Good morning, ladies and gentlemen, and welcome to the Omnicom Fourth Quarter 2017 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I'd like to introduce you to your host for today's conference, Vice President of Investor Relations, Shub Mukherjee. Please go ahead.

Good morning. Thank you for taking the time to listen to our fourth quarter 2017 earnings call. On the call with me today is John Wren, President and Chief Executive Officer, and Phil Angelastro, Chief Financial Officer. We hope everyone has had a chance to review our earnings release we have posted on our Web site, www.omnicomgroup.com, this morning's press release along with the presentation covering the information that we will review this morning. This call is also being simulcast and will be archived on our Web site. Before we start, I've been asked to remind everyone to read the forward-looking statements and other information that we have 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 expectation and that actual events or results may differ materially. I'd also like to remind you that during the course of the call, we'll discuss some non-GAAP measures in talking about Omnicom's performance. You will find the reconciliation of those measures to the nearest comparable GAAP measures in the presentation materials. We are going to begin this morning's call with an overview of our business from John Wren. Then, Phil Angelastro will provide our financial results for the quarter, and then we will open-up the line for your questions.

Thank you, Shub. Good morning. I’m pleased to speak to you this morning about our fourth quarter and full-year 2017 results. 2017 was an eventful year for the marketing and advertising industry. Many of the world's largest marketers and best known brands continue to undergo major changes driven by advances in technology, new disruptive competitors and changing consumer behavior. The breath and rate of change has CEOs and CMOs focused on the ability of their marketing organizations to keep pace and that is presenting opportunities and challenges for our agencies. During my remarks, I will discuss how we are continuing to develop and execute on our strategies, including changes in our organizational structure, an additional service capabilities to provide our clients with communication solutions that address their overall business challenges. Before I do that, I will review our fourth quarter and 2017 results. I do want to point out that while the 2017 Tax Act resulted in a charge in the fourth quarter, Phil will cover this in his remarks. Moving forward, into 2018, lower U.S tax rates will have a direct positive impact on Omnicom and many of our clients. I’m pleased to report we achieved our internal organic growth and margin targets for the full-year of 2017. Organic growth for the year was 3% at the low-end of our target. For the fourth quarter, organic growth was below our expectations at 1.6%. As I mentioned on our third quarter call, there's quite a bit of project work that occurs in the fourth quarter that impacts revenue. Client spending on these projects is typically concentrated in the U.S and is based on the individual client circumstances and general economic conditions. In the fourth quarter 2017, our agencies only saw a partial benefit from this year-end project spend, which has…

Thank you, John, and good morning. As John said, 2017 proved to be challenging for our industry. Organic growth was 1.6% for the fourth quarter, below our expectations. While for the full-year, organic growth was 3% at the bottom of our range of expectations for the year. As for FX, due to the weakening of the U.S dollar during the second half of the year, the impact of changes in currency rates increased our fourth quarter reported revenue by $102 million or 2.4%. We also continue to see the impact of the dispositions over the past year of several of our businesses that did not fit our long-term strategies. These included the disposition in the second quarter of 2017 of Novus, our specialty print media business as well as some other agencies within our field marketing and events disciplines. These dispositions net of our recent acquisitions reduced our fourth quarter revenue by $235 million or 5.5%. I will go into further detail regarding our revenue growth later in my remarks. Turning to the income statement items below revenue, operating income or EBIT for the quarter increased 3.0% to $620 million. With operating margin improving to 14.8% or 60 basis point improvement versus Q4 of last year. Our Q4 EBITDA increased 2.5% to $647 million and the resulting EBITDA margin of 15.5% also represented a 60 basis point increase over Q4 of last year. The improvement in both our operating income and in our margins continues to primarily be driven on our ongoing companywide internal initiatives to increase efficiencies, particularly in our back office operations. Net interest expense for the quarter was $43.6 million, down $2.8 million versus the third quarter of 2017 and up $3.4 million versus Q4 of 2016. Gross interest expense in the fourth quarter was down approximately…

[Operator Instructions] First from the line of Alexia Quadrani with JP Morgan. Please go ahead.

Hi. Thank you very much. Just a couple of questions. First, on the shortfall in the project business in Q4. I think you mentioned it came in below your expectations. Could you give us a bit more color exactly maybe what didn’t materialize, is it certain verticals in terms of clients that didn’t spend, or was it certain types? Just any more color there would be great. And then, my follow-up question is just really on how we should think about organic revenue growth for 2018 in light of what you know from your budgeting plans to your clients and your recent performance? Thank you.

Sure. Good morning, Alexia. This is John. When you look through the project work, it's really between $25 million and $50 million in certain key areas that didn’t come through. That versus the headwinds that we had from some of the losses in some of our independent branded agencies, that were still cycling through and the change in the way that we recorded revenue programmatic business. It was the convergence of all those three things that really impacted the percentages that you’re seeing. There is nothing systemic or programmatic about it in any way. We also, the fourth quarter of '16 and all of '16 was when a lot of the activity was occurring which didn’t reoccur in the first nine months of 2017. So we weren't [technical difficulty] business. We started to see a pickup in activity that in [ph] business wise towards the end of the -- the middle of the fourth quarter and it continues into this year. So we believe we’ve taken all the actions that we need and it just turns out to be that it's regionally where the challenges showed up. I have to say that if you look at the first nine months of the year, we were performing -- or performing in what our range was, and so it was a little disappointing but nothing troubling. As we look at preliminary budget that we’ve looked at so far, for '18 we are suggesting that organic growth will be between 2% to 3%. I don’t know if you want to add anything here, Phil?

Yes, I think most with respect to the projects that I think most of it certainly occurred in the U.S and in particular as John have said in some of our advertising businesses in the U.S as well as in our PR businesses and healthcare businesses. Last year in the fourth quarter they both grew close to 8%, so they kind of outperformed with last year at this time, so we had some pretty difficult comps. And as far as the organic expectations at this point, the 2% to 3% that John mentioned, is our current expectations for the year 2018.

And then just follow-up on that, in terms of profitability or margins, I would assume we'd -- we should see some margin expansion maybe in Q1, given we’re still sort of cycling below our margin divestitures. Is that a fair way to look at the margin maybe outlook near-term?

I think you can definitely confirm that we’re going to continue to focus on EBIT dollars and not necessarily a margin percentage as we always said. We are going to continue to pursue our efficiency and effectiveness initiatives which we’ve gotten a lot of traction on the last two years as well as this year, particular. What we’re also going to continue invest in our agency is especially in the areas of data and analytics and in a number of digital transformation initiatives that we got going on. And we will continue to evaluate as we always do, finding the right balance between investing for sustainable growth and growing our EBIT dollars. So right now, I would say, we’re not prepared to commit to a margin expansion target percentage at this time. But we’re going to continue to reevaluate that as we reevaluate the investments we think we can make to continue to sustain our growth.

Thank you very much.

Sure.

Next, Craig Huber with Huber Research. Please go ahead.

Yes, good morning. Thank you. John, if you look back at 2017 and you think out to 2018, your 2% to 3% organic revenue growth perhaps target for the New Year. Can you just go through maybe the five or six areas that you think is holding back the organic growth and your peers as well? I mean, obviously, the economy seems like it's accelerating here in the U.S also around the world. But what’s holding back your customers from spending more towards the ad service dollars that you get is not growing as much as it might be in the prior cycles? I have a few other questions. Thank you.

Sure. There's a number of things. I mean, there are quite a number of areas were challenged by shareholder activism, changes in technology in a way that good s are distributed, because there's a lot of disruption going on out there, there's a lot of confusion as to what’s the most effective way to reach that consumer happens today. Those are the principal challenges. And in terms of the macro type of look at things, I think that in 2018, I’m -- what we’re hoping to see is that with the stimulus that’s been put, especially into the United States and the coordinating growth that we’re seeing in the other markets around the world that as you get not necessarily in the first quarter, but as that money gets into consumer's hands later on in the year that you will see an increase in spending and clients will be addressing the needs and requirements of the consumer. So at this point, what we've done is we've made quite a number of changes to the portfolio of companies in the way that we go-to-market, we’ve advanced our capabilities quite significantly, especially in the areas of data and digital and analytics. And we continue to double down those investments in what we are referring to the transformation effort, we will making internal investments as well as some external investments with new partners to make sure that we go all the way down the funnel and reach the consumer and only in reaching internal message, but also delivering the right message to try to get them to activate to buy and to sell things. So we believe we are taking quite a number of efforts in face of all these challenges that we’ve seen in '17 and we're hoping that they're going to pay off pretty confident, that they’re going to pay off as we get into '18.

And then, also Phil, if I could ask, just wanted to get a sense of how much your cash is sitting outside the U.S., you perhaps could repatriate?

I think it changes -- it certainly changes on a daily basis. But I think a substantial portion of our cash that’s on the balance sheet, at 1231 was outside the U.S. The ability to bring it back is going to be much simpler now with the passage of tax reform. And, I think, managing our internal treasury systems as far as what cash is overseas when cash is in the U.S., it should be a little easier and we intend to bring back as much as we can bring back in a timely and efficient manner.

And if you do bring that, still would it most likely to be for share buybacks?

No, I don’t think. When you go through the numbers, I don’t -- in terms of the impact of tax reform on us, we expected to have from a dollars perspective, somewhere in the neighborhood of $75 million of benefit in, say '18 annualized. That’s on a pro forma basis using our pre-tax income from '17 as proxy. So I don't think you’re going to see really any difference in our -- any substantial difference in our approach to capital allocation. We are going to continue to pay strong dividend. We are going to continue to pursue accretive acquisitions and certainly we've done one recently and we’re going to continue to look for more. And then with the balance of our free cash flow, we are going to invest that in share buybacks and some of it we’re going to invest it in our agencies as we’ve discussed just before. So I don’t think you’re going to see anything dramatically change in terms of our capital allocation approach.

Okay. Thank you.

Sure.

Our next question is from Ben Swinburne with Morgan Stanley. Please go ahead.

Thanks. Good morning. Thank you for the additional disclosure on the CRM segments. Maybe, John, could you talk a little bit about how you view those different disciplines in terms of the growth opportunity ahead of you? I know you made some management changes last year. The fourth quarter looked pretty healthy. Do you feel like those buckets -- those two CRM buckets are poised for growth in '18 based on what you’re seeing today? And how do you compare that growth outlook to what you've seen in advertising and media which has been at least until Q4, more robust? And then I had a -- just a quick follow-up. Go ahead

Sure. In the consumer experience bucket, I have a lot of hope for upside, because we made changes in branding and we’re starting to see some stabilization and we will see growth. Our shopper promotion business increasingly is a digital activity where we’re doing a lot of advice and changing to the -- changing delivery methods that you see in places like Amazon and others. Events and sports, we should get a bump somewhat this year principally because of the -- principally because of the improving economy plus in the first quarter there is a little bit of benefit associated with the Olympics in Korea. And where we’re really doubling down is in digital and precision marketing and taking that activity as I mentioned and marrying it to the expense of investments we made in Analects, so we can better target the consumer for delivery, more effective messages for our clients. The other areas, there is a field marketing, sales support, specialty production and merchandising POS, those are the activities which have growth, but they're not as cutting edge, I would say as the first aim of CRM activities and we expect it to have our fair share of growth in those areas as we’ve had in the past several years. So it's -- there's one -- thinking in one group, I would say and executing on the other and clients needs will be taken care accordingly.

Okay. And just, Phil, just on the margin comment, if you guys land in your guidance range for organic, are you suggesting margins will be kind of flat plus or minus? I just wanted to see if you could add a little more color to the margin outlook for the year?

I think, again, we’re more focused on growing the dollars, but I think by not committing to a margin expansion number now as we're looking out of the year and evaluating what we’re going to invest in and how much we need to invest. I think our expectation is margins are flat for the year. And if that evaluation changes, we will certainly let everybody know as we go through the year.

Okay. Thank you both.

Sure.

And next go to Steven Cahall with RBC. Please go ahead.

Yes, thank you. Sorry to kind of ask somewhat critical and big picture question. But I was wondering if you could just kind of circle back on your organic growth guidance. To be honest, it didn’t sound entirely confident. So do you feel firmly that that 2% to 3% or the midpoint of it is something that you can look forward to the full-year based on your budgeting process, or should we kind of read a lot of risk into that statement? And then, relatedly, you talked about the impact from Accuen and political this year as well as net new business. So should we think about a lot of this growth as backend loaded, as we approach the year?

Well, to answer your question, I was told after I first mentioned it, that my mic was weaker and I should speak up. So willingly confident, 2% to 3%, I hope you’re hearing me clear now.

Yes, absolutely.

And some of those activities -- the political spending for the midterm elections which we suggest will be coming back similar to almost what happened in the presidential elections going to occur is not going to occur in the first quarter, it's going to start to occur as you get little later into the year. There are also the stimulus that people are going to start to see in their paychecks from tax cuts and some other activities. They’re not there in January and February, but they will start to creep into people's pockets as we get later -- a little bit later in the year. So this year with the level of activity, the level of stimulus that’s occurring, the calendar itself we don't expect a radical shift from what our past performance has been, but we do expect some shift. So having said, I’m not saying it's all going to occur like some of our competitors in the fourth quarter.

I think, just one specific follow-up on the Accuen reference. So in '17, Accuen -- in the fourth quarter of '17, Accuen was down about $12 million globally and $17 million in the U.S. That’s the trend that we expect to continue. So overall, the programmatic business is very strong, but we continue to see a transition of some clients moving toward a more traditional agency pass-through [ph] solution from our performance-based bundled solution. Plenty of clients are very comfortable with the performance-based solution, want to continue down that path, but ultimately, the business itself is growing. We are happy with it, and we expect the base business to grow -- to continue to grow in '18. But I think the shift will continue, which will have similar negative impact on the reported result.

I just want -- I want to add, the billings associated with that activity which are now up double-digits from what we can see sitting here today for programmatic activity. The way we report them on a -- in a more traditional sense rather than in a bundled sense has an impact on reported revenue. It doesn’t have an impact really on our profitability associated with those activities.

Am I correct that, that started kind of late first half of last year, that shift in behavior, so you will start to cycle through that maybe through the -- by the second half or is it really just the Q4 when you start to cycle through it?

No, I think it's a change -- it's a trend, it's a change in the business. So our activity, our expertise, our profitability from those activities, we fully expect to go up. We don't expect the same contribution in revenue that we receive in the past, because of the way the clients are purchasing new services from us.

Yes, I think if you look back the business grew quite a bit because it was brand-new in '14 and '15. And in '16 it's when the transition started to occur. So in '16 the number is in terms of the growth rate came down and that in '17 we've seen some net negatives in terms of reductions overall in that business.

The other thing that we're hopeful, we can predict. As we sit here today, there's probably $15 billion worth of new accounts that are in review, of which I think we're at risk defending about $2 billion of that. The rest of it is an opportunity for us to win our fair share and that should contribute to our overall growth.

Great. Thank you.

I think, operator, given that the market's open or just about to open, I think we’ve time for one more question.

And that will be from Tim Nolan with Macquarie. Please go ahead.

Great. Thanks very much. You actually got most of the questions I had. I wonder though you mentioned a number of divestitures you’ve done last year. I wonder if there might be more to come in 2018? You’re talking about some organizational efficiencies and so forth. And is it possible to say if that affects your guidance for 2018? Do you have a better growth rate in '18, given having reduced some of the underperforming or less strategic businesses last year?

I think we’re going to continue to reevaluate the portfolio, we do that on a regular basis. And we're continuing to go through our final planning cycle here for '18 with all of our agencies and networks. So as of now we don't have an expectation that beyond early -- very early in the second quarter when we cycle through large disposition we completed last year to be back at a similar number for the rest of '18. That said, I think our expectations of plus or minus 1% from the second quarter of '18 on as far as the net acquisition disposition activity, it's based on what we know today. So deals we've completed either acquisitions or dispositions, we’ve completed as of now, that could change and the expectation right now is it's not going to change significantly. And if and when we close new acquisitions, the number will grow. But that’s not to say that when opportunities come along to divest and dispose of nonstrategic assets, which I would say we continue to evaluate we're going to take advantage of those opportunities if they make sense for us and for shareholders. Hello? Okay. Well, thank you all for joining the call and we appreciate it.

Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.