Omnicom Group Q2 2024 Earnings Results & Report

Omnicom Group EPS Results

• Actual EPS: $1.95
• Consensus EPS: $1.88
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $1.81
• EPS Beat Rate: 6 of last 8 quarters

Omnicom Group Revenue Results

• Actual Revenue: $3.85 billion
• Expected Revenue: $3.83 billion
• Beat/Miss: Beat by +$28.25 million
• YoY Revenue Growth: +6.80%

Omnicom Group (NYSE:OMC) is a global marketing and communications company that provides advertising, media, branding, public relations, customer relationship management, and digital marketing services. The company works with organizations across industries to develop brand strategies, create content, manage media campaigns, and engage customers through traditional and digital channels.

Omnicom operates through a network of independently branded agencies, including BBDO Worldwide, DDB Worldwide, TBWA Worldwide, Omnicom Media Group, FleishmanHillard, Ketchum, Porter Novelli, RAPP, and several specialized healthcare, experiential, and data-driven marketing agencies. Its services include creative advertising, media planning and buying, public relations, influencer marketing, precision marketing, commerce solutions, and customer experience management.

Founded in 1986 through the merger of BBDO, Doyle Dane Bernbach, and Needham Harper Worldwide, Omnicom serves clients in North America, Europe, Asia-Pacific, Latin America, the Middle East, and other international markets. The company is led by Chairman and Chief Executive Officer John Wren.

Omnicom Group Q2 2024 Earnings Call Transcript

Key Takeaways

• Organic growth was very strong at 5.2% in Q2 (6.3% in the U.S.), driven by outstanding performances in advertising, media and experiential, and management is maintaining its full-year organic revenue growth target of 4–5% and flat EBITDA margin guidance.
• Non-GAAP adjusted earnings per share rose 4.8% to $1.95, underpinned by robust free cash flow that supports dividends, strategic acquisitions and share repurchases while keeping liquidity and the balance sheet strong.
• The company has accelerated its generative AI strategy with TBWA’s Collective AI suite and the launch of Artbot AI, automating routine tasks and enabling high-quality, personalized content delivery at scale.
• Omnicom has expanded its e-commerce and retail media capabilities post-Flywheel acquisition, forging collaborations with Amazon Ads and TikTok Shop, and earning a leadership position in the Q2 2024 Forrester Wave for Commerce Services.
• A new centralized production practice, Omnicom Production, brings together over 3,000 professionals and cutting-edge technologies to drive incremental content revenue growth and further leverage AI-driven efficiencies.

Presentation

[Operator]

Good afternoon, and welcome to the Omnicom Second Quarter 2024 Earnings Release Conference Call. At this time, all participants are in the listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question, please press star, then one on your telephone keypad. If you need assistance during the call, please press star, then 0. As a reminder, this conference call is being recorded. I will now turn the call over to your host, Gregory Lundberg, Senior Vice President, Investor Relations. You may begin.

[Gregory Lundberg, SVP of Investor Relations at Omnicom Group]

Thank you for joining our second quarter 2024 earnings call. With me today are John Wren, Chairman and Chief Executive Officer, and Phil Angelastro, Executive Vice President and Chief Financial Officer. On our website, omnicomgroup.com, you'll find a press release and a presentation covering the information that we're going to review today. An archive webcast will be available when today's call concludes. Before we start, I'd like to remind everyone to read the forward-looking statements and non-GAAP financial and other information that we've 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 2023 Form 10-K. During the course of today's call, we will also discuss certain non-GAAP measures.

[Gregory Lundberg, SVP of Investor Relations at Omnicom Group]

You can find the reconciliation of these 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 for your questions. I'll now hand the call to John.

[John Wren, Chairman and CEO at Omnicom Group]

Thank you, Greg. Good afternoon, everyone, and thank you for joining us today. We're pleased to share our second quarter results. Organic growth was very strong at 5.2% for the quarter. The U.S. grew at 6.3%. Across our disciplines, advertising and media, as well as experiential, all had outstanding performances. Non-GAAP adjusted EBITDA margin was 15.3% for the quarter, which excludes the effect of the severance costs related primarily to the formation of Omnicom Production. Non-GAAP adjusted earnings per share, which excludes the after-tax effect of the amortization of acquired and strategic platform intangibles, and the severance costs I just discussed, was $1.95, up 4.8% versus the comparable amount in 2023.

[John Wren, Chairman and CEO at Omnicom Group]

Our cash flow continues to support our primary uses of cash, dividends, acquisitions, and share repurchases, and our liquidity and balance sheet remain very strong. We're pleased with our financial results for the quarter and the first half, and are maintaining our full-year organic revenue growth target of between 4% and 5% and full-year 2024 EBITDA margin target of close to flat with 2023. Phil will cover our results in more detail during his remarks. We made progress across several areas throughout the quarter. We expanded our end-to-end generative AI solution, grew our e-commerce offerings, launched a new production practice area, and secured numerous prominent client wins. Last year at Cannes, we unveiled Omni 3.0, the next generation of Omni, powered by Gen AI.

[John Wren, Chairman and CEO at Omnicom Group]

We also announced first-mover collaborations with Adobe, Amazon, Getty, Google, and Microsoft's OpenAI to gain early access to their large language models. Just over a year later, we're seeing these generative AI platforms, tools, and partnerships being activated throughout every area of our business, from strategy to creative to production, media, and precision marketing. One example is TBWA's launch of Collective AI, a suite of AI tools available to its employees and clients. Collective AI automates and drives efficiencies in basic tasks and provides AI-driven insights, allowing our teams to dedicate more time to helping brands bring distinctive products, services, and experiences to market. Collective AI includes custom applications, leverages TBWA's extensive archives using large language models, and is powered by Omni's first-mover generative AI partnerships. Another example is the recent launch of ArtBotAI, our intelligent content orchestration platform.

[John Wren, Chairman and CEO at Omnicom Group]

Leveraging models powered by Omni, ArtBotAI assembles clients' digital assets to create and deliver high-quality, personalized experiences to consumers at scale, maximizing the value of clients' creative content, as well as the precision and performance of their media investments. These developments highlight the success of our Generative AI strategy, which is to provide our agencies Omnicom-wide tools and capabilities that can be used to make our people more effective and our operations more efficient, and to drive transformative outcomes for our clients. During the quarter, we also continued to execute our strategic plans to further expand our market-leading retail media and e-commerce capabilities following the acquisition of Flywheel. At Cannes, we announced a collaboration with Amazon Ads that enables our media teams to access Amazon's browsing, shopping, and streaming insights to directly tie linear and CTV investments to purchases made on Amazon.

[John Wren, Chairman and CEO at Omnicom Group]

Essential to this partnership are Flywheel's products and transactional signals, which are paired with Omni's audience and viewership data. This connection results in more effective marketing investments and increased ROI for our clients. Also at Cannes, Flywheel was certified with TikTok Shop, enabling us to connect creator content to product sales so we can measure marketing performance. These additions to our e-commerce offerings follow Omnicom's designation as a leader in the Q2-2024 Forrester Wave for Commerce Services. Our prominent position in the market is a testament to the early success of our acquisition of Flywheel, aligned with the omni-channel capabilities of Omnicom Commerce Group and the MarTech consulting capabilities of Omnicom's Precision Marketing Group. In June, we announced the formation of Omnicom Production, a new practice area that combines our global production units.

[John Wren, Chairman and CEO at Omnicom Group]

Omnicom Production provides best-in-class content production services throughout a network of studios powered by data-driven insights and the latest technologies. The centralization of our production agencies will improve how we deliver content to clients in a simpler, more integrated, and more effective way. More importantly, Omnicom Production now has the breadth of capabilities to pursue a significant amount of incremental production revenue growth as we consolidate investments in new technologies and products that will provide better, cheaper services to our clients. The group has over 3,000 people across major markets worldwide. Through the combination of Omnicom Content Studios, eg+, Designory, Mother Tongue, Link9, and the production departments previously housed within our creative agencies. Sergio Lopez, one of the industry's most awarded creative production leaders, is leading Omnicom Production. We're thrilled to have him at the helm.

[John Wren, Chairman and CEO at Omnicom Group]

This centralized production capability, coupled with ArtBotAI, powered by Omni, provides the industry's most comprehensive and intelligent content solution that delivers on the promise of mass personalization at scale. From Gen AI to e-commerce to production, we are continuing to enhance our offerings to meet our clients' needs for better informed strategic insights using AI, creatively inspired content that can be personalized at scale, and investments in targeted media that can be measured through quantifiable outcomes, all delivered in the most efficient and effective manner. Our differentiated capabilities uniquely position us to serve our current and future client needs. Our success is reflected through a series of recent client wins. Omnicom Precision Marketing Group won the consolidated CRM business from General Motors. TBWA was awarded the creative account for Carnival. AstraZeneca appointed Omnicom as one of its primary oncology network partners.

[John Wren, Chairman and CEO at Omnicom Group]

Flywheel had several account wins, including Canon, Carter's, Lipton, and Nestlé. Omnicom Media Group won the media account for Gap. PHD retained Singapore Airlines and the Volkswagen accounts and won David Yurman's and Priceline's media business. Our media group's strong showing was underpinned by two of its agencies, OMG and PHD, being named the top two media agencies at Cannes Lions this year. Congratulations to everybody who played a role in these client wins, as well as the award-winning work at Cannes. Overall, we're pleased with our first half financial results and our progress on key strategic initiatives. Looking ahead, we expect stronger second half results in line with our full year organic growth and margin targets. I'm confident we can meet these targets even as we continue to monitor and adapt to changes in the macro environment.

[John Wren, Chairman and CEO at Omnicom Group]

I'll now turn the call over to Phil for a closer look at our financial results. Phil?

[Philip Angelastro, EVP and CFO at Omnicom Group]

Thanks, John. As you just heard, there are many exciting things underway at Omnicom, and our success is driven by the investments we've made and continue to make in leading tools, platforms, and capabilities needed to serve our current and future clients in a rapidly changing marketplace. The strength of our business model is that we continue to make these investments while delivering solid financial results, as we did in the second quarter. Let's review our performance beginning on slide four. Organic growth in the quarter was strong at 5.2%. The impact on revenue from foreign currency translation, as we expected, decreased reported revenue by 1%. If rates stay where they are currently, we estimate the impact of foreign currency translation will be negative 0.5% for Q3 2024 and for the full year 2024.

[Philip Angelastro, EVP and CFO at Omnicom Group]

The net impact of acquisition and disposition revenue on reported revenue was positive 2.6%, due primarily to the acquisition of Flywheel this January, and partially offset by the cycling of some smaller dispositions. Based on transactions completed date, we expect the impact of acquisition and disposition revenue will approximate 1.5% for Q3 and for the full year. Now, let's turn to Slide five to review our organic revenue growth by discipline. During the quarter, advertising and media growth was once again quite strong at 7.8%, driven by improved performance in advertising and excellent performance on our global media businesses. Precision marketing grew 1.4%. While we saw a strong double-digit performance at Flywheel, some of our project-based consulting agencies within precision marketing encountered delays in client spending this quarter.

[Philip Angelastro, EVP and CFO at Omnicom Group]

We do expect a strong performance starting later in the second half, as new wins are brought online and project spend returns to a more normal level. Public relations returned to growth in the quarter and was up 1%. In the U.S., growth was approximately 4%, with a little more than half of that growth driven by U.S. election-related work. Healthcare grew 2% during the quarter, with consistent performance from both our U.S. and international agencies. Branding and retail commerce declined by 3.8%, as the environment for our branding agencies remains difficult. Experiential grew a strong 17.6%, driven primarily by client work related to the Olympics. Execution and support grew 1.2%, with strong performance by our field marketing business, which was offset by our merchandising business.

[Philip Angelastro, EVP and CFO at Omnicom Group]

Turning to geographic growth on Slide six, we had a solid quarter across our regions. Our largest market, the U.S., grew 6.3%. Europe and the U.K. also posted strong growth. Asia Pacific, however, was flat on a challenging comparison to Q2 2023 at our experiential business in China, while Latin America continued its strong growth streak. Slide seven is our revenue by industry sector for the quarter. Results year to date were generally stable as usual. Looking at our larger categories, we saw an increase in food and beverage and consumer products as a percentage of the total, driven by Flywheel's client mix, which was not part of our prior year revenue. Now let's turn to Slide eight for a look at our expenses. In the first quarter, salary-related service costs grew with increased staffing levels, which primarily reflect our acquisition of Flywheel in January.

[Philip Angelastro, EVP and CFO at Omnicom Group]

However, these costs were down over 1 point as a percentage of revenue year-over-year, reflecting ongoing strategic repositioning actions and changes in our global employee mix. Third-party service costs grew in connection with the growth in our revenue, especially in disciplines that have a higher level of these costs, such as media, experiential, and field marketing. Third-party incidental costs increased along with growth in our business and related out-of-pocket costs billed directly to clients. Occupancy and other costs increased year-over-year, mostly due to the Flywheel acquisition. Our rent expense decreased, and although total occupancy and other costs increased, they were flat year-over-year as a percentage of revenues. SG&A expenses increased year-over-year, primarily from increases in professional fees incurred in connection with our strategic initiatives. As a percentage of revenue on a constant dollar basis, however, SG&A levels were only up slightly.

[Philip Angelastro, EVP and CFO at Omnicom Group]

Now let's turn to Slide nine and look at our income statement in more detail. To start, in Q2, we took a repositioning charge of $57.8 million, which increased our operating expenses. This primarily reflects severance related to efficiency initiatives, including strategic agency consolidation in the smaller international markets of our advertising networks, the start of our centralized production strategy, and other efficiency efforts. These initiatives continue, and although we expect some additional steps to be taken in these areas in Q3, we expect them to be primarily self-liquidating. The table on this page shows the impact of this repositioning charge in the second quarter of 2024, as well as the net impact in Q2 of 2023 of the $72.3 million repositioning charge, as well as the gain of $78.8 million that were recorded in Q2 of last year.

[Philip Angelastro, EVP and CFO at Omnicom Group]

On a non-GAAP-adjusted basis, EBITDA grew 5.5%, and EBITDA margin was 15.3% versus the comparable 15.5% margin in the second quarter of last year. As discussed last quarter, the relatively small decrease in margin includes the results of our Flywheel acquisition, as well as the related integration costs. Similar to last quarter, EBITDA reflects the $21.5 million add-back to operating income for amortization of acquired intangible assets and internally developed strategic platform intangible assets. We expect similar levels of amortization in the second half of the year. We also continue to expect our full year 2024 adjusted EBITDA margin to be close to flat with our 2023 adjusted EBITDA margin of 15.6%.

[Philip Angelastro, EVP and CFO at Omnicom Group]

Moving down the income statement, net interest expense in the second quarter of 2024 increased $14.3 million to $41.7 million. The change was driven by a $5.2 million increase in interest expense due to higher outstanding debt from the Flywheel financing, and a $9.1 million decrease in interest income due to lower average cash and short-term investment balances. Our income tax rate of 26% was close to flat compared to Q2 of 2023. For the second half of 2024, we continue to expect our income tax rate to approximate 27%. Higher income from equity investments was offset by higher expense from earnings attributed to minority interest.... Despite a reduced diluted share count, reported earnings per share declined due to the repositioning costs.

[Philip Angelastro, EVP and CFO at Omnicom Group]

But on a non-GAAP adjusted basis, increased 4.8% to $1.95. Now, please turn to slide 11. Free cash flow year-to-date is up 2.4% from last year. We define free cash flow as cash provided by operating activities, excluding changes in working capital. In Q2 2024, our working capital use followed its typical seasonal cycle and declined from Q1 to Q2, and our Q2 performance improved compared to Q2 of 2023 and the first half of 2023. We're making progress as expected, and we continue to work towards our historically neutral levels of working capital. Regarding our uses of cash, we used $279 million of cash to pay dividends to common shareholders, and another $34 million for dividends to non-controlling interest shareholders.

[Philip Angelastro, EVP and CFO at Omnicom Group]

Our capital expenditures increased to $62 million, which, as discussed on prior calls, we expect to be somewhat higher than last year as we continue to invest in Flywheel and our strategic platform initiatives. Total acquisition payments were $829 million, which reflects the $845 million acquisition of Flywheel, net of cash required. There were no acquisitions in the second quarter. Finally, our stock repurchase activity, net of proceeds from stock plans, was $246 million year to date, and $70 million in the quarter. Our expectation for the year is unchanged, with total repurchases reduced as a result of the Flywheel acquisition, approximately half of our historical average of $600 million. We continue to maintain our balanced approach to capital allocation with a competitive dividend, strategic acquisitions, share repurchases, and an investment-grade balance sheet.

[Philip Angelastro, EVP and CFO at Omnicom Group]

Slide 12 is a summary of our credit, liquidity, and debt maturities. At the end of the second quarter of 2024, the book value of our outstanding debt was $6.2 billion, up over $600 million from funding a portion of the Flywheel acquisition during Q1 of 2024. Our cash equivalents and short-term investments at June 30th were $2.7 billion, down slightly from last year. We also have an undrawn $2.5 billion revolving credit facility, which backstops our $2 billion U.S. commercial paper program. We continue to monitor the credit markets with regard to our $750 million of 3.65% senior notes that are due November 1st, 2024.

[Philip Angelastro, EVP and CFO at Omnicom Group]

At this point, given where interest rates are and our financing activity early in 2024 and the anticipated refinancing, our current estimate compared to last year is that net interest expense will increase by approximately $7 million in Q3 and $16 million in Q4. Slide 13 presents our historical returns on two important performance metrics for the 12 months ended June 30th, 2024. Omnicom's return on invested capital is 20% and return on equity is 43%, both of which consistently reflect our strong performance and solid balance sheet. I will now ask the operator to please open the lines up for questions and answers.

[Operator]

Thank you. We will now open the line for your questions. If you have dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad to raise your hand and join the queue. To withdraw your question, please press star one a second time. If you have dialed in via loudspeaker on your device, please pick up your handset and ensure that your device is not on mute when asking your question. Again, that's star one to join the queue. Our first question comes from the line of Cameron McVeigh with Morgan Stanley. Please go ahead.

[Cameron McVeigh, VP at Morgan Stanley]

Hey, John and Phil, thanks for taking my questions. Just had a couple. Advertising and media growth was strong again this quarter with a lot of talk around generative AI. I was curious if you could help us parse out how creative is growing within that segment. And on that point, curious if you've seen customers start to experiment with any text-to-video platforms recently, and if that has impacted client ad spend at all? Thanks.

[John Wren, Chairman and CEO at Omnicom Group]

Sure. Creativity really is at the core of everything that we do. You can take the most sophisticated AI-enabling tools, and if you gave them to everybody, you'd still be at parity. And you need creative insights and thought in order to differentiate and to beat your competitor, in effect. So, the method and the activities that we go through, which get attributed historically to advertising versus media versus CRM, they shift within the share of wallet. But the concept of advertising, thought of from a creative point of view, will continue to grow and prosper even as these tools develop. And that's why we look at truly share of wallet, when we're reporting the numbers to you, because it'd be very inequitable to parse them any further.

[Philip Angelastro, EVP and CFO at Omnicom Group]

... In terms of some specifics, though, ultimately, the majority of the growth in the advertising media discipline is from the strong performance of the media business. But the creative, the creative agencies within that overall grew this quarter, yeah, not at the same pace, but they grew relative to last year.

[Cameron McVeigh, VP at Morgan Stanley]

Got it. Okay. And thank you. And secondly, so could you discuss a bit further your recently announced production initiative? Curious how you're framing both, you know, the growth and cost impacts there. Thank you.

[John Wren, Chairman and CEO at Omnicom Group]

Sure. I'd be happy to. This is something we've been planning since late last year, and the gentleman that I mentioned in my prepared remarks, Sergio Lopez, comes from a competitor who's very successful in this area. But we had to wait six months before he could join us, so our plans were kind of frozen until he came on board in June. This is more to do with revenue possibilities and growth in the future than the cost efficiencies that we went through in taking the charge that we took to reorganize our people.

[John Wren, Chairman and CEO at Omnicom Group]

When I compare Omnicom's production revenue performance, I would say that at least two of my competitors are two to three times, in their reported numbers, so you have to look at everything from the top down, two to three times the size that we are, or we were today. We decided that the only way that we were gonna efficiently and effectively grow, especially in this AI environment, which is gonna change those legacy production businesses, was, in fact, to centralize it. Centralize it with somebody terribly experienced in centralization of these types of activities, having done it for two competitors in the past. And our expectations are that we'll finish the moves and the basic changes that have to go on throughout.

[John Wren, Chairman and CEO at Omnicom Group]

We'll tweak them for the next quarter or two, and that we fully expect to be what I'd rank us right now in that particular discipline, out of the top five. And, the expectation is that within the next 30-36 months, we'll be in the top three. So this had more to do with the revenue opportunity and what it offers, and it also fits very well with the ArtBotAI tool that we've just generated, and plus others that we have in the pipeline, which we'll be introducing as this thing rolls out and we gain more and more clients.

[Cameron McVeigh, VP at Morgan Stanley]

Great. Thank you.

[Operator]

Our next question comes from the line of David Karnovsky with JPMorgan. Please go ahead.

[David Karnovsky, Senior Research Analyst at JPMorgan]

Hi, thank you. On the organic guide, maybe, can you speak to the decision to leave the outlook unchanged following the 4.6% year to date? You know, a question we've gotten is, why not adjust here or raise the low end, especially, John, if, if, as you said, you're expecting better second-half results or, or getting the benefit of, of some cyclical events as well?

[John Wren, Chairman and CEO at Omnicom Group]

Yeah. My confidence is built upon my conversation with clients and the business that we have today. I really don't control macroeconomic items or the election or whatever those impacts are. And I think you'll all recall me having said this for the last, oh, 20-odd years, that the fourth quarter is always a project environment. So rather than change our forecast every day, and every 90 days is the equivalent to every day, we're very comfortable with the forecast that we've given you. We're just slightly below the top end, having completed six months. And, when we get evidence that the fourth quarter post the election is going to be a stable period of time, we may elect at that point to review what guidance we've given you. But, but it's not our habit to be that flighty.

[John Wren, Chairman and CEO at Omnicom Group]

We want you to believe what we say, and so therefore, we don't change what we say until we're confident about it.

[David Karnovsky, Senior Research Analyst at JPMorgan]

Understood. Then, John, you talked a little bit recently about a need or desire to partly shift agency compensation models, maybe to a performative or licensing aspect, with GenAI potentially as a catalyst for that. I'm curious what the reception has been among your clients to this so far, and do you think it's realistic for a sizable portion of the industry to make this kind of a change? Thank you.

[John Wren, Chairman and CEO at Omnicom Group]

Well, I'm not prepared to talk to the business of others, only to my own. Actually, that comment, I have made that comment, and that is my point of view, is a business cycle comment. Nothing changes overnight, and what it has to do with is, with the enhancement of tools, the improvement of our algorithms to prove an ROI on a specific dollar spent, and then getting clients to be able to articulate measurable KPIs in terms of what they're hiring us to do, that's the journey that we're on. This journey isn't gonna happen in 180 days or 360 days. This is a journey that I've tasked the organization to look at three years out and to start testing, discussing, improving our measurement tools.

[John Wren, Chairman and CEO at Omnicom Group]

Hopefully, and we haven't done this as fully as, or as fast as I would want, developing products which clients will be attracted to, which will be based primarily on outcomes. So it's a, it's gonna be a very long story. That your question is gonna be an excellent question for the next 36 months, at least, and we're started on that.

[David Karnovsky, Senior Research Analyst at JPMorgan]

Great. Thank you.

[Operator]

Our next question comes from the line of Adam Berlin with UBS. Please go ahead.

[Adam Berlin, Executive Director of European Media Equity Research at UBS]

Hi, good afternoon. Thanks for taking a few questions, if I can. The first question is, in precision marketing, you talked about some project work being delayed. Can you just talk a little bit about the environment for project-based work, and how confident are you that those delays will result in work in the second half of the year? Is that kind of confirmed by the clients that it's going to happen later, or is it more something you're hoping will happen?

[John Wren, Chairman and CEO at Omnicom Group]

Sure. Well, I'll comment, and then I'm going to ask Phil to fill in what I don't cover. I would characterize the headwind on several things. One is there was a client loss in the quarter, which we will have cycled through before we get to the end of the year. So that's unimpactful. Two, in the U.K., where we have a consulting business, some of those projects were delayed because of the election that was called. The good news is, even though it's not reflected in the quarter's numbers, we've gotten confidence that with the new Labour government, those projects are back on track and they're going to be executed. So it was a temporary delay caused by something we couldn't affect, somebody calling an election and everybody turning their attention to it.

[John Wren, Chairman and CEO at Omnicom Group]

And the third thing is actually just projects from here to there. Since we reported the third quarter, second quarter numbers, in precision alone, the election's done. That headwind diminishes. The headwind associated with the loss will only last for another four months. More importantly, though, we won a significant piece of business from a U.S. auto manufacturer in just these last two weeks. And typically, when you win an account like that, there is at least a six-month delay before you start to enjoy revenue. In this particular instance, we're starting to get paid in August and beyond because of the activity and the nature of the work. And that will only build as we go out throughout the balance of the year.

[John Wren, Chairman and CEO at Omnicom Group]

So what you've seen in precision marketing, we're hopeful, and we have some confidence, you know, we have confidence, given the factors of what impacted us up till now, that you'll see a reversal of that and improvement in organic growth in the third and in the fourth quarter, and then as we get into next year. I'll defer to Phil for anything I left out.

[Philip Angelastro, EVP and CFO at Omnicom Group]

I thought that was pretty comprehensive.

[Adam Berlin, Executive Director of European Media Equity Research at UBS]

Yeah, that was, that was really helpful. Thank you. And my last question is just on, on cash. The working capital outflow didn't improve in the first half. Do you think it will in the second half? And, and related to cash as well, the repositioning charge of $58 million, is that cash that's gonna impact H2, or is it non-cash?

[Philip Angelastro, EVP and CFO at Omnicom Group]

For most of the repositioning is going to be cash. The timing will vary, but yeah, most of it, or I'd say certainly the majority of it is gonna be in the second half, yes. And we'll work through that as we normally do. Working capital performance actually improved in the quarter, year-over-year. And as you remember, working capital year-over-year in the first quarter was negative. The change in working capital was negative relative to last year. Through the six months, the change is now positive. So our working capital performance improved in the quarter. The net number is still negative, $400 million or so, which is about half. Sorry, that's the annual number. Last year's number improved by a little more than 50% versus 2022.

[Philip Angelastro, EVP and CFO at Omnicom Group]

And I think, you know, our expectation is we're gonna continue to make progress as we go through the rest of this year, but it's gonna take some time for us to get back to neutral, given the rate environment and where it is. If and as that changes in the future, certainly we'd expect, you know, to improve and get closer to neutral as that environment improves. You know, it hasn't yet. The expectation is that it will. But certainly-

[John Wren, Chairman and CEO at Omnicom Group]

Mm-hmm

[Philip Angelastro, EVP and CFO at Omnicom Group]

... with the cost of money, the last, you know, couple of years, frankly, clients have held on to more cash, for longer. You know, we've certainly held on to cash in paying our vendors, but we expect that environment to improve.

[Philip Angelastro, EVP and CFO at Omnicom Group]

... over time as we go to get back to neutral. But it isn't something that's gonna happen overnight.

[Adam Berlin, Executive Director of European Media Equity Research at UBS]

Okay. All right. Thank you very much for your answers. Appreciate it. Cheers.

[Philip Angelastro, EVP and CFO at Omnicom Group]

Sure.

[Operator]

Our next question comes from Steven Cahall with Wells Fargo. Please go ahead.

[Steven Cahall, Managing Director and Senior Analyst of Media, Advertising and Cable at Wells Fargo]

Thank you. I was wondering if you could expand a little bit on the media business. You've won a lot of media business over the last 12-18 months. You've defended some business successfully, and then we've also seen some of your peers who've struggled a little bit on the media side. So I think what we're trying to understand is, what's structural in media buying that's benefiting your strategy or the way you're going to market? You know, we sometimes see this where holding companies go through what seem like strings of wins and strings of losses, but they're often not always sustainable. So really trying to understand what's structural here, and if the habits or behaviors of the clients have changed in a way that's better for OMD or your platform.

[Steven Cahall, Managing Director and Senior Analyst of Media, Advertising and Cable at Wells Fargo]

And then also on Omnicom Production, could you give us any more insight as to what kind of margin you think you can generate in a business like that? And as you grow this business, is this gonna have a material impact on the difference maybe between gross revenue and net revenue, or how much of that delta is in the production business currently that you can look to capture through this initiative? Thank you.

[John Wren, Chairman and CEO at Omnicom Group]

Okay. The first question is a terribly important one, because I think the behavior that you've seen over the last 18-24 months with who's been winning business and who has not is structural as well as other elements coming into play. In our particular case, I think the key differentiator, which in addition to having excellent people deployed, has been the decade-long investment and the progress that we've made in Omni. And that was only. It was doubled in terms of its capabilities and the information that we gather to provide insights with the acquisition of the transactional information that we got when we purchased Flywheel Commerce Cloud earlier this year.

[John Wren, Chairman and CEO at Omnicom Group]

So that is a key differentiator, when compared to what the competitor set was and how we did business three years ago, and how all of us did business three years ago. Also now, the improvement that we have in how we measure the effectiveness of media, coupled with the content production tools that we've now automated and also then get included, in some cases, as modules that are compatible with the information that Omni generates, is a key factor in why we have, I think, been batting well above 600. And you see that reflected in the media wins and loss charts that seem to get published or updated daily, but if you go back and look at that information, you'll see that that has been the consistent pattern. It's also...

[John Wren, Chairman and CEO at Omnicom Group]

That activity, even though I don't—I wouldn't attribute too much revenue yet to it, also is. It further enables us to get closer to that longer project I referred to, where we're looking to outcomes and proving client ROI, but that's more to come on that. But if you were looking for an immediate answer, that would probably be at the heart of it. I think even some of my competitors who are on the other side of this transaction truly understand the differentiation and the full capability that we have versus others. And it's gotten reflected in some technical reports when you look at what Forrester did in the second quarter and delve into some research that we haven't necessarily promoted, but it points out these differentiations.

[John Wren, Chairman and CEO at Omnicom Group]

Having said that, I've now forgotten the second but and third part of your question, so could I ask you to just repeat them again?

[Steven Cahall, Managing Director and Senior Analyst of Media, Advertising and Cable at Wells Fargo]

Sure, just about Omnicom Production, what kind of margins could that business generate? And maybe how big that could become from a revenue perspective, or if you could help us size within some of the gross revenue, how much of that might be up for grabs for the production company?

[John Wren, Chairman and CEO at Omnicom Group]

Sure. Well, I don't think gross revenue comes into play with respect to production in the way that you might think of it. It's an assignment, and you're deploying assets or people against it. I said some of my immediate competitors are as much as three times larger than we are, and we are below $1 billion in what I'd call production revenue. I'm not being specific, so low can mean anywhere from $500 million to $1 billion. And my competitors, at least the two that have been successful at this on a legacy basis, are at least two to three times larger than us.

[John Wren, Chairman and CEO at Omnicom Group]

If you go back and look at investor days from some of our competitors as to who their largest clients are and who our largest clients are, we've been with Apple since 1984. It's a very significant client of one of my other competitors, and I think they listed in their top five. And they're not the biggest in the area. Now, I don't expect to take that business away overnight, but that's the level of revenue that's available out there when you centralize these teams, when you make important, focused investments in the types of tools and services that you're gonna be providing to clients.

[John Wren, Chairman and CEO at Omnicom Group]

We had left it on a decentralized basis until this year, and since the beginning of the year, since our plans last year, we've had very detailed plans of bringing it all together, except for we did not want to take that action until the leader, the person who was going to take us to that level, was free and available to join us. Because of restrictions he had in his prior employment arrangements, he could not join us until June, and as soon as he got here, we've been moving relatively fast. That pace will only accelerate as we go through the end of this year, and then certainly into next year. In terms of margins, it will contribute to the overall healthy growth of the company.

[John Wren, Chairman and CEO at Omnicom Group]

The one wonderful thing about Omnicom is no particular area that we focus on has a permanent impact on the health of Omnicom, or the lack of health at Omnicom. So this we see as. I guess I'd probably characterize it as another leg under the table.

[Steven Cahall, Managing Director and Senior Analyst of Media, Advertising and Cable at Wells Fargo]

Thank you.

[John Wren, Chairman and CEO at Omnicom Group]

Sure.

[Operator]

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

[Michael Nathanson, Analyst at MoffettNathanson]

Thanks. Hey, John.

[John Wren, Chairman and CEO at Omnicom Group]

Hey.

[Michael Nathanson, Analyst at MoffettNathanson]

I have a question for you on ArtBotAI. One of the concerns on the street is that generative AI is going to make creative content much more efficient, and in the article that was sent around about AT&T's use of ArtBotAI, the client is saying, "Look, this is incredibly efficient from a time spent and people required standpoint." So I wonder, you know, what are you seeing in terms of it's efficient, but what's the net impact to a creative agency from using these tools on a revenue basis? That's what we're all trying to figure out, and you have a pretty good example here with ArtBotAI and AT&T.

[John Wren, Chairman and CEO at Omnicom Group]

Sure. I think the one thing, maybe this is you have to take on faith, but it's been true, and I've only been in this seat for close to 30 years, and God knows how many quarterly calls like this. Wherever we've been able to make the client's dollar work more efficiently, I would say in... nothing's 100 percent, nothing's not nothing. I would say a significant portion of that dollar saved or proven, gets reinvested by that client because they understand the impact, and they're not fearful of investing in things that they can measure, because they have objectives and they, and they, if they meet their KPIs, they invest it.

[John Wren, Chairman and CEO at Omnicom Group]

So ArtBotAI is just an amazing tool in that the creative work that goes into concepts and the insights of developing a campaign, they still take those geniuses, that little Rembrandts, that we have, I think, more than our fair share of within Omnicom. But historically, and this is what you're afraid of, there were dollars involved in the trafficking of that information or the reconfiguring of that information for different types of media in the past. That now, with ArtBotAI, if the campaign is properly tagged when created, is done instantaneously. So that one boring work that was kind of mundane for the people doing it, which did generate revenue, kind of blurred the lines of how much of this money we're spending are we getting a return on?

[John Wren, Chairman and CEO at Omnicom Group]

Now, with things like ArtBotAI, we can reduce the cost, we can do something better, cheaper, and faster. And through Omni and the optimization tools that we have, we can measure the effectiveness of it. The point being, $1 saved becomes 95% incremental dollars invested in the clients. So I think your fear is really not well-placed, and I think we have enough history, because this business has evolved quite a bit during my tenure, to at least believe in the fact that if you can measure it and it's beneficial to your activities, you're gonna spend more of it until it's no longer beneficial to your activities.

[Michael Nathanson, Analyst at MoffettNathanson]

Thanks, John. Can I ask you one more about your 36-month journey?

[John Wren, Chairman and CEO at Omnicom Group]

I'll answer the question in case nobody else on this call. Go ahead.

[Cameron McVeigh, VP at Morgan Stanley]

Okay.

[John Wren, Chairman and CEO at Omnicom Group]

Sorry.

[Michael Nathanson, Analyst at MoffettNathanson]

No, the question I had is, you talk about, you know, the goal to get more pay for performance. Does it necessarily mean that you need both sides, the media side and the creative side? Because how do clients tease out the effectiveness of the creative versus the effectiveness of the media planning and buying, right? So how do you think about it going to market to get paid for both sides of, I guess, at least two sides of the transaction, the creativity and the optimization part?

[John Wren, Chairman and CEO at Omnicom Group]

Well, yeah, and forgive me if I'm repeating myself a little bit. I think I might have mentioned earlier, you could have the most sophisticated tools in the entire world, and take two retailers in a geographic location trying to attract customers or two car companies. If the tools gave them the most optimal way of spending X number of dollars, there would be nothing unless there was creativity, there would be nothing to distinguish, you know, one from the other, and from a competitive set, you'd kind of still be in the historic equivalent of hunters, you know. You know, did the buffalo pass by my village today?

[John Wren, Chairman and CEO at Omnicom Group]

It's those creative people, it's the sophistication and the timeliness of the insights that our tech platforms, like Omni and Flywheel Commerce Cloud, create that give us the information to act at speed, to create relevance at scale, to kind of create campaigns which will attract customers and actually distinguish the differences between our products and why a client or a potential buyer should be attracted to that client. So what's happening is the historic lines, which might have been clearer to delineate between where technology, optimization, information ends and where creativity begins, they've been blended more. And I think that's more the future rather than, you know, one side of the house versus another side of the house.

[John Wren, Chairman and CEO at Omnicom Group]

That's what we're driving in terms of the behavior and the culture within the company, that knowledge that one is not more important than the other, both are equally important, and both, when working in tandem with each other, are really unbeatable.

[Michael Nathanson, Analyst at MoffettNathanson]

Thanks, John. Sorry, Phil.

[Philip Angelastro, EVP and CFO at Omnicom Group]

No worries.

[John Wren, Chairman and CEO at Omnicom Group]

I'll throw him a question, please. I've been talking too long.

[Operator]

Our next question comes from the line of Jason Bazinet with Citigroup. Please go ahead.

[Jason Bazinet, Director at Citigroup]

Maybe I'm wrong about this, but when I look at, when I look at your firm, it feels like the magnitude of adjustments you've made over the last couple of years, whether it's Omni or centralizing production or the Flywheel acquisition, but the magnitude of changes or adjustments are more significant than they've been in the past. And I guess my first question is: Do you agree with that statement? And then second, are there any capabilities or skills that you feel like you're lacking today that wouldn't allow you to go win in the marketplace vis-à-vis your competitors?

[John Wren, Chairman and CEO at Omnicom Group]

Well, probably shouldn't do this on a conference call, but I claim the right, having been the CEO for 30 years and having built what was there from a legacy point of view, I have the right to change it at will if that's what's most appropriate for us to be successful. So it's not just me, it's my entire team and the information we gather from what the consumer and the customer wants, as well as whatever tech improvements are out there, which are far more rapid and changing. So you're correct in your conclusion that there's been a lot of change, some probably precious little by comparison from acquisition, and most through a very long-haul, committed spending of internal resources to build and develop the type of tools and information and hire the people that we need in order to execute against it.

[John Wren, Chairman and CEO at Omnicom Group]

So having said that, my team would definitely agree with this. I'm never satisfied, and the team, and the team knows that we're never done because. And one of the real benefits of having as many creative people we have in as many geographies as we have them, with the appropriate access to all the new things that are getting developed, is there are trials and programs that we're beta-ing with clients, clients who have agreed to take the risk with us, that things are gonna break, and then we'll put them back together and fix it. Then we turn them into products which are more easily deployed to a larger group of people.

[John Wren, Chairman and CEO at Omnicom Group]

Then we have things that we learn about after the fact, where our creative or our really smart strategists out there are playing with and toying with new tools and capabilities that they become aware of. And when they become significant, that information kind of bubbles to the top pretty quickly, and I have a pretty astute group of folks that are always on the lookout for that, as well as the formal things we do from Omnicom. You know, we see it in—it's kind of buried in some of the announcements that we made. I talked about what TBWA has done, and I've talked about what other parts of the company have done.

[John Wren, Chairman and CEO at Omnicom Group]

They're all things that they've beta-ed and tested and proven that, gee, this is a, a skill that, or a product that we can white label for the benefit of all of our clients, and that's the constant process that's going on. So are there more things that we could do? Yes. Are there more things we're going to do? Absolutely. Am I satisfied that I believe we're appropriately ready for today? Yes. And what the client requirements are today? Yes. But I don't think that is a stationary target. I don't think you can rest on those capabilities. They're in constant states of improvement.

[Jason Bazinet, Director at Citigroup]

Perfect.

[Philip Angelastro, EVP and CFO at Omnicom Group]

Yeah, I would just kinda concur and add-

[Jason Bazinet, Director at Citigroup]

Thank you.

[Philip Angelastro, EVP and CFO at Omnicom Group]

Yeah, the pace of change certainly has accelerated the last few years in the marketplace. You know, the media landscape's changed dramatically. The way consumers interact with brands and frankly, buy stuff, has changed pretty dramatically. We continue to make the investments necessary, so that we can stay ahead of that and provide our clients with, you know, the innovation that they need. Certainly from our perspective, these things aren't necessarily choices of whether we want to do them or not. We make those investments so that we can keep pace and stay ahead. That'll continue, certainly, so that we can service our clients' needs and what we anticipate their needs to be in the future.

[John Wren, Chairman and CEO at Omnicom Group]

Well, just one little final point on that.

[Jason Bazinet, Director at Citigroup]

Yeah.

[John Wren, Chairman and CEO at Omnicom Group]

As much as we make those investments, and we support them from a top-down point of view, that innovation is bubbling up from the entire... all of our colleagues throughout the world. And, you know, we learn from our clients, and we learn from the people who don't have the lofty management positions to sit on calls like this. And where it works, we double down.

[Jason Bazinet, Director at Citigroup]

Very helpful answer. Thank you.

[Operator]

Our next question comes from the line of Tim Nollen with Macquarie Group. Please go ahead.

[Tim Nollen, Senior Media Tech Analyst at Macquarie Group at Macquarie Group]

Oh, thanks. I just had one more question on the Omnicom Production operation that you just laid out now. Just operationally, I'm just wondering, is this a kind of a consolidated skill center that the agencies will draw upon? As in, you're taking activities out of agencies, creating a common sort of a service center. And if I'm understanding it right, is it a complex process to set this up? And then relatedly, will there be further repositioning costs in the coming quarters? Thanks.

[John Wren, Chairman and CEO at Omnicom Group]

I'll answer the last part of your question first. At this moment, based upon having done a very significant plan and the information that we have, we think that any future adjustments to the architecture and the plan that we put in place will be self-liquidating in a quarter. So we don't think there's any bold action that you're gonna see us, based upon what we know right now, taking to bring this to the next level. It's a change certainly, in that production is far more tech, far more. There are improvements that are happening which haven't even been rolled out yet, in terms of production, how you do it, what makes it better, cheaper, faster. ArtBotAI is just one thing we introduced this quarter.

[John Wren, Chairman and CEO at Omnicom Group]

So in the past, when these were simply departments of the agency or the company working on a very limited number of clients, they focused their attention and the tools that they needed to just what those client and agency requirements were. By centralizing it, we free that up to where we can continue to service those specific client requirements and then broaden our capabilities to offer to significant other clients. And there are benefits to scale, because with scale, you can make better investments, you have more assets to deploy against a particular assignment, and you should be able, and we will be able, to do things better, cheaper, and faster for our clients, which again, the client savings, measurable ROIs, all the other things which touch the continuum of services that we are increasingly offering.

[Tim Nollen, Senior Media Tech Analyst at Macquarie Group at Macquarie Group]

Thanks, John.

[Operator]

Our next question comes from the line of Craig Huber with Huber Research Partners. Please go ahead.

[Craig Huber, Equity Research Analyst at Huber Research Partners]

Thank you. Just a matter of timing. I have one question, guys. Can you talk about your technology clients? I notice it's 7% of your revenues here in the first quarter, first half. Are you feeling like the worst is behind you there in terms of the growth rates year-over-year, and it might start turning positive by, say, the fourth quarter or going into next year? How you feel about the technology part of your clients? Thank you.

[Philip Angelastro, EVP and CFO at Omnicom Group]

I think just in terms of numbers first, yeah, I think the numbers for us all throughout last year was about 8% of total revenue. You know, the 7 in the quarter or in the first half is not really much of a change driven by a reduction in spend. I think that's more of, you know, we're probably a little more heavily weighted because of Flywheel in 2024 to consumer products and some of their client base, just adding a, you know, slightly different percentage of the total. So we haven't seen, you know, a significant drop-off, that that's really meaningful in, you know, the spend of our tech clients. There have been some pluses and minuses, certainly, no question, last year and the first part of this year.

[Philip Angelastro, EVP and CFO at Omnicom Group]

But you know, I don't think the numbers have really impacted us overall on a consolidated basis that significantly.

[Craig Huber, Equity Research Analyst at Huber Research Partners]

Okay. Thank you.

[Philip Angelastro, EVP and CFO at Omnicom Group]

Sure.

[Operator]

Our final question comes from the line of Adrien de Saint Hilaire with Bank of America. Please go ahead.

[Adrien de Saint Hilaire, Director at Bank of America]

Thank you. I'll just stick to one question, please. There's been a bit of a deterioration in some macro indicators of late in the U.S., and I know, John, you said you don't control macro, but I would still be curious if you've seen or you've felt in your recent conversation with clients that there is perhaps a desire to pull back, maybe on ad spending, towards the second half on the back of those weaker data points. Thank you.

[John Wren, Chairman and CEO at Omnicom Group]

I would not go as far as to say pull back. I think that the level of optimism that we kind of went into the year with, expecting Fed cuts and other macro actions to have occurred, which all got delayed. Until the first one happens, people are electing to be, I wouldn't say pessimistic, but conservative in forecasting what's going on. Because, again, we entered January, which wasn't that long ago, expecting four cuts. Here we are in almost August, and we're hoping for one cut. And that, irrespective of the political elections, actually have more of a longer-term impact on the way CEOs, or the ones I deal with, think about investments that they're gonna make in their business and what they're doing.

[John Wren, Chairman and CEO at Omnicom Group]

There's also a question that gets risen, or it rises, in terms of there's a pretty stark difference in this country between whether there's a Republican-controlled government or a Democratic-controlled government, and there'll be implications, both positive and negative, if you position yourself correctly for them in terms of where the dollars are gonna flow. So all that leads to is no one's euphoric. People, I think, are cautiously optimistic, and the ones who last December, January, were bullish because they were expecting, you know, moves by the government, have moved from that to the cautiously optimistic part of the equation. So, you know, and that's simply the United States. You also have wars going on. You had a snap election and a complete change in direction in the U.K. You have, you know, a snap French election, which has led to paralyzation.

[John Wren, Chairman and CEO at Omnicom Group]

So, I mean, we're not sitting here. We are a global company, so all these things kind of go into the stew, if you would. But we think we've been able. We think we're in close enough contact with our clients that we share what challenges they have, and we adjust with them to those challenges, and we're still confident. I'm not pretty confident. I'm still confident that what we said we can do, we will in fact deliver.

[Adrien de Saint Hilaire, Director at Bank of America]

Makes sense. Thank you.

[John Wren, Chairman and CEO at Omnicom Group]

Thanks for joining us so, so late, Adrien.

[Adrien de Saint Hilaire, Director at Bank of America]

Sure.

[Operator]

There are no further questions at this time. This will conclude today's call. Thank you all for your participation. You may now disconnect.

Participants

Executives

• Gregory Lundberg, SVP of Investor Relations
• John Wren, Chairman and CEO
• Philip Angelastro, EVP and CFO

Analysts

• Adam Berlin, Executive Director of European Media Equity Research at UBS
• Adrien de Saint Hilaire, Director at Bank of America
• Cameron McVeigh, VP at Morgan Stanley
• Craig Huber, Equity Research Analyst at Huber Research Partners
• David Karnovsky, Senior Research Analyst at JPMorgan
• Jason Bazinet, Director at Citigroup
• Michael Nathanson, Analyst at MoffettNathanson
• Steven Cahall, Managing Director and Senior Analyst of Media, Advertising and Cable at Wells Fargo
• Tim Nollen, Senior Media Tech Analyst at Macquarie Group at Macquarie Group