Omnicom Group Inc. (OMC) Q1 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to First Quarter 2012 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I'd like to know introduce you to today's conference call host, Executive Vice President, Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead.

Good morning. Thank you for taking the time to listen to our First Quarter 2012 Earnings Call. We hope everyone's had a chance to review our earnings release. We've posted to our website both the press release and a presentation covering the information that we'll be presenting this morning. This call is also being simulcast and will be archived on our website. But before we start, I've been asked to remind everyone to read the forward-looking statements and other information that's included in the back of our investor presentation, and to point out that certain of the statements made today may constitute forward-looking statements and that these statements are our present expectations, and actual events or results may differ materially. I'd also like to remind you that during the course of the call, we will discuss some non-GAAP measures in talking about Omnicom's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the presentation materials. We're going to begin the call with some brief remarks from John Wren. Following John's remarks, we'll review the financial performance for the quarter in more detail, and then both John and I will be happy to take questions.

Good morning. I'm pleased to speak to you this morning about our latest business results, the progress we're making and my thoughts for the rest of the year. 2012 is off to a very good start. First quarter results were strong. Revenues exceeded our internal forecast, and we posted significant improvement in our operating margins. Looking at the balance of the year, we're cautiously optimistic on revenue. The region most at risk is Europe. Major economies outside Europe, I'm happy to say, seem to be improving at a steady pace. From the cost side, our determination to contain costs and drive operating efficiencies is working, and we are on track to achieve our margin objectives for 2012. Given an improving but fragile global economy, we at Omnicom are focused on the things we can control. We are continuing to make significant investments in people to broaden our capabilities and service offerings. We're also pursuing, as you know, a multi-pronged digital strategy built around the core idea that all of our agencies must have a strong digital talent and capabilities in order to compete in the future. As a result, we are helping and pushing our agencies where needed in order to accelerate the expansion of their digital expertise. To achieve our objectives, we're employing an open-source technology approach by partnering with technology leaders to ensure that we have access to the latest innovations and information in the marketplace. These partnerships allow us to integrate the most effective digital strategies within our clients' overall marketing plans. Now I'd like to turn my attention to the first quarter. Organic growth for the first 3 months was a very strong 5.1%. Revenue growth in the quarter was driven by very positive results in developing markets, and solid performances in the U.S. and the U.K. This was balanced at the euro markets, which experienced only nominal growth. Our advertising business performed very well, while our PR businesses showed improvement for the first time in several quarters. Looking more closely at revenue by geography, we saw a continued strength in the U.S. with organic growth of 4.4%. U.S. growth was driven by strong results in brand advertising, media, and sports and event marketing and was offset by a decline in our healthcare specialty business. The U.K. experienced organic growth of 4.1%. While the U.K. growth slowed versus the fourth quarter, the market remains relatively favorable despite the broader challenges in Europe and our individual agencies are performing very well. Euro region growth overall was relatively flat, although the performance by market varied. Germany turned in a solid quarter, France was only slightly negative, and the Netherlands underperformed due primarily to the effects of a client loss. In the more troubled European markets, Greece and Ireland were negative for the quarter, while the southern European markets had positive growth. Outside the euro currency area, Russia and Turkey had very strong performances with double-digit growth. In the first quarter we again had strong performances across Asia, particularly Australia, China and Singapore. In Japan, we are happy to say that we had positive organic growth for the first time since the third quarter of 2010. We again experienced growth across almost all of our industry segments. Revenues during the quarter were particularly strong in auto, food and beverage, retail and technology, while only health care had a negative performance. During the quarter, our agencies continued to see the benefits of their high-quality work. Net new business for the quarter was over $1 billion, representing a strong start for 2012. As I mentioned earlier, we experienced solid improvement in our margins. Randy will provide more details on the specifics of our performance later in the call. But I would like to emphasize that at this point, we will achieve our goal of returning full year margins to the level we achieved in 2007. I'd also like to comment on our overall strategy for allocating our capital. As I noted on the year-end call, our balance sheet remains extremely sound. This gives us the flexibility to make smart investments and reasonably priced acquisitions to further our strategic goals. During the quarter, we completed the acquisition of Medical Collective Intelligence, MCI, in Japan. MCI provides online and market research to clients in pharmaceutical and medical device industries in the world's second largest pharmaceutical market. And the innovative digital platform offered by MCI has great potential to be rolled out to other markets, especially in Asia. Yesterday we also announced the acquisition of NIM Digital, a leading agency in China specializing in media planning and buying, search and digital production services. The addition of NIM will add to our digital capabilities, particularly in search, and will allow us to increase the breadth of our services to our clients. We expect acquisition activity in Asia and other high-growth markets will accelerate over the course of the year. In addition to our acquisitions, we will continue to utilize our free cash flow for dividends and share repurchases. These distributions are fundamental to our commitment to make shareholders the major beneficiaries of Omnicom's strong cash flow. Our performance this quarter reflects our commitment to delivering the highest quality work for our clients around the world, continually expanding our capabilities to effectively market in the digital world and building strong agency cultures. These values are at the core of what we do, and we believe they are the key factors to our success. I will now turn the call back to Randy, who will take you through our numbers in more detail.

Thank you, John. Q1 was a great start to the new year. Revenue came in at just over $3.3 billion, with total year-over-year revenue growth of 5% and organic growth continuing well ahead of expectations at 5.1%. I'll address our revenue growth in detail in a few minutes. EBITA increased 12.7% to $387 million, strong organic revenue growth in the quarter, combined with the benefits of the numerous cost reduction initiatives that our agencies have executed over the past 18 months has resulted in our EBITA margin expanding about 80 basis points to 11.7%. Our objective for the full year is to match our 2007 margin performance, and while this is only one quarter, we are pleased that our Q1 performance was about 30 basis points ahead of that target annualized. Amortization of intangibles for the quarter increased 16% or $3.3 million year-over-year, but was up only marginally from Q4. Operating income, or EBIT, increased 12.5% to $363 million and resulting operating margin of 11% was a year-over-year improvement of about 80 basis points as well. Now turning to Slide 2, and taking a look at the items below operating income. Net interest expense for the quarter was $29.2 million, down $2.9 million from Q1 of last year and down about $1.1 million from the fourth quarter. The decrease versus Q4 was primarily the result of decreased average borrowings during the first quarter. On the tax front, our reported rate for the quarter was 32.8%, up from 25.5% in Q1 last year. In both years, our general operating rate was about 34%. Last year, the rate was brought down primarily because the remeasurement gain recorded on the Clemenger deal was nontaxable. And this year, there were a couple of small benefits that reduced the rate for the quarter as well. For the full year, we continue to expect our rate to be between 34% and 34.3%. Affiliate income in the quarter increased about $1 million, and our minority interest increased by just over $6 million due to a combination of increased earnings in our existing businesses where we owned less than 100%, and a few of our recent acquisitions where we acquired less than 100%. As a result, net income for the quarter increased 1.3% to $204.6 million. At the top of Slide 3, we show the allocation of net income between our common shares and participating securities or restricted stock. As a result of a year-over-year increase in restricted shares, the allocation of net income to participating securities increased to 4.5 million, leaving net income for common shareholders at just over $200 million for the quarter. Year-over-year, we reduced our outstanding weighted average diluted share count by just over 4%, down to 277.5 million shares. As a result, diluted earnings per share for the quarter was $0.72. On Slide 4, we take a closer look at our revenue performance. First, with regard to FX. On a year-over-year basis, the U.S. dollar strengthened against most of our major currencies, including the euro and the pound. While the dollar weakened against the yuan, the yen and the Australian dollar, the net result reduced revenue by $36 million or about 1.1%. Looking ahead, if rates stay where they are, we expect FX to be negative by about 3% in Q2 and by about 1.75% for the full year of 2012. Revenue from acquisitions, net of dispositions, increased revenue by $31 million in the quarter or about 1%. In this quarter, our acquisition revenue was driven by the Clemenger and Communispace acquisitions which we completed in Q1 of 2011, as well as the Mudra, Marina Maher and DDB Turkey acquisitions that we completed in Q4. Also during the first quarter, we continued making investments and completed 3 new acquisitions in Japan, Russia and Australia. Obviously, our acquisition revenue is net of the revenue lost from a number of dispositions we completed over the course of 2011. If we don't complete another acquisition or disposition, acquisition revenue in the second quarter will be about 0.6%. And with regard to organic growth, we had another very strong quarter and continued to outperform expectations at 5.1% or $161 million. This quarter, organic revenue was driven by a combination of factors. First, very strong new business wins, both this quarter and over the past several quarters. Second, the continued rebound in spending by many of our clients. Third, continued above average growth in the developing markets, in particular, in China, Russia, India and Latin America. And most important, our agencies continuing to expand their capabilities and service offerings to provide innovative marketing solutions for their clients. Turning to our mix of business on Slide 5, brand advertising accounted for 47% of our revenue, and marketing services 53%. As for their respective growth rates, brand advertising's organic growth was 8.5%, driven by growth in our media businesses, emerging markets and the continuing rapid growth of our services utilizing digital technologies. In aggregate, margin services was up 2.3% and within this sector, CRM had 3.1% organic growth. This sector was led by strong performances in events, branding and research. Public relations had a very solid quarter with organic growth rebounding to 4.4%, and specialty communications decreased 3.9%, primarily due to generally lower spending by a number of our leading pharma clients. On Slide 6, our geographic mix of business in the quarter was split 52% domestic and 48% international. In the United States, revenue increased $67 million or about 4%. Acquisitions, net of dispositions, reduced revenue by $6.5 million and organic growth continued to be strong generally across disciplines and industries coming in at 4.4% or $73 million. International revenue increased $89 million or about 5.9%. As I said, FX was negative 2.4% or $36 million. Acquisitions, net of dispositions, increased revenue by $37.6 million or about 2.5%. And organic growth continued to be very strong at a positive 5.8% or $88 million, although results were still quite mixed by region. In Europe, as has been the pattern now for several quarters, results continue to be mixed. Russia continued to perform very well, the U.K. remained steady and Germany had a very solid quarter, while France and the Netherlands were both down. Portugal, Italy, Ireland, Greece and Spain, although relatively small for us, in the aggregate were up about 3%. In Asia, we had very strong performances in Australia, China, India and Singapore. Japan also had a good quarter, and Korea was flat. We also continued to have very good results in the other emerging markets of Asia, the Middle East and Latin America, with a standout performance for the quarter in Mexico. Turning to Slide 7, which shows our mix of business by industry, there were no significant changes in the quarter versus Q1 of 2011, or Q4 for that matter. And as you can see from this slide, we had growth in every industry sector except pharma this quarter, with strong growth in autos, retail, travel and entertainment and technology. Turning to Slide 8, our cash performance in the quarter was in line with our expectations. We generated approximately $311 million of free cash flow, excluding changes in working capital. On Slide 9, you can see the breakdown of our primary uses of cash during the quarter. They included dividends to our common shareholders of about $70 million, which reflected the 20% increase in our quarterly dividend, dividends paid to minority interest shareholders of $23 million, capital expenditures of $46 million. We should note CapEx this year will likely be up a bit year-over-year due to a couple of real estate moves and an upfront investment to support our initiatives to increase the centralization of our IT infrastructure. Acquisitions including earnout payments, net of the proceeds received from the sale of investments, totaled $13 million in the quarter; and share repurchases, net of the proceeds received from stock issuances under our employee share plans, totaled $153 million. All in, we were basically cash or leverage neutral for the quarter. Slide 10 shows our current capital structure. Our net debt position at the end of the quarter was $1.66 billion, a decrease of about $40 million since last year. Our leverage ratio or total debt-to-EBITDA ratio improved to 1.6x, while our net debt-to-EBITDA ratio is below 1 at 0.8x. And our interest coverage ratio remains very strong and improved in the quarter a full turn to 12.9x. And finally on Slide 11, as we continue to successfully build the company through a combination of prudently-priced acquisitions and well-focused internal development initiatives, both our return on invested capital and return on equity have remained strong. On a rolling 4-quarter basis, for the 4 quarters ended 3/31/2012, our return on invested capital improved to 16.9% and our return on equity improved to 26.9%. So in summary, we believe we're off to a great start for the new year, and we believe we are on track to meet the targets for 2012 that we set out last year. This concludes our prepared remarks. There are, however, several other supplemental slides included in the presentation materials for your review. But at this point, I'm going to ask the operator to open the call for questions.

[Operator Instructions] And our first question will come from Tim Nollen with Macquarie.

My question is really about margins. I wanted to ask about beyond this year, you've been very clear about your 13.4% target but beyond that, can you give us some sort of thought as to where margins could go? And the second part of the question is your comment toward the end there about some CapEx increases this year and real estate moves and some IT centralization, that is pretty intriguing to me, if you could talk a bit more about that and how that might lead in the cost efficiencies over time.

Okay. I'll do the second part of the question. So periodically, when we have larger office moves, CapEx can spike a little bit because of buildout. So this year, we have a couple of those. BBDO in New York being one and being the largest. It also looks like we're going to acquire an office space in Florida, so that would a little bit of CapEx layout. And then from an IT centralization standpoint, we've been working for a few years now to bring together our data centers by -- at least by network. So a number of those initiatives are being developed this year. So that will have a modest increase in CapEx, maybe to the tune, in aggregate, an increase of $20 million to $30 million.

To the first part of your question, this is John, margins. We're comfortable in giving a forecast of what our margins are going to be this year. Obviously, we're constantly working on becoming more efficient. We'll continue to do that. But at this point, I don't think we want to lay out our objectives beyond 12/31/12.

Could you maybe give us some more numbers behind the real estate and IT? Any indication of what the cost savings for those from those might be?

In the current year, I don't think there will be any. It may actually be an increase in cost because we're going through the transition period of moving IT from existing locations, so we'll continue to have those costs creating the centers, obviously have those costs and we'll end up running those capabilities parallel for some period of time. On an ongoing basis, we think it will enhance our capabilities. We think it will give us more robust systems and a lot of standardization around the network. And hopefully, it will lead to efficiencies as well.

And our next question will come from Alexia Quadrani with JPMorgan. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: Could you give us a little bit more color on what you're seeing in Europe now that you're entering the second quarter, specifically in France? Any signs of stability or improvement there? And with regards to the client loss that you highlighted in the Netherlands, do you -- any sense of when you circle that loss?

I'll do the second part first. The client that we lost in the Netherlands, if nothing else happens, we'll have that loss through the balance of the year. At least through the year. Having said that, we have 2 other agencies which we own bidding for that same work. So if we're lucky and successful and one of them retains the work, it will mitigate that loss. I don't know if it will mitigate it in the Netherlands, but it will mitigate it in the aggregate. I'm sorry, the second part of your question? Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: In France, any -- I know it's early in the second quarter, but any sense of stability there, any signs of improvement?

There's no instability. There's uncertainty, I guess. They're going through their elections now. And so people are distracted on other things and they're distracted by Greece and Spain and implications for the whole EU. So we're not seeing any great setbacks, but we're not seeing any plans for expansion in our conversations. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: And then the positive swing that you saw, I guess company-wide in PR, any driver behind that, it may be a client win or is that general sort of improvement in that segment?

I think it's a combination of general improvement in the segment. We're rebounding but frankly, the business broadly was pretty solid really over the last couple of quarters, and it just kind of wasn't appearing in the numbers. So I don't think it's a big rebound or a big turnaround. Our businesses are in very good shape. They've done a good job with their clients. It's just starting. I guess, it's really just coming back into the numbers. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: Then I guess last question just given your very healthy free cash flow, should we assume the same level of share buyback in Q2 that we saw in Q1?

I think it will probably increase a little bit on a net basis.

And our next question comes from Craig Huber with Huber Research Partners.

Maybe I missed this, but how many shares did you buy back in the quarter, please?

Somebody has that, and they're getting it for you.

Yes. There's really 2 numbers. They're like, one is what we bought and the other is what we bought, net. So we spent about $152 million net, so that'd be about -- I think we reduced the share count probably about 3 million, but we bought 5.3 million shares.

Okay, very good. And then generally each quarter, your quarterly target is about $1 billion for net new client billings. What was that number this quarter, please?

It was about $1.1 billion.

Okay. And then your organic growth in the quarter about 5.1%, Randy or John, would you say roughly half of that was from net new wins and half was from existing business? How would you break that down, roughly?

Don't know. That's not a number that we can really get to very easily.

Okay, my last...

It's been years back. It's never -- new business is never as much as half. Just as a generalization, historically speaking, it's generally about 1/3.

And then last, if I could, your comments on pharma, do you expect that to be dogging you for the rest of the year? What's your current thoughts on that, please?

In part, some of the delays and the setbacks we have is that drugs, which we had anticipated, were going to get approval and be out in the market. We didn't get that final approval. In one case, we lost a few pieces of business, but we've since won more business in the same therapeutic category. I think it's going to be a tough year for -- in the pharma business. We might see a slight improvement over what we saw in the first quarter, but it's still going to be a tough year.

And our next question comes from Matt Chesler with Deutsche Bank.

So you've made the comments in your prepared remarks about the upside versus your internal forecast at the revenue because revenue specifically you highlighted on exceeded your forecast. Was that PR based on the prior conversation, or maybe could you elaborate a little bit more into -- whether that came by discipline or by industry or even if there was any timing within the quarter?

There certainly wasn't too much in the way of timing. I think it was across the board, to tell you the truth.

Yes, I think it was really across the board. Our brand communications businesses were very strong in the quarter. New business wins over the past few quarters have been very strong. Never quite know with some of the new business wins when the revenue is going to actually start coming through fully. So I think it's a combination of things.

Okay. So in terms of timing then, I mean, would you -- was March -- was there any acceleration of revenue growth throughout the quarter in March, or was that in line with your internal forecast?

It was pretty steady throughout the quarter.

Okay. Finally then, just almost, I'm sensing a little bit of change in tone with regards to your proclivity for acquisition opportunities in Asia or particularly China relative to what you've done in the past. Is that just me, or are you finding that the target opportunities are becoming more appealing or your ability to analyze them and gain comfort with them has at all changed?

I don't think -- well, we certainly wouldn't want to think we've changed. We continue to look and we're getting closer on a number of possibilities.

See, acquisitions in that region take quite a bit of time. We closed this quarter the NIM acquisition, which we've been working on for over a year. I remember having met with them several times last year, possibly even the year before. So transactions in that region can take some time. I think we're just as committed to looking and have just as good a pipeline, maybe even a better pipeline than we've had over the past and certainly have a lot of resources focused on it.

Okay. So it sounds like that the acquisition pipeline is looking pretty robust, that the activity may pick up. If I look at your leverage ratio, you guys restored your leverage back up to the pre-downturn levels but here it is, it creeps back down just through some natural deleveraging. Should we expect that to go back up perhaps as a result of the acquisitions?

It wouldn't be as a result of acquisitions. It would be our desire to increase or just adjust our leverage. We control our leverage really through the amount of share repurchases that we do. We would love to spend as much money, frankly, as we can on good quality acquisitions that create a lot of value for our shareholders. The balance of the money really is how much stock we repurchase.

And our next question will come from the line of Dan Salmon with BMO Capital Markets.

Two questions. First, with some news during the quarter about a unique relationship for Chevy that you created with Interpublic commonwealth, just hoping to hear a little bit more background on how that came about and what we should expect for operations going forward in decision-making. And then second and sort of separately, a big picture question around sort of the rise of social media platforms and brands taking more advantage of earned media opportunities and being able to get their messages out through some of the free platforms out there. And just maybe interested in your high-level thoughts on how that type of work changes the dynamic for your agencies in terms of the percentage of budget that they're able to capture versus a traditional paid media type of work?

Well in the first instance, Commonwealth. I was invited by Jeff Goodby, he's been a partner of mine since 1989, to listen to an interesting concept and the concept was that he believed that the work that they do on Chevy, plus he pointed out 3 outstanding creative guys which are in the McCann group, really should get together and form some kind of a new entity to aid in the resurgence of Chevy as the leading global brand and asked if we would entertain an unusual situation, which was Commonwealth, and do a partnership with IPG. Knowing and trusting Jeff as much as I do and knowing the objective of what they're trying to accomplish and knowing 2 of the 3 other creative guys, it was a pretty simple decision for us to agree to it. And it resulted in Michael Roth and I shaking hands and saying that we'd make it work. And your second question?

As far as social media or earned media platforms, they have been -- or that trend has been a factor now for a while and is certainly one of the drivers that are helping our industry outpace, I will say, normal industry growth or normal GDP type growth. Obviously, market is getting more complex as there's more and more of these platforms and more media opportunities or communication opportunities with potential customers. It's our agencies jobs to come up with innovative marketing solutions for their clients utilizing the full array of marketing mediums and technologies that are available. Obviously, that takes a lot of time and in general, we're getting paid for our time.

I'd say that social media is a central part though of just about all the major campaigns that we do today. And it's a big part of what our PR companies do. It's a big part of what our advertising agencies do. It's a big part of what our media companies do. And if you're there, I bet you in May when we sit with -- we discern who -- what campaigns did well in Con and some other festivals, we're going to find fully integrated ones that really took advantages of the social media and had earned and unearned media associated with the ones that are going to succeed.

Question comes from James Dix with Wedbush.

Just a couple of questions. I guess on the growth outlook, any color you can give on how your view of the growth environment has changed over the past quarter. Obviously, the first quarter growth was better than you expected. I'm just wondering if that's continuing through toward the outlook that you have just going forward. And then I guess, kind of secondarily to that, your growth comparison for the second quarter gets a little bit tougher. Is that something that we should be using to maybe not assume maybe quite the same robust growth in the second quarter? And then I had just one follow-up.

Sure. If you're comparing to last year's second quarter, that was an outlier, an outperformer last year. I think -- I don't have the numbers in front of me, I think it was something on the order of 8.4%. So I don't expect that. That was -- there were a lot of unique reasons for that, and plus the business over the years has flattened out a little bit so to follow the historic patterns of what it did in 2007 even. So we have concerns. We're cautiously optimistic. Europe has to remain stable and not affect the rest of the world. The U.S. has to continue to grow, and Asia looks okay now whereas a week ago, I might have had greater uncertainty, so it's not something we can predict. It's something we prepare for and then we take advantage of when we can.

I've been reading that people are saying 3% to 5% growth for the year. While we don't give forecast or guidance, 3% to 5% sounds certainly like a reasonable range. We peg this, we probably say 4%, plus or minus 1%, which I guess gets us to that same 3% to 5% spot.

But your view of that really hasn't changed too much year-to-date?

No. No. I mean the areas we can control are below revenue. And that's what our -- that's where we spend a great deal of time. And we make sure we're prepared to take advantage of revenue opportunities when they arise.

Okay. And then one follow-up, just on the acquisition environment which you touched on before. I mean, do you have any general sense; if you looked at everything that was in your pipeline now and things closed in line with some reasonable expectation on timing as to what the full year impact to that would be, you gave some outlook for the second quarter. But I'm just trying to get a little bit better sense of the size of the pipeline, obviously allowing for the fact that sometimes things are not going to close as you expect.

Well, I'm the wrong guy. I don't get paid to guess. A projection of acquisitions when they'd hit.

No, that's impossible to really forecast. We don't close deals until they're ready, until we've completed our work, until we're confident that they can be properly integrated into our business and to our accounting of financial systems. When that all comes together, the deal closes.

Oftentimes, getting a handshake is the easiest part of the process and then making certain that procedures and everything else are in alignment take a disproportionate -- take an appropriate, apparently, amount of time, but take a long time.

And the next question comes from Brian Wieser with Pivotal Research.

Two questions, one related to underlying growth trends. Inside of advertising, you mentioned media is a contributing factor. Are the creative agencies generally still growing recently at this point in time? And inside of that sector, to what degree is the barter business or the trading desk contributing to growth? A second, semi-related separate question. We've seen consultancies such as IBM, Accenture and now even Australia Deloitte is starting to get into the marketing services business as CIO and CMO responsibilities are starting to intersect. Love to hear your views on how that is evolving in terms of competitive landscape.

Second one first. There'll always be competitors. The difference in the people that you mentioned versus what the more traditional holding companies do is there's advice and then there's execution of a program. Giving advice is simple. Getting into the foxhole with the client and executing on the plan and making certain that it works is a bit more complex. So whereas there will always be competition and competition for certain aspects of the business, I don't see the people that you mentioned coming into our sweet spot anytime soon. But we're vigilant as always. And the first part of your question?

The first part was were the creative agencies growing and absolutely. They're big drivers, and that's somewhat of a disconnect in the idea that there's digital firms growing and there's the creative firms. Well in our approach, our creative firms are fully integrated. They're coming up with great ideas and executing those ideas across mediums and disciplines and whether it's social media, online or great TV, they're the center of that idea creation and execution. We also mentioned our media companies growing. Our media business has been doing extremely well across fronts, both in I'll say more traditional media, although I'm not sure that exists anymore because the programs are mostly integrated. But they've developed excellent digital capabilities and analytics capabilities, all of which are helping them to drive their growth.

And any thoughts about barter and trading desks as the contributing factors?

Barter is about flat year-over-year. It is a business. Trading desk is an incredible platform, and its limitations are -- it's only limited by the amount of inventory it can free from the publishers, which we're always working on exchanges and private exchanges and the like to get value that we want. So that's a business that -- that's a business of the present and the future, and it will only grow as times go on.

And the next question comes from Anthony DiClemente with Barclays.

First for Randy, just a housekeeping question. If you could please breakout salary and service expenses from office and general expenses, if you have that, that'd be great.

I think we included it in the presentation.

It might be. I didn't see it. I could follow up offline, if that's easier for you.

I got it. Salary and service is $2,434,400,000 and office and general is $510.4 billion.

Okay. And then more broadly for John, when you think about -- you've talked about digital quite a bit. When you think about the acceleration we're seeing in mobile and apps on mobile, it feels like business explosion of volume and usage, but mobile and app media pricing remains well below PC. I'm just wondering what you're hearing from your clients on this? Are you advising them to more dramatically raise their allocation to mobile? Can you talk about mobile and apps as it relates to branding for your clients? And maybe what does the market need to see for there to be a catch-up on the demand side to keep up with all this tremendous explosion in usage?

Sure. The spending is not there yet. I start everyone in my CEO meetings with the fact that whatever we have to talk about, it's going to be mobile first at some point. I see the device eventually being the equivalent of when they introduced remote controls into living rooms. It will dictate your life someday and as a result, marketing allows tremendous impact. I think no one from our side has cracked meaningful, engaging type of advertising on the phone yet. That's still in test. I think once that happens, you'll see budgets follow it rather vigorously. Apps are cool, but apps aren't the solution, in my opinion.

Do you think it's a technology thing that has to happen, adapting branded campaigns to the form factor of mobile or do you think it's just a mentality that needs to shift more dramatically in the mindset of the CMOs and your clients?

Well, let me put it this way. I agree with your premise that it is going to be explosive in the future. I don't really have the solution in my mind, but I'd have to be honest with you. If I did have the solution, I wouldn't disclose it in this conference call. I'd execute it, and that's why you'd see it. But we're working on it. We're certainly working on it.

And our next question is from Peter Stabler with Wells Fargo Securities.

I want to ask you about China, Russia, India and Latin America. Has your appetite to go after domestic clients there increased at all, or are we really looking at growth that's being fueled by your relationships with that top 250 clients, the multinationals you talked about?

We will have to do that by market as opposed to the broad list that you gave. In China, naturally we're after the 250 and then what we're after, and we have some examples of it already like Huawei, of large Chinese companies that are either going to become global or are, in fact, global. Those are our immediate targets. We're learning every day about the local market. Oftentimes, very local market advertising opportunities. We can't compete against local Chinese firms. What are some of the other markets you mentioned?

Just Russia, India and Lat Am, the markets that you highlighted as continuing that strong growth.

Russia, again, multinationals are big and there's are a lot of large Russian companies that are important on a global or certainly European basis, and we're able to do that. Plus Russia, a lot of our businesses which are DOS-type businesses like the branding businesses and the luxury businesses that we have, exploded in markets like China and like Russia.

So would you look at a different growth profile for the domestic businesses versus the multinationals where you have existing relationships, or are they fairly consistent do you think?

We look at...

They're the same business. So it's our businesses with just a different from profile. In China, we're probably 85% or 90% multinationals. In Russia, we're probably 50% or 60% multinationals. Latin America, I think is fairly similar to that, probably in that 50% range. So really depends upon the market.

And it depends upon -- when you really break it down, it depends upon the clients. Banks in local markets are easier to do than grocery stores.

I think we've got time for one more call assuming or one more question, assuming there's one in the queue.

And that will come from Michael Nathanson with Nomura.

It's actually Robert Fishman calling in from Michael. Wondering if you could help us with a couple of expense questions. First, when you think about the office and general line, just curious how you think about the pace going forward as it grew in the low single digits in the first quarter. How should we think about for the rest of the year?

It tends to be the more stable of our lines. It's obviously smaller, so smaller variances can bounce around. But it is less highly correlated to revenue, obviously, than salary and service.

Okay. Are there areas for cost savings going forward given some of the opportunities that you discussed earlier?

Yes, but there's also areas of investment that are also going on. Our job is to try to balance the 2 of them out and deliver overall margin, so we're very comfortable in being able to achieve our margin targets for 2012. Where that's going to actually come out or which line item, I think we're -- I think that's a little hard to predict.

Okay. Can you help us just with the ending employee count at the end of the quarter?

That's one off of my head.

Not off the top of my head. If -- we'll get back to you with a number, assuming we have it at this point.

Okay, great. And just last question, how should we think about the pace of the buyback through the year? Is it just really going to fluctuate based on free cash flow generation?

Yes. Basically, we use our share repurchases for 2 things. We're committed to spending all of our free cash flow on a combination of dividends, acquisitions and share repurchases. Acquisitions is, obviously, the one that is most difficult at the time. We use share repurchases to basically balance that out and also to balance out the leverage levels that we want to have. In all likelihood, we'll probably -- if we follow a similar pattern to past, we'll probably buy more shares in the first half of the year, see how acquisitions go and then sort of finish the year out at the leverage levels that we want. And thank you all for taking the time to listen to our call.

Have a good day.

Thank you. And that does conclude our conference for today. Thanks for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.