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Interpublic Group of Companies Inc  (NYSE:IPG)
Q3 2018 Earnings Conference Call
Oct. 19, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Interpublic Group Third Quarter 2018 Conference Call. All parties are in a listen-only mode until the question-and-answer portion. (Operator Instructions) This conference is being recorded. If you have any objections, you may disconnect at this time.

I'd now like to turn over the call to Mr. Jerry Leshne, Senior Vice President of Investor Relations. Sir, you may begin.

Jerry Leshne -- Senior Vice President of Investor Relations

Good morning. Thank you for joining us. We have posted our earnings release and our slide presentation on our website, interpublic.com. This morning, we are joined by Michael Roth and Frank Mergenthaler. We will begin with prepared remarks to be followed by Q&A. We plan to conclude before market open 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 the 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.

Michael I. Roth -- Chairman and Chief Executive Officer

Thank you, Jerry, and thank you all for joining us this morning as we review our third quarter and year-to-date results. I'll start by covering the highlights of our performance, Frank will then provide additional detail, and I'll conclude with an update on our agencies to be followed by our Q&A.

We are pleased to again report strong financial performance. Third quarter net revenue organic growth was 5.4%. Our adjusted operating income increased 7% to $273 million, adjusted for one-time transaction expenses from our acquisition of Acxiom. Operating margin similarly adjusted, expanded 50 basis points from a year ago to 14.4%. The quarter reflects our continued growth in every major world region. US organic growth was 5%, while international growth was 6%, highlighted by strong increases across LatAm, Asia-Pac, Continental Europe and the UK.

We also continue to drive growth across all of our major service disciplines, led by notably strong performance in media, and increases in advertising, public relations and our digital specialist agencies. The extensive list of contributing agencies is headed up by Mediabrands, FCB, McCann Worldgroup, Huge, R/GA, Weber Shandwick, Golin, MullenLowe and Octagon. In terms of client sectors in the quarter, our growth was paced by healthcare, tech and telecom, financial services and consumer goods. We saw both existing client increases from a year ago and the benefit of net new business wins.

Through nine months, organic growth was 4.9%, a strong year-to-date result that again was driven by increases in every major world region and discipline. Growth at these levels continues to underscore the distinctive talents of our people and the strength of our agency brands, as well as the differentiated structure of our company. Our approach to highly strategic areas, such as our expanding capabilities in data and analytics and our ability to create seamless open architecture solutions across our agencies has been consistently validated in our results. These are competitive strengths that drive business results for clients and sustain the growth leadership that you're seeing from us once again today.

Third quarter diluted earnings per share was $0.41 as reported, and was $0.48 as adjusted for transaction expenses for our acquisition of Acxiom and for business dispositions in the quarter. That compares with adjusted diluted EPS of $0.37 a year ago, an increase of 30%. The nine-month period diluted EPS was $0.75 and with $0.93 as adjusted.

Earnings from our outlook for the full year, you will recall that we came into 2018 with financial targets of 2% to 3% organic growth and 60 basis points to 70 basis points of operating margin expansion. We raised our sights in April to the high end of the growth range and raised it again following our strong second quarter to 4% to 4.5% for the full year. Through nine months, we're confident that performance to-date and the current tone of business have us on track to meet or exceed this higher revenue growth range. Along with that, we have also increased our investment in the talent and tools to support current and future growth, while continuing to drive toward our target of 60 basis points to 70 basis points of net revenue margin expansion, excluding one-time deal cost.

As you know the quarter was highlighted not only by strong performance, but also by the steps we took to further strengthen our offerings and extend our company's industry leadership going forward. The quarter began with our announcement that we would acquire Acxiom Marketing Solutions, and conclude it with our well-received transaction financing into debt capital markets followed by our acquisition closing on October 1st.

Acxiom is a world-class data asset. There are many opportunities between our companies, which we will discuss later. But it's important to note that with ownership, we get Acxiom's first part of data management business as all companies look to make their first-party data work harder for them, and do so in an increasingly regulated and secure environment. Acxiom is considered the premier provider of these services. Furthermore, we see Acxiom's ability to leverage data for marketing insights as the foundation for a growing set of opportunities in partnership with our own media business, plus our advertising and marketing services across our company.

As data is playing an increasingly central role in consumer engagement and then in creation of the most effective media and marketing solutions, we believe this is a transformational acquisition for IPG. Accordingly, Acxiom's expertise and scale positioned us to deliver unparalleled benefit to our clients. Reception of our acquisition by our people and the people of Acxiom and the support and enthusiasm of both organization's clients has been both gratifying and additionally encouraging. In my closing remarks, I'll have additional thoughts on Acxiom and the many opportunities ahead of us along with our update on our agencies.

So with this stage, I'll turn it over to Frank for additional details of our results.

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer

Thank you, Michael. Good morning. As usual, I will be referring to the slide presentation that accompanies our webcast. On Slide two, you'll see an overview of our results. Organic growth of our net revenue was 5.4% in the third quarter, that reflects strong worldwide performance with US growth of 5% and international growth of 6%. The nine months year-to-date organic growth was 4.9% with the US up 4.6% and international growth of 5.4%.

Q3 operating profit was $262 million amid $273 million as adjusted to exclude one-time cost with the Acxiom transaction and operations. Operating margin was 14.4%, again excluding the deal costs, which is an increase of 50 basis points from a year ago. Our third quarter results include a total of $24.6 million of one-time deal expenses from the Acxiom transaction, that consists of $11 million in operations in our SG&A expense, and $13.6 million below operating income. The quarter also includes $5.8 million of non-operating losses from sales of small non-strategic agencies. Our adjusted results excludes these items.

Diluted EPS in the quarter was $0.41 and was $0.48 as adjusted. For the nine months, diluted EPS was $0.75, and it was $0.93 as adjusted, this year compared with $0.73 a year ago, an increase of 27%. Our Acxiom acquisition financing consist of 2 billion of Senior Notes in four, $500 million tranches and was completed on September 21st. In addition, we also took down on our $500 million acquisition term loan facility and that was on October 1.

Turning to Slide three, you will see our P&L for the quarter. I'll cover revenue and operating expenses in detail in the slides that follow.

On Slide four, net revenue was 1.896 billion, which is an increase of 3.4% from Q3 '17. The impact of the change in exchange rates was a negative 1.3%, while net dispositions of small non-strategic agencies were negative 70 basis points, resulting organic increase was 5.4%. On the bottom half of this slide, net revenue organic growth was 5.7% in our Integrated Agency Network segment, with contributions to the growth from all IAN disciplines and across all of our largest agencies. CMG grew 3.9% organically, led by our public relations agencies Weber Shandwick and Golin, and by our Octagon sports marketing agency.

Moving on to Slide five, net revenue change by region. US organic growth was 5% in Q3. Increases were broadly shared across disciplines and agencies, most notably at Mediabrands, FCB, Huge, Weber Shandwick, Golin and Octagon. In terms of client sectors, we were led in the US by healthcare, financial services, auto and transportation and consumer goods. Organic growth was 4.6% for the nine months.

Turning to international markets, we posted another strong quarter in the UK, which grew 6.8% organically. Performance was led by our creatively driven integrated offerings at McCann, strong contribution from Mediabrands and growth in R/GA. Year-to-date, UK organic growth has been outstanding at 9.7%. In Continental Europe, Q3 organic growth was also strong at 5.8% with contributions from both new business wins and increases with existing clients. We grew at each of our largest national markets; Spain, Italy, Germany and France, as well in many of the smaller markets, the nine months organic growth was 6%.

Asia-Pac growth accelerated 7.5% in Q3, supported by increases across nearly all agencies. Among our largest regional markets, we saw strong growth in India, Japan and China, while Australia decreased. LatAm grew 12.4% organically. We continue to have very strong growth in Mexico, Argentina and Colombia, while Brazil returned to growth in Q3. For the nine months organic growth was 9.1%. In our other markets group, net revenue decreased 1.6% organically. Our growth in Canada was more than offset by decreases in the Middle East.

Moving on to Slide six, on operating expenses. Net operating expenses excluding the one-time transaction cost increased only 2.9% under our net revenue growth of 3.4%. Our ratio of salaries and related expenses to net revenue in the quarter improved by 50 basis points from a year ago to 66% in the quarter, drove operating leverage on our expenses for base payroll in our expense accretive of other salaries and related expenses. Though in the other way, we delevered against increased expense for performance-based incentive compensation, a result of our stronger financial performance and against increased expense for temporary labor. Our total headcount at quarter-end was approximately 51,400, which is an increase of 2% from a year ago.

Our office and other direct expenses were 16.7% of net revenue in the quarter compared with 16.5% in Q3 '17. We had 10 basis points of occupancy leverage, but delevered by 30 basis points in all other office and direct expenses in the quarter. Through nine months, operating leverage on office and other expenses improved by 20 basis points. Our selling, general and administrative expenses increased to $21.6 million as reported, that includes $11 million of Acxiom transaction expenses. Excluding deal expenses, SG&A expense was $10.6 million in the quarter compared with $13.6 million. Depreciation and amortization expense was $44 million and was 2.3% of net revenue.

Slide seven is the bridge between our reported diluted earnings per share of $0.41 to the adjusted $0.48 per diluted share. As you can see the expense of business dispositions was $0.01 per share. Acxiom transaction expenses were $0.05 per share. These are almost entirely legal and banking costs along with a small amount of net interest expense due to pre-funding ahead of closing. Similar bridge for the nine-month period is in the appendix to the presentation on Slide 20. Just to note, we expect to record additional Acxiom transaction expenses in Q4, and we'll call out accordingly.

On Slide eight, we turn to cash flow. Cash from operations in Q3 was $231 million. Working capital used $30 million. Our investing activities used $50 million in the quarter, mainly for CapEx. Financing activities generated 1.2 billion, a result of the 2 billion from our debt issuance netted against a decrease of $674 million in short-term debt. Our common stock dividend used $80 million. Our net cash increase in the quarter was 1.37 billion.

Turning to current portion of our balance sheet on Slide nine, we ended the third quarter at 1.86 billion of cash and equivalents. That would be a seasonally high cash flow for September, but it reflects the proceeds of our debt issued on September 21st, plus the reduction in outstanding commercial paper, completed the Acxiom transaction on October 1st.

On Slide 10, total debt on September 30th was 3.3 billion. On October 1st, we also barred on the $500 million term loan facility from our bank group. Accordingly, this picture of our debt matures a total of 3.8 billion. To finance the Acxiom transaction, we issued four debt tranches in September $500 million each, with maturities of two years, three years ,10 years and 30 years. Those are shown in the blue on the slide. We are very pleased with the participation we received from the fixed income community with the offerings more than six times oversubscribed, and we thank them for their support. Term loan facility matures in 2021, which is indicated here, but is pre-payable on part, or in whole before maturity, and we thank our bank group as well.

Our credit ratings remain where they were prior to the transaction. BAA, BBB and BBB plus are respectively Moody's, S&P and Fitch. In the case of S&P, they moved us to negative outlook, while outlooks at Moody's and Fitch are stable. As we've said previously, we are committed to maintaining solid investment credit ratings and to significant financial deleveraging over the next few years. In the presentation appendix on Slide 21, we provided a perspective on income statement modeling for the Acxiom acquisition. As a reminder, beginning with our fourth quarter and for the full year, we will be adding metrics of EBITDA, EBITDA margins and adjusted EPS.

Summary on Slide 11. It is been a strong quarter and first nine months. We are pleased with performance and looking forward to the next stages of our growth and with Acxiom onboard.

With that, let me turn it back over to Michael.

Michael I. Roth -- Chairman and Chief Executive Officer

Thank you, Frank. Of course, we're pleased with our results in the quarter, in terms of growth and profitability, which continue to distinguish us from our peer group. At IPG, we've been addressing both the opportunities and challenges of an evolving marketing landscape for many years. We've had a differentiated approach on how we collaborate and building out our digital capabilities, our commitment to transparent media practices, and now recently our significant investment in data. Taken together, these strategic steps has positioned IPG to address the challenges of the modern market. Furthermore, our values and our culture are the reasons we're able to attract the best talent, and it's why clients want to do business with us.

Decade ago, we put in leadership across our agencies, who like us, believed in investing in our agency brands, which allowed us to embed digital expertise across the organization, including in media, advertising, PR, healthcare, activation, branding and our marketing services. Our leadership understands that creativity and insights are heightened when you have diversity [ph] and an inclusive workplace, especially one, where people feel empowered to come forward and report issues that run counter to our values. Since that time, we've had stable and collaborative leadership in our organization. Leaders who believe in our vision of strong agency brands that work together. This becomes especially important when others are disinvesting in their brands. We believe our strategic decisions over the years coupled with our talent-centric culture, one that's focused on collaboration, diversity and inclusion have led us to another year of the state of growth.

Looking forward, it's key to keep in mind that ours is a constantly changing media and consumer environment and new opportunities for clients who are part of the business that keeps us energized. Engaging the tone of the business for the balance of the year, we see a continued flow of opportunities with existing and potential new clients, which underscores our confidence in attaining the higher growth targets we set out earlier this year. Furthermore, we are net new business positive so far this year. In terms of margin, the quarter demonstrated that we can balance business reinvestment with expanding profitability. As we enter our important fourth quarter, we are fully focused on continuing to enhance margin and achieve our targets for the year.

Highlights in the quarter were led by Mediabrands, which once again posted very strong top-line and bottom-line growth. The headline wins for UM were Quicken Loans, as well as their retention of Charles Schwab, a key win given the agency's nine-year relationship with the brand and the fact that every holding company competed for the business. In addition, both UM and Initiative were deeply invested in several major industry pitches during the quarter, including American Express, which was awarded to UM last week. Initiative had a string of wins during the first half of the year, including Revlon and Converse and in the third quarter secured the Liverpool Victoria Insurance Company, a major UK advertiser. Their return to strong growth is a great story for IPG in the industry.

Back to media agency report, convergence ranked Initiative, the number one agency in net new business wins, naming it the best performing media agency through the first half of 2018. Our creative networks once again drove solid growth in the quarter. FCB delivered continued progress, a reflection of the network's focus on it's creative product, buy-ins and culture. Recent successes include the Kimberly Clark global assignment wins and FCB Canada's win of Home Depot. FCB health continued its impressive performance with multiple substantial new business wins. The agencies involved in several large pitches, as well as especially in the Chicago and New York offices.

McCann's performance was driven by strong growth in the UK and Latin America, gains in the US as well as a number of additional international markets. Just last week, McCann UK was named Effectiveness Network of the Year at the 2018 IPA Effectiveness Awards. In addition McCann Worldgroup India was named Agency of the Year at the 4A's 2018 Jay Chiat Award last week. New business wins in the quarter included additional global assignments from Reckitt Benckiser and the Opel-Auto brand in Europe. McCann Health continued its strong performance in the quarter and continue to garner industry recognition with sector leadership.

MullenLowe also delivered solid revenue growth, adding new brands to their client roster in Q3, including Staples and Caesars Entertainment and more recently the UK's Co-op Bank. MullenLowe Mediahub continues to be a star in both new business and recognition, winning Bloomin' Brands last week. You may have seen the attention-getting cover image on Adweek last month, celebrating Mediahub's win of Best in Show for a campaign it did for Netflix. MullenLowe is also growing its business transformation consulting practice and saw some nice wins in that space.

As we have mentioned on recent calls, we continue to see an improved tone of business, among CPG clients with growth in the sector in Q3 and year-to-date. Among our marketing service agencies in CMG, we saw an acceleration of top line growth, which we expect to continue heading into the fourth quarter, which includes a number of new business wins. Octagon, our sports marketing firm was notably strong in the quarter with a renewed focus on big event strategy for upcoming Olympics, World Cup and Music and Entertainment events. Their growth was followed closely by Weber Shandwick, which launched a new agency model called the ex-practice, bringing together the power of the PR firm's global technology practice, data analytics, media, digital and creative technology talent to better support major clients. This platform served as a catalyst for the PR industry's two biggest wins of the year, including IBM.

Our digital-first agencies continue to lead the industry with new offerings. Creative products in digital marketing with R/GA, Huge and MRM McCann each having to find strong and unique brand positioning. On the new leadership, Huge has been focused on creating experiences that connect online and offline marketing to engage users and deliver value. They've also appointed new US and UK Managing Directors as the agency continues to expand its footprint in Europe. We're excited to see what they can deliver for clients moving forward.

Our US independents broaden out our portfolio. These agencies deliver a range of integrated services to their clients, and can also combine with the rest of the IPG offerings on our collaborative open architecture solutions. During the quarter, highlights within this group included Deutsch's win of Newman's Own and the Martin Agency's win of Wizards of the Coast, a Hasbro brand. Just this month, EP & Co announced their win of LinkedIn. This comes on the heels of a very strong start of the year for this South Carolina based agency, which one clients like Lowe's and John Deere and highly competitive natural pitches. EP & Co continue to do some of the industry's most innovative digital work for clients like Denny's and Lenovo.

As mentioned earlier, at IPG, we believe in our brands and continue to invest behind them. As you know, our open architecture strategy was an early foray into addressing the challenges of an increasingly complex marketing and consumer landscape, bringing together the best specialist to act collectively on behalf of the client. Our success in that front has meant the company has been able to post strong results without needing to restructure our major brands. Some open architecture successes in the quarter included, Honeywell, where we created a custom agency powered by digital and B2B marketing specialists, MRM McCann, experiental agency Jack Morton, PR from Weber Shandwick and a range of specialist agencies from across the holding company. In addition, the Columbia Sportswear win was an open architecture solution that brought together a cross-section of IPG agencies led by McCann Worldgroup. In addition, the other large PR consolidation this quarter was Novartis, which was won by a range of IPG agencies, including Weber Shandwick, Creation, dna Communications, Golin and Virgo Health.

As you know, we closed on Acxiom on October 1st, as mentioned earlier. Their core business of managing first-party data for their own clients is a steady and growing business. We continue to believe that this acquisition will create revenue opportunities for our organization, starting with our media offering with the prospects of the greatest. With Acxiom, our company can now deliver a foundational data management capability to our clients, including many of the world's largest brands. This is a critical capability. Increasingly, our largest clients have tasked us with creating cross-channel brand experiences that leverage their first-party data advertising and marketing technologies, as well as creative insights. With Acxiom, we are better able to answer that need; and in the process become better partners for our clients.

Know-how important data privacy is to marketers and to consumers. We see daily headlines that remind us that we review our comp performance along Acxiom's best-in-class knowledge of data management coupled with this industry-leading reputation for ethical standards in data gathering and respect for consumer privacy of values we share. They are key reasons why our partnership will add to shareholder value.

Going forward, our targets for the full year are net revenue organic growth of 4% to 4.5% in 2018. We remain committed to furthering our long-term record of margin expansion as well with 60 basis points to 70 basis points of improvement, as updated on our last call. Of course, we remain committed to deleveraging our balance sheet and the return of capital to our shareholders in the form of increasing dividends. We expect to resume our share repurchases in a reasonable time frame. We view our current performance on long-term strategy as significant factors that will continue to further value creation and enhance shareholder value. As always, we thank you for your time and support.

And with that, I'll open it up for your questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operators Instructions)

Michael I. Roth -- Chairman and Chief Executive Officer

Hello, Angela, we can't hear --

Operator

Our first question comes from Alexia Quadrani. Your line is open. With JPMorgan. Your line is open.

Alexia Quadrani -- JPMorgan -- Analyst

Hi, good morning. Thank you very much. Michael, another really very impressive quarter. I guess, any color you might be seeing in the marketplace. I'm trying to understand, what is different for you guys now versus a year ago? I know, you mentioned that consumer package goods companies, the consumer goods companies are stronger, which is fantastic news now year-to-date. I guess, anything else that you see is sort of -- is really changed.

Michael I. Roth -- Chairman and Chief Executive Officer

Thank you, Alexia. And by the way, welcome back.

Alexia Quadrani -- JPMorgan -- Analyst

Thank you.

Michael I. Roth -- Chairman and Chief Executive Officer

Look, that question was frankly asked at the last quarter. And my comments, which is, to quote is, why don't you just believe we're better than everyone else. But I mentioned in my remarks, I think the way we are structured as a company is a key differentiator. We actually believe in the brands within the agency, and we didn't need to restructure our company. The key to that is, our focus on our clients and what they need. So when appropriate, we use the open architecture model, which we've been doing now for 12 years. And you can't do that unless; a) you have the best talent and tools available to our people. The second is, they have to have a good feeling that they can call upon other resources within IPG and leverage that on a collaborative basis, and we're seeing that in the marketplace. And I mentioned just two wins where we use the open architecture. But it's not just in the wins. We have the ability to bring in other IPG resources when a given network feels the firepower there's another agency can bring can help. Now, of course, we do that recognizing issues of conflict and we don't -- a lot of foul of that. So that's the one caveat on that part of it that we have to maintain.

But I do believe that, clients believe that we are looking out for their best benefit not necessarily our own silos. And when you have a relationship with clients like that, it makes a difference. And so I think that's certainly a key factor in why we are doing better. The other part of it is, we've spent a lot of time, money and tools and resources to invest in our talent. And without the talent that brings that to life with our clients, none of this works. And our mantra is, clients first, and our people are comfortable focusing on clients and know that they're within an organization that values their career and the opportunities for them as well. So, I think, I always talk about us being different than the other holding companies. I think that's reflective in the environment and our values and that just works out to the clients that want to do business with us, and us being able to meet their needs on a seamless basis.

Alexia Quadrani -- JPMorgan -- Analyst

I guess, Michael, I mean, that's a great explanation of how come you have had such a relative outperformance versus your peers, which obviously is continuing. But I guess more -- I'm looking more also why are you also, IPG doing better than you guys did a year ago? Is it the clients are recognizing all these things you just sort of elaborated on, or is the overall environment a little bit better? I'm trying to get a sense of how come it's better now?

Michael I. Roth -- Chairman and Chief Executive Officer

Well, there is no question as the tone of the business is better. I mean, just -- and remember 60%, 61% of our business in the US. The tone of our business and the strength of our business in the US is very solid. I think, look at our media offerings right now. I mean, that clearly is where a lot of the pitches are, where clients are looking for us to add value and our media businesses are best-in-class and now they have further strengthened with the opportunity to work with Acxiom to bring the insights that are necessary. What I really, I mentioned as well, it's worth saying again. We're going to start using Acxiom and Mediabrands as our first volley in terms of the opportunities that created on a synergy basis and an opportunity basis, both with respect to Acxiom, as well as the IPG clients. We've had inbound inquiries from our existing clients to see what actually you could do for us as does the Acxiom clients have inbound questions as to what IPG can bring. But we also see this as an opportunity for our creative agencies, because they too need to get insights that are necessary to reach their consumers in an effective way.

So I think it's an indication that we are looking forward to the future of what's necessary. And frankly, in the marketplace, clients look to see whether we continue to invest and have those kind of resources. It doesn't hurt that the economic environment is something better. We see UK for example and Continental Europe. I said this before, and that is, we are 8%, 9% in those respective markets. So, one or two clients can make a difference in our results, and we've been fortunate in terms of some new business wins in those markets and retention of clients in those markets and those clients are doing fairly well and investing. So I think, that's part of the answer.

And the other part of it is that the general tone. For example, Latin America, we see a very strong recovery in various markets and even Brazil, which has been a problem for us and everybody else. We saw a return to growth in this quarter and that as a result of some additional new business win. So I think it's a combination. And the final point, which is one that I'm -- it's a really good indicator. If you look at our top 20 clients, for the last couple of quarters, we were relying a lot on the project-based businesses. Remember, we were talking about project-based businesses, the large ones, you have to find repeats and we weren't finding as many repeat large project-based businesses. When you look at our top 20 clients, which aren't necessarily considered project-based, although some of the work there is projects, we've seen a return to good growth in our top 20 clients. So I think that's a solid backbone of IPG, because we have some of the world's largest clients in terms of marketing and services, and advertising; and we're seeing a recovery there. So I think that's a key point.

Alexia Quadrani -- JPMorgan -- Analyst

That's all. That's very helpful. Thank you for the color. Can I just squeeze in one more question about Acxiom. A lot of your peers are restructuring and divesting, you seem to be building. I guess post Acxiom, do you feel you're sort of well-positioned in terms of you have everything you need to compete going forward?

Michael I. Roth -- Chairman and Chief Executive Officer

Yeah. Well, you know, we did do some dispositions. We committed to looking at our portfolio and eliminating businesses that aren't strategic and not being accretive to us from a margin point of view. So, but those are one-offs. But our solid core -- we had the luxury of looking at our strategic assets when we were going through some difficult periods, and we eliminated -- remember our first year, I think we closed 50 agencies on a worldwide basis. So we've been repositioning for a while. And right now we have our core businesses and they're all contributing in a way that, that we're comfortable with or have opportunities to contribute more. So we think our core businesses are where they should be. We don't see any holes in any of our offerings. So there's no need for us to go out and do another transformational transaction such as Acxiom. So we'll continue to invest in our brands, use our open architecture as the market dictates, invest in our new acquisition, Acxiom working with Mediabrands, which is our big growth vehicle right now in the marketplace and we're very well positioned to compete. And I think our results reflect that.

Alexia Quadrani -- JPMorgan -- Analyst

Well, thank you very much.

Michael I. Roth -- Chairman and Chief Executive Officer

Next question please.

Operator

Our next question comes from Tim Nollen with Macquarie. Your line is open.

Tim Nollen -- Macquarie -- Analyst

Thanks. Couple of questions on Acxiom please, and one about your creative business. On Acxiom, could you maybe give us a little bit more color as to what Acxiom did to contribute to the American Express win, which I believe was the situation. Also the numbers you've given on Acxiom in the slides in the back of the deck are the same as what you gave on the account on the announcement of the acquisition. I wonder, are there any updates you can give us to help us with modeling this in? And why not give any updated numbers, since March 31st. And then lastly, sort of a follow-up to Alexia's question. I wanted to ask you about your creative businesses, because a couple of your peers at least have talked about weakness on the creative side and yet you seem to be doing very well. What is the difference? Is it investment in talent, or why are you doing a good job at creative, while some of your peers are not?

Michael I. Roth -- Chairman and Chief Executive Officer

All of that. Okay. Thank you, Tim. Let me start with the creative. Of course, you're right. I mean, in fact, one of our competitors acknowledged when they were going through their restructure -- that they were not as strong as the other holding companies, and in fact they called out IPG and McCann --

Tim Nollen -- Macquarie -- Analyst

They named you specifically.

Michael I. Roth -- Chairman and Chief Executive Officer

Okay. So, yes, we're very proud of our creative capability. We feel creativity and creative offerings are critical to the growth of our company. So yes, we've invested in talent. If you look at the key creative talent that we have at McCann, in terms of FCB, MullenLowe and our independent agencies, these are top-notch creative people that have been recruited to IPG, frankly, now a couple of years ago. And the investment we made in them and the people they were able to recruit are going forward is paying-off very nicely in terms of the core businesses and their growth. And that's the beauty of our open architecture. And that is -- what clients are really looking for are the integrated offerings where we can bring a combined opportunity to bring in creative, bring in media, bring in PR, bring in experiential, all with a common purpose of working together to move the needle for our clients. And now with Acxiom added to our media capabilities initially, and then on our creative, we have the insights in terms of how we can reach those consumers.

So we think, creativity and creative talent is a critical component of our offerings and we didn't lose sight of that. And as a result, I think our core global agencies are performing well as a result of that. As far as the numbers go, all I can tell you, the numbers we gave you, the numbers we're using; I will comment on one point of it and that is, we made some assumptions on Acxiom for the rest of the year and modeling forward and it looks like we should be on target for achieving those goals. I think that's an important point. So we wanted to make sure that we come out of the box on Acxiom as a proof point of the value that it adds to our portfolio. I'm very encouraged in terms of where the transition is going, the way the teams are working together and focusing on opportunities between the two without losing sight of their core data management business. So we are very pleased with the way the teams have handled the transition and the opportunities through that.

You know, the question on American Express, I can tell you that, sure, the fact that we have Acxiom is a very important factor looking forward in terms of the opportunities we have. But UM already was one of the top performing media agencies in the business, their track record reflected that, they were very strong in the offering. And I can tell you that, one was necessary in terms of the win. I will tell you, it didn't hurt that we own the Acxiom, but I can tell you that it was because of Acxiom that we want. In fact, I believe we were very competitive even before Acxiom transaction. This just made it even better.

Tim Nollen -- Macquarie -- Analyst

Can we assume Acxiom as part of some of the ongoing pitches now?

Michael I. Roth -- Chairman and Chief Executive Officer

Well, you can count on it in appropriate pitches going forward. The answer to that is, yes.

Tim Nollen -- Macquarie -- Analyst

Thanks.

Michael I. Roth -- Chairman and Chief Executive Officer

Welcome.

Operator

Our next question comes from Ben Swinburne with Morgan Stanley. Your line is open.

Ben Swinburne -- Morgan Stanley -- Analyst

Thanks, good morning. Just sticking on the Acxiom topic, Michael. What's a realistic expectation for us in terms of the timing of any revenue benefits or revenue synergies? I know, you have to integrate the businesses, your focus on cross-selling and bringing them into pitch activity. Is that something that sort of start immediately, or do you think we should be thinking more about that over a period of time? And then I had some questions -- a couple of questions in the quarter for Frank.

Michael I. Roth -- Chairman and Chief Executive Officer

Okay. Well, look, you don't take a $2 billion transaction and all of a sudden, you come out of the box and say, all the synergies are there from day one. We've had extensive meetings and analysis, in fact we're presenting to the Board next week, where we are on the transition and the synergy opportunities. But they're going to take some time before we see the full impact of that. We don't want to do anything stupid. In fact, we're actually -- our business problem right now, while one of them is holding back. In other words, the inbounds we're getting from all of our agencies to have the access to Acxiom. We don't want to inundate Acxiom folks and really throw a monkey wrench in terms of the smooth transition. So we're actually holding back on some of these opportunities. So I think it will take a while before we see the full synergies. That said, and what we said when we did the transaction, we expect it to be accretive after adjusting for the causes and the amortization in the first year, and we believe we're certainly on track to be able to say that and indicate that. We also made an assumption that we thought we'd see about a 5% growth on the Acxiom business and we're on target to do that.

Ben Swinburne -- Morgan Stanley -- Analyst

Okay. That's great to hear. And then, Frank, just on the expenses in the quarter, given how strong the top line has been, I guess, I would have guessed incentive comp would have been higher as a percent of revenue is down from last quarter. I know, it was up year-on-year, but the business growing much faster now than it was a year ago. Any comment on where bonus accruals may have showed up, and I saw temp labor was up quite a bit, just any color on that. And also all other O&G was up, I think, 6% to 7%. Just any comments on that as we think about kind of the incremental margins on the business?

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer

The increase in the incentive, Ben, is due to performance, right. So it's based on where we think the year is going to land. So there's no surprise in there. We expected it to be higher as we continue to improve in the top line. On the temp labor, it's spiked a little bit around supporting new business wins, new business onboarding and pitching. So again with growth, you don't have the full-time employees to cover the incremental revenue needs, so that's where you hit the temporary labor line.

Michael I. Roth -- Chairman and Chief Executive Officer

We also saw a 2% increase in our headcount. When you're growing like we are growing and as we expect to onboard new clients on the new wins, there is a bit of a mismatch sometimes between SRS and new business being onboarded, because you don't see revenue until later, but you certainly have to step up early. And that's one of the challenge -- you're right, that's one of the challenges we have to deal with as we onboard new clients, but that's the kind of investment you like to make, right, because you know that the revenue is going to be there just a question of timing. And as Frank said, sometimes we use temporary labor, but ultimately the better answer is to have the right people in the right jobs on a full-time basis.

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer

And to your other O&G question, it's primarily that the spike is driven by, pitch costs are up.

Ben Swinburne -- Morgan Stanley -- Analyst

Got you. So all good problems to have.

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer

Yeah, exactly.

Ben Swinburne -- Morgan Stanley -- Analyst

Thanks a lot.

Michael I. Roth -- Chairman and Chief Executive Officer

Thanks, Ben.

Operator

Our next question comes from Steven Cahall with Royal Bank of Canada. Your line is open.

Steven Cahall -- Royal Bank of Canada -- Analyst

Thanks. Maybe to start off, Michael, just a question on growth. So you reiterated the 5% that you've been seeing in Acxiom and your businesses is up around 5% year-to-date. And everything you said, sounds pretty constructive. So it's kind of 5%, new kind of run rate in this environment for IPG, is that a number that you're comfortable with?

Michael I. Roth -- Chairman and Chief Executive Officer

Well, first of all, I reiterate. What I said is, we expected the 5% growth to be consistent through the rest of the quarter. I didn't exactly commit to it. But yeah, I think it's reasonable. And obviously our target is 4.5, not 5. So what I said was that, we're comfortable in reaching the 4.5, or something higher than that. And I'll stick to those words, OK. But obviously, the tone of our business and the new business wins put us in a high end of the range, on the revenue side.

Steven Cahall -- Royal Bank of Canada -- Analyst

Okay, yeah. That's fair. And then Frank, maybe just a couple more on the model. I mean, I guess, first, if we think about the margin impact from Acxiom, it's fairly significant. So as we just start to look forward even with a little bit of deceleration in margin expansion, should we think of any reason why we don't just model in that extra margin from Acxiom that you've shown in the slides. And then maybe if you could just help us a little bit with what you think about for your interest run rate and remind us what your pace to deleverage back down to your target is? Thank you.

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer

Even on the margin, we're in the planning process now, including the AMS folks are coming in next week. So we'll guide on the February call, where we think our '19 margins target will be. So right now don't really want to comment on that. On the deleveraging comment, we'll say investment grade is critical for us. We've committed to the rating agencies to delever. We haven't put a timeline out there as to how we're going to progress against that other than it's very important for us to maintain our investment grade rating and we will delever accordingly.

Michael I. Roth -- Chairman and Chief Executive Officer

One of the things that sometimes get overlooked. When we announced this transaction, we thought there might be a downgrade in our ratings, OK. And we were prepared, not that we're asking them to do that, but the fact that the rating agency, one put us a little further, put us on negative, but they held the ratings at least for a while. The fact that the others held our ratings is an indication of the strength of our balance sheet and our modeling going forward. So I think we've been pretty good in terms of protecting the financial strength, as well as dealing with shareholder returns in an appropriate way while maintaining our leverage and our financial strength, so that's what we're going to do. We do see us returning to buybacks, whether it's one-year versus another, will be probably a function of the macroeconomic environment and business performance. And like I said, we don't see any big transactions that we need capital for. So, if you look at our CapEx, let's assume we have $200 million of CapEx, and we do some bolt-on transactions of a nominal size, whatever the excess capital we have, we still maintain, it belongs to our shareholders and protecting our financial strength on the balance sheet and our ratings. And the one thing we've been consistent over the last 14 years is being able to manage that and we expect to do that going forward. Next question please.

Operator

Our next question comes from Jason Bazinet with Citi. Your line is open.

Jason Bazinet -- Citi -- Analyst

Just had a question on Slide 21, related to Acxiom. You guys mentioned that you're going to use adjusted EPS as a key indicator going forward. And I'm guessing maybe even in this quarter you had adjusted EPS. So I'm guessing, what that really is code for as cash EPS. And I guess my question is, have you guys ever sort of traded on cash EPS before? Because when I go through just back on the envelope, it seems like the street moves to a cash EPS number as opposed to GAAP is sort of like somewhere between $2 to $3 a share and your share price depending on what multiple The Street may use?

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer

Well, look you know, you're the expert on how we multiple. We just deliver results.

Michael I. Roth -- Chairman and Chief Executive Officer

We're just trying to be as transparent as we can. So smart analyst can evaluate what the valuation of the business is.

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer

Yeah. But I understand your point and look, we went for a period of time in our company where EPS was totally irrelevant because of all the issues we were dealing with. So that's why we think the EBITDA number is a good one to compare us to. And by the way, thank you for your analysis and position that you came out with this morning. We appreciate it.

Jason Bazinet -- Citi -- Analyst

Yeah, of course. Of course. Thank you.

Operator

Our next question comes from Dan Salmon with BMO Capital Markets. Your line is open.

Dan Salmon -- BMO Capital Market -- Analyst

Good morning, everyone. Michael, I just want to follow up on one of the prior questions on Acxiom. You mentioned sort of beyond Mediabrands, you highlighted the creative agencies. Should we take that to mean as you think about moving beyond Mediabrands at sort of the first place, you want to bring the Acxiom offering just maybe more broadly we'd love to hear about what you're thinking now that the deal is closed and you're getting more internal feedback on how you might extend those services and those products across the rest of the holding company. And then second, you called out healthcare once again as a strong sector. Would just love to hear your high level thoughts on not just what is contributing to IPG strength there, but what's going on in the broader marketplace there and how much do you expect to continue to see strength in the vertical? Thank you.

Michael I. Roth -- Chairman and Chief Executive Officer

Yeah. Let me talk about healthcare. Of course, it's a great point, and it's obviously a key driver. I mean, year-to-date healthcare is 25% of our business, which has been growing as you pointed out over a number of years. And of course the performance is our best performing sector. So it's always good to have an overweight in that sector that's over-performing. Now, one follows the other obviously. What we're seeing on the healthcare side is exactly what we were talking about in terms of open architecture. The recent wins in the healthcare are basically tailor-made to the open architecture structure. Healthcare companies, in fact one of them global, I was meeting with one of the global -- one of the pitches actually in the global healthcare, and they were using the term open architecture to us. So what they are looking for is the resources that we have within IPG that can help them either by drug and expertise, so that expertise maybe at FCB and maybe at McCann Health.

So we have to be in a position to bring in teams of that expertise. And the only way to do that is through an open architecture structure. And the healthcare businesses are doing quite well, and we have global offerings within that sector that meets the needs of our clients. And then when you overlay PR, as I indicated in the Novartis win, it really gives us a great opportunity to show what open architecture can deliver to clients. And they love that, and it's up to us to make sure that there's collaboration going on within our agencies, because obviously the same agencies that are collaborating sometimes are competing for the same business. So that's the reason we use open architecture as opposed to one single agency per se. So I believe, the healthcare is going to continue to perform well in the marketplace and our offerings are best-in-class as reflected by our wins in the sector.

The synergies on Acxiom, when I was referring to on the creative side, just think of how powerful it is. Our creative people right now have their own data analytics to reach consumers to get it with the right creative that is relevant and trustworthy to that consumer. When you overlay first party data or data analytics that Acxiom can bring to the table, it just makes that offerings that much more powerful. And if you couple it with media planning and execution you have the Holy Grail of our business, but you can all of a sudden just do this at one-time. So we are being very thoughtful about this, which is why we're using our media businesses at the first blotch here, because that's where the biggest opportunities are initially. (Multiple Speakers) So we'll get that structured correctly as we're comfortable with that, then we'll start rolling it out to the creative agencies that we have, in all our other agencies. But at first, the media focuses where the opportunities are.

Dan Salmon -- BMO Capital Market -- Analyst

Okay, great. Thank you, Michael.

Michael I. Roth -- Chairman and Chief Executive Officer

My pleasure. Thank you.

Operator

Our next question comes from David Joyce with Evercore. Your line is open.

David Joyce -- Evercore -- Analyst

Thank you. I was wondering, if you could update us on the trend of your clients in-housing certain functions. What is it that you're doing to help them, and then what's sort of a more complex activities are you still involved in? And how is that impacting your business?

Michael I. Roth -- Chairman and Chief Executive Officer

Yeah. Thank you. I know there was a recent report that showed there was an increase in in-housing, I think, the reference was, a lot of the programmatic was there. We've been talking all along. Yes, we've seen clients in-house programmatic, but that's easier said than done. Programmatic is a very complex tool, and even when we actually help our clients bring it in-house, but the relationships with the various providers, the analytics that go with it, the ability to reach into the marketplace and have the best deals if you will. We can help our clients do that. And what that enables us to do is, continue the relationship between us and our clients and our ability to bring it our expertise. So we haven't seen huge movement into in-housing on the programmatic side, the side that it's coming in-house and more mechanical part of it, but the relationships and the expertise that we have, that we can bring to the table is still relevant to those companies that bring in-house. And by the way, it takes a lot of money to invest and maintain that investment over a period of time, and that remains to be seen how many of these clients that are bringing in-house are going to continue to do that. Historically, we saw a lot of companies bring creative in-house and then eventually go back out and then come back in. So that's nothing new to our industry. We know how to deal with that. But the value that we bring both in terms of industry expertise, creative talent, media talent and experiential and PR just gives us other reasons to be in front of our clients even if they take in some part of it in-house. But we haven't seen as a dramatic increase as everyone is talking about.

David Joyce -- Evercore -- Analyst

I appreciate it. Thank you.

Operator

That was our final question for today. I'd now like to turn the call back over to Mr. Roth.

Michael I. Roth -- Chairman and Chief Executive Officer

Okay. Well, look, thank you very much. Obviously we're excited about our results, but we realize we have a big fourth quarter coming up. We got our heads down and we will walk toward. Thank you.

Operator

This concludes today's conference. You may disconnect at this time.

Duration: 61 minutes

Call participants:

Jerry Leshne -- Senior Vice President of Investor Relations

Michael I. Roth -- Chairman and Chief Executive Officer

Frank Mergenthaler -- Executive Vice President, Chief Financial Officer

Alexia Quadrani -- JPMorgan -- Analyst

Tim Nollen -- Macquarie -- Analyst

Ben Swinburne -- Morgan Stanley -- Analyst

Steven Cahall -- Royal Bank of Canada -- Analyst

Jason Bazinet -- Citi -- Analyst

Dan Salmon -- BMO Capital Market -- Analyst

David Joyce -- Evercore -- Analyst

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