's a harder thing to do. But all of those are precisely as you say. They are products that we're rolling out with an eye to supplementing the standard remuneration model or commercial model that exists in the industry for a long time.

Got it. We have about 5 minutes left. Anyone in the audience can open up for questions. Maybe I'll just continue on. So another long-term differentiator as you noted for IPG has been your outside exposure to health care. We've always tended to think of this vertical as a lot more forward meaning in terms of integrating data and analytics. Wondering if you could talk through how the category shifted during the pandemic in terms of client needs and then how you've kind of responded by bundling FCB and McCann Health into a single end today?

Look, I agree. I think health care has been a strong -- I mean we saw it as a place that was interesting. And therefore, we've invested behind a range of capabilities. So yes, there's a very, very large professional specialist capability, which would have been at FCB and at McCann. It's actually kind of embedded throughout the portfolio. So media brands have some very sizable -- both pharmaceutical and then I'd sort of say kind of health and wellness clients. Weber Shandwick has a scale business that focuses the PR capabilities on health. So we see it across the group. I'd say that what we've seen during the pandemic is that the take ownership of your relationship with a company or a brand, sort of the direct-to-consumer has dialed up further. And the ways in which devices and digital media are a part of that have also been pronounced. So those were trends that we'd seen before. It was an interesting category because you needed to be really thoughtful about privacy for obvious reasons, pre or independent of, "Hey, cookies are going away." And you need it to be really precise because for certain indications, for certain treatments, you really wanted to know -- you couldn't just say, "I'm going to talk to everybody if I'm really just trying to reach people with a very specific condition." So there had been more of a focus on that. And all of those also give you a little bit better feedback loop because you're not talking to 1 million people and because you're having to do it in a somewhat constrained way on the regulatory side. So I think the category is going to do well going forward, whether it's -- if you look at pipeline relative to the last decade, they're doing well. If you look at just the degree to which having kind of gotten us all back out in the world and made a lot of people who would have otherwise been ill, well. I mean I think they've got a lot of wind in their sails as a category. And for us, putting those 2 together just made a ton of sense because they both have been incubated a long time ago within the traditional ad agencies. They'd sort of grown to the point where there were clearly stand-alone businesses within them with a high level of specialization. And they had very complementary sort of capabilities or skill. So there were -- there was a medical publishing business in one. We didn't want to build a second one. They could share it. There were some geographic complementarity where, again, looked at that. It seemed pretty evident that if you ran it as a whole, you'd get a lot more from it. Talent in the space is pretty -- is at a premier lease in demand. So again, thinking about where and how we could help people build careers within a bigger universe. So that's -- we're in year 1 of it. But it's something we've been kicking around for a few years. And we see a lot of opportunity there.

About 45 seconds left. Maybe I'll just ask a quick one on cost. Earlier in the year, you did flag some risk around inflation and turned office expense. I know we're not quite there in terms of ending where from home. But what's been sort of the experience so far in managing costs relative to expectation and efficiencies you could drive in new business?

Look, I mean I think on the cost side, we've consistently demonstrated over a lot of years that if there's growth and at this point over the last 5 years, not good, we land this year. But we're in a sort of 4% to 5% annual clip in an industry which collectively is at a really, really hard time. There was a 3-year period where probably collectively, the rest of the industry was flat. But we're well south of that. So we can grow margins with the growth that organically happens within the business. Then obviously, in '20, we spent a lot of time, operators, Ellen and I thinking through how we would strip layers out of the business and strategically think about restructuring the business. So there's upside there. I mean you've seen the pretty significant -- we come out of the pandemic with a different margin profile. And we're a bigger company that's putting that incremental revenue through the ability to convert. So if you kind of look out, we feel good. If you look at this year, we're just going to do what makes sense, which is stay super close to our operators and clients and course correct or adjust if we have to. But the cost levers are there. There's lots of ins and outs because '20 was so complicated to '21. Whether that's around -- incentives were up in '21 because it was a strong year. They'll revert back this year so that it works in our favor. I don't think we're getting to -- my first international trip to go see clients about a month ago, month and change ago, I came back with COVID. So that was -- you're like, I don't know, it's not that I'm happy to go out and see clients. But I don't know if we'll get to -- there we are. Maybe we'll get to 60% of where we were before in terms of this year, in terms of travel.

Got it. Okay. I think someone has given us a sign. So...

Yes. No, no, no. No, it's true.

Thanks so much for being here. Really appreciate it.

Likewise.