Good morning, ladies and gentlemen, and welcome to the Omnicom First Quarter 2018 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference 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 first quarter 2018 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 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 Web site. 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 can find the reconciliation of those measures to the nearest comparable GAAP measures in the presentation materials. We are going to begin this morning's call with an overview of our business from John Wren. Then, Phil Angelastro will review our financial results for the quarter and then we will open up the line for your questions.

Thank you, Shub. Good morning. I’m pleased to speak to you this morning about our first quarter 2018 results. It’s been about 60 days since our last earnings call and I’m pleased to report a lot has happened in that time, including some big wins for Omnicom. Before I get into the results, I should note that on January 1, 2018, we adopted a new accounting standard ASC 606. The impact of the required changes were not significant to our results. Phil will cover this change in more detail during his remarks. Financially, the year has started off in the range we expected with organic growth in the first quarter of 2.4%. First quarter EBITA margin was 12.4% was flat versus the prior year period and EPS for the quarter was up 11.8% to $1.14 per share. These results serve as a continued commitment to the consistency and diversity of our operations, our strong competitive position across advertising and marketing disciplines in key geographic markets, our market leading digital data and analytical expertise and our ability to provide customer-centric solutions for our clients. Looking now at our first quarter organic growth across geographies and disciplines, overall, North America revenue was flat. Growth in the U.S. was offset by weak performance in Canada due to primarily the loss of the significant client in that market and due to the shift of some client work from Toronto to New York. To a lesser extent, North America was also impacted by the revenue decline in Puerto Rico. CRM in North America was up middle single digits across both CRM consumer experience and CRM execution and support services. Healthcare was positive in the low single digits and PR was flat in the quarter. These increases were offset by declines in North America advertising and…

Thank you, John, and good morning. As John said, our results for the first quarter of 2018 were in line with our expectations. Our agencies continue to meet our clients’ needs while operating in an ever changing marketing landscape. As summarized on Slide 3, our reported revenue for Q1 grew by 1.2% to $3.6 billion. The components of that growth included organic revenue growth which was 2.4% in the quarter which fell within the range of our expectations for organic growth of 2% to 3% for the full year. With regard to FX, due to the general weakening of the U.S. dollar over the past year, the impact of changes in currency rates increased reported revenue by $151 million or 4.2%. Dispositions continued to exceed revenue from acquisitions in the quarter as we come close to cycling through the disposal of Novus, our print media business which we sold early in the second quarter of 2017. Acquisition revenue partially offset the disposition impact, including revenue from recent additions of Snow Companies in the U.S. and Brain Group in Germany. The net impact reduced our first quarter revenue by $153 million or about 4.2%. And lastly, as you are aware, we’re required to adopt FASB new revenue recognition standard known as ASC 606 effective at the beginning of this year. The impact of applying the revenue recognition standard reduced our reported revenue by approximately $42.5 million or 1.2% for the quarter. Later in my remarks I will discuss in more detail the drivers of the changes in revenue, including the expected impact of the new accounting standard going forward. Turning to Slide 1 on the income statement items below revenue, operating income or EBIT for the quarter increased to 422 million or 1.4% with operating margin of 11.6% unchanged versus Q1…

Thank you. [Operator Instructions]. Our first question is going to come from the line of Alexia Quadrani from JPMorgan. Please go ahead.

Thank you very much. And thanks for the color on growth by region. But I was hoping if you can kind of take a step back and sort of maybe more broadly generalize. You’ve seen kind of underperformance or relative to underperformance in the U.S. now for quite some time and this outperformance globally, internationally. I guess if you were to say there were a few reasons or a reason that really is sort of responsible for that disconnect in growth I guess how would you generalize that? And then I just have a follow-up question really on account losses. It sounds like you’re still seeing some headwinds from OMD impact in 2018 from losses there. I guess any more color when we can circle those, we might see more favorable comparisons? Thank you.

Sure. This is John. Alexia, good morning.

Good morning.

When you take a look at our geography, $8.5 billion, $8.8 billion of our revenue is generated in the United States, and so it is a big number. And before you start any kind of division or a subtraction or addition, where some of our largest accounts not the biggest accounts we have but $10 million, $20 million accounts is where we suffered losses as we suggested in our comments in the beginning part of the last year. So that’s one of the reasons. So that constrains our overall growth and it has for three quarters of last year and will probably for the first and possibly the second quarter of this year before we cycle fully through those losses and offset it by gains. Now there is a lot of activity going on in the marketplace and we’ve won quite a number of pieces of that business and a significant portion of them are based in the United States, but we won’t start to – because of the 60, 90-day clauses that our competitors had in those contracts, we won’t see the addition of that revenue until later on in the year. So that’s the primary reason for it. It’s not that we’re underperforming. We’re not. We know full well what and why we’re performing at the level we are and where we’ve had to make management changes because we weren’t getting the kind of level of activity that we wanted, we’ve made those changes. It takes a while for those people to make a contribution. So there’s a lot of activity underlying the numbers but you have to look at the sheer size of the United States to our portfolio in order to fully sort of understand why you’re not getting a similar growth in smaller markets, you know $10 million or $20 million account win and add from a percentage point of view a much larger percentage.

That’s very helpful. And then if I could just ask a follow up on the account movement that you sort of highlighted. When you look at sort of where you are in the industry today, maybe versus 10, 15, 20 years ago, do you find that the client conflict issues are less of a constraint and there does seem to be a lot of accounts in review right now, and like you’ve highlighted you’ve won a fair share of them. Are you more -- is there more flexibility to kind of pitch or win business because client conflict is less of an issue or is that not necessarily the case?

If I had to make a generalization, I’d say client conflict is less of an issue, far less of an issue. Quite a number of our clients are prospective clients and RFPs that come in really wanting Omnicom solutions. They’re no longer simply looking for a particular brand or particular aspect of our business. And that allows us to create different types of business models and ring-fence them in such a way that conflicts are not what they once were when we were smaller.

All right. Thank you very much. I appreciate it.

Our next question is going to come from the line of Craig Huber from Huber Research Partners. Please go ahead.

Hi. Thank you. Every quarter, you generally give us the net new billing wins or losses. You generally target about $1 billion each quarter. What was it for the first quarter please?

It was probably in the neighborhood of 1 billion to 1.25 billion.

Okay. Thank you for that. Can you give us a little more detail on your expectations when you think the OMD agency may start to see some better numbers? Are you hopeful for the second half of the year or we should be thinking more like 2019?

Well, assuming everything stays at a steady state and we fully expect it to, in terms of wins, losses, opportunities, we should start to see improvement in the latter part of the year and certainly 2019. We made a complete change of top management both globally and in the United States about two quarters ago, and as I said it takes some time and it takes opportunities that are provided by clients -- then we have to win them. But we should have cycled through whatever losses we had and then I’m expecting positive growth. The other thing which becomes a smaller problem each particular quarter is the –this isn’t just OMD, this is in the media group is programmatic in the way we do it. A lot of our clients over the course of the last five quarters have shifted – especially in the United States have shifted from a bundled way of purchasing to an unbundled methodology of purchasing. It doesn’t necessarily change our profitability or the number of accounts or the number of people that we serve. As a matter of fact, we’re growing in that area. What it does do is it has an impact on the reported revenue. So that also has an impact which if somebody’s just focused on top line, it’s “Oh my God.” If somebody’s focused on the substance and the profitability of the business, it’s actually a growing area.

And then John my other big picture question here is when you’re talking about 2% to 3% organic growth for this year, historically the economic environment like this you and your peers might be growing solid mid single digits in line with global nominal GDP if not 100 basis points faster. In your mind – I don’t want to take a lot of your time but can you just give us like four or five bullets of the reasons in your mind of why your growth and your peers in the worst slower growth I’m saying – four or five bullets of reasons of why you think your growth is not middle single digits right now versus historically – normally would be in this sort of economic environment?

Well, one of the reasons for our guidance is there’s – you won’t see it as much in numbers simply we reported but I suspect you’re going to start to see some weird aberrations as a competitor’s report. There was a significant change in accounting and couldn’t affect our numbers very much. But based on some of the signals that our competitors have laid out I do believe that you’re going to see a great deal of confusion out there for the next couple of quarters. You won’t see that confusion in Omnicom but you’ll see it in other places. Clients are under different amounts of pressure. You see it in what they report. The world is changing and changing rapidly and what we’re doing is we’re trying to grow our base, we’re trying to make investments and often times those are internal investments. We set up as we always have for consistent growth going forward. That means there’s a change in the way that we service clients and everybody in the world is trying in a 2% growth, 3% growth world is focusing on efficiency among first and foremost. And so things that were done in the past which were nice to have are no longer done. Things are being done differently because of changes in technology and the impact that that has. There is no one big single item that’s occurring. But we’re rebuilding the airplane that’s flying it 560 miles an hour at 39,000 feet as we speak. I think we’ve done a pretty successful job at it and will continue to do that. But there’s an awful lot of changes to the component parts of how we’re servicing our clients.

And our agencies are certainly focused on our clients’ customer and the consumer primarily and there’s an awful lot of change that’s been occurring especially rather rapidly in terms of consumer behavior. And our clients work with us on a daily basis on trying to come up with new ways and strategies for how to reach that consumer in this rapidly changing technological environment and rapidly changing media landscape. So there’s an awful lot more opportunity for our clients to change their approach to how to reach the consumer in the most efficient and effective way and I think some of that change certainly offers opportunities but it also causes clients to think a little bit about where they’re going to invest and how much they’re going to invest in addition to some of the cost pressures they’re facing.

One thing I might add to that – I’m sorry, I didn’t mean to cut your question – is the last several years your ability to gather information and create platforms which will allow you to more closely target whoever your consumer is, that has moved very, very rapidly. It’s no longer simply just targeting people of being able to reach them, the devices that they use. Now you have to reach that consumer, engage them in something – a type of creative that is of interest to them and you have to be able to do that at scale. I think as I said in my prepared remarks, the IP that Omnicom has because being able to do those targeting exercises and everything else really becomes table stakes as we go into the future. But to be able to have a creative engagement that you can do at scale to individuals is what is going to make the difference as the next level of communications.

My last quick question is if you just thought of your top 25 clients let’s say the last five quarters, is the revenue growth on average with the top 25 clients in line with your corporate average better or worst please? Thank you.

I do have those stacked some place. But on average and I haven’t looked at it – I didn’t look at it in particular this quarter. But I’d say that if you looked at just the top 25, we’ve been expanding those relationships and on average that growth exceeds the overall growth of the report as a company.

Great. Thank you.

Thank you. Our next question is going to come from the line of John Janedis from Jefferies. Please go ahead.

Hi. Thanks. John, maybe two follow ups of sorts. First, you talked about the leadership and investment in talent. Are there any examples of traction you’re seeing at the precision marketing group now they’re about six or seven months into that leadership change? And then separately, can you give a little bit more color around your comment around the shape of organic this year, meaning the better second half potentially? Are clients suggesting a pickup in spend? Is the benefit from leadership changes or account wins and losses or a combination or things? Thanks.

We’ve been rebuilding the team at our precision marketing group and we’ve hired quite a number of very talented people. We’re integrating the platforms that we’re utilizing to deliver our products into the Annalect platforms and expanding that. And quite a bit of work has already been accomplished but I’d have to say we still have a little bit more to do before we’ll be fully satisfied with what we have. I have rather extensive meetings backend of next week to get a complete up-to-date status on exactly where we are but I’m very comfortable with the progress we have made. Like everything else, I wish we were done. We’re not but we’re very, very close. And then it’s just a process of selling that into the marketplace. So that’s an area of expected growth not maybe for the next quarter but certainly as I look out into the backend of the year and in 2019. But there’s a lot of upside there for us that we haven’t yet taken advantage of. And I took so long to answer that question; I forgot the other part of your question.

Just a little more color maybe on the shape of organic this year, meaning the back half improvement, is it client suggesting a pickup in spend, is it leadership change, account wins, losses or a combination?

I think it’s a combination to be perfectly honest with you. My confidence comes from specifics that have happened within Omnicom, wins that I know we have coming onboard and what’s happening to our individual business. So that’s where my confidence is coming from. I also expect that consumers probably see increasingly get comfortable with the additional cash that they have in their pockets which they probably didn’t see in January and February but started to see after a couple of months of the new tax bill. So I think it’s a combination of events, but my comments were more specifically focused on what’s occurred within the various accounting – the various groups within Omnicom.

I think just to be clear though, John, we at this point are not changing our view for the year in terms of 2% to 3% as an expectation but we’re certainly optimistic.

Thank you.

Cautiously optimistic is a phase I’ve been using for the last several years and I’ll stick with that.

Thank you. Our next question is going to come from the line of Peter Stabler from Wells Fargo Securities. Please go ahead.

Thanks very much. A couple for Phil on 606. I realize this is a pretty small amount of money in the big picture but wondering if you could give us a bit of detail. We understand under 505 this would have been classified as organic growth. Can you give us a sense of is this North America primarily this 42 million? Would it have fallen there? And then by discipline roughly where would that have been? And then any sort of forward look on whether you think that impact is going to grow, maintain or moderate going forward? Thank you.

So the majority of the change certainly happened in North America and will roll out for the remainder of the year in North America. The piece of the change that relates to our incentive compensation provisions and our client arrangements, that’s pretty much spread globally and it’s spread consistently throughout the disciplines, more or less. So there’s not a concentration in one place or another. And as far as disciplines, it’s in the CRM consumer experience discipline is where the large part of the change occurred and can be expected to kind of continue to roll out throughout the rest of the year.

And in terms of scale, do you expect significantly different scale?

No. In terms of numbers, two things. As far as the change in the revenue number, the numbers by quarter we expect them to be relatively consistent plus or minus a few million here or there. And in total, about 150 million for the year is our estimate. And then as far as the impact on EBIT, ultimately we expect that to just be a timing difference. So by the time you finish the year, you’re only talking about a difference of a couple million bucks probably.

Thanks very much.

Sure.

Thank you.

Now that the market’s open, I think we have time for one last call, operator.

Thank you. Our final question will come from the line of Ben Swinburne from Morgan Stanley. Please go ahead.

Thanks for squeezing me in. John, I wanted to ask you about the situation over at WPP, there’s been a lot of speculation that assets may come to market for sale. I know that’s probably – it’s probably very early days there on what they may do next. But just interested in what you think the impact either for your businesses from an account review competition perspective or if they’re assets in research or other analytics that you might be interested in? And then if I could ask Phil to – you mentioned events and I think Olympics specifically is helping the CRM segment which was your leading segment this quarter. I don’t know if you’re willing to quantify sort of the benefit to organic growth from either events or Olympics that you mentioned in your prepared remarks? Thanks.

In terms of what’s occurring with our competitor, I don’t know a great deal more than any of you because most of my intelligence is coming from the newspaper reports and the rest of it. In many ways I have a great deal of respect for Martin. I’ve competed against him the last 25 years and very honorably. I know that he was in the process of evaluating his own portfolio. I don’t know what conclusion the new leadership will reach. In terms of Kantor and the other names that are being bantered about, that’s not a key focus for our acquisition. So I would imagine if that’s what they decide to sell – any one of the number of other buyers including probably private equity. So I can’t – I’m not much help when it comes to answering that question directly for you. I’m sorry.

That’s okay. Thanks.

And in terms of the events business, I don’t have an Olympics number separately but probably the majority or more than half anyway of the growth in CRM consumer experience is from our events businesses and a variety of things, certainly not Olympics.

Phil, can I just ask – I know we’re running out of time but I think you mentioned 606 had an expense impact in the quarter otherwise maybe you would have had a higher OI. I think that’s how you explained it. That would have been higher. But you also talked about moving I think a similar amount of money in pension expense out of OpEx below the line. So is it sort of a push, is that the conclusion from those comments?

No, those are two separate things. So the pension adjustment we’re required to restate the prior year to show the presentation consistently. So it’s about $6 million in '18 and $6 million in '17 that got re-classed out of our operating expenses below operating income. So that had really no impact other than if you’re calculating a margin percentage on operating income, it went up a little bit each year. So year-on-year no change. And then as far as 606, had we applied the prior year’s revenue recognition accounting 605 we would have recorded about 6 million, 6.5 million more of EBIT just because of the timing of the incentives that we booked consistently over the years. That change requires us to book those incentives differently and that’s the timing difference. That ultimately will lead to maybe a 1 million or 2 million of difference for the full year. It resulted in less EBIT in the first quarter, about 6 million the new way.

Got it. Thanks for the clarification.

Sure. Okay. Thank you everybody for joining the call.

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