Omnicom Group Inc.

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Earnings released 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 zero. 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, Senior Vice President of Investor Relations, Gregory Lundberg. Please go ahead.

Thank you for joining our fourth quarter and full year 2021 earnings call. With me today are John Wren, our Chairman and Chief Executive Officer, and Phil Angelostra, our Chief Financial Officer. On our website, omnicomgroup.com, we've posted a press release along with a presentation covering the information we'll review today, as well as a webcast of this call. An archived version will be available when today's call concludes. Before we start, I'd like to remind everyone to read the forward-looking statements, non-GAAP financial, and other information that we've included at the end of our investor presentation. Certain of the statements made today may constitute forward-looking statements, and these statements are our present expectations Relevant factors that could cause actual results to differ materially are listed in our earnings materials and in our SEC filings, including our 2020 Form 10-K and our September 2021 Form 10-Q. During the course of today's call, we will also discuss certain non-GAAP financial measures. You can find the reconciliation of these to the nearest comparable GAAP measures in the presentation materials. We will begin the call with an overview of our business from John, then Phil will review our financial results for the quarter. And after our prepared remarks, we will open up the lines for your questions. I'll now hand the call over to John.

Thank you, Greg. Good afternoon, everybody. And thank you for joining today. We're pleased to share our fourth quarter and full year performance. We exceeded our expectations for the quarter and for the year. Our organic growth for the fourth quarter was 9.5%. and was broad-based across geographies and disciplines. The full year finished at 10.2 percent organic growth. Our improved performance was underpinned by our precision marketing discipline, which is helping clients transform their business so they can engage directly with their consumers through digital platforms. We also benefited from the continuing rebound in our experiential discipline as more in-person events resumed in Q4. Our revenue performance flowed through to our operating profit and bottom line. Our operating profit margin for the fourth quarter was 16.1 percent, resulting in full year margin of 15.4 percent. Earnings per share for the quarter was $1.95 up 6% versus 2020. For the full year, EPS increased 49%. Finally, our cash flow and balance sheet remain very strong. Overall, I'm very pleased with our financial performance for the quarter and year and optimistic about our prospects heading into 2022. Looking forward, we're forecasting organic revenue growth of between 5% to 6% for the full year 2022, and we anticipate delivering the same strong margin that we delivered in 2021. With the pace of change in the digital space accelerating, we've continued to evolve our existing capabilities and invest in new and innovative offerings to meet the needs of our clients and future prospects. These efforts have allowed us to be extremely competitive in the marketplace by providing a suite of services and capabilities that position us to reimagine and strengthen our clients' businesses, brands, services, and products, seamlessly connect them with their consumers across the marketing journey by leveraging Omni, our insights and orchestration platform, transform their marketing and customer relationship technology platforms, and innovate in digital e-commerce and new media channels. One area where these investments are making a demonstrable impact is in our Omnicom's Precision Marketing Group, which offers more tech and digital transformation consulting, decision sciences, customer experience design, and targeted customer marketing programs for our clients. In November, we closed on the acquisition of BrightGen, a Salesforce Summit partner that will extend OPMG Salesforce capabilities and reach in Europe. The success of Omnicom's precision marketing offering is reflected by the group's wins with some of the world's largest brands, such as Philips, Mercedes, Nike, and Diageo, and by its financial results. The precision marketing discipline grew by 19%, in 2021. Much of the work conducted within Omnicom Precision Marketing is supported by foundational AI decisioning layer and technology integrated with Omni, our open operating system that orchestrates better outcomes. Omni is built for collaboration across the entire company, acting as a single source of data and process workflow from insights to execution. It empowers our people and clients to make better and faster decisions, maximizing efficiency and ROI. A key emphasis for us going forward is to continue to fill the demand for services across the marketing journey by offering more services to our existing clients and winning new business relationships. Our objective, in part, is to increase the number of clients who consolidate more of their services with Omnicom. These are significant growth opportunities for us where our suite of services, creativity, and culture of collaboration, all supported by Omni, give us a competitive advantage. In addition to our integrated wins, our world-class talent and agencies had numerous recent new business wins within their specialties and across geography. Our success on our wins in 2021 has resulted in us expanding our services and continues to inform our priority investments and M&A strategies. We are also increasing our investment in such areas as AI and automation, e-commerce, performance media, data and analytics, as well as in high-growth industry opportunities such as gaming and the metaverse. We recently completed the acquisition of Propella, a digitally native engagement agency that specializes in healthcare, another area we expect will continue to see strong growth. Propella is a fast-growing omnichannel strategy content and delivery agency that embraces and mobilizes data to deliver meaningful results for its clients. At Omnicom today, our emphasis is on developing our future talent and continuing our discipline succession planning. With this in mind, we made important senior management changes this past quarter. Darryl Sim moved into the newly created position of President and Chief Operating Officer of Omnicom after serving as CEO of Omnicom Media Group for more than two decades. Daryl will now work directly with me to oversee business operations across Omnicom. Florian Adamski, who was previously CEO of OMD Worldwide and helped the agency earn back-to-back Adweek Global Media Agency of the Year titles in 2019 and 2020, has succeeded Daryl as the CEO of the Omnicom Media Group. After more than two decades of overseeing the growth of our DOS network, Dale Adams, as planned, stepped down as chairman at the end of 2021. We're grateful for his many years of leadership and commitment to Omnicom and wish him all the best. Michael Lawson and John Doolittle have been promoted to CEO of DOS and CEO of the newly created Communications Consultancy Network, respectively, reporting to me. Both of them have worked closely with Dell and have been a driving force within DOS for many years. They are highly talented executives who are skilled at managing agencies in a range of disciplines. With these leadership changes, I couldn't be more confident about the continued success of our group. Our people are our greatest asset, and we are constantly looking to invest and create opportunities for them across the enterprise. Especially during a time when the war for talent is fierce, attracting and retaining talent is a top priority. We've made many changes. We've also instituted new programs that provide greater career mobility across our agencies, allow for agile and flexible work arrangements, and expand our investments in technology, learning, and development programs while maintaining competitive benefits and compensation programs. We also want Omnicom to be a company that our people can be proud of and want to work for. Over the years, we've been focused on the role we play in critical areas such as environmental sustainability and diversity, equity and inclusion. In 2021, we need new leadership and expanded our teams in these high priority areas. so that we can continue acting on our goals and implement new initiatives. In fact, this past year, we were the only company in our industry named to Newsweek's list of America's most responsible companies. We aim to achieve more in the new year so we can ensure Omnicom agencies are a destination of choice for top talent. We're entering the new year in a very strong position with a sharp eye on our key strategic initiatives, which remain our talent, dedication to creativity, and building our already strong capabilities in precision marketing and market consulting, e-commerce, digital and performance media, and predictive data-driven insights, all of which are fully supported by Omni. In closing, I'd like to recognize and thank our people around the world You are the reason we delivered such strong results this quarter and for the full year. You kept your focus and commitment to Omnicom's client and operations, even with the ongoing challenges of the pandemic. Your efforts in these tough times are noticed and appreciated. Thank you. I will now turn the call over to Phil for a closer look at our financials. Phil?

Thanks, John, and good afternoon. Thank you for taking the time to join us today. The fourth quarter results continued the momentum of the third quarter and helped us finish the year in a strong position. While the world isn't the same as it was pre-pandemic, we're in a stronger position to serve our clients in 2022 and beyond. Let's begin with a brief look at our income statement on slide three. Growth in revenues and operating profit flowed through to net income for both the quarter and the year. Combined with the resumption of our share buyback program, we had 6% growth in diluted earnings per share. Dividends grew 7.7% in 2021, and we're pleased to resume this growth after maintaining our dividend payments throughout the pandemic. Please turn to slide four, and we'll go through our results in more detail, starting with revenues. Our total revenue growth in the quarter was 2.6%, while our organic growth for the quarter was 9.5%, or $358 million. The impact of foreign exchange rates decreased our revenues slightly in the quarter by just 30 basis points. However, if rates stay where they were January 31st, we estimate that the impact of foreign exchange rates will reduce our revenue by approximately 2% in both the first and second quarters of 2022. The impact on revenue from our net acquisitions and dispositions decreased revenue by 6.6 percent. This was consistent with our expectations and is primarily the result of disposition activity from Q2 of 2021. We have also acquired some excellent businesses in key growth areas, which I will discuss later. Based on transactions completed to date, we estimate the impact of acquisitions and net of dispositions will reduce our revenue by approximately 9% in the first quarter and by approximately 5% in the second quarter of 2022. And we expect positive acquisition growth in the second half of 2022. Slide five presents the changes in our total revenues by business discipline. Advertising, our largest category, posted 7.4% organic growth in the quarter. Both our media agencies and our creative agencies contributed nicely to this growth. Precision marketing grew 19.6% organically in the quarter and is now 8% of our total revenues. As John discussed, the businesses in this discipline are doing exceptionally well and have a great pipeline for their work in digital and marketing transformation consulting services, e-commerce, marketing sciences, and digital experience design. Commerce and brand consulting was up 12.4%, with widespread strength across all larger agencies. In commerce, our agencies experienced strong growth, although off a reduced base. In brand consulting, we're seeing benefits and good activity in the technology sector and from corporate branding aimed at reputation, ESG, and DE&I. Experientials growth in excess of 50% benefited from a return of some in-person events throughout the fourth quarter before the Omicron variant took hold, and we expect continued growth in 2022, although likely choppy, as brands look to engage with consumers in person. Execution and support was up 5.2%, with growth in the U.S. businesses exceeding the performance of our businesses in Europe, where our field marketing business was impacted by the new variant. PR was up 4.4%, and healthcare was up 4.5%. Both of these disciplines reflected strong performance across their agencies. It's worth remembering that they performed relatively well throughout the pandemic, so we're pleased with the results. Flipping to slide six, you can see that we grew organically in each of our regions, and growth came from most of our disciplines within these geographies. In the U.S., our 7.8% organic growth was slightly higher than the last quarter, led by advertising and media, as well as precision marketing, where growth remains over 20%. Also, results for our experiential business in the U.S. this quarter were quite strong, as I mentioned. Outside the U.S., growth was led by the U.K. and the Asia-Pacific region, with strong PR, media, and commerce and consulting results in the U.K., and broad strength across the board in Asia. It's worth mentioning the strong organic growth of 48% for the Middle East and Africa, our smallest region. Revenue in Q4 of 2020 was down over 35%. In Q4 2021, advertising and media performance was strong, and this quarter's results were also positively impacted by experiential revenue related to the Dubai Expo. which was initially scheduled for 2020. Looking at revenue by industry sector on slide seven, relative to full year 2020, there was a two-point increase in our revenue mix from technology clients, offset by a one-point reduction in the revenue mix from pharma and health. Let's now turn to slide eight for a review of our operating expenses. Salary-related service costs, our largest category, increased by 11.1 percent. As expected, these costs, which include freelance support, increased along with our increase in revenue, as did travel and entertainment costs, which aligns with the fact that our people are slowly going out in certain markets and meeting with clients in person. The next line item, third-party service costs, were down 11.2%. They decreased by approximately $220 million from dispositions. and were offset by an increase of approximately $100 million from growth in our businesses. Occupancy and other costs, which are less directly linked to changes in revenue, were up 4.2 percent year on year due to higher general office expenses as we returned to the office, offset by lower rent and other occupancy costs as we continued to use our spaces more efficiently. SG&A expenses were up 8.4 percent on a year-over-year basis due to an increase in marketing, professional fees, and new business costs. In total, our operating expense levels were up slightly, less than 3% from the fourth quarter 2020 to 2021. We're comfortable with this growth because it is linked to a return to the pre-pandemic and investments for future growth.

If you turn to slide nine,

you can see our operating profit growth and our margin performance. For the quarter, operating profit increased 1.3% and represented a 16.1% opportunity.

Our fourth quarter EBITDA change and margin performance was similar. For the full year, operating

profit was up 37.5% with a margin of 15.4% and EBITDA was up 35.4% with a margin of 15.9%. As we look forward, while we expect to continue to see a return of certain costs to more normalized levels, we also expect that they will be offset in part by reductions in certain discretionary and infrastructure costs resulting from new ways of working and efficiencies achieved during the pandemic. As John mentioned earlier, for the full year 2022, we anticipate delivering the same strong reported operating profit margin of 15.4% that we delivered in 2021. And as always, we will continue to focus on growing our operating to our cash flow performance on slide 10. We define free cash flow as net cash provided by operating activities excluding changes in working capital, which are generally positive for us on an annual basis. Free cash flow of $1.8 billion grew 5.4 percent. We're pleased with the strength of this important metric. Regarding our uses of cash, we used $592 million of cash to pay dividends to common shareholders and another $113 million for dividends to non-controlling interest shareholders. We maintained our dividend throughout the pandemic in 2020 and increased it by 7.7% in 2021 to a quarterly rate of 70 cents per share. I'm going to discuss capital expenditures in two pieces. Our normal capital expenditure levels were unchanged from 2020. Additionally, in the fourth quarter of 2021, we had a very unique opportunity to purchase our primary office building in London. for approximately $575 million. Subsequent to the purchase during the fourth quarter of 2021, we issued £325 million sterling notes due in 2033 with an attractive 2.25% coupon. To give you some background, we have more than 5,000 people at work there from multiple agencies. It's our largest office building globally. and our second largest market. We've been consolidating space in London for some time and have exited 31 buildings since 2015. London is a key market for our future, and this building is in the South Bank area west of London Bridge near the Tate Modern, a culturally vibrant area of London key to attracting and retaining talent. Financially, it's an attractive opportunity for our business and we will avoid expected market increases on our rent that didn't compare favorably to outright ownership. The purchases of this building has not changed our capital allocation strategy and did not impact our credit rating. Acquisitions picked up relative to 2020 at $202 million. As we talked about last call, we are investing in the areas most important to our clients and therefore to our future revenue growth. Two acquisitions in the fourth quarter of 2021 are highlighted at the back of this deck. Jump 450 Media, a performance media agency that is now part of Omnicom Media Group, and BrightGen, a digital business transformation specialist that is a significant implementation partner for the Salesforce marketing stack. BrightGen is now part of our precision marketing group. And lastly, we ramped up our stock repurchases during the fourth quarter bringing the year to $518 million. As you know, our pre-pandemic annual range was $500 to $600 million, so we are solidly back on track with this important total return component for our shareholders. Our historical capital allocation has been very consistent, using our free cash flow for dividends, stock of purchases, and acquisitions. We don't expect this to change going forward, although we do see more opportunities for acquisitions similar to those we completed in 2021. These tuck-in type acquisitions are efficient for us because the acquired agencies and their service offerings can contribute across our group to serve an embedded base of clients and to help win new ones. Slide 11 shows our credit and liquidity. Notwithstanding that sterling note I just mentioned, You can see that our other financing activities throughout the year lowered our outstanding debt from December 2020 to December 2021. At year end, our total leverage was 2.4 times. In addition to the $5.3 billion of cash on the balance sheet at year end, we also have a $2 billion U.S.

slide 12, which shows a strong return on invested capital. for the fiscal year 2021 return on equity. Both of these took notable steps up from 2020 of the strength of our business. At this point, operator, please open the lines for questions and answers. Thank you. And ladies and gentlemen, if you wish to ask a question, please press 110 when you're touched on the phone. You may remove yourself from the queue at any time by pressing 10 again.

If you're using your speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press 110. And we'll start with David.

John, I was wondering if you could provide some additional color around your organic outlook for 2022. return to your events and execution businesses?

Well, certainly we've taken all of that into consideration. I'll first start off with the last part of your question, which is the in-person execution type of event businesses. We anticipate possibly even the first five months of the year because of the variant, and that kind of put markets back on its heels a bit, but it's fully coming back by the second half of the year. So we've taken that into consideration and given the guidance that we've given. um we've also taken into consideration we've looked very closely companies that service certain sectors that have had more difficult time with supply chain than others and um we've been i think reasonable if not conservative in our estimates of what kind of revenue we expect to see there um the growth that we're projecting really as a result of the many wins that we had this year of both new clients but also expanding our services to existing clients.

Does that answer your – Yeah, no, that was great. And then for Phil, wondering if you could just speak a little bit more to the puts and takes on the margin outlook. You know, how does the purchase of your London headquarters impact that? And then just to confirm, is the guide for consistent margin against your reported figure? I just wanted to check if you did have the $50 million gain from the icon sale in there.

Yeah, you know, in terms of the margin, I think we gave a number. So I think, you know, the number is the number, and that's our expectation for, 22. You can view it as it happens to be the same number as 21. What's in it in 22 will be a lot different than what's in it in 21. There's going to be a lot of puts and takes in the cost structure as the business continues to ramp up and grow and some costs come back into the business that have taken a little time to get there, offset by You know, some efficiencies from outsourcing and automation and, you know, other discretionary costs being controlled and reduced. So there's going to be a lot of puts and takes in the cost structure in 22 relative to 21. But we're confident that we'll deliver what we delivered, sorry, in 22. We're confident we'll deliver in 22 what we delivered in 21 from a margin percentage standpoint. perspective.

Very clear. Thank you.

Sure. Next, we'll go to the line of Jason Bazinet. Please go ahead. I just had a question on the disposition headwinds. You talked about minus 9 in the first quarter, minus 5 in the second quarter. Does that assume more acquisitions sort of coming in, or is that just the normal sort of sort of seasonal profile of businesses that we're disposed of that accounts for it. Sure.

I'll take a stab at it, and then Phil can add. A couple of calls. We've more or less completed our review on major dispositions. We've been very actively engaged in trying to purchase services in the areas that we've outlined. So what you see in the first half of this year in Phil's comments is the residual of actions taken through June 30th of last year for the most part. And we fully expect when you look at the second half and beyond that acquisitions will be what you see in our numbers.

There is some choppiness under our seasonality and the dispositions in the first quarter of last year while the number is a little bit bigger. But the way we calculate that number, we do an estimate based on transactions that have closed to date. So we certainly have a robust pipeline of acquisitions that we're looking at.

You know, some of them we will do.

Some of them won't work out. But as we look out at the year, knowing what we know today in terms of what's been completed today, that's our expectation for the first quarter and the second quarter. we expect that number will change um the net number um you know will change as we as we complete some transactions as we complete some acquisitions i should say uh throughout 2022 so we expect acquisition growth net in the second half uh in the third quarter in the fourth quarter and if if we close on some transactions earlier in 22 uh that we we've been negotiating you know, the negative number might come down a bit. But that's where we stand today.

And next we'll go to the line of Ben Swinburne. Please go ahead.

Thanks. Good afternoon. John, 5% to 6%, obviously, very strong guide for 22. I think that would be your highest organic growth. When you step back and think about the repositioning of your portfolio, is that the biggest in the several years before 2020? The pandemic, when growth was sort of 2% to 3% and what you expect now, would you chalk it up to sort of changes in, you know, product off and sort of your high-level perspective on that?

And then I just was wondering if you guys saw a lot of variability on that 5%.

five to six through the quarters because the comps from 21 are all over the place. I was just wondering if you had any advice in thinking about the quarterly progression. Thank you.

Well, you know, you've been on quite a few of our calls, so I know you've heard version 15. Our primary focus post that was looking at the portfolio and looking at the assets that we had

um would we want to own these assets um that was an ongoing process doing dispositions and being less focused i would say on acquisitions um as two years ago now um that clarity um we we were

very happy that most of the dispositions that we had planned for, we were able to execute. And we started to gear up our M&A machine again, which had been dormant, I would say, in the 16, 17, 18 period. And that includes both the efforts that are made here at corporate plus in certain select practice areas where we've decided to focus on growth because that's where we see the business going. And in speaking to our largest clients, the types of services that are going to be required in the future and that they're very happy, you know, to extend their relationship with us on. And as you know, we've always had a very disciplined approach to this. And if we couldn't buy it at the right price, we'd build it. Sometimes that hurt our P&L. But I think we're flexible with the portfolio, and we're very purposely looking at certain acquisitions because we think that's where the market is going.

Right. Got it. Anything else?

Yeah, as far as the quarters go, Ben, I think at this point in time in the year, as you can imagine, we don't have a lot of visibility into certainly the fourth quarter and or as much into the second half. We're certainly very comfortable with our expectations in the first half of the year. I don't think I would look at the quarters right now based on what we know as varying significantly. We're bouncing around a tremendous amount. Other than our typical approach, we're pretty conservative about the fourth quarter because

Please go ahead.

Thanks. Hey, John, I have two for you. Following up on Ben's question on organic revenue growth, I wonder if you can talk a bit about how do you think the impact of all these new privacy initiatives like IDFA, the end of cookies, how that's impacting your outlook for growth? Are you seeing a shift in demand for your services in areas that address those shortcomings? And if you would agree that we're seeing accelerated growth in behavior from clients and customers, how do you juggle maybe the big transformative acquisition that some of your peers have done versus the tuck-ins? And how do you balance the thinking on maybe doing a big deal that pushes you further along versus smaller tuck-in deals that may be more creative? Wow. I'm going to attempt to answer your questions best I can. I have enough trouble running Omnicom, so I don't really worry about the huge acquisitions that my competitors are making. When it comes to us, and I think there's an article, Forrester and some of the other magazines and other publications are picked up yesterday with a client speaking to this subject more than, so it should carry more credibility than me saying something about it.

On Omnicom.

On Omnicom, about Omni, the investments we've made, the transparency that we've stayed absolutely committed to, you know, in an ever-changing environment where the transparency, I mean, the privacy rules are changing and being reinterpreted as we sit here tonight, both outside the United States and even in certain of the largest states in the country. And we don't think that that's over. We think that's still an open subject. But we think we're in a great position to not have to defend any moves that we've made or revenues that we've purchased And we can adapt our services and our partners to whatever their current market conditions require. But we all would agree that this is something that governments that have been playing around with it and talking about it, and courts in certain jurisdictions are actually starting to... look at a lot closer than at any time in the past. So we're very, very happy with it. I think the key takeaway, if you glance at that story that I referred to is we built army initially as a media product, um, and you know, for audiences and other things and what we've been able to successfully accomplish in the last several years as we've been rolling it out, is it's become the operating platform which informs every aspect of the services that we provide to clients that allow us to deploy it. And that's why in my comments, I noted that there are really two areas where we're going to get growth next year. One is in continuing to win new business but as importantly, to extend services in areas that we're not currently servicing longstanding client relationships. So the confidence is built on a pretty detailed look at ourselves versus our competitors in the marketplace. And we're very, very comfortable with the decisions that we've made.

Relative to your question and some of the prior ones, one thing not to lose track of is even though we were largely focused on the results show, we certainly pruned the portfolio, did some dispositions over the last three or four years, and less in the acquisition area. We've been investing pretty heavily in this space, data analytics and the Omni platform, for well over 10 years. 10, 12, 14 years making some significant investments. So we've been preparing and adjusting our approach all along. We didn't have a need to do a multi-billion dollar acquisition from our perspective. Our focus has been on building a platform that gave us the flexibility that John was talking about and focusing on intelligence and decisioning and activation and outcomes, not just data ownership and or first party data management. There's a bit of risk there, given all the changes in the privacy rules and regulations. But we'll certainly be monitoring those as things evolve at a pretty rapid pace.

Thank you both.

Sure.

And next we'll go to the line of Stephen Cahill. Please go ahead.

Thanks. Maybe first just on compensation. I'm wondering what kind of salary and expense growth you've got baked into the flat margin guidance. And it sounds like with that really strong organic growth guide, you're going to be bringing a lot of people on board this year. So we'd just love to get your view. of what the wage inflation environment looks like. And then related to that, Phil, I was wondering if you could help us with free cash flow conversion. Sometimes it's a little lower when you're growing and a little better in years when you might be shrinking. So anything we should be mindful of in terms of working capital or anything like that as it relates to your free cash flow conversion in this high growth year? Thanks.

sure um let me take part of it and then phil can supplement what i say and answer the specific question you addressed to him um i think we ended the year at the same employer employee level as we were pre-pandemic and i think in the last year uh 20 to 21 we went from about 65 000 folks to a little over 70 000 um employees so that growth is there um there's no denying um that there is wage inflation and that we've been coping with this and dealing with it there's also not anticipating inflation but anticipating how do we improve our productivity We've been making investments, as Phil mentioned in his comments, outsourced to automate, to look to the future in terms of AI and what contribution it can make. So there are quite a bit of puts and takes in terms of what we expect to face from the salary and wage inflation. um point of view and um we've been very careful uh before we got on this call and and said that we could maintain our margins our strong margins uh at you know at last at the 21 levels uh phil you might want to yeah just you know one or two things to add on margin front um

As John said, we're back to pre-pandemic levels in terms of the employee base. We also wouldn't necessarily look at 22 and the guidance we've given as far as margins and say, yeah, it's just flat. We think if you look at 21, 21 is still not a normal year. Certainly 2020 is not a normal year. not all the costs have come back into the normalized business. So there's some opportunities, certainly, that we're going to have to take advantage of for some cost reduction achievements in 22 to kind of get to this normalized level, which is, in a pretty meaningful way, better than pre-pandemic margin levels. So, you know, we're pretty satisfied with the performance in 21. We're looking at, you know, our expectations for 22. We view them very positively in terms of the margins that we expect. The free cash flow question, I think if you go back through our numbers, you know, back to 2017,

And prior, we've been delivering $1.6 billion, $1.7 billion, up to about $1.8 billion this year in free cash flow very consistently.

We don't expect a meaningful drop-off in our performance. And in fact, if anything, we think the pandemic period, our people performed you know, very well in this area. And I think we've gotten even better through some of the things we've learned managing our free cash flow during the pandemic. So we don't expect a meaningful drop off at this point.

Great. Thanks for that context.

Sure.

Next, we have a question from one of Tim Nolan. Please go ahead.

Hi, thanks for taking the question. I've been jumping around a bunch of calls, so apologies to this question. It's already been asked or if you've addressed it. But on your last earnings call, you talked about a pretty decent pipeline of deals that you're working on. I do know you said a few in the quarter here. Just wondering if you could talk a little bit more about what other assets you might be looking to acquire, what the pop-in looks like, and if there's any other divestitures in the works. You've done a number of these over the years. I think you're largely done with those. But if you could address that. And again, apologies if this has already been addressed.

No, it's okay. It's an important question to ask. We don't have any major dispositions under consideration. So, you know, that for now is in the rear view mirror. As we've We've said, and we might have said it earlier when maybe you weren't jumping around, we've been focused on the fastest growing part of our business, which is the precision marketing, the data and analytics, business transformation consulting, e-commerce, because everybody's doing, it's really commerce, and performance media, and healthcare. And our acquisition pipeline is, is in those areas and um there are a number of conversations that are ongoing um and we fully expect that we'll be closing deals you know after this call and you know as we move through the rest of 2022 in these areas if some other great opportunity pops up Thank God we have the financial resources to look at it and take advantage of it because we have not maintained our agility and flexibility with respect to how we can view the needs of our clients and how we can best serve those.

Okay, thanks. If I could just follow up quickly, I assume that the pricing environment is – good enough for you now that there are opportunities to be had?

I've never been happy reaching into my pocket and paying a shekel more than I've had to. So the one thing that pivots off of the list of areas that I just recited is that The acquisitions we're looking at, we'll be able to look at them independently and be happy with them, but we'll also, more importantly, believe that we can leverage them with our existing client base and the existing needs of our clients.

Thanks, John. Your history of deals, I think, speaks for itself, so appreciate the call there. Thanks.

Watch every shekel, as if it's my own.

Thank you.

And next we've got a line of Craig Huber. Please go ahead.

Thank you. John, my first question, just sort of big picture, I think most investors would be very happy if you guys delivered 5% to 6% organic revenue growth. Can you maybe share with us, if you would, the tone of the conversations with your clients as they sort of think about the market and advertising budgets for this year? How optimistic are they? Are they really leaning into it? brand awareness out there, driving transactions? Let me just touch on that first, please.

Sure. I mean, I think the focus of every CEO out there is how do they create better relations with their customers, gain better knowledge of what their customers' needs are, and develop a relationship with them. because that will not only add to their performance in 22, but sets the foundation for their relationships going forward. No one is going to deny that there are challenges, both in the correction of however long the supply chain takes to work its way through. I think we'll be a better place when that actually occurs, and the fact that we're, at the moment, suffering from inflation that we haven't seen in quite a long period of time. So our customers, our clients, I won't even call them customers, I'm sorry, are very focused on growth, and also they're keenly aware that each one of their customers are being influenced by messages 24-7. And bringing clarity about their products and identification and reasoning why they should be selected is what we're expert in. And so, you know, there haven't been any celebrations or parties, but a lot of very strategic and tactical conversations about how we're going to grow the business and how they're going to grow their business. So it's not, oddly enough, you know, when you get on these calls or you get in front of a potential client, there's a tendency to talk about us. We're a service provider. We're here to sell clients' products.

John, as you know, ever since Facebook reported a few days ago, there's been a lot of talk after that about TikTok and taking a lot of share out there of users' time on their mobile devices and so forth. I'm curious, from your standpoint, from advertising going to TikTok or similar platforms like Snapchat or what have you, are they sort of viewed out there by your customers as more experimental, or is it really starting to pick up steam after the advertising revenue is shifting there?

I can't really speak to Facebook's issues, short term or longer term. But we're agnostic in terms of who we partner with and where we get the information that we need in order to sell those clients' products. And, you know, you look beyond the immediate to the impact of gaming, the impact of, you know, metaverse, whenever and as that really falls out from just a word to, you know, really capturing the attention of consumers. And the great thing about is we've remained incredibly flexible and not tied to any, I would say not only any single, but any multiple sources of gaining that data. And we, you know, if it makes sense for our clients for us to have a relationship with TikTok, you get stronger. If it makes, you know, sense for us to spend more money with google and some of the efforts that it's doing we're easily we can easily do that um we are an agent but one that has built that flexibility and almost a knowledge that we can't accurately predict that but what we can accurately predict is the fact that if we're flexible, we'll always be able to keep what's important in mind, which is the client and the client's requirements.

Great. Thank you, John.

I guess it's coming up on any other questions. And we have no other questions in queue at this time. Okay, thank you all.

We'll see you on the next call.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.