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

Good morning. Thank you for taking the time to listen to our third quarter 2017 earnings call. On the call with me today is John Wren, President and Chief Executive Officer, and Phil Angelastro, Chief Financial Officer. We hope everyone has had a chance to review our earnings release we have posted on our website, 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 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 will find the reconciliation of those measures to the nearest comparable GAAP measures in the presentation materials. We are going to begin this morning's call with an overview of our business from John Wren. Then, Phil Angelastro will provide our financial results for the quarter, and then we will open up the line for your questions.

Thank you, Shub. Good morning, everyone, and thank you for joining our call. I am pleased to speak to you this morning about our third quarter results. Organic growth for the third quarter was 2.8%. For the nine months ended September 30, organic growth was 3.5%. EBITDA margin in the quarter was 13.2%, an increase of 50 basis points compared to the third quarter of 2016. In the third quarter, reported revenue was down 1.9% compared to the prior year. Net acquisition disposition revenue was negative 5.7% for the quarter. The disposition process that we started in the fourth quarter of 2016 was substantially completed in the first four months of 2017 and will cycle through the financial statements through early 2018. We did see a benefit to the revenue from FX changes in the quarter of 1%. Phil will discuss the estimated impact of net acquisitions dispositions and currencies in more detail during his remarks. Looking at our revenue by geography, organic growth in North America was 2.1% in the quarter, driven by our media, healthcare and events businesses, offset by declines in our direct marketing and branding agencies. Drilling down in the region, growth in the United States was 2.4% and was offset by a small reduction in Canada. Although small, Puerto Rico also declined in the quarter, and our main focus now is on helping our people and agencies in the market recover from the effects of the hurricane. Our branding business, which I mentioned on our last call, which is largely project-based continue to struggle. As I will discuss later, we have recently made management changes in the business and have corrected some of the operational issues we encountered. We expect the branding business to begin to stabilize as a result of these changes. PR in…

Thank you, John, and good morning. While, our business has continued to operate in the challenging marketplace, our agencies once again did well in meeting the financial and strategic goals we set for them. Total revenue for the third quarter was $3.7 billion with organic revenue growth of 2.8% that brings our year-to-date organic growth to 3.5%, due to a slightly weakening of the dollar against the currencies in our significant foreign markets. FX positively impacted our revenue by 1% in the third quarter. We also continue to experience of reduction relative to prior periods, and our reported revenues resulting from the disposition of several businesses that did not set our strategic priorities. This included Novus, our specialty print media business as well as certain agencies within our field marketing and events discipline. These dispositions net of our recent acquisitions reduced our third quarter revenue by $216 million or 5.7%. I'll go in to greater detail regarding the changes in our revenue in a few minutes. Looking at the income statement items below revenue, operating profit or EBIT for the quarter increased 2.4% to $464 million. With EBIT margin improving to 12.5%, a 50 basis point improvement versus Q3 of last year. Similarly, Q3 EBITDA increased to $492 million and the resulting EBITDA margin of 13.2% also represents a 50 basis point increase over Q3 2016. Main drivers of our margin improvement continued to be our ongoing efforts to improve cost efficiencies throughout the organization, which are focused on real estate, back office services, and procurement initiatives, as well as the positive impact on margins from the dispositions of several businesses late last year and early this year. For the balance of the year, we'll continue to expect that our dispositions will negatively impact our reported revenue and EBIT dollars.…

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

Thank you. I guess, John, looking at the U.S. organic revenue growth, which has been - which looks a bit better this quarter, I mean, do you believe that some of the headwinds that had caused the organic growth last few quarters to soften have sort of lessened a bit? Or is it really too soon to tell that you've kind of turned the corner there? I guess, just in other words, putting it very plainly, I mean, do we see better - discontinuation of improvement in U.S. organic growth in the quarters ahead?

Yes is the answer to your question. We've been dragged down by a couple of specific things. Our branding business, where we just changed management and it takes a little bit of time to go out and sell those projects, but it's not a very long lead-time. So I fully expect that in the first quarter, that headwind will be removed from us and I'm looking forward to that. Direct marketing has been a problem in the last several quarters, creating a headwind. And with the addition of Luke and some other people, we've changed the management team and the approach in that area and I'm looking for pretty immediate improvement in that regard, because we've spoken to Luke for a very long time and he's been with us since July. The third other area, which isn't a problem on a worldwide basis, but in the U.S. what we have and this won't change. It's just an explanation. If you look at Accuen programmatic side of the business a lot of clients and we've actually pushed this into the operating branch within the media company. We haven't lost clients, but we changed the way that we do business with them with a fully disclosed method. And that cost us probably 0.2% in the United States in this past quarter. So some of the problems that you see in explanations that you receive from our competitors, we have a different set of problems and we've addressed ourselves to the largest ones and we'll continue to do so.

And then just on PR is there anything sort of influenced that segment that, that could be addressed or is that just more of a cyclical thing, where you're seeing some periods of weakness, but it's going to bounce back like other parts of your business?

I expect that will bounce back. People are changing the product to meet the market. And there's probably one unit in particular where there still has to be more management changes which haven't occurred yet.

There is also a little bit of election benefit in the 2016 third quarter and fourth quarter results, Alexia, that from a comparability perspective the comp in Q3 and Q4 of 2016 is a little more challenging than normal.

And then, Phil, just maybe one last one, on the - sounds like you guys had the majority of dispositions within the first four months of the year, so do you happen to have a sort of a just a rough idea of how much of those dispositions, how much they benefit organic growth in the quarter?

How much they benefit organic growth or…?

Yeah, because they were - I assume they were lower growth businesses, getting rid of them would add a little bit of lift to organic growth if at all.

It actually has no impact on organic growth, Alexia.

Okay.

They get carved out.

Perfect. Okay, thank you very much.

Sure.

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

Yes, good morning. My first question is Accuen contribution to Q3 organic. Did I understand correctly, John, you said there was a 20-basis-point negative? That's my first question. The second one is on working cap, $1.3 billion negative after nine months. I know the seasonality is going to get better in Q4, but that is $500 million worse than last year. So what's happening and maybe if you could give us a full year guidance? That's my second question. And then on Q4, you say it was the hardest quarter to guide to, because you had $200 million to $250 million of kind of project-based revenue. Could we get a feel of the last kind of 10 years, what has been the worst year and the best year of those project-base? Does it go as low as 100 million and as high as 400, so we can gauge the volatility of Q4? Thank you.

Sure, I think I've used the exact language that I used this morning for the past 10 years, because we went back and looked at the scripts of what I said. So it is very much the nature of our business. There was only one year I believe where it didn't come through and that was 2007, I'm looking - 2008 after the great crash or great recession. We always - we are conservative. We typically get some of that, if not, all of it back. But we can't - as I said, we don't have visibility as to when some of these projects are going to occur. It's $200 million on a $4-billion-plus base, so it's a struggle right up until the end of the year. The only complicating factor I see over and above individual companies having difficulties or individual companies wanting to promote things is a lovely U.S. government and what they can do to disrail progress on any given day, let alone [indiscernible]. I'll let Phil answer your other two questions.

Yeah, so the Accuen numbers, Julien, the U.S. number or the impact on U.S. was basically negative $9 million and the overall worldwide number was growth of around $2 million, so roughly flat globally and the negative in the U.S.

Right, $9 million would have been 0.3%, so would have changed 2.8 to 3.1.

The working capital numbers, essentially some of the issue in Q3 is timing, but some of it is frankly underperformance on our part. I think the bottom line is we ultimately need to do a better job on the blocking and tackling, which is what working capital management comes down to. And we need to do that on an agency-by-agency, region-by-region basis. So it needs to - it needs a much greater focus in the fourth quarter which it typically gets. And frankly, we've been working on that already and we'll be very focused on it in the months to come.

Thank you very much.

Your next question comes from the line of Peter Stabler from Wells Fargo. Please go ahead.

Good morning, one for John and one for Phil if I could. First, John, could you step back and help us a little bit on CRM. You called out branding, some of the management changes and some of the weakness. But when we look back over the last couple of years in CRM and marketing services in general, it lagged. Could you help us understand, kind of looking forward, your expectations? Do you think CRM can reach parity levels of growth with traditional advertising? And then a quick one for Phil, on North America with the sequential improvement any, say, really significant or large events in North America that you would call out or was this kind of a more balanced improvement across those leverage you mentioned? Thanks so much.

CRM, the way that we group companies and services in what we present to you includes things like direct marketing, it includes digital operations, it includes events, it includes a number of other companies. As we didn't say this clearly, but, for instance, we've broken out direct marketing and our digital businesses under the leadership of one particular individual this past quarter. There are other events, I mean, other actions that we're planning to take to look at that category and leadership without the companies within that category. And those will be done in the coming months as soon as we identify the right leaders. Principally in the past, the people overseeing those weren't experts in a particular craft. The change that we've been going through over the course of the last year is to change the leadership for the group to somebody who is expert in the craft. And we are starting to see progress as a result of making those changes, and we are going to continue to do that and hopefully will be done with it. I said in my remarks, we'd be done by the middle of next year. I hope to be done sooner than that. And then it takes a little bit of time for the individual to get their arms around the operation, to start to make contribution. So CRM has taken the hits. Some of them have very large companies in them. Some of them have, as I said, there is a - in the field marketing there is some of our outsourcing businesses and shopper promotion. So those are other areas, which when they get projects they tend to be large projects and when - if they don't get a project, you feel they're paying in a much more severe way than if an advertising agency lost a particular client. So I don't know if that helps, but that's the reality of it all.

Yeah, I mean the overall goal, Peter, with the practice areas, especially in CRM, is when you get to disciplines like direct marketing, which John talked about, branding, shopper, events businesses, it's essentially to better align the people, the agencies and the resources within a discipline, so that we can better leverage investments across those agencies that are in the same business and the same discipline as well as strengthen new business development efforts, grow the practice area in a more cohesive way. And a big part of it is also to help improve the coordination of the groups within or the agencies within that discipline and link them to our overall top client matrix growth strategy. So we want to drive a larger share of wallet with our largest clients. And we think the practice area is going to help us improve, when it comes to coordination and integration in that front. Specifically your question on North America, I think we mentioned the larger items, because in reality there are some ups and downs. So the healthcare and events, and the media businesses did well, some of the advertising brands did well, some of the advertising brands did not do as well in North America. And then the branding and direct marketing businesses as well as PR had a down quarter in North America. So it was kind of a mix of a number of pluses and a number of minuses.

Thank you.

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

Hi, thank you. John, maybe one for you and a quick housekeeping one for Phil. I know it's early, but as you're heading to the end of the year, can you talk about the tone from your large global clients? Are they getting more or less constructive in terms of the outlook? And I think you've talked about some challenges in certain end markets, has that changed? And then quickly for Phil, how are we thinking about the buyback business, slowing in the quarter, meaning 3Q suggest that there may be some potential M&A or is more just a timing issue?

Well, I have to say every one of my major clients is because of their growth rates and purchase they have on their businesses are looking for innovation, change and simplicity. And so that is something we've been dealing with at a pace for the last several years, and I don't see any - I don't see that changing anytime soon. So we are required to change your businesses to make the more agile, to make the more responsive to the clients' needs. And in many cases, organize them in such a way that we eliminate the complexity of management of those combined businesses to individual client needs. I mean, one of the reasons is - many of the reasons we did the divestitures, we've done over the course of the last year, as we took a lookout three, five years these are still good businesses, but we didn't see them as part of our group making a positive contribution in years out. One the reasons you see us breaking up some of the categories we refer to, they're not small by any means, but to get craft leadership on top of them is to make our workforce in those particular areas more nimble, perhaps somebody that is only focused on transformation of businesses or first party data. And that's all they do, they don't also worry about outsourcing other things. They have all their time to go out and hunt for new business and new opportunities, and to change the portfolio of what they're responsible for. So it is more reflective of what the clients are saying today. So we're working on all these things, but we don't expect a break in the action for anybody to give us six months past to get the changes in place, we're doing this, as we are running the company.

On the buyback question and M&A, I think you should expect us to take the same consistent approach in terms of our free cash flow. I think, as we approach the fourth quarter and look at 2018 from capital allocation perspective. I think, we've got a good M&A pipeline, some deals we've been look at for an extended period of time. But we are pretty disciplined about our process. And to the extent that we can find attractive deals that meet our strategic requirements, and are a good cultural fit, and we think we can integrate them well. And we can get them - we can get agreement on a reasonable - at a reasonable price, we're going to do those deals. We're ideally going to do more of those deals than less. And we're going to use the balance of the free cash flow to buy back shares. I think, in the fourth quarter, specifically, we're going to see what we can get close before year end, and adjust the buyback up or down as a result.

Thank you very much.

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

Thanks. Good morning. John, I think, with all said and done, you'll have sold assets this year or dispose of assets representing, I think about $500 million of revenue. When you look at your business going into 2018, particularly your earlier comments on CRM and PR, are there things you guys are considering that might not be strategic or may not help the portfolio longer term or do you feel like you've really pruned as much as you want at this point when you look at the landscape?

I'd have to say, we're substantially done. We are - is a couple more small businesses that I get the right exit price for them, I'd let them go, but it won't have the kind of impact on the overall performance reported numbers that going through this year, first quarter of next year. But by and large, as I said, we are substantially done. We'll refocus more on - much more focused on acquisitions, as Phil said. And there's a number of them that look promising whether or not, as Phil said, we'll be able to complete them at prices and terms that make them part of the family. That's the remaining question, but we're working pretty hard, trying to close them by the end of the year.

Okay. It's just the follow-up actually tying time sort of M&A to whatever is happening on the consultant front. I know for the most part you and your holding company peers have not seen any material impact on your business to date from the move by the Accentures and the IBMs of the world on organic growth. I'm just curious, if you're seeing them show up in the same deal flow around M&A, because it does seem like at least there is flowing capital on the acquisition side more and more?

We're not really seeing them to any extent, I mean, they are big headlines, Three Monkeys in Australia, I looked at that five years ago, I think it has $26 million of revenue and it's in Australia. It makes a global headline, but it's not. But Australian companies are not seeing them in Australian pitches, I mean, [to put that way] [ph]. So they've got a lot of resources, they can do what they want, and we would never ever cut them short, or think that they could someday figure it out. I've heard the best idea from Accenture, if they want to do this type of - do what we do, they can come and offer to buy the best and the brightest of us.

There you go. Okay. Thank you.

Operator, I think given the market's going to open, we probably have time to just one more question.

Okay. The question comes from the line of Steven Cahall from Royal Bank of Canada. Please go ahead.

Thanks. Maybe just two for me. The first just on some industry verticals. I think, I've heard, when I was last in Europe that the customer products companies there had under-spent a little bit on their advertising in the first half of the year. And we're picking some of that up in the second half of the year. So I was wondering, you could comment at all on what you're seeing in the consumer staples market and if any of those sort of blue chip companies were seeing a positive inflection here in the back half of the year. And then also on the media business, you called that out a couple of times as a source of strength in your advertising business. I was wondering, if you could just discuss overall how big that is as a percentage of revenue of the company, and also what growth rate you're seeing in your media business. Thank you.

It's rumored to your first question. When I was in Europe last week or week before, that - in speaking to a few CEOs that they will spend more principally through their cost cutting efforts and they don't want to lose more market share. And they're competing against new competitors just as almost every major businesses. So we're hoping that, that they turn the conversation into budgets. But until they do, we can't claim victory.

Yeah, in terms of the specifics around the media business, we don't go through and break out that in detail. I think the thing to keep in mind is that there has been a lot of change over the last few years, especially recently, and a lot of integration in media, traditional advertising and other parts of our business. You can see that in some of the wins we've recently had, take AT&T as an example. And, yeah, there are other parts of our businesses that have media as a component. Certain markets for example like Brazil, media is integrated with advertising, you can't have a standalone media business. I think overall though, the advertising discipline largely reflects a combination of our traditional advertising agencies and media businesses. And we're particularly happy with the investments we made starting seven or eight years ago in the Annalect platform that's helped drive some of the big wins we had over the last few years. And as we integrate that more and more into all of our disciplines, not just the traditional advertising businesses, we think it puts us in a really good position, competitively did to win more than our fair share of new businesses going forward.

I think, Phil, summed it up earlier in a word, where our objective is a share of wallet. We want to service clients in their marketing needs as much as we can with the skills and the disciplines we have in the company irrespective of what silo they may be sitting in.

Thank you.

Okay. Thank you everybody for joining the call. We appreciate it.

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