© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and welcome to the Interpublic Group Second Quarter 2020 Conference Call. [Operator Instructions].
I would now like to introduce Mr. Jerry Leshne, Senior Vice President of Investor Relations. Sir, you may begin.
Good morning. We hope you are all well. Thank you for joining us. This morning, we are joined by Michael Roth, our Chairman and CEO; by Ellen Johnson, our Chief Financial Officer; and by Philippe Krakowsky, our Chief Operating Officer. As usual, we have posted our earnings release and our slide presentation on our website, interpublic.com. We will begin our call with prepared remarks to be followed by Q&A and plan to conclude before market opens at 9:30 Eastern.
During this call, we will refer to forward-looking statements about our company. These are subject to the uncertainties in the cautionary statement that is included in our earnings release and our slide presentation, and further detailed in our 10-Q and other filings with the SEC. We will also refer to certain non-GAAP measures. We believe that these measures provide useful supplemental data that, while not a substitute for GAAP measures, allow for greater transparency in the review of our financial and operational performance.
At this point, it is my pleasure to turn things over to Michael Roth.
Thank you, Jerry, and thank you for joining us this morning. I would like to start by saying that I hope that you and your families have been safe and healthy during this pandemic, which has had such a severe impact on the entire global community. A main topic of our call, of course, is how the crisis has impacted our people, our clients and our business, and crucially, our focused and disciplined response to the profound challenges we are all facing.
I would like to first recognize and thank our people at IPG and our agencies around the world for their outstanding and highly effective work in spite of the countless changes, concerns and pressures brought by COVID into everyday life. These were unforeseeable just a few short months ago. Our people have continued in their dedication to one another, to clients and to their communities, while making necessary changes in successfully adapting our business model.
As we navigate the pandemic at IPG, the safety, health and well-being of our employees, clients and other key partners continues to be at the forefront of everything we do. In recent months, we have also felt, with renewed urgency, the pain of racial discrimination here in the United States and around the world. Society is facing the long-term effects of racial injustice, which demands long overdue action.
At IPG, we know that we can make more of a difference. We have recommitted to listening, to learning, and most importantly, to action in support of social and economic justice for black Americans and for all people of color. We are a company that lives in the culture, and has a voice in the culture. We understand that we have a responsibility, and that the journey of rising to that obligation makes us a better company in every way. We're taking actions within IPG and in the advertising and marketing messages that we create in order to further the cause of racial equity.
Turning to the results we reported this morning. Our second quarter, as expected, bears the imprint of the pandemic and its economic impact in the most challenged global operating environment in memory. But during this period, that was anything but typical, our company marked a number of significant achievements in maintaining distinctive quality of our services and creating even deeper client relationships, while effectively managing expenses, making structural changes and continuing to invest in our future. These accomplishments underscore the strength and resiliency of our offerings, the flexibility of our business model, and again, the exceptional quality of our talent.
You'll recall that in April, we had shared that 95% of our people around the world were working from home. Today, that is more varied, reflecting conditions that have changed in some markets more than others. Around 50% of our people in Asia are back in the office, at least some of the time; 30% to 40% in Europe; around only 10% in the U.S. and U.K.; and less than that in Lat Am.
We had also shared in April that the revenue environment was uncertain, and that the economic impact of the pandemic on our industry would clearly be significant in the quarter as market has navigated the sharp and sudden global macro contraction. As you've seen this morning, our second quarter net revenue decreased 12.8% as reported, with an organic decrease of 9.9%. With that, there was meaningful variation by client and by sector, and the decrease overall was perhaps not as severe as we might have anticipated, or to the extent seen elsewhere in our industry.
All in, spending by our largest clients held up relatively well. It was again clear that the investments we have made to differentiate our company, notably in the way we are structured and go to market with Open Architecture with top industry talent and with the most contemporary offerings led by data capabilities at scale, continue to distinguish our performance in our industry.
Top-performing client sectors in the quarter were health care, retail, food and beverage, tech and telecom. On the other hand, sectors hit hardest by the recession were auto and transportation, financial services and industrials. By region, the U.S. was 66% of our revenue mix in the quarter, decreased 8% organically. Our international markets decreased 13.1% organically, in a range of approximately negative 10% to negative 15% by region.
While some margin contraction was to be expected, our cost disciplines remained effective. We managed our operating expenses to the reality of the rapidly developing recession in order to protect profitability, to the degree possible, and further to position ourselves for strong recovery when revenue growth returns. This is the commitment we made to you earlier this year and will, of course, continue.
In a people business, this has, of necessity, involved very difficult decisions. That includes salary reductions, furloughs and, most regrettably, layoffs. We reduced staff across most of our agencies during the quarter. This also means that our expense for severance was elevated in the quarter.
Our net operating expenses decreased by approximately 9% from a year ago, before a charge for restructuring. Each of our principal cost categories decreased, including expenses for base payroll, temporary labor, performance-based employee incentives and our office and other expenses. With the actions we've taken in the quarter, operating expenses are positioned to decrease further in the year's second half.
As you've seen in our results this morning, we also took actions in the quarter to lower operating expenses structurally and permanently relative to revenue and to further accelerate the transformation of our business. These actions are based on our recent experience and learnings in the pandemic and a strategic review of our operating expenses, which is ongoing. They address our real estate and personal expenses -- personnel expenses and, notably, accommodate a greater role for work from home in a hybrid office home model in a post-COVID world.
Our actions resulted in a restructuring charge of $112.6 million in the quarter, and we expect a significant financial return in the ongoing reduction of our occupancy and payroll expense. Of the total charge, $68 million is noncash. These actions are planned to result in total annualized savings of approximately $80 million to $90 million, which have been approximately 100 basis points of fiscal year 2019 net revenue. We will begin to see these savings in this year's third quarter.
With our review continuing, we anticipate that we will take additional strategic actions in the second half of the year, geared towards further structural cost reductions. These additional actions are expected to result in a second half restructuring expense in the range of $90 million to $110 million. In the second quarter, our adjusted EBITA margin was 3.4%, and was 9.4% before the restructuring charge. Our diluted earnings per share was a loss of $0.12 as reported, and was $0.23 as adjusted for the restructuring and other items.
I would underscore that in a quarter that was clearly very challenging, we continued our investment in talent, tools and differentiated capabilities that have made us the growth leader in our industry over a period -- many years. In the current environment, that means, first, investing in health and welfare resources and programs with the objective of keeping our employees safe and healthy in every respect. It also means that as we begin to formulate our return-to-office procedures around the world, we do so with safety as our primary and predominant objective.
On the product side, we launched Matterkind in early May, which is an offering of our Kinesso technology unit, and is the next evolution in media and addressable marketing. Earlier this month, we launched Acxiom's ConneCXions suite of digital transformation solutions. I'll return to key agency developments in my closing remarks, and I'll ask Philippe to share an update on developments in media, data and technology.
As we look to the balance of the year, we're confident in the strength of our model and the competitiveness of our offerings, even as marketers continue to face a range of material unknowns related to the pandemic. These uncertainties include the spread of the virus, its impact on the sentiment and behavior of consumers, on income levels, business supply chains and the actions of government authorities, including economic stimulus and social support.
The environment remains unclear for as long as COVID is a threat to everyday life. As a result, visibility to revenue remains challenging, and client decision-making difficult to forecast. Even the usual points of reference in marketing and media, such as back-to-school, the global sports calendar, media inventory and the holiday season, have not come into focus.
On a positive note, we remain new business positive year-to-date and trailing 12 months, and our pipeline of business opportunities is quite solid, which is indicative of pent-up demand. But given the prevailing uncertainty, it is difficult to gauge the pace of client decisions and the related conversion to revenue. As always, we will manage the business appropriately and look to align expenses closely to changes in revenue, and we'll keep you apprised as the year progresses.
Our return to positive growth is obviously tied to macroeconomic timing. Marketers understand that this can be a decisive time for brands. There will be enduring changes, as consumers accelerate their use of e-commerce and amid profound social change, hold brands accountable for authenticity and purpose. We are resourced with best-of-breed talent and tools to help rethink and reimagine the brands that are the lifeblood of companies.
Further, with technology playing an ever-increasing part of day-to-day life, we're seeing heightened demand for data management and marketing technology expertise at the level of the enterprise, with Acxiom and Kinesso now integrated with our service offerings. We're confident that our offerings are meeting this moment. With return of supportive macroeconomic environment, we're well positioned to resume our growth as the nexus of consumer relevance and performance accountability for brands, and as an engine of value creation for all our stakeholders.
I'll have additional closing thoughts before our Q&A, along with Philippe. But at the end of this point, I turn it over to Ellen for additional color on our results.
Thank you, Michael. I hope that everyone is safe and healthy. As you've seen in our results, we are protecting profitability to the extent possible. In the face of this sudden revenue downturn, we are seizing opportunities to improve the economics of our business for the long term.
Our balance sheet and liquidity continue to be further areas of strength. As Michael emphasized, we have continued to invest in our offerings. In short, and thanks to our outstanding people, we are well positioned to navigate the uncertainty of an unprecedented business environment and emerge as an even stronger company.
Turning then to more detail on our results in the quarter and the slides that accompany my remarks. On Slide 2, you'll see a summary of our results. At a high level, our revenue change reflects the impact of the pandemic and an unprecedented contraction in global economic activity. We lowered our salaries and related expenses, and our office and other expenses, with disciplined cost management as well as the inherent flexibility of our model. We took extensive restructuring actions that will raise our margin ceiling going forward.
In the second quarter, our net revenue organic change was a decrease of 9.9%, while our reported revenue decrease was 12.8%. Q2 adjusted EBITA was $62.3 million and was $174.9 million before the restructuring charge compared with adjusted EBITA of $285.5 million a year ago. Adjusted EBITA margin on net revenue was 3.4% and was 9.4% before restructuring.
For the quarter, our diluted earnings per share was a loss of $0.12 as reported, while our adjusted diluted earnings per share was $0.23. The adjustments exclude the after-tax impacts of the amortization of acquired intangibles, the charge for restructuring, nonoperating losses on the sales of certain small nonstrategic businesses and a discrete tax item in the quarter. Our liquidity continues to be strong at $3.1 billion of cash in committed credit facilities at quarter end.
Turning to Slide 3, you'll see our P&L for the quarter. I'll cover revenue and operating expenses in detail in the slides that follow.
Turning to Q2 revenue on Slide 4. Net revenue was $1.85 billion. Compared to Q2 2019, the impact of the change in exchange rates was negative 2.1%, with the U.S. dollar stronger against each of our regional world markets. Net divestitures were negative 0.8%, which represents the disposition of certain small nonstrategic businesses over the past 12 months.
We continue to review our portfolio, which resulted in selected dispositions in the second quarter. These reviews are ongoing, and we expect to have additional dispositions of small nonstrategic agencies in the second half of the year. Our organic net revenue change was a decrease of 9.9%. As you can see, that brings our organic change for the 6 months to negative 5%.
At the bottom of the slide, we break out our operating segments. The organic change in our IAN segment was a decrease of 8.8%. IAN includes our global and domestic creatively led integrated agencies, our media, data and technology offerings and our digital specialists. At our CMG segment of marketing services, the organic change was negative 15.6%, which reflects the disproportionate weight of events and sports, marketing and segment revenue.
Moving to Slide 5, organic revenue change by region. In the U.S., our second quarter organic decrease was 8%. Relative to our international markets, the U.S. performed better, which reflects the differences in the mix of client sectors and offerings, which, together, were more resilient. To note, the U.S. impact of revenue headwinds that we have previously discussed was 1%, and we have now fully cycled those losses as of midyear.
In our international markets, which were 34% of net revenue in the quarter, the organic change was negative 13.1%, with decreases across all disciplines. As you can see on this chart, Lat Am decreased 10.4%; Continental Europe, 11.1%; and we decreased 14% to 14.7% across Asia Pac, the U.K. and other markets.
Moving on to Slide 6 and operating expenses in the quarter. As Michael said earlier, managing expenses closely to changes in revenue and positioning our company optimally for a return to growth has been an area of intense focus for us in light of the operating environment. Our net operating expenses decreased 2.6% from a year ago and were down 8.6%, excluding restructuring. That compares with our reported revenue decrease of 12.8%. It is worth noting that all of our ratios reflect the sudden revenue decrease in the quarter.
As you can see on this slide, we delevered in our ratio of salary and related expenses to net revenue, 70.5% compared to 65%. This includes higher expense for severance actions in the quarter. Severance was $55 million in the quarter compared to only $10 million a year ago. This is normal course severance that is related to our downturn in revenue and which is separate and distinct from the actions in our restructuring charge for permanent cost reduction.
Salary reductions, furloughs, severance and other actions, which were taken over the course of the quarter, resulted in a 6% decrease to base payroll, benefits and tax compared to a year ago. Several cost categories decreased at a faster rate than revenue. Our expense for performance-based incentives, temporary labor and other salary and related are all down more than revenue. At quarter end, total worldwide headcount was approximately 52,000, a decrease of about 4% from a year ago. This decrease includes the impact of dispositions.
Our office and other direct expense decreased by 18.2% to 17.1% of second quarter net revenue compared with 18.2% a year ago. The improvement was driven by very significant falloffs across a range of expenses for travel and meals, new business development, office supplies, as well as tight controls on discretionary expenditures. Our SG&A expense was 20 basis points of net revenue compared with 80 basis points a year ago.
As you can see on the lower right-hand side of this slide, our charge for restructuring was 6.1% of net revenue in the quarter. Turning to on Slide 7, we show additional detail on the restructuring. We initiated an extensive review of our operations in the quarter, taking into account the experiences of our people from around the world, working from home in light of the pandemic, and our success, operating fewer production and support facilities. We concluded that we could move forward with the reduction of structural costs that will not reoccur as revenue growth comes back into the system.
The resulting second quarter actions are reflected in the charge of $112.6 million, $68 million of which is noncash. We expect annual savings of $80 million to $90 million as a result of these actions. That would be approximately 100 basis points of our full year 2019 net revenue. We expect to see most fee savings beginning in this year's third quarter.
Our review is continuing, and we have identified additional opportunities for structural cost reduction, which we will act on in the second half of the year. We currently expect those will add an incremental $90 million to $110 million to restructuring expense and also result in meaningful savings.
Turning to Slide 8, we present detail on adjustments to our reported second quarter results in order to give you better transparency and a picture of comparable performance. This begins on the left-hand side with our reported results and steps through to adjusted EBITA and our adjusted diluted EPS.
Our expense for the amortization of acquired intangibles in the second column was $21.8 million. The restructuring charge was $112.6 million, and the associated tax benefit was $25.4 million. Below operating expenses in column 4, we had a loss in the quarter of $19.9 million in other expense due to the disposition of a few small nonstrategic businesses.
Finally, we had 1 discrete tax item in the quarter, an expense of $10 million due to an international tax position. And as usual, we're calling that out as well. At the foot of the slide, you can see the after-tax impact per diluted share of each of these adjustments. Their total is $0.35 per diluted share, which is different between the reported diluted loss per share of $0.12 and adjusted earnings of $0.23 per diluted share.
On Slide 9, we show similar adjustments to the first 6 months, which bridge to adjusted earnings of $0.34 per diluted share. On Slide 10, we turn to Q2 cash flow. Cash used in operations was $87 million compared with cash generated from operations of $293 million a year ago. We used $265 million in working capital in the quarter compared with cash generation of $53 million last year due to the drop in revenue and billings in the quarter.
Investing activities used $33 million in the quarter. Our capital expenditures were $27 million compared with $47 million a year ago. Financing activities used $367 million, mainly due to decreased short-term borrowings and for our dividend. Our net decrease in cash for the quarter was $469 million. Slide 11 is the current portion of our balance sheet. We ended the quarter with $1.09 billion of cash and equivalents. Under current liabilities, we include the maturity in October of our 3.5%, $500 million senior notes.
Slide 12 depicts the maturities of our outstanding debt. Total debt at quarter end was $4 billion, with diversified term maturities. We intend to pay off our October maturity with cash on hand. It is worth noting, again, that our liquidity resources include $2 billion of committed credit facilities. In light of the restructuring charges, our supportive bank groups have agreed to amend our EBITA leverage ratio to 4.25x for the remaining term of the 364-day facility and through the next 12 months for our 2024 facility. This should provide ample cushions, further supporting covenant compliance.
In summary, on Slide 13, our teams continue to execute at a high level in an unprecedented environment. The strength of our balance sheet and liquidity mean that we remain well positioned financially and commercially.
With that, I'll turn it back to Michael.
Thank you, Ellen. There's no question that all of us in the industry, both clients and agencies, have faced unprecedented challenges in light of -- which we're proud of our achievements during the quarter. We've seen our companies and our people pivot quickly to adjust to these uncertain times. We are once again reporting results that demonstrates the caliber of our talent, the strength of our long-term strategies and the distinctive culture of cross-agency collaboration. In the long run, this is a combination that we believe positions IPG to succeed.
When it comes to meeting another vital issue that is confronting our society, IPG became the first holding company to publicly release the race and gender composition across its management ranks. We have long been a leader in diversity, equity and inclusion. But recent events dramatically underscore how far we have to go as a nation and the degree to which IPG and our industry, as a whole, had to significantly increase our efforts to promote diversity and improve opportunity for black Americans and people of color.
In other areas of our business, IPG continued to excel. In April, Ad Age announced its A-List, and IPG led the industry in terms of the number of agencies recognized on that important annual ranking. Our companies in the PR, creative, media and digital space were all recognized. The One Show also recognized IPG as Creative Holding Company of the Year, demonstrating the creative strength of our brands across all disciplines and channels.
Turning now to the performance across our portfolio, which I covered at a high level in my opening remarks. The sector that was held up best to date despite the pandemic is health care. We have significant operations in health care marketing, totaling more than 1/4 of our portfolio.
FCB Health is our largest player in the space and posted a strong Q2, followed by solid results from McCann Health and the health care vertical within Weber Shandwick. Mediabrands saw a number of significant wins and retentions of large health care clients. And the sector is also performing well at some of our U.S. independents, as well as MullenLowe globally.
Our media, data and technology segment has been a key driver of performance for IPG for a number of years now, and it is also fundamental to our growth prospects going forward. I'd like to now ask Philippe to share an update on developments in that sector.
Thank you, Michael. As you all know, one of the key drivers of our success in recent years has been our commitment to meeting the needs of an evolving landscape, in which technology, media, marketing and data are increasingly converging. That's a trend that we identified early on, which significantly informed our strategy.
As of some time ago, we therefore decided not to silo digital expertise but to integrate it across all of the agencies within our portfolio, to develop a highly consultative approach to our media operations that ultimately values intelligence over pure scale, and to build out our own tech platform to guide investment decisions for digital and addressable media in a wholly agnostic manner. These have been key differentiators for us, as Michael mentioned, which contributed to the sector outperformance IPG has posted for a number of years now.
After that, we've pivoted more deeply into data and began to prioritize investment in our proprietary stack. For a number of years, our AMP stack and agency analytics capabilities were central to the evolution and success of our media operations. That's an area which has been significantly enhanced with the addition of Acxiom's full capability set.
During the quarter, UM continued to prove out the value of this strategy, as it once again topped the Forester Media Agency Wave Report, where it was cited for its ability to use data platforms to improve media execution and targeted creative messaging. The agency recently won global media duties for Energizer, and was named domestic AOR for E. & J. Gallo. Initiatives approach to connecting with consumers, with a combination of cultural insights and data, have allowed the agency to carve out a distinctive competitive positioning. The agency won the Salesforce account as well as onboarding a major new pharma client during the quarter.
Mediabrands also took a leadership position recently in the public debate around responsible use of digital media platforms. Our social media content moderation and advertiser responsibility principle set out a standard to which the entire industry should hold platforms in order to ensure brand safety and minimize concerns that media budgets will fund content that is harmful to the greater good. This effort has been well received by clients, and is consistent with our long-standing commitment to transparency, as well as the very high standards we're now able to bring to privacy issues as a result of Acxiom expertise.
There are a number of additional milestones worth reviewing when it comes to our media, data and tech offerings in the quarter. First, we continue to be pleased with Acxiom's performance on a stand-alone basis. Managing clients' first-party data and their marketing infrastructure is essential in this very challenging economic environment. It will become even more vital going forward as marketers deal with a world in which there is ever more complexity, and consumers become more demanding of personalized experiences that deliver real value, while also respecting their privacy rights.
In terms of the integration of data capabilities with our media offerings, that's another area where we feel a lot has been accomplished. By combining the known world of first-party data, in which Acxiom excel, as well as their powerful info-based data asset with what we do in channel planning, media modeling and ad tech, we are now able to precisely identify audiences that can be activated to drive better business outcomes for our clients, whether it's by enhancing the efficiency or the effectiveness of their marketing investments. This is helping us to redefine value through the media ecosystem.
The newest phase of our efforts has to do with net new products and solutions powered by Kinesso technology, such as those Michael mentioned in his opening remarks. Matterkind is an optimization engine, fueled by strategic data assets from Acxiom that incorporates all addressable media channels. It optimizes holistically and in real-time and opens additional doors for us with clients to true pay-for-performance models as well as the licensing of our applications and IP. The ConneCXions suite of solutions will allow us to make digital transformation expertise for Mediabrands and Kinesso available to Acxiom clients.
Finally, it bears mention that the advanced capabilities we are building within our media, data and technology assets aren't only working in more integrated ways with each other, but that we've gone to make good progress across the IPG portfolio. Matterkind is working closely with a number of our U.S. independent agencies on a dozen current new business opportunities in the media space. Kinesso and Acxiom are playing a part in all of our Open Architecture pitches.
A novel behavioral science methodology for combining granular consumer data to drive creative insights recently helped one of our global advertising networks win a significant new account. And data-driven audience segmentation work powered a new process for consumer journey planning that helped one of our digital agencies secure a multiyear CRM project from a major advertiser across the U.S. and Canada.
There's still plenty to be done to fully develop and integrate these capabilities, but the teams are very engaged and enthusiastic about this transformational work, which we believe can be a significant growth driver going forward. And with that, I'll pass things back to Michael.
Thank you, Philippe. Turning now to our global creative agency networks. Growth at FCB in the quarter was driven by FCB Health, which works with most of the top 20 pharma companies, and has, to date, assisted our clients in launching 11 new drugs with its talented employee population working from home. The advertising agency also expanded its relationship with several large clients, notably GSK and Kimberly-Clark. And it was exciting to see FCB named as the top network in creativity in the most recent ranking from The One Club.
McCann Worldgroup received a number of accolades this quarter, notably Network of the Year at the Webby Awards and Campaign Magazine's inaugural Global Agency of the Year awards. For the third year in a row, the network was named the most creatively effective agency network by the Effies. On the new business front, SAS named the network as global brand agency partner. McCann Health expanded relationships with AstraZeneca and Novartis. And MRM was selected to drive digital customer experience of J&J Visioncare.
We've seen great creative coming out of MullenLowe this quarter. The #AlwaysProud work for AXE celebrates the LGBTQ communities. And a PSA for the advocacy group, March for Moms, calls attention to the demands on mothers during the pandemic. Mediahub continue to be a standout, whether pitched independently or as a key partner to MullenLowe, building on joint recent wins, such as Navy Federal Credit Union and Constellation Brands.
Brooklyn-based Huge continues to specialize in consumer experience, especially in response to the COVID-19 crisis, and the agency launched its new Post-isolation Personas toolkit for businesses. R/GA produced innovative and relevant work that sparked important conversations. The agency's latest Love Has No Labels campaign for the Ad Council movingly questions what freedom really means for black Americans. R/GA also continued its popular Merch Aid Initiative, connecting artists with small businesses that have unexpectedly shuttered due to COVID-19.
At CMG, the management team for this segment continue to build out a more collaborative business model to bring together its expertise across such areas as hybrid events, employee engagement, crisis and issues, health care, PR and more. Weber Shandwick was honored as North American Agency of the Decade at the 2020 North American SABRE Awards, and named APAC Consultancy of the Year at the PR Week Asia Awards. The agency also won recognition in major European and Latin America industry competitions.
At Golin, the agency's new global CEO is working to build on the agency's recent success. While at Jack Morton and Octagon, whose businesses have been seriously impacted by global lockdowns, the teams are developing new digital offerings, such as a recent campaign for Jameson, in which the whiskey brand partners with hip-hop artists to create a virtual mentorship program for emerging musicians. And work for Cisco, called The Match: Champions for Charity, a virtual event featuring Tiger Woods, Phil Mickelson, Tom Brady and Peyton Manning. Our U.S. integrated independent agencies round out our portfolio. They deliver the full suite of marketing services to their clients and are regularly combining with the rest of the IPG offering on our collaborative Open Architecture solutions.
Overall, while IPG is performing better than our sector, COVID-19 continues to have a profound impact on the global economy, and there remains a great deal of uncertainty. While our new business pipeline is stronger than it was earlier this year, which would indicate pent-up demand, visibility is still significantly challenged for our clients and for us.
Unsurprisingly, the biggest risk to recovery has to do with public health challenges that are beyond our control. As such, while we had initially seen some signs that the second quarter would prove to be the bottom of the economic decline, there are still too many variables in play to make that determination. As mentioned, we've taken significant cost-saving measures across our entire organization. We're prepared to take further actions as warranted by economic conditions, but we also need to protect client relationships and be in a position to capitalize on opportunity when a recovery begins to take hold.
We are confident that the restructuring actions we have taken position IPG well for the future. This is an unprecedented time, but we have a sound financial foundation in place, underpinned by the strength of our balance sheet. Given the actions we have taken to date and the potential for economic recovery late this year or into 2021, we do not think action on the dividend is currently required. Of course, we will continue to assess this decision in light of limited macro visibility and keep you apprised on this important topic.
We are focused on helping clients. We will be disciplined in managing the business and taking actions to adjusting to the revenue reality. Our people are doing their part, using the full range of our company's expertise to drive business results for our clients and, where possible, do good in the face of the crisis.
Our highly relevant offerings and track record of collaborative, Open Architecture client solutions positions us to leverage opportunity once the macroeconomic situation stabilizes and the recovery strengthens. As such, we also remain well positioned for continued long-term value creation. We will, of course, keep you posted on key developments, share our perspective on our visibility into the evolving landscapes. And as always, we look forward to answering your questions.
At this point, I will open up to Q&A.
[Operator Instructions]. And our first question is from Alexia Quadrani with JPMorgan.
I hope everybody is doing well. I have just a couple of questions. First one, Michael, which you probably anticipated, is about quarterly -- the monthly progress. I was just curious if you saw any improvement as the quarter went through, meaning did you do any better in the beginning of the quarter?
And I wanted to circle back on your commentary just now about Q3. I totally understand that there's limited visibility, and it's hard to call a trend in this environment. But are there any particular signs that might make you more cautious about Q3? Or is it trending better, and you're just sort of saying we can't commit anything because things are unclear?
Thank you, Alexia, and I always appreciate your questions. First of all, I'm not giving you the next month's results because you guys -- you usually ask. What's interesting about this environment is, what we say on 1 day, clients are very reactive to what's happening in the world today, okay?
So for example, you'll see results that were published today on financial service companies, all right? And that will be indicative of how they have to protect their own margins. And obviously, that's how they look to their spend. So what looks like where we had projects onboard, it's likely that, potentially, there'll be a delay in those projects. So it's very hard for us to predict on a monthly basis where it is.
I will give you this comfort, though. If you look at the results for the quarter, what's interesting about -- when I said that we thought the second quarter was going to be the worst, the good news is that the second quarter wasn't as bad as we thought it was going to be, okay? So that's a positive. And I attribute that to the -- all the resources that we have available to us, the work that our people are doing with our clients, the data and the Acxiom and the work that Philippe talked about, working with the Open Architecture solutions. There is no question in my mind that, that is the way we have to market our services going forward, and I believe we're positioned the best in the business to respond to that.
So in terms of the trend, if you will, I'll give you that the United States and Continental Europe were somewhat better in June than in May. Does that indicate that July, therefore, is going to be better? I can't answer it. But the shoots are there. We have a good pipeline in terms of new business. We just were informed that we're in finals of some other pitches that are going on right now. We're net new business positive.
So all those indications on the normal circumstances would indicate that we will see a recovery in the balance of the year, whether it's in the third quarter or fourth quarter, we can't comment. There are indications that, in the fourth quarter, there seems to be a bit of a slowing down, but that's just the reaction to what's happening today.
The key takeaway, I think, what you have to walk away from, is when you compare our results in this quarter to our competitors, we are outperforming the market in terms of our revenue growth. We're outperforming the market in terms of net new business. We're winning more than we're losing. And what's really adding to our strength is our sector allocations.
When you look at our sectors, in terms of health care and retail and tech and technology, these are very strong sectors that we're very well positioned. What's also encouraging is to see that our top 20 clients, our top 100 clients, is performing better than the results that we reported. That's another positive sign, if you want to look at it.
So overall, I can't tell you whether it's the third quarter or the fourth quarter. But I do believe that when this COVID experience turns around, we have positioned IPG for 2021 better than you can possibly believe. And when this does turn around, we will be lean, mean and in a position to continue to outperform our sector.
That's very helpful. And just one quick follow-up on -- in the areas where you saw relative weakness in the quarter, whether it's the auto vertical or industrial, financial services or maybe the event business, are you seeing some signs of improvement in some of those areas at this point?
Well, clearly, look, our biggest hit was on the events side of the business. And we've said this before, 4% to 5% of our overall business is in the events side. Obviously, until we see recoveries in that side of the business, we can't count on a recovery. Are they working on digital responses? Yes. We've seen golf, for example, come back to TV. Do we play a role there? Yes. Do we see major league baseball coming back? When -- as you start seeing more of that, you're going to see more recovery in our event business.
In terms of the other verticals, obviously, auto and transportation, the cruise lines, some of our businesses are really adversely affected, particularly the airlines. We have a good cross-section of airlines. We're not going to see a recovery in those businesses until there is a solution to COVID-19.
The strength of IPG is that our sectors are well dispersed. And in the sectors that are performing really well, we're outperforming both our -- in terms of client representation and in terms of delivery. And in fact, we have new business opportunities that are out there right now, which we're very excited about, which would be net new business to us. It's not business that's at risk.
The next question is from John Janedis with Wolfe Research.
Michael, it seems like every time we hit a recession or a downturn, people have then question the business model. So can you talk about your view on IPG's positioning for the future? Do you need to change the business competition, the offerings, go-to-market strategy, or anything else for that matter, once things stabilize going into the next cycle?
And then, separately, you talked about the cost disciplines. When revenue normalizes, as you said, the $80 million to $90 million won't flow back into the cost structure. Will the additional actions in the back half of the year be incremental to that number as well?
Well, the answer to that is yes. Okay. It may not be as high because some of those expenses are going to be in Europe. And as you know, the payback with respect to European actions is a little bit longer. But as Ellen mentioned, the expense actions we expect for the rest of the year will give rise to sizable savings. They may not be the magnitude of the first half, but again, it's by geographic location.
We've been working on our model now for years, okay? And if you really want to go back, and since you know our industry, we started working on our model when we started talking about Open Architecture. And that's where we bring the best of IPG to this solution. A significant amount of wins and in the health care clients that we're talking about are Open Architecture models, where we have all the disciplines. You heard Philippe talk about the data, media, the technology that's brought to it. They play an important role in every one of those engagements.
Our creative capability from McCann, FCB, MullenLowe, our independents are all sitting at that table. You add to that our PR expertise and the event expertise. When it comes back, it is a compelling offering that, I believe, when this recovery turns around, we will be best suited to recover and continue to outperform our sector.
That is the model of the future. I think we started it 14 years ago. And now, obviously, our competitors are trying to copy it. But I've been on global calls in terms of the Open Architecture, where the clients are referring to us as Open Architecture. And they're using it in their own model. So I don't believe we have to change our strategy at all.
In fact, the last 14 years, we've been focusing on our strategy. And now, it's showing its strength in this environment. And when the recovery comes, I'm more comfortable than ever that, that model is going to prevail in the marketplace.
Our next question is from Dan Salmon with BMO Capital Markets.
Okay. Great. For Michael or Philippe, I just wanted to follow up on the comments about Initiative, as I'm hard pressed to remember a media agency having to run a new business like this. So can you just talk about the breadth of the client list across verticals there? Are there obvious open slots that can be filled still? Or should we expect Initiative to start having that high-class problem bumping up against more complex situations?
And then second, for maybe Philippe, specifically in a bit more high level. We get a lot of questions about the changes Google and Apple are making to their platforms with regard to privacy and data use. And the question for IPG and Acxiom is often about the balance of potential risk to the third-party data business versus the opportunity to help clients more with first-party data management. There's a lot of different directions you can take that. But to put it simply, do you think platform changes from Apple and Google are net positive or net negative for your business?
Well, I'll let Philippe take most of that, but let me just comment. One of the reasons we bought Acxiom in the first place was because we saw the importance of first-party data and their potential. And as Apple and Google limited access with respect to cookies and things like that, the use of first-party data and all the technology that Philippe talked about becomes much more relevant. So we are positioning ourselves to be in a position competitively not to need the access to the Googles and the Apples. And with respect to Initiative. Initiative is a great story in terms of the comeback. And I'll let Philippe talk about Initiative.
Look, I think Initiative has been a reinvention and a repositioning with an eye to some of the things that we've been talking about in terms of where the business is going. We're very pleased with what has been accomplished, but there are still opportunities there. So they are not brought in a number of pretty significant categories. And there's also a lot more that they can do to bring the -- all of the specialist capabilities that we have across Mediabrands and across Kinesso to their clients. So we still think there's quite a bit of running room.
And then relative to your question about deprecating third-party cookies, as Michael said, with the expertise that we have at Kinesso and then given what Acxiom provides, we clearly foresaw that this was something that was -- we're going to need to solve for, and we were going to need to be able to stand on our own 2 feet, and in essence, if and as required, help clients deal with this new world. So whether it's an opportunity for everybody in the space, TBD. But when you've got the expertise we've got in data and, as we've always said, an agnostic model, we think that there's definitely upside to the complexity in the platform space.
Yes. I think the availability of first-party data and the willingness of clients to share first-party data and opportunities that are created there can really provide a significant advantage when dealing -- when Google and Apple were to shut down because that's where the data-rich information can be. And the added technology and Kinesso capabilities and the new products and value-added, we believe we'll be very well positioned to handle that.
Our next question is from Michael Nathanson with MoffettNathanson.
I have two for Michael. Michael, I'm sure you know this, but when you laid out what percentage of your staff is back in the office, and then looked at your organic revenue from those regions, how amazing that the market where people are working most from home have outperformed markets where people are still going to work. So I wonder, stepping back, how have you thought about maybe your need for office space that supports that post this crisis? Is this crisis giving you a chance to really rethink maybe the old way you guys built your agencies in terms of headcount and square footage? So anything on that?
And then I'm looking at your billable expenses, and you mentioned the events being down. We totally get that. Is that the bulk of the downturn, bulk expenses? Is that mostly just from the events not falling through? Was there anything else in there that you should call out?
Well, that one is easy. The bulk of that is from that. That's the pass-through. Let me tell you about space. Part of the restructuring, we've taken a very seriously look at whether office is required and so on. We've taken 500,000 square feet out in terms of the structural changes, in terms of the hit that we already indicated. And there is no question that the use of office will change in the future, and we're taking advantage of it.
When we talk about positioning IPG for 2021, we're anticipating a change in the footprint of our organization significantly. And we are continuing looking at what space. Our initial reaction was because of the social distancing, we're going to need more space, right, because you're going to meet 6 feet apart and so on. In fact, it's the exact opposite.
We will stagnate people coming to work, the use of office space and the ability for people to work at home. We're doing surveys every month in terms of how that's working. And as a result, the 500,000 square foot reduction that is part of the structural changes that we're taking, these are permanent changes. These aren't coming back. We're not about to all of a sudden start taking space in terms of the marketplace. I know why the real estate people aren't going to like to hear that.
But yes, I think the way we're going to do business in the future is going to be materially different, and that we're taking advantage of this right now. We're learning from our people. We're learning who has to be in the office. We're learning what people can do things from home. It's voluntary. It's -- we will never ask people to come back to work if they're uncomfortable. The biggest issue for coming back to work, frankly, is transportation, mass transportation. We're very cognizant of that. We're spending a great deal of work with our people, understanding the dynamics of that.
But you're correct, the footprint of the agency business is going to change, period. And the actions that we've taken already, if you think about it, we've already taken 500,000 square feet out of, what, 11 million square feet? We've done that in a matter of months. So as we take a look at this closer, as we go forward, I think there's going to be more opportunities there.
And it's across the world. It's not just New York. I don't want the New York people to go crazy that we took it all out of New York. This is all over the country, all over the world. And I do believe the model has changed. And we've learned from this, and we will continue to learn from it.
That was our final question for today. I'll turn it back over to you, Michael.
Well, I thank you all very much for your support. I hope you realize that we're working very hard on our investor behalf, and we will continue to do that. It's a difficult time, but I can't tell you how proud I am of our people and the way they stepped up to the challenges. And I look forward to our next call. Thank you very much.
Thank you for participating in today's conference. All lines may disconnect at this time.