Omnicom : Q3 2021 Earnings Call Transcript

Corrected Transcript

19-Oct-2021

Omnicom Group, Inc. (OMC)

Q3 2021 Earnings Call

	Total Pages: 18
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Omnicom Group, Inc. (OMC)	Corrected Transcript
Q3 2021 Earnings Call	19-Oct-2021

CORPORATE PARTICIPANTS

Gregory Lundberg	Philip J. Angelastro
Senior Vice President-Investor Relations, Omnicom Group, Inc.	Executive Vice President & Chief Financial Officer, Omnicom Group, Inc.
John D. Wren
Chairman & Chief Executive Officer, Omnicom Group, Inc.

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OTHER PARTICIPANTS

Alexia S. Quadrani	Daniel Salmon
Analyst, JPMorgan Securities LLC	Analyst, BMO Capital Markets Corp.
Jason Boisvert Bazinet	Michael Brian Nathanson
Analyst, Citigroup Global Markets, Inc.	Analyst, MoffettNathanson LLC
Benjamin Swinburne	Tim Nollen
Analyst, Morgan Stanley & Co. LLC	Analyst, Macquarie Capital (USA), Inc.

Craig Huber

Analyst, Huber Research Partners LLC

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MANAGEMENT DISCUSSION SECTION

Operator: Welcome to the Omnicom Third Quarter 2021 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

At this time, I'd like to introduce you to your host for today's conference, Senior Vice President of Investor Relations, Gregory Lundberg. Please go ahead.

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Gregory Lundberg

Senior Vice President-Investor Relations, Omnicom Group, Inc.

Thank you for joining our third quarter 2021 earnings call. With me today are John Wren, our Chairman and Chief Executive Officer; and Phil Angelastro, our Chief Financial Officer.

On our website, omnicomgroup.com, we posted a press release along with a presentation covering the information we'll review today. A webcast of this call is also available there. And an archived version will be available when today's call concludes.

Before we start, I would like to remind everyone to read the forward-looking statements, non-GAAP financial and other information that we have included at the end of our investor presentation. Certain of the statements made today may constitute forward-looking statements and these statements are our present expectations. Relevant factors that could cause actual results to differ materially are listed in our earnings materials and in our SEC filings, including our 2020 Form 10-K and our June 2021 Form 10-Q.

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Omnicom Group, Inc. (OMC)	Corrected Transcript
Q3 2021 Earnings Call	19-Oct-2021

Also, during the course of today's call, we will discuss certain non-GAAP measures in talking about Omnicom's performance. You can find a reconciliation of these measures to the nearest comparable GAAP measures in the presentation materials.

We will begin the call with an overview of our business from John. Then, Phil will review our financial results for the quarter. After our prepared remarks, we will open the line-up for your questions.

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John D. Wren

Chairman & Chief Executive Officer, Omnicom Group, Inc.

Thank you, Greg. Good afternoon, everybody, and thank you for joining today. We're very pleased to report that, in the third quarter, we continued our year-over-yeardouble-digit growth in our key financial performance metrics led by a very robust top line.

As you can see on slide 4 of our presentation, organic growth for the third quarter was 11.5%. The top line results were broad-based across our agencies, geographies and disciplines. Our growth was especially strong in CRM Precision at 24%. Our CRM Precision Group is helping clients on their martech transformation, digital and e- commerce communications and direct-to-consumer marketing. The group has played a key role in many of our recent new business wins where, overall, we continued our very strong momentum in Q3.

Broadly, across our group, growth was driven by improved economic conditions. Omnicom's suite of services and capabilities are positioning us to be extremely competitive in the marketplace to reimagine and strengthen our clients' brands, seamlessly connect them with their customers across the marketing journey, transform their marketing technology platforms and innovate in e-commerce and new media channels.

Our revenue performance flowed through to our operating profit in bottom line. Our EBIT margins for the third quarter were 15.8%, which exceeded our 2020 margins and significantly outpaced the comparable period in 2019.

Net income and EPS for the quarter grew by more than 13% versus 2020 and were also significantly above our 2019 results. As we head into the fourth quarter, we are well positioned competitively and expect to benefit as economic growth continues to improve globally and from ongoing cost management. We currently expect our full year organic growth to be approximately 9% and our full year EBIT margin to exceed our year-to-date margin for the nine months ended September 30, 2021 of 15.1%.

Going forward, we remain focused on our key strategic initiatives, which is centered around our talent, dedication to creativity and building on our already strong capabilities in precision marketing and martech consulting, e- commerce, digital and performance media and predictive data-driven insights.

In the third quarter, we made progress across these strategic initiatives as we announced three acquisitions. Omnicom Media Group acquired Jump 450 Media, a performance marketing agency. The company leverages algorithmic scaling strategies, rapid creative testing and data analytics to optimize digital media spend and drive customer acquisition. Jump 450 will form the foundation for a dedicated performance media platform and business operation within OMG. Its focus on e-commerce and pure performance marketing will strengthen and add a distinct set of capabilities to OMG's existing performance media offerings.

Also, in late September, we announced the acquisition of two German-based companies, antoni and OSK. antoni is one of the most innovative and creative agencies in Europe and was born with data and digital capabilities at its core. antoni's creative leadership and depth of talent will significantly strengthen our capabilities in Europe and around the globe. OSK has been in the top 10 of PR and comms agencies in Germany since 2008 and is the

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Omnicom Group, Inc. (OMC)	Corrected Transcript
Q3 2021 Earnings Call	19-Oct-2021

undisputed number one for automotive. It provides a broad portfolio of services at the intersection of PR and social media and excels in the convergence of technology, mobility and communications. Our ability to bring together the brightest talent and data-driven consumer insights from across our organization to deliver holistic and integrated brand experiences is proving to be highly successful in our new business opportunities, as well as in servicing our existing clients.

Following on the heels of Philips naming Omnicom their global integrated service partner for creative and media communications, in the third quarter, Mercedes-Benz appointed Omnicom its global marketing communications partner. One of the world's most iconic brands, Mercedes-Benz, is today the leading luxury automotive experience company.

TMX, a dedicated team from across our groups, will bring together the best-in-class talent and capabilities across Mercedes-Benz' customer journey with expertise in media and CRM, brand and performance creator, web personalization and content automation, public relations and events as well as paid and organic social. And just last week, we won the Chanel media business globally, adding another iconic global brand. As in all our significant wins as well as for our existing clients, our teams are able to showcase our creativity, data analysis and predictive insights and technology capabilities to deliver connected, personalized and seamless brand experiences for their respective customers at all touch points of the consumer journey.

One key differentiator for Omnicom in servicing our clients is our cohesive culture that binds us together. It's a culture of creativity, flexibility and caring that are common values shared across our group. I often hear from clients that a deciding factor in the decision to hire Omnicom is that our people who bring distinct specialized skills to them know and respect one another and genuinely collaborate. Our ability to integrate services from across our marketing disciplines is underpinned by Omni, our open operating system that orchestrates better outcomes. Omni is built for collaboration, acting as a conductor between different specialists using a single processing workflow from insights to execution. It empowers our people and our clients to make better and faster decisions, maximizing efficiency and ROI.

Omni also provides better intelligence by orchestrating first-, second- and third-party data sets to present a single comprehensive view of consumers. Our teams can then develop insights to create, plan and deliver the most impactful messages, content and communications to them at each stage of the consumer journey.

Omni is a unique and powerful tool for us. And we now have over 40,000 Omnicom colleagues provisioned on the platform in over 60 countries. Hundreds of our clients, including all of our top 20, utilize Omni. Moreover, the open-source system enables our practice areas like commerce, health and PR to customize Omni with different data sources for their clients.

For example, Omnicom Health Group created a custom offering called Omni Health. Since rolling it out in April of this year, OHG has leveraged the platform to play a key role in expanding the group's omni-channel offering with new and existing clients, including AstraZeneca and Janssen XARELTO, to name a few.

In summary, even during the pandemic, we accelerated the strength of our services, capabilities and organization to deliver better outcomes for our clients and win new business. Our offering is powerful and differentiated. We have best-in-class talent and creativity using best-in-class operating systems and technologies. It's a formula that will continue to win for us.

Before I turn it over to Phil, I want to spend a few moments on our relentless focus on talent. Throughout one of the most difficult times in recent history, our people have shown ingenuity, resilience and strength. We continue to

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Omnicom Group, Inc. (OMC)	Corrected Transcript
Q3 2021 Earnings Call	19-Oct-2021

spend and invest in training and development programs for all of our people, from basic skills training, all the way through the advanced programs of Omnicom University. We recently expanded the curriculum for our DE&I and OPEN 2.0 strategies.

As the pandemic continues to present a substantial health risk, the well-being of our colleagues remains our top priority. We are ensuring we have a safe work environment and are offering a variety of programs for managers and individuals to support their wellness, resilience and health at work.

I recently traveled to several of our US and European offices and have met with many colleagues and clients who are happy to be back in the office. We are looking at many alternatives to provide our people a safe return back to the office. For example, this week, we're testing a private transportation service for New York City-based colleagues.

In the months ahead, we look forward to welcoming more of our staff back with a continuing priority on their safety and flexibility. It is truly our world-class talent and our dedication to creativity and innovative solutions that drive real business outcomes for our clients. A key recent proof point reflecting the quality of our talent is Omnicom being named the Most Effective Holding Company in the US by the 2021 Effie Awards.

Overall, we're extremely pleased with the third quarter and proud to see that our strategic focus and the decisions we made throughout the pandemic are now leading to positive results. Our results once again reflect Omnicom's ability to adapt and respond to the changes in the market and deliver through economic cycles.

I will now turn the call over to Phil for a closer look at our financials. Phil?

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Philip J. Angelastro

Executive Vice President & Chief Financial Officer, Omnicom Group, Inc.

Thanks, John, and good afternoon. While the impact of the pandemic continues to be felt across the globe, that impact has continued to moderate significantly, as evidenced by our continued growth in the third quarter.

Slide 3 shows our third quarter improvement across our income statement, where our revenue growth and expense control drove an 8% increase in operating profit. Our effective tax rate for the third quarter was 24.1%, down from our estimated effective rate for 2021 of between 26.5% and 27%. This was primarily due to the favorable settlement of uncertain tax positions in certain jurisdictions, the impact of which was approximately $10 million.

These items positively impacted net income and diluted earnings per share, which was $1.65, up $0.20 or 13.8% versus Q3 of last year and up $0.33 versus the third quarter of 2019. So our growth continues on this important metric as well. And finally, our $0.70 quarterly dividend, which was raised back in February, is 7.7% higher than last year.

Let's now flip to slide 4 and look at the quarter in more detail, beginning with revenues. Our total revenue growth was 7.1%. Organic growth for the quarter was 11.5% or $367 million, which represents a significant improvement compared to Q3 of 2020 when the pandemic drove an organic revenue decline of 11.7%.

The impact of foreign exchange rates increased our revenue by 1.6% in the quarter as the dollar continued to weaken against most of our larger currencies compared to the prior year. If FX rates stay where they were on October 15, we expect foreign exchange to decrease our reported revenue by approximately 1% for the fourth quarter and increase our reported revenue by 2% for the full year.

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