Good morning, ladies and gentlemen and welcome to the Omnicom Third Quarter 2020 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [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 third 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 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 material. We are now 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’m pleased to speak to you this morning about our third quarter results. I would like first to thank our people for their performance in a complex and volatile environment. We recognize the challenges you are facing personally and professionally. We will continue to support you and to maintain our unwavering commitment to keeping you safe, as we continue to effectively service our clients and preserve the strength of our business. As we expected, the negative impact of COVID-19 on our business peaked in the second quarter, and we experienced significant improvements in the third quarter. Organic growth declined by 11.7% or $424 million, which includes a decline in our third-party service costs of $194 million. Sequentially, we saw improvements across all geographic regions, and most of our large countries with the only few exceptions including Brazil, India, Japan and Singapore. Similarly, our largest industry sectors had significant sequential growth, with pharma and health as well as technology growing in the third quarter versus the prior year. As anticipated, some of our clients’ industries that have been hit the hardest, such as travel and entertainment, as well as our events businesses continue to be challenged. Our EBIT margin in the third quarter was 15.6% as compared to 13.1% in the third quarter of 2019, driving year-over-year growth in operating profit and net income. The performance can be attributed to a number of factors including repositioning actions taken in the second quarter, significant reductions in addressable spend, voluntary pay cuts across the group, which will be phased out by the end of the year, and reimbursements in tax credits and the government programs in several countries. As you know, earlier in the year, we took measures to provide additional liquidity during the COVID crisis, and we…

Thanks, John, and good morning. As John said, the negative impact on our business caused by COVID-19 peaked in Q2. And as business conditions improved, our results improved considerably in Q3. Our performance reflects the benefits from the actions we took to align our cost structure with the current operating environment. And while the decline in revenue was in line with our expectations, our margin improvement exceeded our expectations. I will cover that in more detail later. Turning to slide 4 for a summary of our revenue performance for the third quarter. Our organic revenue performance was negative $424 million or 11.7% for the quarter. The decrease was an improvement from the unprecedented decrease of 23% in the second quarter and was in line with our internal expectations throughout the quarter. And while we still experienced declines across all regions and disciplines, except for the continued growth of our specialty health care businesses, those reductions were about half the levels we saw in Q2. The impact of foreign exchange rates increased our revenue by 0.5% in the quarter versus the slightly negative impact we anticipated. This was due to the moderation of the strengthening of the dollar compared to the prior period. And the impact on revenue from acquisitions, net of dispositions, was relatively flat or a decrease of 0.3%. As a result, our reported revenue for the third quarter decreased 11.5% to $3.2 billion when compared to Q3 of 2019. I’ll return to discuss the details of the changes in revenue in a few minutes. Turning back to slide 1. Our reported operating profit for the quarter was $501 million, up from $473.3 million in Q3 of last year. Our operating profit in the quarter was positively impacted from the cost reductions resulting from the repositioning actions we undertook…

Thank you. [Operator Instructions] Your first question comes from the line of Alexia Quadrani from JPMorgan. Please go ahead.

Thank you very much. Understanding your earlier comments, John, about how this unprecedented lack of visibility in Q4, I’m curious if you can share with us I guess what color you do have, meaning how maybe the third quarter progressed in terms of the improvements that you saw, did you see stronger improvements in September versus the start of the quarter? And maybe any color you have in just what you’re seeing now in October, just to give us a little bit of idea how we can position ourselves or take a look for Q4?

Sure. Well, Lexi, as you know, if this was a normal year, we’d be talking about the project spend that normally occurs in the fourth quarter, which we generally estimate to be $200 million to $250 million. So, COVID or no COVID, that still exists in terms of whether the companies will come up with projects to promote their brands. More specifically, we don’t have October numbers yet, but I expect October to be probably the strongest month in the quarter, unless we do see that project business flow in, in the last six weeks of the year, and that will have a lot to do with things that are out of our control. I don’t have any clues to how Christmas is going to work out. There’s closures that you’re starting to see in Western Europe, these partial closures. And at least the United States that stayed state open for the most part. But cases are going up. So, there’s a lot of unknowns far more than we have in typical periods. You can rest assured that we won’t need $1 on the table, and all of our people are out there trying to help their clients because comments that I made earlier in my prepared remarks, brands are even more important than they ever were. I think, the one other change that we’ve seen during this entire period is people are using shopping list for the first time. They’re not just browsing around and buying things randomly. They typically know what they want to buy before they go out and buy it. So, we’re in that kind of period. I can assure you that every one of our agency leaders is looking at their business every single day. And we have alternative plan, both for growth and for some bumps in the road that we may hit. But, we think the second quarter was the worst quarter. We saw improvement in the third, and we’re hoping for a similar improvement in the fourth. I don’t know, Phil, do you want to add?

Yes. In terms of the third quarter or the reference perhaps to a trend as far as months go, we didn’t -- I would just say, we didn’t really see a trend necessarily that would be meaningful. We typically don’t find them because of the way monthly results are different than the quarterly process. So, I don’t think there’s anything we can interpret from the trend in the third quarter that we would project for the fourth quarter.

Okay. Thank you. And just one follow-up question. John, in your opening comments, you talked about the accelerated shift to e-commerce and digital in general and the crisis and how you guys reacted to that change in spending behavior. I’m curious if you take a step back, is this shift, this accelerated shift, a positive for your business versus the more traditional way?

We believe it is. At the core, digital spending has crossed, I think, 50% at this point for media or very close to it. And complexity is actually our friend. The more complex the transaction is -- we’re executing the transaction, the better it is for our businesses and the way we’re positioned.

Your next question comes from the line of Michael Nathanson from MoffettNathanson. Please go ahead.

Thanks. I have one for Phil, and then one for John. So, Phil, could you just -- on the improvement in third-party service costs, the improvement was about $200 million versus 2Q. Can you give us a sense of I guess what activities helped I guess improve whatever revenues retires third-party service costs? Because I assume events are relatively nonexistent. And then, John, back to Alexia’s second question. I know you’ve been repositioning the Company for several years now to take advantage of these shifts. But, given the acceleration you’re seeing right now, does this speed up your need to maybe dispose of more assets and maybe go on more of an acquiring spree to kind of get ready, or do you think you have the assets you have in place now and the house is built way you thought it would be?

Phil, do you want to go first?

I’ll go first. So, as far as the third-party service costs and improvements versus Q2, one thing to keep in mind, Q2 is a much bigger quarter than Q3. So, on top of the impacts of the pandemic, here, we’re dealing with a much bigger base as well. So, we did see some improvements. I think, certainly, the numbers would be consistent with your assumption that there wasn’t a heck of a lot of improvement in the event space. Certainly, there was a similar reduction in third-party service costs in our events businesses. And I think, the rest of the businesses feel forced. Certainly, they were down quite a bit, but there was an improvement Q3 versus Q2. The principal media activity that we have, certainly, there was an improvement versus Q2. And then, general out-of-pocket costs, which are required by GAAP to put in our revenue, those are down in a consistent way, travel and entertainment, those types of costs, which are reimbursed, those trends were consistent. So, a little bit of improvement just because of the size of the quarter is smaller in Q3 versus Q2. But, I think, the trends in some of those businesses continue to be negative, like events and the trends and others. They did show some improvement as clients and activity and spend improved.

And I’m not trying to be cute, but for those of you who know me, you know that I’ve never been satisfied, that we’re always constantly reviewing our operations and seeing how we can improve them. But, on a serious note, we’re very happy with our portfolio. We continue to make investments in key areas and we continue to search for acquisitions in key areas, not because we think there are gaps, we just think there are things that we have to do to constantly improve our product. You’ve seen us spend -- focus our attention really in certain media areas, also in precision marketing. Those are the main focuses at the moment in terms of our outside acquisitions, type of activities and searches. But, there’s no gaping holes from my perspective in the portfolio. The event businesses that we have, when events are allowed again, will come back. They’re very strong businesses and very well led. So, that’s just pain that we have to incur for the moment. But, there’s nothing terribly difficult there. The other thing I should add is -- so, I think, we’ve been very consistent over the years, is Phil and myself and the management team, whenever we go through the planning process, which is about to really start in earnest, we’re constantly looking not only at the immediate or next 12-month performance in a particular business, but what we anticipate that business will be contributing three, four, five years out from when we’re looking at it. And those are the businesses that we consider for the most serious change. But, there’s nothing pressing, or on the horizon at the moment. Phil?

Yes. I think, given some of the uncertainty over the last few months, we’ve gotten some questions about whether we need to continue to wait before we pursue certain acquisitions, et cetera. But, we aren’t -- I’d say, we aren’t constrained in terms of holding back from looking at good candidates, businesses that fit our strategy, and we think would add to the growth profile. So, we’re actively pursuing opportunities and there is certainly some opportunities that are out there. And as John said, it’s a continual part of our process as we head into the 2021 planning process. We’re going to reevaluate the assets in the portfolio, as we always do. And if we need to make some changes or take advantage of some opportunities as it relates to dispositions, I think, we’re going to do that in a prudent way.

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

I’ll attempt four, but they’re all with quick answers for Phil on numbers. You said that media did improve. A lot of other agencies are now giving us media. IPG said media was positive in Q3. So, can you give us more color on media? Maybe a multiple choice question. Was it down 10-15, 5 to 10, 0 to 5 or positive in Q3? That’s the first question. The second one is on cost, down 9.7% or $907 million year-to-date. Guidance for the full year, should we think about an absolute number, so an extra 300, 400 in Q4, or shall we think about Q4 as margin and then call on margin? That’s number two. And number three, how much of your annual savings will be permanent, both IPG, and you gave us a number already. And the last one is percentage of your revenue coming from consumer experience in e-commerce, preferably two separate numbers. But, I’d take one run a number because John said that was good growth future, but it’s hidden in the Company. Thank you.

Sure. If I leave anything out, just feel free to remind me. But, as far as improvement in media business, yes, clearly, improvement versus Q2, no question. I think, I would tell you that the performance was better than the overall average. But, I would say, not substantially better, but better than the overall average and significantly better than the performance in Q2. In terms of the cost base, the actions we took, the results that we saw in Q3 and what that means for Q4, I think, I would describe our expectations for Q4 similar to where we were on our Q2 call, which is we expect to get back to 2019 margins as kind of a good proxy for Q4. We’re going to continue to focus on managing the EBIT dollars and the operating income, which is what we did in Q3. To the extent we do better, we do better, that would be great. But, I think our expectations are that we will be able to get back to margins in Q4 of 2019 as a good proxy. I think our agencies have done a very good job in realigning the cost base with current revenue position. As John mentioned, yes, the Q4 visibility is not exactly very good at the moment. And there is always some uncertainty regarding project work and year-end spend. That’s certainly the case. This year, we’re not -- we’re probably not as optimistic that that will come through as we were at this time last year. So, that’s how we’re thinking about the cost base. In terms of permanent savings, we probably look at a little bit different than others. We’ve taken quite a bit of action. We believe we’ve done the right thing to realign the cost base. We think some…

Your next question comes from the line of Ben Swinburne from Morgan Stanley. Please go ahead. Ben Swinburne, please go ahead. Okay. We’ll move on. We’ll go to the line of Tim Nollen from Macquarie. Please go ahead.

My question is on account moves. John, you named several. I guess, normally, during a slowdown or a downturn, you don’t typically see a whole lot, but it sounds like there’s quite a bit going. I was just wondering you could comment a bit more on account activity, your position, any notable accounts to be aware of that has moved or that could move, either to or from you? And also, sort of the scope of work that you’re offering to them, if the demands are rising, I would assume to more of this precision marketing that you’ve been talking about quite a bit. Thanks.

Sure. You’re absolutely correct. Normally, in periods like this, we’d expect new business activity to be relatively slow. But, what we found since the second quarter, there has been quite a bit of activity. And most of it’s been pitched remotely, which is, again, if you’d ask me in January if this is possible, I’d probably say no. There are always going to be accounts that move. It’s just the nature of our business. Each one of our competitors is keenly aware of that as we are. But, at the moment, I’m not aware of any sizable moves or accounts that are either an opportunity, which will change our course, or a risk that will change our course.

And, in terms of the type of activities that the clients are looking for, is it more broadly based more of the precision marketing, I think, focused on the other areas?

Yes. I think, Phil made the point on -- we’re seeing activity throughout the home marketing funnel, but for certain precision marketing and moving product off shelves or product through the online distributions that exist, that’s where there’s been a great deal of focus during this period of time. And that’s where we’ve seen the growth. We’ve also seen significant growth in new business activity in the health care sector, which has been positive, especially when you take out the pass-through costs since the beginning of COVID. And our technology clients are spending more money and offering new products to the marketplace, being very supportive of their products. So, the trends are really consistent with what we’ve talked about industry by industry.

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

John, just maybe going back to your answer to Alexia’s question, it sounded like you think or hope that fourth quarter improvement versus Q3 would be similar to Q3 to Q2, maybe excluding projects. I just wanted to make sure we heard you right. And could you guys remind us how big the project business typically is or just a range for Q4? And should we be seeing that decline, whatever it is, show up in those third-party service costs? I just wanted to better understand the kind of puts and takes around projects for Q4.

Typically, and I think we can check the transcripts, I don’t expect the improvement -- the sequential improvement that we saw from the second quarter to the third quarter, I don’t see it continuing at that pace in the fourth quarter because of all the new uncertainties that are out there. And our concerns really are based with really what happened. You got hit with this in March. Businesses were starting to open and back up pretty much in most markets by the end of June, beginning of July, and they’ve stayed open through the third week of October. I don’t know and I can’t predict what’s going to happen or the impact of this sudden explosion of cases that we’re seeing just in the last week or two. I don’t think governments are going to close down fully, but I do think there’ll be a new pack. Having said that, I’ll go back to what I always said, and this probably in every fourth quarter transcript for the last decade. Typically, the project spend that we’ve seen in the past is between $200 million, $250 million. That’s a rough estimate. In the 25 years that I’ve been CEO, the only time that I didn’t see it come through is after the Great Recession. So, we don’t know. I don’t think anybody can predict what’s going to happen with respect to that. And a lot of our pass-through costs, especially when you get into this period, in the fourth quarter, had to do with events and promotions that people are spending between now and the end of the year. So, I don’t have a clear prediction of what the impact is going to be, but there is going to be an impact.

One clarifying point, though, Ben, when we talk about year-end project spend or project work that we’ve historically seen, it’s project work across the board. It’s across all of our disciplines. All of our agencies are out there working with their clients to ensure that they get what they need from a service perspective through the end of the year, through the end of the holiday season. It isn’t simply project work in the context of events and the event business or field marketing and people out in the stores. It’s all disciplines and all agencies.

Got it. Makes sense. And John, can I just follow up on an unrelated topic. I’m sure you’ve been impressed with the Company’s performance during this period, everyone’s got to work remote. When you think longer term, what do you think the Company gains from the flexibility that comes from a remote workforce? And are there any things you think you lose or there’s risk around this working in this way in a business that obviously culture is really important to your success. I’m just wondering how you’re thinking about that now that we’re six, seven months into this.

Sure. Well, I fundamentally believe that we will come back to the office. And we’re in constant communications with our employees as to when it’s safe to do that and where it’s safe to do that. Places like China, we’re already 100% back, other markets in Asia, more so than Western Europe, which was on the rise but is slowing down again, and in the United States. So, that’s number one. Number two, what I believe is going to occur post COVID is we’ve learned that things that we didn’t think we could do remotely, we actually can. So, as you look forward, and we’re studying it right now at the workforce, you don’t know -- I don’t believe they need every single function that I have, say in New York City, in New York City. Some of those can be moved to lower cost areas as we move forward, but there’s no immediate plans to accomplish that. The other thing that I am afraid of and we take lot of times talking about that is people’s mental health, as you’ve had to stay out of the office, because it hasn’t been safe naturally to come back, it puts different people in different positions, have deal with stress differently. And so, we’re constantly asking our human resource people to come up with programs and ways that we can help and assist our employee base to guide them through the situation that we’re currently in. Culture, I think, because we will come back to the office, I think we haven’t really lost much there as of yet. And finally, and circling back a little bit here, even though they come back to the offices that they were formally and may not have to come back five days a week. You may have a far more agile and flexible workforce as we go forward into the future. I don’t know if that covers all the points that you had.

No. That’s helpful. Thank you, John.

Your next question comes from the line of John Janedis from Wolfe Research. Please go ahead.

I had a quick follow-up and a housekeeping. Just going back to M&A, is this the type of environment where assets are more available, actually, or do you think sellers are looking to wait for the recovery? And then, on the cost side, Phil, as we think out to next year, can you call out the size of the wages being restored at the end of this year? And can you also remind us on the size of the field marketing business? Thank you.

In terms of acquisitions, there will be opportunities, because people find themselves in different positions in terms of liquidity and therefore, have to take different actions. So, we’re constantly looking in the areas that we remain focused in. We’re also willing to make investments as we have in the past in terms of starting things to support platforms that we care the most about. The good news for us is, and I think Phil mentioned it earlier, we’ve focused very early on in terms of our liquidity and our ability to conduct our business in a way that we want to uninterrupted as possible. So, if a good acquisition comes up, we’re ready to execute on it.

Yes. In terms of your other questions, I’ll start with the last one first. So, field marketing for us is probably averages around 2% to less than 3% of our revenue in terms of the size of that business or those businesses. And if you could just repeat the kind of the middle question?

Yes. Okay. I think, you had said that the wage or the voluntary wage reductions were going to be restored at the end of the year. And so, as I’m picking out to next year, I was hoping you could just size that -- the amount of that, the wages that come back?

Sure. So, there’s a few wage reductions in terms of voluntary salary reductions, I assume, is what you’re focused on. The size of any potential benefit of that in the fourth quarter is minimal in terms of what’s in the forecast for now. Most have been -- most of those reductions have been restored as of September 30th. There are still some that will go through the end of the year, as of now, including a small number of senior management at Omnicom. And I think, in terms of the numbers, it’s just not very meaningful and won’t have a meaningful contribution on Q4. That hopefully is responsive to your ask.

Yes. That’s helpful. Thank you.

I think, we might have time for one more question, operator, as the market is about to open.

Okay. That question comes from the line of Steven Cahall from Wells Fargo. Please go ahead.

Thanks. Maybe first, Phil, I was wondering if you could quantify the value of the 1 million square foot of real estate savings that you’ve got. And then, John, you talked about the Board maybe taking up the buyback issue at its next meeting in December. You’re a Chairman of the Board. So, I was just wondering kind of what you’re thinking in terms of the health of the balance sheet and what you need to see in the marketplace before you might return to the market. Thank you.

Do you want to go first, Phil?

Sure. Yes. I mean, in terms of the real estate, I think, the way we think about it is, it’s -- the actions we took were in a number of places, covered a number of different markets. If you want to estimate 40 to 50 feet -- $40 to $50 a foot, that’s probably a decent estimate. I don’t think we’ve got a more precise number than that. But, I think that’s a meaningful and good guide. And then, in terms of balance sheet and buybacks, John…

Yes. Our number one focus when looking at all of this is maintaining our investment-grade rating. So, that will govern a lot of the conversation in terms of when we restart our share repurchase program. Also, dividends are our main focus; acquisitions, where they’re possible is the second place we allocate capital; and finally, we use excess cash, if we determine to have excess cash, to start repurchasing shares again. So, it’s a complex conversation. But, as I said, dividends are number one, acquisitions will be two, and share repurchases will be the last. So, the good news is, we’re putting it on the agenda to at least start the conversation.

Yes, with the Board meeting have coming up in December.

Thank you all for taking the time to join us today. Thank you, operator.

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.