Good morning, ladies and gentlemen, and welcome to the Omnicom Second 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 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, Shub Mukherjee. Please go ahead.

Good morning. Thank you for taking the time to listen to our second quarter 2018 earnings call. On the call with me today is John Wren, President and Chief Executive Officer; and Phil Angelastro, Chief Financial Officer. Also on the call with us today is Jonathan Nelson, CEO of Omnicom Digital. 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 the 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 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 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. Thank you for joining our call. I’m pleased to speak to you this morning about our second quarter 2018 results. We had a good second quarter. Organic growth was 2%. Second quarter EBITA margin was 15.8%, flat versus the same period in 2017; and EPS for the quarter was up 14.2% to $1.60 per share. Looking at our second quarter organic growth across disciplines, we saw positive results in almost every area of our portfolio including Advertising and Media, CRM, Consumer Experience, Healthcare and PR. The one exception to this performance was CRM Execution & Support, which was down 4.4% in the quarter. The agencies in this discipline provide services in various specialized areas including field marketing, sales support and merchandising, point of sale, as well as other specialized marketing and custom communications. Certain businesses in our CRM Execution & Support disciplines have been part of our ongoing evaluation of our portfolio companies to ensure that they align with our long-term strategies. As part of this evaluation, we recently entered into a definitive agreement to sell Sellbytel Group to Webhelp Group, a global business process outsourcer. Sellbytel is a provider of outsourced sales, service and support with centers located primarily in Germany, Portugal, Spain, and Malaysia. Whilst Sellbytel has been a good profitable business, we determined it is not a core operation for Omnicom and will be better aligned with Webhelp Group. The Sellbytel transaction is expected to close in the third quarter of 2018. We are continuing to evaluate our portfolio of companies to optimize our service and service capabilities in line with our strategic plans. As part of this process, we are making internal investments in our agencies and in new capabilities and pursuing several acquisition opportunities, particularly in the areas of data…

Thank you, John, and good morning. As John said, our results for the second quarter of 2018 were in line with our expectations. Our agencies continue to meet our clients’ needs and manage their costs in an ever-changing and highly competitive marketing landscape. Starting on slide five. Our reported revenue for Q2 grew by 1.8% to a little under $3.9 billion. The components of that growth included organic revenue growth, which was 2% in the quarter or $77 million, bringing our six-month growth rate to 2.2%, which was closer to the lower end of our expectations for organic growth, 2% to 3% for the full year. In regard to FX, the net impact of changes in currency rates increased reported revenue for the quarter by $79 million or 2.1%. The impact of dispositions net of the acquisition activity over the past year was slightly negative in the second quarter as we completed cycling through the disposal of Novus this past April. Acquisition revenue also included the recent acquisition of EMC Group in Japan. The net impact reduced our second quarter revenue by $38 million or about 1%. We continually evaluate our portfolio of businesses to identify areas for investment and acquisition opportunities as well as to identify non-strategic or underperforming businesses for disposition. We are currently in the process of completing several potential dispositions, primarily in our CRM Execution & Support discipline, the largest of which is Sellbytel, a European-based sale support business. We are also in the process of pursuing certain acquisitions, primarily in our CRM Consumer Experience discipline. Although this disposition in acquisition activity has not yet been completed, we expect revenue from disposition activity to exceed revenue from acquisition activity for the remainder of 2018. Based on activity expected to be completed prior to September 30, 2018,…

[Operator Instructions] And our first is going to come from the line of Alexia Quadrani with JPMorgan. Please go ahead.

Hi. Thank you very much. I guess, first off, how much will the divestitures of the CRM execution businesses allow for some improvement in organic growth in the U.S.? I think, Sellbytel is mostly a European business. Maybe you can clarify that. But it sounds like there is other big businesses you hope to divest to sort of alleviate some of the pressure on U.S. organic growth. So, I guess any color on that. And then, I have a follow-up.

Yes. I think, Alexia, Sellbytel is an international business, not really U.S. presence. But some of the disposals that we’re contemplating certainly have a U.S. presence. And if we look at the actual performances on the second quarter and the first quarter of this year, if the disposals that we’re contemplating had been completed at that time, we would have better growth in North America. We don’t have an exact number. It probably wouldn’t have been that significant. But, we’re looking at and contemplating these disposals just like Sellbytel not just because of current performance but because of our expectations in the future as far as whether we’re going to invest or where we’re going to invest and what we think strategically these businesses mean for our longer term clients. So, it’s both or it’s primarily strategic reevaluation, but it’s also current performance in many of these cases as well.

The other thing I might add to that Alexia is that on some of the acquisitions we hope to close, they tend -- for the most part they are domestic in nature and they have growth rates which will contribute to our overall performance in North America.

And then, when you look at your guidance for the back half of the year, hoping for some acceleration organic growth, I know that sort of -- I believe that’s a global number, not specific to U.S., but I think, it does mostly imply some improvement in the U.S. I’m wondering what the puts and takes are. Is there better new business tailwind in the back half of the year? I guess, any other color you can give us why the U.S. organic might begin to improve aside from the contributions of acquisitions or the benefit of divestitures?

I know that new business for the quarter was probably was higher than -- or has been recently at $1.5 billion, I haven’t done the work, maybe Phil knows, to look to see what part of the world that comes from.

We don’t analyze it that way. So, we expect it to be kind of distributed consistent with our global operations, but we haven’t broken it down by region.

If some of the things like -- some of the pressure that we’ve had in programmatic area has been primarily in the United States where we are going from bundled to unbundled, that pressure abates a bit as we get into the second half based upon all the information that we have currently. So, there are a couple of -- there are quite a number of puts and takes in being cautiously optimistic about the second half. But, we tend to look at the whole enterprise, not just a particular region.

Okay. And anything specific on U.S. advertising that you might not have highlighted that was particularly soft in the quarter. The advertising itself, business?

I think, it’s a combination of things. I think we certainly have some agencies in the U.S. that have done well and did well in the quarter. We’ve got some others that have lost some clients recently and others that perhaps is timing in terms of clients scaling back in the current quarter and moving their spending to future periods, although we’re not certain and definitive that those numbers are for sure going to be significantly better in the second half. I think we’re cautiously optimistic. But at this point, we don’t anticipate changing our expectations for the year.

And we also have a question from the line of Craig Huber with Huber Research. Please go ahead.

Thank you. I have a few questions. Let me start off over Europe if I could. I’m curious to hear your updated thoughts on this GDPR or regulatory change over there in terms of clients or change in their behavior in terms of how much digital advertise replacing in Europe. In particular, I was curious to hear if any major changes going on with spend through Facebook and Google on behalf of your clients. Has that changed much in say the last two months with this regulatory change?

I’m going to turn it to Jonathan Nelson.

Hi, Craig. Thanks for the question. We have not seen a huge change in terms of GDPR and how it’s affected our business. Of course, we’re complying with all the regulatory issues. But, we expect our Google and Facebook spend to continue and our systems are built to work fully with GDPR compliance situation.

Okay. Then also, while we’re still talking about Europe, it had very strong growth there for a while and for continent and stuff. Is much of that being fueled by net new wins over there or just some more meat on the bones if you would?

I think it’s a combination of things. I think we’ve got some strong agencies in many of those markets that have been performing really well, ultimately. Some of that’s due to wins, some of that’s due to projects, some of that’s due to good management. But, I think there are still going to be ebbs and flows as we saw in the UK this quarter. The UK has had some strong performance for quite a long time now, and they were up against some difficult comps, but I think overall it’s a number of factors.

There’s probably a higher concentration, larger revenues in our CRM execution side of the business in the United States, to some extent in Northern Europe, and those are the ones we’re taking a critical look at in terms of what they’re going to contribute to our business strategically going forward. And correspondingly, we’re looking to make acquisitions in CRM precision side of the business because we think that will benefit us as we move forward in helping our clients.

And then, also, maybe just talk about, not individual clients but sectors of clients and how they performed in the quarter? Curious in particular to hear about CPG companies and food and beverage guys collectively on an organic basis, and what your sort of outlook is collectively for that group? Do you see any material maybe optimism there at all, is it still quite a ways out?

Well, fortunate for us that it’s not a very large portion of our revenue base but they’ve certainly been under an incredible amount of pressure in terms of what’s happening to their business in terms of new competitors, both directly on the product side but also in the distribution side. So, it’s -- I don’t see any -- any immediate turnaround in that area. I see just continuing pressure for the foreseeable future and specifically in that sector.

And there hasn’t been -- overall, there hasn’t been that much movement in terms of our revenue by industry group. So, certainly some clients and some of our businesses have done better than others, depending on mix of their clients. But it’s pretty broad, diverse portfolio. And we haven’t seen dramatic swings one way or the other in the types of industries that our clients are in that are driving our growth.

So, would you include auto in that comment as well?

I would. I think, there’s currently a few opportunities that we’re pursuing in auto. So, I think we look at that vertical as certainly an opportunity for us in the future.

Our next question will come from the line of Julien Roch with Barclays. Please go ahead.

Yes. Good morning. My first question is, could we have the impact of Accuen on organic in Q2?

Sure, worldwide Accuen was down about $7 million in revenue, $5 million of that was in the U.S.

Okay. The second question is on the assets you’re selling. I assume that the impact on 2019 will be about 3% in Q1 and Q2, and 1.5 in Q3. Can you confirm that?

I think that’s probably not too far off. I think we’re at a point right now where we typically don’t comment unless we close transactions whether they’d be acquisitions or dispositions and project what those numbers are going to be. But, I think that’s assuming we do the acquisitions and dispositions that we currently planned, although there is no guarantees. That’s probably the reasonable estimate.

Okay. And then, following up on your answer to Alexia. You said that if you had already sold those assets, organic would have been higher. But, is it possible to know are you talking about couple of tens of basis points higher, are you talking about 1% higher? I mean, some idea of the impact on group organic. And I guess also, all those businesses with higher or lower margin than the group average?

So, on the growth point, I think if you look at the current quarter, the number probably would be less than 50 basis points was the impact. And then, with respect to margins, dispositions, couple of points, I guess. Dispositions, we’re considering and Sellbytel being the largest, which we expect to close by the end of August. Margins overall are probably consistent with Omnicom’s overall average margin. Although, it’s a little bit too early, because we’re not certain exactly when and which deals we’re going to close as well as what the impacts for certain of acquisitions is going to be. However, I think as you look to Q4 and beyond, given we’ll have a lower revenue base and we expect to be neutral from an earnings perspective, given the operating efficiency and cost reduction efforts that we’re planning. I think, the math works that there will be some margin improvement due to the disposals and due to the fact that we have a lower amount of revenue. We typically focus and continue to focus on EBITA; it’s not a margin percentage. And we’ll continue to do that. But in terms of a range, we don’t really have one yet, but it’s -- there will be some benefit we would expect. How significant it’s going is to be to be determined.

Okay. And final question on the disposals. So, two years ago, you sold about 5% of Omnicom; this year you’re selling 3%, so that’s about 8% already. Once you’ve redone completely your review program, what percentage do you think of the Company you would have sold? Are we talking 10%, 15%, to have a sense of what will happen in the next couple of years?

I think, it’s hard to predict. I think, if you look at ‘17, the net disposition number was about 4%; ‘18, our current expectations, our estimate is 2.5%. We’re going to continue to pursue the same strategy. And to the extent there are opportunities that make sense for us, do acquisitions that are accretive, we’re going to do that; to the extent there are disposition opportunities that we think strategically are the right thing to do for the business going forward, we’re going to take advantage of those opportunities. We don’t really have a bogey in mind just like for acquisitions, we don’t have an acquisition bogie and then have people chase deals to meet the target and they’re not the right deals from a disposition perspective, our approach isn’t very different. So, I can’t tell you right now exactly how it’s going to play out. We are going to continue to revaluate portfolio and the reality of that is, given the nature and the speed of the change that’s been occurring in the industry, it’s been an ongoing process that will continue to be an ongoing process. Whether it results in more executed dispositions or not, it’s to be determined.

And last one, your working capital was $300 million worse in the first half. Do you expect the deterioration for the full year, or will blocking and tackling means no change to working capital for the full year?

I think, the number was, I think 300 to a little high, there was a one-time acceleration of U.S. bonus payments that we made in Q1 that we otherwise would have made in Q2. I’d say Q2 was relatively flat in terms of our performance after adjusting for that. So, we’re still down through six months. Our goal is certainly to make up for that in the second half. But, I think we’re also making -- we’re also trying to make sure from a day-to-day perspective that we don’t lose any more ground. But, I’m not sure sitting here today whether we’re going to make up the number from the first half or from the first quarter or not fully by the end of the year. But that’s certainly our goal.

And we have a question from the line of David Joyce with Evercore. Please go ahead.

Thank you. If you could just help to frame for us related to your Omni suite and announcement there. Where are you on the predictive data analytics and in terms of that competitive offering vis-à-vis the more technology oriented competitors that have a predictive capability?

Jonathan?

Thanks for the question, David. In regards to Omni, essentially what it is, is we’re using customer data to profile customers and to predict what kind of information they want to see from a creative and messaging point of view, and then connecting that to where they are in the media landscape. We’re using multiple artificial intelligence and machine learning algorithms to do both of those things. And we believe that it is a state-of-the-art for the buy side. And we are working with many of our sell side partners, Amazon, Google to incorporate some of their algorithmic technology as well as adding our own. So, all-in, it’s an open platform that incorporates some of the best technologies available in the marketplace.

And operator, given the market is just opened, I think we have time for one more call.

And then, our final question will come from the line of Michael Nathanson with MoffettNathanson. Please go ahead.

Thanks. I have obviously one quick for Phil and one for Jonathan. Phil, could you size -- I think you’re trying the size the impact of those cost actions. And when is the first quarter that will see the benefit of those class reductions?

I think, from a timing perspective, we expect to complete the bulk of the actions by the end of the third quarter. So, we certainly hope to see and expect to see the ongoing benefit starting in Q4 at some point. We may not be done right at the end of Q3, but certainly we’ll see it in Q4 and then on into 2019. And in terms of the dollar amount, I think I don’t have the exact dollar amount to give you other than from a target perspective, based on the dispositions we actually get done. And the overall profile from an Omnicom perspective of our margins, you can probably do the math and assume that the goal is to keep our EBIT dollars consistent to the extent that we can take advantage of the actions that we’re pursuing right now.

Got it. And then, quick one for Jonathan. I guess, the big news over the past month was IPA2 [ph] exit from Axiom. [Ph] I wondered did you guys look at acquiring that asset. And how do you see this in general, the strategy of building your own data versus maybe renting it? So, can you just talk us through philosophically how do you see, deals like Axiom and what’s your strategy been relative to that?

Yes. We did look at it. We have fallen on the side of renting the data versus buying the company that compiles the data. We see data as commodity. In fact when you look at the Omni platform, we announced deals with LiveRamp, with Newstar and with Experian, all of which have similar first party style data,. We just believe that this enhances our position of neutrality and removes any perceived conflict we might have with our direct clients.

Okay. Thank you.

Thank you. Thank you all for joining the call.

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