IPG(US:IPG)2024-04-24 13:17PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited consolidated financial statements for Q1 2024 show a slight decrease in total revenue and net income compared to Q1 2023, with reduced total assets and a net cash outflow from operations Q1 2024 vs Q1 2023 Consolidated Statements of Operations Highlights | Metric | Q1 2024 ($M) | Q1 2023 ($M) | Change | | :--- | :--- | :--- | :--- | | Revenue before billable expenses | 2,182.9 | 2,176.9 | +0.3% | | Total revenue | 2,495.9 | 2,521.0 | -1.0% | | Operating Income | 184.2 | 188.3 | -2.2% | | Net Income Available to IPG Common Stockholders | 110.4 | 126.0 | -12.4% | | Diluted EPS | $0.29 | $0.33 | -12.1% | Consolidated Balance Sheet Highlights | Metric | March 31, 2024 ($M) | Dec 31, 2023 ($M) | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | 1,931.2 | 2,386.1 | -19.1% | | Total Assets | 17,286.1 | 19,267.3 | -10.3% | | Total Liabilities | 13,367.0 | 15,221.2 | -12.2% | | Total Stockholders' Equity | 3,883.1 | 4,003.8 | -3.0% | Q1 2024 vs Q1 2023 Consolidated Statements of Cash Flows Highlights | Metric | Q1 2024 ($M) | Q1 2023 ($M) | | :--- | :--- | :--- | | Net cash used in operating activities | (157.4) | (547.6) | | Net cash used in investing activities | (50.0) | (34.7) | | Net cash used in financing activities | (227.1) | (274.3) | | Net decrease in cash | (454.5) | (866.3) | Note 2: Revenue Revenue before billable expenses remained flat at $2.18 billion, with growth in the US and Continental Europe offset by a decline in the Asia Pacific region Revenue Before Billable Expenses by Geography (Q1 2024 vs Q1 2023) | Region | Q1 2024 ($M) | Q1 2023 ($M) | | :--- | :--- | :--- | | United States | 1,476.3 | 1,470.6 | | United Kingdom | 178.0 | 170.2 | | Continental Europe | 179.5 | 163.7 | | Asia Pacific | 142.8 | 159.2 | | Latin America | 87.1 | 84.7 | | Other | 119.2 | 128.5 | | Total International | 706.6 | 706.3 | | Total Consolidated | 2,182.9 | 2,176.9 | Revenue Before Billable Expenses by Segment (Q1 2024 vs Q1 2023) | Segment | Q1 2024 ($M) | Q1 2023 ($M) | | :--- | :--- | :--- | | MD&E | 961.3 | 965.9 | | IA&C | 881.4 | 870.5 | | SC&E | 340.2 | 340.5 | Note 3: Debt and Credit Arrangements Total long-term debt was stable at $3.17 billion, and the company maintained significant liquidity with an undrawn $1.5 billion credit facility after repaying matured notes - Total long-term debt stood at $3,168.6 million as of March 31, 202442 - The $250.0 million 4.200% Senior Notes due in 2024 matured on April 15, 2024, and were repaid using cash on hand43 - The company has a $1.5 billion revolving credit facility maturing in November 2026, with no borrowings outstanding as of March 31, 2024, and availability of $1,490.5 million46 Note 10: Segment Information The IA&C and MD&E segments drove EBITA growth, with IA&C being the largest contributor, while increased corporate expenses led to a slight decline in total Segment EBITA Segment EBITA (Q1 2024 vs Q1 2023) | Segment | Q1 2024 ($M) | Q1 2023 ($M) | Change | | :--- | :--- | :--- | :--- | | MD&E | 93.2 | 79.8 | +16.8% | | IA&C | 107.9 | 98.1 | +10.0% | | SC&E | 43.9 | 45.2 | -2.9% | | Corporate and Other | (40.1) | (13.9) | -188.5% | | Total | 204.9 | 209.2 | -2.1% | - The company operates across three reportable segments: Media, Data & Engagement Solutions (MD&E), Integrated Advertising & Creativity Led Solutions (IA&C), and Specialized Communications & Experiential Solutions (SC&E)88 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Organic revenue grew 1.3% in Q1 2024, driven by domestic client wins, though adjusted EBITA margin slightly decreased amidst a mixed macroeconomic environment - Organic increase of revenue before billable expenses was 1.3% in Q1 2024, compared to a decrease of (0.2)% in Q1 2023132 - Adjusted EBITA margin on revenue before billable expenses decreased to 9.4% from 9.6% in the prior-year period133 - The macroeconomic backdrop is characterized by global crosscurrents, with improved market tenor from H2 2023 but continued uncertainty coloring the market for IPG and its clients121 Results of Operations Organic revenue growth was led by a 2.1% domestic increase, particularly in Continental Europe, while cost controls helped reduce the ratio of salaries to revenue Organic Change in Revenue Before Billable Expenses by Geography (Q1 2024) | Region | Organic Change | | :--- | :--- | | Domestic | +2.1% | | International | -0.5% | | - United Kingdom | +0.2% | | - Continental Europe | +8.9% | | - Asia Pacific | -8.1% | | - Latin America | +3.0% | | - Other | -6.5% | | Consolidated | +1.3% | - Salaries and related expenses as a percentage of revenue before billable expenses decreased to 72.1% in Q1 2024 from 72.5% in Q1 2023, driven by lower base salaries, benefits, and tax138 - Office and other direct expenses decreased by 2.5% YoY, driven by lower client service costs, meetings, and professional fees140 Segment Results of Operations The IA&C segment led organic growth at 3.2%, while the MD&E segment significantly improved its EBITA margin to 9.7% through effective cost management Segment Performance Summary (Q1 2024) | Segment | Organic Revenue Change | Segment EBITA Margin | Key Drivers | | :--- | :--- | :--- | :--- | | MD&E | -0.5% | 9.7% | Decreased operating expenses outpaced revenue decline | | IA&C | +3.2% | 12.2% | Revenue growth exceeded expense increase | | SC&E | +1.5% | 12.9% | Increased operating expenses, particularly salaries | Liquidity and Capital Resources The company maintains a strong liquidity position, significantly improving operating cash flow through better working capital management while continuing shareholder returns - Net cash used in operating activities was $157.4 million, a significant improvement from a use of $547.6 million in Q1 2023, primarily due to a smaller use of cash for working capital166172 - Key financing activities in Q1 2024 included $126.6 million for common stock dividends and $62.4 million for share repurchases174 - The company's 4.200% senior notes ($250.0 million) matured on April 15, 2024, and were repaid with cash on hand178 - As of March 31, 2024, the company had $337.7 million remaining under its share repurchase authorizations18163 Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's market risk exposure remained unchanged in Q1 2024, with interest rate risk mitigated by having 99% of its debt at fixed rates - There has been no significant change in the company's exposure to market risk during the first quarter of 2024203 - As of March 31, 2024, approximately 99% of the company's debt obligations bore fixed interest rates, mitigating exposure to interest rate fluctuations203 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of quarter-end, with no material changes to internal controls over financial reporting - The CEO and CFO concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective204 - No changes in internal control over financial reporting occurred in Q1 2024 that materially affected or are likely to materially affect the controls206 PART II. OTHER INFORMATION Item 1. Legal Proceedings Ongoing legal proceedings from normal business operations are not expected to have a material adverse effect on the company's financial condition or results - The company is involved in various legal proceedings from the normal course of business, but management believes the outcomes will not have a material adverse effect on its financials110209 Item 1A. Risk Factors No material changes to the risk factors disclosed in the 2023 Annual Report on Form 10-K occurred during the first quarter of 2024 - No material changes to the risk factors disclosed in the 2023 Annual Report on Form 10-K occurred in the first quarter of 2024210 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 2.34 million shares of common stock for an average price of $32.39 per share during the first quarter of 2024 Share Repurchases in Q1 2024 | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | Jan 1 - 31 | 186,271 | $32.79 | 175,000 | | Feb 1 - 29 | 622,888 | $32.38 | 225,000 | | Mar 1 - 31 | 1,529,593 | $32.35 | 1,527,000 | | Total Q1 | 2,338,752 | $32.39 | 1,927,000 |