…Abrupt start …and welcome to the Omnicom Second Quarter 2020 Earnings Release Conference Call. At this time, all participants are in a listen only mode. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I’d like to introduce you to your host for today’s conference, Senior Vice President of Investor Relations, Shub Mukherjee. Please go ahead.

Good morning. Thank you for taking the time to listen to our second quarter 2020 earnings call. On the call with me today is John Wren, our 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 I 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 these statements are our present expectation 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 material. 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 the line for your questions.

Thank you, Shub. Good morning. I hope everyone on the call is staying safe and healthy. I’m pleased to speak to you about our second quarter 2020 results. The quarter posed extraordinary challenges and our management team responded with the focus on our people, our clients and our business. The effects of COVID and related lockdowns were unprecedented. Additionally, communities around the world felt the weight of the act of racism in the United States and the protests that resulted from them. During this difficult times, the health and the safety our people remained our top priority. And we are committed to providing the support they need. In the midst of these events, and with the substantial majority of our staff continuing to work from home, we delivered outstanding work for our clients and had several key new business wins. This speaks to the resiliency of our people and our clients more than ever are seeking our creativity, partnership and support to develop responses for their recovery and growth plans as we operate in a new norm. The financial impact of COVID and stay-at-home orders was significant during the quarter; with few exceptions the effects were broad-based across disciplines industries and geographies. Negative organic growth reduced our revenue by 23% which includes the decline in our third-party service costs. As you may or may not know our organic growth is based upon reported revenue and is therefore not comparable to the organic growth or other financial calculations reported by our competitors, which are based upon net revenue. The sub disciplines that were most negatively impacted by COVID were events, field marketing and merchandising and media, a majority of the revenue decline from these businesses is the result of the reduction in third-party service costs incurred when performing services for our…

Thanks John and good morning. As John said since the outset of the pandemic, our leadership teams across our networks practice areas and agencies have been focused on aligning our cost structure and business model with the changes impacting us and our clients around the globe. This required our agencies and their client service teams to focus their efforts on delivering meaningful insights and solutions to help our clients prepare for and respond to a rapidly changing consumer landscape. Although, we faced an unprecedented business environment this quarter and the near-term outlook continues to include quite a bit of uncertainty, we believe the actions our agencies have taken to date will allow us to weather the current environment and emerges a stronger organization. Throughout the second quarter, we took numerous actions to align our operations in response to changes in client demand. They included severance actions to reduce employee headcount, which resulted in an incremental charge of $150 million. Real estate lease impairments, terminations and related fixed asset charges of $103 million that will allow us more flexibility to match our headcount and anticipated changes in the use of space, as well as the disposition of several small non-core underperforming agencies, which resulted in a loss of approximately $25 million. In the quarter, these repositioning charges totaled $278 million which reduced our net income by $233 million and diluted earnings per share of $1.03. We've presented 2020 results to also separately show the impact of the repositioning charges and disposition actions. The non-GAAP adjusted results on slides 5 through 8 show how our underlying business performed year-on-year on a more comparable basis. I will detail the impact of the projected future benefits of these actions in a few minutes. During the second quarter, we also continue to take proactive steps…

[Operator Instructions] Your first question comes from the line of Michael Nathanson from MoffettNathanson. Please go ahead.

Thanks so much. Phil, can you hear me? I appreciate your disclosure on the added third party service costs. And I guess I have a couple questions for you there. One is, are those essentially just pass-through costs where there are no profits generated by it? And why wouldn't you show that as a revenue item and then net it against the gross to and to get to net revenue. And then can you help me, I understand that third-party service costs and CRM expenditure that make sense. But what type of third-party service costs would there be in the advertising line. Thanks.

Sure. In the context the COVID given the size of our overall cost decline in P&L. We thought it was meaningful to provide some additional details or the components of that cost decline. So we added third-party service cost line because they're directly linked to reductions in our revenue and for changes in client spend. So that drove the additional information. But from our perspective we don't pick and choose what cost to include or exclude from a hybrid or net revenue number or an EBIT number for that matter. So, while some of those costs might be directly passed through without any potential margin on them. There are components of those costs that ultimately are part of our overall business. So in the events business as an example, if we negotiate a bundled deal or bundled package for delivering event. And we act as a principal on that event. All those costs go in our P&L. And by definition there's some margin on the overall project. So it's built into the estimates of what those costs are going to be when we negotiate what the fee is going to be. We also think it's important that our managers are accountable for managing a full P&L. And the cost base rather than only the net numbers. And if you manage to a net number ultimately it can lead to some bad habits or bad decisions. For example, if certain costs are going to be excluded or netted out. And the managers of the business aren't accountable for them. Yes, there's a risk that those cost ultimately aren't managed and what you get over the long term is more of those costs because they're netted away and people aren't accountable for them. So we don't believe that the right approach is to kind of net those numbers take a portion of the P&L, set it aside and say you can ignore these costs. So that's why we've approached it that way. And we've laid out the fact that it's impacted three of our disciplines CRM execution and support, CRM consumer experience. And some of the media business and the advertising discipline also have some of those proprietary third party service costs.

And then, Phil, just in media would that could be more on the trading line? Your media where basically you're taking a position in principal media and -- because I'm trying to figure out, I understand the event side of it, but I'm trying to figure out media side. What's third party? Is there anything you can help us with it?

Yes. So if you take which we've talked about a number of times, the programmatic business, there are two alternatives in terms of how we approach the programmatic business. Those programmatic in the traditional sense handled as a traditional agency for the bulk of our media business. And then there's a bundled solution, if a client is focused on achieving a particular ROI or a particular metric. And this is true with a lot of performance marketers. They know what they're comfortable paying for whatever that metric might be. And they want to fix that cost, so if they fix that cost; they choose the bundled product, they opt into our bundled approach. We deliver that bundled media for fixed price. And the risk of delivering at that price better or worse we bear. So those costs end up in our P&L on a gross basis as opposed to a net basis when we act as an agent.

Your next question comes from the line of Alexia Quadrani from JPMorgan. Please go ahead.

Thank you very much. I'll start with some couple of questions. So first is can you isolate roughly what percentage of your business is events and field marketing? These segments that were essentially zero in the quarter, but really hit very hard I should say? I just want to get a rough idea of more comparable performances to your peers. And do you think they can return those businesses at least in some part or in some regions by the end of the year?

Could you say that last part again, Alexia?

Just curious if you're anticipating any of the events business or field marketing businesses coming back at least in part or in some regions by the end of the year?

I think when it comes to events; I don't think we anticipate any meaningful turnaround in the second half with that business in particular. I think there's still an awful lot of uncertainty even with respect to live sports as to what's going to come back and how long it's going to stay back and what it's going to look like. So events have tied into live sports a lot of times. How the pandemic's going to play down and or play out and when governments are going to open up to the point that large gatherings will be back again. We just don't, we just don't know. And we're not anticipating in the second half that there's going to be a meaningful rebound I guess, I'd describe it that way. And then with respect to the field marketing business and the events business, field marketing and merchandising is probably half or a little more -- probably more than half of the CRM execution and support. Discipline and the events business, it really depends on which year in particular you're looking at. In the current environment events are probably in the neighborhood of I'd say broadly to 20% to 30% of the CRM consumer experience discipline.

The only caveat I put that, Alexia, is in the case of the Olympics which was postponed. Clients were major sponsors who had stopped work when the Olympics got moved. We will start commencing, planning and doing some other work at the end of the third quarter or the beginning of the fourth quarter. Then in very, only a couple of instances we have clients that have people who've been trained on those clients for an extensive period of time. And the talent is very hard to find. And the clients continue to pass to make sure that those people stay in own and employ and working on projects for them. But to Phil's point that's most negatively affected. Other examples are we have people that are dedicated, it's not a big number, to the theater business and that's not coming back this year.

Thank you. And then thank you guys also for your color and revenues and your opening comments. But I was hoping you could give us a little a bit more information in terms of how much organic revenue growth improved, if at all in June in the quarter? I know you don't necessarily like to dissect it month-to-month, but just here to get a sense if there's a little bit of a trend of seeing some better performances as the quarter progressed that would be helpful. And when you mention hopefully getting flattish margins in the back half of the year, I guess what sort of organic growth assumptions are you sort of looking to achieve that?

The most drastic change we saw actually occurred in March, January, and February was fine. March is where we saw the first real decline there hasn't been a discernible marked difference in what happened in April, May and June. There were some differences but not enough to, for me to declare a trend at the moment. What we've been doing and probably greater accuracy than when people were working in the office is working with our folks who've been really doing an excellent job in terms of forecasting. In terms of month-by-month what they see based upon what we know. I'm not prepared to say much more than what I said in my prepared remarks because you tell me is America going to stay open, is it going to open further? Is it going to close further? It'--s we're working -- we're working pretty hard. We're doing whatever we can from wherever we can, but a lot's going to have to do with our clients. So I can't -- we'll give you more color as the year goes on as we know it, but I'm not going to sit and try to be more specific than it was. Phil you can add if you would like to.

Yes. Just in terms of the second half and our outlook in terms of margins, I mean we're going to continue to focus on operating profit dollars not necessarily margins, but we've done an awful lot of work and our agencies have done a lot of work trying to get the cost base in line with current revenue not based on a bunch of assumptions around when certain markets are going to open up. And assuming that they're going to get back to revenue growth mode. We've tried to be very realistic and somewhat conservative in the forecast for the second half of the year. So to the extent we had to take cost actions we took them now that doesn't mean that there's certainty that we're not going to have to take more actions in the second half because we'll continue to aggressively monitor that. But we certainly want and expect our people to be realistic about their forecasts and I think we have some confidence although there's quite a bit of this -- that's out of our hands in terms of what's going to happen with client spend. And the overall economic environment but we are confident that our people have done a good job managing the cost base.

Okay. I just I mean I totally understand the inability to forecast given how much is changing daily, but maybe put a different way in the markets where you have seen reopening maybe outside of the United States, have you seen a pickup in business there?

Yes. Yes, is the answer but we know China which opened first we've seen it open and closed partially and open and closed partially.

Same for Australia.

Same for Australia so not to the point that on this call I can predict with any confidence what's going to happen. If you told me what was going to happen I'd have more confidence.

Maybe our last question.

That question comes from the line of Ben Swinburne from Morgan Stanley. Please go ahead.

Thanks. Good morning, everybody. Just on the cost action which was obviously substantial and taken quickly. I think back in April, John, you were talking about trying to balance reducing costs, reducing heads and also keeping the right people and resources in place for the business to recover. So can you help us think about maybe both the 6,000 heads and also the real estate savings that you guys outlined today or at least real estate charges you took. And how we should think about those as the business comes back whenever it comes back because obviously you took those actions in reaction to the COVID crisis, but maybe some of those are permanent or structural reductions. So if we think 2021 is a rebound year of some magnitude, how should we think about expenses coming back in the business as you rebound off of 2020?

Well, just the quick answer is I think we said the annualized impact of the actions that we took is about $500 million bucks, that $500 million won't come back into our system unless the revenue is coming back. So we're pretty deliberate about that and meant the only thing that altered the way we took actions around the world were the government programs that were in place. Europe had more furlough possibilities where we kept employees tethered to the company. In the U.S simply because the only way people could get the benefits the government was offering was to actually make them redundant, that's what we did. So that's what motivated a lot of the actions in many instances across almost all of our companies people took voluntary pay cuts in order to preserve jobs. So there's a lot of moving parts and our bit as Phil mentioned and I think I might have for the second half, our -- each one of our individual offices has created contingency plans that flex up and flex down depending upon what they see with their clients.

But there will be some as the revenue grows some of the costs that are indirect or sorry some of the costs that are direct, they're going to come back and we'll be happy to have them back.

Right.

And then just to quickly follow up on your point, I think John you said the organic declines you think have peaked or the organic pressure is. You see the second half top line improving from Q2. I just want to make sure that's accurate and I think you said there was no real discernible trend for the months of the second quarter. So is the improvement based on sort of what your agencies CEOs are telling you to your point about forecasting? Is that sort of how we should interpret those comments?

Yes. So based on the most recent forecasts that are our individual companies have done bottoms up, so it's all bottoms up.

Thank you very much.

I think given that the market is just about opening here I think we have time for one more call, operator.

Your next question comes from the line of Julien Roch from Barclays. Please go ahead.

Hi, there. Thank you very much for taking my question. The first one is just to follow up on the $500 million of cost saving, if in say 2022 revenues is back to 2019 level how much of the $500 million will go back in, that's my first question. And then the second question is the third party service cost as a guide was very helpful and if you use that -- I kind of calculate that net sales were down 17% in Q2 but some colors on net sales in Q2 because we're live in extraordinary times and than usually not that much difference between revenue and net sale. And then lastly working capital worse by $280 million in the first half, any color on the full year? Thank you.

Well, Phil covers some of these. We don't believe in net sales. So as a concept, so we're not going to comment on it. Not being difficult that's just true.

Yes. So on the working capital front Julien I think the expectation is that our performance from the second quarter will continue and it's a day-to-day grind, three yards in a cloud of dust. We're happy with the performance in the second quarter for sure. It's been a challenge in this environment but we're going to do our best to continue those trends. As far as the first part of your question with respect to, if revenue got back to a normalized situation in say in the future 2022 or whatever period in the future, I think the probably the majority of those cost savings are salary and related driven and the majority of those costs are going to come back, no question. The real estate piece we expect to sustain but the real estate piece of the annualized savings is a much more smaller portion of that whole.

Okay, very clear. Maybe just the real estate. Is it what $50 million saving, $100 million savings?

On the real estate front --

It's a little less than that.

Yes. It's probably less than $50 million on an annualized basis.

Thank you all for taking your time to join us.

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.