The Interpublic Group of Companies, Inc. (NYSE: IPG) Third Quarter 2022 Results Conference Call October 21, 2022 8:30 AMm. ET
Participating companies
Jerry Leshne – Senior Vice President – Investor Relations
Philippe Krakowsky – President and Chief Executive Officer
Ellen Johnson – Chief Financial Officer
Conference Call Participants
Steven Cahall – Wells Fargo
David Karnovsky – JPMorgan
Michael Nathanson – Moffett Nathanson
Ben Swinburne – Morgan Stanley
Julien Roch – Barclays
Tim Nollen – Macquarie
Craig Huber – Huber Research Partners
Operator
Good morning and welcome to Interpublic Group’s third quarter 2022 convention call. All parties are in listen-only mode up to the question and answer part. [Operator Instructions]. This convention is recorded. If you have any objections, you can log out at that time.
I would now like to introduce you to Mr. Jerry Leshne, Senior Vice President of Investor Relations. Lord, it is possible that it will continue.
Jerry Leshn
Thank you. Hello. I hope you are well. This morning we are joined by our CEO, Philippe Krakowsky; and Ellen Johnson, our chief financial officer.
We have published our effects and slideshow on our website, interpublic. com. We plan to start our call with ready comments that will be followed by questions and answers. We expect to close before the market opens at 9:30 a. m. M. , Eastern Time.
We remind you that in this call, we will be referring to certain non-GAAP measures. These measures provide additional useful knowledge that, while not replacing GAAP, allows for greater transparency in reviewing our monetary and operating performance. To align with the language of our financial statements, we will use the term billable source of income before expenses as well as the more familiar net income source in an interplaceable manner. These are the same measures and there has been no replacement in the calculation method.
As you may recall, billable expenses on revenue are offset dollar-for-dollar in our operating expenses and have no effect on our operating results. We will also refer to forward-looking statements about our business. included in our earnings release, and slideshow and detailed in our 10-Q and other SEC filings.
At this point, I am pleased to give way to Philippe Krakowsky.
Philippe Cracovie
Thank you, Jerry, and thank you for joining us this morning. I hope you are well. As usual, I’ll start by covering the highlights of our functionality over the quarter and nine months. Then, Ellen will provide more main points and I will conclude with an update on our agencies and the tone of the company, followed by your questions.
We are pleased to report a strong third quarter and nine months. Organic growth in the third quarter was 5. 6%. This is at the top of a very solid expansion from 15% a year ago, and brings our three-year biological expansion stack to the COVID era to 16. 9% in the third quarter. In the first nine months of the year, our biological expansion was 8. 2% compared to 12% a year ago, bringing the three-year expansion to 15. 7% during the first nine months. These three two-year numbers continue to dominate the industry.
We support expansion in our U. S. markets. and abroad. Domestically, biological expansion for the quarter was 4. 4% in addition to 14. 7% in the third quarter of last year, and biological expansion in our foreign markets was 7. 8%, driven by expansion in all regions of the world and added to the 15. 4% expansion a year ago. Our expansion in the quarter was also across our portfolio, whether across segments, agencies or marketing disciplines. Each of our segments recorded double-digit expansion a year ago.
Our media responses, insights and engagement segment grew organically by 3. 8%, adding to last year’s 15. 9% growth. Performance here was driven by double-digit increases at IPG Mediabrands, while two of our specialty virtual agencies fell year-over-year and weigh particularly heavily on the segment.
In our embedded advertising and arts segment, biological expansion was 6. 7% more sensitive than last year’s 12. 8% expansion, and we saw expansion across all of our largest agencies with transparent leadership this quarter through IPG Health, followed by McCann Worldgroup. In the specialty and experiential communications segment, biological expansion was 7. 8%, driven by double-digit expansion in our experiential responses at Jack Morton, Octagon and Momentum, as well as strong single-digit increases in the relationships discipline public. This result is based on the 18. 5% expansion in the segment that we experienced last year. Across all visitor segments, our expansion in the quarter was led by healthcare, retail, money services, our other commercial and public sector visitor segment, and our automotive sector.
Let’s move on to operating expenses and margin. Our effects continue to reflect the field of cargo exerted through our operational teams, as well as our continued investments in key areas of expansion. As you know, our comparisons to last year reflect the ins and outs of the pandemic, so we continue to generate margins in degrees well above comparable pre-COVID seasonal periods.
Net source of profit for the quarter $251. 8 million, as reported. Our adjusted EBITA was $356. 2 million, resulting in a net profit margin of 15. 5%. As expected, this is lower than the third quarter of last year, when our expansion accelerated at a speed well above hiring and when some variable spending remains at low levels, due to the effects of the pandemic.
Compared to a year ago and as part of our 9. 1% biological expansion over the past 12 months, headcount increased by approximately 7%. Variable expenses have returned to higher levels and we have resumed and returned to work in much larger numbers.
Our diluted earnings consistent with the consistent percentage for the quarter were $0. 64 as reported and $0. 63 after adjusting for amortization of intangible assets, restructuring changes and our net dispositions.
As part of our percentage buyback program, this year we legalized the buyback of 2. 6 million percents in the quarter. We are excited that our ability to deliver marketing and media solutions, combining creativity, generation and data, will continue to drive expansion with existing consumers, as well as win new consumers. The expansion you’re seeing is largely due to those highly applicable capabilities, which can satisfy the desires of a developing set of marketers to engage more precisely, personalized, and accountable to their audiences on an individual level.
The strength of our company is to combine other talented individuals in our client-centric style to create tailored responses that meet the desires of those higher-order clients, whether engagements are made through one of our strong signature brands or through a collaborative IPG. Open Architecture Team.
These strong and applicable offerings are for our long term, as well as at this time of heightened macroeconomic and geopolitical uncertainty. The existing environment makes visibility difficult. But given our strong performance to date, we are raising our full-year biological expansion guidance to 7%. With expansion at this level, we expect to achieve an adjusted EBITA margin of 16. 6%.
Despite this update to our outlook, we see a more challenging macroeconomic environment ahead. In a query after our last call, you’ll recall that I talked about some clients asking us to plan for a situation and think about the most productive way to redistribute media and marketing investments in a recession.
Most of our clients now ask us to interact in this type of contingency planning, prioritizing activities and focusing on movements that will drive sales performance. To a lesser extent, we are also seeing postponements of virtual assignment work.
Historically, we know that traders who continue to reverse the cycle turn out to be more sensible in the long run with measurable gains in percentage and market growth. These days, it’s a verbal exchange that continues with many of our consumers who also know that given the duration beyond recessions, discounts are regularly short-lived.
At IPG, our differentiated resources of talent, artistic and marketing knowledge and technology, as well as exceptional company brands, as well as our varied and flexible business style and control groups showcased position us well. You can expect us to stay true to our culture of effective control even in the most challenging times, while investing and advancing our offerings to succeed in a virtual economy. Of course, we stay close to our consumers and employees.
And in that sense, I would like to end this part of my remarks by acknowledging and thanking our other people for their concentration and work on behalf of clients to support others and also for their commitment to the many important social issues that are in line with our culture and values.
So, at this point, I’ll pass the message on to Ellen so she has a deeper insight into our results.
Ellen Johnson
Thank you. I hope everyone is well. I would like to subscribe to Philippe to identify our collaborators and upload my thanks. As a reminder, my comments will be pasted to the presentation slides that accompany our webcast.
On the slide of the moment, our accrual in overall revenue, which includes billable expenses, 3. 8%. Our third-quarter net sales before billable expenses increased by 1. 5% and biological expansion by 5. 6%. We have grown biologically in all regions.
The three-year biological accumulation from quarter to pandemic consistent with 16. 9%, demonstrating traditionally strong momentum. Adjusted EBITA for the third quarter was $356. 2 million with a 15. 5% margin on net sales. Diluted earnings consistent with the consistent percentage were $0. 64 as reported and $0. 63 as adjusted.
The changes exclude the after-tax effects of amortization of acquired intangible assets, a restructuring adjustment and a non-operating gain from the sale of safe small agencies and a business investment. of $73. 7 million, bringing the percentage of repurchases to 7. 1 million in the first nine months of the year.
Let’s move on to the 3rd slide to see our P
On the fourth slide, we provide net income in more detail. Our net sales were $2260 million in the third quarter of 2021. Compared to the third quarter of 2021, the effect of exchange rate movements was negative by 3. 6%, with the dollar stronger against currencies in almost all our foreign markets.
The effect of net divestments of certain small secondary businesses was negative by 50 basis points. Our biological expansion was 5. 6%. The result was a net revenue source of $2. 3 billion in the third quarter of this year. Further down the slide, we detail the segment’s net sales performance.
Our Media and Data Engagement Solutions segment grew 3. 8% organically, to 15. 9% in the third quarter of 2021. As you can see on this slide, the segment includes IPG Mediabrands, Acxiom, Kinesso and our virtual agency.
At one end of the spectrum, IPG Mediabrands experienced double-digit biological growth. While at the other extremes, we experienced softness in R/GA and Huge, which influenced our effects at the IPG level.
Organic expansion in our segment of artistic and advertising responses incorporated 6. 7%, compared to 12. 8% a year ago. As a reminder, this segment includes IPG Health, McCann MullenLowe, FCB and our incorporated national agencies.
Our expansion in the quarter was led by strong construction at IPG Health and forged expansion at McCann. In our Specialty Communications and Experimental Responses segment, biological expansion was 7. 8%, representing 18. 5% in the third quarter of last year. This segment includes Weber Shandwick, Golin Jack Morton, Momentum, Octagon and DXTRA Health. We were guided through double-digit constructs in our experiential responses and achieved a mid-single-digit expansion in our PR discipline.
Slide five shows a biological replacement in net sales across the region. In the U. S. , which accounted for 66% of net sales in the quarter, our biological expansion is 4. 4%. This figure is in addition to 14. 7% a year ago and is driven across disciplines and agencies, across all our offerings. We were led by IPG Health, IPG Mediabrands, Mediahub, Jack Morton and Momentum.
International markets accounted for 34% of our sales in the quarter and grew by 7. 8% organically. That is, 15. 4% a year ago. Continental Europe grew by 4. 7%. We were led by the expansion of the Italy, Spain and the Netherlands brands. Germany fell in the quarter after a 13% expansion a year ago.
The UK grew by 4. 9% biologically. Our performance led through IPG’s media, expertise and health. The Asia-Pacific region recorded a biological expansion of 5. 6%, with broad-based expansion in our largest markets, adding Australia, India, Singapore and China.
Our biological expansion in Latin America remained strong at 19. 8%, which, it should be noted, exceeds the 20% expansion of a year ago. We have grown in all our primary markets, which come with Brazil, Argentina, Mexico, Chile and Colombia. The group of other markets, comprised of Canada, the Middle East and Africa, grew by 10. 6%. We were led by double-digit expansion in the Middle East and forged an expansion in Canada.
Let’s move on to slide 6 and our operating expenses. Our adjusted EBITA margin on net sales was 15. 5% in the quarter, which, as expected, decreased from 16. 3% a year ago. As a reminder, last year’s margin benefited from several transitory effects, which were due to the sharp acceleration of growth gains in 2021, and the effect of the pandemic on certain operating expenses, which caused them to remain at abnormally low levels. These expenses come with travel, meetings, and office work.
You’ll also remember that our hires particularly lagged in our earnings expansion last year. I should note that our adjusted EBITA margin in the third quarter is well above the third quarter of 2019 before the pandemic, which was 14. 7%. This slide shows our most sensitive expenses as a percentage of net profit source this year and last year.
As you can see, our ratio of general salaries and similar expenses as a percentage of net income was 67. 4% in the quarter, compared to 66. 8% a year ago. Based on SRS’s result, we met – we met our base payroll expenses, benefits and taxes, due to the hires required to our biological expansion of 9. 1% in the last 12 months.
Enrollment increased by approximately 7% during the same period. In the other direction, our spending on transient hard work is down from a year ago, and our spending on performance-based worker incentive reimbursement has also decreased significantly.
At the end of the quarter, our overall global workforce was approximately 58,500. Additionally, on this slide, our workplace and other direct expenses accounted for 14. 3% of net revenue, compared to 13. 3% a year ago. We continue to take advantage of our occupancy expenses, which accounted for 4. 8% of revenue, an improvement of 20 foundation issues compared to the previous year.
All other and other direct expenses accounted for 9. 5% of net revenue, up from 8. 3% a year ago. The comparison reflects the decline in variable expenses that I talked about earlier due to a higher degree of business activity, so not absolutely at the beginning. pandemic degrees. Our SG expenses
On slide 7, we detail the changes made to our reported third-quarter effects to provide a comparable performance picture. It starts on the left side with our reported effects and moves to adjusted EBITA and adjusted diluted EPS.
Our amortization expense of intangible assets acquired in the current quarter is $20. 2 million. Our $5. 8 million credit restructuring adjustment that we have adjusted here was based on our results. Below operating expenses and presented in column five, we had a net profit of $15 million due to the divestiture of some small non-strategic agencies and an ad spend.
At the back of the slide, you can see the after-tax effect on the diluted constant percentage of each of those adjustments, which links our diluted EPS as reported at $0. 64 to adjusted earnings of $0. 63 consisting of diluted percentage.
Slide 8 shows a set of changes for the previous nine months for continuity and comparability. Adjusted diluted earnings for constant percentage were $1. 73 for the constant period.
On slide 9, we move on to the money for the quarter. Cash provided through operations was $65. 6 million. Cash used for current capital was $276. 1 million. Operating money before current capital was $341. 7 million.
As a reminder, our consistent cash flow is very seasonal and volatile consistent with the quarter due to the evolution of the current capital component. Much depends on the variability and timing of our collections and payments.
In our investment activities, we used $36. 4 million primarily for CapEx partially offset by the sale of an ad spend. Our financing activities in the quarter amounted to $209. 8 million, primarily for our common inventory division and percentage buybacks. The quarter was $211 million and our monetary position at the end of the quarter was $1. 77 billion.
Slide 10 is the existing component of our balance sheet. Slide 11 describes the maturities of our remarkable debt. As you can see from the chart, overall debt at the end of the quarter stood at $3 billion.
Our next deadline is April 2024 for just $250 million. Thereafter, our next adulthood is no earlier than 2028. Gross monetary debt to EBITA as explained in our 1. 7x credit line agreement at the end of the quarter.
In summary on slide 12, our groups continue to function at a higher point and position us well to meet our updated expectations for the year. I need to reiterate our pride and gratitude for the efforts of our people. The strength of our balance sheet and liquidity means that we remain well placed both financially and commercially.
And with that, I turn my back on Philippe.
Philippe Cracovie
Our year-to-date expansion builds on a history of good fortune dating back some time, and integrating virtual across the portfolio and adding a layer of knowledge and generation to our offerings have also been part of this playbook. as our commitment to talent and firm and strong brands.
Today, the convergence of media and entertainment with generation’s impact on the retail sector creates another huge expansion opportunity for brands. And that’s the global conversion of trade and direct-to-consumer business models.
To date, we have been successful in helping our clients create engaging and effective visitor reports across a variety of physical and virtual environments. During the quarter, we reached a milestone in this adventure when we announced our acquisition of RafterOne. The company is one of Salesforce’s premier implementation partners working with marketers and brands to deliver personalized content that engages and converts in measurable, accurate, and repeatable ways across a variety of marketing generation channels.
With more than 25 years of experience creating virtual travel for consumers and more than 500 employees, RafterOne is a Salesforce Summit partner and is the point awarded to implementing partners. By bringing IPG and RafterOne together, we are particularly editing our business functions on a key Salesforce B2C and B2B cloud marketing generation platform.
From now on, RafterOne will continue to work independently with its own consumer roster and work with IPG agencies, bringing specialized business capabilities, whether in strategy, service, knowledge or CX implementation to consumers across our portfolio.
Trade and other bureaucracies of business transformation paints can be a driving force of expansion for us in the long term and the addition of RafterOne is a step to complement our offerings in this space.
In terms of group functionality highlights as a quarter total, one key domain that continues to show strength is healthcare. From a reputation perspective, we remain the leader in this dynamic sector. IPG Health won the Healthcare Network of the Year award at the 2022 MM M Awards. Collectively, our agencies earned 23 wins in 21 categories, making us the most awarded network in the industry.
During the quarter, we introduced IPG Health Medical Communications, which aligns 8 agencies to create what is the largest provider of comprehensive, interconnected medical communications in the industry. And this kind of specialized supply for all of our healthcare consumers is exactly the kind of benefits we expected when we introduced IPG Health just over a year ago.
Importantly, the company’s thought leadership and artistic popularity also translated into expansion, as IPG Health continued to win new business and expand with existing consumers adding AstraZeneca, Pfizer, Teva and Boehringer Ingelheim. IPG Health also played a key role in the good fortune of an incorporated company. media consolidation with Merck.
At Mediabrands, we continue to see a high degree of engagement with many of the world’s toughest sellers. During the quarter, we added new customers, added Nike and expanded our relationships with Merck and Teva. Last week, Mediabrands shared the fourth edition of its Media Accountability Index, which are exclusive studies on the relative protection and fairness of media platforms. And it’s helping our clients make their media plan decisions in a way that addresses issues like incorrect information and incorrect information.
In particular, we also promoted Eileen Kiernan, who is exceptionally customer-focused and strategic, by appointing her Global Chief Executive Officer of IPG Mediabrands. In this regard, Eileen becomes the first female leader of a leading media control organization in the industry. In the media space, as we see it continue to recover, Celebrity Cruises has just settled on Mediahub as its North American media signing of record. Acxiom played a vital role in this victory, as organizations will expand custom audiences through addressable means to drive this customer’s audience. Highly personalized marketing efforts.
During the quarter, Acxiom identified it as an ideal position to work with Fast Company and named it one of the best jobs for innovators and Fortune named the company the best job in technology and the best job for women. As Ellen indicated, the functionality of two of our specialized virtual agencies have been tested due to the macroeconomic uncertainty we are seeing. Both agencies are evolving their premium offerings, which is a requirement to stay ahead of the curve in their space.
When it comes to the strength of our brands in artistic advertising spaces, McCann, FCB and MullenLowe continue to stand out. The complete line of IPG. As such, Daryl is incredibly well placed to promote the network’s good fortune and lead it to further realize its ambition to be the global leader in creativity driving expansion for customers.
We saw several wins in the quarter at McCann, adding Beefeater Gin, McArthurGlen design outlets and Hankook Tire. The Effie Global Efficiency Index, called McCann Worldgroup, is the most effective branch network for the fourth consecutive year. And McCann was also named Network of the Year through the Gerety Awards, where an all-female jury recognises the highest point of artistic excellence in advertising and communications.
At FCB, the artistic network gained new assignments with existing global clients, adding Kimberly-Clark, Clorox and AB InBev. And FCB’s Global President and Chief Creative Officer has been revered through AEF, ANA’s Educational Foundation, with the Inspire Award, recognizing her commitment to schooling and inspiring the skill of young people as they enter our industry.
MullenLowe Group won a number of new contracts in the UK market, winning Co-op retail chain as Morgan Stanley, Value Retail and sweet brands Tic-Tac and Nutella. MullenLowe continued to be identified as one of the top artistic networks in the industry. , and for the eleventh consecutive year, the top-ranked network scored dollar-for-dollar on the Effie Effectiveness Index.
And during the quarter, we also created a new built-in firm called iX, which is founded in London to manage global strategy, creative, strategy and advertising for new visitor Bentley Motors. Our specialized agencies sometimes continued their strong growth. The industry is seeing budgets shift from more classic marketing to the kinds of engaging events that allow consumers to establish emotional connections and lasting relationships with logos, bridging physical and virtual space. in corporations in our organization is a point of differentiation for Interpublic.
Highlights of the quarter here and Octagon included the creation and control of Coca-Cola, the FIFA World Cup Trophy Tour, as a national crusade highlighting The Home Depot’s 20th season as a sponsor of ESPN’s College GameDay.
Octagon and R
At Jack Morton, he scored major victories with clients such as McKesson, Siemens, Intel, Cigna, Riot Games and McDonald’s. The company produced the sponsorship of the Cadillac-US Open at the US Tennis Center and brought to life several major events for the first time since the pandemic began, adding car shows, giant retail activations and wellness conferences.
At Momentum, the network was named Experimental Agency of the Year through Adweek and brought Jimmy Fallon’s Tonight Show to Fortnite. Among our public relations firms, Golin won the AOR spot for West Monroe, a Chicago-based virtual company. And the firm was also designated as a UK PR firm for Specsavers, the optical chain of stores.
At Weber Shandwick, the new venture included Bud Hero in North America and along with the long-running logo and Jack Morton, as part of the DXTRA Health team, Weber won the launch of the main logo through life sciences company PerkinElmer.
Our independence in the United States the quarter, Martin stood out through the expansion of his series of new instances by winning Santander, LegalShield, Bud Light NEXT, Bud Light Seltzer. Deutsche LA won Strava, the number one app for riders and cyclists, and Carmichael Lynch brought a new consumer to Hostess for our PR mission.
With respect to our ESG programs, we continued to make significant progress in the quarter. We appoint our first Chief Sustainability Officer. We announce a new procedure for comparing energy and fuel customers. is a commitment to transparency established through IPG and has now become an industry standard.
Our ongoing paintings in this domain demonstrate our commitment to addressing issues that not only affect our painters and our planet, but also our consumers and other key stakeholders. During the year, we maintained a positive position from the point of view of new business network. Our net new business portfolio remains strong.
New business activity seems to be expanding as we approach the new year. Despite a more challenging macroeconomic environment, as you have seen, our direction is based on our strong functionality during the first nine months. biological expansion to 7%.
As you know, this worsens the outperformance of the sector for several years. And it is expected that existing results, combined with the continued execution of our long-term strategy, will continue to be drivers for sustainable pricing in the future.
Of course, given the macroeconomic situation, we will remain committed to sound monetary fundamentals, as Ellen mentioned, and this has allowed us to increase our dividend for 11 consecutive years. And we’re also committed to continuing our powerful percent buyback program physically. We are also confident that the investments in skills and functions we continue to make position IPG well over the long term with highly applicable and differentiated offerings, backed by a strong capital base and balance sheet. As always, we must thank our consumers and our other people who are part of our good fortune and also thank you for your time this morning.
And at this point, let’s open the forum for questions.
Q&A session
Operator
Thank you [Operator Instructions] And the first is from Steven Cahall of Wells Fargo. You can continue.
Steven Cahal
Hello. Philippe, maybe you can first tell us a little more about the postponement of the virtual allocation earnings you mentioned. of longer-term feedback, reflecting how customers are making a component of that contingency by making plans for 2023?
And in the same vein, when your consumers reach out about drawing up contingency plans and maybe you’ll see them roll back a bit in 2023, do you think they’re just changing the way they access the market, or is it more of a significant guy?slowdown in what they can spend on marketing? And then, I have a quick follow-up for Ellen.
Philippe Cracovie
I think it’s displacement. I think it’s just, as I said, to be ready and have a line of sight, how you’re going to prioritize and where you’re going to invest to improve performance. Given the macro, I believe on the allocation side, I think it’s a fourth quarter observation more than anything else. I think what you see is that it needs to remain a safe option.
So, I think we may not have clarity or full commitment to some of those projects until a little later in the quarter than we would. So, yes, I don’t think we’re talking about anything whatsoever, it’s a -Trend Term. It is just a service of the existing uncertainty.
Steven Cahal
Yes, it makes sense. And then, Ellen, it turns out that inventory doesn’t reflect the strength component of the company. I have about 10 times the profit. You have a very healthy track record. I don’t think there’s much in terms of adulthood until 2028. So how do you and I, Philippe and the board, assume that you are more aggressively pursuing purchase now in a time of uncertainty?instead of waiting until an era of recovery?
Ellen Johnson
Hello, thanks for the question. We are fair before the sale. So, however, we are very disciplined. We have a program opposite to the one we are running. We are actively managing it, but it is a program. So, I think we’ll stick to that, but definitely in our stock price.
Steven Cahal
Super. Thank you.
Philippe Cracovie
Thanks though
Operator
Merci. La next is from David Karnovsky of JPMorgan.
David Karnovski
Continuing with the comment on the elaboration of plans of scenarios of participation of the visitors, Philippe, can you give us a little more information about how this procedure is?More about turning the logo into functionality or creating a lot more flexibility to adapt across channels?
Philippe Cracovie
Well, listen, I think that’s all you said, and it depends on where we have the discussion in our world, right?But it is: flexibility is a very important component of that at this point. The decisions you make and ultimately, as I said, whether it’s a consumer where we’re advisors and media side representatives, focuses on where and how they’re going to be redistributed. If it’s an open architecture visitor that is running in a very broad macro sense, then we can augment some features knowing that we are heading to that express moment. Therefore, it depends a lot on the case.
And some categories of consumers feel it more than others. I mean, I would say where macro has an impact, it’s consumers who are exposed to the adjustments that we’re seeing. So if higher interest rates are impacting your business, if raw curtain prices are affecting your business, you’re thinking about it. So, there’s no single answer, but I think it’s about this set of conversations to make the most informed decisions and get the combination between lopass and functionality and go up and down the funnel, and attach the two plus and plus and still be a safe option, as I said before.
David Karnovski
It is ok. And then, Philippe, noticed a continuous strength in the picture of health. Can you remind us of the position of your visitors in terms of the type of big pharma vis-à-vis biotechnology?And then, with biotechnology alone, how do we deserve to perhaps think about the medium-term prospects given the kind of stress the industry has suffered in public markets, or is the visitor portfolio far from macro?Thank you.
Philippe Cracovie
Of course. I mean, in the health domain, I would highlight a couple of things. So, we’re lucky, we’re very, very well represented among the biggest players in space. IPG Health is obviously, it’s been a purpose through the nature of what we just did a year ago and how we put it together. But it’s a long-term investment that has led us to this expansion, right?And then there are the trends, the underlying trends that are obviously winds for all of this. We have a bit of biotechnology, but we have a very balanced portfolio.
I would say that in the specific case of biotechnology, have we noticed that market dislocation has had an effect on investment there?Of course. But is it something that has a significant impact from where we sit given the scope of what we do?Not really. And then, beyond IPG Health, there’s a significant fitness business within Mediabrands, within the marketing departments, PR is very strong in this regard. DXTRA Health, where we combine a lot of marketing facility agencies. The impression that this is a domain that is going to be quite resilient.
David Karnovski
Thanks though
Philippe Cracovie
Thanks though
Operator
Merci. Et next is by Michael Nathanson with MoffettNathanson.
Michel Nathanson
Thank you. Philippe, I have two. The first is that we have the impression that macro in Europe and the UK will markedly worsen the winter. I wonder if the tone of the industry is communicated is different depending on the geography there. So, maybe communicate in terms of where the questions about budgets are, the security of Europe, they come.
And then, given the possibility of a slowdown in one’s markets, what do you do on the cargo side to, first of all, plan where I know it’s hard, if you had to take other people out of capacity because it’s slower?. But what do you do thinking only about making plans to budget expenses in 2023 and expand the budget for 2023?Thank you.
Philippe Krakow
In fact, the impact on is not only uneven when you think about the visitor sectors, but you can also see it in our effects, where we have a very strong Latin America, Asia Pacific, other markets, although both are growing, one and the other. Both regions were on the rise. Therefore, there is no global answer that tells you what is going on in both markets. While you are economically transparent, you should assume that this is a region that will move into anything before the rest. of the global or perhaps anything that other portions of the global don’t know.
In terms of costs, we are very transparent and have been very consistent in all the tactics in which we can solve those problems. So let yourself think about the fact that the style is flexible and transparently beneficial. Whether you think about the fact that you practice some of those markets knowing that the underlying tactics you hire other people and the tactics you think about staffing are other ones in those markets just by law.
And so we’re very, very specific and disciplined around open requests because we see adjustments or more uncertainty in the macro and it’s consistent wherever we operate. We look very conscientiously at discretionary spending. And it’s transparent that some of that has come back. In the company in a way that I think is beneficial, because it has meant seeing consumers and engaging with colleagues. And some of the pricing has also been similar to team collaboration, which is vital as we expand new capabilities. Read about them. Freelance is another position that we look at. Our incentive plan, by its nature, is becoming a passvernor in some of that. But it definitely has our attention and is coming to require execution. So there is no one – one-size-fits-all solution, but Europe is certainly an area of interest to us.
Michel Nathanson
It is ok. Thank you Felipe.
Philippe Cracovie
Of course.
Operator
Thank you. Next is Ben Swinburne with Morgan Stanley. You can continue.
Ben Swinburne
Maybe just stay away from the macro for a minute, unless you stay talking about it.
Philippe Cracovie
Everyone happens to be doing it.
Ben Swinburne
About RafterOne and this company in general, Philippe, I know that calling them formula integrators is an old and restrictive definition compared to what they do today. But can you tell us about your strategy there and the duration of this venture?Any concept of the duration and profitability of this company, not RafterOne consistent with itself, however, IPG’s general service offerings in what we might call software services, software integration. It would be attractive to hear that.
And I’d also be interested in experience and sponsorship, which stood out as a bunch of hits on Octagon and Momentum. This is a domain in which I agree that there happens to be some secular growth. Is this a domain you think about? Could the company need to grow organically or inorganically over time?I would be interested in either. Thank you.
Philippe Cracovie
Of course. And I think the industry is interesting. I mean, you said software and obviously there’s a generation layer in Acxiom, and then there’s what we do with knowledge and generation with media. So that’s not the only position where we have corporations that are more of a service, some kind of software layer.
But in commerce, I guess, I mean break it down, there’s a D2C component where consumers want our help with everything from designing a site, building a site, creating content, the CRM component, and then the business processes, because you have all the way to transactional payments stuff. And for us, the leader in this area has been MRM. Therefore, they excel in the areas of ones. And so, in our opinion, RafterOne particularly strengthens this offering.
Then there’s the market and that’s where we optimize the media. We do SEO. We take advantage of social commerce and you amplify the message a lot and locate the places where you cross paths with the consumer. And then, for us, it’s Reprise’s internal trade. So that’s a big component of the story for us there. They are two vital posts where much of that capacity was housed. And it all comes together in this IPG Commerce umbrella. And then, what we do is activate a company like ChaseDesign for in-store campaigns, or as you said, bring it to life for promotions and activations. But we also have specialized agencies and influencer management. For example, you have payment locations.
And some other big morsel will be retail media. So we are very active. You’ve noticed the launch of MAGNA: how big is it?How big will it be? And I think it’s becoming a domain of net expansion for brands and therefore for other people who provide consulting services. So we get it from several of our agencies. And then it’s a bit of the martech side. But when you stick to the customer through the shopping adventure and go through outreach purchases, but also go through lifetime visitor value, you wanted to play with Acxiom and the information it contains and you need to know where and how you get martech and Ad Tech Paintings together. That’s why I said we saw it as a great opportunity for us.
And then, in terms of experience, when the pandemic hit, we assessed it so that all of you would say maybe a little less than 5% of our income. And the global one closed. So obviously it was a very complicated time for them. But we see it as something that differentiates us together from those assets. And the query for us is to get them to focus more on the direction consumers are taking, which is ROI and accountability. And the virtual component that is becoming virtual, and with those organizations, we believe it will make the nature of what they’re doing more accurate and accountable. It’s also a very attractive position to communicate to consumers about this whole business as a way to integrate first-hand knowledge about your consumers in a very, very transparent and therefore very, very compatible way. Therefore, we believe that this is a domain in which there is an opportunity for expansion for us.
Ben Swinburne
Thanks though
Philippe Cracovie
Of course.
Operator
Thank you. The following is from Julien Roch of Barclays. To be continued.
julien roche
Yes. Hello Felipe and Elena. Thank you very much for answering the question. Two, one for Ellen and one for Philippe. Ellen, on net interest, Publicis and Omnicom said it was fixed, so it doesn’t have an effect on interest expense, whereas higher interest generates more interest income. What about IPG, ie lower net interest? Could you quantify it? You have $1. 8 billion in cash. Cash yield went from 0 to four, so $64 million in profit? And then, Philippe, some agencies say that because of a slowdown, some advertisers have learned the lessons from the last two slowdowns, and therefore we cut less. However, a recent survey through the World Federation of Advertisers of 55 of the world’s largest advertisers reveals that the economy will be the main driving force behind next year’s budget for 74% of them, which would imply that they have the intention to reduce it. So if we go into a global recession next year, do you think advertisers would scale back like they have in the past or behave differently? Thanks.
Ellen Johnson
So, I’ll start and thank you for the question. Hello. Yes. As someone pointed out earlier, we have a very strong balance sheet and a lot of liquidity and we have liquidity. We actively manage our money through maximizing interest income. I also have a very lovely adult profile with all debt at constant rate. So yes, I think it’s an advantage. We can stick with you with some quantification, however, it’s something we spend a lot of time and power on all elements of our balance sheet and liquidity and manage it very carefully.
Philippe Cracovie
The most important question, as I said in the ready comments, is an ongoing verbal exchange with the vast majority of our consumers. There is an understanding and popularity that there are significant advantages to staying the course. We’re not detailing this for you, however, our 20 most sensible consumers, or let’s say our 40 most sensible consumers, have grown steadily with the overall expansion of the business, although there are many ins and outs, because as I said, if some points have a disproportionate effect on your business or business model. And it’s attractive because even the chain of origin that we talked about at the beginning of the year with all of you and we said we don’t see it, we don’t think about it is in verbal exchanges with consumers. It may be later in the year and there are one or two categories where you enter into verbal exchange with consumers.
So, I think customers perceive that and it will depend on your position, whether your business has the means to get through the era and stay invested. And then, the other thing we also talked about is the equipment you have for consumers and how we can and some of our competitors have features that can go a lot more through the funnel or can do, as the previous query alluded to to be able to do jobs that connect lopass and performance. So it depends on the magnitude of a recession we’re looking for. And the ability of other people to do anything they know will gain long-term benefits or if they want to take action, some kind of corrective action to get through a time that might be more complicated for them.
julien roche
It is ok. Very clear. Thank you so much.
Philippe Cracovie
Thanks though
Operator
Thank you. Thank you. The following is from Tim Nollen from Macquarie. You can continue.
Tim Nollen
Hello everyone. Thank you very much for answering my inquiry. I’d like to redo the recession inquiry, if you don’t mind, but in a different way. Let’s forget about the recession of the second quarter of 2020, because it was such a sudden thing. And let’s go back to 2009 or 2001 2002. Back then you were a classic media company and now you’re a virtual media company that does a lot of other things beyond measured media.
And I wonder if he can help us perceive maybe if we all assume that measured media spending may fall during a recession, maybe at similar rates to last time, who knows, but he’s doing a lot of other things right now. a way to assess qualitatively or quantitatively what the expense might be with Acxiom, Kinesso in IT consulting all that kind of stuff beyond the classic media?
Philippe Cracovie
I’m not sure I can evaluate quantitatively. I mean, I can highlight some of the things we’ve talked about. Healthcare is probably a more resilient place, ecommerce and spaces where you have an ROI line and much more. , or clarity about it or the ability to pass directly to the consumer. I think those will be spaces that will be less cyclical.
Acxiom, as you said, if you talk about the fact that two-thirds of their profits are long-term fixed-price contracts. So, those are all the spaces that we will have more when 2020 reaches spaces where we had a more consultative business model. , spaces where we had more clarity about accountability and results, which also includes our media activities.
Everyone did better. And it’s a large, diversified portfolio. So, that means for you that you wouldn’t need, I think look at what we saw in 2008, 2009 regardless of anything, 2020 was what you think is kind of a super and it still has effects through. . .
Tim Nollen
yes.
Philippe Cracovie
. . . All facets of economic life, right?
Tim Nollen
And maybe a point of quantification can be all those things you’re talking about. I mean, you probably have it on your slides. But that’s part or more than part of the whole business than that?Measured classical media are much less than a part, right?
Philippe Cracovie
Well, listen, I mean this is a position where there have been times when other people in our industry have said that our virtual revenue is x percent, and percent. And our view on that has been that it’s so embedded in everything we do. , because we try to move to the market position when we interact with consumers with everything that is incorporated and everything that solves them and adapts to their business that we then do not give the time to test to combat it.
So, I can’t give you some kind of GAAP measure that gives you that number. But it’s a vital component of our business, yet our agreement is that it’s what drives expansion. So if our biological expansion is strong, we should assume that all of those things are a pretty important component of what we do.
Tim Nollen
It is ok! Super. Thank you.
Operator
The latest comes from Craig Huber with Huber Research Partners. You can continue.
Philippe Cracovie
Hi Craig.
Craig Huber
Philippe, good morning. Small question, just to get back to the perspective of charges for next year, let’s say hypothetically: don’t make a big bet here. Suppose next year’s biological gain is st. Ellen I’d like to know what leverage you think you can pull to potentially keep your margins flat next year in a situation like that?Do you have a lot of leeway to do that?
Ellen Johnson
Hello Craig. Claro. Si revenues were solid in this scenario, our purpose would obviously be to be able to reduce our margins. What I would like to highlight and which gives us a line of focus is that we are an experienced and controlled team that has navigated together in many economic environments. .
As Philippe pointed out, we have a flexible fee design between open applications for transitional abandonment assistance and incentive reimbursement that vary greatly with performance. All those things will help. And then, at the end of the day, it will depend on the composition of income, the burden of that, right?But it’s something that would obviously be in our purpose and we think we have a line of sight.
Craig Huber
Super. That’s all I had. Thank you.
End of questions and answers
Philippe Cracovie
Merci. Je I think we’re running out of time. So thank you all for your time and interest. And we can’t wait to share with you how we can close the year.
Operator
Thank you. This concludes today’s conference. You can log out at this time.