Q2 2019 Earnings Call
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Lease hold a specialist will be with you momentarily.
Morning. This is K what conference would you like to <unk>.
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The Omnicon earnings call.
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Evan what is your last name.
Just just a minute please.
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Oh, 2.6%.
Healthcare continues to be one of our best performing practice areas with growth of 8.4%.
Omnicom Health group has the top agencies in the world, serving the healthcare and pharmaceutical industries and the group is very well positioned for continued growth.
And PR was down 1.3% in the quarter.
Turning now to our performance by geography in the U.S. It was up 3.2% in the quarter.
Driven by strong results in advertising and media healthcare and our precision marketing group.
Offset by declines in our events business and in CRM execution and support.
Beyond the U.S., the North American region, primarily consisting of Canada was up 11.8% in the quarter.
The UK was up 5.7%.
Our agencies in the UK had solid results across advertising and media healthcare precision marketing NPR offset by declines in our CRM executions port business.
Overall growth in the Euro and non Euro region was 1.5%.
In the Euro markets, Italy, the Netherlands, and Spain performed well.
France had negative growth as it continued to be impacted by the loss of a specialty print production client.
This impact will not cycle out until the first quarter of 2020.
Our events businesses in France also had a negative performance due to difficult comps versus 2018.
In the non euro markets, the Czech Republic, Russia in Switzerland had better than average gross.
Asia Pacific organic growth was 1.9%.
Led by New Zealand and Japan.
China had negative growth Latin America was down 2.4%, primarily due to the continuing challenges we face in Brazil.
While we took several actions in the first half of 2019 to rationalize our operations in Brazil. We expect 2019, we will continue to be a difficult year.
Our smallest region, the middle Eastern Africa was down 8.3%.
Lastly, as Phil will discuss in more detail during his remarks in early July and we issued 1 billion euro in both eight and 12 year bonds at very attractive interest rates of 1.2%.
Overall, we're very pleased with our performance this quarter.
Omnicom success is grounded in our steady focus on our growth strategies, we continue to hire and develop the best talent in the industry with a fundamental commitment to creativity and diversity.
Remain focused on relentlessly pursuing organic growth by expanding our service offerings to our existing clients and winning new business.
Continue to invest in high growth areas and opportunities.
Through internal initiatives and acquisitions.
And we remain vigilant on driving efficiencies throughout our organization.
Increasing EBIT and shareholder value.
Let me now discuss what we're seeing in the marketplace and how our strategies in able us to sustain our financial performance.
Having recently returned from the Cannes Lions Festival of creativity.
A key takeaway was the return to celebrating creativity as the most sought after for us in our industry.
Before I speak about our creative IP I'd like to spend a few minutes on tools, we've built to support our creators.
In 2009, we launch Annalect, our core data analytics and insights group with the responsibility for consolidating and developing our data and tech stacks.
Annalect was established to deliver more effective in targeted media for our clients.
It has been instrumental in enhancing the services and capabilities of our media business over the years.
Last year, we took another step forward when Annalect launched our people based precision marketing and insights platform called omni.
Mhm provides data and analytics cultural insights content inspiration and tech tools to inform powerful.
In connected brand strategies orchestrated across every touch point.
Whether it's marketing sales or service.
And through all media.
These tools are developed to empower our people to derive better outcomes and results for their clients.
And they are available across our media creative and CRM agencies.
Importantly.
Our data and analytics strategy is focused on three areas.
First is ensuring that the platforms remain open we prefer to rent the right data and technology that can improve our agility in client integration at any point in time.
Rather than invest in legacy data assets and platforms that can easily become obsolete.
Second we are making selective focused investments to develop and integrate differentiated tools in one place in support of the services our agencies offer.
And last we have prioritized these capabilities in our key markets.
While we have been and remain keenly focused on the importance of data analytics and technology.
We also realize they can only take us so far.
Our investment in data and analytics have been made with the understanding that they are tools in service of creativity and content.
As I've said before our true source of differentiation, our IP is our ability to bring deep consumer insights to our clients in lockstep with brilliant creative ideas driving business results.
We are delivering on this promise by continuing to invest in our agency brands.
Omnicom was founded by creators creativity, which is in our DNA is bred through a deep culture that must be nurtured overtime.
In our case since our formation.
It is not something that can be acquired or sold.
We have also encouraged our agencies to maintain their unique positions and go to market strategies.
This differentiation attracts top talent and needs to break through ideas and results for our clients.
Our creativity supported by data and insights was a key reason for omnicom success at the annual Cannes Lions Festival.
For the second consecutive year, we were named holding company of the year with approximately 123 of our agencies across 35 countries winning over 200 lines.
Speaking to the strength of our individual brands all three of our creative networks, DDB Bbbs and GBW AG.
Placed in the top five of network of the year category.
In addition.
We are extremely pleased to have Jeff good be enriched silverstein founders of good be Silverstein and partners.
Received this year's line of St Mark Award.
As the chairman of Cannes Lions said.
This award was given to Jeff enrich because of their profoundly influence not only in creating groundbreaking work.
But also an inspiring others to create great work too.
It was a proud moment to see their legacy recognized.
One of GBW as longest standing clients Apple.
Was also honored this year it can as the 2019 creative marketer of the year.
This award recognizes an organization that demonstrates sustained creative excellence and distinguishes itself by embracing collaboration between partners and agencies to produce truly outstanding creative campaigns can lines is just one example of how our agencies excelled this quarter.
Let me just mention a few other recent highlights of how our agencies were recognized around the globe.
At the 2019, one show awards Omnicom was named creative holding company of the year and DVB was named network or the year.
Fleishman Hilton was named large agency of the year at the 2019 Saber Awards.
At this year's DNA D pencil of the year DDB was ranked number one network of the year with BBD out coming in at number two.
At the 2019 80 see awards TB W. I was named network of the year.
And for AD Age's Agency a list both good be Silverstein and partners and TBD away were honored in the top five.
These awards reflect outstanding creativity and talent.
People drive our business success, whether they are pitching new business, helping our clients to create powerful brands.
Designing interactive web experiences or planning multi platform media campaigns.
We support them with a diverse inclusive environment that nurtures their creative energy.
This means diversity and backgrounds race gender age and experience.
Omnicom's commitment to diversity and inclusion starts at the top with our board of directors I'm proud to report that Omnicom was recently recognized.
By Fortune magazine as only one of six fortune 500 companies.
That have more women than men on its board of directors.
At a broader level omnicom was part of history last month as a platinum sponsor.
Of the first ever World Pride celebration in New York City, which also mark the Fiftyth anniversary of the Stonewall uprising.
Working closely with New York City Pride several omnicom agencies joined forces to provide branding and PR work for this year celebration.
Including Interbrand rap signaling Gale TV WSA World Health, Harrison Star pleasure and Hilliard.
Catch import in the valley and Rx mosaic was an incredible team effort with planning and execution, taking place over the course of two years.
We're proud to celebrate our LGBTQ employees.
And show support for the greater community the best way, we know how through our work.
In summary, we have made significant strides in changing our services capability and organization to better serve our clients.
While always staying true to our commitment to creativity.
We're pleased with our financial performance in the second quarter.
Which continued to reflect the benefits of our strategies.
As we move into the second half of the year, we are well positioned to deliver on our internal targets for the full year 2019.
I will now turn the call over to Phil for a closer look at the second quarter results Phil.
Thank you John and good morning.
As John said results for the second quarter of 2019 or in line with our expectations.
Our operating results continue to be driven by outstanding client service provided by our agencies and net new business wins.
Along with the positive impact that our efficiency initiatives have had on our cost structure and the benefits from the change in mix, resulting from our repositioning actions.
For the second quarter organic revenue growth totaled 2.8% or $108 million. The continued strength of the U.S. dollar over the past 12 months created an FX headwind.
Reducing our reported revenue by $100 million or 2.6%.
The reduction in revenue from dispositions made during the last 12 months.
Primarily in our CRM execution and support discipline.
Exceeded revenue from acquisitions in the quarter.
As a result, our second quarter revenue was reduced by $148 million.
Were about 3.8%.
In total.
Our reported revenue decreased 3.6% the 3.7 billion in the quarter.
We will discuss the drivers are the changes in revenue in more detail in a few minutes.
Turning to the income statement items below revenue.
Our Q2 operating profit or EBIT.
Was $574 million for the resulting operating margin of 15.4%.
Which was up 30 basis points when compared to the second quarter of 2018.
And our EBITDA for the quarter was $595 million.
Resulting in an EBITDA margin of 16%.
Up 20 basis points compared to last year's Q2.
We continue to see benefits from the change in business mix, resulting from the disposition of several non strategic or underperforming agencies over the past year.
We also continue to seek out opportunities.
To increase operational efficiency throughout our organization.
Focused on our real estate.
Back office services procurement.
And I T support services.
These actions continue to positively impact our operating performance.
Net interest expense for the quarter was $50.2 million.
Down $2.3 million compared to the second quarter of 2018.
And up 4.2 million versus Q1 of this year.
Interest expense on our debt increased 2.2 million in the second quarter of 19.
Versus Q2 of 18.
This was driven by higher rates on our fixed to floating interest rate swaps.
Which was partially offset by a decrease in interest expense due to a reduction in commercial paper activity compared to the prior year.
As you May recall this past February we issued 520 million euros of zero percent short term senior notes in a private placement to an investor outside the United States.
Those notes will mature in August of 2019.
As a result, we've been able to reduce our other short term borrowing needs, including our commercial paper issuances.
Which lowered our interest expense year over year.
The reduction in commercial paper activity relative to 2018.
Is expected to continue through the majority of the notes next month.
Interest income increased $2.5 million versus Q2 of 18 as a result of an increase in our cash balances available for investment at our Treasury centers.
When compared to Q1 of 2019.
Interest expense increased $3.6 million.
Primarily due to commercial paper borrowings during Q2.
Compared to no CP borrowings during Q1 up 19.
Additionally, interest income from our Treasury center activities decreased versus Q1.
As you are aware in early July we took steps to refinance some of our debt.
I will provide more details related to this later on in the presentation.
Regarding income taxes, our reported effective tax rate for the second quarter was 24.9%.
Lower than our projected effective tax rate for the full year 2019.
The reduction during the quarter was primarily related to the net favorable settlement.
Of uncertain tax positions in various jurisdictions.
Which resulted in the recognition of net deferred tax assets in the second quarter of 2019 of approximately $11 million.
We expect our effective tax rate for the third and fourth quarters to be in line with our previously estimated tax rate of 27%.
Earnings from our affiliates was 1.2 million in the second quarter of 19 relatively flat compared to Q2 of 2018.
Yeah allocation of earnings to the minority shareholders in our less than fully owned subsidiaries decreased to 23.4 million.
Primarily due to our disposition activity.
As well as the impact of FX.
As a result net income for the second quarter was 370.7 million.
Up 1.8%.
For 6.5 million.
When compared to the 364.2 million in Q2 of 2018.
Now turning to slide two.
Our diluted share count for the quarter decreased 3.2% versus Q2 of last year to 220.9 million shares.
As a result, our diluted EPS for the second quarter was $1.68.
Which is an increase of eight cents or 5%.
When compared to our reported Q2 EPS for last year.
On slides three and four we provide the summary, TNL EPS and other information year to date.
I'll give you just a few highlights.
Organic revenue growth was 2.7% during the first six months of the year.
FX translation decrease revenue by 3%.
And the net impact of acquisitions and dispositions.
Reduced revenue by 3.7%.
So for the year to date period revenue totaled 7.2 billion.
A decrease of 4% compared to the first six months of 2018.
EBIT totaled just over $1 billion and our year to date operating margin of 13.9%.
It was up 50 basis points when compared to the first six months of 2018.
And our six month alluded EPS was $2.85 per share.
Which was up 12 cents or 4.4%.
Versus the first six months of 2018.
Turning to the components of our revenue change in the second quarter, which is detailed on page five.
On a year over year basis strengthening of the dollar continues to create a significant FX headwind in our reported revenue.
The impact of changes in currency rates decreased reported revenue by $100 million or 2.6% for the quarter.
And as has been the case since the third quarter of 2018.
The strengthening in the second quarter of 2019 was widespread.
On a year over year basis. The dollar once again strengthened against every one of our major foreign currencies.
The largest FX movements in the quarter were from the Euro.
The UK pound the Australian dollar the Chinese won.
And the Brazilian real.
Looking forward if currencies stay where they currently are.
The negative impact on our reported revenues is expected to be approximately 1% for the third quarter.
And 0.5% in the fourth quarter.
Resulting in a negative impact for the full year.
Of the 21.75%.
And 2%.
The impact of our recent acquisitions net of dispositions.
Decreased revenue by $148 million in the quarter.
For 3.8%.
In line with the impact we previously projected.
And primarily driven by the Sal Vitale disposition and other actions we took from the second half of last year to the first quarter of 2019.
We will cycle through the most significant of last year's dispositions.
By the end of this coming September .
Based on transactions Weve completed to date.
Our current expectations are that the impact of our acquisition activity.
Net of dispositions will continue to be negative.
By approximately 3% for the third quarter.
And 1.5% for the fourth quarter.
Resulting in an anticipated negative impact of 3% for the year.
Turning to organic growth it was up $108 million for the quarter or 2.8%.
By discipline for the quarter, we again saw mixed performance.
Advertising and a health care led the way with solid organic growth.
Our CRM consumer experience businesses also performed well this quarter.
While PR and CRM execution and support.
Continued to lag.
Geographically.
Our U.S. and UK businesses had the strongest performance.
Asia and Continental Europe were also positive overall.
Although performance was mixed with several markets facing difficult comparisons to Q2 of last year.
While our two smallest regions.
Latin America, and the Middle East and Africa.
Both were negative for the quarter.
Slide six shows our mix of business by discipline.
For the first quarter, the split was 56% for advertising.
And 44% from marketing services.
As of their organic growth by discipline.
Our advertising discipline was up 4.4%.
Advertising's organic growth was led by our media businesses, along with solid performances by most of our global and national advertising agencies.
CRM consumer experience was up 1.9% for the quarter.
Strong performance from our precision marketing group.
It was partially offset by reductions at our events businesses, which faced difficult comparisons back to Q2 2018.
Also within the discipline.
Branding saw a good growth.
While our shopper and commerce businesses were slightly positive.
CRM execution and support continued to underperform this quarter.
Positive performance by our field marketing businesses in Continental Europe was more than offset by the negative performance from our merchandising and point of sale businesses as well as our specialty production businesses.
PR was down 1.3% performance and the discipline continues to be mixed by geographic region.
The UK and Asia were positive.
Well, our U.S. Continental Europe , and Latin America agencies were negative.
And health care was up 8.4%.
As has been the case for the past year.
The growth has been well balanced across the regions. These agencies operate in.
On slide seven which details the regional mix of business.
You can see during the quarter the split was 54% in the U.S.
A bit higher than typical.
Because of the strength of the dollar relative to the other currencies we operate in.
3% for the rest of North America.
10% in the UK.
18% for the rest of Europe .
11% for Asia Pacific.
3% for Latin America.
And the balance from our middle East and African markets.
So the details of our performance by region on slide eight.
Organic revenue growth in the second quarter in the U.S. was 3.2%.
Led by our advertising and media healthcare and CRM consumer experience agencies.
Our domestic PR agencies are down slightly.
While our CRM execution and support agencies had sluggish performance.
Our other north American businesses were up year on year.
Driven by the strength of our precision marketing and media offerings.
The UK was positive again this quarter up 5.7%.
With growth across most disciplines.
However, the uncertainty regarding the UK his departure from the E. U now scheduled for the fourth quarter of this year continues.
The rest of Europe was up 1.5% organically in the quarter. The performance was decidedly mixed by market and discipline.
In our euro markets.
While Spain, and Italy continued to turned in strong performances. This quarter, we saw weakness in Germany, and the negative performance in France.
And our organic growth in Europe outside the eurozone continues to be positive.
With many of our major markets in Asia Pacific facing difficult comps versus Q2 of 2018.
Organic growth was 1.9%.
With Japan, and New Zealand, having strong performances this quarter.
Our greater China agencies were down organically for the quarter.
Due to reductions in our media businesses and in our events businesses.
China in particular is facing a difficult comparison to the prior period.
Latin America was down 2.4% organically in the quarter.
Due to weakness at our Brazilian agencies, which continue to face significant macroeconomic forces in the market.
While Mexico was flat for the quarter.
And lastly, the middle East and Africa.
Which is our smallest region was down for the quarter.
On slide nine we present, our revenue by industry sector.
In comparing the year to date revenue for 2019% to 2018.
We continue to see a slight shift in our mix of business with an increase in the contribution of our former clients.
Offset by a decrease from our technology clients, primarily as a result in the cell bitel disposition.
Turning to our cash flow performance, which we detail starting on slide 10.
In the first half of the year, we generated $814 million of free cash flow.
Excluding changes in working capital.
As for our primary uses of cash on slide 11.
Dividends paid to our common shareholders were $280 million.
Up slightly versus the first six months of last year.
The five cent per share increase in the quarterly dividend that was effective with the quarterly payment in April .
Was partially offset by a reduction in common shares over the past 12 months.
Dividends paid to our non controlling interest shareholders totaled $46 million.
Capital expenditures were $49 million year to date.
Down compared to 2018 due to less leasehold improvement activity.
And an increase in our equipment leasing program.
Acquisitions, including earn out payments totaled $34 million a decrease when compared to this point last year.
And stock repurchases net of the proceeds received from stock issuances under our employee share plans increased to $524 million.
All in we outspent, our free cash flow.
By about $120 million in the first half of 2019.
Before discussing the details of our capital structure at the end of the quarter on slide 12.
I want to review the steps, we recently took related to refinancing some of our debt.
On July Eightth, we issued 500 million euros of eight year senior notes due in 2027 at an effective rate of 0.92%.
And we issued an additional 500 million euro of 12 year senior notes due in 2031.
At 1.53%.
Together the euro note issuance after deducting the underwriting discount and offering expenses.
Resulted in net proceeds of $1.1 billion.
At an average rate.
1.23%.
Part of the proceeds were used to retire the 500 million 2019, senior notes, which matured this past Monday July 15th.
In addition.
On July 2nd.
We called 400 million of the 2020 senior notes for redemption on August Onest.
The balance of the proceeds will be used for general corporate purposes.
Our expected ongoing long term debt portfolio.
We will be comprised of $4 billion in dollar denominated debt.
And 1 billion in euro denominated debt.
We expect interest expense for the second half of 2019.
To be reduced when compared to 2018.
By approximately 3 million in Q3.
After recording expected book loss.
On the early extinguishment of part of our 2020 notes.
And by 10 million in Q4.
Our net debt position at the end of the quarter was $2.6 billion.
Up around 1.4 billion compared to yearend December 30, Onest 2018.
The increase in net debt.
Was the result of the typical uses of working capital.
Which historically are highest in the first half of the year and which totaled about $1.3 billion.
As well as the use of cash in excess of our free cash flow of approximately a $120 million.
These increases in net debt.
Well, partially offset by the cash we received from our disposition activity of $75 million.
And the slightly positive effect of exchange rates on cash.
During the first six months of the year.
Which increased our cash balance by about $10 million.
Compared to June Thirtyth, 2018, or net debt is down approximately $340 million.
The decrease was primarily driven by the positive change in operating capital during the past 12 months.
Approximately $205 million.
And the cash proceeds received from the sale of subsidiaries during the past year.
Of $385 million.
Partially offsetting these increases over the past 12 months.
Well, it's an overspend of our free cash flow of approximately $80 million.
And the negative impact of FX on our cash balances.
Which was also approximately $80 million.
As for our debt ratios there remain solid.
Our total debt to EBITDA ratio was 2.3 times, reflecting the issuance of the euro denominated zero coupon note in Q1.
Well, our net debt to EBITDA ratio fell to 1.1 times.
And due to the year over year increase in our interest expense our interest coverage ratio decreased to 9.6 times, but remains strong.
And finally on slide 13.
You can see we continue to manage and build the company through a combination of well focused internal development initiatives and prudently priced acquisitions.
The last 12 months, our return on invested capital ratio was 23.3%.
And our return on equity was 56.3%.
And that concludes our prepared remarks.
Please note that we have included a number of other supplemental slides in the presentation materials for your review.
But at this point.
We're going to ask the operator to open the call for questions.
Thank you.
Okay, ladies and gentlemen, if you do wish to ask a question on todays call. Please press one then zero at this time.
Once again, if you have a question please press one zero.
Our first question will come from the line of Alexa Quadrani with JP Morgan. Please go ahead.
Hi, Thank you so much two questions I guess first off just following up on the ongoing improvement in the U.S. organic growth I know, it's kind of Nit picking it sounds like the way you guys look at it that if you can give some color you can give us on whether you think the improvement is really driven by the better in clocks or better mix of new business wins, you know less losses are you really seeing some underlying improvement you know out your agencies or any existing client spend.
You said you had a second question I do I'll go ahead, and you only to asking [laughter].
It's just on international you gave great color. Thank you John about the the different regions in the <unk> in the quarter and then I think you mentioned that you know Brazil. For example, we account for the rest of the year I'm curious if you have any other sort of how you can add about the outlook.
The other major regions, how we should look to the other major regions for the back half of the year Okay.
In terms of us organic growth you're absolutely right.
I do not look at it on a quarterly basis.
We look at it.
Across the year.
What we expect clients spend.
Because money can shift from quarter to quarter and when you're in.
The 2% to 3% growth range.
Those shifts having a meaningful impact on the on the percentages that we report.
We had a solid performance I mean, I've seen contributing to it was.
Where clients decided to spend.
And some of the new business wins.
From last year.
But.
There's not a lot.
I can point out any one.
Obvious reason for for that particular growth for Phil might have now.
Yeah, you know I think I think any one quarter doesn't necessarily make a trend, but but we were pleased with the results.
With respect with respect to the U.S.
Performance.
And you know our overall outlook.
For the company has always been on on the consolidated.
Growth profile, we we don't necessarily net ticket by by country or by region.
Well, we're certainly pleased with the second quarter John's reference to.
Yeah, the the percentages themselves within a quarter.
You know can vary so where optum or certainly cautiously optimistic about the second half.
And in terms of international growth.
Brazil, we do point out because.
We've had to take actions and it is still a work in progress for us too.
Did you get it to the level that we would like it to be.
As you go across the rest of the world.
The uncertainties that exist.
Because of geopolitical decisions will have some impact.
On on what goes on.
With our clients in spending.
We can't we cannot predict what's going to happen with Brexit.
The good news is we don't have a lot of financial service clients in the UK.
We don't know what's going to happen with terrorists.
What the reaction to it is going to be so we remain cautious optimism cautious and trying to gain market share in all places we operate it.
And just one follow up on your you Act commentary in some of the new business was.
However, the headline client, which I know is not necessarily everything that you see seemed like little slower to kind of ramp.
Poster announcement that they ship their accounts omnicom late last year I do you see so from what you see today and maybe a greater tailwind of new business benefit in the back half of the year than you did in the first half.
You're correct in your comment that.
Some of those headline accounts.
Our slower to ramp up and we will start to contribute more in the second half.
But I don't think meaningfully enough to affect.
Our overall guidance for growth to 3%.
Okay. Thank you very much.
Our next question will come from the line of Tim Nollen with Macquarie. Please go ahead.
Well, John I Wonder if you could elaborate a bit more please on your commentary on renting.
Data and technology rather than.
Rather than buying it is quite a difference from at least two of your peers.
And yet your growth rate has been better than at least one of those so I just wonder if you could give us a bit more on kind of the logic behind us and what difference it actually makes to two to work with third party data versus having access to first party data.
And in terms of renting technology versus owning thanks.
Okay.
Well.
As an overall statement.
Since it seems to be of interest to not only you, but probably others.
We did look at both of those acquisitions that.
Our competitors made.
And if we thought they were worth it we would have purchased some ourselves but.
But going back to your question there's risk.
When you do a transaction like that.
There's huge integration risk you've seen it in some instances in other companies in our industry, where they've done previously done very large acquisitions for their size.
And not really been able to successfully integrate them.
<unk> relatively pure as short period of time.
The other thing and.
The other real risk.
Is there a legacy businesses in Europe .
Most of them don't operate but theyve GDPR.
Don't I can't tell what the risk is going to be to that data and <unk>.
Delivering safe data from brands.
And what the regulations are going to be.
In the United States, let alone China or anywhere else so it's to us.
As we looked at it.
The risk versus the data versus our ability to.
Obtain the same data.
But you know.
Very relevant up to date way.
There was no ROI on the transactions for us.
Our systems have always been.
Open and unbiased and we think that is critical.
It's critical for us to.
Do you.
Get the best results for our clients and we're focused on.
Creating meaningful outcomes for our clients.
Hi.
We have never wanted to be in a position where.
The way I.
Sell you something.
Well the way I work on your behalf.
You have to buy.
What.
Legacy systems that I put in place.
And I don't have any flexibility of changing those systems to improve them with whatever.
The marketplace seems to offer or need so.
Hi, I just had.
Yeah, we've been we've been building and investing in.
In the.
Annalect.
And omni platform for the last 10 years.
It's something that we've done internally a spend an awful lot of time and and.
And energy in having one common platform, that's going to continue to evolve.
And as John It said and in it in an open.
And it opened fashion.
It's also a global platform.
Not just the U.S. platform.
And we're going to continue to invest in it going forward.
And maintain the flexibility we have.
To work with.
Various best in class partners.
And get the data that we need when we need it.
From from a variety of sources, it's a much more flexible.
Approach and one that we can scale.
Can I just.
Tack on to that last bit you just mentioned, Phil about and its again back to the first versus third party data.
I mean do you have access to the first party data you need we hear more and more about how important that is or do you do you have that or do you do you disagree that it's so important that third party data serves two purposes.
Well look the first keep in mind, though the first party data.
Is is the client's data.
It's not our data.
And.
You know I think to the extent, we need it to help.
Whichever client we're working with.
We can easily and effectively.
To help clients integrate our.
A third party data.
With their first party data in a very effective way and we do that for many clients.
Yeah today, and we expect to continue to do that in the future we don't see.
You know situation where.
Yeah in the short term or even in the long term that clients.
Are essentially going to give up.
The ownership of that first party data.
But they need a partner to help them.
To more meaningfully merge that data with relevant third party data.
It's come up up with solutions to help reach.
The consumers they are trying to reach and.
Said, another way, we don't need to own it to connect to that data on behalf of our clients and we do that.
The data that.
Those companies, but I think you're alluding to.
Pales in comparison to the quality of their clients on their own.
Right.
Thanks, very much for your finishes highpin.
And.
Gets people excited because it was a headline.
But when you look to the substance of it.
We think god bless them, but it'll be a challenge.
Okay. Thanks, a lot.
Sure.
Next question comes from the line of Ben Swinburn with Morgan Stanley . Please go ahead.
[noise].
Im not an economist per se, but I wanted to get a sense from you.
When you look at the outlook in the U.S. and also globally, how you're thinking about the macro backdrop because.
We're seeing a really strong AD market here in the US you guys had nice U.S. and advertising results. This quarter. You mentioned you were optimistic for the back half.
There are a lot of leading indicators on the macro side it looked like they rolled over and people seem to be getting more cautious about.
Sort of.
Factory orders or capital goods are sort of.
Business investment obviously the fed.
Talking about slower.
Growth. So I'm, just curious I'd love to get your perspective on all that and how you reconcile.
The strong AD market with what seems to be a slowing.
Broader macro if you have thoughts on that I'd love to hear.
Hi, I'm not an economist either.
So.
Take that.
For what it's worth but.
In speaking to.
So many of our clients.
Each industry as particular concerns, but even if I had to summarize it up.
Everybody.
Most people believe that the us economy.
Continues to perform well.
Okay.
Same time.
They they recognize that the US economy is never performed this well for this long at any point in the past.
And so at some point.
You can expect.
So some dips or some changes.
Nobody can figure out.
But when I do think.
You see it having more of an impact from long term planning on terms in terms of some of our clients that have to commit capital.
Two.
Two there are few to their businesses in the future.
It doesn't have the same type of impact on the advertising business.
Because we.
Nothing is completely flexible but.
We're very vigilant about what our clients are doing.
What they tell us they're going to do.
And the services that we offer so were.
We can be a bit more nimble and many many businesses, which requires a lot more capital to do.
Right that makes sense and maybe just a separate follow up.
On the competitive front with the I.T. consulting firms.
They get a lot of press in the marketplace. One of those I saw recently is is I'm sure you as you know a lot of these consultants audit agency buying for their clients. While at the same time they are competing for business and I think there have been some agency.
Agencies are holding companies that have balked at allowing that and turning over media data to get audited by what is essentially a competitor I was just curious if you thought this was a big issue.
Yes, or no and if it is sort of what are the options for you to sort of navigate this what seems to be a rising source of conflict done.
On the competitive front.
Yes.
There is no absolute answer to your question, but this is not a new problem.
And oftentimes most times with.
Clients.
We mutually agree.
On who is going to.
Audit not ordered.
Our results and.
I don't know of any of the major holding companies.
That really.
Easily agreed with.
The two having them come in and ask type questions or furniture.
I applaud Mark rude.
Hmm brute, making it a more public issue.
Privately this issue has been dealt with.
On a client by client basis for a long time.
Got it thank you.
Sure.
Next question comes from the line of Julien Roche with Barclays. Please go ahead.
Yes. Good morning. Thank you for taking my question. My first one is on the CRM education and support.
That has been a problem for a while so when can you turn this around.
Or is it strictly challenge for many years to come and if delay to further disposition.
Secondly, you mentioned several times in your opening remarks that some of you even businesses that impacted revenue in certain geography.
In which divisions do you put event.
And what percentage of revenue does this activity present broadly.
And then lastly can we have a sense of the total investment in Annalect anomaly in the last 10 years.
So we can compare that to how much some of your competitors that spend externally.
Thank you.
You go from.
So so far is.
CRM execution and support goes I think.
The businesses that remain in the portfolio.
Oh, we continue to work with management and and actually management of the practice area.
To get them to get them focused on on improving their execution I think we've we've done a lot in terms of what we intended to do as far as our disposition strategy as it relates to the business isn't that portfolio.
But you know longer term.
We don't expect them to grow.
As rapidly as the rest of our portfolio.
And we expect you know we'll continue to evaluate the pieces of that portfolio. As we go forward. We do have some good businesses that have been performing well in that in that portfolio.
They tend to be the smaller pieces of the portfolio. So we're going to we're going to continue.
Business as usual in trying to help them.
Execute better.
And turn turn themselves around.
But we'll also continue to reevaluate the portfolio as we go down the road.
With respect to the events businesses.
I'm I'm not if you could repeat your question I'm not sure I got the last part of it.
Well first of all in we did division is it Oh I see between CRM, but would you would you be to CRM yeah. It's in the it's in the consumer experience a portion it into consideration <unk>, Okay, and then broadly what percentage of the total Romney Comm business is it are we thinking about 1% of revenue 5% of revenue.
Oh, it's probably less than 5% of our revenue on a on a global basis.
Okay.
And then the last question on Annalect and omni Yeah, I don't I think.
One one broad comment and then I'll I'll I'll turn it to John but its certainly.
We've invested quite a bit over the last 10 years, and Annalect and omni but.
Probably are not close to what.
The two recent acquisitions a the spend on the two recent acquisitions have been.
By our two of our four main competitors.
The only thing I'd add is.
We have made.
Significant investments.
In the whole area of technology analytics tools.
Some of the other investors as well.
The way that we've made these investments is internally so we expense them as incurred we don't capitalize them. So you won't see it.
On our balance sheet.
Or no goodwill for that matter I'm, no accounting, but.
I do know and.
And then it gets quite a bit of priority.
From the management of Omnicom and the management of.
Other creative businesses because of the importance of.
The tools that we're creating what we are doing so.
If you go back.
Rich I don't suggest you have to do and listen to prior conference calls or read.
And one of our primary transcripts, you'll you'll see that we've been talking about this for 10 years or so.
Yeah. The bulk of the investment has been in essentially people as well as some software tools and technology tools, but.
You know it is something that.
Certainly as runs through the pain l. it hasn't been trying to piece together and integrate a bunch of acquisitions.
But we also recognize that it's an investment we need to continue to make and expect to continue to make.
To continue to maintain and upgrade.
The platform as technology changes and as that the media landscape changes.
Where do you go to venture like an amount for investment are we talking you know couple of hundred million 500 million includes 2 billion over 10 years or is it too hard to do.
Just to have a really broad sense.
It's it's not too hard we just don't we spend what we need we don't we don't we don't add it up and Pat ourselves on the back having spent.
And yeah, I mean, so you don't have it.
You could also include or exclude.
A number of other miscellaneous costs or do you include the training in that investment the training and the people which is now global.
Or don't you.
Yeah, how do you calculate those numbers.
Yeah. It it's an integrated integral part of the business that.
You know, we we don't we don't spend a considerable unmet amount of time.
Trying to figure out you know every last dollar so that we can.
We could report it.
And and have it yeah make a big splash on how much we've invested wall.
It's an integral integrated part of the business and and investing in this platform is something we're going to continue to do.
And it and it's just the basic part of the business.
Okay very clear thank you very much sharp.
Our next question comes from the line of Michael Nathanson with Moffettnathanson. Please go ahead.
Thank you I have one for John and one for for John or fill up John a question for you is you started the all the call by saying there has been a return.
The celebration of creativity as a force I wonder in that return as you know as that acknowledgement creativity, you're seeing any changing in maybe the pressures on on fees or maybe a re ranking your priorities for your clients or is there anything that that is a business outcome from what you acknowledge is maybe a different focus now on clients.
Before I answer your question. This should be the last question, we check because I think the most is it just the government.
It's a recognition I think and.
It's a recognition.
For the <unk>.
For the first time in a long time.
That.
People realize clients realize.
That the differentiation.
Is it.
Quality of the creative people that you have.
Somebody previously asked about.
Consultants, if I go back to con two years ago.
The place was crawling with some of the people that.
We referred to in the earlier question there were very few of them. There. This year if there were any at all because.
They can put in enterprise systems, and do fancy things and pretend like they're in our business.
But in fact, they don't have any creative assets and.
Creating a global network of creative assets is not as simple simple manner.
I'm seeing if you.
I mean.
I'm not the only ones, saying it I think.
In some of the.
I think Maurice Levy was Uh huh.
Was interviewed Sun Valley in and he pointed out that when you get through all the changes that are going on in the business.
The key thing, which remains constant and most important is creativity.
So that's always been.
Our DNA I think not only do we recognize it and we really cherish too.
And and and.
Nurtured it since the beginning.
I believe the rest of our competition.
Recognizes that it's the only differentiation in value, we can really bring to the party.
So you started answering questions yeah. The other one was just an acquisition patterns is is the lack of spending this year acknowledgment of either a change of prioritization or just timing of deals or maybe just the pricing of deals are you. So usually you guys do enter the marketplace and buy some assets.
This year Weve done very little so I guess weren't know what what's driving that.
So can answer, but I would say mostly circumstance. We've recognized the same thing in the second quarter and we since then.
Put more resource in the area looking for certain selective acquisitions, it's going to take some time to.
So identify them.
And then to bring them into the into the fold yeah, but you know I think we certainly want to do more acquisitions than last in terms of how we use our free cash flow. If we can find the right ones. This particular quarter.
There were two acquisitions in particular that we've been working on for quite some time.
One of them, we just couldn't.
Complete.
We couldn't come to terms they werent economic terms that was the issue of the things and the other the other.
Just just didn't happen this quarter from a timing perspective, I think we do have a pipeline.
In place that Weve been working.
But but as John said, we are we are taking some actions to going to redouble our efforts.
To find deals I think from a pricing perspective that really hasn't been what has what has held us up or or.
Yeah caused us to do less this year than last year.
Last year, we had some some excellent candidates and and get some deals done that have been very successful.
We expect that we'll we'll do more of those in the future.
Okay. Thank you both thank you. Thank you everybody for taking the call taking the time joined the call.
[noise].
Our next question will come from the line of agent decent Hillary. Please go ahead I think we have to watch.
Fortunately.
And the call operator, good given the market is now open.
Okay.
[noise] did I hear that right.
Oh, Great day.
Okay, ladies and gentlemen that does conclude today's conference. Thank you very much for your participation you may now disconnect.
[laughter].
[laughter].
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