Omnicom Group Inc (OMC) — Q3 2022 Earnings Call Transcript

Good afternoon. Thank you for joining our third quarter 2022 earnings call. With me today are John Wren, Chairman and Chief Executive Officer; and Phil Angelastro, Executive Vice President and Chief Financial Officer. On our website, omnicomgroup.com, we've posted a press release along with the 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 An archived version will be available when today's call concludes.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 would like to remind everyone to read the forward-looking statements and non-GAAP financial and other information that we have 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 2021 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 for the quarter. And after our prepared remarks, we'll open up the line for your questions. I'll now hand the call over to John.

Thank you, Greg. Good afternoon, everybody, and thank you for joining us today for our third quarter results. I'm pleased to report that in the third quarter, we continued the very strong performance we've had throughout 2022. We exceeded our expectations with organic growth of 7.5%, which was broad-based across our agencies, disciplines, regions, and client sectors. Year-to-date, organic growth is 10.3%. Operating profit margin for the quarter was 15.9%, 10 basis points higher than our comparable margin in 2021. Earnings per share for the quarter was $1.77, up 7.3% versus 2021. The negative currency impact on EPS of the strong U.S. dollar was approximately 5%. On a constant currency basis, EPS would have increased approximately 12.3%. Our cash flow, liquidity, and balance sheet remain very strong and continue to support our primary uses of cash: dividends, acquisitions, and share repurchases. Phil will cover our financial results in more detail during his remarks. On last quarter's call, we mentioned several first-of-a-kind e-commerce collaborations with Amazon, Instacart, Kroger, and Walmart. This quarter, we expanded and enhanced our e-commerce capabilities by announcing Transact, a dedicated practice focused on connected commerce consulting and e-retail execution services. Transact will capitalize on the unique partnerships we've entered into, and we'll focus on driving sales for clients and growing market share on e-retail platforms. Transact adds to our best-in-class e-commerce services in digital transformation and MarTech Consulting, CRM, precision marketing, media, campaign activation, and creative content. We also continue to invest in our iconic agency brands. A recent example was TBWA Worldwide, which recently acquired innovation agency, dotdotdash. Dotdotdash builds future-forward brand experiences at the intersection of culture and technology, a valuable addition for the total brand experience company like TBWA. We will continue investing to enhance our capabilities in high-growth areas, including CRM, precision marketing, digital transformation, performance media, and e-commerce. Our investments in these areas to date have been very effective and are reflected in third-party validations. A few weeks ago, we were named a leader in Forrester's Wave assessment for global marketing services. We received the highest scores possible in five criteria: creative content and services, media management services, integration services, global client teams, and innovation road map. Our performance highlights our ability to deliver creative and strategic solutions to our clients through integrated multidisciplinary teams. One way we do this is through our Global Client Leaders Group, which has led the industry in developing innovative service solutions for our largest clients. Since 2014, our GCL Group has been led by Peter Sherman. After a successful 25-year tenure at Omnicom, Peter has made the decision to become a full-time undergraduate professor, teaching marketing and communications at a top-ranked university. I want to thank Peter for his countless contributions at Omnicom and wish him the best of luck. We are expanding on the foundation Peter helped build to further enhance the services we deliver to our largest clients and to pursue new business opportunities aggressively. As a first step towards that goal, we announced the appointment of Andrea Lennon to the new role of Chief Client Officer. Andrea has a strong track record in marketing transformation at critical mass Omnicom's digital experienced design agency where she spent seven years working in Asia, Europe, and the United States prior to being named President two years ago. Andrea will focus on transformative marketing solutions and capabilities that drive business results for our global enterprise clients. In partnership with the GCL team, she will accelerate solutions that draw on the group's best talent, integrating Omnicom's leading capabilities in data, creative, media communications, and technology. We will be sharing more updates on our client solutions strategy and new business team in the coming weeks. We are fortunate to be making these changes from a position of strength. We were recently recognized by the Effies with one of the industry's most prestigious honors, identifying ideas that work. The 2021 Global Effie Effectiveness Index named Omnicom the most effective marketing communications company in the world. Four of our agency networks, BBDO, DDB, OMD, and TBWA placed in the top 6 of the most effective agency network category. In addition, OMD was named the most effective media agency network. These notable rankings demonstrate our standout talent. I want to congratulate all of our agencies and people on executing the most effective and creative work in the industry for the benefit of our clients. Overall, we're very pleased with our quarterly and year-to-date financial results as well as our progress on our key strategic initiatives. Based on our strong performance this quarter and for the first nine months of the year, we are increasing our prior organic growth forecast from 6.5% to 7% to 8% to 8.5% for the full year 2022. We also continue to anticipate delivering the same strong operating margin of 15.4% for the full year of 2022 that we achieved in 2021. While we have cut our forecast, we retain a healthy level of caution due to macro factors, including the ongoing war in Ukraine, the continuing disruption of global supply chains, the economic risk posed by rising interest rates here in the United States, and higher inflation around the world. In light of these risks, we are actively taking actions to mitigate the potential negative effects of these macro factors on our business. I'm confident we are well equipped to handle any economic downturn and have the leadership teams in place to minimize the impact on our top and bottom lines. I will now turn the call over to Phil for a closer look at our financial results.

Thanks, John. As you just heard from John, our third quarter results were solid, reflecting growth across all our disciplines. While the rate of growth, as expected, is below our first half results, we feel very good about the competitive position of our company, leading us to raise our guidance for full year 2022 organic growth, and we have a positive outlook for 2023 and beyond. Further down the income statement, our cost management has resulted in strong operating performance and operating profit margins. Our disciplined approach to capital allocation and investment has led to both improved service offerings and increased shareholder returns through dividends and buybacks, all while maintaining an excellent credit and liquidity position. Let's go into the financial details of the quarter, beginning on Slide 3. Reported total revenue in the third quarter was flat year-over-year at $3.4 billion. Organic growth was 7.5% for the quarter. However, as I'm sure you're aware, the U.S. dollar has strengthened significantly, and almost half of our revenue is outside the U.S. In dollar terms for the third quarter, this drove the largest negative quarterly impact from foreign currency translation so far this year, a $216.6 million or 6.3% reduction of revenue. With most of our expenses incurred in the local markets where our revenue is earned, foreign currency translation impacted our profits as well. Reported operating profit for the third quarter increased around 1%. While on a constant currency basis, it increased 6%. Below the line, higher interest income helped lower our net interest expense, and we benefited slightly from the translation impact of our euro and British pound-denominated debt. Overall, our net income rose 2.5% on a reported basis. Combined with a 4% reduction in shares year-over-year, diluted EPS rose 7.3% after a negative 5% headwind from foreign currency translation. On a year-to-date basis, it's helpful to turn to Slide 4, where we show adjustments to make the current and prior year-to-date periods more comparable. None of these adjustments are new this quarter; they were discussed earlier this year and last year. The year-to-date 2022 period, operating expenses and income taxes were impacted by charges in the first quarter arising from the effects of the war in Ukraine. For the year-to-date 2021 period, operating expenses benefited from a gain on sale of the subsidiary, and both interest expense and income tax expense reflect the impact from the early extinguishment of debt. Similar to the quarterly results we just discussed, the strength in the dollar this year also impacted our year-to-date results. Foreign currency translation reduced revenues by 4.5%. Operating profit on a non-GAAP adjusted basis was up 1.9%. And on a constant currency basis, was up 6.1%. For a more detailed look at our results, let's now turn to Slide 5, and begin with an analysis of the changes in our revenue. As discussed, the quarterly impact from foreign currency translation was negative 6.3%. The impact of acquisition and disposition revenue was negative 1%, primarily reflecting the disposition of our businesses in Russia during the first quarter. Organic growth was 7.5% for the quarter and 10.3% year-to-date. Looking forward, if FX rates stay where they were as of October 12, we estimate that the impact of foreign exchange rates will reduce our revenue by approximately 6.5% in the fourth quarter. Based on deals completed to date, we expect the impact from net acquisitions and dispositions will result in a reduction of our revenue of approximately 1.4% in the fourth quarter, primarily resulting from the disposition of our businesses in Russia. Turning to Slide 6. For the quarter, we once again showed growth across all of our disciplines with double-digit growth in three of them. Advertising & Media, our largest category, posted 6% organic growth in the quarter, led by strong media results. Precision Marketing continued its strong performance with 16% organic growth as clients turn to us for digital transformation, digital customer experience, and data and analytics services. Commerce & Brand Consulting was again up 11% organically on the strength of our branding and design agencies. Experiential organic growth slowed to 2% as we continue to experience declines in China. As expected, growth in this discipline will remain choppy. Execution & Support, which we also expected would grow slower in the second half, had organic growth of 4%. Public Relations grew a strong 13% organically, reflecting client demand across many industries and geographies. And lastly, Healthcare delivered solid organic growth of 5%. Turning to Slide 7 for organic growth rates by region. It's clear that growth was solid overall, but varied widely by region, and as expected, each region grew a bit less than they did in the second quarter. In Q3, organic growth was primarily driven by revenue growth in Advertising & Media, Precision Marketing, Commerce & Consulting, and Public Relations. Organic growth in the U.S. was strong at 7.6%. Outside the U.S., the organic increase in revenue was led by the UK at 11.5% and Europe at 6%. Looking at revenue by industry sector on Slide 8. Relative to the third quarter of 2022, the broad distribution of our clients remains very stable. Let's now turn to Slide 9 and look at our operating expenses for the quarter. For your reference, a slide in the appendix also presents this on a constant currency basis. Our total expenses, exclusive of depreciation and amortization, were flat at $2.8 billion, down 10 basis points as a percentage of revenue. Salary-related service costs were fairly constant at 50.8% of revenue compared to 50.4% last year. The slight increase was due primarily to the increase in organic revenue, an increase in headcount, and a return to more normal business conditions. Third-party service costs were flat at 21% of revenue. Occupancy and other costs were also flat at 8.2% of revenue, a decrease due to lower rents and other occupancy costs, partially offset by an increase in office expense and other costs resulting from the return of our workforce to the office. SG&A expenses were down year-over-year as a percentage of revenue, due primarily to decreases in professional fees and third-party marketing costs. Turning to Slide 10. Our third quarter operating profit was $546 million, a 1% increase from last year, net of a reduction of 5.2% due to the impact of foreign currency translation. Our operating profit margin of 15.9% on total revenue was 10 basis points above last year's result. Please turn now to Slide 11 for our cash flow performance. 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 for the first nine months of 2022 was $1.23 billion compared to $1.25 billion for the first nine months of last year, a small reduction year-over-year. However, as a reminder, we note that $48 million of the charges we recorded in the first quarter of 2022 for the effects of the war in Ukraine were cash-related. Regarding our uses of cash, we used $438 million of cash to pay dividends to common shareholders and another $63 million for dividends to non-controlling interest shareholders. Our capital expenditures of $66 million were at normal levels. Acquisition spend, net of dispositions and other items was $330 million. And lastly, our net stock repurchases during the third quarter were $486 million. We continue to expect total repurchases for the year at our historical annual range of around $500 million to $600 million. Slide 12 is an overview of our credit, liquidity, and debt maturities. During the quarter, the impact of foreign exchange rates on our euro and sterling denominated debt caused the book value of our outstanding debt to decrease to $5.5 billion from $5.7 billion as of December 31, 2021. There were no changes in outstanding balances during the quarter and our $2.5 billion revolving credit facility, which backstops our $2 billion U.S. commercial paper program, remains undrawn. Our cash and equivalents were $3.3 billion, flat with our balance at June 30, 2022, reflecting an increase in net free cash flow during the quarter, which was offset by the negative impact of foreign currency translation. Turning to Slide 13. Our operating capital discipline consistently drives above-average returns on both invested capital and equity. For the 12 months ended September 30, 2022, we generated a solid return on invested capital of 25% and a strong return on equity of 43%. We're confident that the outlook for our business growth and our prudent process for capital allocation will lead to increasing returns as they have historically. Operator, please open the lines up for questions and answers. Thank you.

John, maybe one for you and then one for Phil. Rather than asking for you to prognosticate on organic growth, which I know is hard, maybe to ask it a different way. How are you thinking about the cost base and being proactive in a pretty volatile revenue environment? I think when we last spoke, you mentioned that there maybe could be some real estate opportunities or some opportunities in things like hiring and incentive comp. So I'm just thinking about when you look at the environment right now, is it a time to be very proactive or, based on the good growth that you put up in the third quarter, do you actually feel like things are pretty stable and that proactive cost management is more something you can think about in the future?

We are preparing for extremely challenging market conditions. It's crucial for us to enhance productivity in several areas, and we are actively engaging in detailed discussions. One focus is on real estate, as our leases will expire throughout 2023 and 2024. With a new flexible working hours strategy, we anticipate being able to decrease our global real estate footprint. This process is already underway, and we will monitor market conditions for potential opportunities to capitalize on lower prices in different locations with longer lease terms. Additionally, we are seriously evaluating our payroll processes at a granular level in each subsidiary, considering offshoring where suitable, and pushing for increased automation in areas previously not feasible. Recently, we convened with all management teams to candidly review these strategies, which are now regularly discussed in our weekly meetings. As we prepare for next year's profit planning, we will establish targets and expectations for each of our companies.

Great. And then, Phil, kind of a similar flavor to the same question. This year, growth is strong, and operating margins are guided to kind of flat year-on-year. Does the same logic hold that if growth slows down, operating margins stay pretty consistent? Or if we do get into a tougher growth environment, do you expect there to be some downward pressure to operating margins?

Sure. I think if the environment is challenging, it's certainly a challenge that we're going to meet head-on but the flexible cost structure that we have, which includes still, as of now, some open positions, we're going to take advantage of that. I think maybe the most instructive thing you could do is take a look at our performance prior to and subsequent to prior recessions for business disruptions like COVID, and you get the sense that we've been through this before, not just people on the call, but the people who are managing the company all around the world. So we've got the experience managing through these types of disruptions or uncertainties. We're going to be aggressive about it and act accordingly to make the adjustments we need to make as quickly as we can make them to rightsize businesses to the revenue outlook for that business. That being said, we don't know what '23 is going to hold at this point, but we're certainly preparing for it to be ready to manage through any disruptions that might occur.

So I just have a quick question. If you guys deliver on your guidance this year and organic growth slows to like 3% or something next year, I think it would be the best three-year stacked organic growth rate that you guys have put up since 2006 or maybe 2007, a long time ago. So I guess in very simple terms, can you just help us understand what has made your business so much better? And I'll offer up a couple of hypotheticals that you can react to. One would be disposition of your slower growing businesses, and other would be inflation and other would be sort of the privacy changes that were put in by Apple that might all provide tailwinds. But any sort of color to help us understand why your business is doing so much better than it's done in a very, very long time.

Yes, sure. Our portfolio today isn't comparable really to when our portfolio was 3.5, four years ago. The instances you referred to, 2019, 2020 was the end of a five-year period in which we were disposing things. That contributed to our profit but didn't necessarily contribute to our growth. We were able, in good times, to find buyers who were interested in those companies, and we offloaded them. Similarly, we made investments in areas where we believe that growth would be consistent in good times and in bad. You can see that reflected in our precision marketing assets. You can see that in the changes that were made in our public relations category and also the expansion of services in the health area. So as well as in more traditional areas, we cleaned up low-growth geographies and/or what we felt were product loans. It's a process that has served us well. It will continue to serve us well, I believe, as we face more challenging times if they come. We're planning for those more challenging times, as we are facing those challenges due to inflation and some of the macro factors that are out there in the marketplace. Also, we're also very comfortable, I'd say, in the upgrades we've made to our management and our leadership throughout the world over the same period of time. So everybody on the team is aware of those many steps that we have to go through in order to be successful.

Can I just ask one follow-up? One of the things that you cited were very Omnicom specific. But we're seeing broad-based strength across all of your competitors too. So it seems like there's an industry overlay on top of the things that Omnicom has done. Is that wrong?

No, I don't think it's wrong. I think that the marketplace complexity has increased, which makes not only Omnicom but our competitors important. I think the great resignation, which had an impact on some of our businesses, we were able to manage through, also had an impact on how our clients face that complexity. I don't have the evidence to back this up, but I believe it to be true that in the last two recessions, it's been pretty evident that companies that continue to market through those recessions prospered and came out of them more quickly than ones that just focused on cutting costs indiscriminately. So a combination of factors and technology is different. There's a revolution we're moving to electric cars. We're moving to more efficient ways of doing business. All of those things mean that you want your brand known and supported by the marketplace and recognized as being progressive in addressing issues, whether we're in a recession or in good times.

John, just wondering if you could speak a little bit to what you're hearing from clients right now in terms of how you kind of balance perceived or real macro risk against kind of the need to invest in brands and performance. And then with regards to year-end project work, any early view into how this potentially looks? And, Phil, I'm wondering if you could say kind of what you've assumed within your guidance out of that sort of $200 million to $250 million you've historically flagged?

Sure. I mean, I think every intelligent company is seeing that globally, these macro factors are a mixture for further confusion in a complex environment at one level. At another level, there are new areas that are coming on stream that didn't exist before. If you look at media and all the providers that are out there that have decided to add an advertising model to the products that they're offering. You see our automotive manufacturers promoting their progress with the car of the future, being a communication device driven by electric power as opposed to gasoline power. So there are many difficult things that are out there. There are enough fundamental changes occurring in the marketplace that have kept marketers keen and very interested in ensuring that their brands are recognized and differentiated so that when consumers make choices, their brands are seriously considered.

And on the year-end project front, I'd say we're in a similar situation that we've been in every October for quite some time. We don't have a lot of visibility yet into how many year-end project work or agencies are going to capture. Typically, thereafter, a number which is in the neighborhood of $200 million to $250 million of potential project spend. Some years, we get it all, some years, very rarely I would say, we don't get much, if any of it. I would say we don't expect to get it all this year. But as we've gone through the process of looking at the fourth quarter with our companies, agency by agency, bottom-up, there are a number of companies that have an expectation based on their past history of what they could capture. They've made a probably conservative estimate. And as we look out into the fourth quarter, we've considered that in our guidance. So we do expect that we will be successful. We don't expect we'll get it all this year, but we're pretty optimistic, or the one thing we know is that people are going to be out there working on getting it because their incentives are aligned with ours, and it will drive incremental profit and incremental bonuses for them as well.

Maybe if I could just squeeze in one more, John. PRs continue to perform really strongly. I think it's like six quarters at this point, and it didn't really drop even that much during the pandemic. Just wondering if you could kind of speak to some of the factors that have just kind of driven the strength in that business?

There's no alchemy. We did change leadership in recent conversation with some of my other management. I'm extremely proud of the leadership that we have in that group. It's craft-driven and craft-led now. I know in the past, when it was run or managed by people who didn't have such a deep understanding of the craft, the performance was different. The gentleman and team that leads it now is very proactive, very hands-on, very close to its clients and its people. I think that's paying huge dividends. It's hard to measure, but it's easy to see. I think the product is also much closer and much more important in the consumer journey and probably more relevant in terms of brand awareness as well as the actual completion of the sale. Influencers didn't exist in 2016; they exist today. PR takes a leading position in things like that. So I don't have the precise answer, but I do know that we have the right people doing the right things and adjusting our product appropriately for the current circumstances that we're operating in.

John, I have a question for you and one for Phil. It seems that the complexity of digital beyond Facebook and Google is driving demand for your digital media business across various sectors. Can you share your observations on media buying and planning in relation to digital, especially with the addition of retail media, TikTok, Apple, Amazon, and Netflix? What growth rates are you seeing in that context? Phil, regarding any concerns with the model, specifically rising inflation affecting salaries and services, can you provide insights on what you are experiencing related to inflation and how wage inflation might be managed in the next 12 to 14 months?

Sure. I mean, in terms of digital, digital has taken over the majority portion of how we speak to various groups of consumers. There's been an ever-increasing number of providers of interesting digital sites, information, which have their own following, which are Omni products, and some of our early concerns in involvement in how we refine and identify potential customers in a privacy-compliant manner has put us in a position where we've been very agile to react to changes as they happen, market by market, but in the United States, even state by state. The retail media is a relatively new entry into the marketplace, and during COVID, it had an explosion. People in your business measure that the way you do it comparably. When you think about it, there are a lot more platforms out there. You have Amazon, you have Walmart, you have Kroger, you have Target, and possibly others. We've entered into serious partnership arrangements with all these folks to assist the consumer and consult with our clients about which platform to use at which moment for which product. We've been able to incorporate that into our Omni product and make it available to our practitioners who are consulting with clients on a day-to-day basis on the best way to achieve their KPIs.

On managing inflation, it is certainly a reality that everyone, including us, our agencies, and our clients, is facing today. We have mentioned before that we are continually looking for efficiencies in our cost structure, which is flexible. We are exploring opportunities in offshoring, outsourcing, and automation, as John noted earlier. We have many open positions and access to a flexible workforce that we can utilize if necessary, often opting for contractors instead of permanent hires. We are also in ongoing discussions with our clients, which yield varying results. Some discussions lead to changes in our rates or the scope of work. There isn't a single solution to address inflation in our costs, but rather a mix of strategies that we need to implement at the agency level. We are actively pursuing several initiatives to capitalize on any opportunities for efficiencies and new ways of working that have emerged post-COVID, which is certainly beneficial.

Just keeping with the theme of trying to think about the strong results to continue to deliver and the macro, we're all worrying about, could you talk to us a little bit, John, about the performance of the company this year thus far in the UK and the euro markets where arguably the macro may be the most concerning, and yet you're doing double-digit growth? Is there anything you would add to the comments you've made already on this call about sort of what's driving that performance? And then I had a quick follow-up for Phil.

Sure. I just got back last week, I spent a week in Europe. I was in Germany, I was in Italy, I was in Lausanne, and a few other places interface with quite a number of our leaders. We're very fortunate where it etches market by market a little bit. You take the UK, for instance, our healthcare businesses were outstanding this particular quarter. Our precision marketing business has been outstanding consistently throughout Europe on systems work as well as lower funnel type of work. We are a media consultancy and needed skill set by many of our clients for them to obtain and achieve their objectives. Plus, I'm very happy with, again, and you said referencing my prior comments, I have to go back to them, the portfolio that we have of assets throughout the world, but especially in Europe. We've taken a lot of actions over the last several years, finishing up a lot of those actions thankfully right before COVID. It's probably equivalent to spending every day in the gym; we've toned up the assets that we had and added a lot of people with specific but appropriately specific skills.

Got it. So do you think there's some share gain in there too, it sounds like?

Yes. Yes. I mean I think share gain is certainly part of it. But I think these assets have allowed us to expand the budgets that were previously limited in terms of the things that we could properly service our clients. I think the addition of many of these assets that we've made in the last several years, especially in precision marketing and some of the more refined nuances of healthcare, just to name two, have allowed us to enjoy or compete for budgets that prior to this in the old pre-COVID days weren't necessarily available to us. So our marketplace has expanded.

I guess, technically, this is two. I wanted to just, again, come back to the implied fourth quarter in your guidance, I think would be, I don't know, something like 3% or 3.5% organic. You already talked about the project work. Anything else you'd call out that would suggest that growth would step down that much from Q3 to Q4? And then anything on the buyback. The buyback was a little lower this quarter than last quarter. Is that just sort of being a little more conservative given everything we're reading and seeing out there? Or anything you want to say about capital allocation as we look forward, given the strong balance sheet and cash flow? I'll start with capital allocation. Regarding the buyback, what you've seen in the first three quarters of '22 aligns closely with our pre-COVID patterns. We typically engage in buybacks more during the first half of the year and scale back in the second half, particularly in the third and fourth quarters. This trend seems to hold true for '22 as well. We are aiming to repurchase between $500 million and $600 million, and we are currently near the lower end of that range. We anticipate some buyback activity in the fourth quarter, although we haven't decided on the exact amount yet. We will maintain our commitment to the $500 million to $600 million target for the year. In terms of overall capital allocation, we will continue with our established strategy. We plan to deliver an attractive dividend and pursue mergers and acquisitions that align with our strategic objectives and financial needs, likely focusing on smaller tuck-in acquisitions that have proven successful in the past. The remainder of our free cash will be used for share repurchases, so you can expect consistency in that regard. Lastly, addressing your other question, the growth forecast for the fourth quarter appears to be between 2% and 3.5%, which should be manageable. However, given the lockdowns in China and general uncertainties, we believe our experiential business may experience a decline in Q4. It’s a volatile sector, but it's been performing well, and our teams have been doing an excellent job. However, we do expect some pullback in the fourth quarter, and our execution and support sectors may see similar trends. On a positive note, we anticipate solid performance and growth from the rest of our portfolio, which has had a strong year thus far, and we are optimistic about finishing the fourth quarter on a high note.

The only thing I would add: I think implicit in the numbers that you can look at. The overall project work that we always refer to is still out there. We've spent the last several weeks going company by company, looking for people who had more certainty about the projects that would be coming through, and there's still some portion of that that, as we continue to make inquiries and weeks go by, we'll get more clarity.

Great. My first question, I mean, given these very strong results during the quarter and year-to-date, and you compare that to the macro headwinds out there that we all know about. Can you maybe just talk about maybe the tone of the conversations you're having with maybe your major European and U.S. clients here to help account for the fact that your numbers are seemingly so much stronger than the macro environment is shaping up as?

Well, yes. I think at the risk of repeating myself, I think all the factors that we've talked about throughout the call are at play. There are new retail marketplaces that didn't exist in the past. We offer incredibly new services, especially in precision marketing and those consultancy-type activities, which have made budgets, which prior to this, were previously unavailable to us. We've successfully competed and gotten our share of those projects. Oftentimes those projects are multi-quarter in terms of from start to execution and delivery of them. Just the healthier shape of the portfolio. I think, as Phil mentioned, some of our execution businesses have ramped up and are ready to respond to the demand that's out there, but it's been a bit choppy because of things like the China shutdowns or different interruptions that have happened. But we have several of the best assets in the marketplace. As I look forward, I see a loosening of that. We have the Olympics that are coming up. We have the FIFA World Cup that is coming up. We have a lot of different activities that we prosper from. It’s a combination. I wish it were as simple as just listing the elements, but it’s a combination of all these factors that have created opportunities for us. This increases the complexity that a CMO, CIO, or CEO has to go through in order to reach customers and achieve their objectives, and we are excellent providers in assisting them to navigate that complexity while delivering best-in-class services.

Certainly, from a macro perspective as well, in terms of the first nine months of the year, consumers continue to spend, and clients have continued to spend. I think we're talking about what happens if and when the environment changes; it's hard to gauge how much it's going to change by. The current environment has certainly been a positive in the context of the types of services that we provide.

And maybe unlike some of the other recessions that have happened in the past, this one has been a little bit slower rolling. We’ve all been anticipating it, especially as central banks raise interest rates and create different macro issues. God knows what’s going to happen in the war in Ukraine, and people have worked through and are still working through their supply chain issues. We’ve been able to adapt as all of that continues, and we’ll keep adapting as it unfolds.

That's very helpful. My follow-up question, if I could. With the very high inflation rates out there, do you feel that that's helping your organic revenue growth here that you're able to pass on higher costs here in a material way much more so than in the past?

That’s certainly wholesale across the board. We have been able to get improved pricing on some clients, but it's certainly not an assumption we make because that same inflation cost causes inconveniences for our clients. At the end of the day, we're partners. So the ones that prosper, we prosper; the ones that suffer, we suffer with because we have long-term relationships. Our goal is to get paid fairly for the services we provide, and our clients are very much aware of the fact that we all face similar problems. We’ve been doing our level best to work out scope of work, rate cards, and so on with each client.

Listen, I'd like to thank all of you for joining us today to discuss our very strong third quarter results, and we look forward to seeing many of you over the coming weeks and months in conferences and calls. Thanks, again.