Welcome to the Omnicom Third Quarter 2021 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 call 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, Gregory Lundberg. Please go ahead.

Thank you for joining our third quarter 2021 earnings call. With me today are John Wren, our Chairman and Chief Executive Officer, and Phil Angelastro, our Chief Financial Officer. On our website, omnicomgroup.com we’ve posted a press release along with a presentation covering the information we will review today. A webcast of this call is also available there and an archived version will be available when today’s call concludes. Before we start, I would like to remind everyone to read the forward-looking statements, non-GAAP financial and other information that we have included at the end of our investor presentation. Certain of the statements made today may constitute forward-looking statements and these statements are our present expectations. Relevant factors that could cause actual results to differ materially are listed in our earnings materials and in our SEC filings including our 2020 Form 10-K, and our June 2021 Form 10-Q. Also during the course of today’s call, we will discuss certain non-GAAP measures in talking about Omnicom’s performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the presentation materials. We will begin the call with an overview of our business from John, then Phil will review our financial results for the quarter. After our prepared remarks, we will open the line up for your questions.

Thank you, Greg. Good afternoon everybody and thank you for joining today. We are very pleased to report that in the third quarter we continued our year-over-year double-digit growth in our key financial performance metrics led by a very robust top-line. As you can see on Slide 4 of our presentation, organic growth for the third quarter was 11.5%. The top-line results were broad based across our agencies, geographies and disciplines. Our growth was especially strong in CRM Precision at 24%. Our CRM Precision group is helping clients on their MarTech transformation, digital and e-commerce communications and direct-to-consumer marketing. The group has played a key role in many of our recent new business wins where overall we continued our very strong momentum in Q3. Broadly, across our group growth was driven by improved economic conditions. Omnicom’s suite of services and capabilities are positioning us to be extremely competitive in the marketplace to reimagine and strengthen our clients’ brands, seamlessly connect them with their customers across the marketing journey, transform their marketing technology platforms and innovate in e-commerce and new media channels. Our revenue performance flowed through to our operating profit in bottom line. Our EBIT margins for the third quarter were 15.8%, which exceeded our 2020 margins and significantly outpaced the comparable period in 2019. Net income and EPS for the quarter grew by more than 13% versus 2020 and were also significantly above our 2019 results. As we head into the fourth quarter, we are well positioned competitively and expect to benefit as economic growth continues to improve globally and from ongoing cost management. We currently expect our full year organic growth to be approximately 9% and our full year EBIT margin to exceed our year-to-date margin for the nine months ended September 30, 2021 of 15.1%. Going forward,…

Thanks, John, and good afternoon. While the impact of the pandemic continues to be felt across the globe, that impact has continued to moderate significantly as evidenced by our continued growth in the third quarter. Slide 3 shows our third quarter improvement across our income statement where our revenue growth and expense control drove an 8% increase in operating profit. Our effective tax rate for the third quarter was 24.1% down from our estimated effective rate for 2021of between 26.5% and 27%. This was primarily due to the favorable settlement of uncertain tax positions in certain jurisdictions, the impact of which was approximately $10 million. These items positively impacted net income and diluted earnings per share, which was $1.65, up $0.20 or 13.8% versus Q3 of last year and up $0.33 versus the third quarter of 2019. So our growth continues on this important metric, as well. And finally, our $0.70 quarterly dividend, which was raised back in February to 7.7% higher than last year. Let’s now flip to Slide 4 and look at the quarter in more detail beginning with revenues. Our total revenue growth was 7.1%. Organic growth for the quarter was 11.5% or $367 million, which represents a significant improvement compared to Q3 of 2020 when the pandemic drove an organic revenue decline of 11.7%. The impact of foreign exchange rates increased our revenue by 1.6% in the quarter as dollar continue to weaken against most of our larger currencies compared to the prior year. If FX rates stay where they were on October 15, we expect foreign exchange to decrease our reported revenue by approximately 1% for the fourth quarter, and increase our reported revenue by 2% for the full year. The impacts on revenue from net acquisitions and dispositions decreased revenue by 5.9%. Based on…

[Operator Instructions] Our first question comes from the line of Alexia Quadrani with JPMorgan. Please go ahead.

Hi. Thank you very much. I guess my first question is on the overall advertising market. John, I am not really asking about organic growth outlook, but more about the underlying state of the marketplace. Are you still seeing kind of an acceleration in growth or recovery? Are we sort of more at a steady state? I am trying to get a sense if there is some verticals, whether it’s entertainment, or maybe auto that haven’t fully recovered and therefore there is still better days ahead in theory ahead of us in terms of where we are in the recovery. And any thoughts staying on that vein of how we should think about the project base business at the end of the year. I know you don’t usually have a lot of insight this early on, but if you have any thoughts on that I’d appreciate it. Thanks.

Sure. There are still some areas to come that clients would like to deploy money to especially when it comes to live events and execution type of activities. We saw that start up again very robustly in China in the beginning of the quarter. Slowdown in China continue to had some problems but wherever its possible, you can see that we are coming back and companies like insurance companies or some of our government accounts would like to get back out on the road and visit with people constantly. So, there is more to come I think. Having said that, our underlying growth areas have been, as I said in the call, CRM, advertising and media, they’ve been strong and they’ve more than compensated for the not yet returned segments where people will in fact spend money as we move forward as more people get back to the regular schedule. And I think it’s been 20 months since most people have shut down and it’s – without any severe disease setbacks, I think we’ll increasingly see more and more people back in offices and – because they are already going to sporting events and dinner and enjoying themselves. And more to come and I am pretty bullish about the future.

And just on the project.

Yes, on the project business, in truth, at this point, we have forecasted what our folks have told us. As you know that changes – and can change quite a bit as you go through the quarter. We are being a bit conservative this year because, there have been supply chain concerns throughout this pandemic. They have gotten a bit more severe, but not outrageously more severe and we know that clients will continue to spend at the level they are currently spending at. We just don’t know if there will be those yearend situations where they can deploy more dollars. So, I think it was pretty clear that we believe that – I think for the first time, I didn’t warn about that in all the calls I listen to. And probably for the first time I told you what we believe organic growth can be for the full year in terms of what we see right now.

Yes. That’s really helpful. I appreciate that. And maybe just one follow-up for Phil if I may. On margins for the longer term and I am not looking for guidance for next year but just more of a qualitative commentary. Shouldn’t we see margins not necessarily higher than this year, obviously, but when you look versus a normalized year like 2019, should EBITA margins be maybe a little bit better in theory. Just you have more of a normalized cost structure, but maybe not a 100% back to the way it was pre-COVID. And of course, you have some of the benefit of the divestitures and the restructuring. I am curious how we should think about profitability versus again, pre-COVID going forward.

Sure. In summary, I think based on everything we know today, as we look out into the future beyond what John said in his prepared remarks, which was essentially we are comfortable that through nine months, we are at an EBIT margin of 15.1%. We expect for the year, we will be 15.1%. I think as we look out into the future, we don’t expect that our margins are going to deteriorate from that. It’s too early to forecast 2022. But we are optimistic that we’ll be able to maintain those levels. There is an awful lot of unknown at the moment with COVID and returning to travel. We have benefited from a reduction in travel expenses and some of the other addressable spend cost that our agencies have done a great job managing. We do expect to maintain some of that permanently. But as we grow, costs are going to come back. And the challenge for us is going to be to maintain them relative to a growing cost base and we are confident that our performance through nine months will be sustainable and our expectations for this year will be similar from a margin perspective going forward.

Thank you very much. Very helpful. Thank you.

And the next question comes from the line of Jason Bazinet with Citi. Please go ahead.

I just had a simple question on Slide 6. The disparity in organic growth between the U.S. and rest of the world. Is the right way to interpret that that the ICON disposition [Indiscernible] in the U.S. or is there other [Indiscernible] organic growth rate? Thanks.

ICON itself – you are correct, is a U.S. based business. So certainly that is a part of it. There is also, when you look at the components of our growth in experiential, and the experiential discipline, the growth outside the U.S. was significantly higher than the growth inside the U.S. Both the U.S. experiential business and the international experiential business grew rapidly in the quarter, which was certainly a positive. But the growth outside the U.S., which is more - say, large event-driven as opposed to the U.S. business having some component of consultative part of the business grew less rapidly. It grew right. Its performance was really, really good. But the U.S. business grew at a less rapid rate than the international business and we are happy with the performance of both. And then, in the U.S., as you said before, ICON, the disposition is largely a U.S. based business.

Okay. Thank you very much.

Sure.

And the next question comes from the line of Ben Swinburne. Please go ahead - with Morgan Stanley. Please go ahead.

Hi. Good afternoon, guys. I have two questions. The first for - one or both of you really on using your balance sheet and cash flow sort of more aggressively. John, you talked about M&A last quarter and wanting to be more active. You guys have picked up the pace there a bit. But I am just wondering if you think if you would like to do larger deals if you can find them when they make sense financially, particularly in areas like Precision Marketing or if that’s just a business where you are generally either building organically and/or buying kind of tuck-ins? And Phil, the same kind of question on the buyback, I mean you guys bought back - you picked up the pace this quarter. But your balance sheet is in great shape. You don’t have any maturities anytime soon. Money is pretty cheap. Business is growing. Just curious if you guys think that the balance sheet should be a more offensive weapon for lack of a better phrase than what we’ve seen recently.

Let me see if I can answer your first question. The size of the opportunity really has never gotten in our way one way or the other in terms of our ability or affordability for what we believe is a strategic and an accretive transaction. What is different and I did mentioned in the last call, you are right, was we went from a mode of cleaning up the portfolio to really reactivating our people that are looking for certain acquisitions in the areas that I outlined. And the practice, in addition to the corporate effort that’s going on there, each one of the practice areas that we are focused on for acquisitions is – has a similar group to the corporate group out scouring the market to find out if we can find partners that we want to do business with going forward.

So, on, on - just to continue on what John had said and then talk about capital allocation more broadly. Certainly, our preference, as we’ve indicated is to spend more of our free cash flow on acquisitions that the characteristics that we’ve typically described and that John touched on. So we are very confident in the areas that we want to grow in and where we are looking for acquisitions, the faster growth areas and businesses that are going to contribute to an acceleration of organic growth in the future. But I don’t think you can – you should expect anything to change significantly in our approach to capital allocation. We’ll continue to look at our free cash flow and paying attractive dividend. We are going to continue as we said, more aggressively to pursue acquisition opportunities in those higher growth areas, and we expect to continue to be successful on that front. We did start to get back in the market a little bit in the second quarter more in the third quarter of this year in terms of buying back shares and using our free cash flow for buying back shares. That will continue in Q4. We don’t set and won’t set an acquisition bogey for 2022 in terms of a dollar amount or a percentage of free cash flow. And if there are more attractive deals available, we are going to pursue them and if we overspend or underspend our free cash flow, we are going to do it for the right reasons. And our share buyback approach won’t change in that broader context either.

And then, if I could just ask a follow-up to Alexia’s question on the revenue guidance for 2021 of 9%. I think that implies something like 5% or 6% for the fourth quarter roughly. John, you mentioned you were being conservative or your colleagues conservative on project. Is that sort of why we are seeing sort of a deceleration relative to last year’s still pretty favorable comp in the fourth quarter? Or anything else you’d add about supply chain or anything else in Q4 that you’d want to highlight?

Sure. In answering Alexia’s question, that forecast, that implied forecast, I believe you’ve calculated to be pretty accurate. Any projects that we have been able to forecast are included in that’s – in what we are saying. So it’s not without some activity. We – in each year, normally, as you know, I get on the call and say, well, growth, who knows where growth is really going to be, but, because we don’t know what the budget flush project spending is going to be. We’ve taken a real hard look at it this year and we’ve probably done a better job of ferreting out some of those unknowns than we have in past years. So it’s a fairly, based upon everything we know sitting here right now, it’s a very reliable outlook. Having said that, that’s what we expect and that’s what we are hiring for and planning day-to-day as we go through the tactics of running a business. It’s something were to come in, so be it. But at this point, I don’t think it will be reasonable or responsible to forecast more.

Understood. Thank you.

And the next question comes from the line of Craig Huber with Huber Research Partners. Please go ahead.

Thank you. I have a few questions. First one, John, if you can just touch on, I am curious in your general conversations with your clients, what is the general tone of business from their end and how you think that’s going to translate here into their marketing advertising spend that will go through Omnicom?

Sure. Most of the conversations that I’ve been having with our clients have been multifaceted. I mean, they are generally very optimistic that as people return to the workplace and start to spend money, start to get out of the house that we’ll see more and more spending and growth, at least in the near term. That’s probably tempered by the supply that some of our clients can come through with in terms of the goods that are held up in ports or they know will come, they’ll be able to market but they are not certain that they’ll have them in their parking lots or stores to sell today. That’s their issue for the most part. We’ve spent a great deal of time looking at this and talking to people about it, to find out what the impact is from those issues on the current level of spending that we are seeing. And we are very comfortable that we don’t see any real cutbacks from what we are currently projecting for you. So - and it’s the great unknown. Everybody - it covers every bit of the news and all the rest and I think all responsible people are focused on it daily, so.

Then, John, we’ve talked about this in the past, in the long term, once we get through the pandemic, as the economy normalizes out here, you’ve expressed optimism to get your organic growth rate back to global nominal GDP type growth rates and stuff. Just go through for us what - why you are so optimistic you’ll be able to get back to that please?

The reason I have been optimistic is that, in the three years leading up to the pandemic, what we would do, we will strategically and I think sensibly and responsibly, trimming and reshaping our portfolio for companies that we believe were going to contribute to our growth longer term. And we finished for the most part, that process at the end of last year, the beginning of this - I guess this year, forgive me. And last year we started to truly search for and support using our acquisition dollars some of the areas that we have decided will be large contributors to growth going forward. And so our portfolio has changed I guess over the last several years and we’ve been very deliberate during the pandemic to not take our foot off of the accelerator. And so, I think we are left with matches where clients need and they are going to spend their money now and for the foreseeable future. And we will keep working at it and trying to make grow it and make certain that we can provide services that in the aggregate I am confident that we are going to get back to GDP plus.

And then, my final question, John, as you kind of look back on those three years or so prior to the pandemic, the organic revenue growth lagged global nominal GDP. What else would you point to why that actually happened if you have time now to look back on that?

I just gave you what I think was the real principal reason. I am sure there are many other factors. I’d have to think more before I could point to any other single thing that would materially have impacted it. The reshaping of the portfolio is terribly important.

Yes, certainly we try not to dwell too much on the distant past by now.

Very good. Thanks guys.

And the next question comes from the line of Dan Salmon with BMO Capital Markets. Please go ahead.

Hey, good afternoon everyone. I want to return – not maybe not specifically to the Jump 450 acquisition. That made a lot of sense for OMG, retail media is a really hot space right now. What I wanted to ask about John, was really how you feel about your e-commerce capabilities across the entire portfolio, presumably the accelerating shift in e-commerce is relevant to a lot of your agencies. So, would love to hear how you are capitalizing that across the group. Thank you.

Certainly. For a good part of 2020 and the earlier part of 2021, there was a concerted effort especially focused that of our media and retail shopper marketing practice areas to take a very hard look into skill sets and capabilities that we had within Omnicom. And how we could ensure and accelerate our knowledge and importance to our clients as they depend more and more on e-commerce solutions to interface with their consumers and their customers. And we are very bullish that we have a pretty significant set of resources out there that are able to respond to that need. And it’s one of the areas that we’ve identified and we continue to search for sensible acquisitions which will enhance the skills that are already within the company.

If I could slip in one follow-up for Phil, with maybe the worst of the pandemic behind us, can you comment just a little bit on the type of leverage levels that you - John, maybe you could comment as well and the Board are looking at over the near to midterm?

I think after we recently delevered, as we referenced, I think you can expect us to stay in around our historical levels on a gross debt basis. So 2.2, 2.3, 2.4 in that neighborhood. I think the Board certainly is comfortable with that. We as a management team are relatively conservative about our leverage levels. And I think you can expect to see us in and around those levels going forward.

Okay. Couldn’t agree more with him and if you had looked historically, there have been two times only we’ve intentionally deleveraged and taken any insurance out. One was after the Great Recession in 2008 and one was after the pandemic here. So, the management has been terribly consistent for a very long period of time.

Thank you. Appreciated both.

Sure.

And the next question comes from Michael Nathanson with MoffettNathanson. Please go ahead.

Thanks. I have two for you guys along the same line. I wonder over the past 18 months or so, what have you learned about your cost structure and client services that you can internalize and maybe save going forward. So, there has to be something that may surprise you about how you went to market and maybe things that you can capture going forward. And then, the flip side of that is, John there is always been times of hiring challenges. Can you talk a bit about the wage pressures you are seeing or maybe the lack of candidates and the pressure to find the people and is this timing any different than prior times on those counts? Thanks.

Sure. Do you want to take the first part?

Yes, I’ll start with the first part and then you can add. So certainly, we learned quite a bit about our people and our businesses. Communication was certainly critical and continues to be critical with all constituencies that make up our businesses. So our employees, the people that manage our individual agencies, our clients staying close to them throughout the pandemic was certainly made possible by the technology investments we had made over the last several years and we are able to do so without a hitch. So, technology played a large role. I think we’ve learned that there is an awful lot that we can do as a business and our people can do to service their clients using that technology to do things that we never thought were possible before. That’s going to enable us going forward to look at the business a little differently and our infrastructure a little bit differently, so that we can continue to get the most out of those technology investments going forward. We also think from a people perspective mentoring our people, especially our younger colleagues. It works best when people are together. Creativity works best when people are together. There’s an awful lot we can do remotely. No question we’ve proved that out. But over time we are a culture that works best when we are together. Certainly, the pandemic proved that we need to be flexible in that approach and it may differ market-by-market or business-by-business. But I think we are a culture of collaboration and while we can utilize technology to take advantage of a number of opportunities, we do work best and look forward to our people coming together to collaborate again in person. And certainly, the acceleration of digital and e-commerce broadly in the marketplace and each of our clients pursuing their own strategies, our agencies have done a great job in helping them deal with all the changes that come with that. And certainly our Precision Marketing Group has done extremely well in that area helping its clients on a number of initiatives that they’re pursuing in digital and e-commerce. And yes, we are optimistic that that growth will continue on an accelerated pace.

I only have a couple of points to make in trying to answer your question, but feel free to come back if I don’t cover it.

Okay.

I would say almost at any point in time there is always a challenge to get more of the best and the brightest. This period of time did not made that any easier and we continue to go out and search and tried to bring into Omnicom those people who possess both skills and are looking for a place that has a truly defined culture that we will offer them career passes that they can look forward to and a diverse set of clients in different industries that they can practice their craft. As Phil said, we also spend, as part of that culture very dedicated and we never cutback a penny on this, on what we dedicate to training and the development of our younger staff. So, the challenge is ever present. Now, we, like everybody else, faced some nuance and some different challenges during this period. But we are also as we face some salary increases for certain things, we are a very highly incentive compensation type model. So in terms of what we pay out in total sum, we are well within our capability of dealing with any challenges that we’ve seen thus far and can anticipate in terms of the inflation in salary costs. So environment and culture becomes terribly important. The other thing when looking at groups like ours, which can’t be overlooked is that our clients in their marketing departments are facing more severe challenges of losing talent and requiring our assistance in certain areas that maybe in more comfortable times, they wouldn’t has been as keen to buy or as wanting to be first in the queue to make sure that we can preserve those people to service their needs. So it’s a - for everything that makes the glass half empty, we’ve been able to and been blessed with it being really half full.

Okay. Thanks guys.

Sure.

And the next question comes from the line of Tim Nollen with Macquarie. Please go ahead.

Thanks, I’ve got a macro question and a business question. The macro question is about inflation actually. So we’ve talked about supply chain issues a fair bit on this call. But in previous macro cycles, inflation has often been a good thing for ad spending and therefore for your business. And I wonder if you have any thoughts on that, how that looks now or if that maybe is a negative indication of some of the supply chain issues now instead. And then, the business question is, you’re talking a fair bit about Precision Marketing here, which is great to hear. I wonder if you can give us a bit more color maybe on what are some of the M&A opportunities? It seems like that’s the area that you’re looking at to bolster your Precision Marketing business. What kind of areas do you feel like you would like to fill out better? And how you would then look versus your peers? Thanks.

I don’t know where to start. But I mean I can’t predict inflation, but my CFO probably will take a shot at it.

So there has certainly been lots of press on inflation for quite a while now. Is it transitory? Is it non-transitory? Plenty of people have an opinion, many of which are different. The Fed has their own opinion as to whether it’s transitory. But certainly sectors like CPG, auto, food have been impacted and we’ll see how it plays out over time. But to-date, the feedback we’ve gotten in our discussions with clients, it really hasn’t been a negative or a positive in having any kind of a meaningful impact at this point on their spending plans near-term. So we haven’t seen and don’t expect significant reductions in consumer spending in the near-term. And ultimately, I don’t think there is a definitive answer that anyone has at this point in time. We are just going to have to see how it plays out. And then regarding the Precision Marketing space, we’ve done a few deals of some business transformation consulting firms and also some MarTech consulting firms that have been quite successful and we’ve built out. Credera, the initial acquisition we did several years ago, it has some global offices now and more offices in the U.S. than it had before. Extremely successful and we expect that that success will continue and certainly those are areas within Precision Marketing that we are looking for opportunities and we expect to find some additional opportunities. There is some other strategic areas within what could be viewed as a relatively broad category. But we haven’t finalized any of those transactions and then we are not sure whether we will be successful or not. But certainly, we’ve got our eye on a few different opportunities.

Thank you very much.

Yes. Sure.

At this point, I’ve been asked to thank everybody and we are sorry if we couldn’t get to all of your questions. And we hope to see you and speak to you very soon. So with that, I just want to say thank you for joining us and giving us your time.

Thank you.

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