The Operator welcomes listeners to the Interpublic Group Fourth Quarter and Full Year 2023 Conference Call, where CEO Philippe Krakowsky and CFO Ellen Johnson will discuss the company's performance. They have posted their earnings release and slide presentation on their website and will refer to forward-looking statements and non-GAAP measures. Krakowsky highlights the company's strong growth in the fourth quarter and for the full year, and Ellen will provide more detail. Krakowsky will also update on key developments at the agencies before opening up for Q&A.

Despite challenges in the economy and within their client base, the company saw an acceleration in growth in the fourth quarter of the year. This was due to new business wins and strong performance in media and healthcare. The US, European, and Latin American markets all showed improvement compared to the previous quarter. However, overall organic revenue for the year decreased slightly compared to the previous year. Performance in different sectors was also mixed in the fourth quarter.

In the fourth quarter, six out of eight client sectors saw revenue increases, with the healthcare sector leading the way. The media, data, and engagement solutions segment grew organically by 1.1%, while the integrated advertising and creativity led solutions segment and specialized communications and experiential solutions segment grew by 2% and 2.9% respectively. The company also saw strong profitability and expense management, with an adjusted EBITDA margin of 24.3%. This was achieved through effective use of the company's flexible business model and investments in modern capabilities.

In 2023, the company exceeded their target margin and saw an increase in net income and adjusted EBITDA. They also saw an increase in diluted earnings per share, with a reminder that the second quarter included a one-time benefit related to tax audits. The company also repurchased shares and increased their dividend for the 12th consecutive year. Looking ahead to 2024, there is still uncertainty in the economy and clients are being cautious in their spending.

Despite budget reductions in the tech and telco sector, there has been a recent stabilization in spending. The company has taken steps to strengthen their digital offerings and plans to focus on strategic solutions and M&A in the near term. They remain confident in their company's fundamental strength and anticipate growth in their data and tech-driven media, healthcare marketing, PR, and experiential marketing capabilities. However, due to client caution and challenges in some of their legacy and digital specialist areas, they expect organic net revenue growth for 2024 to be between 1% to 2%, with a full-year adjusted EBITDA margin of 16.6%.

In the fourth quarter, the company saw a 1.4% increase in net revenue and a 1.7% increase in organic growth. The company's four-year cumulative growth rate is 13.9%, despite the challenges of the COVID-19 pandemic. Adjusted EBITDA was $628.5 million with a margin on net revenue of 24.3%. Diluted earnings per share was $1.21 as reported and $1.18 as adjusted. For the full year, adjusted diluted EPS was $2.99, including a $0.17 per share benefit from the resolution of federal income tax audits.

The company ended the year with a strong financial position and returned a total of $350 million to shareholders through share repurchases and increased dividend. In the fourth quarter, net revenue increased by 1.4%, with organic growth of 1.7%. The Media Data & Engagement Solutions segment grew by 1.1% organically, while the Integrated Advertising & Creativity Led Solutions segment saw 2% organic growth. The challenges in the specialty digital agencies affected the overall segment growth, resulting in a 10 basis point decrease for the full year.

In 2023, the Specialized Communications & Experiential Solutions segment decreased 1.7% organically, while the U.S. segment grew by 10 basis points. International markets, which make up 38% of net revenue, grew by 4.3% organically, with strong performances in continental Europe and LatAm. However, there were decreases in the U.K. and Asia Pac regions. Overall, the company saw growth in most national markets and across major segment disciplines.

In the fourth quarter, LatAm accounted for 6% of net revenue while other international markets, including Canada, the Middle East, and Africa, decreased by 1.4%. The decrease was primarily due to a decline in Israel. Operating expenses improved, leading to a higher EBITDA margin of 24.3%. Adjustments were made to reported results to provide a more accurate picture of performance, including expenses for acquired intangibles and gains from the sale of nonstrategic businesses.

The paragraph discusses the after-tax impact of adjustments on fourth quarter diluted EPS, as well as the full year adjusted EBITDA and diluted EPS. It also mentions a $16.4 million net gain from dispositions and a $46 million contribution to the U.K. pension fund. The company plans to secure a buyout for the U.K. plan in the next 10-18 months, which would result in a noncash charge of $180-200 million.

The company's investing activities used $85.4 million and its financing activities totaled $634.3 million, resulting in a net decrease in cash of $158 million for the year. The company ended the year with $2.39 billion in cash and equivalents and has a strong balance sheet and liquidity for future success. Despite facing volatility in the industry, the company did not meet its expectations for the year, but has been focusing on creating centralized capabilities and bringing in key leaders to improve performance.

IPG's success has been driven by their focus on strategy, talent, and culture, as well as their expertise in first-party data management and accountable marketing solutions. They have recently invested in identity resolution tools, a unified retail media network, and performance marketing at KINESSO to further their data and technology strategy. They also continue to invest in Artificial Intelligence to enhance their offerings, particularly in personalized content creation. These investments are on par with their competitors.

IPG has partnerships with major AI vendors like Amazon, Adobe, and Google and is also working with emerging players in the space. These collaborations have resulted in AI-powered products that are being used by clients, such as a chat assistant for internal productivity and tools for transformation journeys. IPG's agencies are utilizing AI in various ways, such as creative concepting and research. Weber Shandwick has a dedicated team and product set to help clients with technical and cultural aspects of AI. IPG has also strengthened its senior team to ensure that resources in areas like audience and identity, commerce, and production are being utilized across the group.

In Q4, IPG's Chief Solutions Architect is leading the company's marketing tech solutions with partners like Adobe and Salesforce. A top creative leader has also joined the team to focus on talent and innovative ideas. Mediabrands had a strong performance and announced a three-year partnership with Amazon Ads. KINESSO had a standout quarter and UM had a global win with Boeing. Acxiom was recognized as a leader in identity and onboarding and launched a new data offering in the healthcare space.

IPG Health had a strong quarter, winning new business and receiving industry recognition. FCB also performed well, winning Clorox's U.S. creative duties and receiving top creative honors. Our earned and experiential agencies secured AI patents and brought on new clients. Our PR network showed solid growth, particularly in the healthcare sector. We were also recognized for our efforts in ESG, being included in key corporate ratings for sustainability, human rights, and disability equality.

The company is proud to have earned recognition from leading organizations for their efforts to create a fair and inclusive culture. They recognize the increasing importance of digital solutions in solving business problems and plan to invest in upskilling, training, and recruitment in areas such as AI, marketing platforms, and cloud computing. They also plan to pursue strategic growth through disciplined M&A and aim for a growth rate of 1-2% in 2024 with a target adjusted EBITDA margin of 16.6%. The company remains committed to strong financials and capital returns, and thanks their clients and stakeholders for their support. The floor is now open for questions.

Adrien de Saint Hilaire from Bank of America asks about the expected growth for 2024 and the impact of net new business on the 1-2% growth. Philippe Krakowsky explains that the growth will come from a mix of traditional and digital assets, with strong performance from media, healthcare, and marketing services. He also mentions that the tech and telco sector may have less of an impact on growth compared to last year.

The company is expecting a sizable loss in the telecom sector, but they are also considering whether they have the necessary scale and skills in the digital transformation space. They have had both wins and losses in new business, which will impact their performance for the year. The company believes they will be flat in terms of new business for the year. A question was asked about the stabilization of the tech and telecom sector, and the company noted that there are no indications of renewed brand spend in the vertical.

The speaker affirms the company's ability to improve margins in any environment and states that despite unique factors in 2024, they expect to continue converting organic growth into margin gains in the long term. They also mention the potential for organic investment and the use of AI in reengineering processes as ways to increase efficiency and improve margins. The speaker clarifies that the current margin target is affected by the planned investments and that there is still potential for margin improvement in the future.

The speaker discusses the stabilization of the tech and telco industry in the fourth quarter and how it has not affected their thinking for '24. They also mention reorganizations within the company, specifically in the data and media segment with the creation of KINESSO. This decision was made to simplify the process and focus on digital transformation through M&A activities.

The company has combined and integrated its units, resulting in strong performance for Mediabrands. They are also interested in the premium digital agency space. There has been a trend of media performing well and creative being softer, which may lead to a shift in advertising dollars towards paid media. This could potentially have an impact on Interpublic's margins.

The speaker discusses the investment cycle in the advertising industry, particularly in relation to programmatic and AI capabilities. They mention that there has been a significant investment in AI-related technologies and development, and that this will likely have a positive impact on margins in the long term. However, they also note that the current spend on AI is not all incremental, as some of it is already included in annual budgets for technology, development, and training. The speaker also mentions that the company is looking to fund the incremental spend internally through more efficient processes.

The speaker does not believe that AI will significantly affect profitability. They mention that the creative side of the business has become more project-driven rather than traditional. They also mention the success of FCB, a traditional agency that has integrated data and other disciplines. Clients now want both brand and performance. Omnicom has guided to a 3.5% to 5% provision, while the speaker's company has a 1% to 2% provision, creating a 3-point difference.

The speaker responds to a question about the difference between the digital specialist's tech and telco account wins and other factors that may impact their numbers. They clarify that they cannot disclose specific details, but highlight that the tech and telco sector and digital specialist sector have cost them 3% of organic growth in total. They also mention that their media offering may provide an opportunity for improvement. The speaker concludes by thanking the audience and emphasizing their focus on getting back to their usual business.

The speaker believes that the upcoming year will be a time to complete necessary changes. They express gratitude for the audience's attention and end the conference.

This summary was generated with AI and may contain some inaccuracies.