Ladies and gentlemen, thank you for standing by. And welcome to the Omnicom Fourth Quarter 2018 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.

[Technical Difficulty] 2018 earnings call. On the call with me today is John Wren, Chairman 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 to 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 website. 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 expectations and that actual events or results may differ materially. I would 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 are going to begin this morning's call with an overview of our business from John Wren. Then Phil Angelastro will review our financial results for the quarter, and then we will open up the line for your questions.

Thank you, Shub. Good morning. Thank you for joining the call this morning. I'm pleased to speak with you about our fourth quarter and full-year 2018 results. 2018 was another year of ongoing change for the marketing and advertising industry. We continue to see many of the world's top marketers transform their marketing organizations to adapt to changing consumer behaviors and new disruptive competitors. For Omnicom, change provides opportunities, challenges and ample room for differentiation. I'm pleased to report that in this rapidly changing environment, our strategies, talent and execution have allowed us to continue to deliver solid financial results. For the full-year 2018, we achieved our internal organic growth and margin targets. Organic growth for the quarter was 3.2%. For the full-year 2018, organic growth was 2.6%. Our EBIT margin for the quarter was 15.3%, an increase of 30 basis points compared to the fourth quarter of 2017. For the year, our EBIT margin, excluding the effect of our third quarter dispositions and repositioning actions was 13.8%, an increase of 20 basis points versus the prior year. EPS for the fourth quarter was $1.77 per share, which compares to a $1.55 per share in the prior year, excluding the charge related to the U.S. Tax Act that we took in the fourth quarter of 2017, an increase of 14%. We achieved these goals by growing our strong base of talented people, investing in technology and analytic capabilities as well as continuing to differentiate our organization structure, so we can deliver custom integrated solutions that drive business growth for our clients. Taken together, these strategic steps have helped us grow both our top and bottom line. In the quarter, we grew organically in every geographic region of the world with broad participation across our agencies, disciplines and client sectors. Looking…

Thanks, John and good morning. As John just described, the fourth quarter results represented a strong end to Omnicom's year. As is essential in today's business climate, our agencies remain focused on responding to our clients' needs in an ever-changing marketplace, while at the same time, they continue to manage their internal cost structures to efficiently deliver their services. Our business has continued to execute on both objectives. We also continue to see the benefit of our Company-wide efforts to increase our operational efficiency. Regarding our revenue and starting on Slide 5, for the fourth quarter, we had organic growth of 3.2% or $132 million, as our agencies overall did well to improve upon last year in capturing year-end project spend. FX again negatively impacted revenue, reducing our reported revenue for the quarter by 2% or $83 million. Regarding acquisitions and dispositions, as we spoke about during our last call, we completed several dispositions during the third quarter, the largest of which was Sellbytel, our European sales support business. We also completed several acquisitions over the past year, including this quarter's acquisition of the Media and Performance Marketing division of UDG, a Strategic Digital Media Group in Germany. The net impact of our acquisition and disposition activities reduced fourth quarter revenue by about $101 million or 2.4%, in line with our expectations. And lastly, as a reminder, we were required to adopt the FASB's new Revenue Recognition Standard, known as ASC 606, effective with the beginning of 2018. The impact of applying the new revenue recognition standard reduced our reported revenue by approximately $38 million or 0.9% for the quarter. As a result, our revenue in the fourth quarter decreased to a little under $4.1 billion when compared to Q4 of last year. Later on, I will discuss the components…

[Operator Instructions] We go to the line of Alexia Quadrani with JPMorgan. Please go ahead.

Thank you so much. Just a couple of questions if I may. First, I guess, how should we think broadly about organic growth in 2019? And can we continue to see this improvement in the U.S.? And then just a second question really is on the CRM execution business, which remains weak. I think you highlighted field marketing was particularly soft. I guess, are you planning to add any other divestitures similar to the ones we saw in Q3? Thank you.

Good morning, Alexia. This is John. In terms of organic growth at this point, we are – what will start tomorrow is the process of sitting down with our companies and going through their final profit plans for 2019. So at this point, if I was making a prediction, I'd say organic growth is probably going to come in somewhere between 2% and 3%. I think it's similar to what we said in the past. Some of the wins that we've received, to your second question of domestic growth, I'm optimistic. Some of the wins that we had in the fourth quarter of 2018, specifically Ford and the U.S. Army, they're not going to make too much of a contribution, I don't think in the first quarter and half of this year, but after that, they should start to contribute rather significantly to our performance as domestically and in other parts of the world. I don't know, Phil, you want to add?

Yes. Just to clarify, I think the 2% to 3%, which was our internal target last year is for the year. So that's where we're seeing 2019. At the moment, we don't have the best visibility given it's early February, in terms of what the year is going to shake out to be and certainly a lot of things can change between now and the balance of the year. But I think that's our current set of expectations.

I can promise you, if we can do better, we will. With respect to your other question about CRM execution, we are constantly going through – we did do a lot of disposals during the year, but consistent with, I think what we've been telling the shareholders, we've been looking at our portfolio of companies and those that we don't think will contribute to our growth as we look forward, where we are considering disposal. We did quite a bit of work in the third quarter and earlier in the year that review constantly goes on, and as we will continue to go on, especially as we go through the next three or four weeks worth of proper planning for 2019.

And then just a follow-up if I may on your earlier comment, I don't want to nitpick too much about organic growth in any one quarter because I know it's a small dollar amount that makes a change, but just maybe a broader comment about the Q4 performance. You mentioned project business in Q4 came through well, which was a benefit for the better U.S. organic growth in Q4. But did you get a sense of sort of the underlying feel of the business also showed some improvement or am I trying to split hairs here that is too difficult to answer?

Well, you might be trying to split hairs a little bit. As I think, we've said rather consistently, I know, I have for the last 20 years, when we get to the fourth quarter, there is a lot of activities that go on. There are a lot of budgets, which clients haven’t spent that they accelerate activities on. There are a lot of opportunities to sell additional products, which motivates clients to do so. And then there are some clients who try to hold back that spending to increase their P&Ls. This year, I think if I'm remembering correctly, 18 of the last 20 years, the fourth quarter has come through with that project spending. I think those one or two years during the great recession.

Yes, last year was realistically, a little bit easier for the comp and we've had 10 years before, because we didn't do as well frankly in picking up that project spend as we did this year.

Thank you very much.

Next, we’ll go to the line of Craig Huber with Huber Research Partners. Please go ahead.

Yes. Good morning. I have three questions. My first one, just a follow-on to Alexia. Your organic outlook this year of 2% to 3%, what is your preliminary thought on margins for the year? Flat or what are you thinking right now, please?

Phil and I maybe thinking differently. Again, we haven't finished our profit planning. At this point, if I had to make a prediction, I'd say, I'm looking at them to be flat. The primary headwind we have in margins is the strength of the U.S. dollar. We more or less predict for you what the impacts are going to be on the topline and we tell you that, but we don't predict for you what the impact is going to be on the EBIT line and that's always – that always create some pressure. So right now, I'd say margins should be flat.

Yes. I mean, I wouldn't disagree. I think, we're certainly going to be working hard, yield a different answer and yield some improvement. But we do expect, let's say, we do expect to achieve some benefits from our continued operational efficiency efforts. We do expect some improvement from a change in mix achieved by some of the dispositions we did in 2018, businesses which are in balance little bit lower margin than our average. But FX in the fourth quarter, which was negative 2% on revenue for the first time in quite some time, did have a headwind on our margins in the fourth quarter. And we expect FX, certainly in the first half and for the year in 2019, will likely be much more of a headwind. How that will shake out our margins is tough to tell depending on where those FX movements happen.

And my second question is net new business wins in the fourth quarter, what was that number please?

Phil, you know it?

Yes, it was a little over $1.1 billion.

Okay, great. And then my last question, your performance obviously for the last year was much better than your two large European peers, although it wasn't as strong as it's been historically. And I'm just curious, John, it's been nowhere near nominal GDP growth per se. What would you say, John, is the three biggest factors in your mind that held it back to up 2.6% for the year and maybe what your outlook is for each of those factors for this new year? Has anything significantly changed on each of those three? Thank you.

I think that the industry itself has been going through some changes in terms of the way the acceleration of digital and how that gets you rather than traditional forms of media. Some of the portfolio companies that we've had, which always contributed EBIT, especially in the areas of CRM Execution businesses like field marketing and other things, companies like Amazon and online delivery, eliminated the need for the same type of activity that has happened on a retail level, that's happened in the past. So it's been the last – I'd say two years have been years of transition. When we look at our portfolio, when we look at the companies that we believe will contribute to our growth going forward, we're looking at those factors and other changes in technology, which are going to impact the services that we've traditionally provided. And so far we've been able to do a pretty good job I think of identifying those areas and taking action on them where we can still get value where other people still have interest in those areas. So I think that's way down a bit in terms of some of the growth. The other thing that sitting and running a company, you don't mind when your competitors are weak, you really don't like it when your competitors are wounded because they tend to do things that they wouldn't do if they were simply weak and so it's been a rather competitive environment the last six months or so.

Great. Thank you.

Next we have a question from the line of Julien Roch with Barclays. Please go ahead.

Yes, hi there. My first question is, can we have the impact of Accuen on organic in Q4? The second question is I feel several times you said that disposition had a positive impact on margin, FX had a negative impact on margin and your cost as well had a positive impact on margin. So could you break down the margin increase in 2018 between those three things? And then the last question is, in Q3, you kind of offset your capital gain of $178 million by a provision for restructuring of $149 million. Well, I assume that's mostly a provision. How much of that provision did you use in Q4? Thank you.

Sure. While I'm answering the first two, we need to get the answer on the third number, but that will be in our 10-K filing. So on the first two, I think, well the Accuen number was $6 million growth in the fourth quarter and it basically was largely in the U.S. On the margin front, I can tell you, FX in the fourth quarter was a negative headwind of about little over 20 basis points. It's hard to split out and we don't, what was the exact impact of our operational efficiencies and what was the exact impact of the dispositions, but FX for the first time was negative in, I'm not sure I recall 20 basis points or so a meaningful difference, but I think some of the listener certainly are interested in that number. So that was that rough estimate. And then on – can you just give me a minute on the restructuring front, I think actually, I'm going to have to give you that offline Julien, because – we have the number, but I want to make sure I answer your question directly. So we can give you some clarity on that offline.

Okay? Sure. Thank you very much.

Sure.

Next we go to the line of Dan Salmon with BMO Capital Markets. Please go ahead.

Good morning, everyone. John, you've done a ton of work over the last couple years continuing with divestitures and changing your portfolio of assets, you've done the reorganization around practice groups, when you look across your base of business. I'm curious how do you think it rolls up into exposure by vertical – by client vertical, do you think about it that way at all looking to have maybe exposure to verticals with better secular growth over the long-term? And then, just related to that is sort of maybe mix of your largest clients versus how important it is to you to engage some of the more up and coming innovator brands maybe what we call the direct to consumer brands, more broadly. We would love to hear some more thoughts on that. And then, Phil, just quickly M&A was obviously considerably higher this year versus 2017. Maybe that's you also outspent free cash flow. Would you say 2018 is more reflective of what you would consider a quote unquote, "normal year" in that 2017 was unusually conservative and how we think about that to frame your thinking on your uses of free cash flow this year coming up? Thanks.

A couple of questions there, I think if you look at the verticals, I think it's Slide 10, so I referred to it earlier, kind of give you an indication of the industry sectors that we service. Since the formation of Omnicom, excuse me, it's Slide 9, since the formation in Omnicom, we've always been focused on serving one, blue-chip clients, two, globally not concentrated in any one area or in any one industry and I think if you look at this slide, plus we've provided it in the past, if you put a few of these years not only 2018 and 2017 together, you'll see that that's been the case for quite a while. So that's in one instance. If you take a look at our top 25 clients, our matrix area covers up to 100 of our top clients now, but just the top 25, it represents just some of the formula $4 billion of our revenue and we service them in many, many areas and it's a concentration – it's not a concentration of any particular industry, hash tag, there is auto, there is Pharma, there is financial services, it goes across the Board, very consistent with let's depicted on Slide 9. In those areas where we've been able to do that, during the year those same clients contributed about 4% growth to our overall organic growth for the year. So we are proving that as we have these practice areas; number one, focusing on skills and crafts the clients need, plus a matrix system of practice areas where we bring everybody servicing that client together, we're able to identify more quickly, needs that clients have and adjust our portfolio and services as quickly as we possibly can. So it's all moving again it's been going on for close to three years, but we are very satisfied with the progress that we're making. We think it will contribute to our progress going forward.

On the M&A question, I think it's hard to say what 2019 is going to be, because we don't put together internal target with a dollar amount for our targeted M&A spend and then set our M&A focus and network as off to find deals to meet that target, end up doing deals that you otherwise probably would have been better off not doing, but you might have met the target. So we don't plan to change that approach. I think our preference would be to do more M&A similar to what we accomplished in 2018, more accretive deals if they're available, if they have the right strategic and cultural fit. We don't want to do more than less. So we prefer to do more deals like we did in 2018 as opposed to a pretty low level in 2017, but it's hard to predict. I mean we've got a number of them in the pipeline that we've been working on and continue to work on. Some of them end up having a long cycle of discussions. Some of them we don't ultimately get close. So it's hard to predict, but we would certainly prefer to look more like what we accomplished in 2018 and 2017.

Great. Thank you, both. Very helpful.

Sure.

Next we go to the line of Tim Nollen with Macquarie. Please go ahead.

Good morning. Thanks. Just like – just one question like to follow up on the outlook for 2019. If you could maybe give us a little bit of color on how clients are approaching spending this year, just in general terms given some big macro issues such as possible slowdowns in China and Brexit risk and so on. Just kind of how are clients thinking about ending this year versus other years and if it's possible to break down kind of an underlying client spending impact on the 2% to 3% versus new business flowing in place?

The clients that I've spoken to and we'll get greater insight as we talk to some of our network heads over the course of next 10 days, they are cognizant of the fact that there is a lot of change going on in the world. These are Brexit, you got China slowing down, is the Fed going to raise interest rates, is it going to stay on hold. There's quite a number of factors. Having said that, I believe I'm speaking for most of our clients and they know that they're in the business of selling products and growing their top lines. So they're going to continue to do whatever activities are necessary to accomplish those tasks. So there's no fear – I don't get a sense of fear. I don't get a sense of this is going to be – everything is fine and there are no geopolitical or other risks out there. It's just going to be another year, similar to the ones we've had in I think the last two. And your second question, I think I missed.

Yeah, if you could just help us understand how much of the 2% or 3% preliminary outlook is just underlying client ongoing spending versus inflow of new business, because you had some nice wins toward the end of the year?

Yes. At this point in the year, we don't calculate that. Typically what makes up our organic growth is growth from existing clients, new business wins and losses that we might have. It's been net of those. Yes, it isn't a single number and it isn't that easy to kind of capture it. From a definition perspective it might down pretty straightforward and simple, but when you collect the data at the detail level and roll it up that there's quite a bit of judgment in terms of how those things fall into each of those buckets. So we don't have that kind of information readily available this morning.

Okay, sure. Thanks a lot.

I think the market is about to open. We have time for one more call, operator.

Very good. It’s the line of Jason Bazinet with Citi. Please go ahead.

I just had a quick question. You were very kind to talk about the headwind next year, acquisitions and net of dispositions on the topline, to talk about those disposed assets also having lower margins. I just wondered if the disposed assets also had slower growth and might sort of help your organic growth or maybe indeed they were faster growing, it might be a headwind, but any color on the impact your organic growth would be helpful from the dispositions.

Personally, I'm not anticipating it is having a significant, statistically measurable type of impact on our overall performance in terms of organic growth. What we were doing, the reason we got paid value I think for the companies that we did dispose off was because of we were projecting out several years and saying that unless we became tremendously larger in these particular areas, we probably wouldn't be able to sustain the growth that we had. And so therefore, we made a decision that somebody else could do a better job with those assets and that's why we got rid of them. So I don't have that calculation for you.

Yes, I think we did that calculation in Q3, but it's not one that we've kind of baked into our internal processes and systems, because we typically try not to carve out all the bad stuff, leaving all the good stuff. But I think it's safe to say that as a portfolio, as we look at 2019, the businesses we disposed of in 2018 were not growing faster than our overall organic growth profile in 2018 for the rest of the business, exactly how much from a dollars or percentage perspective by quarter, we don't think the numbers are going to be that meaningful and we don't have them at hand.

Okay. Very helpful. Thank you very much.

Sure. Okay, well thank you everybody for joining the call and we'll talk to you again soon.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.