THE INTERPUBLIC GROUP OF COMPANIES, INC. (Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help you understand
EXECUTIVE SUMMARY provides a discussion about our strategic outlook, factors influencing our business and an overview of our results of operations.
RESULTS OF OPERATIONS provides an analysis of the consolidated and segment results of operations for the periods presented.
LIQUIDITY AND CAPITAL RESOURCES provides an overview of our cash flows, funding requirements, financing and sources of funds, and debt credit ratings.
CRITICAL ACCOUNTING ESTIMATES provides an update to the discussion in our 2021 Annual Report of our accounting policies that require critical judgment, assumptions and estimates.
RECENT ACCOUNTING STANDARDS, by reference to Note 14 to the unaudited Consolidated Financial Statements, provides a discussion of certain accounting standards that have been recently adopted or that have not yet been required to be implemented and may be applicable to our future operations.
NON-GAAP FINANCIAL MEASURE, provides a reconciliation of non-GAAP financial
measure with the most directly comparable generally accepted accounting
principles in
EXECUTIVE SUMMARY
Our Business
We are one of the world's premier global advertising and marketing services
companies. With approximately 56,800 employees and operations in all major world
markets, we help our clients' businesses and brands thrive in a consumer economy
increasingly defined by digital media, data and continuous change. At IPG, we
combine the power of creativity with the benefits of technology, fueling our
offerings with a deep understanding of audiences at the individual level, driven
by ethical business practices. We have exceptionally talented people, across a
balanced portfolio of strong agency brands,
Our companies specialize in consumer advertising, digital marketing, communications planning and media buying, public relations, specialized communications disciplines and data science. Our networks create customized marketing solutions for clients that range in scale from large global marketers to regional and local clients. Comprehensive global services are critical to effectively serve our multinational and local clients in markets throughout the world as they seek to build brands, increase sales of their products and services, and gain market share.
We operate in a marketing and media landscape that continues to evolve at a rapid pace. Media channels continue to fragment, and clients face an increasingly complex consumer environment. To stay ahead of these challenges and to achieve our objectives, we have made and continue to make investments in creative, strategic and technology talent in areas including fast-growth digital marketing channels, high-growth geographic regions and strategic world markets. We consistently invest in opportunities within our Company to enhance the professional skills of our employees and encourage intra-company collaboration. As appropriate, we also make acquisitions, enter into strategic alliances, and develop relationships with technology and media companies that are building leading-edge marketing tools that complement our agencies' skill sets and capabilities.
Our financial goals include competitive organic net revenue growth and expansion of Adjusted EBITA margin, as defined and discussed within the Non-GAAP Financial Measure section of this MD&A, which we expect will further strengthen our balance sheet and total liquidity and increase value to our stakeholders. Accordingly, we remain focused on meeting the evolving needs of our clients while concurrently managing our cost structure. We continually seek greater efficiency in the
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Management's Discussion and Analysis of Financial Condition and Results of
Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
delivery of our services, focusing on more effective resource utilization, including the productivity of our employees, real estate, information technology and shared services, such as finance, human resources and legal. The improvements we have made and continue to make in our financial reporting and business information systems in recent years allow us more timely and actionable insights from our global operations. Our disciplined approach to our balance sheet and liquidity provides us with a solid financial foundation and financial flexibility to manage and grow our business. We believe that our strategy and execution position us to meet our financial goals and to deliver long-term value to all of our stakeholders.
Impact of COVID-19
In
At the outset of the COVID-19 pandemic, we responded swiftly in support of our people, our clients and our communities. To protect our employees, and to do our part in stopping the spread of COVID-19, within days, 95 percent of our global workforce had moved to a remote work environment. Although much of our worldwide workforce continues to work from home at least part of the time, we expect our workforce will increasingly be returning to the workplace in coming months. We recognized the importance of regular communication to reassure employees and to keep them updated on our plans as the pandemic continues to unfold. We have adopted an approach of "organized flexibility" and continue to adjust our policies and practices to facilitate the new working environments and take into account the need of many employees to work during non-traditional hours and juggle home lives and work responsibilities.
We believe we have had significant success in maintaining and continuing to advance the quality of our services notwithstanding extensive changes required by the pandemic. With respect to managing costs, we undertook multiple initiatives to align our expenses with changes in revenue. In 2020, the Company also took restructuring actions to lower our operating expenses structurally and permanently relative to revenue and to accelerate the transformation of our business (the "2020 Plan"). Most of these actions were based on our experience and learning in the COVID-19 pandemic and a resulting review of our operations. Notably, we foresee a greater role for work-from-home in a hybrid office-home model to deliver and support our services in a post-COVID world.
In the first quarter of 2022, we experienced robust growth, driven in our
domestic market by growth across all disciplines, most notably in our
advertising and media businesses, as well as our Experiential businesses, and in
our international markets, by organic growth in all geographic regions,
bolstered by strong performance at our media and advertising businesses in
addition to our public relations agencies and digital project-based offerings.
The continued rapid spread of the Omicron variant did not have a significant
negative impact on our growth in the quarter. Prospects for continuing general
economic recovery and improved financial performance as the year progresses will
depend on the course of the pandemic and the efficacy of vaccination and other
public health efforts both domestically and globally. Other macroeconomic risks
to our performance for the remainder of 2022 include the extent of inflation of
labor costs and potential for labor shortages, inflationary pressures on our
clients and their customers, the economic impacts of geopolitical conflict and
uncertainty, and the impact of continuing and unpredictable supply chain
disruptions across the global economy. See Item 1A, Risk Factors, in our Annual
Report on Form 10-K for the year ended
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Management's Discussion and Analysis of Financial Condition and Results of
Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Our Financial Information
When we analyze period-to-period changes in our operating performance, we determine the portion of the change that is attributable to changes in foreign currency rates and the net effect of acquisitions and divestitures, and the remainder we call organic change, which indicates how our underlying business performed. We exclude the impact of billable expenses in analyzing our operating performance as the fluctuations from period to period are not indicative of the performance of our underlying businesses and have no impact on our operating income or net income.
The change in our operating performance attributable to changes in foreign
currency rates is determined by converting the prior-period reported results
using the current-period exchange rates and comparing these prior-period
adjusted amounts to the prior-period reported results. Although the
For purposes of analyzing changes in our operating performance attributable to the net effect of acquisitions and divestitures, transactions are treated as if they occurred on the first day of the quarter during which the transaction occurred. During the past few years, we have acquired companies that we believe will enhance our offerings and disposed of businesses that are not consistent with our strategic plan.
As discussed in Note 11 in Item 1, Financial Statements (Unaudited), in
The metrics that we use to evaluate our financial performance include organic change in net revenue as well as the change in certain operating expenses, and the components thereof, expressed as a percentage of consolidated net revenue, as well as Adjusted EBITA. These metrics are also used by management to assess the financial performance of our reportable segments, MD&E, IA&C, and SC&E. In certain of our discussions, we analyze net revenue by geographic region and by business sector, in which we focus on our top 500 clients, which typically constitute approximately 85% of our annual consolidated net revenues.
Results for the three months ended
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