Q4 2024 Omnicom Group Inc Earnings Call
Audra: Good afternoon. My name is Audra, and I will be your conference operator today.
Speaker Change: At this time, I would like to welcome everyone to the Omnicom fourth quarter and full year 2024 earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again.
Speaker Change: At this time, I'd like to turn the conference over to Gregory Lundberg, Investor Relations. Please go ahead.
Speaker Change: Thank you for joining our fourth quarter and full year earnings call.
Speaker Change: With me today are John Wren, Chairman and Chief Executive Officer, and Phil Angelastro, Executive Vice President and Chief Financial Officer.
Speaker Change: On our website, Omnicomgroup.com, you will find a press release and a presentation covering the information we'll review today. An archived webcast will be available when today's call concludes.
Speaker Change: 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.
Speaker Change: Certain of the statements made today may constitute forward-looking statements. These represent our present expectations and 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.
Speaker Change: During the course of today's call, we will also discuss certain non-GAP measures, and you can find the reconciliation of these to the nearest comparable GAP measures in the presentation materials.
Speaker Change: We will begin the call with an overview of our business from John, then Phil will review our financial results.
Speaker Change: After our prepared remarks, we'll open the line for your questions.
Speaker Change: I'll now hand the call over to John. Thank you for joining us today. I'm pleased to report our fourth quarter and full year 2024 results were very strong and we were well positioned as we entered 2025.
John Wren: After I finish commenting on the quarter and the year, I'll provide you an update on the proposed acquisition of Interpolo.
John Wren: Organic growth was 5.2% for the quarter. This growth was driven by very strong performance in our three largest disciplines.
Media and Advertising, Precision Marketing, and Public Relations.
John Wren: Our strong finish to the year resulted in an organic growth of 5.2% for the full year, which exceeded the high end of our guidance.
Adjusted EBITDA margin for the fourth quarter was 16.7%.
John Wren: For the full year, adjusted EBITDA margin was 15.5%, in line with our target. Non-GAAP adjusted diluted earnings per share for the quarter was $2.41, up 6.6% versus the fourth quarter of 2023.
John Wren: In 2024, our cash flow continued to be very strong. We generated almost $2 billion in free cash flow and returned over $900 million to shareholders through dividends and share repurchases.
John Wren: During the year we continue to expand and deepen our capabilities with the acquisition of Flywheel and the formation of two new strategic practice areas, Omnicom Production and Omnicom Advertising Group.
John Wren: Using our Omni operating platform, our teams across practice areas can connect these services, leveraging high-fidelity data sets and custom AI tools to plan, create, target, optimize, and attribute campaigns with a single workflow.
John Wren: We are the unrivaled leader in linking marketing to sales, allowing us to deliver measurable outcomes that drive substantial growth and ROI for our clients. Our success year after year also leads to our industry recognition.
John Wren: TBWA was recently named ED Week's 2024 Global Agency of the Year.
Speaker Change: Convergence announced that Omnicom Media Group had the highest billing growth rate among global media groups in 2024. Wins like Amazon, Unilever, and HP fueled over seven billion dollars in new business.
Speaker Change: Omnicom Media Group also ranked first in client retention rate through the year. Additionally, Omnicom's Media Group achieved the highest rating in Forrest's 2024 Media Management Services Wave, specifically emphasizing the group's transparent business practices.
Speaker Change: Finally, for the second year in a row, Omnicom was named Holding Company of the Year by MediaPost.
Speaker Change: I'm very pleased with our strategic progress and the financial results in 2024.
We enter 2025 in a very strong position.
Speaker Change: Given it's early in the year, we're exercising a level of caution on our outlook for 2025.
Speaker Change: As of now, we expect organic growth to be between 3.5 and 4.5 percent and adjusted EBIT A margins to be 10 basis points higher than what we achieved in 2024.
Speaker Change: I want to express my gratitude to our people around the globe for helping us finish the year on a high note. Your unwavering dedication to delivering exceptional work to our clients places Omnicommunist Agencies in an excellent position as we enter the new year.
Speaker Change: While we are incredibly excited about the combination of the two organizations, I want to emphasize that Omnicom and IPG continue to operate as independent businesses until the transaction is finalized.
Speaker Change: Omnicom Solid Foundation and organizational structure positions us to seamlessly integrate IPG into our group once the acquisition closes.
Speaker Change: Combined, our complementary cultures and businesses will create an unmatched suite of services and products for our clients, leading to significant revenue growth potential.
Speaker Change: After closing, we expect diluted earnings per share accretion driven by strong revenues, expanding margins, and a strong balance sheet.
Our combined free cash flow will also be substantial.
Speaker Change: and we expect to increase our historical capital allocations for dividends, share buybacks, as well as investments necessary to maintain our leading position in technology, data, and AI, including the integration of Axiom, Omni, and the Palladio platform.
Speaker Change: For decades, Axiom has established itself as the gold standard for managing clients' first-party data in some of the most highly regulated industries.
Speaker Change: Axiom's client contracts are multi-year ranging from four to six years.
Speaker Change: Its clients include 7 of the top 10 retail banks, 9 of the top 10 credit card issuers, and 3 of the top 5 pharmaceutical manufacturers and several automotive companies.
Speaker Change: When these leading first-party data management capabilities are integrated with Omni and Flywheel Commerce Cloud, we will provide the most accurate identity solution and comprehensive understanding of consumer behaviors and transactions on the buy side.
Speaker Change: This platform will drive the industry towards a higher standard of metrics, linking ad spend, sales, and value-based outcomes. Regarding synergies, we're confident in our ability to achieve the projected $750 million in run rate cost savings.
Speaker Change: Importantly, these cost synergies will not impact employees dedicated to servicing our clients and generating revenues. Instead, they will arise from streamlining the holding company, middle office, and regional positions.
Speaker Change: as well as from eliminating duplicative overhead, back office, and third-party expenses across our larger combined global footprint.
Speaker Change: The combined company will generate approximately 85% of its revenues from its top 10 markets.
Speaker Change: with the remainder primarily distributed across an additional 40 markets worldwide. After closing, we plan to continue to support IPG's advertising brands in the marketplace while aligning them with the current operating structure of Omnicom Advertising Group.
Speaker Change: More specifically, in our top 10 global markets, agency brands will continue to be fully present in order to drive growth.
Speaker Change: The remaining markets will function under a single OAG leader who will manage the agency brands at a local level and report to a regional OAG lead. Similarly, it is our intention that IPG's other advertising and marketing services businesses
will be aligned within our respective practice areas.
Speaker Change: This will enable us to combine and expand our talent, equipping them with dedicated technology and data tools in a single practice area to optimally deliver services and products to our clients.
Speaker Change: In assessing talent, we will adopt an approach focused on selecting the best individuals across the organizations, irrespective of their current affiliation.
Speaker Change: With unified practice area leadership teams at a global, regional, and country level, we will eliminate redundant roles, functions, and back-office operations, which we expect will generate cost savings exceeding $130 million.
Speaker Change: A larger portfolio of clients and businesses will enable us to combine our efforts and leverage a more centralized technology and data platform, significantly improving capital efficiency across a larger enterprise.
Additionally, more resources will be available for future investments.
Speaker Change: We expect this will result in initial savings of approximately $25 million in administrative costs.
Speaker Change: The largest cost savings will result from merging two publicly traded companies. We will combine and streamline senior leadership and operation teams across finance, accounting, IT, legal, real estate, and HR. Additionally, we will eliminate duplicative G&A costs.
Speaker Change: We expect to cut approximately 40% of the company's combined corporate expenses, resulting in compensation savings of around $200 million and G&A savings of about $110 million.
Speaker Change: Establishing a unified procurement organization to maximize benefits from third-party vendors in key areas such as IT software and infrastructure, as well as duplicative third-party research and data, is projected to save more than $150 million.
Speaker Change: Integrating our internal IT and shared service organizations will improve the way we deliver services to our employees and reinforce our infrastructure and platforms.
Speaker Change: We expect to realize synergies of approximately $70 million across these areas.
Speaker Change: Aligning our real estate portfolios following the closing will yield approximately $65 million in savings, which amounts to less than 10% of the combined total rent and occupancy costs.
Speaker Change: Not included in our synergy projections are the following three areas, revenue opportunities, near and offshoring, and automation.
Speaker Change: We believe revenue growth opportunities are substantial from the combination. We will expand client opportunities on day one by offering our combined client base a broader suite of products and services.
Speaker Change: For example, the capabilities of Flywheel, Axiom, and our Precision Marketing Group will be available to a much broader set of clients. Additionally, the combined company will drive greater product and service innovation, creating new revenue streams.
Speaker Change: Following the closing, we will continue leveraging our near and offshore global centers of excellence to improve service delivery and lower labor costs.
Speaker Change: In 2024, we established four state-of-the-art centers of excellence in India and expanded our nearshore operations in Latin America.
Speaker Change: We quickly scaled up teams for Flywheel after that acquisition, and we are now ready to capitalize on a significantly larger opportunity with Interpublic.
Speaker Change: Finally, Omnicom is making significant progress in utilizing automation by leveraging new processes, platforms, and AI. We have a dedicated central team spearheading our automation initiatives and expect to expand our efforts in this area following the closing of the acquisition.
Speaker Change: As a result, I'm quite comfortable with the $750 million in synergies targeted at the time of the announcement.
Speaker Change: We anticipate identifying even more savings once the companies are combined. Going forward, we plan to provide regular updates on our progress towards this target.
Speaker Change: Regarding our efforts to close the transaction, we are well into the shareholder approval and regulatory review process.
Speaker Change: Our proxy became effective last week and a shareholder vote to approve the transaction is set for March 18th.
Speaker Change: We also initiated the process for antitrust approval in the U.S. and we're pleased with the progress we're making.
Speaker Change: The planning for regulatory approval in 17 other jurisdictions is progressing well. While predicting the exact timing is challenging, we still anticipate the deal closing in the second half of 2025.
Speaker Change: In the coming months, we will provide further updates on our regulatory approvals.
Speaker Change: In the meantime, we're committed to maintaining our momentum. We're utilizing the time we have to plan for the integration and keeping it to a small, centralized team. This will eliminate distractions for our people and ensure client-facing teams stay focused on their day-to-day roles.
Phil Angelastro: Thank you for listening to our call and I'll now turn it over to Phil.
Phil Angelastro: Thanks, John. As you just heard, we had a strong quarter, and our financial performance positions us well for a solid 2025.
Phil Angelastro: Let's begin with a review of our performance in the fourth quarter, beginning with changes in our revenues on slide 4.
Phil Angelastro: Organic growth in the quarter was strong at 5.2%. The impact on revenue from foreign currency translation decreased reported revenue by 0.6%.
Phil Angelastro: If rates stay where they are currently, we estimate the impact of foreign currency translation will reduce revenue by 2 to 2.5 percent per Q1 2025.
and 2% for the full year 2025.
Thank you. Thank you.
Phil Angelastro: The net impact of acquisition and disposition revenue on reported revenue was positive 1.8%.
Phil Angelastro: At this time, we expect the impact of acquisition and disposition revenue will be flat for both Q1 and the full year 2025.
Phil Angelastro: For the full year 2024, organic revenue growth was 5.2 percent.
Phil Angelastro: slightly above our stated goal of achieving the higher end of our target of between four to five percent.
Speaker Change: As John mentioned, our expected organic revenue growth in 2025 is a range of 3.5 to 4.5 percent based on current market conditions.
Speaker Change: Let's turn to slide 5 and review the Q4 Organic Revenue Growth Trends by Discipline that are informing our Annual Outlook.
Speaker Change: During the quarter, media and advertising was up 7%, and primarily reflected growth across our media business, with growth in advertising in the low signal digits.
Speaker Change: Growth in this discipline was particularly strong in the United States, our largest market.
Speaker Change: Precision marketing growth of 9% was very strong and benefited from year-end project spend.
Speaker Change: Overall, this was led by double-digit growth in the U.S., partially offset by mixed performance in other geographies.
We expect solid growth in 2025.
Speaker Change: Public relations grew 10%, also led by double digit growth in the U.S. as a result of U.S. election spend.
which is partially offset by softer performance internationally.
This brought annual growth to approximately 4%.
Speaker Change: We estimate that the benefit from election spend was approximately $25 million in Q4 and $50 million for the year.
Speaker Change: Experiential growth of 5% was solid, coming off good results from the Summer Olympics earlier this year, especially in Q2 and Q3, as well as Q1.
Speaker Change: We do not expect to see 2024 growth levels in 2025, given it is not an Olympic year.
Speaker Change: Execution and support was up 2%, reflecting continued good results in field marketing, offset by declines in our merchandising business.
Speaker Change: Healthcare revenues are down 4%. We're close to lapping a significant client loss and recent wins should start contributing to improve performance during the second half of 2025.
Speaker Change: Branding and retail commerce declined by 12 percent resulting from reduced client spending in our branding agencies and lower performance in retail commerce, some of which reflects budget allocation where clients move spend to retail medium.
Speaker Change: Returning to organic revenue growth by geography on slide 6, our largest market, the U.S., had organic growth of 10%, finishing off the year on a strong note. Although several markets in Europe, the Middle East, and Asia Pacific delivered strong growth, they were offset by negative performance in other markets within these regions.
Speaker Change: Our businesses in Latin America deliver strong growth driven by media and advertising.
Speaker Change: Slide 7 is our revenue by industry sector for the quarter and year to date.
Overall our portfolio remains stable as well as diversified.
Speaker Change: The only notable shift is a two-point increase in consumer products for both the quarter and the year driven by the flywheel acquisition.
Speaker Change: Now let's turn to slide 8 for a look at our expenses.
Speaker Change: In the quarter, salary-related service costs were flat, with growth from our acquisition of Flywheel offset by repositioning actions in the second quarter, and our ongoing efforts to nearshore, offshore, and increase productivity.
Speaker Change: 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.
Speaker Change: Third-party incidental costs, which are out-of-pocket costs billed back to clients at our cost, were up slightly.
Speaker Change: Occupancy and other costs, which include office rent, other occupancy, technology, and general office expenses, increase primarily due to the flywheel acquisition.
SG&A expenses decreased due to general cost management.
Speaker Change: Included in the fourth quarters of both years are approximately $14.5 million of acquisition-related costs for Flywheel in 2023 and the IPG transaction in 2024. Please turn to slide 9 and look at our income statement in more detail.
Thank you.
Speaker Change: Operating expenses in the fourth quarters of both 2024 and 2023 reflect these acquisition costs related to IPG and Flywheel respectively.
Speaker Change: Removing them from both ears, 4th quarter non-gap adjusted EBITDA grew 6.6%, and EBITDA margin was flat year-over-year at 16.7%.
Speaker Change: So the full year 2024, our adjusted EBITDA margin was 15.5%.
Speaker Change: compared to 15.6% in 2023, in line with our guidance for 2024 by balancing ongoing cost savings initiatives with continued investments in technology platforms and tools for future growth, as well as costs related to the integration of Flywheel.
Speaker Change: For the full year 2025, on a standalone Omnicom basis, we expect adjusted EBITDA margins to improve by 10 basis points as we continue to balance cost savings initiatives with strategic investment opportunities that we believe will continue to drive strong future revenue and EBITDA growth.
Speaker Change: Moving down the income statement, net interest expense in the fourth quarter of 2024 increased by $11.3 million to $38.1 million.
Speaker Change: The change was driven by a $12.4 million increase in interest expense.
Speaker Change: Due to higher outstanding debt, primarily from the 600 million of Euro bonds we issued in Q1 2024, in connection with the Flywheel acquisition.
Speaker Change: offset by a $1.1 million increase in interest income due to higher average cash balances.
Speaker Change: Our income tax rate of 26.4% in Q4-24 was flat with the prior year. For the full year 2025, we expect the rate to be between 26.5% and 27%.
Speaker Change: Net income growth of 5.2%, coupled with fewer diluted shares outstanding from our share purchase activity.
Speaker Change: drove a 6.1% lift in diluted earnings per share. On an adjusted basis, excluding after-tax amortization, Q4 2024 diluted earnings per share was up 6.6% to $2.41.
Speaker Change: Note that the negative impact of foreign exchange translation resulted in a reduction of two cents per share, also on an adjusted basis.
Speaker Change: Q4 and 5 cents per share for the full year. Now please turn to slide 10 for a look at free cash flow.
Speaker Change: For the year, our free cash flow grew 4.2%, driven primarily by improved operating income and net income.
A free cash flow definition, like other peers.
excludes changes in working capital.
Speaker Change: Full year 2024, our working capital improved once again by 50% to a use of $231 million, as you can see on slide 18.
Speaker Change: We expect our strong performance will continue and bring us back over time toward our historically neutral annual level.
Speaker Change: Regarding our primary uses of free cash flow for full year 2024, we used $553 million of cash to pay for dividends to common shareholders.
and another $85 million for dividends to non-controlling interest shareholders.
Both roughly the same level as 2023.
Our capital expenditure is $141 million.
Speaker Change: Levels were higher in 2024, reflecting ongoing investments in Flywheel, our strategic technology platform initiatives, and investments in our facilities.
Speaker Change: Total acquisition payments, which include earn-out payments, and the acquisition of additional non-controlling interests were $998 million, which primarily reflects the acquisition, at the beginning of the year, of Flywheel for $845 million, that of cash acquired, and the late September acquisition of LeapPoint.
Speaker Change: Finally, our share of purchase activity was $371 million, excluding proceeds from stock plans of $102 million.
Speaker Change: which is in line with our expectation that our purchases would be lower than our recent historical average of approximately $600 million due to the flywheel acquisition.
Speaker Change: For full year 2025, we expect to return to the $600 million repurchase level.
Speaker Change: Slide 11 is a summary of our credit, liquidity, and debt maturities. At the end of 2024, the book value of our outstanding debt was $6 billion.
Speaker Change: Up from the end of 2023, changes during the year included the issuance of 600,000,003.7% euro notes related to the flywheel acquisition.
Speaker Change: as well as the issuance of 600,005.3% U.S. dollar notes, which was used for most of the repayment of our 750,003.65% U.S. dollar notes in November.
Speaker Change: Looking forward, we have no maturities in 2025 and expect to address our April 2026 maturities after the expected closing the IPG acquisition in the second half of 2025.
Speaker Change: We estimate net interest expense to increase in Q1 of 2025 by approximately 7 million dollars, reflecting the full quarter impact of the Euro notes we issued in February of 2024, and an expected increase in pension-related interest expense.
Speaker Change: We also estimate that net interest expense will increase by 15 to 20 million dollars for the full year, primarily related to lower estimates of interest income beyond Q1.
Speaker Change: Cash equivalents and short-term investments at September 30th, $4.3 billion, in line with levels at the end of 2023.
Speaker Change: continue to maintain an undrawn $2.5 billion revolving credit facility which backstops our $2 billion U.S. commercial paper program.
Speaker Change: We will assess our revolving capacity in connection with the closing of the proposed IPG acquisition.
Speaker Change: Slide 12 presents our historical returns on two important performance metrics for the 12 months ended December 31st, 2024. Omnicom's return on invested capital is 25%. Return on equity is 38%.
Speaker Change: both of which consistently reflect our strong performance and strong balance sheet.
Speaker Change: Slide 13 is a summary of the potential IPG acquisition, which highlights what we believe are the very compelling merits of the transaction.
John Wren: As John discussed, we believe the combination will drive exceptional future growth opportunities.
In closing, 2024 was a very solid year for Omnicom.
John Wren: We deliver organic revenue growth of 5.2 percent, adjusted EBITDA growth of 6.1 percent.
and adjust the DPS growth to 5.5%.
John Wren: We made important investments in our platforms, while maintaining our strong adjusted EBITDA margin level.
John Wren: Our free cash flow grew by over 4%, and we significantly reduced our use of operating capital.
John Wren: We executed two key financings, closed on strategic acquisitions, and announced the transformative acquisition of IPG.
John Wren: I will now ask the operator to please open up the lines for questions and answers.
Thank you.
Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: And we'll take our first question from Adam Berlin at UBS.
Adam Berlin: Hi, good evening. Thanks for taking two questions, if I could. The first question is.
Speaker Change: 2024 organic growth ended up above the top end of your guidance range.
Speaker Change: Can you talk a little bit about what happened in Q4 that meant things ended up better than you expected? Was it just more ad spend, a couple of clients investing more, or was it around precision marketing? What beat your expectations in Q4?
Speaker Change: and the second question is I'm a little bit surprised that you've guided for a slowdown in organic growth in 2025 given the strong account wins you've had.
Speaker Change: both during 2024 and a couple of things announced at the beginning of 2025. Can you just explain your thinking about why you think growth is going to slow down or are you just being a bit conservative because it's the beginning of the year? Thanks.
Thank you.
Speaker Change: Do you want to take the first one? Yeah, I'll take the first one.
Adam
John Wren: Yeah, I think we certainly expected to finish at the top end of the range. 5-2 versus 5 isn't really that significant of a difference in the scheme of things, but certainly the media business and precision marketing performed quite well in the fourth quarter.
Speaker Change: as well as the PR practice group as it related to the U.S. election. Some of that spanned in the fourth quarter. Those are probably the key drivers of...
Speaker Change: You know people or businesses coming in a little bit higher than we expected
Speaker Change: from Positive Perspective in the fourth quarter. So I think those are the key drivers. All right. Adam, with respect to the guidance,
Speaker Change: In my prepared remarks, when I talk about it, I indicate that we're cautious. Twenty-five is going to prove to be a very interesting year, but with all the
The changes in the U.S. government, just a mere change.
Speaker Change: plus some of the policies that they're considering and the implications they possibly have on things like the auto sector and other sectors. We're not...
Speaker Change: pessimistic, we still remain optimistic, but I think we're going to be conservative at this point in the year until we get a little bit further along and a bit more guidance from our clients.
© transcript Emily Beynon
Thanks, very clear.
We'll move next to David Karnowski at J.P. Morgan.
David Karnowski: Thank you. John, just following up on the merger, can you discuss a bit what's been the reaction so far from clients? What are the points of
Speaker Change: Excitement versus reservation and how are you addressing any possible concerns and then fulfill
Speaker Change: On the margins, the guy through most of 24 was for more or less flat. So your result was in that target, but wanted to see if you could review
Speaker Change: What factors push that on balance to the slightly negative side, you know, including Flywheel, new business, or investments? And then, as we look to 25, can you just walk through the puts and takes of that margin moving up 10 basic points in the guide? Thanks.
Sure, um
Speaker Change: In terms of clients, every client that I've been in contact with and most of my principals who lead other businesses have been very constructive and see the possibilities coming out of the combination of both omni-combinative and public. I haven't heard any concerns that we weren't able to address.
Speaker Change: As I said in my statement, we still do have to operate as two independent companies, so we're still operating as two independent companies until we get through the regulatory period. But we're able to plan and start to identify.
Speaker Change: products and services that one of us have that we can offer to a larger bench.
Speaker Change: on behalf of the other, and vice versa. We've also spent time, we'll spend a little bit more time later this month,
with consultants involved in advising clients in terms of
Speaker Change: reviewing their business, be it positively, constructively, or putting the business in pitch, and we've gotten a very favorable feedback from from those folks, and we will continue to communicate
Speaker Change: to everyone on a regular basis as we go through this process. We do feel that...
Speaker Change: We've made very good progress, especially since we announced right before the holidays and we had to work through the holidays to get some of the regulatory filings done in the U.S. and some things done. So
Clients are
Speaker Change: We haven't heard any concerns, and we don't anticipate concerns because of what's in each of our portfolios.
Speaker Change: to date, and we want to keep the consultants informed because oftentimes they're the first people that clients reach out to if they're considering making a change. So they have a pretty clear understanding of what to look forward to.
Speaker Change: So, we're bullish and we remain bullish on the transaction and some of the heavy lifting from a regulatory point of view is really behind us in the last 10 days or less. So we'll do more planning going forward.
Speaker Change: Regarding margins, David, you know, we probably about a year ago we said
We expected margins to be close to flat.
Speaker Change: In our updates throughout the year, we indicated we were going through a process of integrating flywheel
Speaker Change: margins were down probably 10 basis points or so in the first quarter last year.
You know, I think we're always trying to find...
The right balance of
investing to support long-term sustainable growth.
Speaker Change: and, you know, at the same time, maximizing our EBIT growth and the margin falls out. Certainly, we got the flat margin in Q4, as we anticipated and expected, and I think as we look out at 2025, certainly our goal is to show some margin improvement while at the same time balancing those investments.
Speaker Change: that we talk about in the prepared remarks and I've talked about on all of our calls.
You know, the marketplace continues to change pretty rapidly.
Speaker Change: and we continue to invest in the businesses that we think are going to drive our growth.
Speaker Change: in a sustainable way into the future. And we do try to manage that balance, you know, all throughout.
our planning processes and our execution processes.
We expect to continue with our efficiency efforts.
Speaker Change: automation offshore etc to drive the cost structure down as best we can and be as efficient as we can so that we can continue to invest and provide that base for sustainable long-term growth.
Thank you. Thank you.
Speaker Change: You know, we're going to continue to drive the business forward.
Thank you.
Thank you. Thank you.
Next we'll go to Tim Nolan at Macquarie.
Tim Nolan: Thanks. A couple of integration questions, if I could. You've referenced Flywheel a couple times already. Just wanted to check on where the status of the integration is now, basically a little more than a year in.
Tim Nolan: and likewise on IPG. My question is, you've done quite a bit of work to consolidate, I don't know if that's the right word to use, but to concentrate your activities with Omnicom Advertising Group and the production platform and so forth. I'm just wondering how IPG fits into that sort of pre-existing concentrated Omnicom.
Tim Nolan: Sure, let me do the last part of that question first.
Tim Nolan: What I said in my prepared remarks is really the reality between the two groups.
Tim Nolan: If you look at 85% of our revenue, both Omnicoms and IPGs are generated in the top 10 markets.
when
Putting aside the integration for a second.
Tim Nolan: At Omnicom last year, what we did was we kept the brands alive in those top markets.
Tim Nolan: and we took a hard look at the other 35 to 40 markets we operate in and said what's the best way to efficiently run these offices both to the satisfaction of the clients
Tim Nolan: The people themselves working in those offices and create as many career opportunities as possible.
Tim Nolan: and inefficiencies and set realistic expectations based upon the market as to what the growth in those markets should be.
And we are planning to follow a similar process here.
Tim Nolan: with when and if we're successful in completing the transaction with Intrepublic. The major markets where...
where everybody's constantly focused and should be
will be left and supported.
Tim Nolan: effectively in the way that they are. When we get to those other 40 markets, we're going to take a look and say what is the best way to organize that individual market.
Tim Nolan: For Omnicom so far, it's been to set up OAG. We think, although we haven't done the work yet,
Tim Nolan: We think that when we sit down and speak to the people at INTPublic, which will be permitted as we get further and further through this regulatory period, we're going to find the same result when we do that planning. So...
in my comments.
Tim Nolan: I was pointing to our intention at this point, based upon the knowledge that we have.
Tim Nolan: And as long as that knowledge works out, we'll follow the same pattern. If we find something that will have to be treated differently because it contributes to our ongoing growth, we will treat that differently.
Tim Nolan: So, I don't know if that helps out, Tim, or if that answers your question or not. Yes. No, that's very helpful. Thanks, John.
and on flywheel.
and Flywheels Integrate.
Tim Nolan: Flywheels team is very much a part of the central team. We pitch businesses. My prepared remarks, I probably took out a paragraph because I thought I was carrying on a little long about the mutual wins that we had during the year and there were numerous.
Great. Thanks very much, John.
We'll move next to Cameron McVeigh at Morgan Stanley.
Cameron McVeigh: Thanks. I was hoping you could talk a little bit about the campaign management tools coming out of the big tech platforms, notably
Cameron McVeigh: Performance Max or Advantage Plus from Google and Meta. Curious if they're impacting client share or growth rates at all or maybe these platforms are targeting SMBs and the end of the market which aren't historically clients. Any color on how you're thinking about that would be helpful. Thank you.
Cameron McVeigh: I think most of the impact, if there is any impact going on at present, it's really with the SMBs and not our normal client base. Having said that, we have a very robust...
program going on with
several thousand of our creative and strategists.
Cameron McVeigh: who are testing all large language models because a different large language model may be more applicable for a certain task or a certain outcome depending upon what the person's asked to do. So we have a very active
program going on where we're seeing
the best way they see fit.
Cameron McVeigh: in the most appropriate way that they see fit, and one that...
is compliant.
In our understanding of the regulations, both privacy plus
Cameron McVeigh: copyright and all sorts of other concerns which are if you're not a small business unit you don't have to place as much concern about as you would if you were a large
multinational corporation, which tends to be what our clients are.
Cameron McVeigh: So, but we're very active with it and it's being actively used and tested every day. Prior to this call, I had Jeff Goodby in my office, who has 40 people in his agency in San Francisco working on it.
and he was asking if he could...
Cameron McVeigh: expand the number of people who have access to the system, and that was literally less than 45 minutes ago, which we gave him permission to do.
Cameron McVeigh: So this is growing every day, and there's a new tool or capability that's appearing every day.
Cameron McVeigh: You saw it in this past week or so with the Chinese introduction of their large language model. So we're in a very, very early stage of development, but a very impactful stage of development.
as we move into the future.
Speaker Change: Thanks John, that's helpful. And then just secondly, I did notice a number of partnership announcements out of CES. Curious if you could dive a little further into those, particularly with Google, Amazon, TikTok, maybe what that means for Omni's capabilities going forward.
Thank you.
Speaker Change: You know, I prepared for everything and I was there at CES, I know that, I read them all ahead of time.
I didn't focus on anything for this call.
Cameron McVeigh: We can certainly pick it up, Cam, when we talk post-call, if you'd like.
Thank you.
Cameron McVeigh: You know, that's a constant problem. One thing I will add, it's a wonderful relationship with all those.
major players and we're constantly
Cameron McVeigh: working with them and getting access to what we feel are the best, most appropriate tools, but
Phil and company will give you the more specifics.
Speaker Change: Yeah, I mean the primary focus of some incremental benefits is access to some of the data that is very unique to their platforms that we'll be able to
Speaker Change: access and use for the benefit of our clients. So you know our media people and our media teams are certainly very excited about it and it is it is kind of a unique thing across each of those platforms in terms of the partnerships that are recently announced.
Got it. Thank you. Sure.
Next we'll move to Jason Bazanet at Citigroup.
Jason Bazanet: I just had a question on share buybacks. I think you guys talked about potentially not buying back a lot of stock in the fourth quarter.
Jason Bazanet: But I think that was that was sort of before the transaction closed and maybe the transaction was announced on December 9th Maybe you're in a blackout period or something. But do you mind just talking a bit about
Jason Bazanet: your sort of posture as it relates to buying back stock given that your shares are down a fair amount since the IPG announcement was made. Sure.
Sure, we certainly...
intend and I've indicated in our prepared remarks that
Jason Bazanet: That we will be back in the market in terms of buying back shares in 2025
We did reduce the annual buyback amount.
Jason Bazanet: primarily because in January, right at the start of the year, we did the flywheel acquisition.
We did a financing associated with that.
Jason Bazanet: and we indicated on the February call that we were going to reduce the amount that we bought back in calendar 24 in terms of the use of our free cash flow.
Jason Bazanet: at that time, and in fact, we said we'd probably buy back about half of the annual amount. We ended up buying back a little bit more than that before the end of 2024.
Jason Bazanet: We certainly expect to get back to the 600 million dollar level in 2025 and we are going to have to navigate one or two blackout periods associated with the transaction but certainly
Jason Bazanet: We have a strategy in place to be able to buy back shares at least at that $600 million level and expect to do so.
Jason Bazanet: during the calendar year 2025. So I think you should expect a more normalized approach in 2025. It may be a little bit different in terms of the timing because of the
Jason Bazanet: The transaction and the regulatory process, but but certainly that's our our expectation
Speaker Change: The only thing I'd add is rest assured that I think I'm the largest single shareholder, so I'm as interested in these things, maybe a little bit more than the average listener. So we totally agree with you, we haven't changed our approach.
Okay thank you very much. Sure.
And we'll go next to Craig Huber at Huber Research.
Craig Huber: Yes, hi, good afternoon. John, can you talk a little bit further about revenue synergies with the IPG transaction once it closes here? I mean, I've known you guys for a number of years.
Craig Huber: It seems like you wouldn't have done this just for the $750 million of cost savings which you seem pretty constructive on that front, but talk a little bit more about the revenue synergies other than just Axiom Flywheel, where else do you think you guys can drive some revenue synergies? And is there an idea in your head about where you're thinking?
Craig Huber: What it can maybe add up to, maybe add a couple hundred basis points to growth in the first year, first or second year. Thank you.
I am confident that
Speaker Change: that there is quite a bit of revenue upside. I have to start with media. We have a very elaborate and very mature
Oh well.
Speaker Change: principal media business to start off with. If you just reference prior
conference calls that Philippe has been on, he's indicated that
Speaker Change: They were trailing behind the competition in the implementation of that and that they were in the process of
perfecting their program.
Speaker Change: Us coming together will make that available to their suite of clients in addition to our growing suite of clients.
That's number one. Number two...
They're really a...
are two companies that stand out as having
Unique credibility is first party.
and John Dutton. Thank you. Thank you.
companies. One is Epsilon, the other is Axiom.
Speaker Change: I think that my competitors have done a very good job of creating some
Speaker Change: some products based upon the information and the data that Epsilon generates and creates. We've had conversations to the extent that
Speaker Change: Our lawyers will permit it with the Axiom Group, and we see a whole suite of incremental products that will be brought into.
Speaker Change: the joint company, and made available for the first time to Omnicom's clients.
Speaker Change: And so we see very reasonable revenue growth associated with that.
On the back of that...
Speaker Change: what's going on, and it'll go on during the regulatory period through 25 and
Speaker Change: have more and more of an impact every month as we go forward. These investments we're making in AI and some of the large language models that are occurring will...
make us more efficient.
Speaker Change: will make the product and the efforts that we're engaged with on behalf of clients more efficient and
Speaker Change: and as we get more efficient we're getting more measurable and any media any dollar spent
Speaker Change: that is more measurable and does get a definable ROI for a client. I've never seen a client where we've been able to present those facts.
Thank you.
Speaker Change: not double down and spend growing their business because that's what their aim is.
Speaker Change: So there's two things going on. This will allow us to be...
Gregory Lundberg
Speaker Change: otherwise we didn't have in our portfolio and utilize them in a unique way.
Speaker Change: Number one. And number two, it'll allow us to advance and spend more resources.
generated from our pre-cash flow of the combined businesses
Speaker Change: on this technology, its development, and how we're going to deploy it to the benefit of our people and also for our clients.
Great. Thank you, John.
Speaker Change: We'll take our final question from Stephen K. Hall at Wells Fargo.
Speaker Change: Thank you. John, maybe first just, you know, follow up on these same themes. You've talked a lot about the revenue acceleration on the combination with IPG, and you said you're able to now do some planning together. When are you able to start to go into pitches together? I think one of the best ways to prove to the market that this merger is
Speaker Change: offensive and not defensive is showing that revenue acceleration. So I'm wondering at what point you will be able to put that combined capability in front of clients and start to convert that into business.
Speaker Change: And then Phil, we've always looked at IPG on a net organic revenue growth basis. And you talked about some of the drivers and third-party costs in the quarter. Is there any way to think about Omnicom from a net organic revenue basis at the moment so we can put those kind of apples to apples? Thank you.
Yeah, hey Steve if you could see me
Speaker Change: You'd see that I have a lawyer on my right shoulder and he hasn't left me since December the 9th
Speaker Change: What he points out to me is the rules of engagement, especially during the regulatory period. And there are pretty...
Speaker Change: They're not pretty. There are defined rules as to how the companies have to operate until we get the approvals that we need to combine.
Speaker Change: As a result, we cannot go and pitch some of these...
Opportunities together, which would be the natural thing to do
I have examples of a couple of clients that
We actually share.
Speaker Change: The only time that you'll find an omnicommon interpublic person in the same room is if the client insists on the meeting Because we're not permitted to get there yet
Speaker Change: But that's the negative side of it. The positive side of it is we're able to test and identify these products and identify the clients.
Speaker Change: be that us identifying through our client portfolio or them identifying through theirs, the clients that would be open to and would be excited about.
Speaker Change: understanding these products and how they would positively impact their businesses.
So it is a bit of a temporary
and John Wren. Thank you. Thank you.
Thank you.
Speaker Change: pause because we're required to but we're not wasting that time, we're utilizing that time to plan.
I'll leave the second question to Phil. Yeah, regarding...
Phil Angelastro: The concept of net versus revenue, as we're required to report, I think the bottom line is no different for us.
Speaker Change: You know, those costs, the third-party service costs, are an integral part of the business. We manage them as such, and, you know, we don't exclude them from how we manage and measure our performance.
So I wouldn't expect that to change, and certainly
You know, if people want to make their own estimates.
Speaker Change: You know, they can feel free to do so, but, you know, we're going to be consistent with our reporting, and we're going to include the costs that are part of the business, and we're going to manage them because they're costs that are part of the business.
Speaker Change: So I don't think the expectation is that we're going to change our approach in the near future.
Thank you.
Sure.
Speaker Change: And that concludes the question and answer session. Thank you for your participation in today's conference call. You may now disconnect.
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