IPG
#Thank you, <UNK>
Good morning, everyone
As a reminder, I’ll be referring to the slide presentation that accompanies our webcast
On slide two, you see an overview of our results
Organic revenue growth was 2.7% in the first quarter, 2.9% in the US and 2.2% in our international markets
Excluding a small increase in pass-through revenue and related expense, organic revenue growth was 2.5%
Q1 operating profit was $30 million, an increase of $7 million compared to last year in our seasonally small first quarter
Diluted EPS is $0.05, which compares to $0.01 as reported last year and compares favorably to $0.02 per share as adjusted for items a year ago
Turning to slide three, you see our P&L for the quarter
I’ll cover revenue and operating expenses in detail in the slides that follow
It is worth noting here that Q1 2016 includes the reclassification of $2 million of pension expense from salaries and other income, reflecting the adoption of the new pension accounting standard
The impact was approximately $800,000 in Q1 2017. Further down the P&L, it’s also worth noting that we had a tax benefit in the quarter against our seasonally small Q1 pretax earnings
That is a result of our mix of profit and loss by tax jurisdiction around the world and the excess tax benefit of share based compensation in our first quarter
We continue to expect that our effective tax rate will be in the range of 35 to 36% for the full year
Turning to revenue on slide four
Revenue was $1.75 billion in the quarter
Compared to Q1 2016, the impact of the change in exchange rates was negative 1% while net dispositions were negative1% as well
Resulting revenue increase was 70 basis points as reported and organic increase of 2.7%
As you can see on the bottom half of this slide, organic growth was 2.2% at our integrated agency network segment, which is good performance against 7.6% growth in Q1 2016 with contributions from all the IAN disciplines and across a range of agencies
CNG grew 4.6% organically led by Octagon, Golin and Weber Shandwick
Moving on to slide five, revenue by region
US organic growth was 2.9% and was 2% excluding increased pass-through revenues in the US
Again, growth was broad based across disciplines in agencies led by R/GA, Mediabrands, Jack Morton, Hill Holliday and McCann
Leading clients sectors were healthcare, food and beverage, auto and retail
We also had strong growth in our other category paced by energy, and industrial clients
Turning to international markets, the UK grew slightly on an organic basis but UK organic growth was 4.4% excluding the decrease in pass-through revenue
We had notably strong growth in McCann UK once again, along the growth at Weber Shandwick and Mediabrands
It’s also worth noting that acquisitions contributed another 3% to growth in the UK but the dollar pound relationship decreased our reported UK revenue by about 14%
Continental Europe increased 6.7% organically
Among our largest markets, we were led by strong results in Germany and Italy while France and Spain were flat compared to last year
In Asia Pac, we had an organic decrease of 2.7%, reflecting lower spending from a number of our clients in China where we were lapping exceptional growth in last year’s first quarter, as well as a decrease from Australia
We continue to see very good growth in India and Japan
LatAm grew 3.7% organically on top of 11.6% a year ago
We continue to have strong performances by our agencies in Mexico, Argentina and Chile, which offset lower revenue in <UNK>razil
Our other markets group increased 7.8% organically in Q1, which is also notably strong performance on top of the 7.4% a year ago
This reflects growth in South Africa, the Middle East and Canada
On slide six, we chart the longer view of our organic revenue change on a trailing 12-month basis; most recent data point is 4%
Moving on to slide seven
Total operating expenses in the first quarter increased 30 basis points from a year ago, compared to reported revenue growth of 70 basis points
As a result, our operating margin expanded 40 basis points
The ratio of salaries and related expenses to revenue in Q1 was 72.7% this year compared with 72.8% a year ago
Comparison reflects improved leverage on our other salaries and related expense, mainly due to lower expense or earn-outs offset by base payroll and incentive comp
The total headcount at quarter end of approximately 50,200, which has increased about 1% from year-end 2016. We continue to invest on growth areas in the portfolio such as digital, media, advertising and PR, and to support our new business wins
On the lower half of the slide, our total O&G expense in the first quarter was essentially flat against last year, generating 20 basis points of operating leverage
On slide eight, we show our operating margin history on a trailing 12-month basis with the most recent data point of 12.1%
On slide nine, we turn to cash flow
Cash used in operations in Q1 was $372 million, compared with $654 million a year ago
As you know, our operating cash flow is highly seasonal
Our business typically generates significant cash and working capital in the fourth quarter and uses cash in the first quarter
During this year’s first quarter, cash used in working capital was $439 million, compared with the use of $695 million in Q1 a year ago
The improvement was due to the timing of our working capital cash flows, which we had also referred to at the time of our fourth quarter call
While we have lower seasonal cash generation in Q4, this is the offset in Q1, lower use of cash in the first quarter
Investing activities used $33 million in the quarter including $25 million of CapEx
Financing activities generated $64 million, due to an increase in short-term borrowings of $225 million
We used $71 million for our common stock dividend and $55 million for share repurchases
Our net decrease in cash and marketable securities for the quarter was $320 million compared with $831 million a year ago
Turning to the current portion of our balance sheet on slide 10. We ended the first quarter with $778 million in cash and short-term marketable securities compared with $680 million a year ago
It’s worth noting that our cash level seasonal tends to peak at year-end and decrease during the first quarter
On slide 11, we show debt deleveraging from a peak of $2.33 billion in 2007 to $1.92 billion at the most recent quarter-end
In summary on the slide 12, we are pleased with solid revenue growth and profit performance in the quarter, which represents a good start in terms of achieving our financial objectives for the full year
With that, let me turn it back over to <UNK>
And on a question around contracts, <UNK>, it primary relates to events business
We are trying to address new clients and move them into an agency relationship as opposed to a principal relationship, existing clients very difficult to shift
So, this will take some time; it’s not having a meaningful impact on margins
