Good morning, and welcome to The Interpublic Group Third Quarter 2018 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 turn over the call to 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 in 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 all for joining us this morning as we review our third quarter and year-to-date results. I'll start by covering highlights of our performance, Frank will then provide additional detail and I'll conclude with an update on our agencies to be followed by our Q&A. We are pleased to again report strong financial performance.

Third quarter net revenue organic growth was 5.4%. Our adjusted operating income increased 7% to $273 million adjusted for one time transaction expenses from our acquisition of Acxiom. Operating margins similarly adjusted expanded 50 basis points from a year results to 14.4%. The quarter reflects our continued growth in every major world region. U.S.

organic growth was 5% while international growth was 6% highlighted by strong increases across LatAm, Asia PAC, Europe and the UK. We also continue to drive growth across all of our major service disciplines led by notably strong performance in media, and increases in advertising, public relations and at our digital specialist agencies.

Extensive list of contributing agencies is headed up by Mediabrands, FCB, McCann World group, Huge, R/GA, Weber Shandwick, Golin, MullenLowe and Octagon. In terms of client sectors in the quarter. Our growth was phased by healthcare, tech and telecom, financial services and consumer goods.

We saw both existing client increases from a year ago and the benefit of net new business wins. Through nine-months organic growth was 4.9% a strong year-to-date results that again was driven by increases in every major world region and discipline.

Growth at these levels continues to underscore the distinctive talents of our people and the strength of our agency brands as well as the differentiated structure of our Company.

Our approach to highly strategic areas such as our expanding capabilities in data and analytics and our ability to create seamless open architecture solutions across our agencies has been consistently validated in our results.

These are competitive strengths that drive business results for clients and sustain the growth leadership that you are seeing from us once again today. Third quarter diluted earnings per share was $0.41 as reported and was $0.48 as adjusted for transaction expenses for our acquisition of Acxiom and for business dispositions in the quarter.

That compares with adjusted diluted EPS of $0.37 a year ago, an increase of 30%. The nine-month period diluted EPS was $0.75 and with $0.93 as adjusted. Turning to our outlook for the full-year, you will recall that we came into 2018 with financial targets of 2% to 3% organic growth and 60 to 70 basis points of operating margin expansion.

We raised our sites in April to the high-end of the growth range and raised it again following our strong second quarter to 4% and 4.5% for the full-year. Through nine-months we are confident that performance to date in the current tone of business have us on track to meet or exceed this higher revenue growth range.

Along with that, we have also increased our investment in the talent and tools to support current and future growth, while continuing to drive towards our target of 60 to 70 basis points of net revenue margin expansion, excluding one-time deal cost.

As you know the quarter was highlighted not only by strong performance, but also by the steps we took to further strengthen our offerings and expand our Companies industry leadership going forward.

The quarter began with our announcement that we would acquire Acxiom marketing solutions and concluded with our well-received transaction financing in the debt capital markets followed by our acquisition closing on October 1.

Acxiom is a world class data asset, there are many opportunities between our companies which we will discuss later, but it's important to note that with ownership we get Acxiom’s first part of data management business as all companies look to make their first party data work harder for them and do so in an increasingly regulated and secure environment, Acxiom is considered a premier provider of these service.

Furthermore, we see Acxiom’s ability to leverage data for marketing insights as the foundation for a growing set of opportunities and partnership with our own Media business plus our advertising and marketing services across our Company.

As data is playing an increasingly central role in consumer engagement and a creation of the most effective media and marketing solutions, we believe this is a transformational acquisition for IPG.

Accordingly, Acxiom’s expertise and skill positions us to deliver unparalleled benefit to our clients, reception of our acquisition by our people and the people of Acxiom and the support and enthusiasm of both organizations clients has been both gratifying and additionally encouraging.

In my closing remarks I will have additional thoughts on Acxiom and the many opportunities ahead of us, along with our updated on our agencies. So at this stage I will turn it over to Frank for additional detail of our results..

Thank you Michael, good morning. As usual, I'll be referring to the slide presentation that accompanies our webcast. On Slide 2, you will see an overview of our results. Organic growth of our net revenue was 5.4% in the third quarter that reflects strong worldwide performance with U.S. growth of 5% and international growth of 6%.

For the nine-months year-to-date organic growth was 4.9% with the U.S. up 4.6% and international growth of 5.4%. Q3 operating profit was 262 million and is 273 million as adjusted to exclude one-time cost the Acxiom transaction and operations.

Operating margin was 14.4%, again excluding the deal costs, which is increase of 50 basis points from the year ago. Our third quarter results included total of 24.6 million of one-time deal expenses from the Acxiom transaction that consists of 11 million in operations in our SG&A expense and 13.6 million below operating income.

The quarter also includes 5.8 million of non operating losses from sales of small nonstrategic agencies. Our adjusted results excludes these items. Diluted EPS in the quarter was $0.41 and was $0.48 as adjusted. For the nine-months, diluted EPS was $0.75 and was $0.93 as adjusted. This year compared with $0.73 a year ago, an increase of 27%.

Our Acxiom acquisition financing consists of two billion senior notes and four 500 million tranches and was completed on September 21. In addition, we also took down our 500 million acquisition term loan facility and that was on October 1. Turning to Slide 3, you will see our P&L for the quarter.

I'll cover revenue and operating expenses in detail and the slides that follow. On Slide 4, net revenue was 1.896 billion which is an increase of 3.4% from Q3 2017. The impact of the change in exchange rates was a negative 1.3% while net dispositions of small nonstrategic agencies were negative 70 basis points. Resulting organic increase was 5.4%.

On the bottom half of this slide, net revenue organic growth was 5.7% our integrated agency network segment. We had contributions to the growth from all IAN disciplines and across all of our largest agencies. CMG grew 3.9% organically led by our public relations agencies Weber Shandwick and Golin and by our Octagon’s sports marketing agency.

Moving on to Slide 5. Net revenue change by region. U.S. organic growth was 5% in Q3. Increases were broadly shared across disciplined in agencies. Most notably at Mediabrands, FCB, Huge, Weber Shandwick, Golin and Octagon. In terms of client sectors we were led in the U.S. by healthcare financial services auto and transportation and consumer goods.

Organic growth was 4.6% for the nine-months. Turning to international markets, we posted another strong quarter in the UK, which grew 6.8% organically, performance was led by our creatively driven integrated offerings at McCann, strong contribution from Mediabrands and growth at R/GA. Year-to-date UK organic growth has been outstanding at 9.7%.

In Continental Europe, Q3 organic growth was also strong at 5.8%, with contributions from both new business wins and increases with existing clients. We grew in each of our largest national markets Spain, Italy, Germany and France as well as many of the smaller markets. The nine-months organic growth was 6%.

Asia-Pac growth accelerated 7.5 in Q3 supported by increases across nearly all agencies. Among our largest regional markets, we saw strong growth in Indian, Japan and China while Australia decreased. LatAm grew 12.4% organically. We continue to have very strong growth in Mexico, Argentina and Colombia, while Brazil returned to growth in Q3.

With the nine-months organic growth was 9.1%. In our other markets group, net revenue decreased 1.6% organically. Our growth in Canada was more than offset by decreases in the Middle East. Moving on to Slide 6 on operating expense. Net operating expenses excluding the one-time transaction costs increased only 2.9% under our net revenue growth of 3.4%.

our ratio of salaries and wage expenses to net revenue in the quarter improved by 50 basis points from the year ago to 66% in the quarter. Operating leverage on our expenses for base payroll and our expense carried to other salaries and related expenses.

Going the other way, we delevered against increased expense for performance-based incentive compensation, a result of our stronger financial performance and against increased expense for temporary labor. Our total headcount at quarter end was approximately 51,400, which is an increase of 2% from a year ago.

Our office and other direct expenses were 16.7% of net revenue in the quarter compared with 16.5% in Q3 2017. We had 10 basis points of occupancy leverage, but delevered by 30 basis points in all other office and direct expenses in the quarter. Through nine-months, operating leverage on office and other expenses improved by 20 basis points.

Our selling, general and administration expenses increased to 21.6 million as reported. That includes 11 million of Acxiom transaction expenses. Excluding deal expenses SG&A expense was 10.6 million in the quarter compared with 13.6 million. Depreciation and amortization expense was 44 million and was 2.3% of net revenue.

Slide 7 is the bridge between our reported diluted earnings per share of $0.41 to the adjusted $0.48 per diluted share. As you can see the expense of business dispositions was $0.01 per share. Acxiom transaction expenses were $0.05 per share.

These are almost entirely legal and banking costs along with a small amount of net interest expense due pre funding had a closing. Similar bridge for the nine-month period is in the appendix to the presentation on Slide 20, just to note, we expect to report additional Acxiom transaction expenses in Q4 and will call this out accordingly.

On Slide 8, we turn to cash flow. Cash from operations in Q3 was 231 million, working capital use 30 million, our investing activities used 50 million in the quarter, mainly for CapEx. Financing activities generated 1.2 billion, results of the two billion from our debt issuance netted against the decrease of 674 million in short-term debt.

Our common stock dividend use 80 million. Our net cash increase in the quarter was 1.37 billion.

Turning to current portion of our balance sheet on Slide 9, we ended the third with 1.86 billion of cash and equivalents that would be a seasonally high cash flow for September but reflects the proceeds of our debt issued on September 21 plus the reduction in outstanding commercial paper. Completed the Acxiom transaction on October 1st.

On Slide 10, total debt on September 30 was 3.3 billion, on October 1st we also barred another 500 million term loan facility from our bank group. Accordingly this picture of our debt matures total of 3.8 billion. To finance the Acxiom transaction, we issued four debt tranches in September of 500 million each maturities of two, three, 10 and 30 years.

Those are shown in the blue on the slide, we are very pleased with the participation we received from the fixed income community with the offerings more than six times over prior subscribing and we thank them for their support.

Term loan facility matures in 2021, which is indicated here, but is pre payable in part or in whole before maturity and we thank our bank group as well. Our credit ratings remain where they were prior to the transaction, BAA, BBB and BBB Plus, respectively, Moody's and S&P and Fitch.

In the case of S&P, they moved us to negative outlook, while looks at Moody's and Fitch are stable. As we have said previously, we are committed to maintaining solid investment-grade ratings and to significant financial deleveraging over the next few years.

In the presentation appendix on Slide 21, we have provided a perspective on income statement modeling for the Acxiom acquisition. As a reminder, beginning with our fourth quarter and for the full-year we will be adding metrics of EBITDA, EBITDA margins and adjusted EPS.

Summary on Slide 11, it has been a strong quarter in first nine-months, we are pleased with performance and looking forward to the next stages of our growth and with the Acxiom on board. With that let me turn it back over to Michael..

Thank you, Frank. Of course we are pleased with our results in the quarter in terms of growth and profitability which continue to distinguish us from our peer group.

At IPG, we have been addressing both the opportunities and challenges of an evolving marketing landscape for many years, we have had a differentiated approach on how we collaborate on building out our digital capabilities, our commitment to transparent media practices and now recently our significant investment in data.

Taken together, these strategic steps has positioned IPG to address the challenges of the modern market. Furthermore, our values and our culture of the reasons where we are able to attract the best talent. And its why clients want to do business with us.

Decade ago we put in leadership across our agencies who like us, believes and investing in our agency brands which allowed us to embed digital expertise across the organization including in media, advertising, PR, healthcare, activation, branding and our marketing services.

Our leadership understands that creativity and insights are hiking when you have diverse teams, and inclusive workplace, especially one where people feel empowered to come forward and report issues that run counter to our values. Since that time we have had stable and collaborative leadership in our organization.

Leaders who believe in our vision of strong agency brands at work together. This becomes especially important when others are disinvesting in their brands.

We believe our strategic decisions over the years, coupled with our talent centric culture one that focused on collaboration, diversity and inclusion have led us to another year of distinctive growth.

Looking forward, it’s key to keep in mind that ours is a constantly changing media and consumer environment, and new opportunities for clients are part of the business that keeps us energized.

Engaging the tone of the business for the balance of the year, we see a continued flow of opportunities with existing and potential new clients which underscores our confidence in obtaining the high growth targets we have set out earlier this year. Furthermore, we are net new business positive so far this year.

In terms of margin, the quarter demonstrated that we can balance business reinvestment with expanding profitability. As we enter our important fourth quarter, we are fully focused on continuing to enhance margin and achieve our targets for the year.

Highlights in the quarter were led by Mediabrands, which once again posted very strong top and bottom line growth. The headline wins for UM or Quicken loans as well as their retention of Charles Schwab. A key win given the agencies nine-year relationship with the brand and the fact that every holding company competed for the business.

In addition both UM and initiatives were deeply invested in several major industry pitches during the quarter, including American Express which was awarded to UM last week.

Initiative had a string of wins during the first half of the year, including Revlon and Converse and then the third quarter secured the Liverpool Victoria insurance company a major UK advertiser. Their returns and strong growth is a great story for IPG in the industry.

Back to media agency report convergence ranked initiative the number one agency in net new business wins naming it the Best Performing Media Agency through the first half of 2018. Our creative networks once again drove solid growth in the quarter.

FCB delivered a continued progress, a reflection of the network's focus on its creative product, science and culture. Recent successes included the Kimberly Clark global assignment wins and FCB Canada's win of Home Depot. FCB Health continued its impressive performance with multiple substantial new business wins.

The agency is involved in several large pitches as well as especially in the Chicago and New York offices. McCann’s performance was driven by strong growth in the UK and Latin America. Gains in U.S. as well as a number of additional international markets.

Just last week McCann UK was named Effectiveness Network of the year at 2018 IPA Effectiveness Awards. In addition, McCann World Group India was named Agency of the Year at the 4A’s 2018 Jay Chiat Award last week. New business wins in the quarter included additional global assignments from Reckitt Benckiser and Opel auto brand in Europe.

Tan Health continued its strong performance in the quarter and continued to garner industry recognition for sector leadership. MullenLowe also delivered solid revenue growth adding new brands to their client roster in Q3, including stable and seasons entertainment and more recently the UK's co-op bank.

MullenLowe media hub continues to be a star in both new business and recognition winning blooming brands last week. You may have seen the intention getting cover image on add week last month celebrating Mediahub's win a Best In Show for a campaign increase for Netflix.

MullenLowe is also growing its business transformation consulting practice and saw some nice wins in that space. As we have mentioned on recent calls, we continue to see an improved tone of business among CPG clients with growth in the sector in Q3 and year-to-date.

MullenLowe marketing services agencies and CMG, we saw an acceleration of top-line growth, which we expect to continue heading into the fourth quarter, which includes a number of new business wins.

Octagon our fourth marketing firm was notably strong in the quarter with a renewed focus on big event strategy for upcoming Olympics, World Cup and music and entertainment events.

Their growth was followed closely by Weber Shandwick, which launched a new agency model called the X Practice, bringing together the power of the PR firm's global technology practice, data analytics, media, digital and creative technology talent to better support major clients.

This platform serves as a catalyst for the PR industry’s two biggest wins of the year, including IBM. Our digital first agencies continue to lead the industry with new offerings, creative products in digital marketing with R/GA, Huge and MRM, McCann each having to find strong and unique brand positioning.

Under new leadership Huge has been focused on creating experiences that connect on and off-line marketing to engage users and deliver value. They have also appointed news U.S. and UK managing directors as the agency continues to expand its footprint in Europe. We are excited to see what they can deliver for clients moving forward.

Our U.S independence round out our portfolio. These agencies deliver a range of integrated services to their clients and can also combined with the rest of the IPG offering on our collaborative open architecture solutions.

During the quarter, highlights within this group include Deutsch's win of numeric zone and the Martin Agency's win of Wizards of the Coast has real has brand.

Thus this month AV Pete & Co announced their win on LinkedIn, this comes on the heels of a very strong start of the year for the South Carolina based agency with one clients like Lowe's and John Deere and highly competitive national pitches.

AV Pete & Co continue to do some of the industry's most innovative digital work for clients like Denise ad Lenovo. As mentioned earlier at IPG, we believe in our brands and continue to invest behind them.

As you know, our open architecture strategy was an early foray into addressing the challenges of an increasingly complex marketing and consumer landscape, bringing together the best specialists to act collectively on behalf of our clients.

Our success on that front as meant the Company has been able to post strong results without needing to restructure our major brands.

Some open architecture successes in the quarter included Honeywell where we created a custom agency powered by digital B2B marketing specialist MRM//McCann, Experiential agency Jack Morton, PR firm Weber Shandwick and a range of specialized agencies from across the holding company.

In addition the Colombia's sportswear win was an open architecture solution that brought together a cross section of IPG agencies led by McCann World Group.

In addition, the other launched PR consolidation this quarter was Novartis which was won by a range of IPG agencies including Weber Shandwick, Creation, DNA Communications, Golin and Virgo Health. As you know, we closed on acting on October 1st as mentioned earlier.

Net core business are managing first part of data with their plans with a steady and grown business. We continue to believe that this acquisition will create revenue opportunities for our organization, starting with our media offering with the prospects of the greatest.

With Acxiom our Company can now deliver foundational data management capability to our clients, including many of the world's largest brands.

This is a critical capability, increasingly our largest clients attached us with creating cross channel brands that leverage their first-party data advertising and marketing technologies as well as creative insights. With Acxiom we are better able to answer that need and in the process become better partners for our clients.

We know how important data privacy is to marketers and to consumers. We see daily headlines that reminds us that we review our current performance in Acxiom's best-in-class knowledge of data management coupled with its industry-leading reputation for ethical standards and data gathering and respect for consumer privacy are values we share.

They are key reasons why our partnership will add to shareholder value. Going forward our targets for the full-year, our net revenue organic growth of 4% to 4.5% in 2018. We remain committed to furthering our long-term record of margin expansion as well with 60 to 70 basis points of improvement as updated on the last call.

Of course, we remain committed to deleveraging our balance sheet and the return of capital to our shareholders in the form of increasing dividends. We expect to resume our share repurchases in a reasonable timeframe.

We view our current performance, our long-term strategy as significant factors that will continue to further value creation and enhance shareholder value. As always, we thank you for your time and support and with that I'll open it up for your questions..

[Operator Instructions] Our first question comes from Alexia Quadrani with JP Morgan. Your line is open..

Good morning. Thank you very much. Michael another very impressive quarter, I guess any color you might be seeing in the marketplace. I’m trying to understand what is different for you guys now versus a year ago. I know you mentioned package good company, some good, some feature are stronger which is fantastic news now year-to-date.

I guess anything else that you see sort of is really changed..

Thank you, Alexia and by the way welcome back. Look that question was frankly asked in the last quarter and my comments which is has quoted why don’t you just believe we are better than everyone else. But I mentioned in my remarks.

I think the way we are structured as a Company is a key differentiator, we actually believe in the brands within the agency and we didn’t need to restructure our company, the key to that is our focus on our clients and what they need.

So when appropriate we use the open architecture model which we've been doing now for 12 years and you can do that unless A, you have the best talent and tools available to our people.

The second is they have to have a good feeling that they can call on other resources within IPG and leverage that on a collaborative basis and we are seeing that in the marketplace. And I mentioned, just two wins where we used the open architecture, but it’s not even just in the wins.

We have the ability to bring in other IPG resources when a given network feel the firepower that another agency can bring and help. Now of course we do that recognizing issues of complex and we don’t run afoul of that, so that is the one caveat on that part of it that we have to maintain.

But I do believe that clients believe that we are looking out for their best benefit, not necessarily our own silos and when you have a relationship with clients like that it makes a difference. And so you know I think that is certainly a key factor in why we are doing better.

The other part of it is, we have spent a lot of time, money and tools and resources to invest in our talent.

And without the talent that brings that to life with our clients none of this works and our mantra is client first and our people are comfortable focusing on clients and know that they are within an organization that values their career and the opportunities for them as well.

So I think, I always talk about us being different than the other holding companies, I think that is reflective in the environment and our values and that just works out to clients that want to do business with us and us being able to meet their needs on a seamless basis..

I guess Michael that is such a great explanation of how come you have had such a relative outperformance versus your peers which obviously is continuing.

But I guess more, I’m looking also why you also IPG doing better than you guys did a year ago, is it the clients are recognizing all these things that you sort of elaborated on or is the overall environment a little bit better, I’m trying to get a sense of how come its better now..

Well there is no question as the terms of business is better, I mean just remember 60%, 61% of our business in the U.S. the tone of our business and the strength of our business in the U.S. is very solid.

I think look at our media offerings right now, I mean that clearly is where a lot of the pitches are, where clients who are looking for us to add value and our media business is our best-in-class and now they are further strengthened with the opportunity to work with Acxiom to bring the insights at are next sturdy.

I mentioned this, it’s worth saying it again, we are going to start using Acxiom and Mediabrands as our first volley in terms of the opportunities that created on a synergy basis and an opportunity basis both with respect to Acxiom as well as the IPG clients.

We have had inbound enquiries from our existing clients to see what actually you can do for us as such the Acxiom clients have inbound question, as to what IPG can bring. But we also see this as an opportunity for our creative agencies, because they too need to get insights that are necessary to reach the consumers in effective way.

So I think it’s an indication that we are looking forward to the future of what is necessary and frankly in the marketplace clients look to see whether we continue to invest and have those kind of resources. It doesn’t hurt that the economic environment is better. We see UK for example, and continental Europe.

I have said this before and that is we are 8% to 9% in those respected markets. So one or two clients can make a difference in our results and we've been fortunate in terms of some of the business wins in those markets and retention of clients in those markets and those clients are doing fairly well and investing.

So I think that is part of the answer. And the other part of it is that the general tones for example Latin America you see a very strong recovery in various markets and even Brazil which has been a problem for us and everybody else. We saw a return to growth this quarter and that is as a result of some additional new business wins.

So I think it's a combination. And the final point which is one that is a really good indicator. If you look at our Top 20 clients for the last couple of quarters, we were relying a lot on the project-based businesses.

Remember we were talking about project-based businesses, the large wins you have to find repeats that we were finding as many repeat on large project-based businesses. When you look at Top 20 clients, which aren’t necessarily considered project based although some of the work there is projects.

We have seen a return to good growth in our Top 20 clients. So I think that is a solid backbone of IPG, because we had some of the world's largest clients in terms of marketing and services and advertising and we are seeing a recovery there. So I think that is a key point..

That is very helpful. Thank you for the color. Can I just squeeze in one more question about Acxiom. A lot of your peers are restructuring and divesting under the building.

I guess post Acxiom do you feel you are sort of well positioned in terms you have everything you need to compete going forward?.

Yes. Well, we did do some dispositions. We committed to looking at our portfolio and eliminating businesses that aren’t strategic and not being accretive to us from a margin point of view.

But those are one of us, but our solid core - we had the luxury of looking at our strategic assets when we were going through some difficult periods and we eliminated. Remember our first year, I think we closed 50 agencies on a worldwide basis.

So we have been repositioning for a while and right now we have our core businesses and they are open for bidding in a way that we're comfortable with or have opportunities to contribute more, so we think our core business are where they should be.

We don’t see any holes in any of our offering so there is no need for us to go out and do another transformation transaction such as Acxiom.

So we will continue to invest in our brands, use our open architecture as the market dictates, invest in our new acquisition Acxiom, working with Mediabrands, which is our big growth vehicle right now in the marketplace and we are very well-positioned to compete and I think our results reflect that..

Well, thank you very much..

Next question please..

Our next question comes from Tim Nollen with Macquarie. Your line is now open..

Thanks. A couple questions on Acxiom please and one about your creative business. On Acxiom could you maybe give us a little bit more color as to what Acxiom did to contribute to the American Express win which I believe was the situation.

Also the numbers you have given on Acxiom in the slides in the back of the deck are the same as what you gave on the account on the announcement of the acquisition.

I wonder are there any updates you can give us help us with modeling this in and why not given the updated numbers since March 31st and then lastly sort of follow-up to Alexia’s question, I wanted to asked about your creative businesses, because a couple of your peers at least have talked about weakness on the creative side and yet you seem to be doing very well.

What is the difference, is it investment in talent or why are you doing good job of creative where some your peers are not..

All of that, okay. Thank you Tim. Let me start with the creative, because you are right. I mean, in fact one of our competitors acknowledged when they were going through their restructure that they were not as strong as the other holding company and in fact they called out IPG and McCann..

And then specifically..

So yes, we are very proud of our creative capabilities. We feel creativity and creative offerings are critical to the growth of our Company. So we, yes we have invested in talent. If you look at the key creative talent that we have at McCann in terms of SEB, MullenLowe and our independent agencies.

These are top notch creative people that have been recruited to IPG frankly now a couple of years ago. And the investment we made in them and the people they were able to recruit are going forward is paying very nicely in terms of the core businesses and their growth.

And that is the beauty of our open architecture and that is - what clients are really looking for are the integrated offerings where we can bring a combined opportunity to bring in creative, bringing media, bringing PR, bringing experiential all with a common purpose of working together to move the needle for our clients and now with Acxiom added to our media capabilities initially and then on our creative we have the insights in terms of how we can reach those consumers.

So we think creativity and creative talent is a critical component of our offerings and we didn’t lose sight of that and as a result I think our core global agencies are performing well as a result of that.

As far as the numbers go, all I can tell you that numbers we gave you, numbers we are using, I will comment on one point of it and that is we make assumptions on Acxiom for the rest of the year and modeling forward and it looks like we should be on target for achieving those goals. I think that is an important point.

So we wanted to make sure that we come out of the box and Acxiom is a proof point of the value that it adds to our portfolio. I'm very encouraged in terms of where the transition is going, the way the teams are working together and focusing on opportunities between the two without losing sight of their core data management business.

So we're very pleased with the way the teams have handled the transition and the opportunities to that.

The question on American Express, I can tell you that sure, the fact that we have acting is a very important factor looking forward in terms of the opportunities that we have, but UM already was a one of the top-performing media agencies in the business, their track record reflected that. They were very strong in the offering.

And I can tell you that one with necessary in terms of the win, I will tell you it didn’t hurt that we owned Acxiom, but I can tell you that it was because of Acxiom that we won. In fact I believe we were very competitive even before Acxiom transaction. This just made it even better..

Can we assume Acxiom is part of some of the ongoing pitches now?.

Well, you can count on it, an appropriate pitch is going forward the answer to that is yes..

Okay. Thanks..

Our next question comes from Ben Swinburne with Morgan Stanley. Your line is open..

Thanks good morning. Just sticking on the Acxiom topic Michael. What is a realistic expectation for us in terms of the timing of any revenue benefits or revenue synergies? I know you have to integrate the businesses you are focused on cross selling and bringing them into pitch activity.

Is that something that sort of starts immediately? Or do you think we should be thinking more about that over a period of time? And then I had a couple of questions in the quarter for Frank..

Okay. Well look you know you don’t take the $2 billion transaction and all of a sudden come out of the box and say all the synergy is there from day one. We have had extensive meetings and analysis. In fact we are presenting to the Board next week where we are on the transition in the synergy opportunities.

But they are going to take some time before we see the full impact of that. We don’t want to do anything stupid. In fact we are absolutely - well I think this problem right now, but one of them is holding back.

In other words the inbounds we are getting from all of our agencies to have access to Acxiom we don't want to inundate Acxiom folks and really throw a lumpy range in terms of the smooth transition. So we are actually holding back on some of these opportunities. So I think it will take a while before we see the full synergies.

That said, and what we said when we did the transaction you know we expect it to be accretive after adjusting for the causes and the amortization in the first year, and we believe we are certainly on-track to be able to say that and indicate that.

We also made an assumption that we thought we would see about 5% growth on the Acxiom business and we are in target to do that..

Okay that is great to hear. And then just on the expenses in the quarter, given how strong the top-line has been. I guess I would have guessed incentive comp would have been higher as a percent of revenue is down from last quarter, I know it’s up year-over-year, but the business is going much faster now than it was a year ago.

Any comment on where bonus accruals may have showed up and I saw it temporarily, but it was a quite a bit just any color on that and also all other O&G was up I think 6% to 7%; just any comments on that as we think about kind of the incremental margins on the business..

The increase in the incentive advantage due to performance alright. So it's is based on where we think the year is going to land. So there is no surprises there we expected it to be higher as we continue to improve in the top line. On the temp labor, it's quite a little bit around supporting new business wins, new business on-boarding and pitching.

So again with growth, you don't have the full-time employees to cover the incremental revenue needs so that is where you hit the temporary labor line..

You know we also saw a 2% increase in our headcount. When you are growing like we are growing and as we expect to on-board new clients on new wins there is a bit of a miss match sometimes between as far as and new business being on-boarded, because you don’t see revenue until later but you certainly have to staff up early.

And that is one of the change, right that is one of the challenges we have to deal with as we on-board new clients.

But that is the kind of investment you like to make, right, because you know that the revenue is going to be there, it’s just a question of timing and as Frank said sometime we use temporary labor, but ultimately the better answer is to have the right people in the right job on a full-time basis..

And to your other O&G its primarily the spike is driven by pitch cost..

Got you. So all good problems to have..

Yes, exactly..

Thanks a lot..

Thanks Ben..

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

Thanks. Maybe to start off with Michael with just a question on growth, so you reiterated the 5% that you have been seeing in Acxiom and your business is up around 5% year-to-date and everything you said sounded pretty constructive.

So it's kind of 5%, the new kind of run rate in this environment for IPG is that a number that you are comfortable with?.

Well you know first of all, I reiterate what I said is we expected I mean 5% growth to be consistent through the rest of the quarter, I didn’t know exactly commit to it. But I think it’s reasonable and obviously our targeted 4.5% not 5%. So what I said was that we are comfortable in reaching 4.5% or something higher than that.

And I will stick to those words, okay, but obviously the tone of our business and the new business wins put us in the high-end of the range on the revenue side..

Okay, yes, that is fair. And then, Frank maybe just a couple more on the model, I mean I guess, first, if we think about the margin impact from Acxiom its fairly significant. So as we just start to look forward, even with a little bit of declaration in margin expansion.

Should we think of any reason why we don’t just model in that extra margin from Acxiom that you have shown in the slide and then maybe if you could just help us a little bit with what you think about for your interest run rate and remind us what you are paced to deleverage back down to your target is. Thank you..

Steven on the margin, we are in the planning process now including MS folks are coming in next week. So we will guide on February call where we think our 2019 margin target will be. So right now I don’t really want to comment on that.

On the deleveraging comment, we will say investment grade is critical for us, we have committed to the rating agencies delever, we haven't put a timeline out there as to how we are going to progress against that, other than is very important for us to maintain our investment grade rating and we will delever accordingly..

You know, one of the things that sometimes get to overlook, when we announced the transaction, we thought there might be a downgrade in our ratings okay, and we were prepared not that we are asking them to do that, but the fact that the rating agencies one put us a little further put us on negative, but they held their ratings at least for a while.

The fact that the others held our ratings is an indication of the strength of our balance sheet and our modeling going forward. So I think we have been pretty good in terms of protecting the financial strength as well as dealing with shareholder returns in an appropriate way while maintaining our leverage and our financial strength.

So that is what we are going to do. We do see us returning to buyback whether it’s one year versus another it will be totally a function of the macroeconomic environment and this is performance. And like I said we don’t see any big transactions there we need capital for.

So if you look at our CapEx let's assume we have 200 million of CapEx and we do some bolt on transactions of a nominal size. Whatever in excess capital we have we still maintain belongs to our shareholders and protecting our financial strength on the balance sheet and our ratings.

And the one thing we have been consistent over the last 14 years is being able to manage that and we expect to do that going forward..

Next question please..

The next question comes from Jason Bazinet with Citi. Your line is open..

I just had a question on the Slide 21 related to Acxiom. You guys mentioned that you are going to use adjusted EPS as a key indicator going forward. And I'm guessing I mean even in this quarter you have adjusted EPS. So I'm guessing, what that really is quote for as cash EPS.

And I guess my question is have you guys ever sort of traded on cash EPS before, because when I go through just back of the envelope it seems like that the street moves to cash EPS number opposed to GAAP is worth like somewhere between $2 to $3 a share and your share price depending on what multiple stream you use?.

Well look you know, doing the expert on how we multiple, we just deliver results. We are just trying to be as transparent as we can so smart analyst can evaluate what the evaluation of our business today..

Yes, but I understand your point and look, we went for a period of time in our Company where EPS was totally irrelevant, because of all the issues we were dealing with. So that is why we think the EBITDA number is a good one to compare this and by the way thank you to your analysis and position that you came out with this morning. We appreciate it..

Yes of course. Thank you..

Our next question comes from Dan Salmon with BMO Capital Markets. Your line is open..

Good morning everyone. Michael I just want to follow-up on one of the prior questions on Acxiom, you mentioned beyond Mediabrands, you highlighted the creative agencies.

Should we take that immune as you think about moving beyond Mediabrands that is sort of the first place you want to bring the Acxiom offering, just may be more broadly we would love to hear about what you are thinking now that the deal is closed and you are getting more internal feedback on how you might extend those services and those products across the rest of the holding company? And then second you called out healthcare once again as a strong sector, we would just love to hear your high-level thoughts on not just what is contributing the IPG strength there.

But what is going on in the broader marketplace there and how much do you expect to continue to see strengthen the vertical. Thank you..

Yes. Let me talk about healthcare, because it’s a great point and it’s obviously a key driver. I mean year-to-date healthcare is 25% of our business, which has been growing as you pointed out over a number of years and of course the performance is our best performing sector.

So it's always good to have an overweight in the sector that is over-performing. Now one follows the other obviously. What we are seeing on the healthcare side is exactly what we were talking about in terms of open-architecture. The recent wins in healthcare are basically tailor-made to the open architecture structure.

Healthcare company, in fact on in the global, I was in a meeting with one of our global - one of the pitches actually on the global healthcare and they were using the term open architecture to us. So what they are looking for the resources that we have within IPG that can help them either by drug and expertise.

So that expertise maybe at SEB, it maybe McCann Health. So we have to be in a position to bring in teams of that expertise and the only way to do that is through an open architecture structure. And healthcare businesses are doing quite well and we have global offerings within that sector that meets the needs of our clients.

And then when you overlay PR is I indicated Novartis win, it really gives us a great opportunity to show what open architecture can deliver to the client and the love that and it’s up to us to make sure that is collaboration going within our agencies.

Because obviously the same agencies that are collaborating, sometimes they are competing for the same business, so that is the reason we use open architecture as opposed to one single agency per say.

So I believe the healthcare is going to continue to perform well in the marketplace and our offerings are best-in-class as reflected by our wins in this sector.

The synergies on Acxiom, what I was referring to on the creative side is just think of how powerful it is, our creative people right now have their own data analytics to reach consumers to get it with the right creative that is relevant and trustworthy to that consumer.

When you overlay first-party data or data analytics that Acxiom can bring to the table it just makes that offering that much more powerful and if you couple it with media planning and execution you have the holy Grail of our business, but you can’t all of a sudden just do this at one time.

So we been very thoughtful about this, which is why we're using our media business as the first blush here, because that is where the biggest opportunities are initially.

So we will get that structured correctly as we are comfortable with that, then we will start rolling it out to the creative agencies that we have and all our other agencies, but at first the media focus is where the opportunities are..

Okay, great. Thank you Michael..

My pleasure. Thank you..

Our next question comes from David Joyce with Evercore. Your line is now open..

Thank you. I was just wondering if you could update us on the trend of your clients in-housing certain functions.

What is it that you are doing to help them and then what sort of more complex activities are you still involved in? And how is that impacting your business?.

Yes, thank you. I know there was a recent report that showed there was an increase in housing. I think reference was a lot of the programmatic was there. We have been talking all along, yes, we have seen clients in-house programmatic, but that is easier said than done.

Programmatic is a very complex tool and even when we actually help our clients bringing in house but the relationships with the various providers, the analytics that go with it, the ability to reaching to the marketplace and have the best deals if you will we could help our clients to do that.

And what that enables us to do is continue the relationship between us and our clients and our ability to bring in our expertise. So we haven’t seen huge movement into in-housing on the programmatic side. The slide that is coming in-house is more mechanical part of it.

But the relationships and the expertise that we have that we can bring to the table is still relevant to those companies that bring in-house.

And by the way it takes a lot of money to invest and maintain that investment over a period of time and that remains to be seen how many of these clients that are bringing in-house are going to continue to do that. Historically we saw a lot of companies bring creative in-house and then eventually go back out and then come back in.

So that is nothing new to our industry. We know how to deal with that, but the value that we bring both in terms of the industry expertise, creative talent, media talent and experiential and PR just gives us other reasons to be in front of our clients, even if they take in some part of it in-house.

But we haven’t seen there is a dramatic increase as everyone is talking about..

Okay. I appreciate it. Thank you..

That was our final question for today. I would now like to turn the call back over to Mr. Roth..

Okay, well, look thank you very much. Obviously we are excited about our results, but we realized we have a big fourth quarter coming up. We got our heads down and we will walk towards. Thank you..

This concludes today's conference. You may disconnect at this time..