Good morning, ladies and gentlemen, and welcome to the Omnicom second quarter 2014 earnings release conference call. (Operator Instructions) At this time, I'd like to introduce you to today's conference call host, Executive Vice President and Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead, sir.

Good morning. Thank you for taking time to listen to our second quarter 2014 earnings call. We hope everyone has had a chance to review our earnings release. We posted on the omnicomgroup.com website, both our press release and the presentation covering the information that we'll be reviewing this morning. This call is also being simulcast and will be archived on our website. Before we start, I have been asked to remind everyone to read the forward-looking statements and other information that's included at the end 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 that 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 measure in the presentation material. We're going to begin the call with an overview of our business from John Wren. Following John's remarks, we will review our financial performance for the quarter, and then both of us will be happy to take your questions.

Good morning. Thank you for joining today's conference call. As I am sure you've seen, Omnicom had a very strong second quarter with organic growth up 5.8% over the same quarter last year, and we are on track to meet our revenue and margin targets for the full year. Our results this quarter speak for themselves. Our agencies and our people have stayed focused on servicing their clients and building their businesses. At almost 6%, this is the best organic revenue growth rate we've posted since the third quarter of 2011. Since the beginning of the year, we have won approximately $2 billion of new business, including such well-known brands as Johnson & Johnson, CVS, Sony, Heinz, Dixon, and several new assignments in the pharmaceutical sector. During the quarter, we resumed our longstanding policies of returning our free cash flow to shareholders. In May, we increased our dividend by 25% and resumed our share repurchase program. Since mid-May, we've repurchased over $550 million in stock. Examining our performance, I'll point several factors, which contributed to our revenue growth. The biggest driver was our performance in United States, which was extremely strong with organic revenue growth of 8.8%. This growth was fueled by our media operations, including continuing strong results in search, social and programmatic trading. U.K. also continue to perform well, with mid-single digit growth driven by strong performances in media and public relations. In other parts of Europe, Germany was positive for the third straight quarter, while France continue to be negative. And in the larger developing countries, such as Brazil, India and Russia, we experienced strong double-digit growth. Our agencies also performed well in China, with high-single digit growth. Our margins were up nominally due to several factors, which Randy will address in his remarks. But overall, I'm…

Thank you. As John pointed out in his comments, our agencies have done a great job and are on a good track. Over the course of the last year, they've remained laser focused on serving the need to their clients, and they've continued to make excellent progress against both their strategic and operational objectives. And as you can see, they've again delivered excellent financial results. Revenue for the quarter came in at $3.87 billion, up 6.4%. The year-over-year increase was driven primarily by very strong organic growth of 5.8%. And for the first time in 10 quarters, FX was positive, at least from a revenue perspective. I'll go into more detail on our revenue growth in a few minutes. Moving down to P&L. First, I want to point out that we've now fully recognized all of the expenses related to the terminated merger. During the quarter, the pre-tax cost, which were predominantly professional fees, totaled $1.8 million. For the six months, the total is about $8.8 million. In addition, for tax purposes, after the termination, we were able to deduct any previously capitalized cost associated with the merger. As a result, this quarter, we realized an $11 million tax benefit. The net EPS benefit this quarter was about $0.03 per share and for the six months it's about $0.01. Because these numbers are not significant and they're behind us, we've eliminated the non-GAAP presentation, we've shown for the past few quarters. Back to the P&L. EBITDA increased 4.7% to $574 million in the quarter and resulting EBITDA margin was 14.8%, down about 25 basis points from last year. The decline in margins was due primarily to three things. First, although FX this quarter was positive for revenue, it had about a 10 basis point negative impact on operating margins. In…

(Operator Instructions) And our first question today comes from the line of David Bank representing RBC Capital Markets.

There are two quick ones. First I think in the very beginning of your commentary you had said that you felt like you were on track for your full year revenue growth and margin targets. Could you remind us of what it is you're on track for? And then the second question is, kind of more big picture, as you look across the landscape now, especially having a hard time to contemplate, I think the contrast in business mix with you guys in Publicis, but if you look more broadly to all of your competition, how would you say your business mix differs from other major players in the landscape? And how does that impacts margin performance, both sort of near-term and longer-term.

I think we started the year telling people that we expected organic growth to be in the 4% to 4.5% range for the full year. We do think it bounced around a little bit. And we said, flat to up 10 basis points in margins, I think right now we certainly think from an operations or efficiency standpoint that our companies are making all the right moves and the underlying operating performance is there. The FX headwind is tougher than we expected starting the year. So if you wait a week, FX will change, which way it changes I am not sure, but if it stays where it's at, flat margins will be probably the better end of what we can achieve given that FX impact. We also had $8.8 million in these numbers of merger expenses, going through that isn't something that we were contemplating, we were saying flat to up 10 basis points of margins, either. Your second question was mix. Every one has got a little bit of, obviously different mix. It's hard to know exactly what the revenues or margins from each of the different businesses people have are. Certainly WPP has a fairly large research business that I don't think any of us has of that type or magnitude. They have a large media business. Publicis has a large media business. We have a large media business, but on a relative scale, that would be a smaller percentage of our business, than say it would be for Publicis, not a 100% sure from a WPP standpoint. We think it would be a bigger percentage. We have I think much larger field marketing and marketing services businesses, things in the area of branding, field marketing, events, promotions, those sorts of things. I'm not sure from an IPG standpoint, the relative size of those businesses and its mix. I know ours is quite a bit larger than Publicis or WPPs. Everyone talks about digital, we tend not to. We don't actually think digital is a so called business. Digital was a medium or a technology that we want every one of our businesses, irrespective of their underlying discipline to be utilized and to figure out how to provide a better service to their clients and to grow their revenues. That that probably covers it, I think.

And anything about the near-term business mix that would make sort of margin performance different from the peer group or those all sort of more broader, bigger picture, longer-term issues, or you know contrasts?

Well, business mix can move your margins around a little bit. It affected us a little bit this quarter. It all depends on which business is doing well. I'd say one of the reasons that I have told people that we're focused more on margin dollars than margin percentages, if we have a company that comes in that can win a client, win the next $100 million piece of business, that's going to generate $6 million or $7 million of operating income, if it doesn't require capital, that's something that we wouldn't say, don't do it. We think that would be very positive for shareholders, very positive for our business overall. If we were focused only on margins that would be a piece of business that would be dilutive to our reported margins and the natural outcome of that would be to not pursue that business, even though it's economically very accretive to shareholders. So that's not been our focus. We want each of our businesses to be as efficient as possible, and to grow their businesses economically for all of our shareholders.

Our next question today comes from the line of Alexia Quadrani with JPMorgan.

Just a couple of questions. My first question is on the impressive organic revenue growth you guys saw in the quarter. I know you gave a lot of detail what was behind it and I appreciate that. But if you were to pinpoint, I guess, what was the delta this quarter to give it, the best quarter you've seen in several years as you highlighted it, I guess what was different this quarter?

I'd say a few things and John can comment too, if he wants later. First is less negatives. So most of our businesses did fairly well, so we didn't have a lot of, I'll say headwinds in any one spot. So that's always a plus. Our media businesses did very well. A lot of that is some new business wins that happened last year in the third and the fourth quarter, and some this year in the first quarter. So that rolling through was very helpful. Our Accuen is doing well. That was up I think $30 million or $40 million year-over-year. So that's a business that, it's kind of I'll say, a new-ish business. It's been around I guess for a couple of years, but is starting to have more attraction, as is everyone's, and ours is doing quite well. We think our technology is very good and industry-leading.

Just a follow-up question then on Europe. You've seen some better performance in Continental Europe. Maybe France continues to be real negative, I think its sorts of an industry-wide issue. I guess, how much are you dependent on that stabilizing or can you continue to see better performance or some signs of recovery, further signs of recovery in Europe with the trends still staying weak?

This is John, Alexia. I think Europe, we're pleased that it's stable to flat from what we see right now. We're not expecting any grand move from there. There is no one country that's going to lead all to us, one country that's going to lead Europe out of this current malaise that it's in, in reverse, we don't see anything backing up beyond what we've already seen.

And critical is individual agency performance. Agency even in a difficult market, goes out, wins a few clients, comes up with innovative ideas for their clients, and they're going to be able to drive their topline revenue. So that we can't loose track of that, obviously economic headwinds make it more difficult, but the individual agencies need to perform. And fortunately ours has been doing a pretty good job.

Our next question today comes from the line of Craig Huber with Huber Research Partners.

I have two questions. I guess my first one is that, appreciate the new revenue regional breakdown you guys gave. I was just wondering when will you be making available perhaps back to sort of beginning of last year on quarterly basis of those breakdowns, just so we can all update our models for that? Will there be an 8-K going up soon on that?

I wasn't planning on it. Let me try to pull the numbers together and see what we can do.

It would just be very helpful I think for everybody. I've had a number of questions this morning from analyst out there.

Okay.

And then also just you've mentioned what the net share buyback was in the quarter. Just wondering what was the gross amount of shares that you guys bought back in the quarter, please?

8,031,000, plus I think there was 147,000 shares that we effectively bought, if I am reading this right, for the exercise for -- basically with holding taxes on the exercise of restricted stock. So it's effectively bought in. They weren't open market purchases really.

And then also just talk on the revenue breakdown. You mentioned, U.K. was up I guess mid-single digits organically. What was the euro on the old basis if you have it, the euro-denominated markets, just so we can compare to what people were estimating in the quarter?

I don't have it, sorry.

And then lastly, John, if I could ask you, you mentioned a bunch of internal investments that you guys were doing here, which is ongoing theme with Omnicom for many years, obviously. Is there anything you'd want to highlight that you're doing differently here on the internal investments that you can talk with us about, please?

Well, we're following very much the patterns and making similar investments as we've made for at least the last eight, 10 quarters. We spend a lot of money on education, development of our people and that spread throughout the globe now in a fairly consistent basis. There is a lot of investing that's going on in Annalect and all the associated digital capabilities that we're increasingly able to do. And I see that is something we will only continue and increase as time goes past, because we're spreading those tools and that capability into the creative departments of our various agencies at this point.

In another way, worth mention is the eg+ platform.

Production and digital.

That will be -- it is off to a great start. It will be, I predict, a fairly high growth area over the next several years.

Our next question today comes from the line of Julien Roch representing Barclays.

The first one is on revenue. WPP has moved from reporting all, telling us to focus on revenue to gross margin, because of the proprietary revenue they're taking on with Xaxis. And this morning, Publicis said there was $17 million to $18 million of principle revenue in their numbers. I was wondering whether there is some of that in your revenue, if we could get a number or if it is actually zero. That's my first question. The second question on the very good Q2 organic, I know you said it was due to individual agency performance, to your focus on technology, but Publicis had a pretty dire quarter. And when you look at what Interpublic has reported, what WPP and Accuen are supposed to report, clearly everybody is taking market share from Publicis this quarter. So do you feel there's a bit of your revenue lines coming from that is my second question? And then the third question is on share buyback. Historically, you're doing all of your cash flow in buybacks and dividend. You have other spend last quarter to catch up the pools, due to the merger. So could we get a sense of -- I mean what quarters will you have spend and kind of the run rate of buyback for the coming quarters?

Let me take a shot at that.

Sure. Go ahead.

So first of all, we obviously all report in accordance with GAAP or IFRS. I think they are reasonably consistent on the points. So if we end up taking principal position, basically buy an asset that we're reselling to a client, we'll need to take it on a principle basis. I don't fully understand everyone else's business. I did hear what WPP said. I have not yet heard what Publicis said. The WPP numbers for Xaxis, again, I don't fully understand everything that's there. I think our business that's like that as Accuen, and as I mentioned in my comments, Accuen is doing very well, year-over-year growth was about $40 million for us. How much of that you'd attribute to, in services or just the media cost, because the way it makes its money is it buys media and sells it. So it's obviously, its service intact is embedded in that number, but that year-over-year growth number is about $40 million for us. I am probably skipping questions too, because I don't remember exactly what it was. But I remember the share buyback question. What we told people coming out in I guess mid-May is that we were going to resume our share buyback. We wanted to refocus that our first priority is to pay a solid dividend. We've been increasing our dividend fairly substantially over the last several years, we did it again. We're up to just shy of probably $500 million a year of dividends. We want to make all of the acquisitions that we can that are accretive for our shareholders that are on strategy for Omnicom to build our business for the long-term. And then the balance, we're going to balance out our capital structure with share buybacks. We had accumulated quite a bit of cash during the period that we were not buying in stock. So we estimated that we buy about 1.25 billion of shares by the end of the first quarter of 2015. So we have made a lot of progress towards that this quarter with $550 million or so. We didn't say, the specific timing of how fast we would do that, we'll obviously keep track of it and stay focused on our overall business.

Second question had to do specifically with Publicis. And plus we've won a lot of business this past quarter, I don't believe Publicis is where we have gotten it from. I think our wins really have come from Interpublic and from WPP and that's where the growth and expansion has come out of. Some of it hasn't been announced yet either. It will get announced shortly, but that's principally where it's been.

Again, just if you can refer upon Accuen, and thank you very much for giving the $40 million figure. But you had said everybody is doing it differently. And you said, you don't fully understand what exactly it's been doing. So on this business, the $40 million of revenue is something you take and then you buy and sell to clients. So I assume that you make no margin on that $40 million, or you just make the normal margin on what would have been the all commission, so say, 5% of $40 million and then a $0.15 margin on that. So is that correct?

No, the business is a little bit different than that. We're taking ownership of media. We're placing a principal -- I want to say bet, but principal bet. We are buying specific media and we are reselling that at a hopefully an increased price in most circumstances since the profit that we make, our revenue or our return is going to be based upon the difference between that purchase price of media and the sale price of media. Well, we then have to provide all of the services, all of the underlying technology, build the platforms, do the insights and take the risk. So it's a little bit of a different business model than straight agency-type model. And again, I think everyone is accounting for that is probably pretty similar. I don't know if there is a difference in IFRS and GAAP. The size of people's businesses or how they specifically trade that, that's business-by-business.

I think there are some pretty vast differences. They are small numbers, first of all, at this point, but there is some vast differences in the way. I think WPP approaches it versus us. In our case, it's an opt-in, it's not all of our clients, it's only the clients that choose to participate in it. I even think one of our competitors has an independent sales force and is going out and trying to resell inventory that it might own to non-clients, other agencies in some cases. So at this point, it's early days, this business isn't fully developed, and we're just reporting what we did. So I don't know that you can draw a straight line and compare all the groups at this moment.

And we have a question from the line of William Bird with FBR.

John, you talked a bit about some of your businesses that are seeing high client demand like Accuen. I was wondering if you could talk about, maybe some of the other services that are currently in greatest demand, particularly by those clients that tend to lead the ad market? And then, Randy, I was wondering if you could just talk about salary trends, the negative leverage in the quarter, and what you expect going forward?

Well, the clearest businesses in terms of media growth that we have are the media and media-related activities, and that's because of the complexity of the marketplace and the changing channels. I see that only increasing in the near-term, as share of budgets and clients goes to video display versus where it's being spent now, which is a more traditional TV in some cases. So in the near-term there'll be greater media growth there. Also the other trend is clients, as evidenced in Nissan United, are looking for increasing help in us taking responsibility for simplifying a complex marketplace in order for them to achieve their goals and objectives. And so there are shifts going on within the business, realignment of some of the activities, some of the ways we approach and we administer activities. So those are the two principles for us at the moment. And then, the healthcare industry, separately, as an industry, has been very active.

Your negative leverage question. We didn't have negative leverage in the quarter. Obviously, on an aggregated basis, the margins were down. I went through this. Three primary drivers to that; first was FX; second was the merger cost that we went through; and then, third was mix. The statement I made is that if we actually go agency-by-agency, so we basically like-to-like in the common currency, margins were up a little bit, not a significant amount, but 4 basis points or 5 basis points at least. So from a salary leverage standpoint, we did not have negative salary leverage in the quarter.

Next we'll go to line of James Dix with Wedbush Securities.

Just one question, honestly, and following up a little bit on what you called out, John. I mean, I assume if you looked at your clients and you looked at their medium mix over time, it's been shifting to be a little bit more towards setting large digital platforms in a way from setting the traditional ones. Are you seeing any change in the rate of that trend, if you look at that medium mix, in particular for search, social and programmatic that those channels which you called out? And if you're seeing a change in trend there, do you think that's having any impact on the spending that's going to your media agencies, who you've called out is having particularly strong growth?

The answer is, I believe, it is. Can I pinpoint it or predict it with any grand accuracy, no. In speaking to my media leadership, they believe more and more the shift is now permanent and it's only going to increase, as we're able to measure and increasingly measure results. And there is a lot of chatter in clients in terms of a desire to spend more money in this area. But we haven't seen a wholesale move. You know, what we've seen is the same trend that has been developing for the past several years, just continuing. But everybody is working in it every single day. There is going to be an increasing shift. I don't know if that's helpful, but truly what we see at the moment.

And you specifically, previously called out the visual, video display versus traditional TV. I mean is that part of the shift that you think is --

Yes, that's going on. Facebook is getting a lot smarter. Every one of the key players getting more competitive offering, different ways to do things, which are proving to be effective.

And I guess, my second part of the question is just, do you think that's having an impact on the spending that's going to your media agencies, on the fees or other types of revenue streams you're getting there?

I mean the amount of work that goes into some of these, I'll say, newer mediums is a greater amount of labor. Our agencies are generally getting paid for insights and creativity. The less of the executions they're doing is much broader, because of all these different mediums. The complexity of these new mediums is higher. So the labor required and the insights required is more. We're kind of at a stage that I think people need to be careful about on a longer-term basis. These are new mediums that are finding their spot in the world as a very useful medium. The old mediums, the traditional mediums, are also very useful for their right spot. So the breadth of opportunity is increasing, but I'm not sure anything is getting eliminated. They're just being utilized differently. So inevitably with anything new, you're going to see a very rapid growth period, once people find out it's appropriate use, but then it should level off at some point in time, whether that's a year from now or five years from now or 10 years from now. It's impossible to say because, frankly, new valuable uses of each of these new mediums is coming along everyday, as smart people with great creative ideas and insights figure out more and more ways to utilize it.

And thank you, everyone, for taking the time to listen to our call.

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation and using the AT&T Executive Teleconference Service. You may now disconnect.