Omnicom Group Inc.

Good morning, ladies and gentlemen, and welcome to the Omnicom second quarter 2021 earnings release conference call. At this time, all participants are in 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. And 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 second quarter 2021 earnings call. On the call with me today is John Wren, our Chairman and Chief Executive Officer, and Phil Angelostro, 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 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 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, and good morning to everyone on the call today. I hope you are staying safe and healthy. We're pleased to kick off today's call by reporting that we've rounded the corner into positive growth. We had extremely strong results, top and bottom line, and continue to make very good progress on several of our strategic initiatives. Organic growth for the second quarter was a positive 24.4%. This growth was broad-based across our agencies, geographies, disciplines, and client sectors. We experienced a significant increase in spend from existing clients as the effects of the pandemic subsided, and we benefited from strong new business wins. EBIT was $568 million in the quarter, an increase of 67% versus the second quarter of 2020. Q2 2021 included a gain of $50.5 million, from the sale of ICON International in early June. And Q2 2020 EBIT included $278 million of charges related to the repositioning actions. Excluding gains and charges, EBIT margin was 14.5% in the quarter compared to a 12.2% in Q2 2020. Phil will provide further details on expected impact of the sale of ICON on our results to the balance of the year. As we stated on our last call, we view 2019 as a reasonable proxy for our ongoing margin expectations. Excluding the sale of ICON, our six-month 2021 EBIT margin was 14%, which is in line with our EBIT margin of 13.9%, for the first six months of 2019. Net income was $348 million in the second quarter, an increase of 75% from the second quarter of 2020, and EPS was $1.60 per share, an increase of 74%. The net impact on the gain on the sale of ICON, which was offset by an interest expense charge related to the early retirement of debt, increased EPS in Q2 2021 by 14 cents per share. Before I provide more comments on our financial performance and progress on our strategic initiatives, I want to acknowledge the work of our leadership teams and all of our people with these financial results. Our leaders took difficult and effective actions over the past year and a half. At the same time, they remained laser focused on the health of their teams servicing our clients, winning new business, and managing their cost structures. Our ability to navigate in this environment and come out the other side with such strong results is a testament to their commitment, as well as the dedication and tireless effort of our people around the world. I want to thank them for their outstanding contributions. Turning now to our performance by geography, every region had double-digit growth in the quarter. The U.S. was up just shy of 20% in the quarter. All U.S. disciplines had double-digit growth except for healthcare, which was up in the low single digits. It was the one discipline that grew in Q2 of 2020. Other than North America, it was up 37.1%. The U.K. was up 23.8% with all disciplines in double digits. Overall growth in the Euro and non-Euro region was 34.5%. In Asia Pacific, we had 27.9% increase, with all major countries experiencing double-digit growth. Our events business in China had another quarter of strong performance. Latin America was up 20.8%, and the Middle East and Africa increased 42.8%. By discipline, all areas were up year over year as follows. Advertising and media, 29.8%. CRM precision marketing, 25%. CRM commerce and brand consultancy, 15.2%. CRM experiential, 53%. CRM execution and support, 22.7%. PR, 15.1%, and healthcare, 4.5%. Looking forward, we expect to continue to see positive organic growth as client spend increases, albeit at a slower pace than we experienced in Q2. Our management teams are continuing to align costs with our revenues as markets reopen around the world. Many of our companies are hiring staff to service an increase in client spend and the new business wins. And we are seeing some pressure on our staff costs, particularly in the U.S., as the labor markets remain tight. We are also beginning to see a return of travel and certain other addressable spend as government restrictions have eased. Based on our use of technology during the pandemic, we are developing practices, particularly with respect to travel, that should allow us to continue to retain some of the benefits we achieved in addressable spend. We expect that the increase in addressable spend in the second half of the year will be mitigated in part by the benefits we will achieve from a hybrid and agile workforce. Turning to our cash flow, we again performed very strongly. For the first half of the year, we generated approximately $800 million in free cash flow. As we indicated last quarter, in addition to our dividend increase, in May, our board approved the reinstatement of our share repurchase program. In the second quarter, we repurchased $102 million in shares. We took further actions to reduce our debt during the quarter. In late April, we issued $800 million of senior notes due in 2031. The proceeds from this issuance, together with cash on hand, were used to repay 1.25 billion of senior notes due in 2022. As a result of these actions, our balance sheet and credit ratings remain very strong. While we are very optimistic about our future prospects, We remain vigilant and are maintaining flexibility in our planning as conditions can quickly change. As we recently experienced in markets like Brazil, India, and Japan, the pandemic remains a significant health risk. Overall, we're extremely pleased with our performance this quarter and proud of how we've navigated through the pandemic. Our results reflect Omnicom's ability to adapt and respond to changes in the market and deliver through down economic cycles. Let me now turn to the progress on our strategic and operational initiatives. As I mentioned, in early June, we completed the sale of Icon International, our specialty media business. The divestiture was part of our continuing realignment of portfolio businesses and is consistent with our plan to dispose of companies that are no longer aligned with our long-term strategies and investment priorities. With the closing of this transaction, we are substantially complete with disposals. We expect our primary focus moving forward will be on pursuing accretive acquisitions in the areas of precision marketing, martech, and digital transformation, commerce, media, and healthcare. We have ramped up our M&A efforts in these areas and are pleased with the opportunities we are seeing. We remain disciplined with respect to our strategic approach and valuation parameters. Operationally, Omnicom continues to successfully deliver to our clients a comprehensive suite of marketing and communication services supported by technology and analytic capabilities around the world. The leaders of our practice area, agencies, and global clients have used this formula to strengthen our relationships and grow with existing clients as well as pursue new business. Importantly, our organization allows our leadership teams to quickly mobilize our assets to deliver strategic solutions for our clients from across the group. Whether their need is for integrated services across regions, or more bespoke individualized solutions in specific countries. We can simplify and organize our services in a manner that meets our clients' needs. For example, we have a long history of providing integrated services to some of the world's largest brands, such as Apple, AT&T, Nissan, and State Farm. And we continue to be successful in winning new business. A good example of this is our win with Philips, who named Omnicom as their global integrated service partner for creative media and communications. Over months-long and highly competitive pitch, we were able to demonstrate the strength of our agencies in a delivery model that connects creativity, culture, and technology to position Philips as a leader in the changing health industry. Another example of our integrated creative media and communications offerings is our recent win of the Baby Wipes brand, Water Wipes. We also serve clients and consistently win new business across dedicated service areas and geographies. For example, some of the wins this quarter, in addition to the ones mentioned above, were BBDL being named Global Lead Strategic and Creative Agency Partner for the Facebook app. Discover naming TBWA its brand creative agency of record. JetBlue hiring Adam and Eve as its new global creative partner. Red Bull awarding PhD in its media business in North America. BBDL being awarded Audi Creative Duties and Social Media Communications in Singapore. and PhD-winning Audi Media Business in China, and Virgin Atlantic selecting Lucky Generals as its lead creative agency. Our comprehensive suite of services and our ability to simplify how we bring them to our clients will continue to drive our success. Congratulations and thank you to our people for these wins and many more. In the second half, we expect to see an increase in new business activity across industry sectors, including CPG, luxury, healthcare, retail, and automotive. I'm confident that our exceptional talent, range of services, and our ability to organize our offerings to meet the needs of potential clients will allow us to capture more than our fair share of new business. Our constant innovation and service delivery will has also resulted in highly regarded industry awards. At Cairns Lion Live 2021, our agencies were recognized for their excellence in both the creative and media disciplines. Omnicom's global creative networks, BBDO, DDB, and TBWA, placed in the top 10 of the network of the festival competition. Taking a highly coveted title, AMV BBDO was named agency of the festival. Omnicom Media Agency's PhD in OMD earned first and second place, respectively, in the media network of the festival's competition. And overall, more than 160 Omnicom agencies from 45 countries won more than 180 lines. This impressive showing at Cannes Line is just one example of how our agencies excelled. They received a number of other industry awards, which include Fleishman Hilliard being named Campaign Global PR Agency of the Year and TBWA APAC winning Digital Network of the Year, Goodby Silverstein and Partners making Ad Age's A-List, and TBWA being named as an Agency Standout. DDB Worldwide winning 2021 Network of the Year at the 100th anniversary of the ADC Awards, hosted by The One Club and DDB Germany being named Agency of the Year. These awards are a direct reflection of our relentless pursuit of creative excellence. Our best-in-class talent is what defines Omnicom and makes us an award-winning company. With this in mind, we are constantly looking to invest in our people and create opportunities across the enterprise, including at the C-suite level and throughout our senior leadership. A recent addition to our practice area leadership is Chris Vosser, who is appointed CEO of Omnicom's public relations group. Chris will oversee our entire PR portfolio, focusing on talent innovation, and cross-agency collaboration to drive growth. I'm confident that his track record of leading global growth initiatives, counseling executive-level clients, and driving business development will lead to the continued success of OPRG. John Doolittle has been elevated to chairman of OPRG. Another key leadership position we recently created is focused on our environmental sustainability initiatives. Last week, we appointed Karen Van Bergen as Chief Environmental Sustainability Officer. Karen will be responsible for overseeing our climate change initiatives and processes, which include setting measurable goals, policies, and partnerships that will reduce our carbon footprint. This new position will be in addition to Karen's current role as EVP and Dean of Omnicom University. Environmental sustainability is an area where we're doubling down on our efforts. We established goals five years ago to lessen the impact of our operations on the environment, and we are now looking to drive even more progress. We are currently establishing new goals and commitments to reduce the carbon emissions produced by our operations and increase the amount of electricity we derive from renewable sources. In addition to these internal goals, Omnicom has joined numerous industry initiatives that will serve as catalysts for change. For example, Several of our UK agencies have joined Add Net Zero, the industry's initiative to achieve real net zero carbon emissions from the development, production, and media placement of advertising by the end of 2030. And we are a founding member of Change the Brief Alliance, which calls for the agencies and marketers to harness the power of their advertising to promote sustainable consumer choices and behaviors. Karen is just the right leader for driving our initiatives in this critical area, given her long tenure with Omnicom and excellent previous experience working on environmental initiatives at multinational corporations. I have no doubt we will continue to raise the bar on our global operations and our work with organizations and clients to reduce our impact on the environment. Another critical area we have intensified our efforts over the past 12 months is DE&I. We have doubled the number of DE&I leaders throughout Omnicom over this time, and we have established specific KPIs to measure our progress. The KPIs are focused on hiring, advancement, promotion, retention, training, and employee resource groups. This is a key step to ensuring DE&I is embedded across the leadership agenda with a full commitment and accountability of our network and practice area CEOs. For Omnicom, DE&I starts at the top with our board of directors. Currently, our board is the most diverse in the S&P 500, with six women and four African American members, including our lead independent director. We're also pleased that three of our 12 network and practice area CEOs are people of color or female. While it is still too early to measure our progress, I'm pleased to report that a preliminary review of our employee diversity in the United States shows a meaningful increase in the number of diverse employees as of June 30, 2021, compared to the end of 2020. I look forward to a lot more progress being made in the months ahead. Continuing to focus on our people, we are pleased many of them have returned to the office as government restrictions are reduced or eliminated. We are encouraging our people to begin to make plans to return to offices as conditions improve in their local markets. Overall, we believe a return to an office-centric culture will enable us to invent, collaborate, and learn together most effectively. In turn, it will allow us to best serve our clients. The return to office will be grounded in safety and flexibility. and local leaders will determine what combination of office and remote work is most effective for their teams. I personally look forward to reengaging in person with our people and our clients over the coming weeks and months. I will now turn the call over to Phil for a closer look at the second quarter results. Phil?