Omnicom Group Inc.

Angel Ostro, Executive Vice President and Chief Financial Officer. On our website, omnicomgroup.com, you will find a press release and a presentation covering the information that we'll review today. An archived webcast will be available when today's call concludes. Before we start, I'd like to remind everyone to read the forward-looking statements and 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. These represent our present expectations, and relevant factors that could cause actual results to differ materially are listed in our earnings materials and in our SEC filings, including our 2024 Form 10-K. During the course of today's call, we will also discuss certain non-GAAP 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, and after our prepared remarks, we'll open the lines up for your questions. I'll now hand the call over to John.

Thank you, Greg. Good afternoon, and thank you for joining us today for our first quarter 2025 results. I'll begin by covering our results and then provide an update on the progress we are making towards closing our proposed acquisition of Interpublic. I'm pleased to report that we've had a good start to the year. Organic revenue growth in the first quarter was in line with our expectations of 3.4%, with strong growth in our media and advertising and precision marketing disciplines. Adjusted EBITDA margin, which excludes amortization of acquired and strategic platform intangibles, as well as IPG acquisition-related costs, was 13.8% for the quarter. Non-GAAP adjusted earnings per share, which excludes the after-tax amortization of acquired and strategic platform intangibles, as well as IPG acquisition-related costs, was $1.70, up 1.8% versus the comparable number in Q1 2024. Our cash flow and balance sheet remain very strong and support our primary uses of cash, dividends, acquisitions, and share repurchases. For most of the first quarter, we were restricted from purchasing shares until after our shareholder vote on the acquisition of Interpublic on March 18th. We expect to continue our share repurchases consistent with our approach in prior years for the remainder of 2025. Since our last call, as you're all keenly aware, there's been increased volatility in the economy and the markets. We're assessing the implication of these events to determine how they will affect our clients and our business. As in past periods of uncertainty, our clients must continue to compete for share in a dynamic marketplace by investing and leveraging the strength of their brands and increasing and actively expanding their connection with customers. Internally, our management teams are continuing to drive operational excellence, manage costs in line with revenue, and monitor changes in the macro environment. Given the uncertainty of the current environment, we're expanding the range of full-year 2025 organic growth to between 2.5% and 4.5%, and maintaining our adjusted EBITDA margin guidance to 10 basis points higher than the 15.5% we achieved in 2024. Nothing about the current environment impacts our confidence in our business and strategy or our ability to create new services and win new business. On the technology front, AI is touching every aspect of how our people work. It augments our insights and creativity, increases the speed and volume of personalized content, raises the level of effectiveness in targeting customers, expands the knowledge of our talent, and makes our operations more efficient. All of this is driving transformative outcomes for our clients. Much of this is enabled by OmniAI, our open-source platform that leverages the industry's leading generative AI models for text, graphics, video, and audio trained for our agency-specific use cases in areas such as strategy, content, and creative. Thousands of our people use OmniAI and we expect to add more users with the goal of having it on the desktop of every client facing Omnicom employee by the end of the year. At this point, most advances are to provide state-of-the-art tools to our employees. We expect that as AI tools become more reliable and are deployed to more clients, They will result in measurable efficiencies for our business. This work directly contributed to recent recognition. In March, we were named a leader in the Forrester Wave for marketing, creative, and content services. Omnicom Precision Marketing Group and Omnicom Advertising Group were recognized for their strong strategic and current authoring, respectively. This evaluation followed Omnicom being named a leader across two other recent Forrester evaluations, media and commerce. Omnicom is the only company named a leader in Forrester's wave reports for content, commerce, and media in 2024 and 2025. Several of our agency networks are also recognized for outstanding performance during the quarter, On AdAge's A-list, OMD was named Media Agency of the Year, and GSDNM was recognized as an agency standout. TBWA was named to Fast Company's Most Innovative Company list for the sixth time. PHD won Adweek's Global Media Agency of the Year for the second consecutive year after successfully defending $4 billion in business while re-engineering its strategy for an AI-powered future. I want to congratulate everybody on these achievements. Turning now to our proposed acquisition of Interpublic, we made progress throughout the quarter. In March, along with Interpublic, we received overwhelming support from our respective stockholders when they voted to approve the proposed transaction. This strong support confirms the immense opportunity of having complementary assets come together to create an unmatched portfolio of talent, services, products, and platforms. We also made progress on the regulatory approval front. In the last five weeks, we've received approval from five of the 18 jurisdictions under review. In the months ahead, we will continue to work on obtaining all the necessary regulatory approvals. We remain on track to close in the second half of 2025. We continue to develop plans for integrating our businesses with Interpublic. We have successfully organized our portfolio at Omnicom by aligning our agencies into marketing disciplines or practice areas to strengthen our depth of expertise and capabilities and to enhance collaboration across the group. This structure provides a seamless path for bringing together our operations with Interpublic, adding deeper expertise and capabilities to each practice area following the closing of the acquisition. Moreover, across the board, our practice areas will be underpinned by the best in class tech and data platforms, including Axiom, Omni, and Flywheel Commerce Cloud, a combination that will position us to thrive in an AI-driven future. Finally, we've made progress on our integration planning work, which will help us meet our targeted $750 million in run rate cost synergies following the closing of the proposed transaction. As I've discussed in February, we have clearly identified areas of synergy opportunity and our integration planning is well underway to ensure we achieve our targets. We believe our multi-year plan and the successful acquisition of Interpublic will create significant shareholder value. In closing, we had a good start to the year and are focusing on servicing our clients in these unsettled times and are on track to close the acquisition of Interpublic in the second half of the year. I'll now turn the call over to Phil for a closer look at our financial results.

Phil? Thanks, John. We delivered solid results this quarter, including organic revenue growth, growth in adjusted EBITDA, and growth in non-GAAP adjusted diluted EPS. We believe that the diversification of our portfolio of agencies across geographies, industries, and service offerings will help us in the uncertain environment ahead. Let's begin with a brief overview of our earnings for the quarter on slide 3. Reported revenue grew 2%. Note, our total reported operating expenses include $33.8 million of IPG acquisition-related costs in the first quarter of 2025. At the bottom of this slide, the non-GAAP measures removed these IPG acquisition-related costs from adjusted EBITDA, which was also up 2%. and the related margin was flat with last year at 13.8%. Now let's go into a more detailed review of our performance, beginning with changes in revenue on slide 4. Organic growth in the quarter was 3.4%. The impact on revenue from foreign currency translation decreased reported revenue by 1.6%, a bit less than our original expectation for the quarter of 2.0% to 2.5%. In the current environment, it is difficult to forecast the impact of FX rates on our future revenue for the rest of 2025. If rates stay where they were at quarter end, we estimate the impact of foreign currency translation on revenue will be negative 0.5% for Q2 2025, negative 1% for Q3, and flat in Q4, which would result in a negative 1% reduction for the full year 2025. The net impact of acquisitions and dispositions on reported revenue was negative 0.1%. At this time, we expect the impact of acquisitions and dispositions completed to date will be minimal for Q2 and for the full year 2025. Let's turn to slide five and review the quarterly organic revenue growth trends by discipline. First, however, I'd like to point out a change we made for 2025. In connection with the rollout of Omnicom production, and Omnicom Advertising Group, we've made some minor reclassifications of certain revenue related to changes in the agency groupings across our service discipline categories. You can find the revised revenue by discipline presentation with the reclassifications of the historical 2024 and 2023 numbers in the appendix on slides 21 and 22. Turning to the quarter, Media and advertising was up 7%, driven by strong growth in our media businesses across our geographies and mixed performance across our advertising agencies, which were down a bit. Precision marketing grew 6%, driven primarily by strong performance in the U.S., partially offset by mixed performance in other geographies. Growth reflects strength from the benefits of new business wins in our CRM agencies that began late last year, as well as continued good performance at Flywheel. Public relations declined 5% due to certain client delays and reductions from certain government clients. As the year progresses, we expect benefits from public affairs activity in our specialty agencies, and we expect a difficult count for the rest of 2025 related to the benefit in 2024 from U.S. election-related spend. Execution and support grew 2%, driven by growth at our custom communications businesses. offset by declines at our merchandising business. Experiential declined 1%, driven by the Middle East and Asia Pacific, partially offset by strong growth in the U.S., Europe, and the U.K. We also expect a difficult comp in Q2 and Q3 related to the benefit in 2024 from Olympics-related spend. Healthcare revenues were down 3%, as expected. slightly better than a decline in Q4, as our health group manages through some delays in client product launches and as they complete cycling on a client loss. We expect improved growth in the second half as the year progresses. Branding and retail commerce was down 10%, with most of the decline in our branding business, which was due to uncertain market conditions impacting both new brand launches and rebranding projects, as well as the continued slowdown from M&A activity. Turning to organic revenue growth by geography on slide six, our largest market, the U.S., had organic growth of 5%, and Latin America grew a strong 15%. Europe experienced growth, but it was mixed by market, and Asia Pacific also posted growth, offset by declines in the U.K. and the Middle East and Africa. As we look at the global trade uncertainty, we expect our geographic diversification to provide balance to our results. The US remains approximately half of our revenue, and it's worth noting that in fiscal year 2024, China was only 2% of our total revenue. Slide seven is our revenue by industry sector for the quarter. There were no notable changes to discuss. Now let's move down the income statement and look at our expenses on slide eight. In the quarter, Salary-related service costs were down on both a reported and constant dollar basis, driven by our continued efficiency initiatives and ongoing changes in our global employee mix. Our Q1 2025 employee base is down from Q1 of 2024. Third-party service costs grew in connection with the growth in our revenue, primarily in the media and advertising disciplines. Third-party incidental costs, which are out-of-pocket costs billed back to clients at our cost, also grew in connection with revenue growth. Occupancy and other costs were flat. These include office rent, other occupancy, technology, and general office expenses. SG&A expenses increased due to the $33.8 million of IPG acquisition-related costs in the first quarter of 2025. Excluding these costs, reported SG&A expenses declined by about 1%. Please turn to slide 9 to look at our income statement in more detail. Excluding the acquisition-related costs from the first quarter of 2025, non-GAAP-adjusted EBITDA grew 1.6%, and the related margin was flat at 13.8% compared to last year. Foreign exchange translation reduced EBITDA by approximately 1.5%. Moving down the income statement, net interest expense in the first quarter of 2025 increased $2.6 million to $29.4 million. This increase is the result of having a full quarter of interest expense in Q1 2025 from the debt we issued in early March 2024 in connection with the flywheel acquisition. The increase in expense was partially offset by an increase in interest income due to higher average cash balances. Our income tax rate was 28.5% in Q1 of 2025, compared to 25.7% in the prior year. The increase is primarily due to the non-deductibility of certain acquisition-related costs in 2025. Excluding a tax impact on these costs, our Q1 2025 rate was up a bit from Q1 2024 at 26.7%. For full year 2025, we expect the rate to be between 26.5 and 27. Average diluted shares outstanding were down 1% from Q1 of 2024, due primarily to repurchase activity last year. Reported diluted earnings per share was down 8.8% due to the after-tax acquisition-related costs. On an adjusted basis, diluted earnings per share increased 2% to $1.70. The effects of foreign currency translation reduced diluted EPS by $0.02. Now please turn to slide 10 for a look at free cash flow for the first quarter. The year-over-year decline in the quarter was driven primarily by a reduction in net income, which includes the impact of the acquisition-related costs. However, for the 12 months ending March 31, 2025, our free cash flow increased 3.5%, driven primarily by increase improved operating income, and net income. Our free cash flow definition excludes changes in working capital. Our working capital followed its normal seasonal pattern in the first quarter, and over time we expect to trend back towards our historical annual level that's close to neutral. Regarding our primary uses of free cash flow for the three months ended March 31st, we used $138 million of cash to pay for dividends to common shareholders and another $13 million dividends to non-controlling interest shareholders. Our capital expenditures were $30 million. As expected, this spend was a bit higher this period, reflecting ongoing investments on our strategic technology platform initiatives. Total acquisition payments, which include earn-out payments and the acquisition of additional non-controlling interests, were $4 million. As a reminder, in the first quarter of last year, we closed on the acquisition of Flywheel, for $845 million net of cash acquired. Finally, our share of purchase activity was $81 million, excluding proceeds from stock plans of $12 million. For full year 2025, we still expect to return to an annual purchase level of approximately $600 million, and we resumed our activities subsequent to the successful March 18 stockholder vote on the IPG acquisition. Slide 11 is a summary of our credit, liquidity, and debt maturities. At the end of Q1 2025, the book value of our outstanding debt was $6.1 billion, flat with the same prior year period. We have no maturities in 2025 and expect to address our April 2026 maturities after the expected closing of the IPG acquisition in the second half of 2025. We estimate that net interest expense will increase by $2 to $5 million in Q2 compared to Q2 of 2024 and by $15 to $20 million for the full year related to lower estimates of interest income in the second half. Our cash equivalents and short-term investments at the end of the quarter were $3.4 billion. We continue to maintain an undrawn $2.5 billion revolving credit facility. which backstops our $2 billion U.S. commercial paper program. We will assess our revolver capacity in connection with the closing of the proposed IPG acquisition. Slide 12 presents our historical returns on two important performance metrics for the 12 months ended March 31, 2025. Omnicom's return on invested capital was 20%, and our return on equity was 37%, both of which reflect our strong performance and strong balance sheet. The year-over-year change is driven by the IPG acquisition-related costs incurred in the 12 months ended March 31, 2025. I will now ask the operator to please open the lines up for questions and answers. Thank you.