OMNICOM GROUP., INC. 
Impact of the COVID-19 Pandemic on our Business The COVID-19 pandemic has significantly impacted our business and results of operations. Beginning late in the first quarter, public health efforts to mitigate the impact of the pandemic, including government actions to restrict travel, limit public gatherings and shelter in place and mandatory closures of businesses resulted in many of our clients reducing or suspending their spending plans with us. For the six months endedJune 30, 2020 , revenue decreased$981.1 million , or 13.6%, compared to the six months endedJune 30, 2019 , primarily due to impact of the COVID-19 pandemic. We expect that the negative impact from the pandemic on our revenue will continue for the remainder of the year, and such reduction in revenue could adversely impact our ongoing results of operations and financial position. These effects could be material. While we believe that our performance in the second quarter of 2020 was the low point for the year, we expect that our results of operations for the second half of the year will continue to be lower than the prior year period; our revenue and margins are expected to improve compared to the second quarter of 2020. In the second quarter of 2020, we took actions to align our cost structure, reduce our workforce and facility requirements and continued the review of businesses for disposal and assets for impairment. As a result, we recorded a pre-tax charge of$277.9 million , which is comprised of incremental severance of$150.0 million , real estate operating lease right-of-use, or ROU, asset and other asset impairment charges of$55.8 million , other real estate exit costs of$47.0 million and dispositions and other charges of$25.1 million (see Note 10 to the unaudited consolidated financial statements). These actions reduced headcount by over 6,000 and reduced the related facility requirements, which should result in significant reductions in future operating expenses. As a result, we expect that our margins in the second half of the year will be in line with the prior year. The COVID-19 pandemic affected substantially all our clients, with certain industry sectors being negatively affected more significantly than others, including travel and entertainment, oil and gas, non-essential retail and automotive. Clients in these industries cut costs, including postponing or reducing marketing communication expenditures. Certain industries such as pharmaceuticals and healthcare, technology, telecommunications, government and services have fared relatively better to date. Global economic conditions are volatile and economic uncertainty cuts across all clients, industries and geographies. Overall, while we have a diversified portfolio of service offerings, clients and geographies, demand for our services can be expected to continue to be adversely affected as marketers reduce expenditures in the short term due to the uncertain impact of the pandemic on the global economy. Over the second half of 2020, we expect the global economic performance and our performance to vary by geography depending on how effectively governments respond to the COVID-19 pandemic and, in turn, allow for the reopening of their economies. Additionally, we expect some industries that were the most negatively impacted, including lodging, travel and entertainment, to continue to be challenged. However, other industries such as retail, food and beverage and automotive may see improvement. Although we have experienced a decrease in our cash flow from operating activities, we have taken numerous proactive steps to strengthen our liquidity and financial position that are intended to mitigate the potential impact of the COVID-19 pandemic on our liquidity. InFebruary 2020 , we issued$600 million 2.45% Senior Notes dueApril 30, 2030 , or the 2.45% Notes. InMarch 2020 , the net proceeds from the issuance of the 2.45% Notes were used to redeem the remaining$600 million principal amount of our 4.45% Senior Notes dueAugust 15, 2020 , or the 2020 Notes. As a result, we have no notes maturing untilMay 2022 . InApril 2020 , we issued$600 million of 4.20% Senior Notes dueJune 1, 2030 , or the 4.20% Notes, and we entered into a new$400 million 364 Day revolving credit facility, or the 364 Day Credit Facility. The 364 Day Credit Facility is in addition to our existing$2.5 billion multi-currency revolving credit facility, or Credit Facility, which we extended to mature inFebruary 2025 . Further, inMarch 2020 , we suspended our share repurchase activity. We are a strategic holding company providing advertising, marketing and corporate communications services to clients through our branded networks and agencies around the world. On a global, pan-regional and local basis, our networks and agencies provide a comprehensive range of services in the following fundamental disciplines: advertising, CRM, which includes CRM Consumer Experience and CRM Execution & Support, public relations and healthcare. Our business model was built and continues to evolve around our clients. While our networks and agencies operate under different names and frame their ideas in different disciplines, we organize our services around our clients. Our fundamental business principle is that our clients' specific marketing requirements are the central focus of how we structure our service offerings and allocate our resources. This client-centric business model requires that multiple agencies withinOmnicom collaborate in formal and informal virtual client networks utilizing our key client matrix organization structure. This collaboration allows us to cut across our internal organizational structures to execute our clients' marketing requirements in a consistent and comprehensive manner. We use our client-centric approach to grow our business by expanding our service offerings to existing clients, moving into new markets and obtaining new clients. In addition, we pursue selective acquisitions of complementary companies with strong entrepreneurial management teams that typically currently serve or could serve our existing clients. 16 -------------------------------------------------------------------------------- As a leading global advertising, marketing and corporate communications company, we operate in all major markets and have a large and diverse client base. For the six months endedJune 30, 2020 , our largest client accounted for 3.6% of our revenue and our 100 largest clients, which represent many of the world's major marketers, accounted for approximately 55% of our revenue. Our business is spread across a number of industry sectors with no one industry comprising more than 17% of our revenue for the six months endedJune 30, 2020 . Although our revenue is generally balanced betweenthe United States and international markets and we have a large and diverse client base, we are not immune to general economic downturns. Global economic conditions have a direct impact on our business and financial performance. Adverse global or regional economic conditions, such as those currently arising from the COVID-19 pandemic, pose a risk that our clients may reduce, postpone or cancel spending on advertising, marketing and corporate communications services, which would reduce the demand for our services. Revenue is typically lower in the first and third quarters and higher in the second and fourth quarters, reflecting client spending patterns during the year and additional project work that usually occurs in the fourth quarter. As a result of the impact related to the COVID-19 pandemic, we experienced a significant decline in our organic revenue growth, which will likely continue through the remainder of 2020. While we are in the process of compiling, updating and re-evaluating our internal forecasts for the remainder of 2020, we do expect that we will have negative organic growth and an overall decline in revenue for the remainder of 2020, as compared to the comparable period in 2019. As described in more detail below, due to the impact of the COVID-19 pandemic revenue for the six months endedJune 30, 2020 , decreased$981.1 million , or 13.6%, compared to the six months endedJune 30, 2019 . Changes in foreign exchange rates reduced revenue$111.6 million , or 1.6%, acquisition revenue, net of disposition revenue, reduced revenue$26.6 million , or 0.4%, reflecting the disposition of certain non-strategic businesses, and negative organic growth reduced revenue$842.9 million , or 11.7%. Certain global events targeted by major marketers for advertising expenditures, such as the FIFA World Cup and theOlympics , and certain national events, such as theU.S. election process, may affect our revenue period-over-period in certain businesses. Typically, these events do not have a significant impact on our revenue in any period. Beginning in March and continuing through the second quarter of 2020, our business experienced the effects from client spending reductions from the impact related to the COVID-19 pandemic. The spending reductions impacted all our businesses and markets. The businesses most impacted by the reduction in client spending were our advertising discipline, primarily in our media businesses, our CRM Consumer Experience discipline, especially in our event marketing businesses, and our CRM Execution Support discipline, primarily in our field marketing and merchandising businesses. InNorth America , we experienced a decline in organic revenue in all our businesses, except our healthcare businesses. InEurope and theMiddle East andAfrica , all businesses and regions experienced a decline in organic revenue resulting from the economic impact attributed to the COVID-19 pandemic. In addition, the economic and political conditions in theEuropean Union , including the status of Brexit, remain uncertain and could further negatively impact our businesses in theU.K. and in the region. InLatin America , the impact of the COVID-19 pandemic compounded the continuing unstable economic and political conditions inBrazil , and we experienced negative organic growth inBrazil and throughout the region. In addition, the weakening of foreign currency exchange rates in all countries in the region against theU.S. Dollar further contributed to the reduction in revenue in the region. InAsia-Pacific , almost all our businesses in the region experienced negative organic growth as a result of the COVID-19 pandemic, and substantially all currencies weakened against theU.S. Dollar. The economic and fiscal issues, including the impact related to the COVID-19 pandemic, facing the countries we operate in can be expected to continue to cause economic uncertainty and volatility; however, the impact on our business varies by country. We monitor economic conditions closely, as well as client revenue levels and other factors. In response to reductions in our revenue that are expected to continue for the remainder of the year, beginning in the second quarter of 2020, we took actions to align our cost structure with changes in client demand and manage our working capital. However, there can be no assurance whether, or to what extent, our efforts to mitigate any impact of the current and future adverse economic conditions, reductions in client revenue, changes in client creditworthiness and other developments will be effective or that additional actions will not be necessary. Prior to the COVID-19 pandemic, certain business trends had generally a positive impact on our business and industry. These trends include clients increasingly expanding the focus of their brand strategies from national markets to pan-regional and global markets and integrating traditional and non-traditional marketing channels, as well as utilizing new communications technologies and emerging digital platforms. As clients increase their demands for marketing effectiveness and efficiency, they have made it a practice to consolidate their business within one service provider in the pursuit of a single engagement covering all consumer touch points. We have structured our business around these trends. We believe that our key client matrix organization structure approach to collaboration and integration of our services and solutions has provided a competitive advantage to our business in the past and we expect this to continue beyond the current COVID-19 pandemic over the medium and long term. 17 -------------------------------------------------------------------------------- Driven by our clients' continuous demand for more effective and efficient marketing activities, we strive to provide an extensive range of advertising, marketing and corporate communications services through various client-centric networks that are organized to meet specific client objectives. These services include, among others, advertising, brand consulting, content marketing, corporate social responsibility consulting, crisis communications, custom publishing, data analytics, database management, digital/direct marketing, digital transformation, entertainment marketing, experiential marketing, field marketing, financial/corporate business-to-business advertising, graphic arts/digital imaging, healthcare marketing and communications, in-store design, interactive marketing, investor relations, marketing research, media planning and buying, merchandising and point of sale, mobile marketing, multi-cultural marketing, non-profit marketing, organizational communications, package design, product placement, promotional marketing, public affairs, public relations, retail marketing, sales support, search engine marketing, shopper marketing, social media marketing and sports and event marketing. 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. In the first and second quarters of 2019, we disposed of certain businesses, primarily in our CRM Execution & Support discipline. Given our size and breadth, we manage our business by monitoring several financial indicators. The key indicators that we focus on are revenue and operating expenses. We analyze revenue growth by reviewing the components and mix of the growth, including growth by principal regional market and marketing discipline, the impact from foreign currency exchange rate changes, growth from acquisitions, net of dispositions and growth from our largest clients. Operating expenses are comprised of cost of services, selling, general and administrative expenses, or SG&A, and depreciation and amortization. Revenue for the quarter endedJune 30, 2020 decreased$919.1 million , or 24.7%, compared to the quarter endedJune 30, 2019 . Changes in foreign exchange rates reduced revenue 1.7%, acquisition revenue, net of disposition revenue, reduced revenue 0.1% and negative organic growth decreased revenue 23.0% as all our markets were negatively impacted by the COVID-19 pandemic. The change in revenue across our principal regional markets were:North America decreased$454.4 million ,Europe decreased$308.4 million ,Asia-Pacific decreased$87.8 million andLatin America decreased$42.0 million . InNorth America , we experienced a decline in organic revenue in all our businesses, except our healthcare businesses. InEurope , all businesses and regions experienced a decline in organic revenue, and most currencies in the region weakened against theU.S. Dollar. InLatin America , we experienced negative organic growth in almost all our businesses in the region, especially inBrazil . In addition, the weakening of all currencies in the region against theU.S. Dollar further contributed to the reduction in revenue in the region. InAsia-Pacific , almost all our businesses in the region experienced negative organic growth and substantially all currencies weakened against theU.S. Dollar. The change in revenue in the second quarter of 2020 compared to the second quarter of 2019, in our fundamental disciplines was: advertising decreased$602.5 million , CRM Consumer Experience decreased$174.7 million , CRM Execution & Support decreased$96.3 million , public relations decreased$53.5 million and healthcare increased$7.9 million . Revenue for the six months of 2020 decreased$981.1 million , or 13.6%, to$6,207.6 million from$7,188.7 million in the six months of 2019. Changes in foreign exchange rates reduced revenue 1.6%, acquisition revenue, net of disposition revenue, reduced revenue 0.4% and negative organic growth decreased revenue 11.7%. Primarily as a result of the negative impact on our revenue from the COVID-19 pandemic in the second quarter of 2020, the decrease in revenue across our principal regional markets were:North America decreased$446.3 million ,Europe decreased$330.6 million ,Asia-Pacific decreased$94.8 million andLatin America decreased$59.5 million . InNorth America , we experienced a decline in organic revenue in all our businesses, except our healthcare businesses. The change in revenue in the six months of 2020 compared to the six months of 2019, in our fundamental disciplines was: advertising decreased$639.2 million , CRM Consumer Experience decreased$190.8 million , CRM Execution & Support decreased$126.3 million , public relations decreased$55.9 million and healthcare increased$31.1 million . We measure cost of services in two distinct categories: salary and service costs and occupancy and other costs. As a service business, salary and service costs make up the significant portion of our operating expenses and substantially all these costs comprise the essential components directly linked to the delivery of our services. Salary and service costs include employee compensation and benefits, freelance labor and third-party service costs, which include third-party supplier costs and client-related travel costs. Occupancy and other costs consist of the indirect costs related to the delivery of our services, including office rent and other occupancy costs, equipment rent, technology costs, general office expenses and other expenses. Also included in cost of services for 2020 are repositioning costs, which are comprised of incremental severance costs, asset impairments and real estate exit costs, and a net loss on dispositions incurred in connection with the actions we took in the second quarter of 2020 to align our cost structure due to the decline in revenue resulting from the impact of the COVID-19 pandemic, as described above. SG&A expenses, which decreased period-over-period, primarily consist of third-party marketing costs, professional fees and compensation and benefits and occupancy and other costs of our corporate and executive offices, which includes group-wide finance and accounting, treasury, legal and governance, human resource oversight and similar costs. 18 -------------------------------------------------------------------------------- For the quarter endedJune 30, 2020 , salary and service costs, which tend to fluctuate with changes in revenue, decreased$634.1 million , or 23.8%, compared to the quarter endedJune 30, 2019 . Salary and related service costs in the quarter endedJune 30, 2020 decreased$235.5 million , or 14.2%, period-over-period principally as a result of the severance and furlough actions we took in the second quarter of 2020. Third party service costs, which are included in salary and service costs and include expenses incurred with third-party vendors primarily when we act as a principal when performing services for our clients, decreased$398.6 million , or 39.7%, period-over-period reflecting the decrease in revenue and the impact of actions we took to align our cost structure. Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, decreased$25.4 million , or 8.1%, in the second quarter of 2020 compared to the second quarter of 2019. Operating profit for the second quarter of 2020 included a pre-tax decrease of$277.9 million due to repositioning costs, comprised of incremental severance charges and operating lease ROU asset and other asset impairments and other real estate exit costs of$252.8 million and a net loss on dispositions of$25.1 million (see Note 10 to the unaudited consolidated financial statements). Operating profit decreased$511.2 million to$62.5 million . Operating margin decreased to 2.2% from 15.4% and EBITA margin decreased to 3.0% from 16.0%, period-over-period. Adjusting for the impact of the repositioning costs and net loss on dispositions, non-GAAP operating profit would have decreased to$340.4 million compared to$573.7 million for the second quarter of 2019. Non-GAAP operating margin and adjusted EBITA margin for the second quarter of 2020 would have been 12.2% and 12.9%, respectively, as compared to 15.4% and 16.0%, respectively, for the second quarter of 2019. For the six months endedJune 30, 2020 , salary and service costs, which tend to fluctuate with changes in revenue, decreased$668.4 million , or 12.8%, compared to the six months of 2019. Salary and related service costs in the six months of 2020 decreased$259.1 million , or 7.8%, period-over-period. Third party service costs, which include expenses incurred with third-party vendors primarily when we act as a principal when performing services for our clients, decreased$409.3 million , or 21.5%, period-over-period reflecting the decrease in revenue and the impact of actions we took to align our cost structure. Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, decreased$25.1 million , or 4.0%, in the six months of 2020 compared to the six months of 2019. Operating profit for the six months endedJune 30, 2020 included a pre-tax decrease of$277.9 million due to repositioning costs, comprised of incremental severance charges and operating lease ROU asset and other asset impairments and other real estate exit costs of$252.8 million and a net loss on dispositions of$25.1 million (see Note 10 to the unaudited consolidated financial statements). Operating profit decreased$519.9 million to$482.7 million . Operating margin decreased to 7.8% from 13.9% and EBITA margin decreased to 8.5% from 14.5%, period-over-period. Adjusting for the impact of the repositioning costs and net loss on dispositions, non-GAAP operating profit would have decreased to$760.6 million compared to$1,002.6 million for the six months of 2019. Non- GAAP operating margin and adjusted EBITA margin for the six months of 2020 would have been 12.3% and 12.9%, respectively, as compared to 13.9% and 14.5%, respectively, for the six months of 2019. Net interest expense in the second quarter of 2020 decreased$3.0 million period-over-period to$47.2 million . Net interest expense in the six months of 2020 decreased$3.2 million period-over-period to$93.0 million . Interest expense on debt decreased$13.5 million to$49.0 million in the second quarter of 2020 and decreased$18.8 million to$102.9 million in the six months of 2020, primarily reflecting a reduction in interest expense from our refinancing activity at lower interest rates in the second half of 2019, partially offset by a loss of$7.7 million on the early redemption of the remaining$600 million principal amount of the 2020 Notes and the interest expense from the issuance of the 2.45% Notes and the 4.20% Notes inFebruary 2020 andApril 2020 , respectively (see Note 6 to the consolidated financial statements). Interest income in the second quarter of 2020 decreased$9.9 million period-over-period to$6.5 million and in the six months of 2020 decreased$14.2 million period-over-period to$19.2 million , primarily due to lower rates. Income tax expense for the second quarter of 2020 decreased$108.7 million period-over-period primarily as a result of lower pre-tax income that includes$277.9 million of repositioning costs and net loss on dispositions (see Note 10 to the unaudited consolidated financial statements). Our effective tax rate for the second quarter of 2020 increased period-over-period to 143.1% from 24.9% and our effective tax rate for the six months of 2020 increased period-over-period to 30.6% from 25.7%. The increase was primarily attributable to the non-deductibility in certain jurisdictions of a portion of the repositioning costs and net loss on dispositions, partially offset by a lower effective rate on certain foreign earnings. In the second quarter of 2019, income tax expense was reduced by$10.8 million primarily from the net favorable settlements of uncertain tax positions in certain jurisdictions. The non-deductibility of a portion of the repositioning costs and net loss on dispositions in certain jurisdictions with lower effective tax rates, had the effect of increasing our tax rate for the second quarter of 2020 from 26.2% to 143.1% and increasing our tax rate for the six months of 2020 from 26.1% to 30.6%. 19 -------------------------------------------------------------------------------- Net loss -Omnicom Group Inc. for the second quarter of 2020 was$24.2 million as compared to net income -Omnicom Group Inc. of$370.7 million in the second quarter of 2019. Net income -Omnicom Group Inc. in the six months of 2020 decreased$399.9 million , or 63.1%, to$234.0 million from$633.9 million in the six months of 2019. The period-over-period decrease is due to the factors described above. Diluted net loss per share -Omnicom Group Inc. was$0.11 in the second quarter of 2020 compared to diluted net income per share -Omnicom Group Inc. of$1.68 in the second quarter of 2019. Diluted net income per share -Omnicom Group Inc. decreased 62.1% to$1.08 in the six months of 2020, compared to$2.85 in the six months of 2019, The period-over-period change was due to the factors described above, as well as the impact of the reduction in our weighted average common shares outstanding resulting from repurchases of our common stock through earlyMarch 2020 . Net loss -Omnicom Group Inc. and Diluted net loss per share -Omnicom Group Inc. for the second quarter of 2020 and net income -Omnicom Group Inc. and diluted net income per shareOmnicom Group Inc. for six months of 2020 include a net after-tax decrease for the repositioning costs and net loss on dispositions of$223.1 million and$1.03 , respectively. Adjusting for those items, non-GAAP net income -Omnicom Group Inc. and non-GAAP diluted net income per share -Omnicom Group Inc. would have been$198.9 million and$0.92 for the second quarter of 2020, respectively, and$457.1 million and$2.11 for the six months of 2020, respectively. 20 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS - Second Quarter 2020 Compared to Second Quarter 2019 (in millions): 2020 2019 Revenue$ 2,800.7 $ 3,719.8 Operating Expenses: Salary and service costs 2,031.1 2,665.2 Occupancy and other costs 290.0 315.4 Repositioning costs and net loss on dispositions 277.9 - Cost of services 2,599.0 2,980.6 Selling, general and administrative expenses 82.1 107.7 Depreciation and amortization 57.1 57.8 2,738.2 3,146.1 Operating Profit 62.5 573.7 Operating Margin % 2.2 % 15.4 % Interest Expense 53.7 66.6 Interest Income 6.5 16.4
Income Before Income Taxes and Income (Loss) From Equity Method Investments
15.3 523.5
Income Tax Expense 21.9 130.6
Income (Loss) From Equity Method Investments (7.8) 1.2
Net Income (Loss) (14.4) 394.1
Net Income (Loss) Attributed To Noncontrolling Interests 9.8 23.4
Net Income (Loss) - Omnicom Group Inc. $
(24.2)
Non-GAAP Financial Measures We use EBITA and EBITA Margin as additional operating performance measures that exclude the non-cash amortization expense of intangible assets, which primarily consists of amortization of intangible assets arising from acquisitions. We define EBITA as earnings before interest, taxes and amortization of intangible assets, and EBITA Margin as EBITA divided by revenue. EBITA and EBITA Margin are non-GAAP financial measures. We believe that EBITA and EBITA Margin are useful measures for investors to evaluate the performance of our business. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance withU.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies. The following table reconciles theU.S. GAAP financial measure of Net Income (Loss) -Omnicom Group Inc. to EBITA and EBITA Margin for the periods presented (in millions): 2020 2019 Net Income (Loss) - Omnicom Group Inc.$ (24.2) $ 370.7 Net Income Attributed To Noncontrolling Interests 9.8 23.4 Net Income (Loss) (14.4) 394.1 Income (Loss) From Equity Method Investments (7.8) 1.2 Income Tax Expense 21.9 130.6 Income Before Income Taxes and Income (Loss) From Equity Method Investments 15.3 523.5 Interest Expense 53.7 66.6 Interest Income 6.5 16.4 Operating Profit 62.5 573.7 Add back: Amortization of intangible assets 21.4 21.2 Earnings before interest, taxes and amortization of intangible assets ("EBITA")$ 83.9 $ 594.9 Revenue$ 2,800.7 $ 3,719.8 EBITA$ 83.9 $ 594.9 EBITA Margin % 3.0 % 16.0 % 21
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Revenue
Revenue for the quarter endedJune 30, 2020 decreased$919.1 million , or 24.7%, compared to the quarter endedJune 30, 2019 . Changes in foreign exchange rates reduced revenue 1.7%, acquisition revenue, net of disposition revenue, reduced revenue 0.1% and negative organic growth decreased revenue 23.0% as all our markets were negatively impacted by the COVID-19 pandemic. The change in revenue across our principal regional markets were:North America decreased$454.4 million ,Europe decreased$308.4 million ,Asia-Pacific decreased$87.8 million andLatin America decreased$42.0 million . InNorth America , we experienced a decline in organic revenue in all our businesses, except our healthcare businesses. InEurope , all businesses and regions experienced a decline in organic revenue, and most currencies in the region weakened against theU.S. Dollar. InLatin America , we experienced negative organic growth in almost all our businesses in the region, especially inBrazil . In addition, the weakening of all currencies in the region against theU.S. Dollar further contributed to the reduction in revenue in the region. InAsia-Pacific , almost all our businesses in the region experienced negative organic growth and substantially all currencies weakened against theU.S. Dollar. The impact of changes in foreign exchange rates reduced revenue 1.7%, or$61.6 million , compared to the second quarter of 2019, primarily resulting from the weakening of substantially all foreign currencies against theU.S. Dollar, especially the Euro, British Pound, Brazilian Real, Russian Ruble and Australian Dollar. The components of revenue change for the second quarter of 2020 inthe United States ("Domestic") and the remainder of the world ("International") were (in millions): Total Domestic International $ % $ % $ % June 30, 2019$ 3,719.8 $ 2,005.2 $ 1,714.6 Components of revenue change: Foreign exchange rate impact (61.6) (1.7) % - - % (61.6) (3.6) % Acquisition revenue, net of disposition revenue (2.7) (0.1) % (3.7) (0.2) % 1.0 0.1 % Organic growth (854.8) (23.0) % (414.1) (20.7) % (440.7) (25.7) % June 30, 2020$ 2,800.7 (24.7) %$ 1,587.4 (20.8) %$ 1,213.3 (29.2) % The components and percentages are calculated as follows: •Foreign exchange rate impact is calculated by translating the current period's local currency revenue using the prior period average exchange rates to derive current period constant currency revenue (in this case$2,862.3 million for the Total column). The foreign exchange impact is the difference between the current period revenue inU.S. Dollars and the current period constant currency revenue ($2,800.7 million less$2,862.3 million for the Total column). •Acquisition revenue is calculated as if the acquisition occurred twelve months prior to the acquisition date by aggregating the comparable prior period revenue of acquisitions through the acquisition date. As a result, acquisition revenue excludes the positive or negative difference between our current period revenue subsequent to the acquisition date and the comparable prior period revenue and the positive or negative growth after the acquisition is attributed to organic growth. Disposition revenue is calculated as if the disposition occurred twelve months prior to the disposition date by aggregating the comparable prior period revenue of dispositions through the disposition date. The acquisition revenue and disposition revenue amounts are netted in the table. •Organic growth is calculated by subtracting the foreign exchange rate impact, and the acquisition revenue, net of disposition revenue components from total revenue growth. •The percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component ($3,719.8 million for the Total column). Changes in the value of foreign currencies against theU.S. Dollar affect our results of operations and financial position. For the most part, because the revenue and expense of our foreign operations are both denominated in the same local currency, the economic impact on operating margin is minimized. Assuming exchange rates atJuly 15, 2020 remain unchanged, we expect the impact of changes in foreign exchange rates to decrease revenue by approximately 1.0% for the year and to have a marginal impact in the third quarter. 22 -------------------------------------------------------------------------------- Revenue and organic growth in our principal regional markets were (in millions): Three Months Ended June 30, 2020 2019 $ Change % Organic Growth Americas: North America$ 1,664.0 $ 2,118.4 $ (454.4) (21.1) % Latin America 54.9 96.9 (42.0) (24.1) % EMEA: Europe 727.5 1,035.9 (308.4) (27.4) % Middle East and Africa 34.5 61.0 (26.5) (39.4) % Asia-Pacific 319.8 407.6 (87.8) (18.6) %$ 2,800.7 $ 3,719.8 $ (919.1) (23.0) % Revenue inEurope , which includes our primary markets of theU.K. and theEuro Zone , decreased$308.4 million for the second quarter of 2020. Revenue in theU.K. , representing 9.5% of revenue, decreased$95.6 million . Revenue in Continental Europe, which comprises theEuro Zone and the other European countries, representing 16.5% of revenue, decreased$212.8 million . The decrease in revenue is due to negative organic growth resulting from the impact of the COVID-19 pandemic. In the normal course of business, our agencies both gain and lose business from clients each year due to a variety of factors. The net change in the second quarter of 2020 was an overall gain in new business. Under our client-centric approach, we seek to broaden our relationships with all of our clients. In the second quarter of 2020 and 2019, our largest client represented 3.9% and 2.9% of revenue, respectively. Our ten largest and 100 largest clients represented 20.9% and 55.6% of revenue for the second quarter of 2020, respectively, and 19.5% and 52.0% of revenue for the second quarter of 2019, respectively. In an effort to monitor the changing needs of our clients and to further expand the scope of our services to key clients, we monitor revenue across a broad range of disciplines and group them into the following categories: advertising, CRM, which includes CRM Consumer Experience and CRM Execution & Support, public relations and healthcare. Beginning in March and continuing through the second quarter of 2020, our business experienced the effects from client spending reductions related to the COVID-19 pandemic. The spending reductions impacted all our businesses and markets. The businesses most impacted by the reduction in client spending were our advertising discipline, primarily in our media businesses, our CRM Consumer Experience discipline, especially in our event marketing businesses, and our CRM Execution Support discipline, primarily in our field marketing and merchandising businesses. Revenue and organic growth by discipline were (in millions): Three Months Ended June 30, 2020 2019 2020 vs. 2019 % of % of % Organic $ Revenue $ Revenue $ Change Growth Advertising$ 1,499.5 53.5 %$ 2,102.0 56.5 %$ (602.5) (26.6) % CRM Consumer Experience 478.7 17.1 % 653.4 17.6 % (174.7) (25.6) % CRM Execution & Support 227.8 8.1 % 324.1 8.7 % (96.3) (27.6) % Public Relations 295.8 10.6 % 349.3 9.4 % (53.5) (13.9) % Healthcare 298.9 10.7 % 291.0 7.8 % 7.9 3.2 %$ 2,800.7 $ 3,719.8 $ (919.1) (23.0) % 23
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We provide services to clients that operate in various industry sectors. Revenue
by sector was:
Three Months Ended June 30,
2020 2019
Food and Beverage 14 % 14 %
Consumer Products 9 % 9 %
Pharmaceuticals and Healthcare 18 % 14 %
Financial Services 8 % 9 %
Technology 9 % 7 %
Auto 9 % 10 %
Travel and Entertainment 6 % 8 %
Telecommunications 6 % 5 %
Retail 6 % 7 %
Services 2 % 2 %
Oil, Gas and Utilities 2 % 2 %
Not-for-Profit 1 % 2 %
Government 3 % 2 %
Education 1 % 1 %
Other 6 % 8 %
100 % 100 %
The COVID-19 pandemic affected substantially all our clients, with certain
industry sectors being negatively affected more significantly than others,
including travel and entertainment, oil, gas and utilities, retail and auto.
Certain industries such as pharmaceuticals and healthcare, technology,
telecommunications and government have fared relatively better to date.
Operating Expenses
Operating expenses were (in millions):
Three Months Ended June 30,
2020 2019 2020 vs. 2019
% of % of $ %
$ Revenue $ Revenue Change Change
Revenue $ 2,800.7 $ 3,719.8 $ (919.1) (24.7) %
Operating Expenses:
Salary and service costs:
Salary and related service costs 1,424.7 50.9 % 1,660.2 44.6 % (235.5) (14.2) %
Third party service costs 606.4 21.7 % 1,005.0 27.0 % (398.6) (39.7) %
2,031.1 72.5 % 2,665.2 71.6 % (634.1) (23.8) %
Occupancy and other costs 290.0 10.4 % 315.4 8.5 % (25.4) (8.1) %
Repositioning costs and net loss on
dispositions 277.9 9.9 % - - % 277.9 - %
Cost of services 2,599.0 2,980.6 (381.6) (12.8) %
Selling, general and administrative
expenses 82.1 2.9 % 107.7 2.9 % (25.6) (23.8) %
Depreciation and amortization 57.1 2.0 % 57.8 1.6 % (0.7) (1.2) %
2,738.2 97.8 % 3,146.1 84.6 % (407.9) (13.0) %
Operating Profit $ 62.5 2.2 % $ 573.7 15.4 % $ (511.2) (89.1) %
24
-------------------------------------------------------------------------------- For the quarter endedJune 30, 2020 , salary and service costs, which tend to fluctuate with changes in revenue, decreased$634.1 million , or 23.8%, compared to the quarter endedJune 30, 2019 . Salary and related service costs in the quarter endedJune 30, 2020 decreased$235.5 million , or 14.2%, period-over-period principally as a result of the severance and furlough actions we took in the second quarter of 2020. Third party service costs, which are included in salary and service costs and include expenses incurred with third-party vendors primarily when we act as a principal when performing services for our clients, decreased$398.6 million , or 39.7%, period-over-period reflecting the decrease in revenue and the impact of actions we took to align our cost structure. Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, decreased$25.4 million , or 8.1%, in the second quarter of 2020 compared to the second quarter of 2019. Operating profit for the second quarter of 2020 included a pre-tax decrease of$277.9 million due to repositioning costs, comprised of incremental severance charges and operating lease ROU asset and other asset impairments and other real estate exit costs of$252.8 million and a net loss on dispositions of$25.1 million (see Note 10 to the unaudited consolidated financial statements). Operating profit decreased$511.2 million to$62.5 million . Operating margin decreased to 2.2% from 15.4% and EBITA margin decreased to 3.0% from 16.0%, period-over-period. Adjusting for the impact of the repositioning costs and net loss on dispositions, non-GAAP operating profit would have decreased to$340.4 million compared to$573.7 million for the second quarter of 2019. Non-GAAP operating margin and adjusted EBITA margin for the second quarter of 2020 would have been 12.2% and 12.9%, respectively, as compared to 15.4% and 16.0%, respectively, for the second quarter of 2019. Net Interest Expense Net interest expense in the second quarter of 2020 decreased$3.0 million period-over-period to$47.2 million . Interest expense on debt decreased$13.5 million to$49.0 million in the second quarter of 2020, primarily reflecting a reduction in interest expense from refinancing activity, principally from the issuance of the Euro notes at lower interest rates in the second half of 2019, partially offset by a loss of$7.7 million on the early redemption of the remaining$600 million principal amount of the 2020 Notes and the interest expense from the issuance of the 2.45% Notes and the 4.20% Notes inFebruary 2020 andApril 2020 , respectively (see Note 6 to the consolidated financial statements). Interest income decreased$9.9 million period-over-period to$6.5 million , primarily due to lower rates. Income Taxes Income tax expense for the second quarter of 2020 decreased$108.7 million period-over-period primarily as a result of lower pre-tax income that includes$277.9 million of repositioning costs and net loss on dispositions (see Note 10 to the unaudited consolidated financial statements). Our effective tax rate for the second quarter of 2020 increased period-over-period to 143.1% from 24.9%. The increase was primarily attributable to the non-deductibility in certain jurisdictions of a portion of the repositioning costs and net loss on dispositions, partially offset by a lower effective rate on certain foreign earnings. In the second quarter of 2019, income tax expense was reduced by$10.8 million primarily from the net favorable settlements of uncertain tax positions in certain jurisdictions. The non-deductibility of a portion of the repositioning costs and net loss on dispositions in certain jurisdictions with lower effective tax rates, had the effect of increasing our tax rate for the second quarter of 2020 from 26.2% to 143.1%. Net Income (Loss) Per Share -Omnicom Group Inc. Net loss -Omnicom Group Inc. for the second quarter of 2020 was$24.2 million as compared to net income -Omnicom Group Inc. of$370.7 million in the second quarter of 2019. The period-over-period decrease is due to the factors described above. Diluted net loss per share -Omnicom Group Inc. was$0.11 in the second quarter of 2020 compared to diluted net income per share -Omnicom Group Inc. of$1.68 in the second quarter of 2019. The period-over-period change was due to the factors described above, as well as the impact of the reduction in our weighted average common shares outstanding resulting from shares issued for restricted stock awards, stock option exercises and the employee stock purchase plan. Net loss -Omnicom Group Inc. and Diluted net income (loss) per share -Omnicom Group Inc. for the second quarter of 2020 include a net after-tax decrease for the repositioning costs and net loss on dispositions of$223.1 million and$1.03 , respectively. Adjusting for those items, non-GAAP net income -Omnicom Group Inc. and non-GAAP diluted net income per share -Omnicom Group Inc. would have been$198.9 million and$0.92 for the second quarter of 2020, respectively. Reconciliation of Non-GAAP Measures Non-GAAP operating profit, adjusted EBITA, Non-GAAP net income -Omnicom Group Inc. , and Non-GAAP diluted net income per share -Omnicom Group Inc. are Non-GAAP financial measures that adjust the 2020 financial measures for the$277.9 million pre-tax impact of the repositioning costs and net loss on dispositions (see Note 10 to the unaudited consolidated financial statements). We believe these Non-GAAP measures aid investors by providing additional insight into our operational performance and help clarify trends affecting our business. For comparability of reporting, management considers Non-GAAP measures in conjunction with GAAP financial results in evaluating business performance. These Non-GAAP financial measures presented should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. 25 --------------------------------------------------------------------------------
Three Months Ended
2020 2019
Non-GAAP operating profit, non-GAAP operating margin, adjusted EBITA
and adjusted EBITA margin:
Net Income (Loss) -
$ (24.2) $ 370.7 Net Income Attributed to Noncontrolling Interests 9.8 23.4 Net Income (Loss) (14.4) 394.1 Income (Loss) From Equity Method Investments (7.8) 1.2 Income Tax Expense 21.9 130.6
Income Before Income Taxes and Income (Loss) From Equity Method Investments
15.3 523.5
Interest Expense 53.7 66.6
Interest Income 6.5 16.4
Operating Profit 62.5 573.7
Operating Margin % 2.2 % 15.4 %
Repositioning Costs and Net Loss on Dispositions 277.9 0.0
Non-GAAP Operating Profit 340.4 573.7
Non-GAAP Operating Margin 12.2 % 15.4 %
Add back: Amortization of intangible assets 21.4 21.2
Adjusted EBITA $ 361.8 $ 594.9
Adjusted EBITA Margin % 12.9 % 16.0 %
Non-GAAP net - income Omnicom Group Inc. and Non-GAAP diluted net
income
per share - Omnicom Group Inc. :
Net Income (Loss) - Omnicom Group Inc. $ (24.2) $ 370.7
Repositioning costs and net loss on dispositions 277.9 -
Net income tax benefit of repositioning costs and net loss on dispositions
(54.8) -
Non-GAAP net income Omnicom Group Inc. $ 198.9 $ 370.7
Diluted net income (loss) per share - Omnicom Group Inc. $ (0.11) $ 1.68
Repositioning costs and net loss on dispositions 1.03 -
Non-GAAP diluted net income per share - Omnicom Group Inc. $ 0.92 $ 1.68
Weighted average shares $ 215.4 $ 220.9
26
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS - Six Months of 2020 Compared to Six Months of 2019 (in
millions):
2020 2019
Revenue $ 6,207.6 $ 7,188.7
Operating Expenses:
Salary and service costs 4,564.4 5,232.8
Occupancy and other costs 599.6 624.7
Repositioning costs and net loss on dispositions 277.9 -
Cost of services 5,441.9 5,857.5
Selling, general and administrative expenses 168.9 211.2
Depreciation and amortization 114.1 117.4
5,724.9 6,186.1
Operating Profit 482.7 1,002.6
Operating Margin % 7.8 % 13.9 %
Interest Expense 112.2 129.6
Interest Income 19.2 33.4Income Before Income Taxes and Income (Loss) From Equity Method Investments
389.7 906.4
Income Tax Expense 119.3 233.2
Income (Loss) From Equity Method Investments (13.0) 0.7
Net Income 257.4 673.9
Net Income Attributed To Noncontrolling Interests 23.4 40.0
Net Income - Omnicom Group Inc. $
234.0
Non-GAAP Financial Measures We use EBITA and EBITA Margin as additional operating performance measures that exclude the non-cash amortization expense of intangible assets, which primarily consists of amortization of intangible assets arising from acquisitions. We define EBITA as earnings before interest, taxes and amortization of intangible assets, and EBITA Margin as EBITA divided by revenue. EBITA and EBITA Margin are non-GAAP financial measures. We believe that EBITA and EBITA Margin are useful measures for investors to evaluate the performance of our business. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance withU.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies. The following table reconciles theU.S. GAAP financial measure of Net Income -Omnicom Group Inc. to EBITA and EBITA Margin for the periods presented (in millions): 2020 2019 Net Income - Omnicom Group Inc.$ 234.0 $ 633.9 Net Income Attributed To Noncontrolling Interests 23.4 40.0 Net Income 257.4 673.9 Income (Loss) From Equity Method Investments (13.0) 0.7 Income Tax Expense 119.3 233.2 Income Before Income Taxes and Income (Loss) From Equity Method Investments 389.7 906.4 Interest Expense 112.2 129.6 Interest Income 19.2 33.4 Operating Profit 482.7 1,002.6 Add back: Amortization of intangible assets 42.2 42.8 Earnings before interest, taxes and amortization of intangible assets ("EBITA")$ 524.9 $ 1,045.4 Revenue$ 6,207.6 $ 7,188.7 EBITA$ 524.9 $ 1,045.4 EBITA Margin % 8.5 % 14.5 % 27
--------------------------------------------------------------------------------
Revenue
Revenue for the six months of 2020 decreased$981.1 million , or 13.6%, to$6,207.6 million from$7,188.7 million in the six months of 2019. Changes in foreign exchange rates reduced revenue 1.6%, acquisition revenue, net of disposition revenue, reduced revenue 0.4%, and negative organic growth decreased revenue 11.7%. Primarily as a result of the negative impact on our revenue from the COVID-19 pandemic in the second quarter of 2020, the decrease in revenue across our principal regional markets were:North America decreased$446.3 million ,Europe decreased$330.6 million ,Asia-Pacific decreased$94.8 million andLatin America decreased$59.5 million . InNorth America , we experienced a decline in organic revenue in all our businesses, except our healthcare businesses. The change in revenue in the six months of 2020 compared to the six months of 2019, in our fundamental disciplines was: advertising decreased$639.2 million , CRM Consumer Experience decreased$190.8 million , CRM Execution & Support decreased$126.3 million , public relations decreased$55.9 million and healthcare increased$31.1 million . The impact of changes in foreign exchange rates reduced revenue 1.6%, or$111.6 million , compared to the six months of 2019, primarily resulting from the weakening of substantially all foreign currencies against theU.S. Dollar, especially the Euro, British Pound, Brazilian Real, Russian Ruble and Australian Dollar. The components of revenue change for the six months of 2020 inthe United States ("Domestic") and the remainder of the world ("International") were (in millions): Total Domestic International $ % $ % $ % June 30, 2019$ 7,188.7 $ 3,889.4 $ 3,299.3 Components of revenue change: Foreign exchange rate impact (111.6) (1.6) % - - % (111.6) (3.4) % Acquisition revenue, net of disposition revenue (26.6) (0.4) % (26.4) (0.7) % (0.2) - % Organic growth (842.9) (11.7) % (381.3) (9.8) % (461.6) (14.0) % June 30, 2020$ 6,207.6 (13.6) %$ 3,481.7 (10.5) %$ 2,725.9 (17.4) % The components and percentages are calculated as follows: •Foreign exchange rate impact is calculated by translating the current period's local currency revenue using the prior period average exchange rates to derive current period constant currency revenue (in this case$6,319.2 million for the Total column). The foreign exchange impact is the difference between the current period revenue inU.S. Dollars and the current period constant currency revenue ($6,207.6 million less$6,319.2 million for the Total column). •Acquisition revenue is calculated as if the acquisition occurred twelve months prior to the acquisition date by aggregating the comparable prior period revenue of acquisitions through the acquisition date. As a result, acquisition revenue excludes the positive or negative difference between our current period revenue subsequent to the acquisition date and the comparable prior period revenue and the positive or negative growth after the acquisition is attributed to organic growth. Disposition revenue is calculated as if the disposition occurred twelve months prior to the disposition date by aggregating the comparable prior period revenue of dispositions through the disposition date. The acquisition revenue and disposition revenue amounts are netted in the table. •Organic growth is calculated by subtracting the foreign exchange rate impact, and the acquisition revenue, net of disposition revenue components from total revenue growth. •The percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component ($7,188.7 million for the Total column). Revenue and organic growth in our principal regional markets were (in millions): Six Months Ended June 30, 2020 2019 $ Change % Organic Growth Americas: North America$ 3,661.3 $ 4,107.6 $ (446.3) (10.1) % Latin America 126.3 185.8 (59.5) (15.0) % EMEA: Europe 1,650.8 1,981.4 (330.6) (14.4) % Middle East and Africa 90.1 140.0 (49.9) (33.2) % Asia-Pacific 679.1 773.9 (94.8) (8.9) %$ 6,207.6 $ 7,188.7 $ (981.1) (11.7) % 28
-------------------------------------------------------------------------------- Revenue inEurope , which includes our primary markets of theU.K. and theEuro Zone , decreased$330.6 million for the six months of 2020 as compared to the prior year period. Revenue in theU.K. , representing 9.8% of total revenue, decreased$89.3 million , primarily due to the weakening of the British Pound against theU.S. Dollar. Revenue in Continental Europe, which comprises theEuro Zone and the other European countries, representing 16.8% of total revenue, decreased$241.3 million primarily due to disposition activity and the unfavorable impact from changes in foreign exchange rates. In the normal course of business, our agencies both gain and lose business from clients each year due to a variety of factors. The net change through the six months of 2020 was an overall gain in new business. Under our client-centric approach, we seek to broaden our relationships with all of our clients. Our largest client represented 3.6% and 3.0% of our revenue for the six months of 2020 and 2019, respectively. Our ten largest and 100 largest clients represented 21.3% and 54.7% of our revenue for the six months of 2020, respectively, and 19.3% and 51.7% of our revenue for the six months of 2019, respectively. In an effort to monitor the changing needs of our clients and to further expand the scope of our services to key clients, we monitor revenue across a broad range of disciplines and group them into the following categories: advertising, CRM, which includes CRM Consumer Experience and CRM Execution & Support, public relations and healthcare. Beginning in March and continuing through the second quarter of 2020, our business experienced the effects from client spending reductions related to the COVID-19 pandemic. The spending reductions impacted all our businesses and markets. The businesses most impacted by the reduction in client spending were, our advertising discipline, primarily in our media businesses, our CRM Consumer Experience discipline, especially in our event marketing businesses, and our CRM Execution Support discipline, primarily in our field marketing and merchandising businesses. Revenue and organic growth by discipline were (in millions): Six Months Ended June 30, 2020 2019 % of % of % Organic $ Revenue $ Revenue $ Change Growth Advertising$ 3,392.3 54.7 %$ 4,031.5 56.1 %$ (639.2) (13.9) % CRM Consumer Experience 1,061.7 17.1 % 1,252.5 17.4 % (190.8) (14.0) % CRM Execution & Support 545.9 8.8 % 672.2 9.4 % (126.3) (13.7) % Public Relations 627.5 10.1 % 683.4 9.5 % (55.9) (7.0) % Healthcare 580.2 9.3 % 549.1 7.6 % 31.1 6.2 %$ 6,207.6 $ 7,188.7 $ (981.1) (11.7) % We provide services to clients that operate in various industry sectors. Revenue by sector was: Six Months Ended June 30, 2020 2019 Food and Beverage 14 % 14 % Consumer Products 8 % 9 % Pharmaceuticals and Healthcare 16 % 14 % Financial Services 8 % 9 % Technology 8 % 7 % Auto 10 % 10 % Travel and Entertainment 8 % 8 % Telecommunications 6 % 5 % Retail 6 % 7 % Services 2 % 2 % Oil, Gas and Utilities 2 % 2 % Not-for-Profit 1 % 2 % Government 3 % 2 % Education 1 % 1 % Other 7 % 8 % 100 % 100 %
The COVID-19 pandemic affected substantially all our clients, with certain industry sectors being negatively affected more significantly than others, including travel and entertainment, oil, gas and utilities, retail and auto. Certain industries such as pharmaceuticals and healthcare, technology, telecommunications and government have fared relatively better to date.
29
--------------------------------------------------------------------------------
Operating Expenses
Operating expenses were (in millions):
Six Months Ended June 30,
2020 2019 2020 vs. 2019
% of % of $ %
$ Revenue $ Revenue Change Change
Revenue $ 6,207.6 $ 7,188.7 $ (981.1) (13.6) %
Operating Expenses:
Salary and service costs:
Salary and related service costs 3,067.1 49.4 % 3,326.2 46.3 % (259.1) (7.8) %
Third party service costs 1,497.3 24.1 % 1,906.6 26.5 % (409.3) (21.5) %
4,564.4 73.5 % 5,232.8 72.8 % (668.4) (12.8) %
Occupancy and other costs 599.6 9.7 % 624.7 8.7 % (25.1) (4.0) %
Repositioning costs and net loss on
dispositions 277.9 4.5 % - - % 277.9 - %
Cost of services 5,441.9 5,857.5 (415.6)
Selling, general and administrative
expenses 168.9 2.7 % 211.2 2.9 % (42.3) (20.0) %
Depreciation and amortization 114.1 1.8 % 117.4 1.6 % (3.3) (2.8) %
5,724.9 92.2 % 6,186.1 86.1 % (461.2) (7.5) %
Operating Profit $ 482.7 7.8 % $ 1,002.6 13.9 % $ (519.9) (51.9) %
For the six months ended June 30, 2020 , salary and service costs, which tend to
fluctuate with changes in revenue, decreased $668.4 million , or 12.8%, compared
to the six months of 2019. Salary and related service costs in the six months of
2020 decreased $259.1 million , or 7.8%, period-over-period. Third party service
costs, which include expenses incurred with third-party vendors primarily when
we act as a principal when performing services for our clients, decreased $409.3
million , or 21.5%, period-over-period reflecting the decrease in revenue and the
impact of actions we took to align our cost structure. Occupancy and other
costs, which are less directly linked to changes in revenue than salary and
service costs, decreased $25.1 million , or 4.0%, in the six months of 2020
compared to the six months of 2019. Operating profit for the six months ended
June 30, 2020 included a pre-tax decrease of $277.9 million due to repositioning
costs, comprised of incremental severance charges and operating lease ROU asset
and other asset impairments and other real estate exit costs of $252.8 million
and a net loss on dispositions of $25.1 million (see Note 10 to the unaudited
consolidated financial statements). Operating profit decreased $519.9 million to
$482.7 million . Operating margin decreased to 7.8% from 13.9% and EBITA margin
decreased to 8.5% from 14.5%, period-over-period. Adjusting for the impact of
the repositioning costs and net loss on dispositions, non-GAAP operating profit
would have decreased to $760.6 million compared to $1,002.6 million for the six
months of 2019. Non- GAAP operating margin and adjusted EBITA margin for the six
months of 2020 would have been 12.3% and 12.9%, respectively, as compared to
13.9% and 14.5%, respectively, for the six months of 2019.
Net Interest Expense
Net interest expense in the six months of 2020 decreased $3.2 million
period-over-period to $93.0 million . Interest expense on debt decreased $18.8
million to $102.9 million in the six months of 2020, reflecting a reduction in
interest expense from our refinancing activity at lower interest rates in 2019,
partially offset by a loss of $7.7 million on the early redemption of the
remaining $600 million principal amount of the 2020 Notes and the interest
expense from the issuance of the 2.45% Notes and the 4.20% Notes in February
2020 and April 2020 , respectively (see Note 6 to the consolidated financial
statements). Interest income in the six months of 2020 decreased $14.2 million
period-over-period to $19.2 million , primarily due to lower rates.
Income Taxes
Our effective tax rate for the six months of 2020 increased period-over-period
to 30.6% from 25.7%. The increase was primarily attributable to the
non-deductibility in certain jurisdictions of a portion of the repositioning
costs and net loss on dispositions, partially offset by a lower effective rate
on certain foreign earnings. In the second quarter of 2019, income tax expense
was reduced by $10.8 million primarily from the net favorable settlements of
uncertain tax positions in certain jurisdictions. The non-deductibility of a
portion of the repositioning costs and net loss on dispositions in certain
jurisdictions with lower effective tax rates, had the effect of increasing our
tax rate for the six months of 2020 from 26.1% to 30.6%.
Net Income Per Share - Omnicom Group Inc.
Net income - Omnicom Group Inc. in the six months of 2020 decreased $399.9
million , or 63.1%, to $234.0 million from $633.9 million in the six months of
2019. The period-over-period decrease is due to the factors described above.
Diluted net
30
--------------------------------------------------------------------------------
income per share - Omnicom Group Inc. decreased 62.1% to $1.08 in the six months
of 2020, compared to $2.85 in the six months of 2019, due to the factors
described above, as well as the impact of the reduction in our weighted average
common shares outstanding resulting from repurchases of our common stock through
March 2020 , net of shares issued for restricted stock awards, stock option
exercises and the employee stock purchase plan. Net income - Omnicom Group Inc.
and diluted net income per share Omnicom Group Inc. for the six months of 2020
include a net after-tax decrease for the repositioning costs and net loss on
dispositions of $223.1 million and $1.03 , respectively. Adjusting for those
items, non-GAAP net income - Omnicom Group Inc. and non-GAAP diluted net income
per share - Omnicom Group Inc would have been $457.1 million and $2.11 for the
six months of 2020, respectively.
Reconciliation of Non-GAAP Measures
Non-GAAP operating profit, adjusted EBITA, Non-GAAP net income - Omnicom Group
Inc. , and Non-GAAP diluted net income per share - Omnicom Group Inc. are
Non-GAAP financial measures that adjust the 2020 financial measures for the
$277.9 million pre-tax impact of the repositioning costs and net loss on
dispositions (see Note 10 to the unaudited consolidated financial statements).
We believe these Non-GAAP measures aid investors by providing additional insight
into our operational performance and help clarify trends affecting our business.
For comparability of reporting, management considers Non-GAAP measures in
conjunction with GAAP financial results in evaluating business performance.
These Non-GAAP financial measures presented should not be considered a
substitute for, or superior to, the measures of financial performance prepared
in accordance with GAAP.
Six Months Ended June 30,
2020 2019
Non-GAAP operating profit, non-GAAP operating margin, adjusted EBITA
and adjusted EBITA margin:
Net Income -
$ 234.0 $ 633.9 Net Income Attributed to Noncontrolling Interests 23.4 40.0 Net Income 257.4 673.9 Income (Loss) From Equity Method Investments (13.0) 0.7 Income Tax Expense 119.3 233.2 Income Before Income Taxes and Income (Loss) From Equity Method Investments 389.7 906.4 Interest Expense 112.2 129.6 Interest Income 19.2 33.4 Operating Profit 482.7 1,002.6 Operating Margin % 7.8 % 13.9 % Repositioning Costs and Net Loss on Dispositions 277.9 0.0 Non-GAAP Operating Profit 760.6 1,002.6 Non-GAAP Operating Margin 12.3 % 13.9 % Add back: Amortization of intangible assets 42.2 42.8 Adjusted EBITA$ 802.8 $ 1,045.4 Adjusted EBITA Margin % 12.9 % 14.5 % Non-GAAP net - incomeOmnicom Group Inc. and Non-GAAP diluted net income per share -Omnicom Group Inc. : Net Income - Omnicom Group Inc.$ 234.0 $ 633.9 Repositioning costs and net loss on dispositions 277.9 -
Net income tax benefit of repositioning costs and net loss on dispositions
(54.8) -
Non-GAAP net income Omnicom Group Inc. $ 457.1 $ 633.9
Diluted net income per share - Omnicom Group Inc. $ 1.08 $ 2.85
Repositioning costs and net loss on dispositions 1.03 -
Non-GAAP diluted net income per share - Omnicom Group Inc. $ 2.11 $ 2.85
Weighted average shares $ 216.5 $ 222.5
31
-------------------------------------------------------------------------------- CRITICAL ACCOUNTING POLICIES For a more complete understanding of our accounting policies, the unaudited consolidated financial statements and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, readers are encouraged to consider this information together with Note 1 to the unaudited consolidated financial statements regarding the impact of the COVID-19 pandemic and Note 5 to the unaudited consolidated financial statements related to the impairment testing of our goodwill and other intangible assets and with our discussion of our critical accounting policies under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 10-K. Acquisitions andGoodwill We have made and expect to continue to make selective acquisitions. The evaluation of potential acquisitions is based on various factors, including specialized know-how, reputation, geographic coverage, competitive position and service offerings of the target businesses, as well as our experience and judgment. Our acquisition strategy is focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of our various strategic business platforms and agency brands through the expansion of their geographic reach or their service capabilities to better serve our clients. Additional key factors we consider include the competitive position and specialized know-how of the acquisition targets. Accordingly, as is typical in most service businesses, a substantial portion of the assets we acquire are intangible assets primarily consisting of the know-how of the personnel, which is treated as part of goodwill and is not required to be valued separately underU.S. GAAP. For each acquisition, we undertake a detailed review to identify other intangible assets that are required to be valued separately. A significant portion of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, as well as trade names. In valuing these identified intangible assets, we typically use an income approach and consider comparable market participant measurements. We evaluate goodwill for impairment at least annually at the end of the second quarter of the year and whenever events or circumstances indicate the carrying value may not be recoverable. Under FASB ASC Topic 350, Intangibles -Goodwill and Other, we have the option of either assessing qualitative factors to determine whether it is more-likely-than-not that the carrying value of our reporting units exceeds their respective fair value or proceeding directly to the goodwill impairment test. Although not required, we performed the annual impairment test and compared the fair value of each of our reporting units to its respective carrying value, including goodwill. We identified our regional reporting units as components of our operating segments, which are our five global agency networks. The regional reporting units of each agency network are responsible for the agencies in their region. They report to the segment managers and facilitate the administrative and logistical requirements of our key client matrix organization structure for delivering services to clients in their regions. We have concluded that for each of our operating segments, their regional reporting units have similar economic characteristics and should be aggregated for purposes of testing goodwill for impairment at the operating segment level. Our conclusion was based on a detailed analysis of the aggregation criteria set forth in FASB ASC Topic 280, Segment Reporting, and in FASB ASC Topic 350. Consistent with our fundamental business strategy, the agencies within our regional reporting units serve similar clients in similar industries, and in many cases the same clients. In addition, the agencies within our regional reporting units have similar economic characteristics. The main economic components of each agency are employee compensation and related costs and direct service costs and occupancy and other costs, which include rent and occupancy costs, technology costs that are generally limited to personal computers, servers and off-the-shelf software and other overhead expenses. Finally, the expected benefits of our acquisitions are typically shared by multiple agencies in various regions as they work together to integrate the acquired agency into our virtual client network strategy. Goodwill Impairment Review - Estimates and Assumptions We use the following valuation methodologies to determine the fair value of our reporting units: (1) the income approach, which utilizes discounted expected future cash flows, (2) comparative market participant multiples for EBITDA (earnings before interest, taxes, depreciation and amortization) and (3) when available, consideration of recent and similar acquisition transactions. In applying the income approach, we use estimates to derive the discounted expected cash flows ("DCF") for each reporting unit that serves as the basis of our valuation. These estimates and assumptions include revenue growth and operating margin, EBITDA, tax rates, capital expenditures, weighted average cost of capital and related discount rates and expected long-term cash flow growth rates. All of these estimates and assumptions are affected by conditions specific to our businesses, economic conditions related to the industry we operate in, as well as conditions in the global economy. The assumptions that have the most significant effect on our valuations derived using a DCF methodology are: (1) the expected long-term growth rate of our reporting units' cash flows and (2) the weighted average cost of capital ("WACC") for each reporting unit. AtJune 30, 2020 we adjusted our assumptions to reflect the economic conditions in light of the impact on our business related to the COVID-19 pandemic, including downward adjustment to our revenue and earnings assumptions, reducing our long-term growth rate and increasing the weighted average cost of capital, or WACC, for each reporting unit and limiting our estimate of our equity value to reflect the decline in our share price that occurred during the first half of 2020. In addition the assumptions 32 -------------------------------------------------------------------------------- reflected the expected cost reductions from our severance and real estate facility repositioning actions (see Notes 1 and 10 to the unaudited consolidated financial statements). The assumptions used for the long-term growth rate and WACC in our evaluations as ofJune 30, 2020 and 2019 were: 2020 2019 Long-Term Growth Rate 3.0% 3.5% WACC 10.6% - 10.8% 10.1% - 10.6% Long-term growth rate represents our estimate of the long-term growth rate for our industry and the markets of the global economy we operate in. For the past ten years, the average historical revenue growth rate of our reporting units and the Average Nominal GDP, or NGDP, growth of the countries comprising the major markets that account for substantially all of our revenue was approximately 4.2% and 4.3%, respectively. We considered this history when determining the long-term growth rates used in our annual impairment test atJune 30, 2020 and lowered it to reflect the potential future effects of the unprecedented pandemic on the global economy, which are not reflected in the 10-year historical analysis. We believe marketing expenditures over the long term have a high correlation to NGDP. Based on our historical performance, we also believe that our long-term growth rate will exceed NGDP growth in the markets we operate in, which are similar across our reporting units. For our annual test as ofJune 30, 2020 , we used an estimated long-term growth rate of 3.0%. When performing the annual impairment test as ofJune 30, 2020 and estimating the future cash flows of our reporting units, we considered the current macroeconomic environment, as well as industry and market specific conditions at mid-year 2020. In the first half of 2020, our revenue declined 11.7%, which excluded our net disposition activity and the impact from changes in foreign exchange rates. The COVID-19 pandemic significantly impacted the global economy. Government actions taken to mitigate the impact of the pandemic negatively impacted many of our clients' businesses, and in turn, clients have reduced their demand for our services. In addition, the assumptions reflected the expected cost reductions from our severance, and real estate facility repositioning actions (see Notes 1 and 10 to the unaudited consolidated financial statements). The WACC is comprised of: (1) a risk-free rate of return, (2) a business risk index ascribed to us and to companies in our industry comparable to our reporting units based on a market derived variable that measures the volatility of the share price of equity securities relative to the volatility of the overall equity market, (3) an equity risk premium that is based on the rate of return on equity of publicly traded companies with business characteristics comparable to our reporting units, and (4) a current after-tax market rate of return on debt of companies with business characteristics similar to our reporting units, each weighted by the relative market value percentages of our equity and debt. Our five reporting units vary in size with respect to revenue and the amount of debt allocated to them. These differences drive variations in fair value among our reporting units. In addition, these differences as well as differences in book value, including goodwill, cause variations in the amount by which fair value exceeds book value among the reporting units. The reporting unit goodwill balances and debt vary by reporting unit primarily because our three legacy agency networks were acquired at the formation ofOmnicom and were accounted for as a pooling of interests that did not result in any additional debt or goodwill being recorded. The remaining two agency networks were built through a combination of internal growth and acquisitions that were accounted for using the acquisition method and as a result, they have a relatively higher amount of goodwill and debt. Goodwill Impairment Review - Conclusion Based on the results of our impairment test, we concluded that our goodwill atJune 30, 2020 was not impaired, because the fair value of each of our reporting units was in excess of its respective net book value. For our reporting units with negative book value, we concluded that the fair value of their total assets was in excess of book value. The minimum decline in fair value that one of our reporting units would need to experience in order to fail the goodwill impairment test was approximately 20%. Notwithstanding our belief that the assumptions we used for WACC and long-term growth rate in our impairment testing were reasonable, we performed a sensitivity analysis for each of our reporting units. The results of this sensitivity analysis on our impairment test as ofJune 30, 2020 revealed that if the WACC increased by 1% and/or the long-term growth rate decreased by 1%, the fair value of each of our reporting units would continue to be in excess of its respective net book value and would pass the impairment test. We will continue to perform our impairment test at the end of the second quarter of each year unless events or circumstances trigger the need for an interim impairment test. The estimates used in our goodwill impairment test do not constitute forecasts or projections of future results of operations, but rather are estimates and assumptions based on historical results and assessments of macroeconomic factors affecting our reporting units as of the valuation date. We believe that our estimates and assumptions are reasonable, but they are subject to change from period to period. Actual results of operations and other factors will likely differ from the estimates used in our discounted cash flow valuation, and it is possible that differences could be significant. A change in the estimates we use could result in a decline in the estimated fair value of one or more of our reporting units from the amounts derived as of our latest valuation and could cause us to fail our goodwill impairment test if the estimated fair value for the reporting unit is less than the carrying value of the net assets of the reporting unit, including its goodwill. A large decline in 33 -------------------------------------------------------------------------------- estimated fair value of a reporting unit could result in a non-cash impairment charge and may have an adverse effect on our results of operations and financial condition. NEW ACCOUNTING STANDARDS Notes 1 and 3 to the unaudited consolidated financial statements provide information regarding new accounting standards. LIQUIDITY AND CAPITAL RESOURCES Although we have experienced a decrease in our cash flow from operations, we have taken numerous proactive steps to strengthen our liquidity and financial position that are intended to mitigate the impact of the COVID-19 pandemic on our liquidity. InFebruary 2020 , we issued$600 million of the 2.45% Notes. InMarch 2020 , the net proceeds from the issuance of the 2.45% Notes were used to redeem the remaining$600 million principal amount of the 2020 Notes. As a result, we have no notes maturing untilMay 2022 . InApril 2020 , we issued$600 million of the 4.20% Notes, and we entered into a new$400 million 364 Day Credit Facility, or 364 Day Credit facility. The 364 Day Credit Facility is in addition to our existing$2.5 billion Credit Facility, which we extended to mature inFebruary 2025 . We suspended our share repurchase activity inMarch 2020 . Cash Sources and Requirements Our primary liquidity sources are our operating cash flow, cash and cash equivalents and short-term investments. Additional liquidity sources include our$2.5 billion Credit Facility, expiring onFebruary 14, 2025 , the$400 million 364 Day Credit Facility expiring onApril 2, 2021 , the uncommitted credit lines aggregating$1.1 billion , and the ability to issue up to$2 billion of commercial paper and access the capital markets. Our liquidity funds our non-discretionary cash requirements and our discretionary spending. Borrowings under our credit facilities may use LIBOR as the benchmark interest rate. The LIBOR benchmark rate is expected to be phased out after the end of 2021. We do not expect that the discontinuation of the LIBOR rate will have a material impact on our liquidity or results of operations. Working capital is our principal non-discretionary funding requirement. In addition, we have contractual obligations related to our long-term debt (principal and interest payments), recurring business operations, primarily related to lease obligations, and contingent purchase price obligations (earn-outs) from acquisitions. Our principal discretionary cash spending includes dividend payments to common shareholders, capital expenditures, strategic acquisitions and repurchases of our common stock. We typically have a short-term borrowing requirement normally peaking during the second quarter of the year due to the timing of payments for incentive compensation, income taxes and contingent purchase price obligations. Cash and cash equivalents decreased$1.0 billion fromDecember 31, 2019 , and short-term investments decreased$3.6 million fromDecember 31, 2019 . During the first six months of 2020, we used$862.2 million of cash in operating activities, which included the use for operating capital of$1.6 billion , primarily related to our typical working capital requirement during the period, the timing of working capital activity and the reduction in client spending in the current period, as compared to the prior year period. Our discretionary spending during the first six months of 2020 was: capital expenditures of$33.6 million ; dividends paid to common shareholders of$282.9 million ; dividends paid to shareholders of noncontrolling interests of$35.2 million ; repurchases of our common stock, which we have suspended inMarch 2020 , net of proceeds from stock option exercises and related tax benefits and common stock sold to our employee stock purchase plan, of$202.9 million ; and acquisition payments, including payment of contingent purchase price obligations and acquisition of additional shares of noncontrolling interests, net of cash acquired, of$29.5 million . In addition, the impact of foreign exchange rate changes reduced cash and cash equivalents by$126.9 million . OnFebruary 19, 2020 , we issued$600 million of the 2.45% Notes. The net proceeds from the issuance, after deducting the underwriting discount and offering expenses, were$592.6 million . The 2.45% Notes are senior unsecured obligations ofOmnicom that rank equal in right of payment with all existing and future unsecured senior indebtedness. OnMarch 23, 2020 , the net proceeds from the issuance were used to redeem the remaining$600 million principal amount of the 2020 Notes. In connection with the redemption, we recorded a loss on extinguishment of$7.7 million in interest expense. Following the redemption, there were no 2020 Notes outstanding. OnApril 1, 2020 , in response to the potential effects on market liquidity arising from the COVID-19 pandemic, we issued$600 million of the 4.20% Notes. The net proceeds from the issuance, after deducting the underwriting discount and offering expenses, were$592.5 million . The 4.20% Notes are senior unsecured obligations ofOmnicom that rank equal in right of payment with all existing and future unsecured senior indebtedness. The net proceeds from the issuance will be used for general corporate purposes, which could include working capital expenditures, fixed asset expenditures, acquisitions, repayment of commercial paper and short-term debt, refinancing of other debt, or other capital transactions. 34 -------------------------------------------------------------------------------- Cash Management Our regional treasury centers inNorth America ,Europe andAsia manage our cash and liquidity. Each day, operations with excess funds invest those funds with their regional treasury center. Likewise, operations that require funds borrow from their regional treasury center. The treasury centers aggregate the net position which is either invested with or borrowed from third parties. To the extent that our treasury centers require liquidity, they have the ability to issue up to a total of$2 billion ofU.S. Dollar-denominated commercial paper or borrow under the Credit Facility or the uncommitted credit lines. This process enables us to manage our debt more efficiently and utilize our cash more effectively, as well as manage our risk to foreign exchange rate imbalances. In countries where we either do not conduct treasury operations or it is not feasible for one of our treasury centers to fund net borrowing requirements on an intercompany basis, we arrange for local currency uncommitted credit lines. We have a policy governing counterparty credit risk with financial institutions that hold our cash and cash equivalents and we have deposit limits for each institution. In countries where we conduct treasury operations, generally the counterparties are either branches or subsidiaries of institutions that are party to the Credit Facility. These institutions generally have credit ratings equal to or better than our credit ratings. In countries where we do not conduct treasury operations, all cash and cash equivalents are held by counterparties that meet specific minimum credit standards. AtJune 30, 2020 , our foreign subsidiaries held approximately$1.2 billion of our total cash and cash equivalents of$3.3 billion . Most of the cash is available to us, net of any foreign withholding taxes payable upon repatriation tothe United States . AtJune 30, 2020 , our net debt position, which we define as total debt, including short-term debt, less cash and cash equivalents and short-term investments increased$1.6 billion as compared toDecember 31, 2019 . The increase in net debt primarily resulted from the use of cash of$1.6 billion for operating capital principally related to our typical working capital requirements during the period, the timing of working capital activity and the reduction in client spending due to the COVID-19 pandemic. In addition, the impact of foreign exchange rate changes reduced cash and cash equivalents by$126.9 million , as compared toDecember 31, 2019 andJune 30, 2019 . The components of net debt were (in millions): June 30, 2020 December 31, 2019 June 30, 2019 Short-term debt $ 6.4 $ 10.1$ 608.5 Long-term debt, including current portion 5,714.1 5,134.3 4,925.4 Total debt 5,720.5 5,144.4 5,533.9 Less: Cash and cash equivalents and short-term investments 3,281.0 4,309.3 2,903.5 Net debt$ 2,439.5 $ 835.1$ 2,630.4 Net debt is a Non-GAAP liquidity measure. This presentation, together with the comparableU.S. GAAP liquidity measures, reflects one of the key metrics used by us to assess our cash management. Non-GAAP liquidity measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance withU.S. GAAP. Non-GAAP liquidity measures as reported by us may not be comparable to similarly titled amounts reported by other companies. Debt Instruments and Related CovenantsOmnicom and its wholly owned finance subsidiary,Omnicom Capital Inc. , or OCI, are co-obligors under the senior notes due 2022, 2024 and 2026. These notes are a joint and several liability ofOmnicom and OCI, andOmnicom unconditionally guarantees OCI's obligations with respect to the notes. OCI provides funding for our operations by incurring debt and lending the proceeds to our operating subsidiaries. OCI's assets primarily consist of cash and cash equivalents and intercompany loans made to our operating subsidiaries, and the related interest receivable. There are no restrictions on the ability of OCI orOmnicom to obtain funds from our subsidiaries through dividends, loans or advances. The notes are senior unsecured obligations that rank equal in right of payment with all existing and future unsecured senior indebtedness.Omnicom and OCI have, jointly and severally, fully and unconditionally guaranteed OFHP's obligations with respect to the Euro notes due 2027 and 2031. OFHP's assets consist of its investments in several wholly owned finance companies that function as treasury centers, which provide funding for various operating companies inEurope ,Brazil ,Australia and other countries in theAsia-Pacific region . The finance companies' assets consist of cash and cash equivalents and intercompany loans that they make or have made to the operating companies in their respective regions and the related interest receivable. There are no restrictions on the ability ofOmnicom , OCI or OFHP to obtain funds from their subsidiaries through dividends, loans or advances. The Euro denominated notes and the related guarantees are senior unsecured obligations that rank equal in right of payment with all existing and future unsecured senior indebtedness of OFHP and each ofOmnicom and OCI, respectively. 35 -------------------------------------------------------------------------------- The Credit Facility and the 364 Day Credit Facility each contain a financial covenant that requires us to maintain a Leverage Ratio of consolidated indebtedness to consolidated EBITDA of no more than 3.5 times for the most recently ended 12-month period (EBITDA is defined as earnings before interest, taxes, depreciation, amortization and non-cash charges). With respect to the Credit Facility and the 364 Day Credit Facility, atJune 30, 2020 , we were in compliance with this covenant as our Leverage Ratio was 2.9. The Credit Facility and the 364 Day Credit Facility do not limit our ability to declare or pay dividends or repurchase our common stock. AtJune 30, 2020 , our long-term and short-term debt was rated BBB+ and A2 by S&P and Baa1 and P2 by Moody's. Our access to the commercial paper market and the cost of these borrowings are affected by market conditions and our credit ratings. Our long-term debt and Credit Facility do not contain provisions that require acceleration of cash payments in the event of a downgrade in our credit ratings. Credit Markets and Availability of Credit In light of the uncertainty of future economic conditions, we continue to seek to take actions available to us to respond to changing economic conditions, and we will continue to actively manage our discretionary expenditures. We have not repurchased any of our common stock sinceMarch 13, 2020 and we do not plan to resume our repurchases until we believe economic conditions have begun to stabilize. We will continue to monitor and manage the level of credit made available to our clients. We believe that these actions, in addition to the availability of our$2.5 billion Credit Facility and 364 Day Credit Facility, are sufficient to fund our near-term working capital needs and our discretionary spending. For additional information about our credit facilities, see Note 6 to our consolidated financial statements. We have typically funded our day-to-day liquidity by issuing commercial paper. In the quarter endedJune 30, 2020 , we reduced our commercial paper issuances as compared to the prior year period primarily as a result of the issuance of the 4.20% Notes inApril 2020 . In 2019, we issued short-term debt in a private placement to reduce our commercial paper issuances. This short-term debt was redeemed in the third quarter of 2019. Additional liquidity sources include our Credit Facility or the uncommitted credit lines. AtJune 30, 2020 , there were no outstanding commercial paper issuances or borrowings under the Credit Facility or the uncommitted credit lines. Commercial paper activity was (dollars in millions): Three Months Ended
2020 2019
Average amount outstanding during the quarter$ 107.7 $ 246.6 Maximum amount outstanding during the quarter$ 401.2 $ 666.0 Average days outstanding 24.4
3.0
Weighted average interest rate 2.08 %
2.64 %
We expect to continue issuing commercial paper to fund our day-to-day liquidity. However, disruptions in the credit markets may lead to periods of illiquidity in the commercial paper market and higher credit spreads. To mitigate any disruption in the credit markets and to fund our liquidity, we may borrow under the Credit Facility or the uncommitted credit lines or access the capital markets if favorable conditions exist. We will continue to monitor closely our liquidity and conditions in the credit markets. We cannot predict with any certainty the impact on us of any disruptions in the credit markets. In such circumstances, we may need to obtain additional financing to fund our day-to-day working capital requirements. Such additional financing may not be available on favorable terms, or at all. CREDIT RISK We provide advertising, marketing and corporate communications services to several thousand clients that operate in nearly every sector of the global economy and we grant credit to qualified clients in the normal course of business. Due to the diversified nature of our client base, we do not believe that we are exposed to a concentration of credit risk as our largest client represented 3.6% of revenue in the first six months of 2020. However, during periods of economic downturn, the credit profiles of our clients could change. In the normal course of business, our agencies enter into contractual commitments with media providers and production companies on behalf of our clients at levels that can substantially exceed the revenue from our services. These commitments are included in accounts payable when the services are delivered by the media providers or production companies. If permitted by local law and the client agreement, many of our agencies purchase media and production services for our clients as an agent for a disclosed principal. In addition, while operating practices vary by country, media type and media vendor, inthe United States and certain foreign markets, many of our agencies' contracts with media and production providers specify that our agencies are not liable to the media and production providers under the theory of sequential liability until and to the extent we have been paid by our client for the media or production services. 36
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Where purchases of media and production services are made by our agencies as a principal or are not subject to the theory of sequential liability, the risk of a material loss as a result of payment default by our clients could increase significantly and such a loss could have a material adverse effect on our business, results of operations and financial position. In addition, our methods of managing the risk of payment default, including obtaining credit insurance, requiring payment in advance, mitigating the potential loss in the marketplace or negotiating with media providers, may be less available or unavailable during a severe economic downturn.
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