Good morning and welcome to The Interpublic Group First Quarter 2017 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. 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 Eastern.

During this call, we will refer to forward-looking statements about our Company. These are subject to the uncertainties and the cautionary statement that is included in our earnings release and the slide presentation and further detailed in our 10-Q and other filings with the SEC. We will also refer to certain non-GAAP measures.

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

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

We’re pleased to report solid first quarter revenue growth which comes on top of outstanding performance a year ago. Organic revenue growth was 2.7% in Q1, against 6.7% a year ago, our steepest quarterly comp. In the US, organic growth was 2.9%, up against industry leading 8.3% growth in 2016.

Faced by another strong result in Continental Europe, international markets grew 2.2% in pass-through. As has been the case in recent years, our growth was broad-based by discipline as well. In Q1, we were led by media, our digital specialist, public relations, advertising and sports market.

This continues to underscore the strength of our offerings across the portfolio and is an encouraging start to the New Year. FX was negative to our reported revenue by 1% in the quarter due to the continuing strength of US dollar and had a similar impact on our operating expenses.

Net business dispositions of several small non-strategic units drag on revenue by 1% as well, as we had said would be the case on our February conference call. Operating profit in Q1 was $30 million, compared with $23 million last year, which reflects both our growth and the effectiveness of our ongoing discipline around expenses.

As you know, our first quarter is seasonally small in terms of revenues while total costs are distributed fairly throughout the year. That said Q1, operating profit growth of 29% and operating margin growth of 40 basis points, which leverage both of our principal expense lines are indicative of solid progress towards our full year financial target.

Returning to the top-line, our growth continues to reflect contribution from a range of our major agencies, led in Q1 by Mediabrands, McCann, R/GA, Hill Holliday, Octagon and Golin. Our digital offerings continued their solid growth.

This includes a broad range of embedded digital capabilities within our agency networks, as well as a standalone digital specialist. In terms of client sectors, we were led by increases in the healthcare and retail sectors, as well as by strong growth with diversified industrial and government clients.

The quarter also reflects growth with existing clients as well as net new business wins over the trailing 12 months. Our capital structure continues to be a source of value creation. As we announced in the February, this is the fifth consecutive year that our Board has increased our quarterly dividend by at least 20%.

On a full year 2016 call, we announced that our Board had authorized another $300 million of share repurchases. During Q1, we repurchased 2.3 million shares using $55 million, which is consistent with Q1 of 2016. As you know, our share repurchase activity tends to track to the seasonality of our cash flows over the course of the year.

Over the trailing 12 months, we utilized $305 million for the repurchase of 13 million. Since initiating our dividend and repurchases in 2011, we’ve returned a total of $3.2 billion to shareholders, which has driven a 28% reduction to our diluted share count with an average repurchase cost of $14.32.

We’ve also tripled our per share dividend over this period of time. Just last week S&P announced that it upgraded our debt credit ratings to BBB. This brings us to solid investment grade standing across all major credit rating agencies, which represents another important marker of progress at IPG.

By fulfilling a longstanding objective of this management team, we’ve achieved a milestone that will yield benefits in terms of enhanced financial flexibility. We’re pleased that our performance continues to reflect the excellence of our people.

Outstanding consumer insights, industry-leading creativity and the delivery of efficient and precisely targeted communications have all become hallmarks of IPG and our agencies. The top-tier digital capabilities we have the across the portfolio also continues to be a differentiated for us.

By keeping the clients front and center, we can combine all of the skill sets into integrated solutions that are customized to the needs of our clients. This in turn positions us strongly in the evolving world of media and marketing. We are, as always, highly focused on capitalizing on growth to drive further margin expansion and capital return.

The strength of our offerings coupled with the strong record of operating discipline is a winning combination that will ensure that we will continue to deliver for client and shareholders alike. As you know, Q1 is seasonally small for us.

There is still continued uncertainty driven by macroeconomics and geopolitical factors including potential tax reforms, healthcare and infrastructure.

However, we are confident that performance to date has us fully on track to deliver on the 3% to 4% organic growth target we set for the full year as well as to expand operating margin by an additional 50 basis points relative to 2016. At this stage, I’d like to turn things over to Frank for additional detail on our results.

And after this remarks, I’ll be back to provide the update of our agencies, tone of business to be followed by a Q&A..

Thank you, Michael. Good morning, everyone. As a reminder, I’ll be referring to the slide presentation that accompanies our webcast. On slide two, you see an overview of our results. Organic revenue growth was 2.7% in the first quarter, 2.9% in the US and 2.2% in our international markets.

Excluding a small increase in pass-through revenue and related expense, organic revenue growth was 2.5%. Q1 operating profit was $30 million, an increase of $7 million compared to last year in our seasonally small first quarter.

Diluted EPS is $0.05, which compares to $0.01 as reported last year and compares favorably to $0.02 per share as adjusted for items a year ago. Turning to slide three, you see our P&L for the quarter. I’ll cover revenue and operating expenses in detail in the slides that follow.

It is worth noting here that Q1 2016 includes the reclassification of $2 million of pension expense from salaries and other income, reflecting the adoption of the new pension accounting standard. The impact was approximately $800,000 in Q1 2017.

Further down the P&L, it’s also worth noting that we had a tax benefit in the quarter against our seasonally small Q1 pretax earnings. That is a result of our mix of profit and loss by tax jurisdiction around the world and the excess tax benefit of share based compensation in our first quarter.

We continue to expect that our effective tax rate will be in the range of 35 to 36% for the full year. Turning to revenue on slide four. Revenue was $1.75 billion in the quarter. Compared to Q1 2016, the impact of the change in exchange rates was negative 1% while net dispositions were negative1% as well.

Resulting revenue increase was 70 basis points as reported and organic increase of 2.7%. As you can see on the bottom half of this slide, organic growth was 2.2% at our integrated agency network segment, which is good performance against 7.6% growth in Q1 2016 with contributions from all the IAN disciplines and across a range of agencies.

CNG grew 4.6% organically led by Octagon, Golin and Weber Shandwick. Moving on to slide five, revenue by region. US organic growth was 2.9% and was 2% excluding increased pass-through revenues in the US. Again, growth was broad based across disciplines in agencies led by R/GA, Mediabrands, Jack Morton, Hill Holliday and McCann.

Leading clients sectors were healthcare, food and beverage, auto and retail. We also had strong growth in our other category paced by energy, and industrial clients. Turning to international markets, the UK grew slightly on an organic basis but UK organic growth was 4.4% excluding the decrease in pass-through revenue.

We had notably strong growth in McCann UK once again, along the growth at Weber Shandwick and Mediabrands. It’s also worth noting that acquisitions contributed another 3% to growth in the UK but the dollar pound relationship decreased our reported UK revenue by about 14%. Continental Europe increased 6.7% organically.

Among our largest markets, we were led by strong results in Germany and Italy while France and Spain were flat compared to last year.

In Asia Pac, we had an organic decrease of 2.7%, reflecting lower spending from a number of our clients in China where we were lapping exceptional growth in last year’s first quarter, as well as a decrease from Australia. We continue to see very good growth in India and Japan. LatAm grew 3.7% organically on top of 11.6% a year ago.

We continue to have strong performances by our agencies in Mexico, Argentina and Chile, which offset lower revenue in Brazil. Our other markets group increased 7.8% organically in Q1, which is also notably strong performance on top of the 7.4% a year ago. This reflects growth in South Africa, the Middle East and Canada.

On slide six, we chart the longer view of our organic revenue change on a trailing 12-month basis; most recent data point is 4%. Moving on to slide seven. Total operating expenses in the first quarter increased 30 basis points from a year ago, compared to reported revenue growth of 70 basis points.

As a result, our operating margin expanded 40 basis points. The ratio of salaries and related expenses to revenue in Q1 was 72.7% this year compared with 72.8% a year ago. Comparison reflects improved leverage on our other salaries and related expense, mainly due to lower expense or earn-outs offset by base payroll and incentive comp.

The total headcount at quarter end of approximately 50,200, which has increased about 1% from year-end 2016. We continue to invest on growth areas in the portfolio such as digital, media, advertising and PR, and to support our new business wins.

On the lower half of the slide, our total O&G expense in the first quarter was essentially flat against last year, generating 20 basis points of operating leverage. On slide eight, we show our operating margin history on a trailing 12-month basis with the most recent data point of 12.1%. On slide nine, we turn to cash flow.

Cash used in operations in Q1 was $372 million, compared with $654 million a year ago. As you know, our operating cash flow is highly seasonal. Our business typically generates significant cash and working capital in the fourth quarter and uses cash in the first quarter.

During this year’s first quarter, cash used in working capital was $439 million, compared with the use of $695 million in Q1 a year ago. The improvement was due to the timing of our working capital cash flows, which we had also referred to at the time of our fourth quarter call.

While we have lower seasonal cash generation in Q4, this is the offset in Q1, lower use of cash in the first quarter. Investing activities used $33 million in the quarter including $25 million of CapEx. Financing activities generated $64 million, due to an increase in short-term borrowings of $225 million.

We used $71 million for our common stock dividend and $55 million for share repurchases. Our net decrease in cash and marketable securities for the quarter was $320 million compared with $831 million a year ago. Turning to the current portion of our balance sheet on slide 10.

We ended the first quarter with $778 million in cash and short-term marketable securities compared with $680 million a year ago. It’s worth noting that our cash level seasonal tends to peak at year-end and decrease during the first quarter.

On slide 11, we show debt deleveraging from a peak of $2.33 billion in 2007 to $1.92 billion at the most recent quarter-end. In summary on the slide 12, we are pleased with solid revenue growth and profit performance in the quarter, which represents a good start in terms of achieving our financial objectives for the full year.

With that, let me turn it back over to Michael..

Thank you, Frank. As we’ve noted, against very challenging comps, we showed solid growth in the quarter. Digital activity across all of our agencies continues to be a significant driver of the success. And we saw positive contributions to our performance from a range of our offerings including advertising, media and marketing services.

Disciplined cost management led to good progress during the quarter in terms of increased operating margin and our balance sheet remains an important factor that will allow us to further enhance shareholder value.

On the talent front, we’re pleased that we remain a differentiated culture that attracts much of the industry’s best talent, not only from our traditional peer sets but also in emerging areas such as digital content creation, social media as well as data and tech-enabled marketing.

We’re also proud of our longstanding record in promoting diversity and inclusion. While we made meaningful strides and leading industry on many fronts, an area on which we are increasingly focusing is our ability to recruit, develop and promote people of color.

That’s because in order to keep our place as a leader in D&I and also continue to deliver best-in-class revenue growth, we must incorporate the broadest set of perspectives and skills into the thinking we deliver to clients. This will allow us to best reflect and connect to the markets with which we communicate with in order to be successful.

As we know, our industry is changing at a rapid pace. There is a great deal being written about the convergence that is bringing adjacent industries into others. [Ph] The increased competition that we all read about these days is not as evident to us as the headlines would have you believe.

And it’s possible we’re seeing new forms of collaboration as well as competition as a result of the emerging market dynamics. But regardless of how the situation plays out, it bears noting that at IPG, we’ve been preparing for this potential scenario for some time.

Our creative firepower is amongst the best in our peer set and it represents a significant barrier relative to new entrants into the advertising space. Digitally, we’re equally strong, having invested in these capabilities for nearly a decade.

As importantly, our ability to integrate a broad spectrum of marketing activity for our clients is a powerful differentiator. Finally, our commitment to accountability driven by a strong and holistic data platform, allows us to answer key questions regarding the efficacy and value of the advice and the work we provide to marketers.

Turning now to the tone of the business. Despite macro events that we are well aware of and which have caused a great degree of economic uncertainty, what we are hearing from clients and from our operators, point to a solid marketing environment and one which remains consistent with our achieving organic growth targets we set earlier this year.

The new business pipeline is particularly strong in digital services. For us, this comes across all of our agencies. And we’re seeing opportunities for our digital specialist, integrated ad agencies, as well as our PR, health communications and shopper marketing firms.

There is also quite a bit of activity in the media sector, where we’re involved in most of the major pitches. The pipeline for larger, traditional AOR assignments remains lighter. This represents the continuation of a trend we also saw last year.

Highlights at the agency level include another quarter of very strong performance of R/GA, which continues to expand the breadth of its offerings, its relationships with major marketers and its geographic presence.

We recently reviewed the progress of the agencies accelerated progress, which allow us to incubate and get line of sight into some amazing start-ups and cutting edge areas such as VR, artificial intelligence and marketing technologies.

R/GA recently announced a new accelerated program in collaboration with Verizon Ventures, and our Ventures Studio program with Snap will be the first to incorporate clients and mentors for the full range of IPG agencies.

Mediabrands also posted a very strong quarter growing with major multinational and domestic clients and on-boarding its new Hulu with Fitbit clients and announcing recently a win of Accenture.

Our transparent and agnostic approach to media ensures that clients are getting not just top level buying power and expertise, but also the best unbiased advice when it comes to optimizing their marketing investments.

This is increasingly important in a world that is seeing greater concentration of power among media owners, as well as other challenges that have come to light in areas like digital measurement and brand safety. CMG continues to deliver strong results and outstanding work across the full range of marketing services.

From event and sports marketing to public relations, the work agencies like Octagon, Jack Morton, Golin and Weber Shandwick perform is becoming more strategic than ever.

Given the fragmented media landscape, there is a growing need for activities that engage consumer attention, connect to their passion points and feature a strong digital and social component. These are areas in which CMG shines. And we’re looking forward to more strong performance from that group. McCann Worldgroup posted strong results.

We have consistently called out the great progress that McCann has made in terms of creative product and reputation, which now range at the top among the global advertising networks. The collaboration among McCann, MRM, Momentum and McCann Healthcare has also been tracking very well.

And we’re seeing significant integrated cross selling wins from existing Worldgroup clients, which is a kind of organic growth that can be most readily converted into increased profitability. McCann has been an important driver of our improved performance in Continental Europe.

And the network’s progress in Middle East and Africa are also notable, as they position us for longer term growth in these promising regions. MullenLowe remains very active in new business, posting significant wins such as E-Trade, Hyatt Hotels and Chipotle.

The agencies hyper bundle model is now up and running in key international markets including London, Shanghai and India where MullenLowe is a top-five agency.

Hyper bundling ensures that MullenLowe’s creative excellence is informed and enhanced by integrated digital, media and activation talent, which makes the agency strategies and campaigns more effective in the marketplace.

At FCB, we’re seeing further progress in the Chicago headquarters office, which integrates strong consumer advertising, digital and shopper markets capabilities. FCB in Toronto and London is also a center of excellence, as well the agencies operations in India. FCB Health continues to be a strong driver of growth and a leader in its space.

We’re also pleased to see FCB/SIX, one of the agencies operations in Canada, recently recognized as a digital stand out in Adweek’s Agencies 3.0 list, which called out the shop’s ability to use data, CRM and video storytelling to seamlessly create real time messages, personalized for any audience.

Our integrated US independents made news during the quarter on a new business front with wins like Phillips 66 at Carmichael Lynch and Party City at Hill Holliday. Both of those agencies also announced senior internal management promotions at the president or CEO level, which will ensure top management continuity.

Deutsch won 7-Eleven title, [ph] the maker of Bluetooth-enabled location devices. We’re looking for new ways to combine the strong offerings of these agencies with the terrific digital capabilities that Huge, our outstanding digital specialist agency which during the quarter won important new assignments from Verizon and United Technology.

This should allow us to deliver even more powerful solutions to domestic clients. During the quarter, we also made a significant announcement regarding increased investment to further enhance our data and analytics capabilities.

Reporting directly into IPG, Mediabrands’ new Chief Data and Marketing Technology Officer will be charged with driving a more centralized data and technology infrastructure that can support all of our agencies, across the holding company.

By combining online and offline data sets and consolidating partnerships with third parties, we can build tools that allow us to better target high-value audiences, refine our strategies and messaging across every communication discipline, and prove the value of all our ideas and marketing programs, which will keep us highly relevant in today’s media environment.

As I mentioned previously, another way in which we can ensure that we stay at top of mind with clients, is our ability to deliver integrated solutions. We were early to identifying this as a strategic priority and have been refining our open architecture model for close to a decade.

Unlike our competitors, we don’t disrupt the power of agency brands; instead, we get the best talent from across the group working together in flexible teams that are custom-built for each client situation or challenge.

We’re seeing the benefits of this approach on a number of our most important existing global clients, particularly in the pharma and tech industries. Looking forward, it’s possible to make too much of Q1, given that it’s a smallest quarter and that means percentages can fluctuate even when the absolute numbers are not large.

But, we see the results that we are sharing today as indicative of a solid step into 2017. Our offerings are strong and we show vigilance on cost and appropriate margin conversion.

As a result, we believe that we remain well-positioned to achieve our full year targets of organic revenue in the 3 to 4% range and to improve operating margin by an additional 50 basis points relative to 2016 levels.

Combined with the strength of our balance sheet and our commitment to capital return, that means there is significant potential for value-creation and enhance shareholder value. As always, we thank you for your time and support, and we look forward to keeping you posted on our progress during the course of the year.

With that, I’ll open up the floor to questions..

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Alexia Quadrani from JPMC. Your line is now open..

Thank you. Just a couple of questions; I guess, the first one is on the ongoing robust growth you continue to see in Continental Europe. I just want to drill down a further. You gave some great color by countries.

But does it influence by your success in new business wins or are you seeing that sort of just an industry-wide growth? And then, are you able to utilize your NOLs now that you’re seeing very healthy growth in that region now for three quarters, I believe? And then, just a follow-up question, just on your verticals; you highlighted retail being particularly strong.

I guess, if you can sort of reconcile that with the weakness we’re seeing in the retail industry. I guess, why is it particularly strong for you when the sector is struggling and any above average sort of pricing pressure on the consumer package with clients? Thanks..

All of that?.

Sorry..

That’s okay; that’s fine. By the way, let me just reference that that was not my phone that went off [multiple speakers]. All right. First on Continental Europe. Again, as you know, in Continental Europe, it’s roughly 8% of our revenue and UK is 9%. It’s significant, but not that significant.

So, therefore, particular client wins has an impact on those positive results. So, I would say that in answer to the question, we had -- McCann in particular and Mediabrands had some nice wins in those markets, and we’re seeing the effect of those wins.

We’re not raising a big flag as a big recovery in Continental Europe, which I think is the just of your question. And as far as the UK goes, that is solid gains across the board including our PR businesses and so on.

So, we do draw a distinction between strength in the UK and the positive results we’re seeing in Continental Europe, both obviously contributed to our overall performance. On your question on the verticals, our biggest vertical continues, both on a worldwide and the U.S.

basis is healthcare, it continues to be a very strong discipline for us and we’re seeing very strong growth both out of FCB and McCann Health. So, that’s very encouraging and we see that as a continuing factor in our growth going forward. As far as retail goes, it’s unique to our client servicing. These are not the retail clients for example.

If you see, for example, the retail department stores in the U.S., which you’re reading so much about. Here we’re seeing particularly healthy, [ph] McCann won some business at Staples and of course Amazon we characterize as retail. So, those are the key factors in our growth.

We don’t have significant exposure to the retail organizations that you’re reading about every day in the newspapers. And by the way, obviously our NOLs that you correctly point out are in Europe.

And as we see profitability in Europe, we will continue to use those NOLs to offset on a cash tax basis, which is one of the reasons why you’ll see our effective tax rate -- cash tax rate being less than our effective already. So that’s positive for us and that continues to, as you know, go on for many years in terms of the availability.

CPG, that one obviously we are seeing some pressure from clients like everyone else in terms of pricing and cutbacks. I see the opportunity on CPG because a lot of these multi-national clients in particular use hundreds of different agencies and they embarked on significant cost containment.

And we are positioned and I think our clients’ position is that consolidation of all these different agencies with a number of key providers will provide a lot of the efficiencies that they are looking for.

So we see that -- one obviously there is pressure on fees and it’s important for us to watch our cost profile as associated with that in efficiencies but also as an opportunity for us to pick up some new brands. And hopefully that will mitigate somewhat the pricing pressures that we’re seeing at CPG.

That said, food and beverage was slightly positive on a worldwide basis for us whereas the consumer goods was in fact negative..

Thank you. Next question comes from the line of John Janedis from Jefferies. Your line is now open..

Thank you. Frank, it sounds like an old landline phone. Two questions. One is, Michael you spoke to the tone of business, your target assumes an organic acceleration this year.

And I was wondering to what extent you’re assuming wins to hit that target or do you -- your client conversations give you that comfort? And then, maybe separately bigger picture, as you know, there has been some concern in the market around competition from consultants, the CPG vertical you spoke to and then disintermediation of the agencies.

So, with the US organic that you put out today and then I guess your peers in the first quarter and appreciating the comp, can you talk about why that these things may or may not be premature?.

Yes. First of all, 63% of our business is in US, so that helps us. We see -- not a high growth rate in the US but moderate rate, low single digits, which as we said in the past, 3 or 4% organic growth, we should be able to continue to expand our margins.

So, in the US, we’re very strong across our media offerings, our independent agencies come in here, as well as our digital and creative capabilities and PR businesses in US. So that gives us a degree of comfort in our forecast at 3 to 4%. And our wins and losses were net new business positive.

We did see in the first quarter, we did have to cycle through two losses, particularly in the US being Sprint on the creative side and USAA. So, we’re seeing somewhat of an impact of that in the first quarter but we do have net new business coming on board.

So, I would view the headwinds and tailwinds on a full year basis at this point as relatively neutral which is good because those two losses we want to -- it’s good that we’re able to overcome that. And we have a lot of potential new business in the pipeline. Our pipeline is solid.

What you don’t read about our new business wins within existing multi-national clients, particularly on the healthcare side, those we don’t announce but given the strong capabilities we have both at FCB and McCann, we did see nice wins in those organizations and clients where we do have open architecture structures and those are contributing to our net new business.

You just don’t see that, for example in the Alexia’s [ph] releases where she puts the scorecard of net wins and losses, our existing client base continues to be primary source for organic growth for us and that’s not reflected in the new business tables..

Our next question comes from the line of Steven Cahall from Royal Bank of Canada. Your line is now open..

Thank you. Maybe first a few questions just on the media space; you talked about that as being a growth driver in the quarter. And I know there has been both, some wins and losses over the last few and some pipeline.

So, I guess, number one do you expect to be net new business positive in media for the year and expect it to continue to be a growth driver? And then, on the traditional side, I was just wondering, if you’re seeing any fee pressure there? Is that something that we’ve heard about around traditional media buying? And maybe you can tie that into the investments that you talked about earlier and to the extent to which media buying and media planning are now increasingly integrated with the clients or whether they’re splitting that business up? And then, as follow-on, I was just wondering if you could comment on the recent announcement by Google to block ads, and do you think that will have any impact on Cadreon as we move through the year? Thank you..

First of all, John, I didn’t answer one of your questions. So, let me get back to that. The question of competition from other sources. Yes, the convergence is out among all different whether it’d be consultants out there; where it’d be the other digitals; whether it’d be the system integrators that are out there that are providing various services.

We have not seen them in a big way. Every once in a while, we will see them on the digital side of the business and normally, frankly we do pretty well against them.

So, I think, what I mentioned in my remarks is that our integrated offering and our creative firepower is something at this point gives us a strong advantage over those system integrators, if you will. That said, five years or six years from now, the landscape is going to change, maybe potentially you’ll see us partnering with some of these.

These are all, it’s a changing anticipating landscape out there, but what we do bring to the table is the firepower on the creative side of the business.

And what we offer to those type of individuals in terms of the diverse client base, innovative thinking, the ability to reach across all the different agencies at IPG, that’s a pretty compelling case to be made for strong creative talent. And we’ve been very successful bringing some real top notch talent within our organization.

That coupled with the media side of the business, which we can bring on an integrated offering is something that these other providers don’t have and we use that.

And we do believe that the integration of media and creative talent, for example when MullenLowe is doing on the hyper bundling is really what clients are looking for and which is why on the media side of the business we’re seeing a lot of action out there in terms of clients, not clients, actually a lot of the reviews that are out there are not existing clients.

And we see the integration as a key factor both in buying and planning, which is why we think our investments in data analytics across all of IPG really position us well in terms of the response what are clients are looking for on the media side of the business..

Are you increasingly seeing those RFPs tied together between planning as well as the buying?.

Yes. And right now -- it used to be -- there are still clients out there that bifurcate buying and planning. And because they view -- media guys, I wanted to say this. They view buying as more of a commodity and they’re just looking for the best price.

But I think it’s a pretty compelling argument that buying and planning should be together because we can come up with the best media plan there is. And if it isn’t executed properly on the buying side, the effectiveness is really diminished and really is helpful to have the buying media and the planning, sitting in the same room working together.

And there are occasions that we do that. So, it’s not that we can’t do it but I think clients are beginning to realize that there is an added value to putting the two of them together.

And then, if you add on top of that the ability to bring in our creative and other offerings across the different disciplines, it’s a compelling argument as to why the model that we use, the open architecture model brings the best value as well as the expertise to the clients.

Fee pressure is something is getting a lot of -- since I’ve been in the business, what we’ve been talking about is fee pressure. Whether you call it zero based budgeting, whether you call it value pricing, whatever you want to call it, there is always pressure. Clients want more for less. And if I was a client, I would be doing exactly that.

And it’s incumbent to us to show that the work that we do actually moves the needle and which is why the data analytics part, why we’re making such a big strong effort on the centralized data and analytics across all the disciplines with an IPG because that really makes the case that what we do works and it encourages our clients to invest in what we do to move the needle.

So, even if it’s a difficult competitive environment, these clients have to spend money on advertising. And if we can show the return on investment for the money that they are spending, they are going to spend it.

And although they’ll want -- price it most efficiently and get the best deals as they can, if we can prove that what we’re doing is adding value, then they’re going to spend their money and it’s going to be incumbent on us to make our margins. And frankly you’ve seen us do that.

We’ve been talking about price pressures now for years and we continue to expand margin at 50 basis points. So, we still believe the opportunity is there for us to continue to expand margin even with the pressures on the pricing.

But there is pressure and it really puts the burden on us to make the case of what we’re doing is effective and efficient for our clients. Google and ad blocking, I mean that’s -- someone is going to ultimately have to pay for all this stuff.

And I know that marketplace like to see everything for nothing but in the end advertisers are going to spend money and they’re going to be -- they want to see the effectiveness.

It puts the burden on us to be creative and innovative in storytelling, embedded content, different ways of reaching the consumer, the pop up ad, yes, you’ve got to see that blocked, frankly thank goodness because it gets to be annoying. But we’re much more advanced than that in our business right now.

And the embedded content which is why everyone is investing in content and having partnerships on content really makes the case for developing relationship between the clients and the consumers. And that’s really where we shine.

We can use our creative capability, our technical capabilities and our distribution to make sure that that content is reaching the consumers with the right message..

Thank you. Next question comes from the line of David Joyce from Evercore ISI. Your line is now open.

Thank you. I was hoping you could help us think about how much your digital initiatives are helping the growth in the U.S.

And then, from a broader perspective, where are your various international operations in rolling out and integrating digital versus where we are?.

Look, our digital capabilities are growing historically and overall at double-digit rate. So, it’s a strong engine for our growth. And we don’t -- it’s hard to characterize them as digital agencies anymore. There’s been a convergence among all of our agencies. Our approach to digital has always been that it’s embedded in all of our activities.

So, whether you do experiential, whether you do PR, whether you do traditional advertising, digital capabilities is embedded, which is why we don’t have a separate silo as far as digital capabilities. On top of that, we do have digital -- historical digital capabilities in the R/GA a Huge, the MRM, the Proferos.

These are original digital agencies, but they cover a broad spectrum of services. R/GA covers creative PR.

I mean, they are full service agency candidly, but they have the connected space and the digital capabilities as part of their DNA, which is what makes their offering in Huge and the Proferos and the MRMs compelling, because they bring all of those expertise together.

And frankly when they don’t have, they reach out to other assets within IPG to put that all together. So digital is a critical growth. And if you look at where media is being spent, linear TV is not growing as rapidly as digital on the media side.

And therefore, if all of our resources aren’t well-versed in digital capabilities, we couldn’t put forth the numbers that we’re seeing. So, digital is going to continue to help grow most of our other businesses. And we make good margin on it. And it’s a great way to develop lasting relationships with clients because that’s where the action is..

Thank you. Next question comes from the line of Peter Stabler from Wells Fargo. Your line is now open..

Good morning. One for Michael and one for Frank. Michael, wondering if you could give us a little more color on the dispositions, you refer to them as non-strategic. I wonder if there is any sort theme in there.

And then, Frank, couple of quarters ago, you talked about, how in terms of contract construction you were generally seeking to lower your exposure to pass-through revenues, given the fact that they can distort growth and the end call them out plus or minus every quarter; just wondering, if you cold update us.

Have you seen a meaningful reduction in terms of contract construction in the pass-through; is this contributing to a bit of the margin growth? Wondering if you could help us think about that through the rest of the year. Thanks very much..

Yes. On the dispositions, we did indicate that it had an impact of negative 1% on revenue. If you remember, last year, the ended of year, we announced that we were disposing of not-strategic assets. This isn’t exit of a business line that we’ve seen, one of our competitors has that.

This is small agencies and geographic regions that frankly they were either losing money or they were not relevant to the offerings, to the entity in which they were residing. So, it’s just basically cleaning up agencies that were not value-added, losing money and strategically not necessary.

So, it’s not that we exited the business line; it was in geographic regions that were not efficient for us..

And on a question around contracts, Peter, it primary relates to events business. We are trying to address new clients and move them into an agency relationship as opposed to a principal relationship, existing clients very difficult to shift. So, this will take some time; it’s not having a meaningful impact on margins..

Thank you. Next question comes from the line of Ben Swinburne from Morgan Stanley. Your line is now open..

Thank you. Good morning. Michael, couple for you. I was curious programmatic was a big buzz word for us a couple of years ago, it’s still a big part of your business. And I guess as a complement to IPG, a lot of your competitors have shifted their model to look like yours and be more of an agency approach. So, now that that’s happened.

The bad news is it is perhaps less differentiated of an offer. Can you talk about what you’re doing on the programmatic digital buying front to sort of stay ahead of competition, now that this kind of moves your way, for lack of a better phrase? And then, I had a follow-up..

I’d like to say they see the light. Actually more importantly, the clients have seen the light. This was more or less a response to the fact that what we’ve been saying all along is that we should act as an agent, not as a principal.

So, there is an inherent conflict when you’re doing the buyings programmatic, if you’re selling inventory that you have an economic interest in it. And we’ve always said that that we do something we wouldn’t do. And obviously, you’re right. We use that as a differentiator in the various pitches.

And clients are beginning to see that they shouldn’t be giving away those profits. And therefore our approach which is a more client-centric approach is the right way to go. And so we’re appreciative of that. But it’s still a very important business for us. Let’s say, we never took inventory. So, therefore it’s still a very high margin business for us.

So that means the value service that we’re providing in the programmatic is something that clients appreciate and they’re willing to pay for it. And we’re expanding it on a global basis. Remember, this started out as the US based business and now it’s covering the world.

The fact that we pulled out the data analytics and put it into reporting directly into fleet in the US side at the holding company level is indicative that we view this as a very strong component that will differentiate us in the marketplace and will be available, not just to our media businesses but all of our businesses.

And when you look at the hyper bundling that we’ve been talking about where media and creative are coming together, this will be viewed as an integral part of the offering that our agencies have. So, I don’t think programmatic dramatic is going away, I think it continues to be a growth vehicle for us. Yes, some clients have been taking it in-house.

But this costs a lot of money to continue to evolve; we have to invest in it.

Clients like to have it in-house but when it comes time to looking at efficiencies and investing in it, I think a lot of them will see that some of them may do -- is okay to have in-house but in terms of the changing landscape of programmatic, we offer something that is very difficult to do on an internal basis.

So, it would be a combination of the two. So, we still view programmatic as a very important aspect of the business going forward..

Got it. And then, just as a follow-up more on the macro, you look a lot of the I guess call it soft data out there whether it’s consumer confidence or a small business index, or a lot of the PMI data, still quite bullish.

And I think a lot of verticals have been expecting some sort of cyclical balance including advertising, but we’re not really seeing it. I’m curious, you’ve made some comments about sort of the political backdrop.

And I’d just love your thoughts as to whether you expect to see the spending trends sort of catch-up with the leading indicators or if this mismatch may persist for a while.

I realize you’re not an economist per se, but you talk to large advertisers; we’d love to get your thoughts?.

Yes. I think everyone is -- we are experiencing everything that you read about. Everyone is expecting this rash of consumer confidence and spending and a lot of it is a function of what’s going to happen frankly in Washington.

And so, everyone is waiting and seeing, everyone is expecting to see some change, because obviously that was an important part of the platform. I think they’re beginning to see that it’s a little more difficult than they originally thought.

But nonetheless, the consumers are spending, but I think there is some holdback, if you will, in terms of big companies committing to making big investments until these areas are resolved. So, there is disconnect between the market, stock market and the spend.

I think potentially, if it all comes together, that will be a good pick-up for us as we go forward, as is tax rate change. I mean, forget about the consumers, just look at IPG, I mean, if you -- we are a tax payer in the U.S.

and to the extent that there is a reduction in corporate taxes or individual taxes, which will help to consumers that all benefits us. So, we’re looking [ph] for that. And so I think it’s still a little bit of a wait and see. So, I agree, I think we’re going to still see disconnect there until some of this stuff really comes to fruition..

Thank you..

We still think that the 3% to 4% that we’re putting out for the year, we do this on a bottoms up basis, and we were not anticipating a big hockey stick in terms of consumer confidence to give the rise to that 3% to 4% growth..

Thank you. Our next question comes from the line of Dan Salmon from BMO. Your line is now open..

Good morning, everyone. Michael, could we perhaps just return back to parts of your prepared remarks and then earlier questions on competition that the IT companies in particular? And there has been an increasing questions on them specifically. And this isn’t a new trend; we’ve seen a lot of small deals going on for years.

It doesn’t seem like there has been a big increase there. But hiring trends are something that we see a little bit less of.

So, I was curious if you could go pullback the curtain for us a little bit more, are you hiring more their people; are they hiring more of yours, has that changed whole a lot? And then maybe second, if I could return to the idea of their role in transacting media specifically.

Accenture in the past month has been assigned as the sort of the manager of the open AP alliance between the three of other larger sellers of advertising and you also interestingly note that you’ll be their media agency going forward. So, kind of interesting perspective on what they’re doing with a new business on the sales side.

But you’re also tied with them shortly on the buy side.

I’d be curious about your high level views on how those companies play in media work?.

Yes. It just shows you, we can all get along. Everybody else would operate the same way. I think we’d be in better shape. Yes. Look, as I say, they are -- look, whether it’d be Accenture or any other consulting and as I say system integrators, they’re buying agencies.

And I would do -- you already have the client, you’re doing -- you’re involved in their system integration; and to the extent that you’ve been having add-on from revenue, why not. And so, we do see them as continued competitors if you will in the space. But at this stage, they don’t have the capabilities on the integrated offering that we have.

And frankly, and I’ve thrown this out that maybe it’s better if we partner with them than directly compete because we do bring unique expertise that they don’t have yet, and why buy it when you can rent it. So, that’s it. Just I throw that out as a potential. But nonetheless, we compete with them. And so far, we’re doing pretty well against it.

And it will be interesting, if they are advising, as you say, the publishers, if you will, sellers of space, it’s hard to be on the other side of that. So, as we say, there is a convergence of everything coming together.

And in the end, it’s going to be who has the best capabilities, who has the best insights, and who can bring it all together in a single source. And that’s where I think we have a competitive advantage. We’ve been operating under this open architecture now for 10 years. And frankly we know how to do that.

And if you’re sitting on the other side of the table, you can blow your brains out looking at all the different resources that are out there trying to sell you something.

And if we can provide a single source capability that’s best in class that puts them all together that’s focused on the client, we don’t have them building the hunt with respect to any of our assets, that’s a pretty compelling case if I was sitting on the other side of the table. So, that’s where we continue to place our bets.

And by the way, we are going into the consultancy business. I said this before. But the consultancy part of the business is different. We are -- for example R/GA is already in business transformation, design capabilities, even structural type of advice.

So yes, I mean, it’s a logical expansion of the fact that we have relationship with the clients, we know their business and we can really bring to the table creative, new, innovative ideas and call it what you will, partnering with these clients and being able to execute in this complicated environment is something that they want to see.

And frankly we’re pretty well suited to do it. So, yes, they’re going to be out there but I think like I said in my prepared remarks, we’ve been expecting it and we’ve been building our assets to compete against it. That said, Accenture is a great client of ours, I’m very happy to have him as a client.

I committed to them that we will through the best we have at IPG to helping them achieve their goals and we’re on the same page..

Thank you. Our last question comes from the line of Jason Bazinet from Citi. Your line is now open..

Thanks. Just a question for Mr. Roth. When I think of a company that’s not growing super quickly, you can see working capital go negative, positive, but it usually nets out to zero if you give a firm enough time.

And when I look to the sort of late-90s to 2006, that’s indeed what happened at IPG, it’s positive, negative; positive, negative but it netted out to zero. The last ten years sort of 2006 to 2016, it was sort of minus $1 billionish.

And over that same period, you generated about $3.7 billion of cash flows, so large as a percentage of your cash generation.

Is there something indicative of how the business is changed in the 20-year period where it has become more working capital intensive or am I just looking at sort of the wrong two 10-year periods and drawing erroneous conclusions? Thanks..

Well, I think the aspect of the media business has changed dramatically. And I think that’s part of what’s driving -- and that’s why you see the seasonality of our own cash flows because a lot of our ins and outs on the cash flows is as a result of media. So, I think that had a big impact.

Frankly, I’m not as familiar about it -- I’m new to this business relatively. So, the 10 years that you were talking about, I was a tax lawyer. But, right now, I think it’s a media business that’s driving the cash flows and it’s -- and we’ve done a tremendous job in terms of working with our clients and working with our -- focus on cash flow.

We’re not a bank. And it’s a critical component of returns. So, I think we’re much better at it than we were 10 years ago as well. It wasn’t the kind of focus that was -- in the end though, yes, we are generating a lot of cash flow; it’s a good. The good news about IPG is that that cash flow we’re returning to our shareholders.

We didn’t go out and do big transactions; that’s another difference. In the all days, IPG and the other holding companies and there are some still do it, buy everything that’s out there. And frankly, we were not participating in that.

So, we took the excess cash flow in our business and we returned it to our shareholders in the form of buybacks and dividends. So, there aren’t any big transactions out there that we see that when we really have to use all of that cash to do. If there are, we’ll look at it as any other transaction. But I think -- I hope that helps.

But that’s the dynamics of our business for example..

Do you think on a go forward basis, if you go out long enough that the working capital on relations will be zero or do you think it sort of….

Eventually, of course, and unless the dynamics of our industry change dramatically which frankly we’re not going to do. So, that’s the gist of your question. Clients would like us to be a bank but we’re not..

Thank you, speakers. You may go ahead and proceed..

Okay. Well, thank you very much. As I said, this is the first quarter. We’ve got a lot of work ahead of us and we are keeping our heads down to deliver on our results. Thank you so much..

This concludes today’s conference. Thank you and you may disconnect at this time..