Omnicom Group Inc.

Good morning, ladies and gentlemen, and welcome to the Omnicom third quarter 2020 earnings release conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. To participate, please press 1 then 0. And if you need assistance during the call, please press star then 0. As a reminder, this conference is being recorded. At this time, I'd like to introduce you to your host for today's conference, Senior Vice President of Investor Relations, Shubh Mukherjee.

Please go ahead. Good morning. Thank you for taking the time to listen to our third quarter 2020 earnings call. On the call with me today is John Wren, our Chairman and Chief Executive Officer, and Phil Angelastro, our Chief Financial Officer. We hope everyone has had a chance to review our earnings release. We have posted to www.omnicomgroup.com This morning's press release, along with the presentation covering the information, we will review this morning. This call is also being simulcast and will be archived on our website. Before I start, I've been asked to remind everyone to read the forward-looking statements and other information that we have included at the end of our investor presentation, and to point out that certain of the statements made today may constitute forward-looking statements, and that these statements are our present expectations, and that actual events or results may differ materially. I would also like to remind you that during the course of the call, we will discuss some non-GAAP measures in talking about Omnicom's performance. You can find the reconciliation of those measures to the nearest comparable gap measures in the presentation material. We are now going to begin this morning's call with an overview of our business from John Wren. Then, Phil Angelastro will review our financial results for the quarter. And then, we will open the line for your questions.

Thank you, Shubh. Good morning. I'm pleased to speak to you this morning about our third quarter results. I would like first to thank our people for their performance in a complex and volatile environment. We recognize the challenges you are facing personally and professionally. We will continue to support you and to maintain our unwavering commitment to keeping you safe as we continue to effectively service our clients and preserve the strength of our business. As we expected, the negative impact of COVID-19 on our business peaked in the second quarter and we experienced significant improvements in the third quarter. Organic growth declined by 11.7%, or $424 million, which includes a decline in our third-party service costs of $194 million. Sequentially, we saw improvements across all geographic regions and most of our large countries, with the only few exceptions including Brazil, India, Japan, and Singapore. Our largest industry sectors had significant sequential growth, with farmland health as well as technology growing in the third quarter versus the prior year. As anticipated, some of our clients' industries that have been hit the hardest, such as travel and entertainment, as well as our events businesses, continue to be challenged. Our EBIT margin in the third quarter was 15.6% as compared to 13.1% in the third quarter of 2019. driving year-over-year growth in operating profit and net income. The performance can be attributed to a number of factors, including repositioning actions taken in the second quarter, significant reductions in addressable spend, voluntary pay cuts across the group, which will be phased out by the end of the year, and reimbursements and tax credits under government programs in several countries. As you know, earlier in the year, We took measures to provide additional liquidity during the COVID crisis, and we further enhanced our working capital processes. We also stopped our share repurchase program. We don't expect to restart share repurchases this year, and we'll be reviewing the policy with our board in December. I'm pleased to report that our efforts continue to pay off. Year-to-date, we generated $1.1 billion in free cash flow and paid dividends of $423 million. Phil will discuss our liquidity and balance sheet in more detail, which remain very strong. Let me now turn to our strategies and business performance. It goes without saying this year has been a period of significant change, with COVID-19 causing shifts in consumer behavior, which in turn have augmented the services we provide our clients. Across almost every sector, our clients pivoted their operations to accelerate their digital transformation, e-commerce, and direct-to-consumer initiatives, further leverage data analytics and insights to drive their marketing and communication programs, and seek ways to reinvent and differentiate their brands in an always-on environment. These initiatives were already well underway before COVID, but they've taken on a new urgency for our clients, with the main purpose of achieving the best outcomes in reaching their customers. I'm pleased with how our agencies have responded. They've had to reimagine marketing strategies, move quickly to provide our clients with relevant insights into how consumers were thinking, feeling, and behaving, and provide counsel on where, when, and how brands should show up differently. In fact, these COVID-19 induced changes in consumer behavior are profound and will have a lasting impact. With the exponential shift to virtual and online activities and its effect on almost every routine, consumers more than ever expect effortless, interconnected brand experiences that need to be delivered through increasingly dynamic and nonlinear paths to purchase. Fortunately, we are well positioned to excel in this environment as a result of our long-term growth strategies. For more than a decade, we have invested a substantial amount of time and money in the areas of analytics, insights, precision marketing, and digital transformation services. These investments enable our companies to put the consumer at the center with data-driven digital and personalized offerings. Omni, our world-class people-based data and analytics service platform, is being leveraged by our creative, media, precision marketing, CRM, healthcare, PR, and e-commerce agencies across the group. The power of the platform is providing our clients a unique understanding of their audiences as people, not just as consumers, enabling us to develop targeted and coordinated marketing programs across multiple mediums. Omni is being deployed by our client service teams using process-driven frameworks that can be applied to their specific client situations and for new business opportunities. This combination of our platforms, processes, and people allows us to offer flexible programs and solutions that can be customized to meet the rapidly changing demands of today's market. We also continue to invest heavily in growing our precision marketing, mark tech, and digital transformation businesses through a series of strategic investments and acquisitions. We've realigned several agencies into Omnicom Precision Marketing Group, a practice area we formed several years ago, and we expanded its capabilities through the acquisitions of Curdara, Smart Digital, and third quarter, DMW. These investments have been instrumental in the relative performance we have achieved in these disciplines over the past three quarters. We expect them to continue to be a key driver of our growth as digital transformation and precision marketing initiatives accelerate. As I said earlier, demand for our transformation work cuts across industries. Whether it's auto, retail, FMCG, or healthcare, we are helping our clients design and deploy new technology platforms, develop online strategies and personalized digital experiences, optimize content creation, and automate content delivery. These consumer-centric engagements deliver measurable outcomes that improve time to market and ROI associated with marketing investments. Another area fueled exponentially by COVID is e-commerce. For a period of time this year, for many of our clients, e-commerce was the only way to transact with their customers. From CPG to retail to autos to education and virtually every other industry, e-commerce adoption accelerated in a period of days and weeks where in normal times it would have otherwise taken years. During the quarter, we strengthen our practice area grounded in the commerce space. Led by Sophie Durrani, our newly formed Omnicom Commerce Group is a center of excellence for commerce and conversion marketing. The group brings together best-in-class creativity and consulting capabilities from several agencies, and we'll partner closely with our media and precision marketing practices to help clients achieve reductions in the gap between awareness themselves leverage our e-commerce offers across the group, and accelerate our speed and agility in connecting our expertise and capabilities for our clients. Whether in-store or online, brands that are best known and trusted are the ones that people have turned to during the pandemic and will continue to turn to as these shifts in behavior take hold for the long term. Helping to build that familiarity, affection, and trust in a brand is at the core of what our creative agencies have done for decades. We have the creativity to think differently, to design and create relevant experiences that are resonant, more importantly, rewarding. We know it is what will drive long-term growth for our clients. While 2020 has been a time of disruption and reinvention, a constant through it all has been the resiliency of our people. Despite the challenges thrown our way, our agencies and our people have continued to step up and display world-class creativity, innovation, and ideas. Their performance is demonstrated by our recent new business success. Peugeot chose Omnicom's OPEN, which is an acronym for Omnicom for Peugeot Engine, as its new agency of records. Creative, precision marketing, and strategy teams from across 17 different markets put together the winning proposal. BBDA was selected by AARP as its brand agency of record. Cox Automotive appointed Hudson Science, U.S., media agency of record for its Auto Trader and Kelly Blue Book brands. DS Day was awarded the multicultural advertising for Frito-Lay brands, Cheetos, and Doritos. And in pharma and healthcare, our companies continue to outperform with significant wins across our practice areas, including advertising and creative services for key products for Gilead, CSL Plasma, and AbbVie. Digital innovation services for Novartis across their pharma and oncology business units. And in PR, we had wins with J&J Pharma, UPenn Medical Center, and KKI Pharma. The common denominator across these business wins and our work during the quarter is it happened with most of our people working remotely. Looking ahead, we know when we enter the post-COVID phase, the way we work will be different. With that in mind, we have formed a committee dedicated to helping our agency leaders evaluate how our business should operate post-COVID. The objective of the group is to rethink the way we work to best serve each agency's specific services, people, clients, space, and culture. We've also accelerated how we use technology and share information well beyond video calls and virtual meetings. For example, we're using technology platforms to deliver more training programs, onboard new talent and clients, collaborate on creative ideas, and produce shoots. In fact, the accelerated adoption of technology has improved almost every aspect of our operations, both in servicing our clients and in our back office. I'm certain that we will take away many learnings from the current environment that have allowed us to work more efficiently and effectively. Let me now provide an update on our DE&I initiatives and some key changes. Over a decade ago, we hired one of the industry's first chief diversity officers. Tiffany R. Warren, who was instrumental in developing our DE&I strategy and framework. Since then, she has helped us build the core of our DE&I programs. As announced earlier this month, Tiffany has decided to join Sony Music, and we're in the process of finding a new diversity leader who will lead us in the next phase of our efforts. I want to thank Tiffany for her many contributions and wish her success in her new role. As mentioned last quarter, our DE&I strategy aims to create supportive environments and is led by the Omnicom People Engagement Network, or OPEN. OPEN provides structure and counsel and visibility to DE&I initiatives and policies throughout our organization. Our OPEN 2.0 actions focus on four key tenets, culture, collaboration, clients, and community, and is organized into eight action items. These include the development and retention of our diverse talent, client and community involvement, mandatory training, and accountability of our leaders. One of our first action items is the expansion and empowerment of our open leadership team, which is responsible for leading the implementation of our framework. To date, through a combination of new hires and promotions, we've expanded the open leadership team from 15 to 25 diversity champions. and we're making good progress on our initiatives. I look forward to sharing more with you on this front in the future. Before turning it over to Phil, let me provide an update on our expectations for the fourth quarter. While the third quarter trend was positive and we expect to see continuing improvement in several industries and markets, there are a number of challenges and uncertainties as we look at the fourth quarter. First is the trajectory of the virus globally, which will impact the pace of economic recovery in each country we operate in. Next is the outcome of the U.S. election and the potential delays in its results. Third is the timing and effect of government stimulus programs in the U.S. and around the world. And last are labor market conditions, especially as stimulus programs end and their effect on the overall rate of economic recovery. All of these factors create greater uncertainty in our financial forecast and a much lower level of visibility than we've experienced in the past across our businesses. This is especially so in our project-based services as well as in the year-end project spend that we normally expect to see from our clients. As a result, we continue to focus on the things we can control. Our agencies are dedicated to ensuring the safety of their staff servicing their clients, pursuing new business opportunities, aligning their staffing levels with revenue, and aggressively managing their costs. Each of them is being asked to plan for alternative scenarios for accelerated growth as well as potential declines in client spend. I want to thank our people for their outstanding work and ask everyone to stay safe. While 2020 has been a difficult year in many ways, I'm incredibly pleased with how we've operated and the progress we've made in executing our strategies. I will now turn the call over to Phil for a closer look at the third quarter results. Phil?