Yeah, great. Maybe we'll just get started. So good afternoon. Thanks for joining us. I'm Lisa Yang. I cover media and internet at Goldman. It's a real pleasure to welcome on stage Ellen Johnson, CFO of Interpublic, and thanks very much for being with us today. Lots to cover. So maybe as an introduction and to set the stage a little bit, I think, you know, the IPG and the broader agency space have been, you know, performing pretty strongly if you look at, you know, since COVID. And coming out of a period where the group was perceived as, you know, maybe being a structurally challenged. Could you maybe just go back and explain what have been, you know, the main tailwinds and structural drivers, in recent years, and how do you see those structural growth opportunities evolve, you think about the next couple of years? Thank you, and thanks for hosting us. I have to say, the secular or structural factors, I think, are significantly in our favor. If you look at post the pandemic, some of the trends that we were seeing just began to accelerate, and they've continued to do so. I mean, start with healthcare, which is 28%-29% of our revenue. I don't think anyone has ever valued healthcare and pharmaceuticals and what they can do more than today. So given that's our largest client sector, which is really no accident, it's a sector that really relies so heavily on data analytics and sophistication based upon who they're trying to reach. So I think that's a strong point. Direct-to-consumer, that trend is, and e-commerce or retail media, all of those things have accelerated, which really plays to our strength again. The more precision, the more data, the more tech you can bring to marketing, really allows things to become more measurable. And the landscape has continued to fragment, so people really continue to need a trusted advisor to help them navigate. And we haven't even gotten to the privacy changes which are coming- Mm. which again, I do think will be favorable for our sector, as clients will need advisors to navigate the new landscape. Now, obviously, the recent sort of results, I think have sort of maybe raised some concerns on the more near-term growth outlook. I think, you have raised some, you know, cuts in tech and, and telecoms. I think, you know, WPP and Omnicom have done the same. So I think I was just wondering, like, if you can elaborate a bit on, firstly, what drove those sort of cuts and, you know, did it really come as a surprise or the, the magnitude of the cuts kind of a, as a surprise? Maybe that's the, the first thing, and, and how much you think it's permanent as opposed to really just, you know, postponing of, you know, delaying of, of the projects. And secondly, if you can just maybe tell us, you know, what sort of conversations you're having with clients in terms of when they may spend again, and the timing of that? Sure. Well, lots there. Yeah. Tech and telecom is our third largest sector, down from being number two. I'll start with saying we love the sector. I mean, it's definitely going through a moment in time. It's not unique to us, you've heard it across- Mm ... the whole industry sector. They're going through, whether it's efficiencies, whether it was a period of overinvestment, some of them are having layoffs. So I don't think you can separate the marketing spend from what's going on, you know, more specifically with them. But over the longer term, given all the innovation that's in that space. I do think it's a great sector, and I really like our weighting in that. We just need to navigate the current moment. But if you look back over the first six months, six of our eight client sectors were growing. Mm. I think that's important to note as well. You know, we have 5,000 clients, so the conversations really vary across them. But we're actively engaged with all of them. Right. And I think wanted to just contextualize a little bit the impact of tech for IPG. Maybe you can explain whether there's any sort of particular categorical areas of spending where maybe IPG is more exposed to, whether it's creative as opposed to media. It feels like, you know, media maybe continues to do well, creative, less so. And is there sort of any sort of client concentration, which is more specific to tech and telecom? Which means like if you have a maybe one or two clients cutting, like, has an outsized impact on IPG. I would say that the impact probably is more to do with the percentage of revenue that we have- Right ... in tech and telecom- Mm ... versus the concentration in the client sector. You know, we have eight sectors, which is the way we report, which is different than others. And each one of those sectors is a bit top-heavy. That's just the way it works. But it's a good thing because you have large relationships with big clients, and we work across many, many disciplines, which makes them very sticky, deep relationships. Right. Okay. I think... And I think, you know, the other, maybe as a follow-up, to that, you know, is there anything which you think, you know, is just really, really specific to tech and telecom, and what gives you confidence that might not, those cuts might not spread to potentially other sectors, maybe later, later in the year? So two things. One, I think there's specific things going on in the tech and telecom sector, that's really unique to them. You know, unless there's a common theme- Mm-hmm ... across, different industry sectors, it doesn't tend to be contagious. Right. Now, if there is, you know, macro either getting better, that could help all the sectors. If it gets tougher, that could be a challenge, but otherwise, you know, it doesn't typically have that contagion. Right. Okay. I think maybe we can just move on. I think in another area where, you know, maybe it's more specific to IPG has been, you know, the weakness, some of your special digital agencies, R/GA and Huge. Could you maybe just elaborate again in terms of what caused the weakness, I think in the first place, and where are you in terms of the progress of the turnaround? When do you think we're gonna get back to growth? Sure. R/GA and Huge are two very innovative brands, and due to the nature of being so innovative, they really need to reinvent themselves every four to five years. And some of that is timing, you know, with, did the pandemic, you know, help, or when everyone was working from home? Probably not. There's also the double whammy that their clients are, are more concentrated in tech and telecom. Right. So those are factors which are making it more challenging, but I'd say work in progress, and separating the two of them, Huge has made some great strides in productizing their offerings. So moving from FTE and overhead and more of a service offering to more of a product offering. And they also have an AI component in a lot of what they do now, and we've seen some green shoots there. Early days, but encouraging signs. R/GA, a little bit further behind, but we are in the process of making management changes. And we do believe that there is a point of differentiation where they really could add to our portfolio. They just have to find that new leading edge space. Right. So it's progressing well, and potentially next year could return to growth? We said we're not counting on it for the back half of this year. Right. but we're very focused on helping them, you know, yeah, with a sense of urgency, get to their new through their transition period. Fantastic. As you're talking about the guidance for this year, obviously, you have sort of, you know, grown your outlook for the year to 1%-2%. That still implies quite a big, you know, step up in organic growth from, you know, the negative, I think, you know, close to 2% in the second quarter, sort of 3%-5%. So could you maybe help us, like, you know, run through what assumptions you sort of baked in? Like, you know, how often do you, like, you know, revise your budgets? How much visibility do you have for the second half of the year? I know you don't typically give quarterly guidance, but just help us understand how to think about the, you know, the different drivers of growth in Q3 versus Q4. Should, like, Q4 be maybe stronger than Q3, just, like, qualitatively? Sure. So we have a very robust planning and forecasting process, which we do four times a year. We do them typically right before our earnings call. Mm-hmm. So the last one we did was in July. We will do another one again in October. And the basis for that is, we sit down, we meet with all of our agencies, we talk, you know, talk to the clients, we review their pipelines. So that's how the process comes together. What we've said is that, you know, we're not expecting, R/GA and Huge to have big turns around from the second half of the year. But that the growth that we are forecasting in the back half is 50% from some of the new amazing client wins that we have coming on stream. They will not be at full run rate this year. You know, they will translate, transition some brand by brand, and the speed of that will be, you know, some of it we will definitely have the impact in the second half. And also underlying of our stronger performers, whether that's media and healthcare. And we had said from the beginning of the year that we expected that the first half would be softer, slower, and that the second half would be- Right ... stronger. Some of that's due to the timing of campaigns. Right. You mentioned at the beginning of this chat that, you know, healthcare obviously has been, you know, really strong for IPG, and you're standout performing that segment. How sustainable do you think that is? And obviously, you have this big creative win, which is Pfizer. Could you maybe, you know, talk about, like, how should we think about the ramp-up of that contract? Like, you know, how quickly, typically, do creative budgets ramp up as opposed to maybe new media wins? Sure. So, healthcare, again, we, you know, it's our largest client sector, very sophisticated offering, and it's much more than just IPG Health. Mm. We have healthcare and IPG Health. We have it in our media business, with our PR business, and some of our other creative businesses. So widespread, deep relationships with most of the pharma companies in particular. Amazing work. We have from, you know, data scientists to medical doctors on staff, and can really deliver those very sophisticated, complicated solutions with a high degree of creativity, too. We think it's a huge growth, you know, continues to be a very strong growth area for us. The pipelines and the research and development dollars that they have are huge, and the pipelines for the new products are substantial. Mm-hmm. So we continue to be very bullish on that. As far as the Pfizer win, which we're super proud of, a very large win, a consolidation from going from thousands of agencies to two big holding companies. It was a very competitive pitch. We won the creative business, the PR business, and the medical comms business, which is really the medical information that, you know, goes within the prescriptions that we're sending out. It will transition brand by brand, and that has more to do on the client side than on our side. So, you know, we have some of that baked into the second half. If it happens faster, that will be upside. If it happens slower, you know... The good news is we're gonna eventually have it all, of the creative that we won. It's just it will go brand by brand. Right. And just on the healthcare, obviously quite strong, quite strongly positioned in that sector already. Do you see now, you know, medium term, the opportunity to come from all the expansion assignments with your existing healthcare clients? Or, you know, similar to what we've seen with Pfizer, there's an opportunity to even, you know, acquire, like, win more new pharma customers. Well, just in the recent past, we won BMS on the media side, in addition to Pfizer. Mm-hmm. So I think, you know, we continue to be very, very competitive and have great new business track record. But I think the best way to grow always is to treat your existing clients like new ones every day, and try to expand your share of wallet with them. And that will remain our mantra. Right. Thanks for that. So maybe we can switch gears a little bit, and we'll talk about generative AI. Like, it feels like it's been really top of mind this year. I know IPG's been embracing sort of AI for years. So do you think, you know, generative AI is really gonna be a game changer for IPG, for the broader advertising industry? How are your clients, you know, thinking about it? Do you think over time it creates more complexity, that it creates more work for IPG? Or, you know, to play the devil's advocate, you know, a lot of your clients can actually do it themselves, like the creative part, so they increase the risk of in-housing. I think it's gonna be a game changer, not just for our industry, but for all industries. I mean, I think it's a very exciting time, actually. I think for us, the opportunity to be accretive both on the top and the bottom line, I think it'll be a tool. I think at some point down in the future, everyone's gonna have the tools. So how do you differentiate yourself? I think what will differentiate us is our talented people. I think with tools, you need to have an architect or adult supervision to make sure they're doing what they're supposed to be doing in a healthy, good, positive way, without harm. I think data is the other thing that will become increasingly important in IP. Mm-hmm. You know, with our Acxiom asset- Yeah I think that will become, you know, continue to be a real strength of ours, where we can not only help our clients use their first-party data to become their differentiator, but, you know, supplement it with the data that we have. So I think there's so many applications for it. I mean, there is now the opportunity to do mass personalization. Mm-hmm. We already have some interesting examples of where we've done that recently. We have a bakery client in Latin America, and their client sells their, you know, product through food trucks, and we were able to create 42,000 posters to drive traffic to those food trucks. Without AI, that would've been cost prohibitive. Another example is, we have a lottery client, and everyone plays lottery when the pot's very large. Who plays lottery when it's $2 million? So we bought 50,000 Shutterstock images and created a closed AI system and allowed our clients to interact, and we had a contest of what you would do with $2 million if you won, and then we made a commercial out of that. So those are just two examples of how you can create so much more content. You could also get to insights so much quicker- Hmm ... you know, which is something we've been doing with AI in our data business and our media business. But think about how more quickly you can get the correlations or find that soundbite of difference. So I think that's gonna be an opportunity, too. And then there'll be efficiencies. Can we take some rote tasks, whether it's reconciling media- Mm-hmm ... or other things, and use technology to do that? So I think both top and bottom line, it will be an opportunity, and it's an exciting time. When do you think we'll start to see the benefit, you know, flow through to your top line or margin, like you said, the multi-year savings? You know, can we see it as early as next year, or how do you see that playing out? I think you'll see some impact. Mm-hmm. The question is, it's developing so quickly- Mm ... how fast does it go? Exactly. And I think the question on that is, we all know it's gonna probably, you know, improve your productivity significantly. There's a lot more content that's gonna be created, and I just wondering how you think about the trade-off between more volume of work being created versus what it does to pricing, and whether you have any sort of idea on that. I think because you're gonna be able to be smarter- Mm-hmm ... you're gonna get insights faster, and hopefully, things will continue to become more and more measurable. It will allow potentially for different revenue streams. Right. So if you can demonstrate what you're doing becomes more and more valuable- Mm ... you can get paid in different ways. Right. I think that could combat the, you know, the FTE and overhead, and not compromise the efficiencies that you can get. Right, that's- The other thing I would say- Yeah ... is it allows you to sell more services than you otherwise would. If we could use AI with adult supervision to help doing press releases, we could sell more high-value services like crisis management or communications training. So it allows you, I think, to go upstream as well and price those things at a higher price point. I'm just curious, like, what do you think the sort of mass personalization would do to probably the efficacy of digital media advertising as opposed to print and linear? Does that just accelerate, like, the structural shift away from the sort of offline media towards digital even more because you're gonna get a much better ROI from mass personalization? How do you think about that? I think there's two different... You know, I think the trend is going that way- Yeah ... but there's still something about the reach- Mm-hmm ... that you get for TV in one spot that has value, depending upon who your customer is and the objective. I do think, you know, mass personalization will allow you to be more precise- Mm-hmm ... and go further down the funnel in a more measurable way, but it doesn't mean that there isn't a role, you know, for both. Right. Okay. Very helpful. I'd love to talk about margins now. So you know, you have low organic growth guidance, but you maintain the sort of margin outlook and trends, I think 16.7%. Could you maybe just you know, talk us through you know, the different moving parts you know, in the second half, how you're beginning to think about also 2024? I'm sure you'll you know, start thinking about next year as well. Anything you can share in terms of how you think the incentives pool is gonna evolve versus you know, offshoring opportunity and recent consolidation? Sure. You know, I think that there's opportunity in the margin going forward, which is exciting. I think that I always like to start at the top. So I think as we continue to evolve our revenue model, we will be able to have more performance-based compensation, and that should be accretive to margin going forward. Our higher margin businesses are strong, and they're growing. That's accretive to margin. On the cost side, you know, this year you see the variable cost model working. Mm-hmm. You see our temporary labor flexing down as it should. Severance was higher in the first half of the year. There should be savings that come from that. And, you know, incentives is one of the things you mentioned, and our plans are designed to provide leverage. The biggest portion of that is margin improvement. The other portion is revenue growth. So we not only do we have an aligned organization marching to the same goal, but we also have a lever, when things get tougher, that gives us the, the flexibility or the operating leverage that we need. Right. we resize that every year- Right ... to make sure that those plans always work in different environments. The other things we've done, we've done structural things. I mean, we, you know, during the pandemic, other than worrying about our people, we took the opportunity to restructure. We looked at different layers of management, we focused on offshoring and nearshoring, and that's yielding benefits. We've taken two restructuring charges related to real estate and taken, and are seeing the savings from that. We manage our real estate very centrally, and so anytime a lease comes up, we are continuously looking at it. And business transformation for us is a constant. We have a team that's fully dedicated, and we are looking at how we use technology to become more and more efficient, and how we continue to do so. And, you know, we're not complacent, so that's not gonna stop. Where are you on offshoring, and where do you think, what are the ambitions there? Where do you think you could get to over time? I think we have opportunity to do more. Mm-hmm. We do have hubs in low-cost places, whether that's in Latin America, whether that's in Asia, whether that's in parts of Eastern Europe. Right. You know, it's a transition. You have to make sure that everything's working fully, and then you can put more there. But I do think that there is opportunity to take some of the tedious, more rote tasks and put them in and reengineer the process first, and then use more technology to drive efficiencies, and that's something we're very focused on. Right. And you mentioned, obviously, there are a number of areas where you're stretching more, you know, efficiencies, more savings. How do you think about reinvesting part of that into maybe driving more growth? Like, what are the maybe areas of focus we should be aware of for the, you know, next six to six months or medium term? No, that's a great question, and you have to always be thinking about reinvestment- Yeah ... because revenue growth should be the best driver- Mm-hmm ... of margin enhancement. Areas that we're really excited about are retail media- Mm-hmm ... you- and commerce. You would see in the beginning of this year, we hired someone from Accenture Song, who is leading our commerce practice, and we think that's a huge opportunity. And retail media in particular, very large market, estimated $121 billion, growing double digits, globally. And that's a place where net new dollars are gonna be coming into our, to us, and to our industry. And it's a more measurable area as well, and there's opportunities on both sides. The retailers, since COVID, you asked about trends, where we started this conversation- Right ... their costs have just gone up. You know, whether they're selling shampoo, and if they're not selling more shampoo, but now they have to sell it in store, online, curbside, home delivery. So how are they offsetting their costs? They're all gonna start having retail media networks. So we can help the retailers. We could also help the manufacturers- Mm-hmm ... because they're gonna have pressure. Everyone wants them to advertise on their retail media site. So how do you normalize and standardize the audiences and solve that for them? And we recently launched IPG Mediabrands Retail Solutions- Mm-hmm ... which does just that. It standardizes audiences across the different media, retail media channels and helps solve that problem. Great. I was also curious in terms of... I think if you think about the agencies, I mean, historically, being perceived as maybe too complex and siloed, and I think that's why probably, that has led to maybe some kind of attrition. I think you probably have stood out with your sort of open architecture model and probably have been, you know, offering, you know, something which was maybe more tailored to your clients. Do you think there's more that could be done to simplify your offering, to adapt to maybe, like, your client's evolving needs, or you think, you know, you have probably got to a steady state now? I would separate that question. You know, I always think that, you know, you should be looking at simplification. I mean, I would use the example of IPG Health, that we created a year and a half ago, approximately, and that took two very strong assets that had complementary geographies and complementary offerings and put them together, which has been a huge success. For the talent, it creates more mobility, greater career paths, for clients, you know, a central place to get very sophisticated services, and it's worked out nicely. So I think you always need to look at your structure and say: Can we be simpler. I don't think that's been an inhibitor on the open architecture. We've been doing open architecture for 20 years now, where we put the client in the center, and we bring the best of IPG bespoke, bespoke solutions together for them. Mm-hmm. So, you know, that I think we've done well and continue to do well, but it doesn't mean that there isn't an opportunity to, Right ... you know, streamline. Now maybe we can move on to new business. You'll be seeing the talk about a lot of, like, very, very strong wins. Like, what do you think, you know, has made the difference? Like, you know, what sort of drives, you know, such a strong wins? Is that your data capabilities? You know, maybe you can talk a little bit about that. And maybe related to that question, obviously, with the environment deteriorating a little bit, like, how do you see the current competitive environment for pitches? Do you think there's a risk that, you know, agencies will start to maybe, you know, I would say, compete more aggressively for new business, you think, over the next six to 12 months? I think our industry has always been super competitive, which makes the wins that much sweeter. The wins that we've had of late, which have been pretty substantial, have been all very, very competitive pitches with some of the best marketers out there, very sophisticated. I mean, if you look at, you know, whether it's Pfizer or whether it's GEICO or BMS or Constellation Brands or Intuit or Škoda, I mean, not only are they great, sophisticated marketers that we want in very competitive pitches, but they span different parts of our business, whether it was media- Mm-hmm ... whether it was creative, whether it was PR. So I think it really is due to the great talent that we have. Our data and tech is great. We love when we're pitching, if someone asks us to test our data and our tech assets, our match rates tend to be, you know, very, very, very high, close to 100%. So that's an advantage to us. So I think it's really being able to help clients, whether they're trying to maintain their brands- Mm-hmm ... or to do more direct-to-consumer, more in their digital transformation, or more precision marketing. We have the capabilities, and I think we listen really well to what they're looking for, and then we respond to their needs. Right, and you mentioned, the environment is always competitive, like, you know, pricing obviously still a trial, like, I would say, consideration some of those pitches. What about working capital and payment terms, obviously, in this environment where I, I'm sure your clients are, you know, maybe a bit more careful, everyone's a bit more careful about their cash. Do you see a bit more pressure on payment terms, or? You know, that topic comes up from time to time, and, you know, I was treasurer for a very long time before I was in my current role, and we've always had the mantra that we're not a bank. Yeah. and that, you know, there's a lot of value we can contribute to our clients, but, you know, we're not in the banking business. So we have a very centralized managed process, and if anyone even asks for payment terms that are outside what we call standards, they need approval, and it goes all the way up to me, and most of the times, people don't even want to ask me, so, so it hasn't... Right. And obviously, another of your major focus, obviously, clearly, capital allocation. Could you just maybe, you know, give us the latest update in terms of how you're thinking about capital allocation, the priorities? You did mention, you want to invest in retail media, in commerce. I don't know how much of that is organic versus, you know, M&A, any regions in particular, where you want to, you know, strengthen your presence. And do you think there's, maybe scope to maybe do more buyback or step up the level of buyback over the next few years? So capital allocation, we've had a pretty consistent, disciplined approach, where we believe a balance between the dividend growth which we've grown consistently since we reinstituted in 2011, pandemic no, no exception. And we believe in share buybacks. We paused it for a moment in time when we were paying back the Acxiom debt, but did exactly what we set as we brought down our leverage and are back in the market. We see value in our shares. We saw value in our shares, you know, months before, where it was at a higher level, so we, we definitely, we actively manage that. And there is room for M&A. We are a very disciplined buyer. Mm-hmm. We do our diligence. If we can grow something organically, we tend to do so. But if we see an opportunity that can really accelerate our capabilities, then we will. You know, I'd say Acxiom was a large deal. We saw the opportunity in data management. We knew it was gonna be hard or impossible, honestly, to get the reputation they had built over 50 years. I mean, their clients are highly regulated industries, and to be able to handle that type of sensitive data, you know, we thought that that was something that was really worth buying. And it came along with an amazing database, InfoBase, which has 2.5 billion, you know, records on individuals. So we found that to be, you know, very interesting, and we knew them very well. And that's turned out well. Last year, we did an acquisition, RafterOne, where we acquired 500 engineers at helping us implement Salesforce overnight, which is really part of our commerce capability. So that was also an acquisition where it really accelerated the pace. So when we see those opportunities, I think commerce could be an opportunity. Mm-hmm. I don't see anything, Acxiom-like, their size- Right ... but we are thoughtful and disciplined. Fantastic. Maybe obviously, you know, within the U.S. right now, and then there's a—you have this writers strike, you have this, you know, dispute, you know, Charter Disney. I know you tend to be quite agnostic in terms of where media is being spent, but, like, how maybe your clients are thinking about it, how reallocating, maybe spending or not, what do you think are, you know, potential implications in the landscape? You know, I think for us, the implication is, once again, we get to be a trusted advisor. Yeah. You know, there's gonna be certain, you know, make goods that are gonna need to happen- Mm-hmm ... and certain reallocation of spending, and we can help them do that. We have great relationships with the media partners. If there's no new content, you know, where should they go? So I think it's a time where there's a challenge out there, and you can rely on your advisor to help you figure out how to navigate it. Right. And maybe the last question from my side then. I know it's really early days and maybe a bit premature to talk about 2024. I mean, there's still over, you know, obviously, moving parts in 2023, but given, you know, what you mentioned, the new business ramp up, the turnaround of Huge and R/GA, and I guess I truly also believe that tech spending will come back, like, you know, probably gonna get a lot of new AI products to advertise next year. You know, your guidance of 3%-5% will hold true. Like, is it fair to say that, you know, you think about 2024, it should be, you know, at least as good as in, as in the second half, at 3%-5%? You know, we do have great talents going into from the new business that we just won. That will not be at full run rate this year. That will ramp up even more as we get into next year, so that should definitely be a plus. Like I said, I think the secular trends are definitely in the medium to longer term in our favor. There's, you know, more complexity than ever. Retail media and commerce are still, I think in early days, and there's a lot of opportunity there. So too early to put a number on it, but, you know, there is definitely positive talents that should help. Fantastic. Well, thank you very much, Ellen, for being here. This is really helpful. [crosstalk] Thanks again. Thank you for having me. Thank you for joining Thank you.