Omnicom Group Inc (OMC) — Q3 2023 Earnings Call Transcript

Thank you for joining our third quarter 2023 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 An archived version will be available when today's call concludes.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'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 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 2022 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. We will begin the call with an overview of our business from John and then Phil will review our financial results for the quarter, and after our prepared remarks, we will open the line up for your questions. I'll now hand the call over to John.

Thank you, Greg. Good afternoon, everyone, and thank you for joining us today for our third quarter results. Before we discuss the quarter, I want to touch on something that is top of mind for many of us. The horrific attacks on Israel and the subsequent war have been devastating to witness. We've seen a complete lack of humanity displayed, and that hate has no place in this world. We mourn the innocent lives lost and our thoughts remain with all those personally impacted. Turning to our results. Organic growth was 3.3% for the quarter, which is in line with our expectations. Operating income margin was 15.7%, and diluted earnings per share for the quarter was $1.86, up 5.1% versus the comparable period in 2022. Our results for the quarter keep us on pace to maintain our full year organic growth target of 3.5% to 5% and our operating margin target of 15% to 15.4%. Phil will cover our results in more detail during his remarks. Our cash flow continues to support our primary uses of cash: dividends, acquisitions, and share repurchases, and our liquidity and our balance sheet remain very strong. During the quarter, we continued to make solid progress on our key strategic priorities to position Omnicom for sustainable and profitable long-term growth. Starting on the talent front, we made several key leadership changes as part of our succession planning. Alex Lubar was named Global CEO of DDB Worldwide. Alex served as the Global President and Chief Operating Officer of DDB and succeeds Marty O'Halloran, who will become Chairman. In addition, Glen Lomas, currently CEO of DDB EMEA, has been elevated to Global President and Chief Operating Officer in partnership with Alex. Nancy Reyes is moving from her post as CEO of TBWA New York to become CEO of the Americas at BBDO. Nancy succeeds St. John Walshe, who's been with BBDO for 27 years. Guy Marks, previously Omnicom Media Group's CEO of EMEA, was named the CEO of PHD Worldwide. Guy succeeds Philippa Brown, who is leaving the media industry after nearly four decades. Dan Clays, who led Omnicom's Media Group UK as CEO, will fill the CEO of OMG EMEA's position. I want to congratulate Alex, Glen, Nancy, Guy, and Dan and extend my gratitude to Marty, St. John, and Philippa for their many years of service to Omnicom. This series of announcements is a testament to our emphasis on succession planning and ensuring our networks and practice areas have the right teams to lead them into the future. During the quarter, we continued building our Generative AI capabilities with the rollout of Omni Assist, our proprietary version of ChatGPT that enhances every task within Omni. Omni Assist is just one example of how we are improving our capabilities and efficiency through Generative AI. We continue assessing how Generative AI will affect the way we work across the organization and preparing ourselves for the future. We broaden our capabilities through strategic acquisitions in high-growth areas in the quarter. In July, Omnicom Media Group acquired Outpromo and Global Shopper, two of Brazil's leading connected commerce and retail media agencies. These acquisitions create a dedicated end-to-end e-commerce and retail media performance agency in the Brazilian market for Omnicom Media Group. OPRG strengthened its services through the acquisition of PLUS Communications, a top public affairs firm, and FP1 Strategies, a leading political consultancy. The Beltway-based acquisitions further solidify OPRG's leadership position and portfolio in public affairs and crisis communications, particularly in healthcare and technology. We recently announced the formation of Omnicom Advertising Services India comprised of Omnicom's creative agencies located in India, BBDO, DDB, and TBWA. Omnicom Advertising Services will be able to offer the best creative capabilities and talent for our clients across the group. The formation of Omnicom Advertising Services India follows the launch of our global delivery services and centers of excellence in India, which we announced earlier this year. Today, we have over 4,000 people in global centers of excellence in four major cities supporting our clients and agencies around the world. We are rapidly scaling the operations and expect to triple the size over the next 24 to 36 months. Our centers of excellence are helping our company transform from within, improving our client offerings and providing operating efficiencies. While we position Omnicom for the long-term, we're driving growth through significant new business wins. Some of these wins this quarter include Omnicom Media Group winning the Global Media Business for Uber and HSBC. Beiersdorf selected OMD as its media agency of record for Europe and North America. On the creative front, adam&eveDDB picked up Amazon's creative business in Europe. Omnicom Health Group and our advertising collective also continue to grow their relationship with Novartis, expanding in oncology and winning significantly in pharma, including their renal portfolio. Finally, TBWA was awarded the creative duties for Telstra, Australia's largest mobile network. Overall, we are pleased with our financial results and our progress on our key strategic initiatives. While we remain optimistic entering the fourth quarter, as in past years, our performance in the fourth quarter will be impacted by the amount of year-end project spend that our clients execute and that our agencies are successful capturing. We continue to plan cautiously, given the uncertainties in the macroeconomic and geopolitical environment, including high interest rates, oil prices, instability due to the wars in Ukraine and Israel, and the continuing risk of a recession in the United States. I will now turn the call over to Phil for a closer look at our financial results.

Thanks, John. As John said, our business is solid despite the challenges of the current macroeconomic environment. Before we open the call up for questions and answers, let's go through our third quarter results in more detail. Starting with the summary income statement for the second quarter on slide three. Reported revenue increased by 3.9% and organic growth was 3.3%. Reported operating income increased by 2.7% to $560.8 million, and the related margin was 15.7%. Net interest expense was $38.3 million for the quarter, an increase of $9.2 million compared to the third quarter of 2022, due in part to lower interest income on cash and short-term investments. For Q4, we expect that, compared to the prior year, net interest expense will experience a similar increase. Our reported income tax rate was 26%. This was lower than our 27% estimate from July due to a reduction in tax expense resulting from the vesting of share-based compensation. For the fourth quarter, we estimate our tax rate will be 27%. Reported net income in Q3 increased by 2%, and diluted earnings per share was up 5.1%, driven by both higher net income and by lower shares outstanding, resulting from share repurchases. Let's turn to revenue on slide four. As mentioned, organic growth in the third quarter was 3.3%. The impact from foreign currency translation reversed course in the third quarter, increasing reported revenue by 1.7%. If rates stay where they are currently, we estimate the impact of foreign currency translation will be a benefit of approximately 0.5% for Q4 and a reduction of approximately 0.5% for the year. The impact of acquisition and disposition revenue is negative 1.1%, primarily reflecting the sale in Q2 of our research businesses. We expect a reduction of 75 basis points for the fourth quarter and expect that the recent acquisitions will result in an increase in reported acquisition and disposition revenue next year. As John discussed, our organic growth outlook for the year remains unchanged at 3.5% with a stretch target of 5%, which still factors in some uncertainty about the level of year-end incremental marketing spend and project work that we expect our agencies will be successfully capturing in the fourth quarter. Now let's turn to slide five to review our organic revenue growth by discipline. During the quarter, advertising media posted 6.1% growth, its strongest this year, driven by continued strength in our media business globally. Precision marketing grew 4.3%. Solid performance given the comparison to the 16.2% growth that experienced in Q3 of '22 and the challenging backdrop of certain of their technology and telecom clients that we discussed last quarter. Commerce and branding declined by 1.7%, driven by reductions at our shopper marketing agencies. Experiential grew 9.2%, led by Asia, Europe, and the UK, which offset negative growth in the US and the Middle East. Execution and support declined 3.6% due primarily to declines in our merchandising business. The public relations were down 5.5%, reflecting difficult comps against the 12.6% growth we delivered in Q3 of 2022. Approximately half of the reduction relates to less revenue connected to the 2022 election cycle, and the balance was due to a slowing of project spend in the quarter. We expect a similar headwind related to a reduction in revenue in Q4 compared to the benefit from the election cycle in Q4 of 2022. Finally, healthcare grew 3.8% with good momentum at several large clients. Turning to slide six, we saw growth across our larger regions offset by a decline in Canada as well as a decline in the Middle East and Africa, which grew by 12.2% in Q3 of 2022, caused in part by the cyclicality in experiential. Looking at the year-to-date revenue by industry sector on slide seven, compared to the third quarter of last year, we had higher relative weights in two of our larger categories, food and beverage and automotive, and, as expected, a lower relative weight in technology and a reduction, although smaller, in telecom. Now let's turn to slide eight where you can see good progress on our expenses year-over-year. Salary and related service costs were down as a percentage of revenue year-over-year driven by our repositioning actions and through changes in our global employee mix. Third-party service costs increased in connection with growth in our revenues. These costs include third-party supplier costs when we act as principal in providing services to our clients. They are an integral part of our service offering to our clients, and we generate profit on them. Third-party incidental costs increased due to an increase in client-related travel and incidental out-of-pocket costs that have billed the clients directly at our cost with no profit. Occupancy and other costs were helped by reductions in our real estate portfolio in the first quarter of 2023. Reductions in rent expense were offset partially by an increase in operating expenses from higher levels of in-office work globally. SG&A expenses were up a bit, primarily due to higher professional fees related to the acquisitions we recently completed. Turning to slide nine. Operating income in Q3 was up 2.7% on a reported basis, and the related margin was 15.7%, down slightly as expected from 15.9% in the third quarter of 2022. For the full year, we remain comfortable with the expected operating margin range of between 15% and 15.4%. On a nine-month year-to-date non-GAAP adjusted basis, as presented here on slide nine, operating income margin was 14.8% compared to 14.9% in 2022. Our EBITDA margin in Q3 was 16.2%, also down slightly from 16.4% in the third quarter of 2022. On a nine-month year-to-date non-GAAP adjusted basis, our EBITDA margin was 15.3% compared to 15.5% in 2022. Slide 10 is our cash flow performance for the first nine months of the year. We define free cash flow as net cash provided by operating activities, excluding changes in working capital. Free cash flow for the third quarter of 2023 was $1.3 billion, an increase of 9.4% from last year. We continue to expect changes in working capital to be close to flat for the year as it usually is. Regarding our uses of cash, we used $424 million of cash to pay dividends to common shareholders and another $47 million for dividends to non-controlling interest shareholders. Our capital expenditures were $64 million, similar to last year. Total acquisition payments were $202 million, and our stock repurchase activity, net of proceeds from stock plans, was $530 million year-to-date. Most of this took place in the first half of the year. Slide 11 is a summary of our credit, liquidity, and debt maturities. At the end of the third quarter of 2023, the book value of our outstanding debt was $5.6 billion. There were no changes in outstanding balances during the quarter other than foreign exchange translations. Our $2.5 billion revolving credit facility, which backstops our $2 billion US commercial paper program, remains undrawn. Our cash equivalents and short-term investments were $2.8 billion. Our next debt maturity is not until November of 2024. Slide 12 presents our historical returns on two important performance metrics for the 12 months ended September 30th, 2023. Omnicom's return on invested capital was 23%, and return on equity was 47%. These metrics continue to be an excellent indicator of our conservative capital structure and the health of our business. In closing, despite a challenging macro environment, we're pleased with our financial results and our year-to-date organic growth of 4%. We believe we are positioned very well for strong growth in the future when the caution on the macro environment clears. Operator, please open the lines up for questions and answers. Thank you.

Thank you. Good afternoon. John, I guess I'll ask you the standard fourth quarter question around the macro and just trying to parse your words a little bit and understanding whether you're feeling that the caution that you guys referenced today has increased from earlier this year. Obviously, there are a lot of things happening in the world that would necessarily explain that. But I'm just wondering if you could add a little more color on how clients are feeling about Q4 and looking into next year. And then I'll just ask my follow-up, maybe for Phil or whoever wants to take it. Is it fair to call the tech sector a clear and sort of different headwind to sort of the overall business for Omnicom? I noticed, I think year-to-date, that vertical was down 300 basis points year-to-year. It's been a big theme across the industry sort of the year of efficiency. I'm just wondering if you think that's a fair way to think about what we're seeing in the business in 2023.

I can probably go back 21 years and note that at this time of year, my perspective is very similar. A significant portion of our project work, which influences our growth or lack thereof, stems from project spending and clients taking actions they've previously delayed. Currently, the situation isn't much different from previous years, as we won't gain clarity until around Thanksgiving. You’re right to observe that there seems to be more activity as we enter this quarter. We are contending with the Hollywood strike and the auto strike, which don't significantly impact us, along with ongoing issues in the Middle East and Ukraine. None of these circumstances are encouraging. The daily news headlines impact the spending decisions that take place. Our team is well-equipped to handle this, and in over 20 years, we've had only two years where a significant portion of spending didn't materialize, both occurring during recessions in 2008 and 2001. In other years, spending has managed to come through, even if some years are marked by greater confidence owing to fewer macroeconomic or geopolitical challenges. Looking ahead, and considering the new business wins we've recently achieved and the positive signals we’re receiving, I am very optimistic about our performance in 2024. We have the right products, and we are expanding our client base. Some of the wins I mentioned won’t generate revenue in the fourth quarter; that will primarily start on January 1st, but it provides a favorable outlook.

Yes. I'd certainly echo John's comments as far as the Q4 outlook and the very typical process we go through to capture as much of that project spend as we can in the fourth quarter, agency by agency, all across the world. Regarding your tech question, Ben, I think from our perspective, given relative comps, we don't really see the tech headwinds as significantly different than the broader macro at this point in time, now that we're through nine months of 2023. Maybe they close out the year not as strong as they did last year as far as spending, but at some point in the near future, we don't see this as a permanent decline. We think they're going to come back and invest in their brands and begin to spend at a higher level at some point in the near future.

Yes. The only point I would add to what Phil's comments were is most of that decline is a decline with existing clients. So it's not because of client loss. So as their products get released into the marketplace and they get through whatever problems they've adjusted to during 2023, we're still very confident about this sector.

Sure. Thanks, John. Thanks, Phil.

Thank you. So John, when you think about the trends this year, it seems like tech and telco has been a headwind, and maybe the overall macro and geopolitical environment that you talked about has cast some additional uncertainty, more recently. And then I think you have new business and maybe M&A as tailwinds. So heading into next year where a lot of your clients are probably in their budget cycles now, do you feel like it's setting up for a more challenging industry backdrop? Or do you think that those tailwinds you have or the AI investments that you've been making can lead you to have some acceleration as you move into next year? That's the first one. And then second, maybe for John or for Phil, I think you last raised the dividend in February 2021. Your dividend then was pretty competitive versus the rate environment. Obviously, the rate environment has changed a lot since then. So when you think about recommendations to the board about capital allocation, how are you thinking about what the right level of the dividend should be and whether this is an environment that you feel comfortable growing it? Thank you.

To answer your first question, we're not quite ready to give you guidance for '24 just yet because our people are out doing a bottoms-up plan, which they won't present to us for another six or seven weeks, and then that gets tweaked throughout the balance of the year. But with the experiences that I've had, with the new business wins that we've enjoyed and the places where we faced headwinds this year, we're set up very well to have a very successful 2024. And that's what I anticipate to see when we actually get that bottoms-up review back from our companies. So I'm confident, and I don't see any significant adjustments that we have to make to our portfolio, which, in and of itself, is very flexible, to service those client needs and enjoy the growth that's associated with it. Do you want to take the second question? Or I can do the dividend, too.

Yes, go ahead.

The dividend is really a board matter, and it will come up in the board meetings that come between now and, say, February. We'll have more to say as those meetings occur.

Yes, I wouldn't take it, the fact that we haven't raised the dividend in 2023, as a lack of confidence in the business at all. Given the broader macro, I think, we've always approached it, and the Board has always approached it, with a level of conservatism and really continuing to keep the flexibility we have in the capital structure right now given the broader macro. But it's certainly something that's on the agenda, and I would not view it as a function of a lack of confidence in the business at all.

Thank you.

Sure.

Great. Thanks very much. I'd like to pick up on one actual word that you used in your last comment, John, and that is flexibility. I saw this WFA survey recently talking about clients, I guess, coming up with more reasons why they want their agencies to do more. And I'm sure this is an age-old discussion that you have. But you've done a lot of work to reposition the business, reinvesting in data and technology and things over the years, divested assets. You just ran in your prepared remarks through a number of management changes internally that you've done recently. We saw today WPP just merged a couple of its big agencies. I just wondered, John, if you could maybe expound a little bit on what this WFA report means and how Omnicom feels positioned given that commentary.

Sure. I must admit I haven't read the report you're mentioning. However, in terms of our portfolio, we have experienced significant growth in our media business, which has been quite successful. When comparing media wins to losses, we consistently come out ahead, and I am confident that this trend will continue. There are several opportunities we anticipate being involved in, particularly in offensive areas where we are not just defending existing business, aside from some statutory audits. Our CRM business had a strong growth period despite facing some challenges at the beginning of the year, and we have recently acquired some large and significant clients that will support us in the coming year. This aspect is becoming an increasingly important part of our portfolio. Our PR unit is facing some challenges due to the lack of an election year; however, next year being an election year will benefit that segment. We have made some adjustments to our portfolio and responsibly divested certain assets in the past. Looking forward, unlike the net divestitures we have shown for the past three years, our recent acquisition activity indicates that we are now expanding our portfolio in areas where we see the most potential for growth.

Yes. Great. No, I think that answers it. The survey was basically talking about advertising clients looking for more flexibility and streamlined services from the agencies. It sounds very much like that's what you've been doing. And even your comments today about some of the changes you've made seem to support that. So thanks.

The only thing I would add to that is I get more people back into the offices, which we continue to have success with, but there's still work to do. I think that will further support our growth.

Collaboration is easier in person.

Yes, sir.

Thanks a lot.

Thank you.

Thank you. John, we saw the uptick in precision marketing in the quarter. I wanted to see if you could provide more color there. Is that just comps? Or are you starting to see some movement on projects that maybe were paused previously? And then for Phil, on principal costs, it looks like or sorry, third-party service costs, it looks like growth accelerated there a touch in the quarter. Can you parse that out between maybe principal trading and other areas like events? And then just with principal trading generally, I don't know how much you're willing to quantify in terms of organic revenue contribution, but maybe you could discuss the business at a high level what the reception is from clients to the offer. Thank you.

Sure. Addressing your first question, some of the declines and challenges in the telecommunications and tech sector had a considerable effect on the precision marketing practice. However, as Phil noted earlier, the positive aspect is that we did not lose clients and continued to gain new ones in this area. We believe those companies have made their necessary adjustments at the end of last year and the beginning of this year. Thus, we are on an upward trend. This quarter was an improvement compared to the previous one, which was our toughest comparison. With some recent new business acquisitions, 2024 looks promising. I cannot specify how many projects we expect in CRM over the next 90 days, but I am very confident in our business, leadership, and the products we offer to our clients.

Sure. Regarding the second question and third-party service costs, we don't really parse the number in the way that you've suggested. But we had strong growth, as we said in our prepared remarks, in the media business, no question, as well as experiential. Both of those businesses do come with those third-party service costs as part of the business. Certainly, a reference back to Tim's question regarding clients and the flexibility that they're looking for, they're certainly looking for a full suite of products from a media perspective and a wide range of marketing services that they'll avail themselves of. And our service offering can cover all of those things that they're looking for. So some of that growth certainly is in media, experiential, field marketing as well, but we had strong growth through most of our disciplines in the quarter, and we're certainly happy with those results.

Thank you.

Thank you. I have two for you, John. One is, as you've referenced before, you've had a very strong year in the media business. You've taken a lot of big wins. Can you talk a bit about what's changed for the positioning of that business? What do you think are the factors driving some of these big wins that you've had versus your competitors? And secondly, I have you asked in the past about acquisition opportunities. Given now maybe the fall in kind of the pressures in venture capital land and the higher rates, talk a bit about the pipeline opportunity you see to kind of buy more companies in '24 and then kind of your willingness to do that in '24. Thanks.

Sure. I think the success of the media operation is down, one, to management of that specific operation. We've expanded the suite of services that we make available to clients in the media area. It is, of all of our services, probably one of the most measurable in terms of when we utilize the data and the amount of data that we have. We're able to optimize for the benefit of the client how they spend their money, improve it. So there's a great deal of analytics that are there today that weren't even possible four or five years ago. And I think, well, I do know this to be true. We have a reputation of delivering on what we promised when we're pitching for business. And I dare say we have the best reputation in the industry of delivering what we promise. And that has benefited us through this process.

Do you want to comment first on M&A? And then I'll add.

Sure, the M&A pipeline is very robust for us. We have a dedicated team that continuously seeks out opportunities that align with our internal criteria. Generally, any potential acquisitions need to enhance the services we provide to our clients. In the past, we've avoided expensive projects that we would need to build from the ground up, and we have maintained this approach consistently for at least 26 years during my tenure as CEO. However, there are indeed opportunities available now, some of which have been on our radar for a long time and now seem more viable than they did when interest rates were at zero.

Yes. I think that what we've seen certainly is that sellers' expectations have kind of adjusted to the marketplace and to the macro environment that we're dealing with. So strategically, there are some opportunities out there that we've been looking at, some of which we completed in the third quarter, that have been more attractive than they certainly were not that long ago.

Okay. Thank you, guys.

Sure.

Thank you. I've got a few questions. I'll maybe just go one at a time to make it easier. Can you just talk a little bit further about the tone of conversations with your clients as they say what their thoughts are on a preliminary basis for 2024, at this stage, maybe versus what the conversations were like roughly six months ago?

There is still considerable uncertainty in the marketplace due to various challenges we have discussed in previous remarks. However, clients are quite sophisticated and understand that, despite these difficulties, they need to continue supporting their brands. If they fail to do so, when favorable conditions return, it will be much harder for them to regain or maintain their market share. Looking ahead to 2024, it’s important to note that 2023 was a challenging year for many sectors, particularly the tech sector, which faced its first significant need to readjust its business. Earlier this year, many experienced major layoffs and staffing cutbacks, something they had never encountered before during periods of pure growth. That phase is now behind them, and they have gained valuable experience. While clients recognize that there are still hurdles ahead, they are confident that their brands and company positions are robust and that they are well-equipped for the future.

It has been an unusual year, with significant changes compared to the last six months. As we entered 2023, discussions primarily revolved around the possibility of a recession. About a year ago, there was a belief that it would likely occur in the first half of the year, but that shifted to expectations for the second half. This process has unfolded gradually. Recent events in the Middle East have certainly altered the landscape compared to six months ago. I agree with John's comments regarding our outlook for 2024 and the sentiment among clients. They recognize the need to continue investing in their brands, which has been evident throughout the cohort period.

A year ago, interest rates were quite different for everyone. There have been many sudden changes due to the Fed increasing rates, and it takes time for people to adjust to those changes. However, at this point, everyone is making adjustments to the current environment, even if they are uncertain about when things might revert. They do not anticipate facing the same challenges moving forward, which adds to their confidence.

Thank you for that. My second question, if I could, on a pricing, apples-to-apples pricing, for your clients, just in aggregate for your company for this year. How do you sort of think about it, your 3.5% to 5% organic growth target for the year, with 5% being a stretch target? How much should we think about that pricing in terms of maybe basis points as adding to that? Is it roughly 100 basis points from pricing on apples-to-apples basis, not just upselling but pricing on apples-to-apples basis, that you're increasing prices in your contracts and stuff? And where that number is roughly for this year, at a 3.5% to 5% target for this year, how does that compare to prior years? I'm trying to get at this because it's obviously a higher inflation environment.

I don't believe we have fully recovered from the inflation challenges we've encountered. In regions like Western Europe, the US, and emerging markets, inflation has been particularly harsh. While we've had some flexibility in pricing, it hasn't matched the pace of inflation increases. We're hopeful that inflation has now stabilized, which will allow us to see some benefits moving forward. Another factor affecting our business is that when we win a new account, the first 90 days are often the least profitable due to the need to ramp up staff and adjust our organization to ensure a smooth transition from the prior competitor to us. This process impacts overall costs rather than unit pricing as we navigate these changes. Unfortunately, I can't provide precise data on specific areas within the company. However, we have successfully expanded our offshore and near-shore teams for the functions we need to fulfill our services, having doubled our staff in the past year. We expect this growth to continue at a rate of two to three times over the next two years as we now have the infrastructure to support this expansion. This should provide us with some relief regarding the inflation costs we haven’t been able to transfer to our clients by adopting different approaches.

And my final question, if I could just see if everybody has questions on this project-related work in the fourth quarter. Historically, maybe the range is $200 million to $250 million in the fourth quarter. I'm curious, embedded in your 3.5% to 5% organic growth number for the year target, what are you guys assuming for project-related work in the fourth quarter versus the year-ago number? Is that roughly flat, on the bottom end of your 3.5% to 5% number? How should we think about that?

We don't really have a number, Craig. I think certainly, every one of our businesses has some expectations regarding project work in the fourth quarter. The key for us is, when we meet with them, ensuring they're not keeping staff on hand hoping to get new business as we head into the fourth quarter and then the cost structure is out of whack with their expected revenues. They need to have some historical analysis, and we've got plenty of that in order for our agencies to have certain amounts of project spend in their forecast. But typically, they're incentivized to benefit from capturing that year-end project spend. And our clients, by and large, want to spend the rest of their budget and grow their businesses through the end of the year. So those factors typically help us and help our clients to get to the point where we can capture a significant amount of that spend. But we don't have a hard and fast number. Blank percent of the $200 million to $250 million is in the forecast, but certainly, some of it is in the forecast. But we're pretty conservative about how much our agencies can put in their forecasts because the last thing we want is people to be hiring ahead of the revenue or keeping people around that don't necessarily have anything to do if the revenue doesn't come through. That's a pretty consistent practice we followed for quite some time.

Great. Thank you, Phil and John. I appreciate that.

Sure.