Good morning and welcome to the Interpublic Group Third Quarter 2020 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..

Thank you. Good morning. We hope you are all well. Thank you for being with us this morning. This morning we are joined by Michael Roth, Ellen Johnson and Philippe Krakowsky. We have posted our earnings release and our slide presentation on our website interpublic.com.

We will begin our call with prepared remarks to be followed by Q&A and 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 performance. I would like to start by saying that I hope that you and your families have remained safe and healthy during this pandemic.

Our focus this year has been and continues to be how the health crisis has impacted our people, our clients and our business, as well as on driving discipline and effective response to a challenging environment.

While navigating the many professional and personal challenges of this unprecedented period of time, our people have delivered on our strategic priorities, staying close to clients, continuing to develop and invest in our talent and offerings, managing operating expenses to revenue and positioning into public to emerge an even stronger company on the other side of the recession.

Our results in the quarter underscore once again that our offerings and our people are best in class. In our third quarter, our organic change of net revenue was negative 3.7%. As expected, that result continues to show the effect of the pandemic and global economic contraction, though perhaps not to the extent anticipated.

Our fully adjusted EBITDA, which excludes a charge for restructuring, increased 5% and our adjusted diluted EPS increased 8.2% over comparable year ago earnings. This is a strong accomplishment and a credit to our management teams.

Against the challenging business environment, these results make once again to the strength and resiliency of our offerings, the flexibility of our business model and the exceptional quality of our talent.

Across our service portfolio, the pandemic has affected our business differently, but nearly all of our agencies and disciplines showed improved growth from the second quarter. Our events practices have been hit hardest by the pandemic for the obvious reasons. Events, as we've shared previously, was 4% to 5% of our revenue base last year.

Clients continue to engage with us on alternative models that will leverage technology for hybrid remote and in-person experiences to maintain the brand power of collective experience and networking under their brands.

The performance of our many creatively led integrated global and domestic agency brands varied in the quarter, which reflects the different mix of clients and regional footprints. Our media, data and technology offerings together grew in the quarter compared to a year ago. Our healthcare disciplines continue to grow and take market share.

Our largest clients again outperformed in the quarter. Our Open Architecture go-to-market continues to win in the marketplace as a collaborative platform for our best-in-class agencies to elevate the scope and value of our services with the top tier of marketers.

Among client sectors, our top performers were again the retail sector and the healthcare sector. At the other end of the spectrum, the sectors most impacted by the recession were the industrial clients within our other category and the auto and transportation sector, which is also similar to our second quarter.

In terms of sequential changes, it's worth noting that both auto and industrial were less challenged than what we saw in the second quarter. By region, the U.S. decreased 2.4% organically and with 65% of our revenue mix in the quarter.

Our international markets decreased 6% organically with a broad range of performance marked by Continental Europe at plus 2.3% and Asia Pac at negative 15.2%. Turning to operating expenses and margin. Our teams continue to manage very effectively as reflected in our results.

Our net operating expenses decreased by 6.9% from a year ago before the charge for restructuring, which compares with the 5.2% decrease in net revenue. Both of our principal cost lines decreased.

We drove significant leverage on our expense for base payroll and our office and other expense and are beginning to see the impact of structural cost reductions.

I would emphasize that alongside these operating efficiencies, we continue to invest in people making some notable headline hires that show our ongoing position as the destination for the industry's top talent.

In addition, we've continued to enhance the tools and distinctive offerings which has made us the growth leader on an industry over a period of many years. This includes initiatives from our diversity and inclusion group such as our new free group counseling sessions for our BIPOC employees.

It also includes our investments in continued innovations and new products in our data and tech group, for example which we will address later this morning. As we anticipated on our conference call in July, we took additional actions in the third quarter to structurally lower operating expenses and to further transform our business.

These actions are result of a strategic review of our operations that will continue into the fourth quarter and resulted in a third quarter restructuring charge of $47.3 million. Of the total charge, $28 million is not in cash.

Along with the actions we've taken in the second quarter, our restructuring actions to-date are expected to result in total annualized savings of approximately $110 million to $130 million that are permanent, which is approximately 140 basis points of full year 2019 net revenue.

We plan to take additional actions in our fourth quarter, the majority of which will be related to real estate and will be non-cash charges. These are also expected to result in significant restructuring expense and additional structural savings and to conclude our program.

In the third quarter, our adjusted EBITDA margin was 13.8% and was 16.2% excluding restructuring charges, which is 150 basis points better than last year. Diluted earnings per share was $0.71 as reported and was $0.53 as adjusted for the restructuring, intangible amortization and other items that are below operating income.

As we look to our seasonally important fourth quarter, we're confident in the strength of our model and the competitiveness of our offerings. It's important to note that last year we had a strong fourth quarter with organic growth in excess of 5% as adjusted for headwinds.

All of us continued to face a range of unknowns related to the pandemic and its impact on the global economy. This will weigh on the significant volume of project assignments that are the norm for our holiday season. COVID as we are painfully aware remains a threat to everyday life and regrettably is picking up in many key global markets.

Unemployment while a better picture than earlier this year remains historically high. The status of important government support programs is unresolved, especially, in the U.S., but globally as well. All of this makes client decision-making for the holiday season difficult to forecast.

It's very likely that any improvement growth we do see across our industry will not be linear by quarter. This is just to acknowledge economic reality. Despite these unknowns, IPG remains well-positioned to continue its outperformance of the industry. We're hearing from clients that they are at a decisive juncture for brands.

There will be enduring consumer changes as a result of the pandemic including the mass shift to e-commerce, the emergence of digital consumer experience and a deeper accountability for brand authenticity and purpose. We are distinctively well resourced with outstanding talent and tools to help marketers rethink and reimagine their brands.

Further with technology playing an ever-increasing part in day-to-day life, we're seeing increased demand for data management and marketing technology expertise at the level of the enterprise. With Acxiom and Kinesso now integrated with our service offerings we are in a strong position.

Accordingly we are confident that we can resume our growth in an improving economy and continue forward as an engine of value creation for all our stakeholders. I'll have additional closing thoughts before our Q&A along with Philippe, but at this point I'd like to turn it over to Ellen for additional color on our results..

Thank you, Michael. I hope that everyone is safe and healthy. As you've seen in our results we have increasing profitability with our teams doing a terrific job in managing expenses. Notwithstanding the current challenges we have continued to invest in our people and our differentiated offerings.

Our balance sheet and liquidity continue to be further areas of strength. And following the end of the quarter on October 1 we paid off our $500 million maturing senior note with cash on hand. We are well positioned to turn the quarter on the recession as an even stronger company.

More detail on our results in the quarter begin on Slide two in the presentation. Our organic revenue change was negative 3.7%. While that says the pandemic is still with us it is notably improved from the second quarter and reflect sequential improvement in our major agencies most world regions and in several client sectors.

Third quarter adjusted EBITDA was $269.9 million and was $317.2 million before the restructuring charge compared with $302 million a year ago. Our adjusted EBITDA margin on net revenue was 16.2% which is before restructuring. For the quarter diluted earnings per share was $0.71 as reported.

While our adjusted diluted earnings per share was $0.53, the adjustments exclude the after-tax impact of the amortization of acquired intangibles, the charge for restructuring and nonoperating losses on sales of certain small non-strategic businesses, as well as a discrete net tax benefit in the quarter.

Our liquidity continues to be strong at $3.6 billion of cash and committed credit facilities at quarter end. Again we used $500 million on October one to repay our maturing notes. Turning to Slide 3. You'll see our P&L for the quarter. I'll cover revenue and operating expenses in detail in the slides that follow. Turning to Q3 revenue on Slide 4.

Our net revenue was $1.95 billion. Compared to Q3 2019 the impact of the change in exchange rates was negative 30 basis points. Net divestitures was negative 1.2% which is the impact of the disposition of certain small non-strategic businesses over the past 12 months.

These reviews are ongoing and we expect to take additional small dispositions as we move forward. Our organic net revenue change was a decrease of 3.7%. As you can see on the right that brings our organic change for the nine months to negative 4.5%. At the bottom of this slide we break out our segments.

The organic change in our IAN segment was a decrease of 1.4%. As a reminder, IAN includes our global and domestic creatively led integrated agencies; our media data and technology offerings; and our digital specialists.

At our CMG segment of marketing service specialists, the organic change was negative 16.5% which reflects the disproportionate mix of events and sports marketing within CMG. Moving on to Slide 5 organic revenue change by region, in the U.S. our third quarter organic decrease was 2.4%. Relative to our international markets, the U.S.

continue to perform better in the pandemic, which reflects differences in the mix of client sectors and offerings. In our international markets, which were 35% of net revenue in the quarter, the organic change was negative 6%. All regions improved from the second quarter with the exception of Asia Pac.

Organic growth in Continental Europe was positive at 2.3% with Spain, France and Germany showing notable increases. We increased 60 basis points in all other groups, which is comprised of Canada, the Middle East and Africa. Lat Am decreased by 30 basis points. The U.K. was negative 10.3%. Asia Pac was negative 15.2%.

Conditions in the region continue to be challenging as we experienced decreases in each of our largest national markets. Moving on to slide 6, operating expenses in the quarter, which continues to be a priority for us. Our net operating expenses decreased 6.9% from a year ago.

When excluding the restructuring charge, our adjusted margin expanded by 150 basis points. As you can see on this slide, our ratio of total salaries and related expense as a percentage of net revenue delevered by 30 basis points from a year ago.

This is due to an increase in our accrual for incentives, due to improved performance and compared to a low accrual in Q3 2019.

We had strong operating leverage at our expense for base payroll benefits and tax at 150 basis points, which reflects decreased headcount and temporary salary reductions across a broad range of our agencies and employees in response to the pandemic.

Our expense for incentive compensation was 4.4% of net revenue compared to 2% in last year's third quarter. For the 9 months, our expense for incentives is roughly equivalent to last year. Severance expense increased by 20 basis points to 0.8% of net revenue from a year ago and temporary labor was 3.5% of net revenue compared with 4.2% last year.

At quarter end, total worldwide headcount was approximately 50,500, a 7% decrease from a year ago including the impact of dispositions. Our office and other direct expense decreased to 15.8% from 17.8%, which is especially notable change. It reflects that our office and other expense is $60 million less than a year ago.

Approximately half of that was due to the sharp decline in our travel and entertainment costs. Occupancy expenses decreased by approximately $11 million, mainly due to the restructuring. Our SG&A expense was 50 basis points in net revenue, which is flat with last year.

As you can see on the lower right-hand side of the slide, our charge to restructure headcount and real estate was 2.4% of net revenue in the quarter. The charge was $47.3 million of which $28 million is non-cash. We expect to realize annualized savings of $30 million to $40 million from these actions.

That brings the total annualized permanent savings we expect from the restructuring to approximately 140 basis points when measured against 2019 to net revenue. During the quarter, we identified additional opportunities to expand the size of the restructuring program and related savings.

We expect to continue our restructuring into our fourth quarter with additional significant actions and structural savings, which will also mark the conclusion of our program. As Michael noted, we expect the majority of our fourth quarter actions will be related to real estate. Turning to slide 7.

We present the detail on adjustments to our reported third quarter results in order to give you better transparency and a picture of comparable performance. This begins on the left-hand side with our reported results and steps through to adjusted EBITDA excluding restructuring and our adjusted diluted EPS.

Our expense for the amortization of acquired intangibles in the second column was $21.3 million. The restructuring charge was $47.3 million and the related tax benefit was $10.8 million. Below operating expenses in column 4, we had a loss in the quarter of $8.6 million in other expense due to the disposition of a few small non-strategic businesses.

Finally, we have an adjusted for -- to net tax benefit in the quarter of $132.6 million due to the settlement of prior year's tax examinations. At the foot of the slide, you can see the after-tax impact to diluted share of each of these adjustments, which bridges our diluted EPS as reported at $0.71 to adjusted earnings of $0.53 per diluted share.

On slide 8, we show similar adjustments for the first nine months, which bridge to adjusted earnings of $0.87 per diluted share. On slide 9, we turn to the third quarter cash flow. Cash from operations was $689.3 million, compared with $224.6 million a year ago.

We generated $376.8 million from working capital in the quarter, a very strong result compared with the use of $47 million last year. Investing activities used $39.2 million in the quarter for CapEx. Our financing activities used $115.4 million, mainly for our common stock dividend. Our net increase in cash for the quarter was $543.3 million.

Slide 10 is the current portion of our balance sheet as of September 30. We ended the quarter with $1.63 billion of cash and equivalents. Under current liabilities, we include the October 1st maturity of our 3.5%, $500 million senior notes that will be repaid with cash on hand.

Slide 11 depicts the maturities of our outstanding debt and our diversified maturity schedule. Total debt at quarter end was $4 billion, again, as of September 30. In summary on slide 12, our teams continue to execute at a high level in an unprecedented environment.

The strength of our balance sheet and liquidity mean that we remain well positioned both financially and commercially. I would once again like to reiterate our pride in our people. And with that, I'll turn it back to Michael..

Thank you, Ellen. With so much uncertainty, and so much change both from marketers and their agency partners, we're proud of our accomplishments during the quarter.

We are continuing to report results that demonstrate the quality of our talent, the strength of our long-term strategy, especially our early adoption of data-centric and digital-first tools across the entire organization, and a distinctive culture of cross agency collaboration.

In many areas of our business, our company continued to outperform the industry. IPG was named one of America's best employers for women by Forbes. Most recently, we were named to the FTSE4Good Index for the second year in a row in recognition of our company's strong ESG practices.

In addition, IPG was named the most effective holding company of the year at the 2020 Effie U.S. Awards marking the fourth year in a row we received the key industry recognition. Turning now to the performance across our portfolio. One sector that continues to hold up for us is health care.

As you know, IPG has significant operations in health care marketing, totaling more than a-quarter of the portfolio. This includes our dedicated global health care networks, as well as significant health care client relationships, and activity at our media and public relations operations, and within some of our U.S. independents.

Health care marketing is not only an area in which we are strong across much of the portfolio. It's a sector in which there is a high degree of technical expertise and specialization, which makes these higher-value services.

It's an industry that we believe, we continue to grow well in the foreseeable future, and it's a part of the business that has been very receptive to our custom, multi-agency Open Architecture solutions.

Whether its specific areas of knowledge specific to a condition or disease, teams with the requisite experience complementary geographic strengths or other ways in which our agencies can collaborate for the good of the client health care and pharma marketers want us to bring the best capabilities, from across IPG to bear on their challenges and opportunities.

Our ability to do so is another reason we're faring well in this space despite the pandemic. As we've discussed on prior calls at IPG, we developed a vision for building a digital and data-first marketing company early on in our turnaround.

That strategic vision has meant that our media, data, and technology segment has been a key driver of performance at IPG for a number of years now, and it is also fundamental to our growth prospects going forward. As someone who has helped us lead that charge, I'd like to ask Philippe to share an update on developments in that sector..

Thank you. As Michael mentioned, a key factor in our success has been our commitment to meeting the needs of an evolving landscape in which technology, marketing and data are increasingly converging.

That led us to embed digital expertise across the portfolio, develop a media model that leaned into consultative skills as much as investment scale and a commitment to data management expertise and data ethics that was significantly enhanced with the acquisition of Acxiom.

This quarter as Michael mentioned, we continue to see a high degree of engagement with major clients across Mediabrands two largest brands, UM and Initiative.

While there has been stabilization in the media marketplace and digital channels have benefited from the improvement in macroeconomic conditions, there's still uncertainty particularly in certain regions of the world.

During the quarter, UM continued to lead in regards to brand safety, launching the partnership for responsible addressable media alongside marketers, agencies, publishers and tech firms and trade associations.

Initiative's approach to connecting with consumers with a combination of cultural insights and data, have allowed the agency to carve out a distinctive competitive positioning. The agency saw a significant win early in the quarter when it added Salesforce to its roster.

And also notable is the rate at which Reprise has developed its e-commerce offerings which are growing across multiple regions and will not only be vital to the success of our media agencies, but will also be key to cross agency holding company solutions.

Kinesso marked its first anniversary by launching a developer community and making its APIs available to third parties. We believe this will lead to more innovation in this space. On the part of our partners and our own agencies all in the service of our clients and with IPG's application layer at the core.

With this approach, we also make it easier for all of our clients and agencies to access high-quality data in a way that is privacy compliant and customized to their specific needs. At Matterkind, we're seeing strong demand for the kinds of advanced solutions that help clients optimize their media investments across the entire addressable ecosystem.

Acxiom continues to meet our expectations in terms of their performance. A key to IPG's future success will be our ability to make our data and technology offerings a foundational element for IPG overall. As such we saw good progress in our work to further align Acxiom, Kinesso and Mediabrands.

Finally, while I mentioned that our data, media and tech assets are working in more integrated ways with each other, they're also increasingly engaged with the entire IPG portfolio.

Notably, Matterkind and Kinesso played significant roles in new business pitches over the quarter, partnering with our creative, CRM, PR and other marketing services agencies as well as with our media networks.

So for example, Kinesso's data science offerings are currently active on more than 30 pitches and have played key roles in 2020 wins at FCB, Deutsch, MRM and McCann as well as through our Open Architecture offerings.

There's still work to be done to fully develop and integrate these capabilities and we expect that our progress will further accelerate once our people are able to more fully collaborate with one another in person.

But the teams are engaged and enthusiastic about this transformational work, which we believe can be a significant growth driver going forward. And with that I'll pass things back to Michael..

Thank you, Philippe. Turning now to our global creative agency network. It's not surprising that growth at FCB in the quarter was driven by FCB Health. The network gained new brand assignments over the quarter, extended deep client engagements with global biopharma giants including Novartis, Merck, Pfizer, Lilly, Genentech and Sanofi.

In fact, today FCB Health now works with 19 of the world's top 20 pharma companies. On the consumer advertising front, FCB was recently awarded the Grand Effie for its Whopper Detour work for Burger King.

And FCB/SIX continues to work with Tarana Burke and the #MeToo movement launching #ActToo, a digital platform to take action against sexual violence. At McCann Worldgroup, we announced the planned leadership succession, elevating Bill Kolb who had been named COO earlier this year to Chairman and CEO.

Harris Diamond who has been with IPG for nearly two decades, played a part in this process which dovetails with his decision to retire at year-end. We thank Harris for his service to our company, our people, and our clients and we're confident that Bill will be a strong leader for Worldgroup's future evolution and success.

Elsewhere within McCann, the network was named most effective creative network at the global level and its New York office named most effective agency office by the U.S. Effie Awards. These are among the most significant distinctions recorded in our industry and they recognize the effectiveness of our work.

The network's digital agency, MRM was named the Fast Company Best Workplace for Innovation and recently hired a new Chief Technology Officer. During the quarter, McCann also appointed a new female CEO for its China operations and named a new North American President at McCann Health.

We've once again seen great creative coming out of MullenLowe this quarter for key clients including Unilever, Bayer, and Acura. MullenLowe London continues to receive extremely positive response to its work on behalf of the government's COVID-19 efforts, most recently the Test and Trace step. And MediaHub continued to be a standout in new business.

As you may have seen, we recently moved oversight of the CompassPoint Agency over to MediaHub's management team thereby expanding the agency's footprint in the Midwest and adding some client sector expertise to their capabilities.

R/GA promoted two very highly talented executives into the roles of Chief Creative Officer and Chief Experience Officer and created a new senior role to integrate diversity, equity, and inclusion across the agency.

On the new business front, the agency brought in an exciting new win with the National Women's Soccer League's latest professional team Angel City, which adds to its impressive roster of wins this year. Clients continue to look to them and to our other digital specialist Huge for innovation around the intersection of marketing and technology.

At CMG, the management team continued to build out a core collaborative business model to bring together its expertise across such as employee engagement crisis and issues healthcare, PR, and more.

Highlights include Golin's continued new business streak, bringing in notable wins from Micron Technology, an Open Architecture win with Weber Shandwick in MRM, assignments from the CDC, Johnson & Johnson, Neutrogena, Clean & Clear, and Aveeno brands, as well as General Mills.

Weber Shandwick is honored as Agency of the Year at PRWeek Purpose Awards last week. The agency also welcomed the industry's first Chief Workforce Innovation and Operations Officer to the team.

Another notable honor was earned by our sports marketing firm Octagon, which was recently named Best in Corporate Consulting, Marketing, and Client Services at the 2020 Sports Business Awards. Our U.S. integrated independent agencies round out the portfolio.

They delivered the full suite of marketing services to their clients and are regularly combining with the rest of IPG offerings on our collaborative Open Architecture solutions. Thanks to the work and dedication of our people, IPG continues to perform better than our sector overall.

Our new business pipeline continues to be active and is in fact modestly stronger than it was earlier this year. But visibly it's still challenged as we head into our most important quarter which includes the crucial holiday shopping season. The biggest risk to recovery continues to be public health challenges.

And as the headlines around the world recently have shown us, the risk of lockdowns in key markets is likely to continue for a foreseeable future. As mentioned, we have taken significant cost saving measures across our entire organization.

You've seen their impact beginning this quarter, alongside sharp reductions in discretionary expenses and we plan to take further actions chiefly on real estate in the fourth quarter.

In our current state, we feel well-positioned with our client relationships and that we remain in a very strong position to capitalize on opportunities when recovery takes hold fully. We're confident as well that the investments in talent and capabilities that we continue to make positions IPG well for the future.

This is an unprecedented time, but we have a sound financial foundation in place underpinned by the strength of our balance sheet. With all the challenges we've seen over these past six months, we have great opportunities ahead to help clients deepen their relationships with our customers doing so efficiently, creatively and at scale.

Our highly relevant offerings and track record of collaborative Open Architecture client solutions coupled with our data and tech offerings continue to be differentiators for IPG. As such, we also will remain well positioned for continued long-term value creation for all our shareholders.

We will, of course, keep you posted on key developments, share our perspective on our visibility into the evolving landscape. And as always we look forward to answering your questions.

But before I turn to questions, I'd have to recognize major transition occurring at IPG, and that is the announcement we made with respect to Philippe taking over the role of CEO as of January 1. I don't want him to blush, so I'll leave all the accolades about Philippe in our press release that we stated.

But clearly working these many years with Philippe, I am highly confident and the Board is highly confident in Philippe's capabilities in taking over the role of CEO.

I'm really excited about the transition, and I really look forward to working with Philippe and management as we continue to manage through the COVID-19 and shaping the IPG for the future. With that, I'll turn it over to Q&A..

Thank you. [Operator Instructions] Our first question comes from Alexia Quadrani with JPMorgan. Your line is open..

Thank you very much, and congratulations Michael on the very impressive tenure at IPG. You will be missed, and congratulations, Philippe. My first question is really, Michael, you're probably anticipating since I asked things similarly things about the quarter every time.

A little bit more detail -- I mean thank you for all the disclosure you gave about the Q3 where auto and transport is still a challenge but better. And health care, obviously, strong.

I'm curious if you -- when you look at your other major verticals in the quarter, are you seeing positive growth in a lot of the other verticals now? I think your organic number would suggest you are seeing positive growth in some other areas besides health care. I'm curious if there's any more color you can give on other verticals..

Yes. Thank you, Alexia. Look, clearly this is a good quarter for us and the tone of the business was clearly better than the last quarter and you see that across all the regions. In fact, most of all the regions were better than last quarter except for Asia Pac. But with respect to sectors, we see a growth in retail in particular.

Although auto and transport is still down, we've seen improvements in auto and transportation and government and industrials. Other sectors, obviously, health care continues to be very strong financial services. And we saw consumer goods a little bit of growth between quarter two and three which is positive.

The two sectors that we did see slow down in the third quarter were food and beverage and tech and telecom, but we're confident that we have offerings in all of these sectors. And so much of this is both regional and client specific.

So, when you look at Continental Europe, where we had positive growth, we saw strength in our media offerings as well as McCann, and it was very client-specific in Continental Europe. Asia Pac, we just saw across the board reduction, given with respect to what's happening over there. But overall, the tone is positive.

And like I said, we believe that we will strongly continue to beat our competitive set throughout the year. But the fourth quarter is our biggest quarter, and as you know -- and it's not just projects. Typically, the questions that come up are how's you project business.

Project businesses like the Jack Mortons, the Octagons Momentums that makes up 4% to 5% of our business. But when we refer to projects right now, clients are very project-oriented and holiday shopping is a very good example.

And until we see how our clients are going to respond to the holiday environment, it's difficult for our visibility into the quarter. So, project is a little bit more than just the event business, and I think that's the important point that we have to take into consideration. That said we're working with our clients on opportunities.

They continue to believe that they have to invest in their brands certainly in the e-commerce environment that we're in.

And we certainly have offerings between our media and our agencies and our consulting capabilities on e-commerce that will help our clients compete in this very competitive e-commerce environment, because in the e-commerce environment it's the brand authenticity and why should you buy brands other than the lower cost providers.

And it's our job to combine our technology, our creative capabilities to get those brand messages. And frankly moving towards direct-to-consumer is a part of that as well.

So if you look at all of our capabilities and all the things that we're doing with our clients currently, we're confident that we have the tools and the resources to continue on a path to exceed our sector..

And just a follow-up on Philippe's comments on the data analytics at Acxiom and Kinesso. I'm curious if over time -- and you've done such a great job with those assets. And clearly they've been very accretive and additive to your existing business model.

I'm curious if over time there's other ways to monetize your strength in those areas that could maybe be additive to profitability sort of different from the existing kind of cost-plus model?.

For sure. I mean our whole structure is based on value services.

And the formation of Kinesso and putting it together with Mediabrands and Matterkind and the Open Architecture with the rest of our offerings, it's all based on value services and that's where the margins come in and where we can really distinguish ourselves in the marketplace and that's part of the strategy.

As Philippe said in his comments, I mean that's where we've made significant investments. And Philippe I don't know if you want to add anything to that..

No I think it's exactly that. I mean essentially it's revenue streams that would take us to places where the technology can be licensed where the IP can be valued in different ways or we find partnerships who can add value to our underlying layer of technology and then also true performance models.

I think as Michael was saying in e-comm if you link up what we're building there with our marketing technology capabilities and then media -- addressable media and data, I think you can do some interesting things around performance..

And we have existing contracts that have those kind of performance metrics already in there..

All right. Thank you both very much..

Thank you for your support, Alexia..

Thank you. Our next question comes from John Janedis with Wolfe Research. Your line is open..

Thank you. Michael that was quite a rough. Congratulations. I think in the early days you used to say you'll know about the fourth quarter in January. So maybe that's still the case.

I was wondering as we hopefully move towards some normalcy to what extent are you seeing changes in client behavior in terms of the relationship with the agency? As you know oftentimes there's an expectation at least from investors and others of a step function change coming out of downturns and I was wondering if you're seeing anything worth noting?.

Yeah. And by the way good call on putting a buy on us John. Congratulations and thank you. Look we're constantly -- what's interesting about this remote working is we have probably more client consultations than we have had before. We don't have to get on airplanes to have these meetings.

So there are a lot of conference calls and relationships with our clients that focus on brand building and brand authenticity and what's necessary for them to compete in this marketplace.

So we have those capabilities and we can -- through our Open Architecture model, we have -- sitting at the table when we have these conversations with our clients are our Mediabrands, Kinesso, our PR, our Experiential, our Creative. Obviously none of this works unless we have creative capabilities that are unique to the platforms.

And since digital is such -- continues to outperform in terms of both the media spend and performance, we have to have unique technology capabilities that we've been investing in all this as well. So yeah I think the conversations lend itself for our clients to spend to gain market share and that's what they're interested in.

And that's why you saw an improvement frankly in consumer goods because our clients are very much in a very competitive environment. And the conversations that we have with them is how we can help them gain market share both regionally, as well as head-to-head with their competitors..

Got it. And then maybe separately for Ellen. Given the margin expansion, it seems like you were able to execute quicker on the restructuring than I would have expected. I just wanted to clarify. I think you said the current run rate of permanent savings is $110 million to $130 million and that the fourth quarter actions will be additive.

I just wanted to ask you, will those hit in the fourth quarter? And any way, you can give a range of incremental permanent savings on that fourth quarter action?.

Good morning. Thank you for the question. Yes. First of all, you heard it correctly. We estimate $110 million to $130 million from the savings to date which we're saying is about 140 basis points when you measure it against 2019 revenue. As far as the actions in the fourth quarter, we are looking for additional opportunities.

As we mentioned, they will be primarily related to real estate.

And it will be -- in order to be able to action it right, can we actually -- we're looking around the world first of all just to give you a perspective in all major cities to really take the learnings that we've had from this period of time, right? The office will remain a very important place, but there are definitely some key learnings, and we can have more hybrid models.

So with that, we're really encouraging our agencies to really take advantage of that opportunity and looking at exiting some more leases. They're underway, so we're going to try to accomplish as much as we can in the quarter which will end the program..

What's been impressive is how the agencies are rethinking their footprint and what's necessary. And working with Ellen's group, really find -- and our real estate group, really looking at opportunities to be more efficient on the real estate front.

Obviously, London and Europe and the United States are key areas for our opportunities given our present -- our large presence there. But across the globe, we have to look at how our offices are going to operate in the future, and clearly this working from home prior to this environment maybe 5% of our people were working from home.

I don't think there's any question that in the future we're going to see a more flexible structure in terms of people working from home and coming into the offices. So the workplace environment is going to be different.

And what we're trying to do is, really position ourselves, take whatever structural changes need to be made now, so that when 2020 -- 2021 comes along, we're really well positioned. And this happened in 2008 and '09. We took a lot of actions. And when the recovery came, we obviously outperformed and we were off and running.

So, our goal is to be in the same position and there's a lot of money in terms of looking at the real estate footprint. Last quarter, we took 500,000 square feet out. Obviously, there's more to be had. And as we said, the bulk of the restructuring charge in the fourth quarter is going to be real estate and non-cash..

Thank you, very much..

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

All right. Great. Good morning everyone. Michael, two agencies that have flourished during your time as CEO are R/GA and your hometown shops Huge. And with the shift to e-commerce moving faster than ever, those two firms' expertise and helping clients in that area seems more important than ever.

They've also seen a little bit of management transition lately. Could you elaborate on that short-term issue, but also the long-term opportunity in e-commerce services? And then I've got a quick one for Philippe after that..

Yes. I think, I've already said that the long-term prospects of e-commerce are critical. And it takes a combination of digital, media, creative, technology, all working together because e-commerce is a very unique offering.

And we're very well positioned between the privacy expertise of Acxiom, Kinesso, Matterkind and our creative agencies, plus our digital agencies like Huge and R/GA. They're all part of the Open Architecture structure that we have. And we did have some management changes at Huge as well as R/GA.

And -- but I think, what's clear now, certainly at R/GA, I think R/GA will continue to be a shining light in terms of the capabilities. They're on a new business win a run at R/GA and I think that Sean has really got his management team in place.

He's added some new people and their presence in our Open Architecture and dealing with our existing clients is very strong.

So, I'm confident that R/GA notwithstanding some of the management changes its part of -- whenever there's a new CEO, there's a repositioning of certain people and go-to-market strategies and they have spent a lot of time looking at that, and the same with Huge.

So, I believe, Huge and R/GA will continue to be very important assets within the IPG portfolio. And as you know, particularly on the e-commerce and digital and business transformation, those are the areas that these organizations can really bring expertise to..

Great. And thanks, Michael, you're still going to be chairing the Board, so you're always welcome to come back and join us every once in a while. So....

Well, yes. I mean, Executive Chairman is a little different, yes. As I said, I'm really excited about working with Philippe and the management team going forward. And look, we've been through this together. I've said this from day one. This is an amazing team that we have at IPG.

I can't tell you how proud I am of all the people and the things that we've been able to accomplish. And obviously, Philippe will put together his team and moving forward as CEO.

But as Executive Chairman, I really am excited about working with the whole team and continuing to manage through this environment and do what I can to help shape the future of IPG. I mean, that's the difference between Executive Chairman and Chairman, and I'm pretty much excited about it. But Philippe and his team, they're ready to go.

I know that and we're excited about the opportunity..

So Philippe, then I guess easy question for you. How do you take the baton on that and convince everyone that IPG is a tech company? Really you led Acxiom and the acquisition there. You're leading the development of Kinesso. I think you feel strongly that it is indeed more of a technology company.

So Philippe just as you take the baton here, can you just comment broadly on the idea of IPG as a tech company or at the very least a tech services company relative to a marketing services company?.

You know, Dan I think we've talked about this. I think that's probably an overstatement to say it's a tech company.

But I think as you say to evolve the model such that what we have, Michael said, we've got exceptional strength in marketing services, so whether it's ideation and what our creative agencies do, clearly what happens in the health care space.

So I think the challenge is actually to have it be technology that enables the services, so that the services are more valuable and so that we can ultimately be more valuable for the clients.

And also as we were saying in one of the earlier calls, so that by embedding this layer of technology and data into the business, into the services, we don't risk leaking value out to the platforms or to the software companies. So I don't think it's simple as saying "Oh we flipped the switch.

We go from one to the other." What we clearly do is we build and we become stickier and we become more precise and there's more accountability to what we do and that's where I see us evolving the business model..

The Open Architecture model lends itself to that. That's the whole point of Open Architecture. And we started Open Architecture some 14 years ago, okay? And it really is resonating well in the marketplace. If you look at our new business wins, most of them have Open Architecture structures within them.

In the health care side of the business, they talk to us about Open Architecture, and it really resonates in the marketplace. And the ability to bring in the resources that we can coupled with the creative capability and the PR capability is a compelling offering.

And when you have best-in-class assets and best-in-class people sitting around a table taking on business challenges in an Open Architecture environment, you're part of the team of the client and that lends for better relationships, a better performance and hopefully, performance-based compensation which is a win-win for all of us..

Great. Thank you both..

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

Great. Thanks a lot. Let me just add my congratulations both to you Michael for doing what few people thought possible which was turn this company around, when you came on in 2005 and also to Philippe for the new role. My question is perhaps more for Philippe following on a couple of the previous ones here.

There are some very big changes coming still to let's call it marketing technology. You've got Google, now being investigated by the DOJ. You've got changes of party of Chrome cookies, eliminations of identifiers on Apple devices and so forth.

I just want to understand, if given the position that IPG has with Acxiom and the other assets, do you feel you have what you need to manage these changes, or is there more – what can we expect? What can we expect IPG to do? And what more changes could come with these major, major fundamental changes in the online marketplace? Thanks..

In the four minutes that remain on this call..

Yeah. Exactly..

Look, I think that when we did the Acxiom acquisition, we were clear that, data management -- first-party data management expertise at scale was something that we thought was important. And that we thought we needed in order to get to the future. I don't believe that you can get there without partnerships.

And so ultimately, when you look at something like what we just did with Kinesso to open up the APIs and to get your partners developing as well, I think it's going to be a bit of both.

I think we have what we need but it doesn't mean that we're not going to be able -- for every client opportunity for everything we're solving for as Michael said, with an Open Architecture solution where we've got all of the touch points.

You find that you need to partner up with different kinds of providers depending on the sector, depending on the use case et cetera. So, I think as I said, for the four minutes we've got it's a very, very big question.

And if it's something that we as a management team could spend some time with you on in greater detail, we can clearly unpack what's currently going on across the group..

Yeah. Let me just add the fact that, on the acquisition side, we've historically not done big transactions until we did the Acxiom transaction. Another part of your question is do we see any big transactions on the horizon that we need to fill any gaps within IPG? And the answer to that is no, we're not.

We're actually going right after this into our strategy conversation with our Board of Directors this afternoon. And when we look at our capabilities and so on, a couple of years ago we had out there data and analytics a wish list. And that wish list was solved when we bought Acxiom.

When we look at our wish list now, we don't see any big transactions that are necessary, for us to compete. Obviously we will continue to be strategic. And we'll do bolt-on acquisitions in markets, or expertise, or people that we need.

But there aren't any large acquisitions that we're looking at, that we think we need to continue to lead our sector, in terms of growth and margin expansion..

Thank you very much..

Thank you. Our last question is from Michael Nathanson with MoffettNathanson..

Thank you. Since this is the last question, I'll be brief. And Michael congratulations, it's been an amazing run and Philippe congratulations too. You made some big bets and they've worked out. I guess I'll give you a lay-up at the end Michael. Given what you just said about -- you're going into your planning meeting.

Given where interest rates are the, stability of your business, your dividend costs, why not take advantage of where the stock price is? And be more aggressive on buyback and pretty much, I guess -- I know you made some promise at your ratings agencies.

I'm trying to understand, why wouldn't you -- you congratulated John for his upgrade, why wouldn't you take advantage of kind of what you know about your business and what you know about financial markets to become more aggressive on the equity here?.

One of the -- I truly appreciate the question. One of the things that we've always been is transparent. And we borrowed a fair amount of money, to do the Acxiom transaction. We want to make sure our balance sheet is in the right position. And maintain our investment-grade status.

There's no question that when we get to that right point, we'll get back to buybacks. But right now we're focusing on dividends. And obviously our balance sheet is strong enough. And the business prospects to continue. And we will be getting back to buybacks. So I think it's a valid question.

The question is when is the right time? And you can always argue what price the stock is at and so on. But you have to look at buybacks on a long-term basis. If you look at the history of what we've done in buybacks, we spend a significant amount of money, in total between dividends and buybacks about $4 billion.

And we understand the importance of buybacks in the marketplace. And that conversation will take place every year with our Board of Directors and looking at the allocation of returning our excess capital to our shareholders whether it be, in the form of dividends or buybacks. It's a legitimate question and we will continue to look at it..

Okay. Thanks, Michael..

Well thank you all. And be safe and look forward to you in the next call. Thank you very much..

That concludes today's conference. Thank you for participating. You may disconnect at this time..