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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2024
or
| | | | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 1-6686
THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 13-1024020 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
909 Third Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212)704-1200
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.10 per share | IPG | The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
Large Accelerated Filer | | ☒ | | Accelerated Filer | | ☐ |
Non-accelerated Filer | | ☐ | | Smaller Reporting Company | | ☐ |
| | | | Emerging Growth Company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
The number of shares of the registrant’s common stock outstanding as of April 18, 2024 was 377,423,506.
INDEX
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
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Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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INFORMATION REGARDING FORWARD-LOOKING DISCLOSURE
This quarterly report on Form 10-Q contains forward-looking statements. Statements in this report that are not historical facts, including statements regarding goals, intentions, and expectations as to future plans, trends, events, or future results of operations or financial position, constitute forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “project,” “forecast,” “plan,” “intend,” “could,” “would,” “should,” “will likely result” or comparable terminology are intended to identify forward-looking statements. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results and outcomes to differ materially from those reflected in the forward-looking statements.
Actual results and outcomes could differ materially for a variety of reasons, including, among others:
•the effects of a challenging economy on the demand for our advertising and marketing services, on our clients’ financial condition and on our business or financial condition;
•our ability to attract new clients and retain existing clients;
•our ability to retain and attract key employees;
•risks associated with the effects of global, national and regional economic and political conditions, including counterparty risks and fluctuations in interest rates, inflation rates and currency exchange rates;
•the economic or business impact of military or political conflict in key markets;
•the impacts on our business of any pandemics, epidemics, disease outbreaks or other public health crises;
•risks associated with assumptions we make in connection with our critical accounting estimates, including changes in assumptions associated with any effects of a challenging economy;
•potential adverse effects if we are required to recognize impairment charges or other adverse accounting-related developments;
•developments from changes in the regulatory and legal environment for advertising and marketing services companies around the world, including laws and regulations related to data protection and consumer privacy; and
•the impact on our operations of general or directed cybersecurity events.
Investors should carefully consider the foregoing factors and the other risks and uncertainties that may affect our business, including those outlined under Item 1A, Risk Factors, in our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q. Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update or revise publicly any of them in light of new information, future events, or otherwise.
PART I – FINANCIAL INFORMATION
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Item 1. | Financial Statements (Unaudited) |
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2024 | | 2023 | | | | |
REVENUE: | | | | | | | |
Revenue before billable expenses | $ | 2,182.9 | | | $ | 2,176.9 | | | | | |
Billable expenses | 313.0 | | | 344.1 | | | | | |
Total revenue | 2,495.9 | | | 2,521.0 | | | | | |
| | | | | | | |
OPERATING EXPENSES: | | | | | | | |
Salaries and related expenses | 1,572.8 | | | 1,577.3 | | | | | |
Office and other direct expenses | 322.1 | | | 330.3 | | | | | |
Billable expenses | 313.0 | | | 344.1 | | | | | |
Cost of services | 2,207.9 | | | 2,251.7 | | | | | |
Selling, general and administrative expenses | 38.0 | | | 12.9 | | | | | |
Depreciation and amortization | 65.2 | | | 66.5 | | | | | |
Restructuring charges | 0.6 | | | 1.6 | | | | | |
Total operating expenses | 2,311.7 | | | 2,332.7 | | | | | |
| | | | | | | |
OPERATING INCOME | 184.2 | | | 188.3 | | | | | |
| | | | | | | |
EXPENSES AND OTHER INCOME: | | | | | | | |
Interest expense | (62.8) | | | (49.7) | | | | | |
Interest income | 48.7 | | | 34.1 | | | | | |
Other expense, net | (9.5) | | | (6.7) | | | | | |
Total (expenses) and other income | (23.6) | | | (22.3) | | | | | |
| | | | | | | |
INCOME BEFORE INCOME TAXES | 160.6 | | | 166.0 | | | | | |
Provision for income taxes | 47.3 | | | 33.8 | | | | | |
INCOME OF CONSOLIDATED COMPANIES | 113.3 | | | 132.2 | | | | | |
Equity in net income (loss) of unconsolidated affiliates | 0.3 | | | (0.1) | | | | | |
NET INCOME | 113.6 | | | 132.1 | | | | | |
Net income attributable to non-controlling interests | (3.2) | | | (6.1) | | | | | |
NET INCOME AVAILABLE TO IPG COMMON STOCKHOLDERS | $ | 110.4 | | | $ | 126.0 | | | | | |
| | | | | | | |
Earnings per share available to IPG common stockholders: | | | | | | | |
Basic | $ | 0.29 | | | $ | 0.33 | | | | | |
Diluted | $ | 0.29 | | | $ | 0.33 | | | | | |
| | | | | | | |
Weighted-average number of common shares outstanding: | | | | | | | |
Basic | 378.4 | | 385.8 | | | | |
Diluted | 380.6 | | 387.4 | | | | |
The accompanying notes are an integral part of these unaudited financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Millions)
(Unaudited)
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2024 | | 2023 | | | | |
NET INCOME | $ | 113.6 | | | $ | 132.1 | | | | | |
| | | | | | | |
OTHER COMPREHENSIVE (LOSS) INCOME | | | | | | | |
Foreign currency translation: | | | | | | | |
Foreign currency translation adjustments | (52.3) | | | 22.3 | | | | | |
| | | | | | | |
| (52.3) | | | 22.3 | | | | | |
| | | | | | | |
Derivative instruments: | | | | | | | |
Changes in fair value of derivative instruments | — | | | (2.8) | | | | | |
Recognition of previously unrealized net gain in net income | (0.9) | | | (0.4) | | | | | |
Income tax effect | 0.2 | | | 0.8 | | | | | |
| (0.7) | | | (2.4) | | | | | |
Defined benefit pension and other postretirement plans: | | | | | | | |
Net actuarial gain for the period | 0.8 | | | 1.9 | | | | | |
Amortization of unrecognized losses, transition obligation and prior service cost included in net income | 1.9 | | | 1.7 | | | | | |
| | | | | | | |
Other | 0.1 | | | 0.4 | | | | | |
Income tax effect | (0.5) | | | (0.4) | | | | | |
| 2.3 | | | 3.6 | | | | | |
Other comprehensive (loss) income, net of tax | (50.7) | | | 23.5 | | | | | |
TOTAL COMPREHENSIVE INCOME | 62.9 | | | 155.6 | | | | | |
Less: comprehensive income attributable to non-controlling interests | 2.0 | | | 5.8 | | | | | |
COMPREHENSIVE INCOME ATTRIBUTABLE TO IPG | $ | 60.9 | | | $ | 149.8 | | | | | |
The accompanying notes are an integral part of these unaudited financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Millions)
(Unaudited)
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
ASSETS: | | | |
Cash and cash equivalents | $ | 1,931.2 | | | $ | 2,386.1 | |
Accounts receivable, net of allowance of $45.1 and $46.4, respectively | 4,329.6 | | | 5,768.8 | |
Accounts receivable, billable to clients | 2,145.0 | | | 2,229.2 | |
Prepaid expenses | 524.3 | | | 415.8 | |
Assets held for sale | 7.8 | | | 21.9 | |
Other current assets | 88.0 | | | 128.6 | |
Total current assets | 9,025.9 | | | 10,950.4 | |
Property and equipment, net of accumulated depreciation and amortization of $1,247.4 and $1,224.9, respectively | 624.1 | | | 636.7 | |
Deferred income taxes | 277.5 | | | 265.0 | |
Goodwill | 5,063.7 | | | 5,080.9 | |
Other intangible assets | 722.3 | | | 743.6 | |
Operating lease right-of-use assets | 1,131.0 | | | 1,162.6 | |
Other non-current assets | 441.6 | | | 428.1 | |
TOTAL ASSETS | $ | 17,286.1 | | | $ | 19,267.3 | |
| | | |
LIABILITIES: | | | |
Accounts payable | $ | 6,729.7 | | | $ | 8,355.0 | |
Accrued liabilities | 527.9 | | | 705.8 | |
Contract liabilities | 707.7 | | | 684.7 | |
Short-term borrowings | 21.9 | | | 34.2 | |
Current portion of long-term debt | 250.2 | | | 250.1 | |
Current portion of operating leases | 247.9 | | | 252.6 | |
Liabilities held for sale | 13.0 | | | 48.5 | |
Total current liabilities | 8,498.3 | | | 10,330.9 | |
Long-term debt | 2,918.4 | | | 2,917.5 | |
Non-current operating leases | 1,181.4 | | | 1,216.8 | |
Deferred compensation | 193.7 | | | 223.6 | |
Other non-current liabilities | 575.2 | | | 532.4 | |
TOTAL LIABILITIES | 13,367.0 | | | 15,221.2 | |
| | | |
Redeemable non-controlling interests (see Note 5) | 36.0 | | | 42.3 | |
| | | |
STOCKHOLDERS’ EQUITY: | | | |
Common stock | 38.3 | | | 38.3 | |
Additional paid-in capital | 737.8 | | | 728.5 | |
Retained earnings | 4,239.1 | | | 4,254.5 | |
Accumulated other comprehensive loss, net of tax | (995.7) | | | (946.2) | |
| 4,019.5 | | | 4,075.1 | |
Less: Treasury stock | 195.4 | | | 132.5 | |
Total IPG stockholders’ equity | 3,824.1 | | | 3,942.6 | |
Non-controlling interests | 59.0 | | | 61.2 | |
TOTAL STOCKHOLDERS’ EQUITY | 3,883.1 | | | 4,003.8 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 17,286.1 | | | $ | 19,267.3 | |
The accompanying notes are an integral part of these unaudited financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Millions)
(Unaudited)
| | | | | | | | | | | |
| Three months ended March 31, |
| 2024 | | 2023 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 113.6 | | | $ | 132.1 | |
Adjustments to reconcile net income to net cash used in operating activities: | | | |
Net amortization of bond discounts and deferred financing costs | 0.3 | | | 0.7 | |
Provision for uncollectible receivables | 1.7 | | | (0.1) | |
Deferred income tax | 6.0 | | | 14.2 | |
Net losses on sales of businesses | 6.8 | | | 4.2 | |
Amortization of restricted stock and other non-cash compensation | 16.4 | | | 11.1 | |
Depreciation and amortization | 65.2 | | | 66.5 | |
Other | 8.9 | | | 9.2 | |
Changes in assets and liabilities, net of acquisitions and divestitures, providing (using) cash: | | | |
Accounts receivable | 1,369.4 | | | 1,539.1 | |
Accounts receivable, billable to clients | 54.0 | | | (110.0) | |
Prepaid expenses | (125.4) | | | (120.5) | |
Other current assets | 38.7 | | | 11.9 | |
Accounts payable | (1,532.6) | | | (1,798.3) | |
Accrued liabilities | (174.4) | | | (227.9) | |
Contract liabilities | 30.0 | | | 10.5 | |
Other non-current assets and liabilities | (36.0) | | | (90.3) | |
Net cash used in operating activities | (157.4) | | | (547.6) | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Capital expenditures | (35.1) | | | (32.9) | |
Net proceeds from sale of businesses, net of cash sold | (16.4) | | | 1.0 | |
Acquisitions, net of cash acquired | — | | | (4.0) | |
Other investing activities | 1.5 | | | 1.2 | |
Net cash used in investing activities | (50.0) | | | (34.7) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Common stock dividends | (126.6) | | | (123.2) | |
Repurchases of common stock | (62.4) | | | (77.8) | |
Net decrease in short-term borrowings | (20.4) | | | (12.0) | |
Tax payments for employee shares withheld | (13.5) | | | (57.3) | |
Distributions to non-controlling interests | (4.3) | | | (3.1) | |
Acquisition-related payments | — | | | (1.1) | |
Other financing activities | 0.1 | | | 0.2 | |
Net cash used in financing activities | (227.1) | | | (274.3) | |
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash | (20.0) | | | (9.7) | |
Net decrease in cash, cash equivalents and restricted cash | (454.5) | | | (866.3) | |
Cash, cash equivalents and restricted cash at beginning of period | 2,395.1 | | | 2,553.1 | |
Cash, cash equivalents and restricted cash at end of period | $ | 1,940.6 | | | $ | 1,686.8 | |
The accompanying notes are an integral part of these unaudited financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in Millions)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss, Net of Tax | | Treasury Stock | | | | Total IPG Stockholders’ Equity | | Non-controlling Interests | | Total Stockholders’ Equity |
| Shares | | Amount | |
Balance at December 31, 2023 | 383.0 | | | $ | 38.3 | | | $ | 728.5 | | | $ | 4,254.5 | | | $ | (946.2) | | | $ | (132.5) | | | | | $ | 3,942.6 | | | $ | 61.2 | | | $ | 4,003.8 | |
Net income | | | | | | | 110.4 | | | | | | | | | 110.4 | | | 3.2 | | | 113.6 | |
Other comprehensive loss | | | | | | | | | (49.5) | | | | | | | (49.5) | | | (1.2) | | | (50.7) | |
Reclassifications related to redeemable non-controlling interests | | | | | | | | | | | | | | | | | 0.3 | | | 0.3 | |
Distributions to non-controlling interests | | | | | | | | | | | | | | | | | (4.3) | | | (4.3) | |
Change in redemption value of redeemable non-controlling interests | | | | | | | 0.0 | | | | | | | | | 0.0 | | | | | 0.0 | |
Repurchase of common stock | | | | | | | | | | | (62.9) | | | | | (62.9) | | | | | (62.9) | |
Common stock dividends ($0.33 per share) | | | | | | | (125.8) | | | | | | | | | (125.8) | | | | | (125.8) | |
Stock-based compensation | 0.9 | | | | | 22.8 | | | | | | | | | | | 22.8 | | | | | 22.8 | |
Shares withheld for taxes | (0.4) | | | | | (13.3) | | | | | | | | | | | (13.3) | | | | | (13.3) | |
Other | | | | | (0.2) | | | | | | | | | | | (0.2) | | | (0.2) | | | (0.4) | |
Balance at March 31, 2024 | 383.5 | | | $ | 38.3 | | | $ | 737.8 | | | $ | 4,239.1 | | | $ | (995.7) | | | $ | (195.4) | | | | | $ | 3,824.1 | | | $ | 59.0 | | | $ | 3,883.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss, Net of Tax | | Treasury Stock | | Total IPG Stockholders’ Equity | | Non-controlling Interests | | Total Stockholders’ Equity |
| Shares | | Amount | |
Balance at December 31, 2022 | 389.6 | | | $ | 38.9 | | | $ | 1,057.5 | | | $ | 3,632.1 | | | $ | (993.7) | | | $ | (120.2) | | | $ | 3,614.6 | | | $ | 58.1 | | | $ | 3,672.7 | |
Net income | | | | | | | 126.0 | | | | | | | 126.0 | | | 6.1 | | | 132.1 | |
Other comprehensive income (loss) | | | | | | | | | 23.8 | | | | | 23.8 | | | (0.3) | | | 23.5 | |
Reclassifications related to redeemable non-controlling interests | | | | | | | | | | | | | | | (0.3) | | | (0.3) | |
Distributions to non-controlling interests | | | | | | | | | | | | | | | (3.1) | | | (3.1) | |
| | | | | | | | | | | | | | | | | |
Repurchases of common stock | | | | | | | | | | | (77.8) | | | (77.8) | | | | | (77.8) | |
Common stock dividends ($0.31 per share) | | | | | | | (120.0) | | | | | | | (120.0) | | | | | (120.0) | |
Stock-based compensation | 3.8 | | | 0.4 | | | 17.8 | | | | | | | | | 18.2 | | | | | 18.2 | |
| | | | | | | | | | | | | | | | | |
Shares withheld for taxes | (1.6) | | | (0.2) | | | (58.6) | | | | | | | | | (58.8) | | | | | (58.8) | |
Other | | | | | | | | | | | | | | | 0.2 | | | 0.2 | |
Balance at March 31, 2023 | 391.8 | | | $ | 39.1 | | | $ | 1,016.7 | | | $ | 3,638.1 | | | $ | (969.9) | | | $ | (198.0) | | | $ | 3,526.0 | | | $ | 60.7 | | | $ | 3,586.7 | |
The accompanying notes are an integral part of these unaudited financial statements.
Notes to Consolidated Financial Statements
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 1: Basis of Presentation
The unaudited Consolidated Financial Statements have been prepared by The Interpublic Group of Companies, Inc. and its subsidiaries (the “Company,” “IPG,” “we,” “us” or “our”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting interim financial information on Form 10-Q. Accordingly, they do not include certain information and disclosures required for complete financial statements. The effects of heightened macroeconomic uncertainty have impacted and may continue to impact our results of operations, cash flows and financial position. The Company’s Consolidated Financial Statements presented herein reflect the latest estimates and assumptions made by management that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. The Company believes it has used reasonable estimates and assumptions to assess the fair values of goodwill, long-lived assets and indefinite-lived intangible assets; assessment of the annual effective tax rate; valuation of deferred income taxes and allowance for expected credit losses on future uncollectible accounts receivable.
Actual results may differ from these estimates under different assumptions or conditions and further decline in macroeconomic conditions or increasing interest rates could have a negative impact on these estimates, including the fair value of certain assets. The consolidated results for interim periods are not necessarily indicative of results for the full year and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”).
We conduct our business across three reportable segments described in Note 10. The three reportable segments are: Media, Data & Engagement Solutions ("MD&E"), Integrated Advertising & Creativity Led Solutions ("IA&C"), and Specialized Communications & Experiential Solutions ("SC&E").
Cost of services is comprised of the expenses of our revenue-producing reportable segments, MD&E, IA&C, and SC&E, including salaries and related expenses, office and other direct expenses and billable expenses, and includes an allocation of the centrally managed expenses from our "Corporate and Other" group. Office and other direct expenses include rent expense, professional fees, certain expenses incurred by our staff in servicing our clients and other costs directly attributable to client engagements.
Selling, general and administrative expenses are primarily the unallocated expenses from Corporate and Other, excluding depreciation and amortization.
Depreciation and amortization of fixed assets and intangible assets of the Company is disclosed as a separate operating expense.
Restructuring charges in 2024 consist of adjustments to the Company's restructuring actions taken in 2022 and 2020, and primarily relate to real estate actions which were designed to reduce our real estate footprint and to better align our cost structure with revenue.
In the opinion of management, these unaudited Consolidated Financial Statements include all adjustments, consisting only of normal and recurring adjustments necessary for a fair statement of the information for each period contained therein. Certain reclassifications and immaterial adjustments have been made to prior-period financial statements to conform to the current-period presentation, including the recast of certain prior period amounts to reflect the transfer of certain agencies between reportable segments.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 2: Revenue
Disaggregation of Revenue
We have three reportable segments as of March 31, 2024: MD&E, IA&C and SC&E, as further discussed in Note 10. MD&E principally generates revenue from providing global media and communications services, digital services and products, advertising and marketing technology, e‐commerce services, data management and analytics, strategic consulting, and digital brand experience. IA&C principally generates revenue from providing advertising, corporate and brand identity services, and strategic consulting. SC&E generates revenue from providing best-in-class global public relations and communications services, events, sports and entertainment marketing, and strategic consulting.
Our agencies are located in over 100 countries, including every significant world market. Our geographic revenue breakdown is listed below.
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
Total revenue: | 2024 | | 2023 | | | | |
United States | $ | 1,662.0 | | | $ | 1,683.2 | | | | | |
International: | | | | | | | |
United Kingdom | 210.9 | | | 195.8 | | | | | |
Continental Europe | 203.9 | | | 193.6 | | | | | |
Asia Pacific | 173.1 | | | 191.9 | | | | | |
Latin America | 92.6 | | | 90.7 | | | | | |
Other | 153.4 | | | 165.8 | | | | | |
Total International | 833.9 | | | 837.8 | | | | | |
Total Consolidated | $ | 2,495.9 | | | $ | 2,521.0 | | | | | |
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
Revenue before billable expenses: | 2024 | | 2023 | | | | |
United States | $ | 1,476.3 | | | $ | 1,470.6 | | | | | |
International: | | | | | | | |
United Kingdom | 178.0 | | | 170.2 | | | | | |
Continental Europe | 179.5 | | | 163.7 | | | | | |
Asia Pacific | 142.8 | | | 159.2 | | | | | |
Latin America | 87.1 | | | 84.7 | | | | | |
Other | 119.2 | | | 128.5 | | | | | |
Total International | 706.6 | | | 706.3 | | | | | |
Total Consolidated | $ | 2,182.9 | | | $ | 2,176.9 | | | | | |
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | |
MD&E | Three months ended March 31, | | |
Total revenue: | 2024 | | 2023 | | | | |
United States | $ | 637.7 | | | $ | 649.7 | | | | | |
International | 335.6 | | | 337.2 | | | | | |
Total MD&E | $ | 973.3 | | | $ | 986.9 | | | | | |
| | | | | | | |
Revenue before billable expenses: | | | | | | | |
United States | $ | 633.5 | | | $ | 637.3 | | | | | |
International | 327.8 | | | 328.6 | | | | | |
Total MD&E | $ | 961.3 | | | $ | 965.9 | | | | | |
| | | | | | | | | | | | | | | |
IA&C | Three months ended March 31, | | |
Total revenue: | 2024 | | 2023 | | | | |
United States | $ | 624.6 | | | $ | 622.3 | | | | | |
International | 339.2 | | | 336.7 | | | | | |
Total IA&C | $ | 963.8 | | | $ | 959.0 | | | | | |
| | | | | | | |
Revenue before billable expenses: | | | | | | | |
United States | $ | 600.7 | | | $ | 592.3 | | | | | |
International | 280.7 | | | 278.2 | | | | | |
Total IA&C | $ | 881.4 | | | $ | 870.5 | | | | | |
| | | | | | | | | | | | | | | |
SC&E | Three months ended March 31, | | |
Total revenue: | 2024 | | 2023 | | | | |
United States | $ | 399.7 | | | $ | 411.2 | | | | | |
International | 159.1 | | | 163.9 | | | | | |
Total SC&E | $ | 558.8 | | | $ | 575.1 | | | | | |
| | | | | | | |
Revenue before billable expenses: | | | | | | | |
United States | $ | 242.1 | | | $ | 241.0 | | | | | |
International | 98.1 | | | 99.5 | | | | | |
Total SC&E | $ | 340.2 | | | $ | 340.5 | | | | | |
Contract Balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Accounts receivable, net of allowance of $45.1 and $46.4, respectively | $ | 4,329.6 | | | $ | 5,768.8 | |
Accounts receivable, billable to clients | 2,145.0 | | | 2,229.2 | |
Contract assets | 59.1 | | | 68.6 | |
Contract liabilities (deferred revenue) | 707.7 | | | 684.7 | |
Contract assets are primarily comprised of contract incentives that are generally satisfied annually under the terms of our contracts and are transferred to accounts receivable when the right to payment becomes unconditional. Contract liabilities relate
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
to advance consideration received from customers under the terms of our contracts primarily related to reimbursements of third-party expenses, whether we act as principal or agent, and to a lesser extent, periodic retainer fees, both of which are generally recognized shortly after billing.
The majority of our contracts are for periods of one year or less with the exception of our data management contracts. For those contracts with a term of more than one year, we had approximately $715.2 of unsatisfied performance obligations as of March 31, 2024, which will be recognized as services are performed over the remaining contractual terms through 2028.
Note 3: Debt and Credit Arrangements
Long-Term Debt
A summary of the carrying amounts of our long-term debt is listed below.
| | | | | | | | | | | | | | | | | |
| Effective Interest Rate | | March 31, 2024 | | December 31, 2023 |
|
4.200% Senior Notes due 2024 | 4.240% | | $ | 250.0 | | | $ | 249.9 | |
4.650% Senior Notes due 2028 (less unamortized discount and issuance costs of $0.9 and $2.0, respectively) | 4.780% | | 497.1 | | | 497.0 | |
4.750% Senior Notes due 2030 (less unamortized discount and issuance costs of $2.5 and $3.7, respectively) | 4.920% | | 643.8 | | | 643.6 | |
2.400% Senior Notes due 2031 (less unamortized discount and issuance costs of $0.6 and $3.2, respectively) | 2.512% | | 496.2 | | | 496.0 | |
5.375% Senior Notes due 2033 (less unamortized discount and issuance costs of $3.6 and $2.9, respectively) | 5.650% | | 293.5 | | | 293.4 | |
3.375% Senior Notes due 2041 (less unamortized discount and issuance costs of $1.0 and $4.9, respectively) | 3.448% | | 494.1 | | | 494.1 | |
5.400% Senior Notes due 2048 (less unamortized discount and issuance costs of $2.5 and $4.6, respectively) | 5.480% | | 492.9 | | | 492.8 | |
Other notes payable and finance leases | | | 1.0 | | | 0.8 | |
Total long-term debt | | | 3,168.6 | | | 3,167.6 | |
Less: current portion | | | 250.2 | | | 250.1 | |
Long-term debt, excluding current portion | | | $ | 2,918.4 | | | $ | 2,917.5 | |
As of March 31, 2024 and December 31, 2023, the estimated fair value of the Company's long-term debt was $2,943.4 and $2,975.3, respectively. Refer to Note 11 for details.
Debt Transactions
4.200% Senior Notes due 2024
Our 4.200% unsecured senior notes in aggregate principal amount of $250.0 matured on April 15, 2024. We used cash on hand to fund the principal repayment.
Credit Agreement
We maintain a committed corporate credit facility, originally dated as of July 18, 2008, which has been amended and restated from time to time (the "Credit Agreement"). We use our Credit Agreement to increase our financial flexibility, to provide letters of credit primarily to support obligations of our subsidiaries and to support our commercial paper program. On November 1, 2021, we amended and restated the Credit Agreement. As amended, among other things, the maturity date of the Credit Agreement was extended to November 1, 2026 and the cost structure of the Credit Agreement was changed. The Credit Agreement continues to include a required leverage ratio of not more than 3.50 to 1.00, among other customary covenants, including limitations on our liens and the liens of our consolidated subsidiaries and limitations on the incurrence of subsidiary debt. At the election of the Company, the leverage ratio may be changed to not more than 4.00 to 1.00 for four consecutive quarters, beginning with the fiscal quarter in which there is an occurrence of one or more acquisitions with an aggregate purchase price of at least $200.0.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
The Credit Agreement is a revolving facility, under which amounts borrowed by us or any of our subsidiaries designated under the Credit Agreement may be repaid and reborrowed, subject to an aggregate lending limit of $1,500.0, or the equivalent in other currencies. The Company has the ability to increase the commitments under the Credit Agreement from time to time by an additional amount of up to $250.0, provided the Company receives commitments for such increases and satisfies certain other conditions. The aggregate available amount of letters of credit outstanding may decrease or increase, subject to a sublimit of $50.0, or the equivalent in other currencies. Our obligations under the Credit Agreement are unsecured. As of March 31, 2024, there were no borrowings under the Credit Agreement; however, we had $9.5 of letters of credit under the Credit Agreement, which reduced our total availability to $1,490.5. We were in compliance with all of our covenants in the Credit Agreement as of March 31, 2024.
Uncommitted Lines of Credit
We also have uncommitted lines of credit with various banks that permit borrowings at variable interest rates and that are primarily used to fund working capital needs. We have guaranteed the repayment of some of these borrowings made by certain subsidiaries. If we lose access to these credit lines, we would have to provide funding directly to some of our operations. As of March 31, 2024, the Company had uncommitted lines of credit in an aggregate amount of $790.5, under which we had outstanding borrowings of $21.9 classified as short-term borrowings on our Consolidated Balance Sheet. The average amount outstanding during the first quarter of 2024 was $41.2 with a weighted-average interest rate of approximately 7.9%.
Commercial Paper
The Company is authorized to issue unsecured commercial paper up to a maximum aggregate amount outstanding at any time of $1,500.0. Borrowings under the program are supported by the Credit Agreement described above. Proceeds of the commercial paper are used for working capital and general corporate purposes, including the repayment of maturing indebtedness and other short-term liquidity needs. The maturities of the commercial paper vary but may not exceed 397 days from the date of issue. During the first quarter of 2024, there was no commercial paper activity and, as of March 31, 2024, there was no commercial paper outstanding.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 4: Earnings Per Share
The following sets forth basic and diluted earnings per common share available to IPG common stockholders.
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Net income available to IPG common stockholders | $ | 110.4 | | | $ | 126.0 | | | | | |
| | | | | | | |
Weighted-average number of common shares outstanding - basic | 378.4 | | | 385.8 | | | | | |
Dilutive effect of stock options and restricted shares | 2.2 | | | 1.6 | | | | | |
Weighted-average number of common shares outstanding - diluted | 380.6 | | | 387.4 | | | | | |
| | | | | | | |
Earnings per share available to IPG common stockholders: | | | | | | | |
Basic | $ | 0.29 | | | $ | 0.33 | | | | | |
Diluted | $ | 0.29 | | | $ | 0.33 | | | | | |
Note 5: Supplementary Data
Accrued Liabilities
The following table presents the components of accrued liabilities.
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Salaries, benefits and related expenses | $ | 316.9 | | | $ | 507.5 | |
Interest | 60.7 | | | 40.2 | |
Income taxes payable | 35.9 | | | 56.8 | |
Office and related expenses | 20.0 | | | 22.3 | |
Acquisition obligations | 9.4 | | | 2.9 | |
Restructuring charges | 0.2 | | | 0.6 | |
Other | 84.8 | | | 75.5 | |
Total accrued liabilities | $ | 527.9 | | | $ | 705.8 | |
Other Expense, Net
Results of operations for the three months ended March 31, 2024 and 2023 include certain items that are not directly associated with our revenue-producing operations.
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2024 | | 2023 | | | | |
Net losses on sales of businesses | $ | (6.8) | | | $ | (4.2) | | | | | |
Other | (2.7) | | | (2.5) | | | | | |
Total other expense, net | $ | (9.5) | | | $ | (6.7) | | | | | |
Net losses on sales of businesses – During the three months ended March 31, 2024 and 2023, the amounts recognized were related to sales of businesses and the classification of certain assets and liabilities, consisting primarily of accounts receivable and accounts payable, as held for sale within our MD&E, IA&C, and SC&E reportable segments. The businesses sold and held for sale primarily represent unprofitable, non-strategic agencies which are expected to be sold within the next twelve months.
Other – During the three months ended March 31, 2024 and 2023, the amounts recognized were primarily related to pension and postretirement costs.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Share Repurchase Programs
On February 8, 2023, the Board of Directors (the "Board") authorized a share repurchase program to repurchase from time to time up to $350.0, excluding fees, of our common stock, which was in addition to any amounts remaining under the 2022 share repurchase program.
On February 7, 2024, the Board authorized a share repurchase program to repurchase from time to time up to $320.0, excluding fees, of our common stock, which was in addition to any amounts remaining under the 2023 share repurchase program.
We may effect such repurchases through open market purchases, trading plans established in accordance with U.S. Securities and Exchange Commission ("SEC") rules, derivative transactions or other means. The timing and amount of repurchases in future periods will depend on market conditions and other funding requirements.
The following table presents our share repurchase activity under our share repurchase programs for the three months ended March 31, 2024 and 2023.
| | | | | | | | | | | |
| Three months ended March 31, |
| 2024 | | 2023 |
Number of shares repurchased | 1.9 | | | 2.2 | |
Aggregate cost, including fees1 | $ | 62.4 | | | $ | 77.8 | |
Average price per share, including fees | $ | 32.41 | | | $ | 35.50 | |
1The amount for the three months ended March 31, 2024 excludes $0.5 of estimated excise tax on net share repurchases.
As of March 31, 2024, $17.7, and $320.0, excluding fees, remains available for repurchase under the 2023 and 2024 share repurchase programs, respectively. There are no expiration dates associated with these share repurchase programs.
Redeemable Non-controlling Interests
Many of our acquisitions include provisions under which the non-controlling equity owners may require us to purchase additional interests in a subsidiary at their discretion. Redeemable non-controlling interests are adjusted quarterly, if necessary, to their estimated redemption value, but not less than their initial fair value. Any adjustments to the redemption value impact retained earnings or additional paid in capital, except for foreign currency translation adjustments.
The following table presents changes in our redeemable non-controlling interests.
| | | | | | | | | | | |
| Three months ended March 31, |
| 2024 | | 2023 |
Balance at beginning of period | $ | 42.3 | | | $ | 38.3 | |
Change in related non-controlling interests balance | (0.3) | | | 0.3 | |
Changes in redemption value of redeemable non-controlling interests: | | | |
Additions | — | | | — | |
Redemptions and other | (6.1) | | | (0.4) | |
Redemption value adjustments | 0.0 | | | — | |
Currency translation adjustments | 0.1 | | | 0.2 | |
Balance at end of period | $ | 36.0 | | | $ | 38.4 | |
Goodwill
Goodwill is the excess purchase price remaining from an acquisition after an allocation of purchase price has been made to identifiable assets acquired and liabilities assumed based on estimated fair values.
The Company transferred certain agencies between operating segments as of January 1, 2024 which resulted in certain changes to our reporting units and reportable segments. We have allocated goodwill to our reporting units using a relative fair
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
value approach. In addition, we completed an assessment of any potential goodwill impairment for all impacted reporting units immediately prior and subsequent to the reallocation and determined that no impairment existed.
The following table sets forth details of changes in goodwill by reportable segment of the Company:
| | | | | | | | | | | | | | | | | | | | | | | |
| MD&E | | IA&C | | SC&E | | Total |
Balance at December 31, 2023 | $ | 2,677.5 | | | $ | 1,723.2 | | | $ | 680.2 | | | $ | 5,080.9 | |
Goodwill Reallocation | 13.3 | | | (13.3) | | | — | | | — | |
Balance at January 1, 2024 | 2,690.8 | | | 1,709.9 | | | 680.2 | | | 5,080.9 | |
(Dispositions)/Acquisitions | — | | | (1.2) | | | 0.2 | | | (1.0) | |
Foreign Currency and Other | (4.4) | | | (9.2) | | | (2.6) | | | (16.2) | |
Balance at March 31, 2024 | $ | 2,686.4 | | | $ | 1,699.5 | | | $ | 677.8 | | | $ | 5,063.7 | |
Note 6: Income Taxes
For the three months ended March 31, 2024, our income tax expense was negatively impacted by net losses on sales of businesses and the classification of certain assets as held for sale for which we received minimal tax benefit. The adoption of the OECD's global tax reform initiative (known as Pillar 2) did not have a material impact on the first quarter of 2024.
We have various tax years under examination by tax authorities in the U.S., in various countries, and in various states and localities, such as New York City, in which we have significant business operations. It is not yet known whether these examinations will, in the aggregate, result in our paying additional taxes. We believe our tax reserves are adequate in relation to the potential for additional assessments in each of the jurisdictions in which we are subject to taxation. We regularly assess the likelihood of additional tax assessments in those jurisdictions and, if necessary, adjust our reserves as additional information or events require.
With respect to all tax years open to examination by U.S. federal, various state and local, and non-U.S. tax authorities, we currently anticipate that total unrecognized tax benefits will decrease by an amount between $105.0 and $115.0 in the next twelve months, a portion of which will affect our effective income tax rate, primarily as a result of the settlement of tax examinations and the lapsing of statutes of limitations. This net decrease is related to various items of income and expense, primarily transfer pricing adjustments.
We are effectively settled with respect to U.S. federal income tax audits through 2019. With limited exceptions, we are no longer subject to state and local income tax audits for years prior to 2015 or non-U.S. income tax audits for years prior to 2011.
Note 7: Incentive Compensation Plans
We issue stock-based compensation and cash awards to our employees under various plans established by the Compensation and Leadership Talent Committee of the Board of Directors (the "Compensation Committee") and approved by our stockholders. We issued the following stock-based awards under the 2019 Performance Incentive Plan (the "2019 PIP") during the three months ended March 31, 2024.
| | | | | | | | | | | |
| Awards | | Weighted-average grant-date fair value (per award) |
Restricted stock (units) | 1.3 | | | $ | 31.46 | |
Performance-based stock (shares) | 2.8 | | | $ | 27.55 | |
| | | |
Total stock-based compensation awards | 4.1 | | | |
During the three months ended March 31, 2024, the Compensation Committee granted performance cash awards under the 2019 PIP and restricted cash awards under the 2020 Restricted Cash Plan with a total annual target value of $1.4 and $13.6, respectively. Cash awards are expensed over the vesting period, which is typically three years for performance cash awards and two years or three years for restricted cash awards.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 8: Accumulated Other Comprehensive Loss, Net of Tax
The following tables present the changes in accumulated other comprehensive loss, net of tax, by component.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | | | Derivative Instruments | | Defined Benefit Pension and Other Postretirement Plans | | Total |
Balance as of December 31, 2023 | $ | (789.1) | | | | | $ | 33.5 | | | $ | (190.6) | | | $ | (946.2) | |
Other comprehensive (loss) income before reclassifications | (51.1) | | | | | — | | | 0.9 | | | (50.2) | |
Amount reclassified from accumulated other comprehensive loss, net of tax | — | | | | | (0.7) | | | 1.4 | | | 0.7 | |
Balance as of March 31, 2024 | $ | (840.2) | | | | | $ | 32.8 | | | $ | (188.3) | | | $ | (995.7) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Derivative Instruments | | Defined Benefit Pension and Other Postretirement Plans | | Total |
Balance as of December 31, 2022 | $ | (849.1) | | | $ | 35.0 | | | $ | (179.6) | | | $ | (993.7) | |
Other comprehensive income (loss) before reclassifications | 22.6 | | | (2.1) | | | 2.3 | | | 22.8 | |
Amount reclassified from accumulated other comprehensive loss, net of tax | — | | | (0.3) | | | 1.3 | | | 1.0 | |
Balance as of March 31, 2023 | $ | (826.5) | | | $ | 32.6 | | | $ | (176.0) | | | $ | (969.9) | |
Amounts reclassified from accumulated other comprehensive loss, net of tax, for the three months ended March 31, 2024 and 2023 are as follows:
| | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | | | Affected Line Item in the Consolidated Statements of Operations |
| 2024 | | 2023 | | | | | |
| | | | | | | | | |
Net gain on derivative instruments | $ | (0.9) | | | $ | (0.4) | | | | | | | Other expense, net, Interest expense |
Amortization of defined benefit pension and postretirement plan items | 1.9 | | | 1.7 | | | | | | | Other expense, net |
Tax effect | (0.3) | | | (0.3) | | | | | | | Provision for income taxes |
Total amount reclassified from accumulated other comprehensive loss, net of tax | $ | 0.7 | | | $ | 1.0 | | | | | | | |
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 9: Employee Benefits
We have a defined benefit pension plan that covers certain U.S. employees (the “Domestic Pension Plan”). We also have numerous funded and unfunded plans outside the U.S. The Interpublic Limited Pension Plan in the U.K. is a defined benefit plan and is our most material foreign pension plan in terms of the benefit obligation and plan assets. Some of our domestic and foreign subsidiaries provide postretirement health benefits and life insurance to eligible employees and, in certain cases, their dependents. The domestic postretirement benefit plan is our most material postretirement benefit plan in terms of the benefit obligation. Certain immaterial foreign pension and postretirement benefit plans have been excluded from the table below.
In December 2023, the U.K. Pension Plan entered into an agreement with an insurance company to purchase a group annuity, or "buy-in", that matches the plans future projected benefit obligations to covered participants. As part of the annuity purchase contract, the U.K. Pension Plan has the option to complete a "buy-out", which would transfer all liabilities of the plan to the insurer, which the Company anticipates to be completed in the first half of 2025. The non-cash settlement charge, net of tax, associated with the transaction is currently estimated to be approximately $180.0 to $200.0.
The components of net periodic cost for the Domestic Pension Plan, the significant foreign pension plans and the domestic postretirement benefit plan are listed below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Pension Plan | | Foreign Pension Plans | | Domestic Postretirement Benefit Plan |
Three Months Ended March 31, | 2024 | | 2023 | | 2024 | | 2023 | | 2024 | | 2023 |
Service cost | $ | 0.0 | | | $ | 0.0 | | | $ | 0.8 | | | $ | (0.2) | | | $ | 0.0 | | | $ | 0.0 | |
Interest cost | 0.9 | | | 1.0 | | | 3.7 | | | 4.1 | | | 0.2 | | | 0.2 | |
Expected return on plan assets | (0.7) | | | (1.0) | | | (3.7) | | | (4.2) | | | 0.0 | | | 0.0 | |
| | | | | | | | | | | |
Amortization of: | | | | | | | | | | | |
| | | | | | | | | | | |
Unrecognized actuarial losses | 0.4 | | | 0.4 | | | 1.5 | | | 1.3 | | | 0.0 | | | 0.0 | |
Net periodic cost | $ | 0.6 | | | $ | 0.4 | | | $ | 2.3 | | | $ | 1.0 | | | $ | 0.2 | | | $ | 0.2 | |
The components of net periodic cost other than the service cost component are included in the line item “Other expense, net” in the Consolidated Statements of Operations.
During the three months ended March 31, 2024, we contributed $0.0 and $2.9 of cash to our domestic and foreign pension plans, respectively. For the remainder of 2024, we expect to contribute approximately $0.0 and $7.0 of cash to our domestic and foreign pension plans, respectively.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 10: Segment Information
As of March 31, 2024, we have three reportable segments: MD&E, IA&C, and SC&E. We also report results for the "Corporate and other" group.
MD&E primarily provides, and is distinguished by innovative capabilities and scale in, global media and communications services, digital services and products, advertising and marketing technology, e‐commerce services, data management and analytics, strategic consulting, and digital brand experience. MD&E is comprised of IPG Mediabrands and Acxiom, as well as our digital and commerce specialist agencies, which include MRM, R/GA, and Huge.
IA&C primarily provides advertising, corporate and brand identity services, and strategic consulting. IA&C is distinguished by the leading role of complex integrations of ideation and the execution of advertising and creative campaigns across all communications channels that are foundational to client brand identities. IA&C is comprised of leading global networks and agencies that provide a broad range of services, including McCann Worldgroup, IPG Health, MullenLowe Group, Foote, Cone & Belding ("FCB"), and our domestic integrated agencies.
SC&E primarily provides best-in-class global public relations and other specialized communications services, events, sports and entertainment marketing, and strategic consulting. SC&E is comprised of agencies that provide a range of marketing services expertise, including Weber Shandwick, Golin, our sports, entertainment, and experiential agencies, and IPG DXTRA Health.
Certain prior period amounts, wherever applicable, have been recast to reflect the transfer of certain agencies between our reportable segments.
We continue to evaluate our financial reporting structure, and the profitability measure employed by our chief operating decision maker for allocating resources to operating divisions and assessing operating division performance is segment EBITA. Summarized financial information concerning our reportable segments is shown in the following table.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2024 | | 2023 | | | | |
Total revenue: | | | | | | | |
MD&E | $ | 973.3 | | | $ | 986.9 | | | | | |
IA&C | 963.8 | | | 959.0 | | | | | |
SC&E | 558.8 | | | 575.1 | | | | | |
Total | $ | 2,495.9 | | | $ | 2,521.0 | | | | | |
| | | | | | | |
Revenue before billable expenses: | | | | | | | |
MD&E | $ | 961.3 | | | $ | 965.9 | | | | | |
IA&C | 881.4 | | | 870.5 | | | | | |
SC&E | 340.2 | | | 340.5 | | | | | |
Total | $ | 2,182.9 | | | $ | 2,176.9 | | | | | |
| | | | | | | |
Restructuring1: | | | | | | | |
MD&E | $ | — | | | $ | — | | | | | |
IA&C | 0.3 | | | 0.3 | | | | | |
SC&E | 0.3 | | | 1.3 | | | | | |
Corporate and Other | — | | | — | | | | | |
Total | $ | 0.6 | | | $ | 1.6 | | | | | |
| | | | | | | |
Segment EBITA2: | | | | | | | |
MD&E | $ | 93.2 | | | $ | 79.8 | | | | | |
IA&C | 107.9 | | | 98.1 | | | | | |
SC&E | 43.9 | | | 45.2 | | | | | |
Corporate and Other | (40.1) | | | (13.9) | | | | | |
Total | $ | 204.9 | | | $ | 209.2 | | | | | |
| | | | | | | |
Amortization of acquired intangibles: | | | | | | | |
MD&E | $ | 19.2 | | | $ | 19.4 | | | | | |
IA&C | 1.0 | | | 0.9 | | | | | |
SC&E | 0.5 | | | 0.6 | | | | | |
Corporate and Other | 0.0 | | | 0.0 | | | | | |
Total | $ | 20.7 | | | $ | 20.9 | | | | | |
| | | | | | | |
Depreciation and amortization3: | | | | | | | |
MD&E | $ | 26.5 | | | $ | 26.3 | | | | | |
IA&C | 12.4 | | | 14.1 | | | | | |
SC&E | 3.5 | | | 4.2 | | | | | |
Corporate and Other | 2.1 | | | 1.0 | | | | | |
Total | $ | 44.5 | | | $ | 45.6 | | | | | |
| | | | | | | |
Capital expenditures: | | | | | | | |
MD&E | $ | 21.5 | | | $ | 22.4 | | | | | |
IA&C | 2.4 | | | 1.8 | | | | | |
SC&E | 0.8 | | | 0.5 | | | | | |
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | |
Corporate and Other | 10.4 | | | 8.2 | | | | | |
Total | $ | 35.1 | | | $ | 32.9 | | | | | |
1 Non-cash lease impairment costs were comprised of $0.3 at IA&C and $0.3 at SC&E for the three months ended March 31, 2024. Non-cash lease impairment costs were comprised of $1.2 at SC&E for the three months ended March 31, 2023.
2 Segment EBITA is calculated as net income available to IPG common stockholders before provision for income taxes, total (expenses) and other income, equity in net income (loss) of unconsolidated affiliates, net income attributable to non-controlling interests and amortization of acquired intangibles.
3 Excludes amortization of acquired intangibles.
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Total assets: | | | |
MD&E | $ | 9,556.1 | | | $ | 10,737.5 | |
IA&C | 4,662.1 | | | 4,790.4 | |
SC&E | 1,679.8 | | | 1,800.6 | |
Corporate and Other | 1,388.1 | | | 1,938.8 | |
Total | $ | 17,286.1 | | | $ | 19,267.3 | |
The following table presents the reconciliation of segment EBITA to Income before income taxes.
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2024 | | 2023 | | | | |
MD&E EBITA | $ | 93.2 | | | $ | 79.8 | | | | | |
IA&C EBITA | 107.9 | | | 98.1 | | | | | |
SC&E EBITA | 43.9 | | | 45.2 | | | | | |
Corporate and Other EBITA | (40.1) | | | (13.9) | | | | | |
Less: consolidated amortization of acquired intangibles | 20.7 | | | 20.9 | | | | | |
Operating income | 184.2 | | | 188.3 | | | | | |
Total (expenses) and other income | (23.6) | | | (22.3) | | | | | |
Income before income taxes | $ | 160.6 | | | $ | 166.0 | | | | | |
Note 11: Fair Value Measurements
Authoritative guidance for fair value measurements establishes a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
| | | | | | | | |
Level 1 | | Unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| |
Level 2 | | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| | |
Level 3 | | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Financial Instruments that are Measured at Fair Value on a Recurring Basis
We primarily apply the market approach to determine the fair value of financial instruments that are measured at fair value on a recurring basis. There were no changes to our valuation techniques used to determine the fair value of financial instruments during the three months ended March 31, 2024. The following tables present information about our financial instruments measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | Balance Sheet Classification |
| Level 1 | | Level 2 | | Level 3 | | Total | |
Assets | | | | | | | | | |
Cash equivalents | $ | 658.5 | | | $ | — | | | $ | — | | | $ | 658.5 | | | Cash and cash equivalents |
| | | | | | | | | |
Liabilities | | | | | | | | | |
Contingent acquisition obligations 1 | $ | — | | | $ | — | | | $ | 9.4 | | | $ | 9.4 | | | Accrued liabilities and Other non-current liabilities |
| | | | | | | | | |
| December 31, 2023 | | Balance Sheet Classification |
| Level 1 | | Level 2 | | Level 3 | | Total | |
Assets | | | | | | | | | |
Cash equivalents | $ | 1,521.5 | | | $ | — | | | $ | — | | | $ | 1,521.5 | | | Cash and cash equivalents |
| | | | | | | | | |
Liabilities | | | | | | | | | |
Contingent acquisition obligations 1 | $ | — | | | $ | — | | | $ | 3.1 | | | $ | 3.1 | | | Accrued liabilities and Other non-current liabilities |
1Contingent acquisition obligations includes deferred acquisition payments and unconditional obligations to purchase additional non-controlling equity shares of consolidated subsidiaries. Fair value measurement of the obligations is based upon actual and projected operating performance targets as specified in the related agreements. The increase in this balance of $6.3 from December 31, 2023 to March 31, 2024 is primarily due to the exercises of redeemable non-controlling interest. The amounts payable within the next twelve months are classified in accrued liabilities; any amounts payable thereafter are classified in other non-current liabilities.
Financial Instruments that are not Measured at Fair Value on a Recurring Basis
The following table presents information about our financial instruments that are not measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Total long-term debt | $ | — | | | $ | 2,942.4 | | | $ | 1.0 | | | $ | 2,943.4 | | | $ | — | | | $ | 2,974.5 | | | $ | 0.8 | | | $ | 2,975.3 | |
Our long-term debt is comprised of senior notes and other notes payable. The fair value of our senior notes, which are traded over-the-counter, is based on quoted prices in markets that are not active. Therefore, these senior notes are classified as Level 2. Our other notes payable are not actively traded, and their fair value is not solely derived from readily observable inputs. The fair value of our other notes payable is determined based on a discounted cash flow model and other proprietary valuation methods, and therefore is classified as Level 3. See Note 3 for further information on our long-term debt.
The discount rates used as significant unobservable inputs in the Level 3 fair value measurements of our contingent acquisition obligations and long-term debt as of March 31, 2024 ranged from 5.0% to 6.0%.
Non-financial Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Certain non-financial assets and liabilities are measured at fair value on a nonrecurring basis, primarily goodwill (Level 3), intangible assets, and property and equipment. Accordingly, these assets are not measured and adjusted to fair value on an ongoing basis but are subject to periodic evaluations for potential impairment.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 12: Commitments and Contingencies
Guarantees
As discussed in our 2023 Annual Report, we have guaranteed certain obligations of our subsidiaries relating principally to operating leases and uncommitted lines of credit of certain subsidiaries. As of March 31, 2024 and December 31, 2023, the amount of parent company guarantees on lease obligations was $656.0 and $678.1, respectively, the amount of parent company guarantees primarily relating to uncommitted lines of credit was $267.6 and $255.7, respectively, and the amount of parent company guarantees related to daylight overdrafts, primarily utilized to manage intra-day overdrafts due to timing of transactions under cash pooling arrangements without resulting in incremental borrowings, was $84.1 and $85.5, respectively. In the event of non-payment by the applicable subsidiary of the obligations covered by a guarantee, we would be obligated to pay the amounts covered by that guarantee. As of both March 31, 2024, and December 31, 2023 there were no material assets pledged as security for such parent company guarantees.
Legal Matters
We are involved in various legal proceedings, and subject to investigations, inspections, audits, inquiries and similar actions by governmental authorities arising in the normal course of business. The types of allegations that arise in connection with such legal proceedings vary in nature, but can include claims related to contract, employment, tax and intellectual property matters. We evaluate all cases each reporting period and record liabilities for losses from legal proceedings when we determine that it is probable that the outcome in a legal proceeding will be unfavorable and the amount, or potential range, of loss can be reasonably estimated. In certain cases, we cannot reasonably estimate the potential loss because, for example, the litigation is in its early stages. While any outcome related to litigation or such governmental proceedings in which we are involved cannot be predicted with certainty, management believes that the outcome of these matters, individually and in the aggregate, will not have a material adverse effect on our financial condition, results of operations or cash flows.
Note 13: Recent Accounting Standards
Accounting pronouncements not listed below were assessed and determined to be not applicable or are expected to have minimal impact on our Consolidated Financial Statements.
Income Taxes
In December 2023, the Financial Accounting Standards Board issued amended guidance to enhance the transparency and decision usefulness of income tax disclosures by requiring disaggregated information about an entity's effective tax rate reconciliation, as well as information on taxes paid. This amended guidance is effective for annual periods beginning after December 15, 2024. We are currently evaluating the impact on our Consolidated Financial Statements.
Segment Reporting
In November 2023, the Financial Accounting Standards Board issued amended guidance on segment reporting to improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analysis. This amended guidance is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024. We are currently evaluating the impact on our Consolidated Financial Statements.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
| | | | | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand The Interpublic Group of Companies, Inc. and its subsidiaries (the “Company,” “IPG,” “we,” “us” or “our”). MD&A should be read in conjunction with our unaudited Consolidated Financial Statements and the accompanying notes included in this report and our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”), as well as our other reports and filings with the Securities and Exchange Commission (the “SEC”). Our 2023 Annual Report includes additional information about our significant accounting policies and practices as well as details about the most significant risks and uncertainties associated with our financial and operating results. Our MD&A includes the following sections:
EXECUTIVE SUMMARY provides a discussion about our strategic outlook, factors influencing our business and an overview of our results of operations.
RESULTS OF OPERATIONS provides an analysis of the consolidated and segment results of operations for the periods presented.
LIQUIDITY AND CAPITAL RESOURCES provides an overview of our cash flows, funding requirements, financing and sources of funds, and debt credit ratings.
CRITICAL ACCOUNTING ESTIMATES provides an update to the discussion in our 2023 Annual Report of our accounting policies that require critical judgment, assumptions and estimates.
RECENT ACCOUNTING STANDARDS, by reference to Note 13 to the unaudited Consolidated Financial Statements, provides a discussion of certain accounting standards that have been recently adopted or that have not yet been required to be implemented and may be applicable to our future operations.
NON-GAAP FINANCIAL MEASURE, provides a reconciliation of non-GAAP financial measure with the most directly comparable generally accepted accounting principles in the United States (“U.S. GAAP”) financial measures and sets forth the reasons we believe that presentation of the non-GAAP financial measure contained therein provides useful information to investors regarding our results of operations and financial condition.
EXECUTIVE SUMMARY
Our Business
We provide marketing, communications and business transformation services that help marketers and brands succeed in today's digital economy. Combining the power of creativity and technology, our approximately 56,800 employees and operations span all major world markets. Our companies specialize in insights, data, media, creative and production, digital commerce, healthcare marketing and communications, producing marketing solutions for clients that range in scale from large global marketers to regional and local clients. Our comprehensive global services help marketers build brands, increase sales of their products and services, and gain market share.
Our capabilities span ideation to execution: growth, product and experience design; technology and experience platforms; creative, media and marketing strategy; and campaign, content and channel orchestration. The work we produce for our clients is specific to their unique needs. Our solutions vary from project-based activity to long-term, fully integrated campaigns. Our operations support the strategic position that marketers have access to the best and most appropriate resources within IPG to drive business success, and may access these capabilities from across the IPG network in an agile model called Open Architecture®. With operations in over 100 countries, we can operate in a single region or deliver global integrated programs.
We operate in a media, consumer and technology ecosystem that continues to evolve at a rapid pace. To help our clients win in a data-led and digital-first world, we have made and continue to make investments in strategic areas including digital commerce, retail media, artificial intelligence, audience resolution and production across world markets. In addition, we consistently review opportunities within our Company to enhance our operations through acquisitions and strategic alliances and internal programs that encourage client-centric collaboration. As appropriate, we also develop relationships with technology and emerging media companies that are building leading-edge marketing tools that complement our agencies' skill sets and capabilities.
Home to some of the world’s best-known and most innovative communications specialists, IPG global brands include Acxiom, Craft, FCB, FutureBrand, Golin, Huge, Initiative, IPG Health, IPG Mediabrands, Jack Morton, KINESSO, MAGNA, McCann, Mediahub, Momentum, MRM, MullenLowe Global, Octagon, R/GA, UM, Weber Shandwick and more.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Our financial goals include competitive organic growth of revenue before billable expenses and expansion of Adjusted EBITA margin, as defined and discussed within the Non-GAAP Financial Measure section of this MD&A, which we expect will further strengthen our balance sheet and total liquidity and increase value to our stakeholders. Accordingly, we remain focused on meeting the evolving needs of our clients while concurrently managing our cost structure. We continually seek greater efficiency in the delivery of our services, focusing on more effective resource utilization, including the productivity of our employees, real estate, information technology and shared services, such as finance, human resources and legal. The improvements we have made and continue to make in our financial reporting and business information systems in recent years allow us more timely and actionable insights from our global operations. Our disciplined approach to our balance sheet and liquidity provides us with a solid financial foundation and financial flexibility to manage and grow our business. We believe that our strategy and execution position us to meet our financial goals and to deliver long-term value to all of our stakeholders.
Current Market Conditions
In the opening months of the new year, the macroeconomic backdrop continued to be characterized by global crosscurrents, which together offer only moderate cyclical market support. A fragile but growing conviction that the U.S. would avoid a long-anticipated recession began to take hold but emerged alongside persistent concerns about the impact of war and violence in Ukraine and the Middle East, and amid continuing political and economic tensions involving the largest national economic actors. In adjacent industries, forecasts of robust media markets for the year exist alongside a slowdown in the consulting industry. The upshot is that the overall tenor of our markets has shown improvement from the second half of last year, though macroeconomic uncertainty continues to color the current market for both ourselves and many clients. At the same time, consumer markets and media continue to evolve at high velocity, supporting the ongoing need among large marketers for the advanced capabilities in which we specialize.
The principal macroeconomic risks to our performance include the impact of any general or regional economic slowdown or contraction, the extent of inflation of labor costs and potential for labor shortages, continuing inflationary pressures on our clients and their customers, and the economic impacts of geopolitical conflict and resulting potential for uncertainty and restrictions on spending on the part of some clients and consumers. See Item 1A, Risk Factors, in our most recent Annual Report on Form 10-K.
Our Financial Information
When we analyze period-to-period changes in our operating performance, we determine the portion of the change that is attributable to changes in foreign currency rates and the net effect of acquisitions and divestitures, and the remainder we call organic change, which indicates how our underlying business performed. We exclude the impact of billable expenses in analyzing our operating performance as the fluctuations from period to period are not indicative of the performance of our underlying businesses and have no impact on our operating income or net income.
The change in our operating performance attributable to changes in foreign currency rates is determined by converting the prior-period reported results using the current-period exchange rates and comparing these prior-period adjusted amounts to the prior-period reported results. Although the U.S. Dollar is our reporting currency, a substantial portion of our revenues and expenses are generated in foreign currencies. Therefore, our reported results are affected by fluctuations in the currencies in which we conduct our international businesses. Our exposure is mitigated as the majority of our revenues and expenses in any given market are generally denominated in the same currency. Both positive and negative currency fluctuations against the U.S. Dollar affect our consolidated results of operations, and the magnitude of the foreign currency impact to our operations related to each geographic region depends on the significance and operating performance of the region. The foreign currencies that most favorably impacted our results during the first three months of 2024 were the British Pound Sterling, the Colombian Peso and the Euro. The foreign currencies that most adversely impacted our results during the first three months of 2024 were the Argentine Peso, the Japanese Yen and the Australian Dollar.
For purposes of analyzing changes in our operating performance attributable to the net effect of acquisitions and divestitures, transactions are treated as if they occurred on the first day of the quarter during which the transaction occurred. We continually evaluate our portfolio of businesses, and over the past several years, we have acquired companies that we believe will enhance our offerings and disposed of businesses that are not consistent with our strategic plan.
The metrics that we use to evaluate our financial performance include organic change in revenue before billable expenses as well as the change in certain operating expenses, and the components thereof, expressed as a percentage of consolidated revenue before billable expenses, as well as Adjusted EBITA. These metrics are also used by management to assess the financial performance of our reportable segments, MD&E, IA&C, and SC&E. In certain of our discussions, we analyze revenue before billable expenses by geographic region and by business sector, in which we focus on our top 500 clients, which typically constitute approximately 85% of our annual consolidated revenue before billable expenses.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Results for the three months ended March 31, 2024, may not be indicative of the results that may be expected for the fiscal year ending December 31, 2024. The Consolidated Financial Statements and MD&A presented herein reflect the latest estimates and assumptions made by us that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. We believe we have used reasonable estimates and assumptions to assess the fair values of the Company’s goodwill, long-lived assets and indefinite-lived intangible assets; assessment of the annual effective tax rate; valuation of deferred income taxes and the allowance for expected credit losses on future uncollectible accounts receivable. If actual market conditions vary significantly from those currently projected, these estimates and assumptions could materially change resulting in adjustments to the carrying values of our assets and liabilities.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
The following table presents a summary of our financial performance for the three months ended March 31, 2024 and 2023.
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| Three months ended March 31, | | | | | | |
Statement of Operations Data | 2024 | | 2023 | | % Increase/ (Decrease) | | | | | | |
REVENUE: | | | | | | | | | | | |
Revenue before billable expenses | $ | 2,182.9 | | $ | 2,176.9 | | 0.3 | % | | | | | | |
Billable expenses | 313.0 | | 344.1 | | (9.0) | % | | | | | | |
Total revenue | $ | 2,495.9 | | $ | 2,521.0 | | (1.0) | % | | | | | | |
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OPERATING INCOME | $ | 184.2 | | $ | 188.3 | | (2.2) | % | | | | | | |
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Adjusted EBITA 1 | $ | 204.9 | | $ | 209.2 | | (2.1) | % | | | | | | |
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NET INCOME AVAILABLE TO IPG COMMON STOCKHOLDERS | $ | 110.4 | | $ | 126.0 | | | | | | | | |
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Earnings per share available to IPG common stockholders: | | | | | | | | | | | |
Basic | $ | 0.29 | | $ | 0.33 | | | | | | | | |
Diluted | $ | 0.29 | | $ | 0.33 | | | | | | | | |
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Operating Ratios | | | | | | | | | | | |
Organic change in revenue before billable expenses | 1.3 | % | | (0.2) | % | | | | | | | | |
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Operating margin on revenue before billable expenses | 8.4 | % | | 8.6 | % | | | | | | | | |
Operating margin on total revenue | 7.4 | % | | 7.5 | % | | | | | | | | |
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Adjusted EBITA margin on revenue before billable expenses 1 | 9.4 | % | | 9.6 | % | | | | | | | | |
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Expenses as a % of revenue before billable expenses: | | | | | | | | | | | |
Salaries and related expenses | 72.1 | % | | 72.5 | % | | | | | | | | |
Office and other direct expenses | 14.8 | % | | 15.2 | % | | | | | | | | |
Selling, general and administrative expenses | 1.7 | % | | 0.6 | % | | | | | | | | |
Depreciation and amortization | 3.0 | % | | 3.1 | % | | | | | | | | |
Restructuring charges 2 | 0.0 | % | | 0.1 | % | | | | | | | | |
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1 Adjusted EBITA is a financial measure that is not defined by U.S. GAAP. Adjusted EBITA is calculated as net income available to IPG common stockholders before provision for income taxes, total (expenses) and other income, equity in net (loss) income of unconsolidated affiliates, net income attributable to non-controlling interests and amortization of acquired intangibles. Refer to the “Non-GAAP Financial Measure” section of this MD&A for additional information and for a reconciliation to U.S. GAAP measures.
2 For the three months ended March 31, 2024 and March 31, 2023, results include net restructuring charges of $0.6 and $1.6, respectively.
Total revenue, which includes billable expenses, decreased (1.0)% during the first quarter of 2024. Our organic increase of revenue before billable expenses was 1.3% during the first quarter of 2024, compared to an organic decrease of (0.2)% during the first quarter of 2023. The increase was due to net client wins and increased spending from existing clients in our healthcare and food & beverage sectors, partially offset by net client losses and lower spending from existing clients in our technology &
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
telecom sector. During the first quarter of 2024, our Adjusted EBITA margin on revenue before billable expenses decreased to 9.4% from 9.6% in the prior-year period as the increase in revenue before billable expenses was outpaced by the overall increase in our operating expenses, excluding billable expenses and amortization of acquired intangibles. See further discussion below in the “Results of Operations” section.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
RESULTS OF OPERATIONS
Consolidated Results of Operations – Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Revenue before billable expenses
Our revenue before billable expenses is directly impacted by the retention and spending levels of existing clients and by our ability to win new clients. Most of our expenses are recognized ratably throughout the year and are therefore less seasonal than revenue. Our revenue before billable expenses is typically lowest in the first quarter and highest in the fourth quarter, reflecting the seasonal spending of our clients.
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| | | Components of Change | | | | Change |
| Three months ended March 31, 2023 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | Three months ended March 31, 2024 | Organic | | Total |
Consolidated | $ | 2,176.9 | | | $ | 1.6 | | | $ | (23.4) | | | $ | 27.8 | | | $ | 2,182.9 | | | 1.3 | % | | 0.3 | % |
Domestic | 1,470.6 | | | — | | | (25.9) | | | 31.6 | | | 1,476.3 | | | 2.1 | % | | 0.4 | % |
International | 706.3 | | | 1.6 | | | 2.5 | | | (3.8) | | | 706.6 | | | (0.5) | % | | 0.0 | % |
United Kingdom | 170.2 | | | 7.4 | | | — | | | 0.4 | | | 178.0 | | | 0.2 | % | | 4.6 | % |
Continental Europe | 163.7 | | | 1.2 | | | — | | | 14.6 | | | 179.5 | | | 8.9 | % | | 9.7 | % |
Asia Pacific | 159.2 | | | (6.0) | | | 2.5 | | | (12.9) | | | 142.8 | | | (8.1) | % | | (10.3) | % |
Latin America | 84.7 | | | (0.1) | | | — | | | 2.5 | | | 87.1 | | | 3.0 | % | | 2.8 | % |
Other | 128.5 | | | (0.9) | | | — | | | (8.4) | | | 119.2 | | | (6.5) | % | | (7.2) | % |
The organic increase of revenue before billable expenses was 1.3% during the first quarter of 2024. The organic increase in our domestic market was primarily due to revenue increases at our media and advertising businesses as well as our public relations agencies, partially offset by revenue decreases at our digital project-based offerings. In our international markets, the (0.5)% organic decrease was driven by revenue decreases at our digital project-based offerings across all regions and revenue decreases at our media businesses in our Asia Pacific region, partially offset by revenue increases at our media businesses in our Continental Europe and Latin America regions.
Refer to the segment discussion later in this MD&A for information on changes in revenue before billable expenses by segment.
Salaries and Related Expenses
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| Three months ended March 31, | | | | | | |
| 2024 | | 2023 | | % Increase/ (Decrease) | | | | | | |
Salaries and related expenses | $ | 1,572.8 | | $ | 1,577.3 | | (0.3) | % | | | | | | |
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As a % of revenue before billable expenses: | | | | | | | | | | | |
Salaries and related expenses | 72.1 | % | | 72.5 | % | | | | | | | | |
Base salaries, benefits and tax | 62.9 | % | | 64.0 | % | | | | | | | | |
Incentive expense | 2.6 | % | | 2.5 | % | | | | | | | | |
Severance expense | 2.2 | % | | 1.5 | % | | | | | | | | |
Temporary help | 3.3 | % | | 3.4 | % | | | | | | | | |
All other salaries and related expenses | 1.1 | % | | 1.1 | % | | | | | | | | |
Total salaries and related expenses decreased (0.3)% during the first quarter of 2024 as compared to the prior-year period, primarily driven by decreased base salaries, benefits and tax partially offset by increased severance expense.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Office and Other Direct Expenses
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| Three months ended March 31, | | | | | | |
| 2024 | | 2023 | | % Increase/ (Decrease) | | | | | | |
Office and other direct expenses | $ | 322.1 | | $ | 330.3 | | (2.5) | % | | | | | | |
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As a % of revenue before billable expenses: | | | | | | | | | | | |
Office and other direct expenses | 14.8 | % | | 15.2 | % | | | | | | | | |
Occupancy expense | 4.4 | % | | 4.4 | % | | | | | | | | |
All other office and other direct expenses 1 | 10.4 | % | | 10.8 | % | | | | | | | | |
1Includes client service costs, non-pass through production expenses, travel and entertainment, professional fees, spending to support new business activity, telecommunications, office supplies, bad debt expense, adjustments to contingent acquisition obligations, foreign currency losses (gains) and other expenses.
Office and other direct expenses decreased by (2.5)% during the first quarter of 2024 as compared to the prior-year period. The decrease in office and other direct expenses was mainly driven by decreased client service costs, company meetings and conferences, and professional consulting fees, partially offset by increased new business development, and technology & software expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) are primarily the unallocated expenses of our "Corporate and Other" group, as detailed further in the segment discussion later in this MD&A, excluding depreciation and amortization. For the three months ended March 31, 2024, SG&A increased as compared to the prior-year period, primarily due to increased base salaries, benefits and tax and technology & software expenses.
Depreciation and Amortization
During the first quarter of 2024, depreciation and amortization expenses decreased slightly compared to the prior-year period.
Restructuring Charges
During the first quarter of 2024 and 2023, restructuring charges represent adjustments to our restructuring actions taken in 2020 and 2022.
EXPENSES AND OTHER INCOME
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| Three months ended March 31, | | |
| 2024 | | 2023 | | | | |
Cash interest on debt obligations | $ | (62.5) | | | $ | (49.0) | | | | | |
Non-cash interest | (0.3) | | | (0.7) | | | | | |
Interest expense | (62.8) | | | (49.7) | | | | | |
Interest income | 48.7 | | | 34.1 | | | | | |
Net interest expense | (14.1) | | | (15.6) | | | | | |
Other expense, net | (9.5) | | | (6.7) | | | | | |
Total (expenses) and other income | $ | (23.6) | | | $ | (22.3) | | | | | |
Net interest expense decreased by $1.5 for the three months ended March 31, 2024, compared to a year ago, primarily attributable to higher interest rates on net deposits.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Other Expense, Net
Results of operations for the three months ended March 31, 2024 and 2023 include certain items that are not directly associated with our revenue-producing operations.
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| Three months ended March 31, | | |
| 2024 | | 2023 | | | | |
Net losses on sales of businesses | $ | (6.8) | | | $ | (4.2) | | | | | |
Other | (2.7) | | | (2.5) | |