Q3 2022 Omnicom Group Inc Earnings Call
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[music].
Good afternoon, and welcome to the Omnicom third quarter 2022 earnings release Conference call. At this time, all participants are in a listen only mode.
We will conduct a question and answer session to participate please press one to zero.
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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 Gregg Remember. Please go ahead.
Good afternoon. Thank you for joining our third quarter 2022 earnings call with me today are John Wren, Chairman and Chief Executive Officer, and Phil Angela Ostrow, Executive Vice President and Chief Financial Officer.
On our website Omnicom group Dot Com, we posted our press release, along with the presentation covering the information will review today as well as a webcast of this call an archived version will be available when today's call concludes.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 and 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 2021 and Form 10-K.
During the course of today's call. We will also discuss certain non-GAAP measures 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 and after our prepared remarks, we will open up the line for your questions.
I'll hand, the call over to John .
Thank you Greg good afternoon, everybody and thank you for joining us today for our third quarter results.
I am pleased to report that in the third quarter. We continued the very strong performance. We've had throughout 2022, we exceeded our expectations with organic growth of seven 5%, which was broad based across our agencies disciplines. These regions and client sectors.
Year to date organic growth is 10, 3%.
Operating profit margin for the quarter was 15.9% 10 basis points higher than our comparable margin in 2021.
Earnings per share for the quarter was $1 77 up seven.
7.3% versus 2021.
The negative currency impact on EPS of the strong U S dollar was approximately 5%.
On a constant currency basis.
P S would've increased approximately 12, 3%.
Our cash flow liquidity and balance sheet remained very strong and continue to support our primary uses of cash dividends acquisitions and share repurchases.
Phil will cover our financial results in more detail during his remarks.
On last quarters call. We mentioned several first of a kind e-commerce collaborations with Amazon instant cart Kroger and Walmart.
This quarter, we expanded and enhanced our e-commerce capabilities.
And Nancy transact a dedicated practice.
Focused on connected commerce consulting and E retail execution services.
Transact will capitalize on the unique partnerships, we ventured into and will focus on driving sales for clients and growing market share on E retail platforms.
Transact adds to our best in class E Commerce services in digital transformation and Martech consulting.
CRM and precision marketing media campaign activation and creative content.
We also continue to invest in our iconic agency brands are.
A recent example was T b W. A worldwide, which recently acquired innovation agency Dot Dot dash.
That got dash bills future forward brand experiences at the intersection of culture and technology. A valuable addition for the total brand experience company like T V. W. E.
We will continue investing to enhance our capabilities in high growth areas, including CRM and precision marketing digital transformation.
<unk> media and e-commerce.
Our investments in these areas to date have been very effective and are reflected in third party validation.
A few weeks ago, we were named leader in Forest has waived the censoring for global marketing services. We received the highest scores possible in five criteria creative content and services Media management services integration services global client teams and <unk>.
Innovation roadmap.
Our performance highlights our ability to deliver creative and strategic solutions to our clients through integrated multi disciplinary teams.
One way we do this is through our global client leaders group, which is led the industry in developing innovative service solutions for our largest clients.
Since 2014, our D. C. L group has been led by Peter Sherman.
After a successful 25 year tenure at Omnicom, Peter has made the decision to become a full time undergraduate professor teaching marketing and communications at a top ranked university.
Wanted to thank Peter for his countless contributions at Omnicom and wish him the best of luck.
We are expanding on the foundation Peter help build to further enhance the services, we deliver to our largest clients and to pursue new business opportunities aggressively.
As a first step towards that goal, we announced the appointment of Andrea lending to the new role of Chief client Officer.
Andrea has a strong track record in marketing transformation at critical mass Omnicom's digital experience design agency.
Where she spent seven years working in Asia, Europe , and the United States.
Prior to being named President two years ago.
Andrea will focus on transformative marketing solutions and capabilities that drive business results for our global enterprise clients in.
In partnership with the G. C. L team she will accelerate solutions that draw on the group's best talent integrating omnicom's, leading capabilities and data creative media communications and technology.
We will be sharing more updates on our client solutions strategy and new business team in the coming weeks.
We are fortunate to be making these changes from a position of strength.
We were recently recognized by the Fas with one of the industry's most prestigious honors identify ideas that work. The 2021 global Effie effectiveness index named Omnicom, the most effective marketing communications company in the World.
Four of our agency networks P. B D O D V B O M D and T V. W. A.
Placed in the top six of the most effective agency network category.
In addition, OMD was named the most effective media agency network.
These notable rankings demonstrate our standout town.
I want to congratulate all of our agencies and people on executing the most effective and creative work in the industry for the benefit of our clients.
Overall, we're very pleased with our quarterly and year to date financial results as well as our progress on our key strategic initiatives.
Based on our strong performance this quarter and for the first nine months of the year, we are increasing our prior organic growth forecast from six 5% to 7% to eight to eight 5% for the.
Full year 2022, we also continue to anticipate delivering the same strong operating margin of 15.4% for the full year of 2022 that we achieved in 2021.
While we're confident in our forecast, we retain a healthy level of caution due to macro factors, including the ongoing war in the crane.
The continuing disruption of global supply chains, the economic risks posed by rising interest rates here in the United States and high inflation around the world.
In light of these risks we are actively taking actions to mitigate the potential negative effects of these macro factors on our business.
I am confident we are well equipped to handle any economic downturn and have the leadership teams in place to minimize the impact.
On our top and bottom lines.
I will now turn the call over to Phil for a closer look at our financial results.
Phil.
Thanks, John .
As you just heard from John our third quarter results were solid reflecting growth across all our disciplines. While the rate of growth is expected is below our first half results. We feel very good about the competitive position of our company.
Leading us to raise our guidance for full year 2022 organic growth.
And we have a positive outlook for 'twenty 'twenty three and beyond.
Further down the income statement, our cost management has resulted in strong operating performance and operating profit margins.
And our disciplined approach to capital allocation and investment has led to both improve service offerings and increase shareholder returns through dividends and buybacks.
All while maintaining an excellent credit and liquidity position.
Let's go into the financial details of the quarter beginning on slide three.
Reported total revenue in the third quarter was flat year over year at 3.4 billion.
Organic growth was seven 5% for the quarter. However.
However, as I'm sure you are aware the U S. Dollar has strengthened significantly and almost half of our revenue is outside the U S.
In dollar terms for the third quarter. This drove the largest negative quarterly impact from foreign currency translation. So far this year the.
216.6 million or six 3% reduction of revenue.
With most of our expenses incurred in the local markets, where our revenue is earned.
Foreign currency translation impacted our profits as well.
Reported operating profit for the third quarter increased around 1%.
On a constant currency basis, it increased 6%.
Below the line higher interest income helped lower our net interest expense and we benefited a bit from the translation impact of our euro and British pound denominated debt.
Overall, our net income rose, 2.5% on a reported basis combined with a 4% reduction in shares year over year diluted EPS rose, 7.3% after a negative 5% headwind from foreign currency translation.
On a year to date basis, it's helpful to turn to slide four where we show adjustments to make the current and prior year to date periods more comparable.
None of these adjustments are new this quarter. They were discussed earlier this year and last year.
The year to date 2022 period operating expenses and income taxes were impacted by charges in the first quarter arising from the effects of the war in Ukraine.
For the year to date 2021 period operating expenses benefited from a gain on sale of a subsidiary.
Both interest expense and income tax expense reflect the impact from the early extinguishment of debt.
Similar to the quarterly results, we just discussed the strength in the dollar this year also impacted our year to date results.
Foreign currency translation reduced revenues by four 5%.
Operating profit on a non-GAAP adjusted basis was up 1.9% and.
And on a constant currency basis was up six 1%.
For a more detailed look at our results, let's now turn to slide five and begin with an analysis of the changes in our revenue.
As discussed the quarterly impact from foreign currency translation was negative six 3%.
The impact of acquisition and disposition revenue was negative 1%.
Primarily reflecting the disposition of our businesses in Russia during the first quarter.
Organic growth was seven 5% for the quarter.
10.3% year to date.
Looking forward.
FX rates stay where they were as of October 12, we.
We estimate that the impact of foreign exchange rates will reduce our revenue by approximately six 5% in the fourth quarter.
Based on deals completed to date, we expect the impact from net acquisitions and dispositions will result in a reduction of a revenue of approximately 1.4% in the fourth quarter, primarily resulting from the disposition of our businesses in Russia.
Turning to slide six for the quarter. We once again showed growth across all of our disciplines with double digit growth in three of them.
Advertising and media our largest category.
The 6% organic growth in the quarter led by strong media results.
Precision marketing continued its strong performance with 16% organic growth as clients turned to us for digital transformation.
Digital customer experience and data and analytics services.
Commerce and brand consulting was again up 11% organically on the strength of our branding and design agencies.
Experiential organic growth slowed to 2% as we continued to experience declines in China.
As expected growth in this discipline will remain choppy.
Execution and support which we also expected would grow slower than the second half.
Organic growth of 4%.
Public relations grew a strong 13% organically.
Collecting client demand across many industries and geographies.
Lastly.
Health care delivered solid organic growth of 5%.
Turning to slide seven for organic growth rates by region.
Clearly the growth was solid overall.
But varied widely by region and as expected.
Each region grew a bit less than they did in the second quarter.
Both in the U S and internationally in Q3 organic growth was primarily driven by revenue growth in advertising and media press.
Precision marketing commerce, and consulting and public relations.
Organic growth in the U S was strong at seven 6%.
Outside the U S. The organic increase in revenue was led by the U K at 11, 5% in Europe and 6%.
Looking at revenue by industry sector on slide eight relative to the third quarter of 2022, the broad distribution of our clients remain very stable.
Let's now turn to slide nine.
Look at our operating expenses for the quarter.
For your reference a slide in the Appendix also presents this on a constant currency basis.
Oh total expenses exclusive of depreciation and amortization were flat at $2 8 billion.
Down 10 basis points as a percentage of revenue.
Salary related service costs were fairly constant at 58% of revenue compared to 54% last year.
The slight increase was due primarily to the increase in organic revenue.
An increase in head count.
And a return to more normal business conditions.
Third party service costs were flat at 21% of revenue.
Occupancy and other costs were also flat at eight 2% of revenue.
They decreased due to lower rent and other occupancy costs.
Partially offset by an increase in office expense and.
Other costs, resulting from the return of our workforce to the office.
SG&A expenses were down year over year as a percentage of revenue due primarily to decreases in professional fees and third party marketing costs.
Turning to slide 10, our third quarter operating profit was $546 million, 1% increase from last year.
Net of a reduction of five 2% due to the impact of foreign currency translation.
Our operating profit margin of 15, 9% on total revenue was 10 basis points above last year's result.
Please turn now to slide 11 for our cash flow performance.
We define free cash flow as net cash provided by operating activities, excluding changes in working capital.
Which are generally positive for us on an annual basis.
Free cash flow for the first nine months of 2022.
Was 1.23 billion compared to 1.25 billion for the first nine months of last year.
A small reduction year over year. However, as a reminder, we note that $48 million of the charges. We recorded in the first quarter of 2022.
The effects of the war in Ukraine, where cash related.
Regarding our uses of cash we used $438 million of cash to pay dividends to common shareholders.
Another 63 million for dividends to Noncontrolling interest shareholders.
Our capital expenditures of $66 million were at normal levels.
Acquisition spend net of dispositions and other items.
$330 million.
And lastly, our net stock repurchases during the third quarter were $486 million.
We continue to expect total repurchases for the year at our historical annual range of around $500 million to $600 million.
Slide 12 is an overview of our credit liquidity and debt maturities.
During the quarter the impact of foreign exchange rates on our euro and Sterling denominated debt caused the book value of our outstanding debt decreased to $5 5 billion from $5 7 billion as of December 31, two.
2021.
The war no changes in the outstanding balances during the quarter.
And our 2.5 billion revolving credit facility, which backstops, our $2 billion of U S. Commercial paper program remains undrawn.
Our cash and equivalents were $3 3 billion.
Flat with our balance at June 30th 2022, reflecting an increase in net free cash flow during the quarter.
Which was offset by the negative impact of foreign currency translation.
Turning to slide 13, our operating capital discipline consistently drives above average returns on both invested capital and equity.
For the 12 months ended September 30th 2022 we generated a solid return on invested capital of 25%.
A strong return on equity of 43%.
We're confident that the outlook for our business growth on a prudent process for capital allocation will lead to increasing returns as they have historically.
Operator.
Please open the lines up for questions and answers.
Thank you.
And as a reminder, if you would like to ask a question. Please press one day zero on your telephone keypad you may withdraw your question at any time by pressing the one zero command, if you're using a speakerphone. Please pick up the handset before pressing the numbers.
Our first question comes from the line of Steven Kay Hall with Wells Fargo. Please go ahead.
Okay.
Yeah. Thanks, John .
John maybe one for you and then one for Phil rather than asking for you to prognosticate on organic growth, which I know is hard maybe to ask it a different way how are you thinking about the cost base and being proactive in a pretty volatile revenue environment I think when we last spoke you mentioned that there maybe it could be some real estate opportunities or.
Some opportunities in things like hiring and incentive comp. So I'm just thinking about when you look at the environment right. Now is at a time to be very proactive or based on the good growth that you put up in the third quarter do you actually feel like things are pretty stable in that proactive cost management.
Is it more something you can think about in the future.
Thanks for the question.
We're being.
We are internally acting.
As if the markets are going to be extremely difficult.
Increasing our productivity in a couple of different areas is extremely important.
And we're in the process of taking action.
And having very detailed conversations on a couple of fronts.
One is correct as real estate, we have real estate, which leases expire.
Throughout 2023 and 2024.
And with a new approach towards flexible working hours, where we believe we're going to be able to reduce our real estate footprint globally.
That's in process.
We'll see what the market does.
Additional opportunities may come up.
Where we'll be able to take advantage of.
Low prices.
In other markets, where the leases maybe are a little longer.
So that's number one.
In terms of people and payroll.
We're taking it seriously look at our processes.
A very granular level through each of our subsidiaries.
Looking to offshore where it's appropriate.
And there's a big push on automation in terms of some of the things that we can do.
Automotive basis that in the past we couldn't.
All of these.
We've recently met with all of our management teams together.
Or are we frankly discussed all of these things and they're part of our weekly agenda is.
The progress that we're making and as we get into profit planning for next year, we'll be setting targa.
<unk> targets and expectations for each of those companies.
Great and then they'll kind of a similar flavor to the same question. You know this year growth is strong in operating margins are guided to kind of flat year on year does the same logic hold that if growth slows down operating margins stay pretty consistent or if we do get into a tougher growth environment do you.
Spec there to be some downward pressure to operating margins. Thank you.
Sure.
You know I think if it if the environment is challenging and it certainly.
A challenge that we're going to we're gonna need face on or add on but.
But the flexible cost structure that we have.
Which includes still as of now some open positions.
Yeah, we're going to take advantage of that I think.
Maybe the most instructive thing you could do is take a look at.
Our performance.
Prior to and subsequent to.
Prior recessions or business disruptions like Covid.
And you get you get the sense that we've been through this before or not not just people on the call but.
When people are managing the company all around the world. So.
We've got you know.
They experienced managing through these types of disruptions or uncertainties.
We're gonna be aggressive about it.
And act accordingly to make the adjustments we need to make as quickly as we can make them to rightsize businesses too.
Yeah, the revenue outlook for that business that that being said.
You know we don't we don't know you know what 23 is going to hold at this point, but we're certainly preparing.
For it to be ready.
To manage through any disruptions that might occur.
Great. Thank you.
Okay.
And the next question comes from the line of Jason <unk> with Citi. Please go ahead.
Yeah.
So I just have a quick question if you guys deliver on your guidance this year.
And organic growth slows to like three or something next year.
I think it would be the best three year stacked organic growth rate that you guys have put up since 2006 for maybe 2007 long time ago.
So I guess in very simple terms can you just help us understand what.
As major business, so much better and I'll I'll offer up a couple of hypotheticals that you can react to.
One would be.
Disposition of your slower growing businesses and that there would be inflation and that there would be sort of the privacy changes that were put in.
By Apple that might provide a tailwind, but any sort of color to help us understand why your business is doing.
So much better than that it is done in a very very long time.
Sure.
Our portfolio today.
Isn't it.
Comparable really toward our portfolio was three four years ago.
Net.
And since as you referred to.
2019.
19, 2020 was the end of a five year period.
In which we were disposing things.
That contributed to our profit, but didn't necessarily contribute to our growth and we were able in good times to find buyers who are interested in those companies and we offloaded them. Similarly, we made investments in areas, where we believe that grow.
<unk> would be.
Consistent in good times and in bad.
And you can see that reflected in our precision marketing.
Assets you can.
See that in the changes that were made.
In public relations category.
And also the expansion of services in the health area. So as.
As well as a more traditional areas we cleaned up.
Low growth geographies and or but we felt with product loads.
It's a process, which has served us well and will continue to serve us well I believe as we face more challenging times if they come in.
We're planning that more challenging times are we're facing more challenging times because of inflation.
Inflation in some of the macro factors that are out there in the marketplace.
And.
Hum.
We're also very comfortable.
I'd say and the upgrades we've made to our management.
And our leadership throughout the world.
Over the same period of time, so everybody on the team is.
Aware of them.
Those many many steps that we have to go through in order to be successful.
Yeah.
Period.
Can I just ask one follow up.
Those things that you cited where very omnicom's specific but we're seeing broad based strength across all of your competitors too. So it seems like there's a.
And industry overlay on top of the things that on the call and stuff is that wrong.
No I don't think it's Ro.
I think that the marketplace complexity has increased which makes.
Not only the omnicom, but our competitor is important.
I think the great resignation, which had an impact.
Some of our businesses.
Able to manage through also had an impact on how our clients face that complex so that complexity.
And.
The eye.
I don't have the evidence to back this up but I believe it to be true.
Is.
In the last two recessions.
It's been pretty evident that companies that continue to market through those recessions.
Prospered and came out of the more quickly than ones that just focused on cutting costs.
And you know indiscriminately.
So it's a combination of factors.
And technology is different.
There's a revolution going on we're moving to electric cars, we're moving to more efficient.
Yep.
Ways of doing business all of those things.
Things that.
You want your brand known and supported by the marketplace and known as being progressive.
In addressing issues, which are going to face.
This is recession and then good tubes.
Very helpful. Thank you.
Yeah.
And the next question comes from the line of David Karnofsky with J P. Morgan. Please go ahead.
Oh, hi, Thanks for taking the question John just wondering if you can take a little bit to what you're hearing from clients right now in terms of how we're kind of balancing perceived or real macro risks again kind of the need to invest in brands and performance and then with regards to your year end project work any early view into how this potentially.
Looks until I'm wondering if you can say kind of what you've assumed within your guidance, how does that sort of $280 million to $250 million you've historically flagged.
Sure I mean, I think every intelligence company.
<unk> seen.
That.
Global globally these macro factors.
Or a mixture for.
Further confusion in a complex environment.
One level.
Another level, there's new areas that are coming on stream that didn't exist before if you look at media you look at all of that.
Providers that are out there that have decided to go through.
And an advertising model to the products that they're offered.
See our automotive manufacturers promoting their progress that they're making with the <unk>.
Car of the future being a communication device driven by electric power as opposed to gasoline power.
Got it.
There is many difficult things that are out there.
There's enough fundamental changes that are going on.
In the marketplace.
Keep kept marketers.
Pain and very interested in making certain.
Once again that their brands are recognized and differentiated.
So that when consumers make choices.
That thought that their brands are seriously considered.
Now on the yearend project front.
But I'd say, we're in a similar situation that we've been in you know in every October for quite some time, we don't have a lot of visibility yet into.
How much air and project work, our agencies are going to capture.
Typically.
Thereafter.
Number.
Which is in the neighborhood of $200 million to $250 million of debt.
Product spend.
You know some years.
We get it all some years you know very rarely I would say, we don't we don't get much if any of it.
Yeah, I would say, we don't expect to get it all this year, but you know as we've gone through the process of.
Looking at the fourth quarter with our companies.
Agency by agency bottoms up.
There's a number of companies that have an expectation based on their past history of what they could capture they've made an estimate.
Yeah, probably a conservative estimate.
And as we looked out look out into the fourth quarter, we've kind of considered that.
In our guidance so.
We do expect.
That'll be successful, we don't expect when we get it all this year, but we're pretty optimistic or the one thing we know is that.
People are going to be out there working on getting it because their incentives are aligned.
With ours and yeah, it'll drive incremental.
Profit and incremental bonus.
For them as well.
Maybe if I could just squeeze in one more John P. R has continued to perform really strongly I think it's like six quarters at this point and it didn't really dropped even that much during the pandemic. Just wondering if you can kind of speak to some of the factors instead of just kind of driven the strength of that business.
No Theres no alchemy, we didnt change leadership.
In recent conversations with some of my other management.
I'm extremely proud of the leadership that we have of that group.
It's craft driven and craft led no.
And.
I know that in the past.
When it was run.
Or managed by people, who didn't have such a deep understanding of the craft.
The performance was different.
The gentleman and team that leads it now is very proactive very hands on very.
Close to its clients and its people.
And I think that's paying huge dividends and that's it.
It's hard to measure, but it's easy to see.
I think the product is also much closer and much more important in the consumer journey.
And.
Probably more relevant.
In terms of brand awareness as well as the actual completion of the cell.
Influencers didn't exist in 2016 they exist today.
P R. It takes up.
Our leading position in and things like that so.
I don't have the precise answer, but I do know that we have the right people.
I think doing the right things and adjusting our product appropriately.
For the current circumstances that we're operating in.
Thank you.
Yeah.
And the next question comes from the line of Michael Nathanson with Moffett Nathan. Please go ahead.
Thanks, John .
It's not a question of if you want one for Phil I think John there's a thesis emerging that.
Complexity of digital.
Beyond Facebook and Google, It's really driving demand for digital music business Cross everyone's business. At this point can you talk a bit about what you've seen is what our isolate on the media buying process by Frank just on digital.
The addition of retail media tick Tock, Apple Amazon Netflix to come what do you say in terms of like the growth rates when we get down to there and then fill it if there was a concern with the model is just rising inflation on for salary and services can you talk a bit about what you're saying.
I'm on a point to point level on inflation and how that can be managed our wage inflation. The next next 12 to 14 months.
Sure I mean.
In terms of digital.
Digital has taken over.
The majority portion.
How are we.
Speak to various groups of consumers.
And.
There has been up.
An ever increasing number of providers.
Hmm interesting digital.
Site's information, which have their own following which our omni product and <unk>.
Some of our concerns early concerns and involvement.
And how we refine in and identify potential customers in.
In a privacy compliant manner.
Has put us in a position.
Where we've been very agile and being able to react.
Two changes as they happen I was going to say market by market, but in the United States even state by state.
And.
The retail.
Media is a new relatively new entry into the marketplace and.
During Covid has had an explosion.
And.
People in your business.
Measure that the way you measure it so I guess you'd do it comparably.
But when you think about it there's been a lot more platforms out there right you have Amazon you have Walmart you have Kroger you have target you.
You have I'm missing some others I'm sure.
We've entered into.
Sirius partnership arrangements with all of these folks so as to be able to assist the consumer.
And consult with our clients about which platform at which moment, but which product is the appropriate platform to be used and we've been able to.
Incorporate that into our omni product.
And make it available to our practitioners who are consulting with clients on a day to day basis on the best way to achieve their kpis.
So on the.
Inflation.
Or managing inflation and in the context of our business.
It is it's a combination of things certainly.
It's a reality of what everybody is dealing with today ourselves on our agencies.
Along with our clients.
And frankly, you know, we're whereas we've said before we continue to look for efficiencies in the cost structure.
It's a flexible cost structure.
We've been pursuing opportunities for off shoring outsourcing.
Automation as John mentioned earlier.
And yeah, we've got a number of open positions and access to.
Yeah, a flexible workforce that we can fill those positions if we need to with.
Contractors and a flexible workforce.
Rather than than with permanent people in some cases, we're also having discussions with our clients on an ongoing basis.
And those discussions are.
Continue.
The results vary some of them result in increases in our rate card changes in the scope of work.
Incremental work et cetera, So there's no there's no one silver bullet.
To deal with with inflation in our cost base, but.
It's a combination of things.
That really we need to do at the detail detailed agency by agency level, but we're certainly driving.
A number of initiatives.
To make sure that we take advantage of.
Whatever opportunities we have to find efficiencies.
And new ways of working.
Coming out of Covid is certainly.
Helpful and in that respect.
Thanks, guys.
Thank you.
And the next question comes from the line of Ben Swinburne with Morgan Stanley . Please go ahead.
Thanks, Good afternoon.
Just keeping with the theme of trying to think.
Think about the.
Strong results U K to deliver and the macro we're all worrying about.
Could you talk to us a little bit John about the performance of the company. This year, thus far and in the U K in the euro markets, where arguably the macro maybe is the most concerning and yet you're doing double digit growth is there anything you would add to the comments you've made already on this call about sort of what's driving that performance and then I had a quick.
Follow up for Phil.
Sure.
Yeah.
Got back last week I spent a week in Europe .
I was in Germany, and Italy loss or a few other places.
And interfacing.
Well, it's quite a number of our leaders.
We were.
We're very fortunate.
Where.
And then it shifts market by market a little bit.
But you take the U K for instance, our health care businesses, where outstanding this particular quarter, our precision marketing business has been outstanding consistently throughout Europe .
On systems work as well as.
You know.
Lower funnel type of war.
And we are.
Are needed.
Consultancy and needed.
Skill set.
By many of our clubs for them to obtain and achieve their objectives.
Plus.
I'm very happy with.
Again.
You said referencing my prior comments I have to go back to them.
The portfolio that we have.
So it's <unk>.
Throughout the world, but especially in Europe .
We've taken a lot of actions over the last.
Several years.
Finishing up a lot of those actions.
Thankfully right before Covid.
And.
Probably equivalent of spending every day in the gym.
We've toned up the assets that we have that.
And <unk> added.
And there's a lot of people.
With a lot of very specific but appropriately specific skills.
Got it so do you think that there is some share gain in there too it sounds like.
Yeah, I mean I think.
I think yes share gain is certainly part of it.
But I think these assets have allowed us to expand the budgets.
That we were previously.
We would probably more limited.
In terms of the things that we could.
Properly servicing clients.
The addition of many of these assets that we've made in the last several years, especially in precision marketing.
And some of the more refined.
Nuances of health care.
Just to name two have allowed us to.
Enjoy or compete for budget.
Prior to this.
And the old pre COVID-19 days weren't necessarily available to us so our marketplaces expanded right.
And then.
I guess secondly, this is two I I wanted to just again come back to the implied fourth quarter in your guidance, but I think it would be I don't know something like 3% or three and a half organic you already talked about the project work or anything else you'd call out that would suggest that growth would step back step down that much from Q3 to Q4, and then anything on the buyback the buyback.
A little lower this quarter than last quarter is that just.
As you know sort of being a little more conservative given everything we're reading and.
And seeing out there or anything you want to say about capital allocation as we look forward given the strong balance sheet and cash flow.
I'll take the capital allocation first so so as far as the buyback I think.
Yeah, what you've seen so far through through the first three quarters of 'twenty two is probably relatively consistent with.
Our pre Covid approach.
We tend we tend to be in the market a little more in.
In the first half of the year.
And then the second half of the year, the third and the fourth quarter, we typically.
Arent in the market as much that trend I think is consistent in 'twenty two.
We've said, we intend to buy.
Between 506 hundred or close to the bottom of that range.
We expect to.
Still still have some activity in the fourth quarter.
We haven't made a decision on how much yet, but what we're going to stick to that 500 to 600 for the year.
And as far as capital allocation overall, I think you should expect us to continue to be consistent with our approach will continue to pay it and attractive dividend.
We're going to seek to do M&A.
M&A to the extent it meets our strategic goals and our financial requirements.
Most probably small tuck in acquisitions that worked very very successfully for us.
Over the years and then we'll use the balance of our free cash to buy shares. So you can count on seeing consistency from that perspective, and then lastly.
To go back.
To your other question.
I think the numbers. The range is is would would lead you to somewhere between.
2% and three 5%.
In the fourth quarter, which which we're certainly comfortable with.
And you know I think there is an expectation.
Given the Lockdowns in China, and some other general uncertainty that to our experiential business will probably.
You know take a step back in Q4.
It's a choppy or business, it's a great business for us it's performing well.
People managing the business or businesses have been doing a great job, but.
But we expect it will take a step back in the fourth quarter some of our execution and support businesses may do the same.
But we expect good performance good growth.
The rest of the portfolio, which has had a great year so far.
And one more finished strong in the fourth quarter as well.
The only thing I would add I think.
Implicit in.
In the numbers that you can look at.
The overall project work that we always refer to is still out there.
We've spent the last several weeks going company by company.
Looking for people who had.
More certainty.
The projects that would be coming through.
There's still.
Some portion of that.
That as we continue to make inquiries and weeks go by.
We'll get more and more clarity.
Thanks, guys.
Thank you.
And the next question comes from Craig Huber with Hubert Research Partners. Please go ahead.
Great. Thank you my first question I mean, given these very strong results during the quarter and year to date and you compare that to the macro headwinds out there that we all know about can you maybe just talk about maybe the tone of.
The conversations you're having with maybe your major European and U S clients should help to account for the fact their numbers are seemingly so much stronger north American environment is shaping up as.
Well yeah.
Yeah.
I think.
At the risk of repeating myself.
Yeah, I think all of those facts all of the factors that we've talked about throughout the call.
Play.
There are new retail marketplaces that didn't exist in the past.
We offer.
Incredibly new.
New services, which.
Specially in and precision marketing and.
And those consultancy type of activities.
Activities, which.
I've made budgets switch.
Prior to this one.
Well to us we've been able to successfully compete.
And get our share of those projects.
Oftentimes those projects.
A multi quarter type of projects.
In terms of from start which.
As designers of them to execution and delivery of them.
And just a healthier.
Shape of the portfolio.
You know I think.
As Phil mentioned.
Some of our execution businesses.
I think ramped up.
And ready to respond to the demand that's out there.
But there has been.
So it's been a bit choppy.
Because of.
Things like the China shutdowns or.
Different interruptions, which has happened from time to time.
But we have several of the best assets in the marketplace.
And as I look forward.
I see a loosening of that.
Yeah, We have Olympics that it would be coming up we have the FIFA World Cup. So that are coming up we have a lot of different activities that we've prospered from it.
And.
And so it's a it's a combination.
I wish it was as simple as six things I could just.
Rattle off and and satisfy your question.
But I think it's a combination of all of these things.
That have made it.
And it made us more important.
Two clients who are forced to.
Yeah.
As soon as we have new opportunities to us.
<unk> is a complexity that a CMO or a CIO or a CEO has to go through it.
In order to reach their customers and achieve their objectives.
And we are in excellent provider.
Assisting them in simplifying that complexity and bringing the best in class services and make them available to them.
Certainly from a macro perspective as well in terms of the first nine months of the year.
Yeah. The consumers continue to spend clients have continued to spend.
You know I think I think we're talking about what happens if the if and when the environment changes.
Hard to gauge how much it's gonna change by but.
The environment.
Certainly has has been.
A positive.
And in the context of the types of services that we provide.
Yep.
And maybe like unlike.
Some of the other recessions.
Recessions would you have happened in the past.
This one has been a little bit slower rolling we've all been anticipating it.
Especially as central banks raise interest rates in.
Create different macro issues and God knows what's going to happen in the war in Ukraine.
And people have worked through and had been working through their supply chain issues.
So we've been able to adapt.
As is all of that.
And we'll continue to adapt.
As that continues.
That's very helpful. My follow up question, if I could with a very high inflation rates out there do you feel that that's helping your organic revenue growth here that you're able to pass on.
Higher costs here.
Material way much more so than in the past.
That's certainly that wholesale across the board, we had been able to.
Get improved pricing on some clients.
But it's certainly not an assumption that we make because.
That same inflation costs.
Clauses inconveniences for our clients and.
And if they were partners so the.
The ones that prosper, we prosper the ones that suffer we suffer with because we have long term relationships with.
So we.
We're trying wherever it sensible.
Two to get paid fairly for the services we provide.
And so.
So our clients are very much aware of the fact that.
That we all face similar problems and.
And do it well.
Our level best client by client.
To address ourselves.
And then just appropriately whether its scope of work whether it's better.
At a rate card.
The list goes on.
Great. Thanks, a lot.
And at this time, we have no one else in queue I will turn the call back over to management. Please go ahead.
I'd like to thank all of you for joining us today to discuss our very strong third quarter results.
We look forward to seeing many of you over the coming weeks and months.
In conferences and calls.
Thanks again.
Yeah.
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