What changed in this filing

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Item 1A. Risk Factors

2023-02-08 compared with 2022-02-09 · 44 added, 37 removed, 68 unchanged (54% of the section changed)

1 unchanged sentence

Adverse economic conditions, a reduction in client spending, a deterioration in the credit markets or a delay in client payments could have a material effect on our business, results of operations and financial position.

Economic conditions have a direct impact on our business, results of operations and financial position.

Adverse economic conditions, including those caused by the COVID-19 pandemic, severe and sustained inflation in countries that comprise our major markets, supply chain issues affecting the distribution of our clients’ products, or a disruption in the credit markets, pose a risk that clients may reduce, postpone or cancel spending on advertising, marketing and corporate communications projects.

Such actions would reduce the demand for our services and could result in a reduction in our revenue, which would adversely affect our

business, results of operations and financial position.

Macroeconomic conditions have a direct impact on our business, results of operations and financial position.

Adverse economic conditions, including high and sustained inflation, rising interest rates, supply chain issues affecting the distribution of our clients’ products, or a disruption in the credit markets, pose a risk that clients may reduce, postpone or cancel spending on advertising, marketing and corporate communications projects.

Such actions would reduce the demand for our services and could result in a reduction in our revenue, which would adversely affect our business, results of operations and financial position.

A contraction in the availability of credit may make it more difficult for us to meet our working capital requirements.

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Even if we take action to respond to adverse economic conditions, reductions in revenue and disruptions in the credit markets by aligning our cost structure and more efficiently managing our working capital, such actions may not be effective.

A period of sustained inflation across all the major markets in which we operate could result in higher operating costs.

Our principal operating expenses are salary and service costs and occupancy and related costs.

Inflationary pressures typically result in increases to our operating expenses.

In cases of sustained inflation across several of our major markets, it becomes increasingly difficult to effectively control increases to our costs.

In addition, the effects of inflation on consumers budgets could result in the reduction of our clients’ spending plans on the advertising, marketing and communication services we provide.

If we are unable to increase our fees or take other actions to mitigate the effect of the resulting higher costs, our business, results of operations and financial position could be negatively impacted.

In an economic downturn, the risk of a material loss related to media purchases and production costs incurred on behalf of our clients could significantly increase, and methods for managing or mitigating such risk may be less available or unavailable.

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In addition, our methods of managing the risk of payment default, including obtaining credit insurance, requiring payment in advance, mitigating the potential loss in the marketplace or negotiating with media providers, may be insufficient, less available, or unavailable during a severe economic downturn.

The COVID-19 pandemic has negatively impacted our business, results of operations and financial position, and the COVID-19 pandemic or other similar public health crises could adversely impact our business, results of operations and financial position in the future.

The COVID-19 pandemic negatively impacted our business, results of operations and financial position in 2020 and through the first quarter of 2021, as most of our clients’ businesses were affected by the pandemic.

As long as the COVID-19 pandemic, including any existing or new variants, remains a public health threat, global economic conditions will continue to be volatile and such uncertainty cuts across all clients, industries and geographies.

Demand for certain of our service offerings may be adversely affected by new developments in the pandemic, including the emergence of new variants, or other similar public health crises.

The extent of the impact of the COVID-19 pandemic, or other similar public health crises, on our business will depend on numerous factors that we are not able to accurately predict.

The war in Ukraine has negatively impacted our business, results of operations and financial position, and could adversely impact our business, results of operations and financial position in the future.

Historically, we conducted operations in Russia and Ukraine through local agencies in which we held a majority stake.

During the first quarter of 2022, the war in Ukraine required us to suspend our business operations in Ukraine, and we disposed of all of our businesses in Russia.

The war in Ukraine is ongoing and its duration is uncertain.

We cannot predict the outcome of the war in Ukraine or its impact on the broader region, as the conflict and related government actions are evolving and are beyond our control.

The extent and duration of the military action, sanctions and resulting market disruptions, which may include increased energy costs and further supply chain disruptions, could be significant and could adversely impact our business, results of operations and financial position in the future.

Our clients’ businesses, results of operations and financial position could also be adversely impacted by the war in Ukraine, which could impact client spending on our services.

The COVID-19 pandemic negatively impacted our business, results of operations and financial position, and the COVID-19 pandemic or other similar public health crises could adversely impact our business, results of operations and financial position in the future.

The COVID-19 pandemic negatively impacted our business, results of operations and financial position beginning in 2020 and continuing through the first quarter of 2021.

Global economic conditions may continue to be uncertain as long as the COVID-19 pandemic, or other similar public health crises, including the emergence of new COVID-19 variants, remain or become a public health threat.

Demand for certain of our services may be adversely affected by government measures, including restrictions on travel and business operation and quarantine and stay-at-home orders arising from a recurrence of a pandemic, or similar public health crises.

The extent of the impact on our business will depend on numerous factors that we are not able to accurately predict, including the geographic regions that may be affected.

Business and Operational Risks

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Key competitive considerations for retaining existing clients and winning new clients include our ability to develop solutions that meet client needs in a rapidly changing environment, the quality and effectiveness of our services and our ability to serve clients efficiently, particularly large multinational clients, on a broad geographic basis.

While many of our client relationships are long-standing, from time to time clients put their advertising, marketing and corporate communications business up for competitive review.

From time to time, clients may put their advertising, marketing and corporate communications business up for competitive review.

We have won and lost accounts as a result of these reviews.

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As a service business, our ability to attract and retain key personnel is an important aspect of our competitiveness.

If we are unable to attract and retain key personnel, our ability to provide our services in the manner clients have come to expect may be

adversely affected, which could harm our reputation and result in a loss of clients, which could have a material adverse effect on our business, results of operations and financial position.

If we are unable to attract and retain key personnel, our ability to provide our services in the manner clients have come to expect may be adversely affected, which could harm our reputation and result in a loss of clients, which could have a material adverse effect on our business, results of operations and financial position.

The loss of several of our largest clients could have a material adverse effect on our business, results of operations and financial position.

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We rely extensively on information technology systems, and cybersecurity incidents could adversely affect us.

We rely on information technology systems and infrastructure to connect with our clients, people and others and store business and financial data.

Increased cybersecurity threats and attacks, which are constantly evolving, pose a risk to our systems and networks.

For example, in February 2021, we experienced a cybersecurity incident that resulted in the disruption of certain of our information technology systems at one of our networks.

Based on our investigation, the incident did not have a material impact on our business, results of operations or financial position.

However, cybersecurity threats and attacks in the future could be material.

We rely on information technology systems and infrastructure to connect with our clients, people and others, and to store and process business and financial data.

Increased cybersecurity threats and attacks, including computer viruses, hacking and ransomware attacks, are constantly evolving and pose a risk to our systems and networks.

Security breaches, improper use of our systems and unauthorized access to our data and information by employees and others may pose a risk that sensitive data may be exposed to unauthorized persons or to the public.

We also have access to sensitive or personal data or information that is subject to privacy laws and regulations.

Our systems and processes may be unable to prevent future material security breaches, and such breaches could adversely affect our business and reputation.

We also use third-party service providers, including cloud providers, to store, transmit and process data.

These third-party service providers could also be subject to cybersecurity incidents that could adversely affect us.

In addition, through 2021, the overwhelming majority of our workforce temporarily transitioned to working from home during the COVID-19 pandemic.

The increase in the number of our employees working from home may increase certain business and procedural control risks, including increased risk of cybersecurity incidents and exposure of sensitive business and client advertising and marketing information, as well as personal data or information.

Our systems and processes may be unable to prevent material security breaches, and such breaches could adversely affect our business, results of operations, financial position and reputation.

Our third-party service providers, including cloud providers, store, transmit and process data.

These third-party service providers are also subject to malicious attacks and cybersecurity threats that could adversely affect us.

In addition, during the COVID-19 pandemic many of our employees worked from home for all or part of the time.

Currently, many agencies continue to operate on a hybrid work schedule where employees are working from home part of the time.

The number of employees working from home varies by market and is dependent on local conditions.

The increase in the number of employees working from home may increase certain business and process control risks, including increased risk of cybersecurity

incidents and exposure of sensitive business and client advertising and marketing information, as well as personal data or information.

Risks Related to International Operations

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For financial information by geographic region, see Note 8 to the consolidated financial statements.

We have substantial operations in the U.K.

and the Euro Zone.

In 2020, the U.K.

completed its separation from the European Union, or E.U., (commonly referred to as “Brexit”) and entered into an agreement, or Brexit Agreement, with the E.U.

that defines the terms of their relationship, covering, among other things, trade and tariffs, services and travel.

The uncertainties related to the impact of the Brexit Agreement have cross-border operational, financial and tax implications, among others, and any economic volatility that may arise in the U.K., the E.U.

or elsewhere may adversely affect our business.

Risks Related to Acquisitions

9 unchanged sentences

a substantial portion of which represents the intangible specialized know-how of the acquired workforce.

As discussed in Note 2 to the consolidated financial statements, we review the carrying value of goodwill for impairment annually at June 30 and whenever events or circumstances indicate the carrying value may not be recoverable.

As discussed in Note 2 to the consolidated financial statements, we review the carrying value of goodwill for impairment annually at the end of the second quarter and whenever events or circumstances indicate the carrying value may not be recoverable.

The estimates and assumptions about future results of operations and cash flows made in connection with the impairment testing could differ from future actual results of operations and cash flows.

6 unchanged sentences

In addition, there has been a tendency on the part of businesses to resort to the judicial system to challenge advertising practices and claims, which could cause our clients affected by such actions to reduce their spending on our services.

Any regulatory or judicial action that affects our ability to meet our clients' needs or reduces client spending on our services could have a material adverse effect on our business, results of operations and financial position.

Further, laws and regulations related to user privacy, use of personal information and Internet tracking technologies have been proposed or enacted in the United States and a number of international markets.

Any regulatory or judicial action that affects our

ability to meet our clients' needs or reduces client spending on our services could have a material adverse effect on our business, results of operations and financial position.

Laws and regulations related to user privacy, use of personal information and Internet tracking technologies have been proposed or enacted in the United States and a number of international markets.

These laws and regulations could affect the acceptance of new communications technologies and the use of current communications technologies as advertising media.

These actions could affect our business and reduce demand for certain of our services, which could have a material adverse effect on our business, results of operations and financial position.

We could be affected by future laws or regulations enacted in response to climate change concerns and other actions.

Our businesses could be indirectly affected by increased prices for goods or services provided to us by companies that are directly affected by laws and regulations aimed at mitigating the impact of climate change.

Specifically, these companies may seek to pass their increased costs through to their customers.

If our clients are impacted by such laws or regulations, either directly or indirectly, their spending for advertising and marketing services may decline, which could adversely impact our business, results of operations and financial position.

Additionally, to comply with potential future changes in environmental laws and regulations, we may need to incur additional costs, which could impact our business, results of operations and financial position.

Expectations relating to environmental, social and governance considerations expose us to potential liabilities, reputational harm and other unforeseen adverse effects on our business.

Many governments, regulators, investors, employees, customers and other stakeholders are increasingly focused on environmental, social and governance considerations relating to businesses, including climate change and greenhouse gas emissions, human capital and diversity, equity and inclusion.

We make statements about our environmental, social and governance goals and initiatives through information provided on our website, press statements and other communications, including through our Corporate Responsibility Report.

Responding to these environmental, social and governance considerations and implementation of these goals and initiatives involves risks and uncertainties and requires ongoing investments.

The success of our goals and initiatives may be impacted by factors that are outside our control.

In addition, some stakeholders may disagree with our goals and initiatives and the focus and views of stakeholders may change and evolve over time and vary depending on the jurisdictions in which we operate.

Any failure, or perceived failure, by us to achieve our goals, further our initiatives, adhere to our public statements, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and views could materially adversely affect our business, reputation, results of operations, financial position and stock price.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors