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

Okay. We're going to get started. Happy to have back at the conference this year, kick things off. Philippe Krakowsky, CEO of Interpublic Group. Thanks for being here.

Pleasure. Good to see you.

So maybe just to start off high level. I wanted to see if you could discuss key priorities, areas of focus for you and the team. How those shifted at all in this kind of very unique period where you've been CEO?

I think it's probably had more to do with the uniqueness of the period than my tenure. I think that -- I mean, you know us pretty well. So you know that whether it's the fact that the team has been together for some time that I've had roles, in which I was shaping strategy for the group or running our media operation, which has been a big driver of the evolution of the group. So I don't know that we've changed a ton. I think that pandemic has clearly accelerated some trends that we were pivoting into. So I think that the fact of data-driven marketing or the need for more precision and accountability in what we do or even really the degree to which what used to be the traditional funnel and the sort of performance side of marketing and the brand side of marketing have come together. So for us, I don't think there's been anything significant strategically that's shifted. I think that we're going faster into the commerce space where we see opportunity, having used data in our media business. I think that we're still a professional service business. So the talent piece of the equation is important. But I think it's probably about the rate at which we're trying to keep evolving the model as opposed to any dramatic kind of different direction. The trajectory is pretty similar.

So we're still kind of in a period of macro volatility. That's only the latest. Yet, if you kind of look at the commentary from the large brand marketers, you'll sometimes see a very public messaging on the importance of staying invested in the ad market. So interested kind of if you could share the latest what you're hearing from clients first. But then maybe put that in perspective, have you kind of seen a shift or mentality from the marketers towards their brands and investing in that relative to pre-pandemic?

Well, I mean, I think that we were pretty direct with everybody about the fact that in Q4 last year, given the macro, we did get a sense that our clients were more focused on the degree to which we could help them scenario plan, and there clearly was a sense that they wanted to retain some optionality around their plans. I don't think we've seen anything different. Had we done so, we would have updated the market. The fact that staying invested, you think about the complexity of the programs that we put together for clients and the fact that they do, broadly speaking, understand that you want to stay connected to the consumer in this increasingly complex journey that takes place across this the super fragmented sort of media and marketing ecosystem. So I would look again at our results and you'd sort of say last quarter, you had 6 of 8 client sectors that were positive, 3 of them up -- 3% to 5%, 3 of them up north of 5%. So generally speaking, the understanding of that marketing is important, ex some really dramatic recessionary event, is pretty consistent across the board.

Maybe just kind of sticking with the macro. One of the things we sometimes get asked about is the impact of inflation to add budgets. And the idea here is that brand marketers, mainly in the CPG or [ F&B ] space, they have pricing power right now by extension, that's a driver of higher ad spend. Is that kind of a notion you would subscribe to, but then the follow-up is, does that potentially set up for risk if the Fed is ultimately successful in its goal of lower inflation?

Everybody wants a subscription model these days among our clients. It's like you're supposed to subscribe to like [ kid cats ]. But no, I don't think I'd subscribe to that in the sense that if you think about the period pre return of inflation, so we had essentially a 0 inflation. I mean we had an unusual period for a long time. And for our business, we saw a lot of growth, very robust growth. And among clients, there was a focus on and a willingness to invest. And so my sense is that it's a bit of a false dichotomy because we happen to be in a circumstance where inflation has come back. Clients are clearly understanding and seeing that their brands are powerful enough that they can -- as you said, they can take price with them, but there wouldn't be any less interest in either the yield side of it or the growth or the market share piece of it in a less inflationary environment. So I don't think that's a correlate that's going to hold particularly well over time.

Got it. Okay. You touched upon complexity a little bit before. It's something that you've talked about previously to your peers as well. And certainly, if you're an advertiser today, deploying spend, there's a lot more options to you relative to a few years ago. So can you expand on that a little bit? How that impacts kind of the scope of services you provide, but then also kind of how that opens up more kind of consultative or performative models?

Sure. I mean, that's been a big part of our thesis for the last 5-plus years, where the complexity does create the need on the part of companies, who are clients for somebody to help them understand how they're going to put these very, very significant budgets to work across this marketplace. And so to our mind, whether it was, obviously, data with Acxiom, whether it's the nature of the problems that we approach on behalf of clients, where I think that there tended to be the perception, obviously, that we were advising them specific to a narrower range of capabilities or opportunities. And now when you're talking to them about lifetime customer value when you're talking to them about how to take significant investments they've made in tech and make sure that those are yielding and leading to marketplace results, the addressable universe has definitely grown. And then, as you said, how we then translate that into more of the kinds of engagements where we're being compensated based on results is something that's definitely work in progress. I think a lot of the folks in the room who we've met with over time know that it's something we're very focused on as a management team. And in media, about half of the contracts that we've got have a performance component in other parts of the business, it's still something that we're working to develop.

So you're trying to kind of translate that over to, say, the creative side or other pieces of it?

Well, I mean, I think it will definitely go to places like performance. So parts of the ecosystem where we're dealing with the martech stack, I think we'll be next given that where we've been with that has been around media and advertising technology. I think that experiential might be an interesting place to do that. Again, it's where you can close the loop most evidently so that you can measure those outcomes.

Got it. Okay. You touched on this a little bit before, but data is something that clients, I think, have long had access to, right? But sometimes there hasn't necessarily been follow-through on that, right? And I guess the question is, how much are marketers do you think are awakening to the use cases of their own customer information? How is that kind of getting deployed? How are you facilitating that?

I mean I think the answer is emphatically that they are. I don't know that having had it in the past. I mean we've sat with marketers who believed that they had a fairly significant repository of data, say, in the CPG space and then what you often find is that either the ways it was onboarded or brought into the organization, whether that was with appropriate permissions or whether it's that it really hasn't been -- as a data set, it hasn't really been kept up, and so you end up with just a lot, a lot that ends up getting flushed. So I would say that it's definitely front and center in our conversations with clients more so than ever. That doesn't mean that they are all necessarily an industry or they sit within a company that has created the infrastructure to become as sort of data forward or data-led as we might like to see. But it's definitely something that's now kind of a consistent part of conversations with, I guess, I'd say all clients that are kind of larger than some minimum scale EG are therefore fairly sophisticated in how they're approaching marketing.

You mentioned CPG. Are there other verticals that are sort of more forward on that topic?

I mean CPG is actually kind of a laggard. So I mean I think the ones that have been kind of ahead of the game have pretty consistently been travel, entertainment, financial services, absolutely, automotive to some degree. And then you've got others that are sort of somewhere along the path on that journey.

Got it. While we're on the topic of the current ad market, I just want to touch briefly on the upfronts. It's a process that each year looks a little less like the upfront when I first started covering the advertising space, maybe the strike played a role in that. How does the sort of changing nature of this process, that increased focus on streaming, decreased focus on linear? Does that adjust the rural Mediabrands plays?

It's funny. I was actually kind of doing this math in my head as I was heading over here, is like do the upfronts come up before the AI or the other way around? So I mean, I think that what's fascinating about the way that, that marketplace happens, and I think many in this room who've been following our world for a while will all ask themselves when does that way of trading. When does -- when do the upfronts finally break, right? And year after year, I think we would have gotten that one wrong. So it does feel as if a couple of the things you've been talking about, which is a greater focus on and sophistication around data. Increasingly, enough inventory that is addressable and has some pretty good data behind it. And then all of the other things that have been disrupting linear for a while are getting us close to the point where you no longer use or need. By the same token, awareness -- traditional TV does drive awareness, which is an important part of a fair bit of the work we do with clients. So I don't know that I'm going to ever call it and say, hey, this is the moment because often you're surprised and you go, oh, the scarcity value of some of that attention still meant that it traded in a way that I wouldn't have expected. But you're definitely getting more signals that there were kind of cracks in that way of approaching what should be traded differently, but I'm not going to be the one that says because like I said, I would have been wrong for a decade now.

Maybe sports and news kind of keeps it together...

Yes. Sports and news definitely. Sports, in particular.

So IPG recently reported earnings. You maintained your guidance for 2% to 4% organic growth for the year, that was despite posting negative growth in Q1. So a question we've received -- I am sure you've received since then, as kind of what gives you confidence you'll see that inflection through the year? And then maybe just for those less familiar, how do you kind of go about that process with your agency heads of rolling up their growth to the holdco growth?

I mean, I think -- I guess the process one is fairly straightforward, right, in that we do spend a lot of time with our operators and with our clients. And so that's a process that gets refreshed on a very consistent and regular basis across the year. And it's been useful in getting us clarity around kind of how is the business performing and what can we expect. So I don't know that there's anything in the process that's particularly different or kind of unusual. The clarity that we've got on sort of -- it's -- our year and our plan isn't built on any expectations about the macro. It's really just a function of what we will kind of call out as puts and takes in our model. So coming into the year, we knew there were some things that were going to be a weight or a drag on the first half. Whether that was a client sector, in our case, tech, where -- and we were probably over-indexed relative to peers, and it was our second largest sector coming into the year, and what's been going on in that industry, which is macro influenced or at least we see it as sort of a bit of a -- it's not like either employment or the cost focus that you're seeing in tech is something that the marketing function within those companies is immune to. And so we saw a client sector. We saw what we would sort of refer to as a new business headwind, not the norm for us. And then we called out the performance of 2 very innovative agencies in the portfolio that -- it's not the scale that is usually the issue there, it's what tends to be -- we call attention to them because there we're driving a certain kind of work, and they've clearly been impacted, again, by the macro and by their over sort of indexing to tech. So there's nothing about the year that is a view on how the world is going to perform. It's really just a function of where we saw challenges for us in the first half. And then what we've seen from that forecasting and budgeting process in terms of what we see for the balance of the year.

Maybe we could touch on some of those tailwinds and headwinds. On the headwind side, you mentioned tech, it's one of your larger verticals. I think historically, it's been an outperformer for you. Would you sort of say what you've observed since -- I don't know, I think it was like Q3 last year, this is kind of like a onetime post-pandemic adjustment that was kind of necessary. And then what are you hearing from these clients that maybe gives you confidence as you, in some cases, these firms start July 1 fiscal year is that you'll see sort of a normalized budget coming from them?

I mean a couple of them due to your point, have fiscals that run that way. I mean I think the broader question that you ask yourself when you think about the sector is, do you somehow fundamentally believe that the sector is not going to continue to be a sort of driver of pretty dramatic economic value period, right? And so if for whatever reason you think that tech has an issue, then you would sort of say, oh, this is something that we think is going to be with us for a while. But I think, as you said, I think it's a correction for what might have been over folks, who either are overinvested or responded to pandemic in a way that got them to where they were a little bit exposed on the cost side. You literally have circumstances where our folks will go see a client who's project owner who signed off on a pretty significant scope and that person doesn't have a job anymore. And so we're not talking about VC-backed part of tech. We're really talking about very established, large sort of both B2B and B2C names in the technology space. And I think we're seeing it normalize in some ways in that they're staying invested in a lot of the kind of activity -- bless you, that a lot of the kind of activity that drives day-to-day business, they're probably a little less focused on the sort of brand side or on the innovation side because for the moment, I think they're just kind of hitting pause.