Omnicom Group Inc.

Good morning, ladies and gentlemen, and welcome to the Omnicom first quarter 2021 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 call is being recorded. At this time, I'd like to introduce you to your host for today's conference, Chief Communications Officer Joanne Trout.

Please go ahead. Good morning. Thank you for taking the time to listen to our first quarter 2021 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 a presentation covering the information that we will review this morning. This call is also being simulcast and will be archived on our website. Before we 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 GAAP measures in the presentation materials. We are 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, Joanne. Good morning. I hope everyone on the call is staying safe and healthy. I'm pleased to update you on how we continue to respond to and overcome the challenges of the pandemic. I'll first discuss our financial results. Then we'll cover our performance with respect to our strategic priorities and operations. And we'll end with our expectations for the remainder of 2021. For the first quarter, Organic growth was negative 1.8%, which positions us for a very strong recovery for 2021. Going forward, we expect to see positive organic growth. Before I go into our results in more detail, as you have seen in our investor presentation slides, we have provided a further breakdown of our CRM discipline. The new disciplines we have disclosed are as follows. CRM precision marketing, which includes our MarTech consulting, digital, and direct marketing agencies. CRM commerce and branding consultancy includes our branding consultancies, shopper marketing, and specialty production agencies. CRM experiential includes our events agencies. And CRM execution and support is unchanged for the most part from our prior reporting. and includes primarily our field marketing, research agencies, and our agencies servicing the not-for-profit sector. We believe this additional level of disclosure will allow you to have a better understanding of our operations. Getting back to our organic growth by geography, in the United States, organic growth was down 1 percent, an improvement of over 8 percent from the fourth quarter. Advertising and media and CRM precision marketing were positive in the U.S., while the rest of our disciplines continued to be negative, with CRM experiential having the largest negative impact on our growth. Europe continued to face significant challenges due to the pandemic in Q1, although overall the markets continued to improve, while the rollout of the vaccine in Europe lags back of the United States and the U.K., some countries like Germany and the Netherlands are starting to make progress. The U.K. was down 6.4 percent, about half the decline in the fourth quarter. CRM precision marketing, CRM commerce brand and consultancy, and health were all positive in the U.K., primarily offset by a significant reduction in CRM execution and support due to our field marketing operations. The Euro and the non-Euro markets were down 3.2% as compared to a negative 9.2% in Q4. Multiple countries had positive growth in the quarter, and the majority continued to improve sequentially. Asia turned positive in Q1 with organic growth of 2.5%. Australia continued to perform well, and we saw a significant return to growth in our events business in China. which combined with improvements in the other operations in the market resulted in double-digit growth. Latin America experienced negative 2.4 percent growth in Q1, a meaningful sequential improvement compared to the fourth quarter. EBIT margin in the first quarter was 13.6 percent as compared to 12.3 percent in the first quarter of 2020. EBIT improved due to the repositioning and cost management actions we took in 2020. In 2021, our management teams are continuing to align costs with revenues, and we're also seeing continued benefits from reductions in addressable spend. While we expect addressable spend will not return to pre-COVID levels, travel and certain other addressable costs will likely increase during the course of 2021 as conditions improve. Overall, our expectation is that operating margins for the full year of 2021 will exceed our 2020 operating margin, excluding repositioning costs incurred in Q2 of 2020. Net income for the quarter was $287.8 million, an improvement of 11.5 percent from 2020, an EPS was $1.33 per share, a year-over-year increase of 11.8%. Turning to our liquidity, the refinancing steps we took early in 2020 combined with our enhanced working capital processes and the curtailment of our share repurchase program have positioned us extremely well. We generated $383 million in free cash flow in the quarter and ended with $4.9 billion in cash. Given the continuing improvements in our operations, strong liquidity, and credit profile, our board has approved the resumption of our share repurchases beginning in the second quarter. This follows our recent decision to increase our dividend by 7.7 percent to 70 cents per share. Both actions are a testament to the steady improvement in our results and our expectations for further improvement for the remainder of 2021. Our traditional uses of our free cash flow, paying dividends, pursuing accretive acquisitions, and using our remaining cash for share repurchases is now fully back in effect. Phil will cover our first quarter performance in more detail during his remarks. Turning now to our strategy and operations, In the midst of the pandemic, our key strategic objectives served us well. These strategies are centered around hiring and retaining the best talent, driving organic growth by evolving our service offerings, improving operational efficiencies, and investing in areas of growth. We made good progress on enhancing our capabilities throughout our portfolio, and we continue to pursue investments with a specific focus in precision marketing, MarTech and digital transformation, commerce, media, and healthcare. We are also accelerating our pursuit of acquisitions in these areas, and we've recently completed two transactions. Omnicom Health Group acquired U.S.-based Archbo Consulting ArchPo helps pharmaceutical and biotech companies design, build, and optimize market access operations, product distribution, and patient access hubs. These capabilities will deepen Omnicom's health group's consultative services to biotech and pharma companies across a broad spectrum from operations to marketing. Also in the quarter, Cordera, our MarTech and digital transformation consulting business, and part of Omnicom's precision marketing group, acquired RTNs. RTNs will extend Cordera's depth in digital transformation, digital marketing, and e-commerce. The company specializes in the design, delivery, and implementation of real-time interaction and digital customer relationship management for some of the world's largest brands. It expands our operations in Australia, India, New Zealand, Singapore, and the UK. I want to welcome both companies and their entire teams to Omnicom. Turning to Omni, our data and insights platform, as I've mentioned in our last call, looking beyond our media business, our practice areas are increasingly leveraging Omni to identify insights for their specific disciplines and clients. Last quarter, Omnicom Public Relations Group launched Omni Earned ID, a solution that allows clients to evaluate the outcomes of earned media with the same precision as paid media. More recently, our health group launched OmniHealth, which integrates key.