Michael Roth - Chairman & Chief Executive Officer Frank Mergenthaler - Chief Financial Officer Jerry Leshne - Senior Vice President of Investor Relations.

Alexia Quadrani - JP Morgan John Janedis - Jefferies David Bank - RBC Capital Markets Brian Wieser - Pivotal Research Tim Nollen - Macquarie Research Bill Bird - FBR Tracy Young - Evercore James Dix - Wedbush Securities Inc. Daniel Salmon - BMO Capital Markets Peter Stabler - Wells Fargo Securities Ben Swinburne - Morgan Stanley.

Good morning and welcome to the Interpublic Group, second quarter 2014 earnings conference call. All parties are in a listen-only mode until the question-and-answer portion. (Operator Instructions). This conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Mr.

Jerry Leshne, Senior Vice President of Investor Relations. Sir, you may begin..

Good morning. Thank you for joining us. We have posted our earnings release and our slide presentation on our website, interpublic.com, and we’ll refer to both in the course of this call. This morning we are joined by Michael Roth and Frank Mergenthaler. We will begin with prepared remarks, to be followed by Q&A.

We plan to conclude before market open at 9:30 a.m. Eastern. During this call we will refer to forward-looking statements about our company. These are subject to uncertainties and the cautionary statement that are included in our earnings release and the slide presentation and further details in our 10-K and other filings with the SEC.

We will also refer to non-GAAP measures. We believe that these measures provide useful, supplemental data, that while not a substitute for GAAP measures, allow for greater transparency in the review of our financial and operational performance. At this point it is my pleasure to turn things over to Michael Roth..

Thank you, Jerry, and thank you all for joining us this morning, as we review our results for the second quarter and first half of 2014. I'll start out by covering highlights of our performance. Frank will then provide the additional details and I'll conclude with an update on our agencies and the tone of the business to be followed by a Q&A.

We're pleased to report a quarter of strong revenue and profit growth. Revenue increased 5.4% compared to Q2 a year ago. Net acquisitions had a positive 1.2% impact, while FX was a negative 0.5%. Organic revenue growth in the second quarter was therefore 4.7%, driven by increases in most world regions and across client sectors and disciplines.

Operating profit in the quarter grew 12% to $196 million, and our operating margin expanded 60 basis points to 10.6%. Diluted EPS was $0.23, an increase of 28% and includes a non-operating charge of $0.02 per share for the early redemption of our debt.

Looking at the first half of the year, organic growth was 5.6% and operating margin increased 130 basis points. Turning to additional color on the second quarter, our growth included increases across a broad range of client sectors; that includes retail, healthcare, financial services, automotive and food and beverage. In the U.S.

organic growth was 2.9% in Q2 or 3.5% excluding pass through revenues, led by our digital specialists, Mediabrands, McCann and CMG. International continued to be strong with 7.1% organic growth in Q2. The increases were solid in all major regions with the exception of Continental Europe.

Organic growth was 16.4% in the U.K., 7.4% in LatAm, 4.4% in AsiaPac and 18% in our group of other markets. Continental Europe decreased 1.4% organically. International growth was notably strong in digital, media and marketing services.

For the first half of the year, the 5.6% organic growth reflected positive contributions from advertising, digital, marketing services and media, as well as all regions of the world.

Our margin growth of 130 basis points for the first half of the year was driven by an equal contribution of operating leverage on both our salaries and related and office and general expenses.

As we’ve said previously, in addition to revenue growth, cost discipline and margin enhancement are a top priority for this year and we’re executing against that objective. In the second quarter our capital structure and financial strength continue to be a source of value creation.

We had a sharp reduction of interest expense compared to a year ago, which was due to our debt refinancing activities. With respect to share repurchase, during Q2 we used $52 million to repurchase 3 million shares, while over the trailing 12 months we have utilized approximately $400 million for share repurchases.

We have $321 million remaining on our authorization at the end of the quarter. In sum, we are encouraged that performance in the quarter and the half underscores the competitiveness of our agencies and the quality of our offerings in key growth markets and disciplines.

The overall tone of business remains solid and we are effectively managing expenses. We therefore believe that we are well positioned to exceed our organic growth target of 3% to 4% and improve operating margin by at least 100 basis points to 10.3% or better.

At this stage I’ll turn things over to Frank for addition detail on our results and I’ll join you after his remarks for an update on our operating units, to be followed by our Q&A..

Thank you, Michael. Good morning. As a reminder, I will be referring to the slide presentation that accompanies our webcast. On slide two, you'll see an overview of results, a number of which Michael has touch on. Organic growth was 4.7% in the second quarter, with international up 7.1% and U.S. up 2.9%.

Operating profit was $196 million, an increase of 12% in Q2. Operating profit grew 39% in the first half of the year. Q2 margin was 10.6%, an improvement of 60 basis points compared with last year’s Q2.

The combined impact of a stronger dollar where we are more profitable and a weaker dollar in less profitable markets resulted in a translation headwind of 40 basis points to margins. Diluted EPS of $0.23 includes a charge of $0.02 per share and the early redemption of our $350 million, 6.25 notes, the charge is another expense below operations.

Q2 average fully diluted shares decreased 4.5% from last year due to our share repurchase program. Turning to slide three, you’ll see our P&L for the quarter. I’ll cover revenue and operating expenses in detail in the slides that follow. Here it’s worth noting that interest expense decreased to $23 million from $38 million a year ago.

You’ll recall that in Q2, 2013 we carried a temporarily higher debt balance, having issued new debt ahead of debt redemptions later in 2013. The comparison also reflects a lower run-rate interest expense this year. Turning to revenue on slide four, revenue was $1.85 billion in the quarter, an increase of 5.4%.

Compared to Q2 ‘13, the impact of the change in exchange rates was a negative 50 basis points, while net acquisitions added 120 basis points. The resulting organic revenue increase was 4.7%. Excluding pass through organic growth would be 4.9%. As you can see on the bottom half of this slide, we had solid growth in both our reported segments.

At our integrated agency networks, the organic increase was 4%, led by our digital specialist and media business, with increases in both the U.S. and international markets. At CMG organic growth was 7.9%, led by continued outstanding performance in our PR agencies and growth and sports marketing. Moving on to slide five, revenue by region, in the U.S.

Q2 organic growth was 2.9% and was 3.5% excluding the impact of lower pass-through revenues in our direct marketing and events businesses. Our top client sectors were healthcare and auto. We were led in the U.S. by Mediabrands, digital agencies, Huge, R/GA, McCann and CMG. Turning to international markets, we had strong U.K.

performance with 16.4% organic growth. Growth was approximately 13% excluding the increase of pass-through revenues at our events business. We were led by sector increases in food and beverage, consumer goods and retail.

We have significant growth across all agencies with the most significant increases at our marketing services specialists, Mediabrands, McCann and Lowe. It’s worth noting that total growth in the U.K. was 33%, which includes about 10% from the stronger sterling.

It also includes 7% from our acquisitions in the region, notably from FCB Inferno and Lowe Profero. Continental Europe decreased 1.4% organically. We had solid growth in Germany and Spain, but that was more than offset by decreases in other markets, notably France and Italy. In AsiaPac, our largest international region, Q2 organic growth was 4.4%.

Excluding the impact of lower pass-through revenue due to events last year that did not repeat, organic growth was a little over 6%. We were led by double digit growth in China and strength in Mediabrands, R/GA and Lowe. In LatAm organic growth was 7.4%, which is on top of 16% a year ago.

We had growth across all agencies led by Lowe and our marketing services specialist. We have solid growth in Brazil and double digit increase in several other markets. As you can see on this slide, revenue as reported decreased in the region, which is due to sharply weaker local currencies relative to the U.S. dollar.

In our other markets group, which is made up of Canada, the Middle East and Africa, we had 18% organic growth, which was due to strong increases in the Middle East and Canada. On slide six, we chart the longer view of our organic revenue change on a trailing 12-month basis. The most recent data point is 4.4%.

Moving on to slide seven, operating expenses. In the second quarter total operating expenses increased to 4.7% compared with our reported revenue growth of 5.4%. Our Q2 ratio salaries and related expense to revenue was 63.2% this year, compared to 63.8% a year ago, an improvement of 60 basis points.

Underneath that our expense for base salaries benefits and tax was 53.6% of revenue, compared to 53.5% a year ago. However, this is where we saw most of the currency headwind to margin compared to a year ago.

While FX decreased our revenue by 50 basis points compared to Q2, 2013, it created a small increase in our expense for base payable benefits and tax. The results in reported terms was 30 basis points of margin pressure. Moving on, expense for temporary labor was 3.7% of revenue, compared with 3.6% a year ago. Incentive expense was 2.7% of revenue.

Severance expense improved 40 basis points. All other salaries and related expense was 2.3% of revenue compared with 2.6% a year ago. Total headcount at quarter end was approximately 46,500. That is a net increase of approximately 500 from March 31, about 40% of which was due to acquisitions during the quarter.

The balance of the increase was in higher growth areas of the portfolio such as digital and PR, as well as in growth regions around the world. Turning to office and general expenses on the lower half of the slide, O&G expense was 26.2% of Q2 revenue, an improvement of 10 basis points from a year ago.

Within our O&G categories, compared to last year we had a 30 basis points of operating leverage and occupancy expense, 20 basis points on telecom, office supplies and travel, and 10 basis points on professional fees. Going the other way, we delevered 50 basis points on other office and general expense.

That reflects increased expense in several categories, primarily related to changes in our acquisition earn-outs. On slide eight, we show our operating margin history on a trailing 12-month basis. The most recent data point was 9.7%, which excludes the restructuring expense in Q4 ‘13.

Turning to the current portion of our balance sheet on slide nine, we ended the second quarter with $901 million in cash and short-term marketable securities. The comparison to December 31 reflects that our cash level is seasonal and tends to peak at year-end.

June 30 last year includes $630 million of cash that we had raised and subsequently used for debt redemption in Q3, 2013. On slide 10 we turn to our second quarter cash flow. Cash provided by operations was $169 million, compared with $184 million a year ago.

Working capital was within the normal range for Q2, a use of $24 million this year compared with a positive $17 million in Q2, 2013. Investing activities used $52 million for acquisitions and CapEx.

Financing activities generated $2 million, which reflects the issuance of new debt, offset by debt redemption, share repurchases and dividends, as well as lower bank borrowings. Our net increase in cash and marketable securities for the quarter was $125 million, compared with a $32 million decrease a year ago.

On slide 11, we show debt deleveraging from a peak of $2.35 billion in 2007 to $1.76 billion at the most recent quarter end. Note that in Q2 we issued 500 million of new 10 year notes at 4.2% and redeemed our 6.25%, $350 million notes.

In summary, on slide 12, the quarter and the first half represents solid results and good progress towards our financial objectives for the full year. We are seeing solid growth in areas where we have focused our investment in both, people and acquisitions, that is to say high growth regions, as well as the digital marketing service disciplines.

Our operators are focused on the appropriate cost disciplines and margin expansion and our balance sheet is an important area that we’ll continue to deploy for value going forward. With that said, let me turn it back to Michael..

Thank you, Frank. Well, we are pleased that the second quarter featured solid performance, with competitive organic revenue growth and continued focus on cost discipline to drive margin enhancement.

The tone of the business is good and conversations with clients point to a continued commitment on their part to invest behind their brands, with a particular focus on efficiencies and effectiveness. Overall our new business pipeline is sound.

We are seeing quite a bit of activity in digital, marketing services and when it comes to clients looking for integrated solutions that combine the offerings of multiple agencies. This is increasingly important in order to reach and motivate consumers in a very complex media and marketing landscape.

Obviously our win on Microsoft is a strong proof point that when we tap into the right talent from across the group we can be successful in addressing the needs of even the most sophisticated global clients.

Turning now to an update on our companies, we continue to see very strong performance at CMG, driven by Weber Shandwick, Golin and DeVries in public relations, as well as Octagon in sports marketing.

While our digital offerings in the marketing services space have already leading edge, we are pleased to have completed two significant acquisitions during the quarter. Time is a highly created digital agency that will further enhance Weber Shandwick’s social practice throughout Europe.

Genuine Interactive will be a key drive in elevating the digital agenda across Jack Morton’s global network. McCann once again posted good results. The agency prevailed in the highly competitive CIGNA pitch and added business from a leading multinational client in (Inaudible), as well as winning major local assignments in Europe and Asia.

The industry and the market place have taken notice that McCann is viewed as the strong competitive force. We are therefore seeing a great deal of interest from senior talent in joining a power house that is building strong, positive momentum in the market place. Performance at Mediabrands remain strong in the quarter.

As you know we introduced the new media model some years ago that has taken our offering upstream into more strategic engagements and significantly more activity in the digital content creation and programmatic arena. The tech side of media is evolving rapidly.

We’ve demonstrated the ability to stay ahead of those developments in recent years and continue to believe we will thrive in this new environment. Our unique cluster approach to regional management has also lead to significantly enhanced collaboration and better work.

UM and Initiative remain strong global network players and we will be looking to them to build on recent wins such as Heinz Global Inc and Warner Bros in Latin American. SCB continues to makes progress in its transformation.

The agency just posted its best ever performance in Canada, which is important in light of its stated goal of building a creative idea culture. This included a grand prix in the mobile category for the [buyer stores] (ph), the agency’s largest global client.

The recent BMW win in London is significant and demonstrates that the Inferno acquisition has helped SCB raise its game in the U.K. Performance in Brazil and India were the agency is among the market leaders remained strong. Top talent has also been successfully recruited in strategic planning roles at the global level in New York and Shanghai.

Management is still accessing capabilities in some European markets, but overall we are seeing encouraging sign for the network. At Lowe emerging markets remain an area of strength, as does the high standard of the agency’s creative product.

As you know we are enthusiastic about the potential that Profero brings to Lowe’s high value idea platforms into a new range of media channels. Lowe and Lowe CE have been very active with the pitch consultants and are being included in a number of regional opportunities.

The agency’s Lenovo win has the potential to grow into another important global client, along with Cadillac and of course Unilever. Our digital specialist agencies, all posted very strong performance in the quarter. RGA keeps getting stronger as a global agency and has developed a broad range of marketing and consulting capabilities.

Huge is on the same growth plan, with multiple U.S. agencies and a London presence, as well as an outstanding performance year-to-date, and MRM is already among the leading global digital networks in our industry, and has been a key contributor to a number of our major IPG, open architecture wins in the past year. The number of our strong U.S.

independent agencies such as Hill Holliday, Martin, Mullen and Deutsche are also increasingly participating in integrated cross agency efforts. Given the strength of the strategic creative and digital talent within those agencies, this could be another driver in meeting our overall IPG growth objectives.

At the midpoint of the year we are pleased with our results and progress. Our portfolio of agencies is strong. We are winning share in digital and marketing services, successfully innovating with our media offerings and our global ad networks continue to trend positively.

Our long standing strategy of embedding digital expertise within all of our agencies, while also investing organically behind our digital specialist is delivering excellent results. Our financial strength has been and will continue to be a source of significant value creation.

We've been very successful in deleveraging, while returning approximately $1.8 billion to our shareholders over the past three years. We expect solid growth in the second half, though somewhat tempered relative to the first six month.

We believe that we are well positioned to exceed our organic growth target of 3% to 4% for the year, and improve operating margin by at least 100 bases point to 10.3% or better. To do so, we must stay closely focused on execution and we’ve been consistently clear that for us 2014 is all about execution.

This means driving further competitive growth and staying focused on cost, so as to significantly improve margins. This will allow us to continue to build on recent performance and further enhance shareholder value. At this point, I’d like to thank you for your continued support and open up the call for questions..

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Alexia Quadrani with JPMC. You may ask your question..

Thank you. You guys have done a great job in new business wins lately. Could you give us an update, I guess inclusive of some activity you’ve seen in the most recent quarter of how we should expect the rest of the year to play out in terms of when the tailwinds and sort of headwinds may hit us..

Thank you, Alexia. Well, what we said in the last call that we were sort of overweighed in terms the tailwind in the first half of the year and we expected that to level out in the second half of the year, and frankly, that’s the way it’s planning out.

We just did our bottoms-up REs for the full year and frankly and that’s why we are comfortable with our comment, which I know you’ve already picked up, that we expect to exceed the 3% to 4% organic growth on the revenue side for the full year.

But for the second half of the year I think it levels off, because we are starting to cycle through some of the client losses that we did suffer and offset that against the client wins in the second half of the year. But the important point here is that the tone of the business is very solid.

I think the results that you’re seeing, if you put aside the noise between the FX and the pass-through’s, we have a solid performance across our region, as well as our agencies.

As far as new business, there is one big global pitch out there and in that we have our media agencies, particularly BPN which is leveraging all the tools and resources within Mediabrands as well in that pitch.

So, we are very comfortable with our offerings across the board, and I think our results that we’re reporting today are indicative of a solid performance..

And then when you look at Continental Europe, which remains volatile, I think industry wide, I guess do you think the underlying trends are just the right kind of volatility, its trending in the right direction. I mean, do think is there any sign of improvement in France.

I guess what will it take to get France kind of back in kind of a flattish or positive territory..

We’re not counting of France to pull us out of a global economy rebound if you will. But what we said at the beginning of the year, we weren’t expecting a great expansion in Continental Europe.

The fact that we were positive in the first quarter, frankly the timing issue with respective to some of our existing clients and some client wins, the fact that we were negative in the second quarter.

For the first half we are still slightly positive and what we said with respect to going into the year, we expect Continental Europe to be flat to slightly up and frankly that’s what we’re seeing. And I think with that kind of background, I think that’s how we can be comfortable or poised to deliver on our promises and margin expansion.

But we are ways off before there’s a recovery in Continental Europe.

Obviously Germany has been strong for us and frankly Italy had some good performance, but France continues to weigh on us and we are looking at the things in France to help bolster our offering, but again, it’s not going to solve everybody’s problems in terms of global economic recovery..

All right, thank you very much,.

Thank you Alexia.

Thank you. Our next question comes from John Janedis with Jefferies. You may ask your question. .

Thanks, good morning. Frank it’s good to see the continuation of the operating leverage in the SRS line.

I know you spoke to the FX impact on base and benefits, but in the context of this year’s margin target, can you talk about maybe the income rental headwinds from currency today relative to your initial target?.

Right now we think John that there’s probably about 15 bips of margin pressure related to FX and that’s not significantly off of what we anticipated coming into the years. So assuming rates stay the same, FX crosses stay the same, it shouldn’t be an issue with respects to meeting our targets..

Yes and let me add there, these FX headwind if you will, these are translational issues. They are not actually exposure in terms of currency, so it’s all translational, which obviously we don’t have much to do in terms of fixing..

Got it. Okay, and thanks Michael, and just over the last year we’ve seen a lot of industries attempt to build scale or consolidate and I guess on a practical level, can you talk about any potential impact on your business from the proposed deal in the media space..

What deal is that John? Look consolidation and scale has always been an issue in our industry in terms of media owners and obviously in terms of our own industry. We always say, we are positioned from a scale point of view to be competitive.

Obviously with the fact that NBC Universal is such a power house in the media space, having one more big power house, frankly I think sort of balances out the strength of NBC Universal and I think in the long run from our perspective, it gives us additional leverage, which is what I think it does. But I think it’s interesting to see.

Content is important and obviously the players that are involved here have significant content that will drive future dollars with respect to the work that we do, to move the needed for our clients, so that’s what we do.

So whatever it turns out to be, we will be responsive to what our clients’ needs are and we’ll respond to the market place, but I think it’s totally consistent with what we’ve been saying about the trends in our industry.

Content is important, media owners are consolidating their offerings for their clients, which gives them leverage against frankly the buyers of that space, and our job is to navigate through it. So I think in the long run it will be probably positive for us.

I don’t think it’s going to be negative and it’s a question of how we negotiate on behalf of our clients, and it may be a little more difficult to negotiate, which frankly adds to our value, because that’s what we do..

Thanks a lot. .

Thanks John. .

Thank you. Our next question comes from David Bank with RBC Capital Markets. You may ask your question..

Hey, thanks guys. Well, it looks like MAGNA has done some real kind of industry leadership here with the experiment what ACB on the programmatic side for these dot com properties. Can you talk about what this augers, sort of similar partnerships for other online extensions for the TV side of it.

Do you feel like you’re getting closer to the goal of moving linear TV on to the programmatic side as a product you guys offer or a tool.

What you think is going on there?.

Well, when this all started we always commented that the last to be included in this was going to be premium content, because it’s going to be hard for the media owners to throw that into the mix if you will, so that’s what gives them all of their leverage. This experiment with ABC is an experiment. It’s not large.

I don’t think we should be putting it out of proportion in terms of the amount of contents that’s being put in that space, but it will be interesting to see and like all experiments if it proves to be successful, then we’ll be seeing more of it. But I think the last to come into the fold is going to be premium content.

And frankly, if I was a media owner, I would understand that, because once they let go of that and you lose some a significant amount of your leverage and frankly, that’s what it’s all about.

But I do think ultimately this whole automation is moving forward and frankly we’ve been leaders in that and the consortiums that we put together is indicative of the fact that collaboration in this space is really the way to do it, and I think we’re showing that we have the ability to cross the different media owners and put together an offering for our clients that is competitive and realistic in the market place and in their best interest.

So, I think it’s certainly an area that we’re going to continue to investment in, and I think it’s going to be an area that’s going to change dramatically as we go forward. And frankly, again, that’s what we do. We’re supposed to be part of a changing landscape and providing advice for our clients. So I think this will be interesting to unfold.

Eventually it’s going to be part of it, but we’re not sure what form it will take..

Okay, thank you very much..

Okay..

Thank you. Our next question comes from Brian Wieser with Pivotal Research. You may ask your questions..

Hi, thanks for taking the questions. I was wondering, you noted that media was a source of growth.

I was wondering if you could talk about the products and services beyond conventional planning and buying inside of media brands that are doing relatively better than others and whether it’s like that Ensemble’s or ID Media’s or some other aspect of the product. I had a separate question, but then I’ll just throw it now.

I saw news from Australia about R/GA getting an assignment, creating optimizing ads that are programmatically – I think it was Telstra. I’m just wondering if you can characterize it, if you think of any opportunities or how big the opportunity is for the non-media agencies around programmatic trading..

Well, everybody is trying to do their own program and trading as you know. One of our clients are doing their own, media owners are doing their own and obviously an agency like R/GA. I think we’re having a little bit of – Brian, I’m not sure whether it’s your connection, but I won’t talk to you about that personally.

Right look, what we’re trying to do from a Mediabrands perspective is bring all the different disciplines within Mediabrand. That’s why Mediabrand exists and that is basically to put together all the resources. So what you’re seeing is ID Media, Ensemble.

I think what we are doing in terms of Mediabrand publishing and content generation, these are all things that clients are looking for in order to reach the consumer in a modern way, and that’s what we are excited about and that’s where we’re investing our dollars, and I do think if you just translate that into the big transactions that I just talked about, everyone is chasing content and how it’s going to be able be a part of the story telling, that’s what we do.

So Mediabrands with its various disciplines in bringing them all together in that integrated offerings, we hope provides a competitive advantage, and that’s exactly what the integrated offering is all about Brain.

We are supposed to reach across all of IPG and bring in the best we have to meet the needs of our clients and the stuff you are seeing at MAGNA and Mediabrands publishing and Ensembles and Mobile. Obviously Mobile is a big part of this going forward and Search, all are coming together. So it’s a pretty exciting time for us in this environment. .

Thank you very much. .

Thank you Brian..

Thank you. Our next question comes from Tim Nollen with Macquarie. You may ask your question..

Hi, thanks. Hearing you positive commentary about the tone of the business and about client commitments is great. I just wanted to check on the Q2 organic revenues.

Am I thinking too much about it seeing declines in most regions and I clearly understand Europe isn’t fully back on its feet and France we know is weak, but were there any one-time items, timing issues, were there any timing of account wins or losses.

Anything like that, that just might have brought those numbers down a bit and is that really nothing to worry about. .

No. Look, our business, we can’t time our clients on a quarterly basis to fit models and we are cycling through with it. We have client tailwinds in the first half of the year and as you cycle through them and you become part of the year-to-year comparison, then the organic growth is affected by that. The fact is we have the business.

It’s just a question of sequential growth following upon a strong quarter, which is what you’ve seen. I did say, we did have some client losses. I did indicate there was a flow though in the second half of the year, offset by client wins, which is why I said the second half of the year will temper off in terms of the overall organic growth.

But there is nothing dramatic happening in those numbers other than the timing of new business wins coming on-stream, the effect of some client losses and just comparisons from the year-to-year basis. And on the international side, when you have 16% growth in Latin America it’s hard to kind of keep repeating that type of growth.

So when you come back with a 7% growth on top of that, it’s pretty strong performance. .

Tim, six month growth is 5% plus. We are pretty please with that..

Yes, and I don’t think anyone should complain about 4.7% organic in Q2 either. So I just want to make sure about the items in Q2. .

Its squeezing and comparisons..

Fine, thanks very much..

Thank you, Tim..

You’re welcome.

Thank you. Our next question comes from Bill Bird with FBR. You may ask your question..

Good Morning. I just have two questions. First, are there any puts and takes on margins that we should take into account in the second half. And then Frank, what are your thoughts on use of the balance sheet and adding leverage. Thank you..

I’m not sure Bill of puts or takes. One thing that does create volatility for us is around the continued liabilities earn outs. We can’t control that. It’s kind of an intellectually kind of weird accounting when you’re acquisition is doing better and it hurts your current P&L, but that’s a good thing. So that’s a volatility that we can’t really control.

With respect to the balance sheet, we have $300 million plus left on our share buyback program and will continue to execute against that program. .

All you had to do is look at the news this morning and global macroeconomic issues that are out there. I don’t think this is the time for us to borrow money to buy back shares, which is implicit in the question, you just asked. We have a strong buy back program that’s been in place. I think you’ve seen us execute against that in an orderly fashion.

I think it does well for our shareholders to have that kind of flow in the marketplace and it to be consistent as opposed to trying to be opportunistic in levering up our balance sheet.

One of the things we spent a lot of time on the last, frankly eight years, nine years, is making sure our balance sheet is strong, so that the fluctuations in macro economics can be well absorbed if it was such an impact again.

We learn by experience and I think between our dividends, between our share buyback programs and frankly, we still have one more rating agency to get us to investment grade, that we’re very comfortable with the leverage right now.

If you look at our maturing schedule, we don’t have any maturities coming due in the next couple of years, which is a good place to be, in a world that is facing the challenges that we’re seeing.

So I think the financial position of IPG is the best it’s been in for years; we’re proud of it and we’re investing in our businesses and we’re returning a fair return to our shareholders and that’s what we’re supposed to be doing. .

Thank you and just to follow-up on margins, based on where currency rates are right now, what do you expect the impact to be of currency on margins in the coming quarter or two..

We said for the year, 15 basis points of currencies remain as is negative to margin..

Okay, thank you..

Thank you..

Thank you. Our next question comes from Tracy Young with Evercore. You may ask your question..

Yes, I have two questions if I could. One is related to the Microsoft one, the global creative business win. Is there anything that we should think of in terms of onboarding employees or any changes that we should think they are both on a revenue or the expense side. And then in terms of the World Cup, did that have any impact in the U.K.

or what would you suggest is the reason for that great performance there?.

No, World Cup was not effective in the U.K. Actually in the U.K. it was across the board. All our agencies, everything was doing pretty well in the U.K., so it wasn’t just one particular one-off, so we’re quite pleased. Remember, we did invest in some acquisitions in the U.K.

with Profero and Inferno, as well as all of our McCann, Lowe, CMG performance there. So U.K. was pretty much across the board. As far as onboarding Microsoft, all of that is taken into consideration on the revenue side and the margin side that Frank was talking about. We did have some upfront costs.

We continue to hire against it and we’ll see the revenue coming on stream in the second half of the year, which is why we said that the impact of cycling through in the second half of the year should sort of net out against the two and that includes onboarding staff for the Microsoft bit..

Okay, thank you..

You’re welcome..

Thank you, and this question comes from James Dix with Wedbush. You may ask your question..

Good morning guys..

Good morning James..

Two things; I guess one, first on gross. You said in the past you’re comfortable over indexing I think versus the industry in terms of your business mix to the U.S.

Could you give a little color on why you think that’s a positive going forward and I guess a specific reason in light of two things; first, the organic growth was a little slower in the first half in the U.S. than internationally, which was very strong.

And then second, I presume most of your clients are global brands with a global P&L and presumably not particularly tied to the results of the U.S. on its own. And then secondly, you’ve been pretty vocal as a company about the importance of the shift to programmatic buying for your business and the industry overall.

Do you think the shift of programmatic buying leads to higher ad spending by clients or is it leading to more of a shift in spending among the various sources of inventory. And then how does the shift to programmatic so far been impacting the growth and margins of your businesses if at all. Thanks..

All of that you want me to answer? Okay..

All of that, and I even wrote them down, so I can repeat them if you want..

I got them, don’t worry about it. First of all, yes, I’m still very comfortable with our mix. If you look at the world base, North America was 59% of our business, U.S. is 56%, and given the uncertainty in the global footprint, I’m pretty comfortable with the United States as being a place to put money and businesses to invest in and so.

I mean ultimately our goal was to get to 50/50 and get there by growth in the International markets, particularly in the emerging markets. We are very comfortable with our offerings in the emerging markets. India we saw double digit growth, in China, Latin America. All our networks have strong presence in Latin America, including our media businesses.

So, I think our footprint is very strong. I’m very comfortable with the weight of the U.S. because frankly it’s still is the global power house in terms of the economic strength if you will.

Obviously double digit growth in China is important, but everyone is looking to the United States to have sustained growth, and even without double digit growth in the United States we can convert and expand our margins, which is what we should be doing.

On program buying, it’s kind of interesting, if you think about it, this is the first time digital has exceeded network spend, and we’ve forecasted to overtake all broadcasting in the next couple of years, and obviously program buying has something to do with that. The up-fronts were kind of weak this year.

That doesn’t mean to say that we won’t see the back half of the year strength on the scatter side, and I still think that’s a very important place for us to be.

And the efficiencies of automation and program buying is here to stay and everyone is seeing how it’s going to go in terms of whether it’s private exchanges, whether it’s public exchanges, whether it’s customized exchanges and it’s all about data and being responsive to reaching the consumers in a more efficient way, and we have to be able to invest in that, and that’s what we have done.

So yes, I think it’s going to be an important part of the future of how we do buying, particularly on the digital side, and as far as the mix goes, we are agnostic. Our business is agnostic. We are advisors. We provide advice to our clients in terms of where they should spend their dollars.

Now, do we think that if we take a look at a cradle to grave perspective of their total dollars to spend, do we think if we can talk a look at that, we can save them expenditures in terms of reach and effectiveness? Yes, but it takes that integrated offering for us to do that and program buying is part of our ability to deliver on those promises.

So that’s why I say, it took me a whole call to get that confusion is good, but confusion is good, especially when you have the expertise that we have, that we can bring to the table..

Great. Just one thing, so is the shift to program helping your growth in margins do you think for your business or….

It’s not a big margin. It helps our growth in margin, because we’re servicing our clients, and when we service our clients, we’re in there talking to them or working with them in terms of their reach in what their content is, what they should be buying, where should they be spending their money, that help’s our margin, okay.

We don’t take inventory and that’s a big issue in our industry, in terms of what inventory we are selling, and other than our barter business, which frankly there is some inventory there, but that’s part of the business model, we don’t take the positions and therefore we’re agnostic in terms of what inventory we sell.

So we’re not making profits if you will on the inventory that we’re holding to sell to clients..

Okay, so the impact is more. Just it’s taking you up the value chain in place of the advice you are giving clients. .

Yes, right..

Okay, great thanks very much.

You’re welcome..

Thank you. Our next question comes from Dan Salmon with BMO Capital Markets. You may ask your question..

Hey, good morning everyone.

Michael, just thinking on the marketing services side of your business, maybe agencies like MRM, how much are you seeing any change in how clients are thinking about first party data, CRM platforms, that sort of classic database build? Some of the other competitors like EPSILON have mentioned some new vertical to start to look at those strategies a little bit more in detail where maybe they wouldn’t have previously their more brand advertisers, also may be some more mid market clients looking at it.

Something that might have been too expensive for them previously.

Is that a trend you guys are participating in as well?.

Yes. I mean, in that space our MRM business is very strong on a global basis and these are big, big projects okay and data management is critical to that and that’s where the tools and resources really come in to play, and we’ve got big global clients that we are working with and it works.

I mean, that’s where a lot of the action is taking place, because there’s accountability. This business ultimately, if you’re a CEO of a company, and that’s why I made the comment about efficiencies and effectiveness.

Clients will spend money when we can prove that its effective and the businesses like MRM and the CRM businesses, historically its accountable and we can prove it and it works.

So I think it’s a good part of growth story and as result MRM is doing quite well and frankly as I indicated, that type of disciple is part of that integrated offering that we bring to the clients and it’s becoming more prominent as we go forward..

And so do you see that type of work in the integrated agency networks line primarily, because its within there or is there some of that type of work in CMG as well..

Well, if you’re referring to the data part of it, the answer is yes, it’s across the board. But the mechanics of that business is – the fact that its labor intensive is one thing.

Everyone thinks it’s all mechanical, it’s not, it’s labor intensive and there are only a few companies that have the resources to be able to do that on a global basis and frankly, that’s one of the reasons MRM is so successful at it. I mean they have the horse power; they have the technology and the resources to make that happen.

But that is why we use MRM as part of the integrated offering, even outside McCann, and again, that’s part of the open architecture that IPG can bring to the table..

And just a last one of that, just on that open architecture; are you seeing an agency like MRM start to work more with Mediabrands on applying those sort of CRM systems to programmatic strategies?.

Why, I don’t know specifically on program and strategy, but it’s all data and the answer is yes. I mean that’s what the open architecture is all about and that is you have media, you have CRM, you have creative, you have social media, you have TR, I mean that’s really what we do best.

And the industry has gone through cycles of where you pick out specific expertise and you try to put them all together or you go to one source where you have an agency of record and they have all the resource.

I mean frankly the World Group has all these resources, but everyone on the World Group we reach out to other agencies to help in terms of expertise, so that’s where this industry should be and that’s where it’s going right now.

Clients want to make sure they are getting all the resources we have and it’s up to us to deliver it, and they all have to work together and that’s not easy to do and we are seeing much more success as we did years ago and that’s why we are winning businesses..

Great. Thank You..

Thank you. Our next question comes from Peter Stabler with Wells Fargo Securities. You may ask your questions..

Good morning. I wanted to ask you about talent and specifically as the industry moves more towards digital capabilities, your competitive set for talent and this is something that we’ve all talked about a bit, it’s certainly widening. Historically you and your peers have not been significant users of non-cash compensation.

Wondering if the hiring climate, in particular the digital hiring climate and the competitors are leading you to change your view on that. Could we expect, let’s say a year from now, different types of comp packages out there for this type of employees. And then I guess just a quick follow up on that.

Frank, I’m wondering if you could comment a little bit on how we should think about this, the sources of leverage for second half. Any changes to the patterns we’ve been seeing or is it just kind of a flow through there. Thank you very much..

Okay, thanks Peter. Well look, yes, I mean digital talent, it’s not just digital talent. Creative talent, account management, our business is talent, so therefore it’s very competitive.

We are very pleased – I mean if you look at the people we’ve been able to recruit recently in terms of high level people, McCann for example recruiting Rob Reilly on the creative side. He’s had a great impact at McCann and he’s been to recruit talent behind him in terms of what they are doing.

And yes, I mean our compensation packages are including more equity based compensation to have them part of the performance. I think its pay-for-performance and we try to move most of our high level executives to a pay-for-performance structure.

On a digital side, even if you take a look at some of our digital acquisitions, we put into earn outs that are based on performance when we buy them and we also put in – one of the things that’s going on is obviously IP, okay, and the question is who owns the IP.

So we have pools in some of our digital agencies and in our media business, where we encourage our people, the entrepreneurs that are within those businesses to think out of the box and we’ll invest some money behind them and they’ll participate, so that’s one of the vehicles we use to retain and keep those type of individuals in the market place.

But we constantly look at our overall compensation structure to make sure that we’re (a) competitive, and (b) that our people participate on the upside, on the senior levels, and it’s also based on our performance of their various networks.

So we have a very sophisticated compensation plan based on networks, based on IPG performance and depending on what level you’re being brought in on and use of equity compensation. So yes, the answer is we have to do all of it and we have to use it in the right place.

You just don’t throw out the equity ownership across the whole company, because it doesn’t have that kind of impact, but on senior talent and individuals who are coming and bringing with them unique expertise, we certainly do use it..

And Peter on the leverage question, it’s all about conversion. Three, six months our growth conversion of profit was about 27% on constant currency basis. We said 30% is what our objective was, so we’re in the ballpark.

So when we look at the back half of the year, it’s critical for us to convert and when we look at conversion, it’s all about how we manage SRS, because I think our other cost components are very well managed. It’s all about how we manage SRS and that’s going to be the focus for the next two quarters..

Thanks very much. Great first half..

Okay, thank you..

Thank you. Our final question comes from Ben Swinburne with Morgan Stanley. You may ask your question..

Good morning Ben..

Hey, good morning guys. Thanks for squeezing me in. I wanted to ask two Michael, one, you talked a little bit about draft in your opening remarks. I think it’s been almost a year, maybe a little less since Carter came on.

How is that group doing in terms of growth? I think it’s probably not growing as fast as the overall business, and you guys have been putting up decent top line despite that, so any sort of line of sight on when that business starts to pick up? Any accounts we should be focused on and does he have his whole team in place? And then since it’s the last question, I’ll throw my second one in.

In admittedly yesterday’s news, but with Publicis, Omnicom unwinding itself since the last earnings call, I’d love to just get any takeaways that you guys have from that whole process.

Anything you learned either from the employee side or from the client side or just any thoughts on what happened and if it has any implications for the broader industry would be interesting. Thanks..

Sure. I thought I was going to get through a call without having to answer that question. First of all, it’s no longer draft, its FCB. It sound like that’s a small task. It is I think what Carter and his team in terms of transforming that organization, the role out of the FCB brand if you will has really taken hold.

Carter and the people he brought in have really gelled in terms of the DNA of FCB. They came out of the gate, they won some high profile clients. In terms of wins as you know, they won Levi’s, they won Trulia and they won Ghirardelli, and so yes, it’s great and they were competing against top notch agencies.

So they really have some great talent and Carter has done an amazing job in bringing in high level people in terms of markets that they needed to build up their expertise, particularly Nigel Jones being brought in over in Europe and Lee Garfunkel in New York.

In their healthcare business where Dana is doing very well, so I’m very happy where FCB is and the team and we’re really excited about what the future holds with respect to that transformation. It’s not easy to move a battleship like that.

The results frankly for the year at FCB are consistent with what we were planning for them for the year; that takes time. You don’t expect it automatically to be a huge contributor in terms of our overall, but it’s an important global network for us and they are contributing and we are very exciting about it.

And all you have to do is see Carter and his team in terms of how they pitch new business and the excitement that they have, it’s really great to see.

As far as the Publicis, Omnicom transaction, I was kind of hoping it would continue to delay forever and not take place, because I think the distraction of having two very competitive companies like Omnicom and Publicis, being focused on their transactions as what we are doing out there was kind of fun and they are back.

I mean we are competing against them, but we didn’t expect it to stay forever. We didn’t go home and worry about the transaction.

Even if it got completed, we felt we have the resources and the scale to compete and we used it as an advantage in recruiting some very high talented, high profile individuals and some client pick-ups if you will, but not we are back to competing as usual.

So it’s going to take them some time to work though some of their issues in terms of talent and so on, but we just put our heads down and focus on our clients and our business. .

Does the failure to get that done suggest as to sort of highlight how hard it is to do these kind of deals, given the complexity and it’s a people business or you think its specific to what was going on there..

I’ll let them answer those questions. I think a $35 billion transaction by definition is difficult to complete, and if you add on top of it, it’s a service business and its multinational and its different cultures. I think it was pretty clear from the beginning it was going to be difficult to complete.

That doesn’t mean to say you can’t do transactions, but it’s difficult. .

Thank you. .

Well, thank you very much for your support. We look forward to the next earnings call and enjoy the rest of the summer. Thank you..

Thank you. And this does conclude toady’s conference. We thank you for your participation. At this time you may disconnect your line..