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

All right, great. We'll get started. My name is David Karnovsky. I cover media, entertainment and advertising at JPMorgan. Very happy to have back at the conference, Philippe Krakowsky, CEO, Interpublic Group of Companies. Philippe, thanks for being here.

Thank you. Karnovsky and Krakowsky. I don't know. Let's start a law firm.

Yes, exactly. Sky means from. So Philippe, just to kick things off, what do you see as the larger growth story for the agency holding company space right now? And how are you positioning IPG to take advantage of that story?

I think the growth story for us as an industry has actually been pretty consistent for going back some time now, probably accelerated by the pandemic. But I think if you look at the way in which technology has impacted pretty much everything about the way that information moves around, people relate to each other, they get information, obviously, how they relate to companies, and for our clients, the options, or the tools that, that gives us to reach them in ways that are increasingly precise and increasingly timely in terms of wherever somebody is on a journey of either interacting with a company, discovering a brand, being introduced to sort of a product or a product category. So the opportunity that, that represents, I think, is only increasing. You had that evident in the ad tech ecosystem initially. Now it's sort of happening across a broader range of marketing technology and not just media but now content and creative work as well or what traditionally has been called creative work. So I don't see anything that deviates from that trajectory, which has been largely good for the industry, and again, largely good for us as a company.

Got it. So in your last earnings call, you expressed confidence in the long-term performance for media, health care, PR, and experiential. So I thought maybe you can unpack a bit what informs your positive view for these disciplines.

Sure. Over time, for many folks in the room who follow us, you know that the drivers of our growth, both top and bottom line, media has been very accretive to those results. And that's the place where we've probably gone the furthest in terms of baking in that technology layer, data initially through our own stack going back a number of years now with Acxiom. So I think that we continue to think that a business where you've got a lot of information, you can use that to make more sophisticated decisions and get to better outcomes for your clients, continues to have a lot of opportunity and a lot of upside. I think health care is maybe just a bit different in that what you have there is a skill set that goes much deeper and has a level of specialization. When you look at, we probably have the largest health care marketing group in the sector. And among that group, you've got hundreds, if not over 1,000 people, all of whom have very specialized health care expertise. They're pharmacists. They're nurses. They're nutritionists. They're folks with doctorates in various component parts of the science. So again, that's a place where we see more sophistication, continued need, a client sector that has come through the pandemic much well regarded sort of in terms of broader perception, maybe a slightly less robust pipeline than we would have seen a couple of years ago. But again, that's a space we see strong. And the last 2 that you mentioned, I think PR engaged and experiential have to do with -- it's difficult to engage with consumers with humans at a personal level in real life and where and when those companies that we've got, whether it's PR around influencer and social or whether it's the experiential agencies that actually put brands into the real world and interact with consumers often around things that have to do with culture, things that people feel strongly enough about that they're out in the world doing, those all continue to have strong demand signals kind of across the board.

And your commentary on the health care drug pipeline, is that just a function of it accelerating over the COVID period and...

No, I think it's cyclical. I mean, I think that if you've been looking at that category over a lot of years, it builds up. It builds up in different ways, as you know, whether it's the R&D itself, whether it's M&A. So I was just saying it's not something that puts us off at all on the long-term health of it. But to your point, coming through COVID, clearly, something has accelerated and now they're normalizing.

Got it. Creative has been a laggard that's industry-wide really for some time now. It does, however, appear to be an opportunity to transform that business with the integration of data, AI, renegotiated comp models and so on. So what's your vision for how creative fits into your long-term plan? Where are we on that path?

Look, I think in a world in which over these last 10 years, clients, understandably, marketers focused on precision, increased the ability to measure and to see when and how, whether it's messages or whether it's dollars that are put into the ecosystem, are having some kind of impact, a very traditional approach to creative, as you said, began to industry-wide suffer to some degree. I think what's exciting about where we sit now is that with some of the foundational pieces of the company that we've put in place as of some of our competitors, you begin to have the ability to be more precise and to apply some of the same processes or you talked about maybe outcome-based compensation in that space. We see it a lot in media. And then obviously, with the advent of the word we haven't said for all of 7 minutes here, which is AI. But with [ AI ] and what that begins to allow us to do in terms of the scale or versioning that can be done, the -- again, customization or personalization of the messages because we could clearly personalize the delivery of those messages. So I think we're beginning to see some opportunity. I think that what you need is brands are still powerful. Stories and narratives are still how we all make meaning. So clients understand that a big idea in the service of a brand can be very powerful. You just have to connect it into this bigger system. And so when the creative is connected to these other sort of component parts of what a modern marketing campaign program is made up of, I think that begins to give it more prominence again or the ability to be much more relevant again.

Just following up on that point. You've been on earnings calls, singling out or not singling out, you've highlighted at times FCB is an agency that's sort of at the forefront of that. Maybe you can just speak to that? Is there best practices there then that could be applied across the organization?

Sure. I mean, I think FCB has been -- has sort of for us, been indicative of what's possible in that space because it is a "traditional" ad agency, and that leadership team was very early to -- and I think just by the nature of where they've come from, where they are in terms of their career trajectory, they're very, very comfortable with digital channels. They really understand media, they get the data piece of it. So they use data and what we call audience-led thinking. So every conversation is led with some form of data and segmentation work, which then scales or identifies the business opportunity. That then leads to the insights that then lead to the communications work. So you have got a creative ad agency. What it's doing is actually much more integrated. And that's pre, as I said, the part where you get to start using the technology as a tool to then sort of augment the creative piece of it.

Got it. All right. So you teed me up for the AI question, here it comes. All right. So you've been investing in GenAI. You've made announcements on this front, including a partnership with Adobe. There seems to be more to do, though, before we see the impact of this work. I don't know if that's about brand safety, protecting client data. Maybe you could give us a rundown of your vision for integrating AI broadly across IPG. And what do we know about your strategy relative to the competition?

Well, I mean, I think that it's -- AI has been a part of the business for some time in certain parts of the business, right? And so again, if you think about what Acxiom does with one of the most powerful data assets going, where we've got immense amounts of very high-quality data in many ways, unrivaled outside of walled gardens, you clearly use machine learning to do a lot of the analytics work, the modeling, the kind of predictive activity that you use to help clients turn that data into value. Inside of media, again, we've been using AI and machine learning for some time. I think that I can mostly speak for me or for our company because when you say competitors, harder to tell in that we're focused on solving for clients and then you get the sort of the big announcements, let's say, we're investing X, we're -- I mean, I think my sense is range and bearing, it's unlikely that you're going to see disproportionate or anybody is meaningfully ahead or behind in terms of how they're investing in this. I think that for us, in a world where we've got these now foundational layers of the company, you've got a data layer, you've got a thin layer, but an engineering or a tech layer that allows as much of the company as we can put on stream to plug into the data and activate it, use it in their business. Then you've got what we've got inside of Mediabrands at Kinesso, which is activation of that data into, again, largely the digital media ecosystem. And now content production, so automation and then thinking about the content supply chain and the way AI impacts that. That's really the place we're most focused now, and that's where we think there's an unlock because then parts of the business that either have been lagging, to your point, across the industry or that have been more challenged in plugging into these foundational layers, that becomes the unlock for us.

I guess when you think about digital and when that ramped a lot in the early 2010s, there were decisions made in certain agencies that allowed them to then win on organic 5, 6 years later. Is GenAI similar and that decisions made now will really pay off?

Well, I mean, at the time, I mean, it's funny because I remember that well, too. There was a degree to which you had something somewhat analogous. You had a couple of other competitors making very significant, very public investments, doing a lot of M&A. You had a degree to which for some folks, it was bright and shiny enough that it stayed in silos. And we always said, we've got to bake it into every component part of the business. And then to your point, for a number of years after that, it did show up very positively in our organic results. So I think it's fair to say, as you just did, that we're going to see it play out just as much in when and how clients choose to partner with any one of us, as in anything that you kind of wave your arms around a lot. Everybody's got -- again, when I look across the spectrum, it's the major, major players in the space, whether that's NVIDIA, whether that's OpenAI and Microsoft, whether that's -- all of us are playing with them and all of us have lots going on where we're either licensing or partnering in the creation of use cases, or I don't think that's necessarily where the differentiation is going to happen. It's how you actually incorporate it into your business and use it for clients.

Okay. That's a good segue to structure. So in the past, IPG has always emphasized an open architecture model where clients could engage the resources of different agencies. Just accounting was sort of the mantra, I remember. So more recently though, you've discussed a client need for centralized solutions. You've hired against that. What's driving the shift? What does it mean for the operational profile of IPG now?

I don't know that it's a shift. I think it's actually kind of a step change forward, right? Because in putting senior-level functional leaders at the corporate center, what I think you used to have before is in a world where the industry was just far less developed when it came to the need to have these platform components and these technology-enabled components of your business. You could, as we did very successfully run this idea of open architecture, which was collaboration and integration among the verticals, right? Whereas now, I think you need to connect those verticals to these platforms -- God bless. You need to go faster in doing that. And then we probably also need to some degree, simplify some of the portfolio when it comes to the number of brands and the verticals that we've got. So I'd say it's maybe Open Architecture 2.0 or 3.0. It's not really a huge -- it's not a different strategic direction in terms of we want to deliver integrated solutions to clients. We want them to sort of be best of the various marketing services specializations, expertise, some of them are crafts. And we will drive that from the center because we think that means we'll get tighter integration, we'll go faster in doing so.

Maybe staying on structure, can you expand on the ways you're connection Acxiom and Kinesso across the organization? We remember when you announced the Acxiom deal, media was held up as sort of the -- this will be the first area of integration. Disciplines like creative, PR, that's more of a long-term goal. Where are we on that journey?

I mean, media has been, by far, the place where we've made the most progress and where it is absolutely core to how we go to market. And it's been a big driver of the very consistent multiyear outperformance of the media asset. I think that when I mentioned -- you mentioned actually, thank you, when you mentioned FCB, there are parts of our world that have leaned in. There are parts of our world like the experiential agencies that are leaning in because they see the benefit when you're engaging with consumers kind of in real time, in real life. It's this somewhat unique opportunity to have an exchange of data where the value exchange is super clear. And the data is very, very -- the fidelity of the data that you get is very high. Other parts of the business have been slower to get there. On our top 20 clients on the integrated clients, it's always kind of core to what we do. And then as we sort of launch the next iteration of our kind of the engine or operating system for how this is all pulled together with the team at the center that you just alluded to, it's baked into that as well. But I'd say no, no, I haven't sat and thought through the Acxiom data as used by IPG Health. I mean, it's maybe 2/3 of the company is a good ways along on that journey, range and bearing.

Got it. You've discussed client need for scale as a challenge for some of your digital specialist agencies, which have been a headwind to your growth recently.

They have.

Should we, therefore, think of a long-term solution as combining these units into your major creative networks? Or is it about M&A to kind of bring scale to those agencies?

I don't think the former, and I know that, that's maybe not consistent with what at least one of our competitors is doing. But I don't think the former because if you look at the places where we've got these very strong performers, whether it is IPG Health, whether it is our media assets, what you have is you've got scale, you've got a lot of centralization of core services and centers of excellence. So I don't know that integrating below the holding company level when integrating at the holding company level is increasingly is something we're called on to do. So my sense is that it won't be by trying to take those digital assets and rolling them into traditional creative assets or networks. I think you're also looking there at 2 parts of the business that are more challenged. So again, generally, we don't know that we believe that if you put 2 things that are both challenged together, what comes out the other end is actually going to be a great answer or a great outcome. But as we have alluded, I think that again, coming partially speed of change, connected to your first question, partially, I think, pressure that we've seen in the last 15 to 18 months around sort of macro uncertainty, whether it's economic, whether it's geopolitical, those assets, which have been very strong performers for us in the past, had never been challenged. The quality of the work itself, design work, innovation work, kind of intersection of tech and marketing had been strong enough that it was never a question of saying, oh, somebody who just has a scale solution that might qualitatively be not as strong in certain areas is going to win. But I think our sense is that it's something where we probably need either internally aligning those assets and likely something inorganic as well.