The Interpublic Group of Companies, Inc. (IPG) on Q3 2023 Results - Earnings Call Transcript
Operator: Good morning, and welcome to the Interpublic Group Third Quarter 2023 Conference Call. All parties are in a listen-only mode until the question-and-answer portion. [Operator Instructions] I would now like to introduce Mr. Jerry Leshne, Senior Vice-President of Investor Relations. Sir, you may begin.
Jerry Leshne: Good morning. Thank you for joining us. This morning we are joined by our CEO, Philippe Krakowsky, and by Ellen Johnson, our CFO. We have posted our earnings release and our slide presentation on our website, interpublic.com. We will begin with prepared remarks to be followed by Q&A. We plan to conclude before market open at 9:30 Eastern Time. During this call we will refer to forward-looking statements about our company. These are subject to the uncertainties and the cautionary statement that are included in our earnings release and the slide presentation. These are further detailed in our 10-Q and other filings with the SEC. We will also refer to certain non-GAAP measures. We believe that these measures provide useful supplemental data that, while not a substitute for GAAP measures, allow for greater transparency in the review of our financial and operational performance. At this point, it is my pleasure to turn things over to Philippe Krakowsky.
Philippe Krakowsky: Thank you, Jerry. As usual, this morning I'll begin with a high-level view of the quarter, after which Ellen will provide additional details. I'll conclude with updates on our agencies to be followed by Q&A. Before getting to the business of the call, however, it seems not only appropriate, but necessary to speak to our collective shock and grief in response to the terrorist attacks perpetrated in Israel and their aftermath. Thankfully, our colleagues in Israel are safely accounted for, but many are being called into service. We're also clearly in the midst of humanitarian crisis in the region. So our thoughts go out to all innocent lives that have been impacted by violence and those, who remain in harm's way. Given the scale of our operations in Israel, we'll also spend a bit more time later in the call discussing the implications on IPG's business. Turning to 3Q performance, starting at the top of revenue, results did not measure up to expectations. The organic change of our revenue before billable expenses was a decrease of 40 basis points. For the first nine months of the year, our organic decrease is therefore 80 basis points from a year ago, inconsistent with a trailing three-year growth of 15.7%. The same factors we've discussed as having impacted the first-half of the year continue to weigh on the third quarter. These are in order of magnitude, the decrease in client activity in the tech and telecom client sector, which has been evident across our industry this year, and the underperformance of our digital specialist agencies. Decreases in both of these areas were at about the same scale as we identified in the second quarter and together they weighed on our third quarter growth by approximately 3.2%. As we've spoken to in recent quarters, major marketers in technology sector are consumers of our core services. And as a sector, their budgets this year have seen significant cost cutting in line with the broader austerity efforts at those companies. While it's challenging to call the timing of the upturn in their marketing spend, we do believe that the current pressure on this sector will abate since these market leaders will need to return to growth mode. Another key factor negatively impacting our results is the broad concern about marketers related to macroeconomic conditions, which we've identified on our previous call this year. Economic concerns have translated into what is now an unmistakably more cautious tone in the business. We saw those headwinds take several forms, including pauses in certain planned activities, fewer and generally smaller project opportunities, and a slower than anticipated pace in conversion and onboarding of new business. Notwithstanding these challenges, it's worth noting that we did see progressively better performance from month-to-month during the third quarter with growth in September. We also saw aggregate growth among our top 20 clients in the quarter. We continue to anticipate that the new business that we've won across the first part of this year will be more visible in our results going forward. And as was announced yesterday, we were pleased to see General Mills tap UM as their global media agency of record. UM handle all strategy planning, buying, analytics, performance, and commerce efforts across 36 markets for this important client. It's also worth highlighting that in the quarter we continue to see growth in areas of the business that have been key drivers of success for us over a number of years. Namely our media offerings, which performed very strongly and the healthcare sector. In addition we had solid growth in sports and entertainment marketing, public relations, and our experiential offerings. Six of our eight client sectors grew during quarter, as has been the case in the nine months year-to-date. We were led in the quarter by the strong growth of auto and transportation, followed by our other sector of diversified industrials and public sector clients, the financial services and healthcare sectors. Healthcare grew in the quarter, though not at the more robust levels we'd expected. Food and beverage and consumer goods sectors also increased in Q3. We had a slight decrease in the retail sector. The tech and telecom sector decreased in the high-teens, the percentage basis, and this is not only due to the larger trend in the sector, but also in the significant client loss at McCann. Regionally we saw organic growth in the quarter across the U.K., Europe, Latin America, and our other markets group. The U.S. and Asia Pacific region decreased. Lower revenue in the U.S. was predominantly due to the sector and agency-specific challenges we've called out. If you look at the balance of the year, the geopolitical situation in the Middle East does add a degree of uncertainty to our business. Our operations in Israel include the full range of creative marketing services and media offerings. And they represent approximately 1% of total IPG global revenue. As you'd expect, economic activity in the country is at a standstill, which has already begun to have an impact during what is seasonally the business's largest quarter. The developing geopolitical crisis is of course foremost a human concern and our top priority is to do what we can to support our colleagues in the region. But in the context of this call we did feel it was necessary to point out it will also have some business implications. Turning to segment performance, media, data, and engagement solutions grow organically by 50 basis points in the quarter. We continue to see very strong growth in our media offerings. That was, again, largely offset by challenge results or digital specialty agencies. Our segment of integrated advertising creativity-led solutions decreased 4.1% organically, as the tech and telecom client sector and a more cautious spending climate weighed on our more traditional consumer advertising agencies. SCB's strong performance in the quarter was a notable exception powered by its strategy of incorporating data-informed audience-led thinking into its core creative offering. Our segment of specialized communications and experiential solutions grew by 6.5% organically. The quarter was highlighted by increases in sports and entertainment, experiential and public relations. Turning to an overview of expenses and margin, operating discipline continued to be a strength and was fully in evidence during the quarter. Third quarter adjusted EBITDA margin was 17.2%, up from 15.5% a year ago. Across the group, we're effectively managing our flexible operating model, which you can see in our expenses for temporary labor, performance-based incentive compensation, and SG&A. Total headcount decreased by 1.5% from a year ago. Occupancy expense decreased, as well as we continue to benefit from actions taken on the real estate portfolio and other variable expenses such as travel or resources operating leverage. Our diluted earnings per share in the quarter was $0.63 as reported and was $0.70 as adjusted for intangibles, amortization, and other items. During the quarter, we repurchased 2.6 million shares, returning $91 million to shareholders. That brings our share repurchases for the nine months to 6.1 million shares using $219 million. The strength and strategic relevance of our offerings is evident in our new business wins year-to-date and our long-term record of organic growth. That said, we had anticipated that the puts and takes in Q3 would have netted to better revenue performance than reflected in our results today. And I'll do more to unpack that for you in my closing remarks. Turning to our outlook for the remainder of this year, given the trends we've called out for you since the beginning of the year, the fact that macro conditions have become more challenging, as well as the incremental impact of geopolitical uncertainty, we believe organic revenue performance for the fourth quarter will come in at approximately 1% growth. Nonetheless, we remain committed to our margin goal for the year of 16.7%. Our current level of performance is not up to the standards we've set over many years. We'll therefore be looking to close this year as strongly as possible and specifics to identified areas of underperformance, also assess structural internal solutions to improve our growth profile. At this point, I hand the call over to Ellen for a more detailed review of our results.
Ellen Johnson: Thank you, Philippe. As a reminder, my remarks will track to the presentation slides that accompany our webcast. Beginning with the highlights on slide two of the presentation, our third quarter revenue before billable expenses or net revenue increased 60 basis points from a year ago with an organic decrease of 40 basis points. Our organic decrease was 1.2% in the U.S., while we grew 1.1% organically in our international markets. Over the first nine months of the year our organic revenue decrease was 80 basis points. Third quarter adjusted EBITDA was $397.2 million, an increase of 11.5% from a year ago and margin was 17.2%. Our diluted earnings per share in the quarter with $0.63 as reported and $0.70 as adjusted. The adjustments exclude the after tax impacts of the amortization of acquired intangibles and non-operating losses on the sales of certain small non-strategic businesses. We repurchased $2.6 million shares during the quarter and $6.1 million shares in the year’s first nine months. Turning to slide three, you'll see our P&L for the quarter. I'll cover revenue and operating expenses in detail in the slides that follow. Turning to third quarter revenue in more detail on slide four. Our net revenue in the quarter was $2.31 billion. Compared to Q3 2022, the impact of the change in exchange rates was positive 70 basis points. With the U.S. dollar weaker against the euro, pound in several LatAm currencies, compared to last year. But stronger against most currencies in Asia Pac and the Canadian dollar. Our net acquisitions added 30 basis points. Our organic decrease of revenue before billable expenses was 40 basis points. For the nine months, our organic decrease was 80 basis points. The performance of our segments is at the bottom of this slide. Our media, data, and engagement solutions segment grew organically by 50 basis points. We had very strong global growth at our media businesses. So, that was largely offset by the continued underperformance by our digital specialist agencies. Our integrated advertising and creatively-led solutions segment decreased organically by 4.1%. Lower revenue from clients in the tech and telecom sector and a more challenging macro environment was felt broadly across our more traditional consumer facing agency. At our specialized communications and exponential solutions segment organic growth was 6.5% with growth across our sports and entertainment, public relations and exponential disciplined. Moving on to slide five. An organic net revenue growth by region. In the U.S., which was 65% of our revenue before billable expenses in the quarter, our organic decrease was 1.2%. Against 4.4% growth in last year's third quarter. Decreases among tech and telecom sector clients and a more cautious macroeconomic environment continued to weigh on our performance. Notably, at our digital specialist and at most of our creatively led agencies. We had strong growth at our media offerings followed by increases at our sports and entertainment, exponential and public relations disciplines. International market, which were at 35% of our net revenue grew organically 1.1% in the quarter on top of 7.8% a year ago. The U.K., which is 8% of net revenue in the quarter grew 2.2% organically on top of 4.9% a year ago. Growth was led by IPG Mediabrands, McCann and FCB. Continental Europe, which was 8% of net revenue grew 3.9% organically in the quarter. Compounding last year's 4.7% growth. We were led by growth in Spain and Germany as well as by increases in smaller national markets. Asia Pac was also 8% of net revenue in the quarter. Our organic decrease was 5%, compared to 5.6% growth a year ago, due to decreases in Japan and China. In LatAm, which was 5% of net revenue, our organic growth was 5.7% on top of 19.8% a year ago. With increases across all national markets led by Colombia and Argentina. In our other markets group, which is Canada, the Middle East and Africa, we grew 1.2% on top of 10.6% a year ago. Moving on to slide six, an operating expenses in the quarter. Our net operating expenses which exclude billable expenses, the amortization of acquired intangibles and restructuring adjustments decreased 1.5% from a year ago, compared with the growth in reported net revenue of 60 basis points. The result was adjusted EBITDA margin of 17.2%, an increase of 170 basis points from a year ago. As you can see on this slide, our ratio of total salaries and related expense. As a percentage of net revenue decreased by 110 basis points to 66.3% from 67.4% in last year's third quarter. Compared to last year we delivered on our expense for based payroll benefits and tax. Well, our expense for temporary labor, employee incentive compensation and severance decreased as a percent of net revenue. Each of these ratios is shown in the appendix on slide 31. Head count at quarter end with 57,700. A decrease of 1.5% from a year ago. Also on this slide, our office and other direct expense was 13.8% of net revenue, compared with 14.3% in Q3 ‘22. Underneath that improvement, we continue to leverage our expense for occupancy and all other office and other expense. Our SG&A expense was 70 basis points of net revenue, an improvement of 10 basis points. On slide seven, we present the detail on adjustments to reported third quarter results. In order to provide better transparency and a picture of comparable performance. This begins on the left hand side with reported results. And from left to right, depth through to adjusted EBITDA and our adjusted diluted EPS. Our expense for the amortization of acquired intangibles in the second column with $21 million. The adjustments to previous restructuring actions was a credit of 600,000. Total operating expenses as shown in column four, we had a loss of $12.1 million in other expenses that was due to the disposition of a few small non-strategic businesses. At the foot of this slide, you can see the after tax impact per diluted share of each adjustment, which bridges our diluted EPS as reported at $0.63 to adjusted earnings of $0.70 per diluted share. Slide eight depicts similar adjustments for the nine months. Our diluted earnings per share was $1.64 as reported and $1.81 as adjusted. As a reminder, reported and adjusted EPS for the year-to-date period includes the benefit of $0.17 per share recorded to our tax provision in this year's second quarter. On slide nine, we turn to cash flow in the quarter. Cash from operations was $242.7 million and operating cash flow before working capital was $365.4 million. As a reminder, our operating cash flow is highly seasonal and can be volatile by quarter, due to changes in the working capital component. And our investing activities, we used $48.6 million. Essentially, all of which was towards CapEx in the quarter. Our financing activities used $225.5 million, mainly reflecting capital return to shareholders. Our net decrease in cash for the quarter was $52.7 million. Slide 10 is the current portion of our balance sheet. The end of the quarter with $1.57 billion of cash in equivalence and $102 million in short-term marketable securities to be held to maturity, which is before year end. Slide 11 depicts the maturities of our outstanding debt. As you can see on the schedule, total debt at quarter end was $3.2 billion, that includes our $300 million 10-year note, which we issued in June to pre-fund our $250 million maturity in April of next year. Thereafter, our next maturity is not until 2028. In summary, on slide 12, our strong financial discipline continues and the strength of our balance sheet and liquidity mean that we remain well positioned both financially, as well as commercially. And with that I'll turn it back to Philippe.
Philippe Krakowsky: Thanks, Ellen. Without question, organic revenue performance to-date this year is not consistent with our expectations or our long-term track record. We continue to be in market with relevant and compelling offerings that are helping marketers accelerate growth and deliver business outcomes and that has translated to new business success year-to-date. Now, for many of you who've been with us over a period of years, you know, that we were among the first to embed digital capabilities across media, healthcare, and many of our marketing services, as well as to recognize the importance of integrated services in an increasingly complex consumer ecosystem. Similarly, we were early to understand the growing importance of data resources and first-party data capabilities at scale as key tools to power the success of our clients. Given the very rapid rate of change we're all experiencing, we continue to further evolve our offerings, investing in ways that help brands compete in a dynamic world of new technology platforms and empowered consumers. This work has meant that increasingly large portions of our portfolio are better oriented in particular areas of growth. Consistent with that objective, during the quarter we launched our Unified Retail Media Solution, which is a dedicated business unit within media brands. It helps clients manage their investments across all retail media networks, one of the fastest growing advertising channels. That solution is already helping brands maximize their media investments across all of the retail channels in real time in order to drive next best business outcomes. Earlier this week we also launched Real ID in the cloud, the tool powered by Acxiom and piloted at FCB. It modernizes identity resolution and addresses an industry need for identity tools in a post-cookie world. Built on ethically sourced data that prioritizes consumer privacy, Real ID creates the opportunity for us to do the kind of intelligent, data-driven work that we've been doing in media for some time across all marketing channels and disciplines. Our AI Steering Committee includes leaders from across our network, and it continues its work overseeing strategic partnerships and sharing use cases across the group. As you know, we've been using machine learning and other AI tools in our data and media business for a number of years. With 100s of new AI pilots underway across the company, we're tracking a subset of promising programs with a particular focus on three new areas. First, using AI to generate content, including text, images, audio, and video, in our ideation and creative processes. Second, AI is a tool to uncover in a strategy and insights, as well as business trends that can help our clients and their brands. And finally, piloting the use of intelligent chat bots to automate tasks like program recommendations and other key steps on consumers' e-commerce journeys. Given the impact AI will continue to have on all businesses, including ours, we're fully engaged with leading AI innovators, which is Adobe, Amazon, Google, Microsoft, NVIDIA, and Salesforce. For example, during the quarter, NVIDIA worked with us, specifically within our PR agencies, to incorporate AI enabled processes into earned media and corporate communications workflows. Now just to step back and talk a bit again about our reporting segments in some detail as discussed earlier. Within the MD&E segment, we had very strong growth at our media offerings, but that continued to be largely offset by challenges within the digital specialty agencies. I think notably during the quarter we brought three distinct media brand companies, KINESSO, Matterkind, and Reprise, under the KINESSO banner and brand to create a unified sector-driven performance unit that enhances the effectiveness, efficiency, and simplicity of media activation that is end-to-end across that values chain. And as mentioned earlier, General Mills is another great piece of news at Mediabrands. During the quarter, Acxiom announced that its info-based consumer insights and audiences are now available in cloud data exchanges and received a Salesforce Partner Innovation Award for work it's doing with its Heathrow client. The company also recently launched Acxiom Health, which is its latest vertical offering and provides advertisers with quality audiences that span both consumers and healthcare providers with more effective reach and precision. At Huge, the agency had a number of wins with their new suite of consultative products. Their tailored to specific client business problems, which allows them to deliver strategy through execution very rapidly and effectively. The agency expanded its relationship with Darling Ingredients, which was begun earlier this year, with a significant design and build project. And on the product development side, Huge launched what it calls the AI Opportunity Mapper, which helps clients anticipate big shifts that Gen.AI will have in their specific industry and identify opportunities for growth across near, mid, and long-term horizons. Looking at RGA, the agency announced new business wins in the U.S. from Bloomberg and the BBC and in LatAm from Banco Safra, which is Brazil's premier financial institution. RGA also launched the associates program, a unique approach to fractional hiring that offers flexibility and emphasizes adaptability and creativity. And the agency's work for clients like Procter & Gamble and the Ad Council was recently recognized as a finalist for Fast Company's innovation by design awards. Within the IAC segment, as we mentioned, tech and telco weighed on our more traditional consumer advertising agencies. But FCB was a notable exception to that. The network's playing a key role in our integrated Pfizer team and also expanded relationships with existing clients, which is -- sorry about that with new clients which is Diageo, Danone and Upfield in global markets. IPG's health focus on creativity, technology, and data continue to be key to their clients. And during the quarter, the network launched the industry's first clinical trial diversity offering designed to help pharma and healthcare companies ensure more inclusive treatment innovations. Last month, following competitive pitch process, IKEA chose McCann as its first global brand marketing partner. Domestically, T.J. Maxx hired McCann as its creative AOR and Rickett’s Durex brand named MRM and McCann as brand leads in Europe and the U.S. In addition, the network launched McCann Content Studios, its new global hub for social and creative services. MullenLowe retained the DHRA account, which is the arm of the U.S. Department of Defense that's focused on military recruitment across all service branches. This renewal is for five years with an expanded remit that includes advertising, CRM, database management, integrated media, social, digital, and PR. Our SC&E solution segment, as we mentioned, saw growth across all disciplines following a strong new business track record year-to-date in Q3, following one new business including Eve Air Mobility, Tapestry, the luxury brand holding company that owns Coach and Kate Spade, as well as Neutrogena, the Kenvue skincare brand. Momentum grew strongly with core clients including Verizon and Nike and brought on a number of new clients, notably John Deere. Most recently, the company secured three AI patents for the machine learning of experiences, which makes them the first agency to do so in their area of expertise. Octagon signed the ACC of the new client at their industry leading media rights division and the agency won new client brands including Hilton Hotels and PowerAid’s, as well as working with current clients Budweiser, MasterCard and Unilever to manage activations at major global sporting events. Jack Morton, Vivi, the agency's diversity-driven inclusive marketing practice, posted wins and new work with the NBA and TIAA. There were also additional new client ads with Paramount Plus and Comcast, and a large-scale reinvigoration of ESPN's support center. But [Indiscernible] saw growth in the health sector and in its government and public policy work. On the new business front, notable wins included Dollar Shave Club and a significant new assignment with the CDC. The network also expanded its predictive analytics and intelligence capability with a rollout of a new proprietary solution that measures the impact of earned media. Despite these highlights from across the portfolio, as you can see from our results, the third quarter didn't unfold along the lines we'd envisioned when we spoke with you in July. At that time, we shared our view of the second-half inflection point for stronger growth driven by several factors. One, was accelerating growth of our media business, which did materialize with notably stronger performance in the third quarter than we've seen earlier in the year. We also look forward to a similar trajectory in our healthcare vertical. And while healthcare did grow in the quarter across the category, it was not at the level we'd anticipated. However, with new business coming online stronger in Q4, we do see health returning to its more typical rate of revenue growth. And as I mentioned earlier during Q3, while we saw the impact of new business coming on stream, it was slower to convert than the rate we'd foreseen. Therefore, when we look to the fourth quarter, as mentioned earlier, and this is historically our largest due to seasonal factors, as you all know. We believe organic revenue performance will come in at approximately 1% growth. And also to reiterate, we remain committed to our margin target for the year of 16.7%, 10 basis points ahead of last year. We're going to stay focused on closing the year as strongly as possible. But as I mentioned earlier, we're also specific to areas of underperformance, assessing structural solutions to improve our growth profile. And an important additional area for value creation is our longstanding and continued commitment to capital returns, which has been underscored by the execution of our share repurchase plan and consistent dividend growth over time. These remain important priorities for us going forward. As always, we thank you for your time and attention. And with that, let's open the floor to your questions.
Operator: Thank you. [Operator Instructions] Our first question is from Adrien de Saint Hilaire with Bank of America. You may go ahead.
Adrien de Saint Hilaire: Yes, good morning everyone. Thanks for giving me the opportunity. So hello, Philippe, a couple of questions please. So first of all, can you help us quantify the impact of the tailwinds that you alluded to from new account wins, from perhaps recovery in tech into 2024? And then maybe a second question for Ellen. So clearly an amazing job this year in terms of protecting the margin. Is there a risk that as growth resumes next year and as you onboard new clients, we see cost growth effectively exceed revenue growth in 2024? Thank you very much.
Philippe Krakowsky: Sure. And I will take the one you gave me and then a little bit of the one that you sent to Ellen, if I may. I don't know that we can quantify the tailwinds for ‘24, because we're not through to the end of the year. So we're clearly from a net new business perspective, as we sit here this year, positive. And there are still a few fairly sizable opportunities out there for us to go get. But we do think that we'll be heading into ‘24 with the benefits of the wins from this year. And then unfortunately some of the benefits of the fact that there's been a little bit of a slowdown in terms of onboarding them. But I don't think we can give you a quantified number for that quite yet. And then I think that, you know, as I mentioned in passing when you think about third quarter there was an expectation on our part that on just the kind of work that you pick up. Course of business, not the sizeable opportunities out there, that isn't converting at the rate at which we're used to seeing. So that's something we're just going to have to monitor through the end of the year, so that we can then give you line of sight into how we are going into ‘24. And then I'll hand over to Ellen, but I'll obviously point out that when there's growth, we do grow margins. So as we return to growth, I'm not sure that the cost question should be a concern.
Ellen Johnson: No, just to add to Philippe’s comments, I mean, we've been very disciplined about not hiring ahead of revenue, as well as being able to really, as you've seen, you know, this year included, really manage a flexible cost structure. So we do see the ability to continue to increase our margins.
Adrien de Saint Hilaire: Thank you both.
Philippe Krakowsky: Thank you.
Operator: The next question is from David Karnovsky with JP Morgan. You may go ahead.
David Karnovsky: Thank you. Philippe you noted that IPG would assess Internal Structural Solutions to improve growth. I wanted to see if you could expand on what that means exactly? And then just regarding the commentary you gave on healthcare before and that not performing as expected in Q3, was that largely related to new business or were there other factors? And just like new account wins aside, how do you kind of assess the health of that vertical?
Philippe Krakowsky: I'll take them in reverse order if I may. So health, as you know, a very, very strong performer for us over a long period of time. So I think it was a period in which it was probably 14% or 15% of our overall revenue and it's now likely twice that. And long-term we see it as a sector that still sets up wealth or growth. So that's a strength in terms of our asset and business mix. What it didn't do this quarter is what I was actually just referring to in Adrien’s question, which is some of the TBG conversion in the non-high profile opportunities was not at the rate at which we expect from them. And yet, as we look at fourth quarter and what has been brought in, we think it will get back to the levels that we see from a strong performer in the group. And in terms of healthcare, anything else, I guess there were one or two, but you know it's a course of business where you have a drug that you know has a lot of expectancy attached to it where there is going to be a meaningful budget where it fails late in an approval process, but that's something we do factor in. We did happen to see one or two of those in the quarter. Now relative to your first question, I do think it bears going into a bit more detail. So how I would frame it up for you is this. The comment is specific to parts of the portfolio that have been underperforming and have been taxing overall performance this year. And if you think about the long-term history of those digital specialty assets, it's one where they've successfully gone through cycles of transformation every four or five years. So as we head into the year to us that meant there was a reason to be supportive as they look to make the necessary adaptation. But sitting where we are now, if you look at the weighting to technology clients that they have, and then the speed of change in the operating environment, this has made it an especially difficult time both for what they do and for them to essentially reboot or reinvest. And then when it comes to tech specifically, I don't know that any of us have seen it retrench to the degree we've experienced or for this prolonged a period of time. So we clearly have to ramp up the urgency on this front and be open to a broader range of solutions. And of course, those are conversations that involve the leaders of those operations as you would expect and that are ongoing. It's not something that we're in a position where I can say to you right now, here's what we're going to do or not. But if you wanted sort of a broad guideline. If you look at our strongest performers across the portfolio, so the framework for what success should look like, and I think that could be helpful, whether it's healthcare or media brands, you have a coordinated approach to how you go to market, you benefit from scale, you're looking for ways to share complementary skillsets and identify very clearly where the centers of excellence sit across multiple units. And I think it's all in the service of making it simpler for clients to engage with us. So I think that those are the guidelines for us. I think we're going to look to define a way forward in terms of putting something into effect with a number of those assets as we head into ‘24. So, I hope that frames it up for you David, but I mean I can't give you a definitive answer.
David Karnovsky: That's helpful. Thank you.
Philippe Krakowsky: Please.
Operator: Thank you. The next question is from Ben Swinburne with Morgan Stanley. You may go ahead.
Ben Swinburne: Thanks. Good morning. Hey, thanks for all the color earlier on the different segments, headwinds and tailwinds. I was wondering if you could just spend a minute, you know, every agency holding company, kind of, reports differently as you know, so it's hard to compare, but we try anyway. Your IAC segment, which does not include R/GA and Huge, it's down 4.5% year-to-date. You talked about the healthcare business. That's still growing. You mentioned an account loss in McCann in your prepared remarks. Do you think, like is there sort of underlying share erosion happening here or is this just kind of creative, is just a tougher business? I mean, we know it's a tough business, tougher than it used to be. But just any more sort of high level comments on how you're feeling about the assets within that group, because that's obviously not including the digital specialty agencies. And then I guess just a question around, kind of, AI which was maybe everyone's question back in January or February. How much of an investment priority is that for you guys internally? Because protecting margins and margin expansion is something people obviously want and expect from IPG. But I'm sure you're also keeping your eye on the long game here and not wanting to miss anything as it relates to investing in tech and talent on the particularly on the AI front? Thanks.
Philippe Krakowsky: On your first question, I think that across the industry over the last year or more, in fact, you've seen folks call out that the more "the traditional consumer advertising” portion of all of our businesses is under some stress as you put it. So within IAC, you've got our health care business, which we spoke about. You got FCB, which again, I think we did speak to how they've leaned into incorporating data and precision thinking, sort of, an audience-led approach and married it up to a very, very creative offering. And so for us, the rest of what is in that grouping is a McCann, which is on that same path. And then a group of kind of a portfolio of U.S. independent agencies where we do, again, I think, need to look a bit as sort of part of the answer that I shared with David around what does scale look like? How are we clear about centers of excellence? How do we get complementary skill sets working together? And what's a simpler way for clients to engage there and for us just to be kind of have a flying formation for that grouping? So I think IAC definitely needs -- not unique to us, right? As you called it out, that's a part of the business where I think everybody is thinking about what the right way to integrate that. When you take creativity and is part of an integrated offering, it's definitely much more powerful. And then on the AI question, it is an investment priority. It has been for some time, as I said to you, because whether it's inside of Mediabrands or at Acxiom, there's quite a bit we've been doing there and ways in which AI is going to make it possible for us to get more done for clients or work smarter and take a lot of processes we have. So from an efficiency point of view, it's clearly going to be a boon. But we also think it's going to open up opportunities to -- there's so much demand for content at this point, given how many channels there are and how complex the consumer journey is across this incredibly fragmented tech ecosystem that we still see opportunities to also have it be a revenue generator. So as I said, we've got a task force that has a handful of the top leaders from across the group. And that's probably going to then become something that gets leadership at the center here, and we prioritize investment that way.
Ben Swinburne: Thanks a lot.
Philippe Krakowsky: Thank you.
Operator: And the next question is from Michael Nathanson with MoffettNathanson. You may go ahead.
Michael Nathanson: Thanks,. Hey, good morning, Philippe. How are you?
Philippe Krakowsky: All right.
Michael Nathanson: Okay. So this is a long-running Q&A we've been having. I guess when you get…
Philippe Krakowsky: I might know what the question is?
Michael Nathanson: Okay. Exactly. When you look at Media, Data & Engagement and backing away R/GA and Huge, just taking it out, we're used to you guys growing top of the leaderboard. And this year is going to struggle, we know that. But I wonder if we look at some of your competitors, those who bought data assets and those that have not, look at what's happening under your hood, what do you think about the strategic pivot that you made? What is slowing down maybe the growth ex those digital specialist assets? And is this something that you think strategically is on the wrong foot or is just execution? Because we see other companies just growing faster. And I know your comps are hard, but I wonder like what do you think about the decisions you made to get here is just basically a tough year that bounces back next year.
Philippe Krakowsky: Look, I mean, we've got a terrific media offer to your point, and I think that's been clear, both in what we keep saying about the performance there and the new business performance year-to-date if you sort of consider major pitches from GEICO at the early part of the year all the way through General Mills, which was yesterday. That said, I will -- I think you're clear you have a point of view, and it could very well be that we are missing out an additional source of growth there, right? So I think the question's come up before. It's a very valid question. And we clearly have to be open to exploring every avenue for delivering value to our clients. And that includes our trading model, by which I mean how we buy media on their behalf, right? So clients value product and results. We're very strong in that regard. They also value efficiency, and we have to deliver on both sides of that equation on both fronts. So I think that like you said, it's been a conversation we've had on a call like this one and then just when we've met independent of this. And we're looking very hard at our model within the media component of this for that reason because you're right. I mean, there's no upside in leaving growth on the table.
Michael Nathanson: Got it. And then can I ask one to Ellen? Billable expenses. I know there's no media there, given what we know. The growth was pretty strong this quarter. Can you tell us what was that tied to?
Ellen Johnson: Sure. I think it's consistent with the growth you saw in our SC&E segment.
Michael Nathanson: Okay, so netted out some don't, clearly.
Ellen Johnson: Those billable expenses are predominantly associated with that segment, and that segment grew nicely. So...
Michael Nathanson: Okay. Thank you, guys.
Philippe Krakowsky:
.:
Operator: Thank you. The next question is from Steven Cahall with Wells Fargo. You may go ahead.
Steven Cahall: Yes, thank you. Good morning. So Philippe, you talked about the 3.2 percentage points growth drag from tech and telco and digital. And I don't think that was too new from Q2 to Q3 because we've talked about that a lot this year. And same with the macro concerns, I just know we've been talking about those this year. So I guess my question is what has changed most from your perspective over the last three months? It seems like the business did deteriorate in some ways versus your prior expectations. I think we're trying to understand what of that is idiosyncratic related to a lot of the agencies you've talked about? And then what might be just more broad-based that can really flow and extend into a great deal of next year? So just love to have some incremental color on what's changed the most more recently. And then, Ellen, you said you're not hiring ahead of revenue. A lot of the labor market stats indicate things are pretty tight, but I've seen a lot of industry trade reports. That there's also a lot of headcount reduction. So when you look at the labor market today, do you think it's a buyer's market for the skills you need? Or is it a seller's market? Thank you.
Philippe Krakowsky: All right. Let me unpack that because I think most of the pieces are out there to your point. So the tech, telco and the specific entities within our world that, as I said, are taxing our performance is not new news. Over the normal course of business, there's always revenue to be generated. And I think your budget, your existing book and then that TBG and the operators are accountable for both creating those opportunities and converting those opportunities with existing clients, as well as winning ones with new clients. And I think that the incremental drag in Q3 was really there and to a much lesser extent, that some of the larger new business did not ramp at the pace that we anticipated. I'd sort of say that we don't like to see the delta, because we've obviously been on the other side of that for some time. But I don't see that the delta to our key competitors has changed over the course of this year. And so there is some of what's been on this call, which is things we talked about, what I just mentioned to you and then potentially the question Michael asked around media, a client mix question or perhaps to some degree, asset mix positive to us over time. Now clearly, there's one competitor who, credit to them, is benefiting from asset mix. But I don't know that there's anything even outside of those that gets me to a dramatically different perspective.
Ellen Johnson: And then looking at our workforce, if you're looking for broad-based trends based upon your question, if I go back post the pandemic, labor was tight, attrition was high. Those trends have attenuated. But we're not one business, as you know. We are many businesses, and we recruit many different types of talent. So where the skill sets are more scarce, there is that supply and demand mix. But we have a truly great labor force and our talent. And so we are very competitive in that regard. But the broad-based trends that were called out post the pandemic, those have attenuated a bit.
Steven Cahall: Thank you.
Philippe Krakowsky: Thank you.
Operator: Thank you. And our next question is from Tim Nollen with Macquarie. You may go ahead.
Tim Nollen: H, Philippe, Ellen. Thanks very much. Just I wonder if you could give a little bit more explanation around the new business trends. You've said it two or three times on this call that you've seen some, I guess, delays in the conversion and onboarding of some of the wins that you've been talking about for a little while is supposed to come through in the second-half. I mean, maybe this happens sometimes. I just don't really recall that occurrence before. I just wonder if you can explain, is it part of these new clients seeing the slowdowns and worrying about spending in the fourth quarter and just sort of deciding to go slower? Or is it a change in the scope of work that's coming on and just haven't really heard that commentary before. And relatedly, the General Mills win sounds pretty big. I didn't check the numbers. I wonder if you could just help us maybe scope out kind of, of the long list of wins that you've had in the last several months, like which are the biggest ones?
Philippe Krakowsky: I think on the large headline wins, that's the onboarding of those at a modestly lower -- a slower pace is not the key driver. It's what Steven was just asking about around, I think that it's the TBG conversion that I would really point to in Q3. And then in terms of scale, I think we've got quite a few. I mean, so from GEICO at the -- I think General Mills is at the scale of a GEICO. Bristol-Myers Squibb is maybe modestly smaller than that. Constellation Brands is sizable. They do cluster into the media sector. And then Pfizer is very large and is probably different in that clearly, it was integrated across creative, the health and medical communications and expertise in public relations. And some are global one like that or General Mills, whereas a GEICO or a -- I mean, a Constellation Brands, domestic. But I do think that, as I said, it's not the scale. We have one of the larger wins that is onboarding a bit more slowly than anticipated. But broadly speaking, it's TBG conversion.
Tim Nollen: Thanks.
Philippe Krakowsky: I mean, Ellen can -- at some point, we can break down for you kind of given as she said, it's a lot of businesses inside a business, and a lot of them are project businesses. So where we drive new business is still significantly in the day-to-day converting of work at a much more local level.
Operator: Thank you. The next question is from Jason Bazinet with Citi. You may go ahead.
Jason Bazinet: Just had a quick question on the tech, telco weakness that you called out. When do we begin to lap that? Would you say that's a second quarter event? I think that's a first quarter number. Or is it more Q1 of next year?
Philippe Krakowsky: Well, I mean, I think tech specifically, we would have been largely through it. But as I did call out, we had a significant loss at McCann in the telco space, which is then going to extend that into next year. And then I don't think health falls into the same category. I think health is really just -- we expected more from that sector this quarter than we've seen, but that's not a long-term hedge into next year drag.
Jason Bazinet: Okay, thank you.
Philippe Krakowsky: Thank you.
Operator: Thank you. Our next question is from Julien Roch with Barclays. You may go ahead.
Julien Roch: Yes, good morning, Philippe. Good morning, Ellen. Thank you for the question. Two, if I may. I was hoping you could give us the number of employees at Huge and R/GA today. And the second question is margin versus growth next year. So previously, it's doing 5% top line growth and only come 4% for the full-year if they make that number in Q4 on flat margin. Is that cost including employees are up 4% to 5%, while you're flat. So as talent and these days investment intake is key to growth in agency land? Could that be an issue for next year?
Philippe Krakowsky: I don't know that we would break out the by unit employee numbers. I think the second question is a good question. And to Ellen's point earlier, I mean, we are running a portfolio of businesses. And as you could see, a number of them, quite a few of them, whether it's media, health, a lot of the experiential PR businesses are performing well for us. And others are going through some challenges. So I don't know that you approach the comp component of it similarly across the board, and we have it for quite a few years. So we've been finding talent in the growth businesses, which means that we're able to compensate them appropriately. And when you look at the model as it is now, you see a number for us which is an all-in number, and it averages out. But what you're seeing in there are a range of outcomes or a range of realities and making sure that we are rewarding and investing the folks who are driving the performance and who are the strong performers shouldn't be an issue. And there's very -- there's clarity across our group and all of our operators in terms of how their incentives are very, very directly aligned to our results and what we're accountable to you all for. People understand where and how they're earning the compensation. So I don't see that as a meaningful concern.
Julien Roch: Okay, thank you.
Philippe Krakowsky: Thank you.
Operator: Thank you. And that was our last question. I'll now turn it back to Philippe for any final thoughts.
Philippe Krakowsky: Thank you, Sue. Again, thank you all for the time. And we look forward to sharing better news with you in February.
Operator: Thank you. This concludes today's conference. You may disconnect at this time.
