Interpublic Announces Second Quarter and First Half 2020 Results
New York, July 29, 2020 (GLOBE NEWSWIRE) —Second quarter reported net revenue of $1.85 billion, a decrease of 12.8% from a year ago, with organic net revenue decrease of 9.9%, due to impact of global economic contraction in the quarterFirst half reported net revenue decrease of 7.4%, and organic net revenue decrease of 5.0%Second quarter reported net loss was $45.6 million including restructuring charges, and adjusted EBITA was $174.9 million before restructuring chargesSecond quarter adjusted EBITA margin of 9.4% before restructuring chargesSecond quarter diluted loss per share of $0.12 and diluted earnings per share of $0.23 as adjustedFirst half diluted loss per share of $0.11 and diluted earnings per share of $0.34 as adjustedManagement initiated program of extensive structural operating cost reduction, resulting in restructuring charges in the quarter of $112.6 millionManagement highlights strategic and operating strengths, exceptional talent base, deep financial resources, and flexible cost modelMichael Roth, Chairman and CEO, IPG:“As we navigate the global pandemic, at IPG, we will stay focused on the safety, health and well-being of our employees, clients, and other key partners. As expected, our results bear the imprint of the severity of the health crisis and its economic impact. However, our companies and our people have adjusted quickly to these uncertain times and new ways of working, as evident in our results, which once again show IPG outperforming the sector.“During the quarter, our company maintained the high quality of our services and forged deeper relationships with our clients, while effectively managing expenses, and continuing to invest in our future. Notably, we furthered our progress in the most contemporary disciplines, including media, data and technology offerings, as well as our healthcare marketing offerings. We remain new business positive year-to-date, and our pipeline of business opportunities is solid. We initiated a program of structural operating cost reduction to lower our expense base, and raise our margin opportunities going forward. Our balance sheet and liquidity continue to be further areas of strength. These accomplishments underscore the vitality of our offerings, the exceptional talent of our people, and the flexibility of our business model.“Looking forward, visibility will remain unclear for as long as COVID is disrupting everyday life and macroeconomic conditions. As always, we will be disciplined in how we manage the business, aligning expenses closely to any changes in revenue. We look forward to returning to our strong trajectory of organic revenue and profit growth as a recovery takes hold. We are thankful for the continued close partnership with our clients, and proud of our employees around the world for their outstanding work and productivity despite all the challenges brought by the pandemic.”SummaryRevenueSecond quarter 2020 net revenue was $1.85 billion, compared to $2.13 billion in the second quarter of 2019. During the quarter, the organic net revenue decrease was 9.9%, while the effect of foreign currency translation was negative 2.1%, and the impact of net dispositions was negative 0.8%. Second quarter 2020 total revenue, which includes billable expenses, was $2.03 billion, compared to $2.52 billion in 2019.First half 2020 net revenue was $3.83 billion, compared to $4.13 billion in the first half of 2019. During the first half of 2020, the organic net revenue decrease was 5.0%, while the effect of foreign currency translation was negative 1.6%, and the impact of net dispositions was negative 0.8%. First half 2020 total revenue, which includes billable expenses, was $4.39 billion, compared to $4.88 billion in 2019.Operating ResultsOperating income in the second quarter of 2020 was $40.5 million, compared to $264.2 million in 2019. Adjusted EBITA was $174.9 million before Restructuring Charges in the second quarter of 2020, compared to Adjusted EBITA of $285.5 million in the prior-year period. Adjusted EBITA margin on net revenue was 9.4% before Restructuring Charges, compared to Adjusted EBITA margin of 13.4% in 2019.During the second quarter, the Company recognized restructuring charges of $112.6 million, as a result of actions targeted to achieve annualized operating expense reductions of $80 to $90 million.Operating income in the first half of 2020 was $116.4 million, compared to $314.4 million in 2019. Adjusted EBITA was $272.1 million before Restructuring Charges in the first half of 2020, compared to $389.1 million in the prior-year period. Adjusted EBITA margin on net revenue was 7.1% before Restructuring Charges, compared to 9.4% for the same period in 2019.Refer to reconciliations on page 12 for further detail.Net ResultsIncome tax provision in the second quarter of 2020 was $19.0 million on loss before income taxes of $24.9 million.Second quarter 2020 net loss available to IPG common stockholders was $45.6 million, resulting in loss of $0.12 per basic and diluted share, compared to earnings of $0.44 and $0.43 per basic and diluted share, respectively, for the same period in 2019. Adjusted earnings were $0.23 per diluted share, compared to adjusted earnings of $0.46 per diluted share a year ago. Second quarter 2020 adjusted earnings excludes after-tax amortization of acquired intangibles of $17.6 million, after-tax restructuring charges of $87.2 million, an after-tax loss of $19.9 million on the sales of businesses and a charge of $10.0 million from a discrete tax item.Income tax provision in the first half of 2020 was $36.2 million on loss before income taxes of $4.9 million.First half 2020 net loss available to IPG common stockholders was $40.9 million, resulting in loss of $0.11 per basic and diluted share, compared to earnings of $0.42 and $0.41 per basic and diluted share, respectively, for the same period in 2019. Adjusted earnings were $0.34 per diluted share compared to adjusted earnings of $0.57 per diluted share a year ago. First half 2020 adjusted earnings excludes after-tax amortization of acquired intangibles of $34.7 million, after-tax restructuring charges of $87.2 million, an after-tax loss of $42.3 million on the sales of businesses and a charge of $10.0 million from a discrete tax item.Refer to reconciliations on pages 10 through 14 for further detail.Operating ResultsRevenue
Net revenue of $1.85 billion in the second quarter of 2020 decreased 12.8% compared with the same period in 2019. During the quarter, the effect of foreign currency translation was negative 2.1%, the impact of net dispositions was negative 0.8%, and the resulting organic net revenue decrease was 9.9%. Total revenue, which includes billable expenses, was $2.03 billion in the second quarter of 2020, compared to $2.52 billion in 2019.Net revenue of $3.83 billion in the first half of 2020 decreased 7.4% compared with the same period in 2019. During the first half of 2020, the effect of foreign currency translation was negative 1.6%, the impact of net dispositions was negative 0.8%, and the resulting organic net revenue decrease was 5.0%. Total revenue, which includes billable expenses, was $4.39 billion in the first half of 2020, compared to $4.88 billion in 2019.Operating Expenses
For the second quarter and first half of 2020, our operating expenses, excluding billable expenses, decreased by 2.6% and 2.8%, respectively, while net revenue decreased by 12.8% and 7.4%, respectively.During the second quarter of 2020, salaries and related expenses decreased 5.4% to $1.31 billion, compared to $1.38 billion for the same period in 2019. During the first half of 2020, salaries and related expenses decreased 2.6% to $2.73 billion, compared to $2.80 billion for the same period in 2019. The decreases were primarily driven by reductions in base salaries, benefits and tax and lower temporary help in response to the declines in net revenue, primarily due to the effects of the COVID-19 pandemic on economic conditions, in addition to lower incentive expense. The cumulative decreases in salaries and related expenses were partially offset by increased severance expense for both periods.Office and other direct expenses decreased as a percentage of net revenue to 17.1% in the second quarter of 2020, compared to 18.2% a year ago, and decreased as a percentage of net revenue to 18.2% in the first half of 2020, compared to 18.8% a year ago, mainly due to decreases in travel and entertainment expenses and new business and promotion expenses as well as lower occupancy expense, partially offset by an increase in bad debt expense and a year-over-year change in contingent acquisition obligations. The decrease in the first half of 2020 was further driven by a reduction in professional consulting fees.Selling, general and administrative expenses decreased as a percentage of net revenue to 0.2% in the second quarter of 2020, compared to 0.8% a year ago, and decreased as a percentage of net revenue to 0.7% in the first half of 2020, compared to 1.4% a year ago, primarily attributable to a decrease in employee insurance expense due to fewer insurance claims with elective procedures and routine care being delayed in 2020, as well as a decrease in travel and entertainment expenses.During the second quarter of 2020, depreciation and amortization of $73.1 million remained relatively flat as compared to the same period in 2019. During the first half of 2020, depreciation and amortization slightly increased by 1.2% to $145.9 million, compared to $144.1 million for the same period in 2019.For the three and six months ended June 30, 2020, restructuring charges were $112.6 million related to actions taken, with the objective of lowering our operating expenses structurally and permanently relative to revenue and accelerating the transformation of our business. With these actions, the Company is exiting approximately 500,000 square feet of leased space in approximately 40 locations around the world and reducing its global workforce by approximately 1%.Most of these actions are based on our recent experience and learning in the COVID-19 pandemic and a resulting review of our operations, which continues, to address certain operating expenses such as occupancy expense and salaries and related expenses. This compares to restructuring charges of $2.1 million and $33.9 million in the second quarter and first half of 2019, respectively.Non-Operating Results and Tax
Net interest expense remained flat at $43.9 million in the second quarter of 2020 from a year ago, and decreased by $7.9 million to $78.0 million in the first half of 2020 from a year ago.Other expense, net was $21.5 million in the second quarter of 2020 and $43.3 million for the first half of 2020, which primarily included losses on the sales of certain small, non-strategic businesses.The income tax provision in the second quarter of 2020 was $19.0 million on loss before income taxes of $24.9 million, primarily due to net losses in certain foreign jurisdictions and net losses on sales of businesses and certain assets classified as held for sale for which we received no tax benefit. This compares to an income tax provision of $43.6 million for the second quarter of 2019 on income before income taxes of $216.5 million.The income tax provision in the first half of 2020 was $36.2 million on loss before income taxes of $4.9 million, primarily due to the factors noted in the second quarter of 2020 in addition to net losses on sales of businesses and certain assets classified as held for sale for which we received minimal tax benefit. This compares to an income tax provision of $54.1 million in the first half of 2019 on income before income taxes of $217.8 million.Balance Sheet
At June 30, 2020, cash and cash equivalents totaled $1.09 billion, compared to $1.19 billion at December 31, 2019 and $614.0 million on June 30, 2019. Total debt was $3.97 billion at June 30, 2020, compared to $3.33 billion at December 31, 2019. The increase in debt is primarily due to our issuance of $650.0 million in aggregate principal amount of senior notes on March 30, 2020.Common Stock Dividend
During the second quarter of 2020, the Company declared and paid a common stock cash dividend of $0.255 per share, for a total of $99.2 million.For further information regarding the Company’s financial results as well as certain non-GAAP measures including organic net revenue growth, Adjusted EBITA, Adjusted EBITA before Restructuring Charges and earnings per diluted share as adjusted, and the reconciliations thereof, please refer to pages 8 to 14 and our Investor Presentation filed on Form 8-K herewith and available on our website, www.interpublic.com.
Net revenue of $1.85 billion in the second quarter of 2020 decreased 12.8% compared with the same period in 2019. During the quarter, the effect of foreign currency translation was negative 2.1%, the impact of net dispositions was negative 0.8%, and the resulting organic net revenue decrease was 9.9%. Total revenue, which includes billable expenses, was $2.03 billion in the second quarter of 2020, compared to $2.52 billion in 2019.Net revenue of $3.83 billion in the first half of 2020 decreased 7.4% compared with the same period in 2019. During the first half of 2020, the effect of foreign currency translation was negative 1.6%, the impact of net dispositions was negative 0.8%, and the resulting organic net revenue decrease was 5.0%. Total revenue, which includes billable expenses, was $4.39 billion in the first half of 2020, compared to $4.88 billion in 2019.Operating Expenses
For the second quarter and first half of 2020, our operating expenses, excluding billable expenses, decreased by 2.6% and 2.8%, respectively, while net revenue decreased by 12.8% and 7.4%, respectively.During the second quarter of 2020, salaries and related expenses decreased 5.4% to $1.31 billion, compared to $1.38 billion for the same period in 2019. During the first half of 2020, salaries and related expenses decreased 2.6% to $2.73 billion, compared to $2.80 billion for the same period in 2019. The decreases were primarily driven by reductions in base salaries, benefits and tax and lower temporary help in response to the declines in net revenue, primarily due to the effects of the COVID-19 pandemic on economic conditions, in addition to lower incentive expense. The cumulative decreases in salaries and related expenses were partially offset by increased severance expense for both periods.Office and other direct expenses decreased as a percentage of net revenue to 17.1% in the second quarter of 2020, compared to 18.2% a year ago, and decreased as a percentage of net revenue to 18.2% in the first half of 2020, compared to 18.8% a year ago, mainly due to decreases in travel and entertainment expenses and new business and promotion expenses as well as lower occupancy expense, partially offset by an increase in bad debt expense and a year-over-year change in contingent acquisition obligations. The decrease in the first half of 2020 was further driven by a reduction in professional consulting fees.Selling, general and administrative expenses decreased as a percentage of net revenue to 0.2% in the second quarter of 2020, compared to 0.8% a year ago, and decreased as a percentage of net revenue to 0.7% in the first half of 2020, compared to 1.4% a year ago, primarily attributable to a decrease in employee insurance expense due to fewer insurance claims with elective procedures and routine care being delayed in 2020, as well as a decrease in travel and entertainment expenses.During the second quarter of 2020, depreciation and amortization of $73.1 million remained relatively flat as compared to the same period in 2019. During the first half of 2020, depreciation and amortization slightly increased by 1.2% to $145.9 million, compared to $144.1 million for the same period in 2019.For the three and six months ended June 30, 2020, restructuring charges were $112.6 million related to actions taken, with the objective of lowering our operating expenses structurally and permanently relative to revenue and accelerating the transformation of our business. With these actions, the Company is exiting approximately 500,000 square feet of leased space in approximately 40 locations around the world and reducing its global workforce by approximately 1%.Most of these actions are based on our recent experience and learning in the COVID-19 pandemic and a resulting review of our operations, which continues, to address certain operating expenses such as occupancy expense and salaries and related expenses. This compares to restructuring charges of $2.1 million and $33.9 million in the second quarter and first half of 2019, respectively.Non-Operating Results and Tax
Net interest expense remained flat at $43.9 million in the second quarter of 2020 from a year ago, and decreased by $7.9 million to $78.0 million in the first half of 2020 from a year ago.Other expense, net was $21.5 million in the second quarter of 2020 and $43.3 million for the first half of 2020, which primarily included losses on the sales of certain small, non-strategic businesses.The income tax provision in the second quarter of 2020 was $19.0 million on loss before income taxes of $24.9 million, primarily due to net losses in certain foreign jurisdictions and net losses on sales of businesses and certain assets classified as held for sale for which we received no tax benefit. This compares to an income tax provision of $43.6 million for the second quarter of 2019 on income before income taxes of $216.5 million.The income tax provision in the first half of 2020 was $36.2 million on loss before income taxes of $4.9 million, primarily due to the factors noted in the second quarter of 2020 in addition to net losses on sales of businesses and certain assets classified as held for sale for which we received minimal tax benefit. This compares to an income tax provision of $54.1 million in the first half of 2019 on income before income taxes of $217.8 million.Balance Sheet
At June 30, 2020, cash and cash equivalents totaled $1.09 billion, compared to $1.19 billion at December 31, 2019 and $614.0 million on June 30, 2019. Total debt was $3.97 billion at June 30, 2020, compared to $3.33 billion at December 31, 2019. The increase in debt is primarily due to our issuance of $650.0 million in aggregate principal amount of senior notes on March 30, 2020.Common Stock Dividend
During the second quarter of 2020, the Company declared and paid a common stock cash dividend of $0.255 per share, for a total of $99.2 million.For further information regarding the Company’s financial results as well as certain non-GAAP measures including organic net revenue growth, Adjusted EBITA, Adjusted EBITA before Restructuring Charges and earnings per diluted share as adjusted, and the reconciliations thereof, please refer to pages 8 to 14 and our Investor Presentation filed on Form 8-K herewith and available on our website, www.interpublic.com.
