Good morning ladies and gentlemen and welcome to the Omnicom second quarter 2019 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. To enter the queue for questions, please press one then zero. If you need assistance during the call, please press star then zero. As a reminder, this conference call is being recorded. At this time, I’d like to introduce 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 2019 earnings call. On the call with me today is John Wren, Chairman and Chief Executive Officer, and Philo Angelastro, Chief Financial Officer. We hope everyone has had a chance to review our earnings release. We have posted to www.omnicomgroup.com this morning’s press release along with the presentation covering the information that we will review this morning. This call is also being simulcast and will be archived on our website. Before we start, I’ve been asked to remind everyone to read the forward-looking statement and other information that we have included at the end of our 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 a 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 the lines for your questions.

Thank you, Shub. Good morning. I’m pleased to speak to you this morning about our second quarter results. We had another good quarter with organic growth of 2.8%, which is in line with our internal targets. Total revenue was down 3.6% due to the negative impact of foreign exchange rates and acquisitions net of dispositions. EBIT margin was 15.4%, an increase of 30 basis points versus the prior year, and EPS for the quarter was up 5% to $1.68 per share. The results continue to demonstrate consistency and diversity of Omnicom’s operations, our ability to deliver consumer-centric strategic business solutions to our clients, and our best-in-industry creative talent combined with market-leading digital data and analytical expertise. Organic growth in the quarter was broad-based across our agencies, disciplines and client sectors. Looking first across disciplines, advertising and media was up 4.4% with both advertising and media practices experiencing good growth in the quarter. CRM consumer experience was up 1.9%. Our precision marketing and digital agencies had double-digit growth in the quarter. This growth was offset by negative performance in our events business, which had difficult comps as compared to the prior year. As expected, CRM execution and support was down 2.6%. Healthcare continues to be one of our best performing practice areas with growth of 8.4%. Omnicom health group has the top agencies in the world serving the healthcare and pharmaceutical industries and the group is very well positioned for continued growth, and PR was down 1.3% in the quarter. Turning now to our performance by geography, the U.S. was up 3.2% in the quarter driven by strong results in advertising and media, healthcare, and our precision marketing group, offset by declines in our events business and in CRM execution and support. Beyond the U.S., the North American region primarily consisting…

Thank you John, and good morning. As John said, results for the second quarter of 2019 were in line with our expectations. Our operating results continue to be drive by outstanding client service provided by our agencies and net new business wins, along with positive impact that our efficiency initiatives have had on our cost structure and the benefits from the change in mix resulting from our repositioning actions. For the second quarter, organic revenue growth totaled 2.8% or $108 million. The continued strength of the U.S. dollar over the past 12 months created an FX headwind, reducing our reported revenue by $100 million or 2.6%. The reduction in revenue from dispositions made during the last 12 months primarily in our CRM execution and support discipline exceeded revenue from acquisitions in the quarter. As a result, our second quarter revenue was reduced by $148 million or about 3.8%. In total, our reported revenue decreased 3.6% to $3.7 billion in the quarter. We will discuss the drivers of the changes in revenue in more detail in a few minutes. Turning to the income statement items below revenue, our Q2 operating profit, or EBIT, was $574 million with a resulting operating margin of 15.4%, which was up 30 basis points when compared to the second quarter of 2018, and our EBITDA for the quarter was $595 million, resulting in an EBITDA margin of 16%, up 20 basis points compare to last year’s Q2. We continue to see benefits from the change in business mix resulting from the disposition of several non-strategic or underperforming agencies over the past year. We also continue to seek out opportunities to increase operational efficiency throughout our organization focused on our real estate, back office services, procurement, and IT support services. These actions continue to positively impact our…

[Operator instructions] Our first question will come from the line of Alexia Quadrani with JP Morgan. Please go ahead.

Thank you so much. Just two questions. I guess first off, just following up on the ongoing improvement in the U.S. organic growth, I know it’s kind of nitpicking, it’s not necessarily the way you guys look at it, but if you have some color you can give us on whether you think the improvement is really driven by the better influx or better mix of new business wins, less losses, or are you really seeing some underlying improvement at your agencies or in existing client spend?

You said you had a second question?

I do. You want me to ask it now?

Yes, go ahead.

It’s just on international. You gave great color - thank you, John - about the different regions in the quarter, and I think you mentioned that Brazil, for example, would be a challenge for the rest of the year. I’m curious if you have any other color you can add about the outlook of the other major regions, how we should look to the other major regions for the back half of the year.

Okay. In terms of U.S. organic growth, you’re absolutely right - we do not look at it on a quarterly basis. We look at it across the year and what we expect clients to spend, because money can shift from quarter to quarter and when you’re in the 2 to 3% growth range, those shifts have a meaningful impact on the percentages that we report. We had a solid performance. I mean, I think contributing to it was where clients decided to spend and some of the new business wins from last year, but there is not--I can’t point out any one obvious reason for the particular growth that we reported. Phil might have a--?

Yes, I think any one quarter doesn’t necessarily make a trend, but we were pleased with the results with respect to the U.S. performance. Our overall outlook for the company has always been on the consolidated growth profile. We don’t necessarily nitpick it by country or by region, but we were certainly pleased with the second quarter. John’s referenced that the percentages themselves within a quarter can vary, so we’re certainly cautiously optimistic about the second half.

In terms of international growth, Brazil we do point out because we’ve had to take actions and it is still a work in progress for us to get it to the level that we would like it to be. As you go across the rest of the world, the uncertainties that exist because of geopolitical decisions will have some impact on what goes on with our clients and spending. We cannot predict what’s going to happen with Brexit. The good news is we don’t have a lot of financial service clients in the U.K. We don’t know what’s going to happen with tariffs and what the reaction to that is going to be, so we remain cautious, optimistic but cautious, and trying to gain market share in all the places we operate in.

Just one follow-up on your U.S. commentary, some of the new business was--some of the headline clients, which I know is not necessarily everything that you see, it seemed a little slower to ramp post their announcements that they shifted their accounts to Omnicom late last year. Do you see still from what you see today, maybe a greater tailwind of new business benefit in the back half of the year than you did in the first half?

You’re correct in your comment that some of those headline accounts are slower to ramp up and will start to contribute more in the second half, but I don’t think meaningfully enough to affect our overall guidance of growth of 2 to 3%.

Okay, thank you very much.

Our next question will come from the line of Tim Nollen with Macquarie. Please go ahead.

John, I wonder if you could elaborate a bit more please on your commentary on renting data and technology rather than buying. It is quite a difference from at least two of your peers, and yet your growth rate has been better than at least one of those. I just wonder if you could give us a bit more on the logic behind this and what difference it actually makes to work with third party data versus having access to first party data, and in terms of renting technology versus owning. Thanks.

Okay. Well, as an overall statement, since it seems to be of interest to not only you but probably others, we did look at both of those acquisitions that our competitors made, and if we thought they were worth it, we would have purchased them ourselves. But going back to your question, there’s risk when you do a transaction like that. There’s huge integration risk. You’ve seen it in some instances in other companies in our industry where they’ve done--previously done very large acquisitions for their size and not really been able to successfully integrate them within a relatively short period of time. The other thing, the other real risk is they are legacy businesses. In Europe, most of them don’t operate but they have GDPR. I can’t tell what the risk is going to be to that data, delivering safe data for brands and what the regulations are going to be in the United States, let alone China or anywhere else, so to us as we looked at it, the risk versus the data versus our ability to obtain the same data but in a very relevant, up-to-date way, there was no ROI on the transactions for us. Our systems have always been open and unbiased, and we think that’s critical. It’s critical for us to get the best results for our clients, and we’re focused on creating meaningful outcomes for our clients. I have never wanted to be in a position where the way I sell you something or the way I work on your behalf, you have to buy what legacy systems that I put in place and I don’t have any flexibility of changing those systems to improve them with whatever the marketplace seems to offer, or needs to offer.

I’d just add, we’ve been building and investing in the Analect and Omni platform for the last 10 years. It’s something that we’ve done internally, spent an awful lot of time and energy in having one common platform that’s going to continue to evolve, and as John had said, in an open fashion. It’s also a global platform, not just a U.S. platform, and we’re going to continue to invest in it going forward and maintain the flexibility we have to work with various best-in-class partners and get the data that we need, when we need it from a variety of sources. It’s a much more flexible approach and one that we can scale.

Can I just tack onto that last bit that you just mentioned, Phil, about--and it’s again back to the first versus third party data. Do you have access to the first party data you need? We hear more and more about how important that is. Do you have that, or do you disagree that it’s so important, that third party data serves your purposes?

Keep in mind the first party data is the client’s data. It’s not our data. I think to the extent we need it to help whichever client we’re working with, we can easily and effectively help clients integrate our third party data with their first party data in a very effective way. We do that for many clients today and we expect to continue to do that in the future. We don’t see a situation where in the short term or even in the long term, that clients are essentially going to give up the ownership of that first party data, but they need a partner to help them to more meaningfully merge that data with relevant third party data to come up with solutions to help them reach the consumers they’re trying to reach.

Said another way, we don’t need to own it to connect to that data on behalf of our clients, and we do that. The data that--those company needs that I think you’re alluding to pales in comparison to the quality that clients have on their own.

Right, thanks very much for your explanations.

Hype gets people excited because there’s a headline, but when you look to the substance of it, we think--you know, God bless them, but it will be a challenge.

Okay, thanks a lot.

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

I’m not an economist per se, but I wanted to get a sense from you, when you look at the outlook in the U.S. and also globally, how you’re thinking about the macro backdrop, because we’re seeing a really strong ad market here in the U.S., you guys had nice U.S. and advertising results this quarter, you mentioned you were optimistic for the back half, but there are a lot of leading indicators on the macros that look like they’ve rolled over and people seem to be getting more cautious about factory orders or capital goods or business investment, obviously the Fed talking about slower growth. I’m just curious, I’d love to get your perspective on all that and how you reconcile the strong ad market with what seems to be a slowing broader macro. If you have thoughts on that, I’d love to hear them.

I’m no economist either, so you take that for what it’s worth. In speaking to many of our clients, each industry has particular concerns; but if I had to sum it up, everybody--most people believe that the U.S. economy continues to perform well. At the same time, they recognize that the U.S. economy has never performed this well for this long at any point in the past, and so at some point you can expect some dips or some changes. Nobody can figure out the when. I do think you see it having more of an impact on long-term planning in terms of some of our clients that have to commit capital to their businesses in the future. It doesn’t have the same type of impact on the advertising business because we--nothing is completely flexible, but we’re very vigilant about what our clients are doing and what they tell us they’re going to do and the services that we offer, so we’re--we can be a bit more nimble than many, many businesses which require a lot more capital to do things.

Right, that makes sense. Maybe just a separate follow-up. On the competitive front with the IT consulting firms that get a lot of press in the marketplace, one of the things I saw recently is, I’m sure as you know, a lot of these consultants audit agency buying for their clients while at the same time they are competing for business, and I think there have been some agencies or holding companies that have balked at allowing that and turning over media data to get audited by what is essentially a competitor. I was just curious if you thought this was a big issue, yes or no, and if it is, what are the options for you to navigate what seems to be a rising source of conflict on the competitive front?

Yes, there’s no absolute answer to your question, but this is not a new problem. Oftentimes, most times with clients, we mutually agree on who is going to audit and not audit our results. I don’t know of any of the major holding companies that have really easily agreed with having them come in and ask the type of questions you’re referring to. I applaud Mark Reid in making it a more public issue, but privately this issue has been dealt with on a client-by-client basis for a long time.

Got it, thank you.

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

Yes, good morning. Thank you for taking the question. My first one is on CRM execution and support - that has been a problem for a while, so when can you turn this around, or is it structurally challenged for many years to come, and if the latter, for further disposition? Secondly, you mentioned several times in your opening remarks that some of your event businesses impacted revenue in certain geographies. In which division do you put events and what [indiscernible] this activity presents broadly? Lastly, can we have a sense of the total investment in Analect and Omni in the last 10 years so we can compare that to how much some of your competitors have spent externally? Thank you.

You go ahead, Phil.

As far as CRM execution and support goes, I think the businesses that remain in the portfolio, we continue to work with management and--actually, management of the practice area to get them focused on improving their execution. I think we’ve done a lot in terms of what we intended to do as far as our disposition strategy as it relates to the businesses in that portfolio, but longer term we don’t expect them to grow as rapidly as the rest of our portfolio and we expect we’ll continue to evaluate the pieces of that portfolio as we go forward. We do have some good businesses that have been performing well in that portfolio. They tend to be the smaller pieces of the portfolio, so we’re going to continue business as usual in trying to help them execute better and turn themselves around, but we’ll also continue to re-evaluate the portfolio as we go down the road. With respect to the events businesses, I’m not--if you could repeat your question? I’m not sure I got the last part of it.

First of all, in which division is it? I assume it’s in CRM, but which bit of CRM?

Yes, it’s in the consumer experience portion--

It’s in consumer experience? Okay. And then broadly, what percentage of the total Omnicom business is it? Are we talking about 1% of revenue, 5% of revenue?

It’s probably less than 5% of our revenue on a global basis.

Okay. Then the last question on Analect and Omni investment?

Yes, I think one broad comment and then I’ll turn it to John, but certainly we’ve invested quite a bit over the last 10 years in Analect and Omni, but probably not close to what the two recent acquisitions--the spend on the two recent acquisitions have been by two of our main competitors.

The only thing I’d add is we have made significant investments in the whole area of technology - Analect, tools, some other investments as well. The way that we’ve made these investments is internally, so we expense them as incurred, we don’t capitalize them so you won’t see it on our balance sheet, or in our goodwill for that matter. I’m no accountant, but I do--and it gets quite a bit of priority from the management of Omnicom and the management of other creative businesses because of the importance of the tools that we’re creating and what we’re doing. If you go back, which I don’t suggest you have to do, and listen to prior conference calls or read any one of our prior transcripts, you’ll see that we’ve been talking about this for 10 years or so.

Yes, the bulk of the investment has been in essentially people, as well as some software tools and technology tools, but it is something that certainly is run through the P&L. It hasn’t been trying to piece together and integrate a bunch of acquisitions, but we also recognize that it’s an investment we need to continue to make and expect to continue to make to continue to maintain and upgrade the platform as technology changes and as the media landscape changes.

But if you had to venture an amount for investment, are we talking a couple hundred million, $500 million, close to a billion over 10 years, or is too hard to do? Just to have a really broad sense.

It’s not too hard, we just don’t--we spend what we need, we don’t add it up and pat ourselves on the back for having spent it.

Yes, I mean, you could also include or exclude a number of other miscellaneous costs, so you do include the training in that investment, the training in the people which is now global, or don’t you? How do you calculate those numbers? It’s an integrated, integral part of the business that we don’t spend a considerable amount of time trying to figure out every last dollar so that we could report it and have it--make a big splash on how much we’ve invested. It’s an integral, integrated part of the business and investing in this platform is something we’re going to continue to do, and it’s just a basic part of the business.

Okay, very clear. Thank you very much.

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

Thank you, I have one for John and then one for John or Phil. John, a question for you is you started the call by saying there’s been a return to the celebration of creativity as a force, and I wonder in that return as that acknowledgement of creativity, are you seeing any change in maybe the pressures on fees or maybe a re-ranking of priorities for your clients? Is there anything that is a business outcome from what you acknowledge as maybe a different focus now on clients?

Before I answer your question, this should be the last question we take because I think the markets are just about to open. It’s a recognition, I think. It’s a recognition for the first time in a long time that people realize--clients realize that the differentiation is quality of the creative people that you have. Somebody previously asked about consultants, if we go back to con two years ago, the place was crawling with some of the people that were referred to in the earlier question. There were very few of them there this year, if there were any at all, because they can put in enterprise systems and do fancy things and pretend like they’re in our business, but in fact they don’t have any creative assets, and creating a global network of creative assets is not a simple matter. I think if you--I’m not the only one saying it, I think in some of the--I think Maurice Lévy was interviewed at Sun Valley and he pointed out that when you get through all the changes that are going on in the business, the key thing which remains constant and most important is creativity, so that’s always been our DNA. I think not only do we recognize it and we’ve really cherished it and nurtured it since our beginning, I believe the rest of our competition recognizes that it’s the only differentiation and value that we can really bring to the party. You said you had two questions?

Yes, the other one was just on acquisition patterns. Is the lack of spending this year acknowledgment of either a change of prioritization or just timing of deals, or maybe just the pricing of deal? Usually you guys do enter the marketplace and buy some assets, but this year you’ve done very little, so I just want to know what’s driving that.

Phil can answer, but I would say mostly circumstance. We’ve recognized the same thing in the second quarter and we’ve since then put more resources in the area of looking for certain selective acquisitions. It’s going to take some time to identify them and then to bring them into the fold.

Yes, I think we certainly want to do more acquisitions than less in terms of how we use our free cash flow, if we can find the right ones. This particular quarter, there were two acquisitions in particular that we’d been working on for quite some time. One of them, we just couldn’t complete, we couldn’t come to terms. They weren’t economic terms that were the issue with other things. The other just didn’t happen this quarter from a timing perspective. I think we do have a pipeline in place that we’ve been working, but as John had said, we are taking some actions to kind of redouble our efforts to find deals. I think from a pricing perspective, that really hasn’t been what has held us up or caused us to do less this year than last year. Last year, we had some excellent candidates and got some deals done that have been very successful. We expect that we’ll do more of those in the future

Okay, thank you both.

Thank you. Thank you everybody for taking the time to join the call.

Our next question will come from the line of Adrien de Saint Hilaire. Please go ahead.

I think we have to unfortunately end the call, Operator, given the market is now open.

Okay.

Thanks everybody, have a great day.

Ladies and gentlemen, that does conclude today’s conference. Thank you very much for your participation. You may now disconnect.