Omnicom Group Inc (OMC) — Q4 2023 Earnings Call Transcript

Thank you for joining our fourth quarter and full year 2023 earnings call. With me today are John Wren, Chairman and Chief Executive Officer; and Phil Angelastro, Executive Vice President and Chief Financial Officer. Also joining for the question-and-answer session will be Duncan Painter, CEO of Flywheel Digital; and Paulo Yuvienco, Omnicom Chief Technology Officer. On our website, omnicomgroup.com is a press release and 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 An archived version will be available when today's call concludes.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 I start, I'd 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 '22 Form 10-K and our '23 10-K, which we expect to file shortly. During the course of today's call, we will also discuss certain non-GAAP measures. You can find a reconciliation of these to the nearest comparable GAAP measures in the presentation materials. We'll 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, and thank you for joining us today for our fourth quarter and full year 2023 results. I'm pleased to report our fourth quarter performance was very strong. For the fourth quarter, organic growth of 4.4% exceeded our expectations and full year organic growth was 4.1%. Excluding acquisition transaction fees related primarily to Flywheel, operating profit margin for the quarter was 16.3%. For the full year, operating profit margin adjusted for certain non-GAAP items was 15.2%. Earnings per share for the quarter adjusted for acquisition transaction fees was $2.20, up 5.3% versus the fourth quarter of 2022. For the full year, EPS adjusted for certain non-GAAP items was $7.41, an increase of 6.9% compared to the full year 2022. In 2023, we generated approximately $1.9 billion in free cash flow and returned $1.1 billion to shareholders through dividends and share repurchases. Our liquidity and balance sheet remain very strong and continue to support our primary uses of cash, dividends, share repurchases and acquisitions. On January 2, we closed the acquisition of Flywheel Digital. It is the biggest acquisition in Omnicom's history and brings scaled capabilities in the fastest-growing segments of the industry, retail, media and digital commerce. Flywheel enables brands to sell goods across digital marketplaces such as Amazon, Walmart, Alibaba and more than 100 other marketplaces around the world. Flywheel opens up an entirely new market opportunity for Omnicom, transforming us from an advertising and marketing-focused company to a marketing and sales-focused company. We can now seamlessly integrate end-to-end services from brand media to precision marketing to e-commerce and in-store commerce, ultimately delivering superior results for our clients. In January, we began combining Omni's audience and behavioral data with marketplace point of purchase sales data in Flywheel's Commerce Cloud, giving us an unmatched set of data not only to more effectively drive sales for clients, but to be fully able to measure return on advertising spend. It's a unique offering that no one has been able to achieve, and our competitors can't match. I'm also proud to inform you that last week, Flywheel captured its first significant win as part of Omnicom, winning the highly sought e-commerce business in Europe from one of our competitors. This is a unique partnership and opportunity. In January, we welcomed CEO Duncan Painter and more than 2,000 Flywheelers around the world to Omnicom, and we are excited about what we can achieve for our clients together. In the fourth quarter, we acquired Coffee & TV, a UK-based creative studio that specializes in CGI and visual effects. The acquisition is part of our strategy to leverage the scale of our production operations and launch a holistic suite of global content and production services under a single unit, Omnicom Content Studios. Omnicom Content Studios creates content for brands across all consumer experiences and touch points from long and short-form videos to social, experiential, digital and everything in between. In addition to these acquisitions, we continue to invest in high-growth areas through internal investments and partnerships. Last month at CES, we introduced several new ways to offer planning and measurement in the booming area of influencers. We announced several first-of-the-kind partnerships with TikTok, Google, Amazon and Meta to optimize the use of influences, seamlessly integrate creator assets in campaigns and measure influencer-driven commerce. In November, we announced the first-mover collaboration with Getty Images that provides us early access to this new generative AI tool. It pairs Getty's library of creative content with Omni's data and AI technology. So our agencies can produce commercially safe and legally indemnified customized images for our clients. In 2023, we launched Omni Assist, a virtual assistant our people use to create, plan and execute ad campaigns using the trove of data in Omni. Omni Assist accesses Open AI's GPT models through Microsoft. As the first holding company and second company overall to be given full access to Open AI models in Microsoft Azure environment, we have a significant first-mover advantage, allowing us to experiment, prototype and launch applications within our platform before any other organization. Historically, we've invested tens of millions of dollars in AI. Going forward, Generative AI investments and partnerships to enhance our platforms and educate our knowledge workers are expected to require greater resources. These investments will result in increased productivity and success for our clients. From e-commerce to influencers to Generative AI, we are investing in all the areas that will shape the future of our industry. When these capabilities are combined with our legendary creativity, we remain positioned at the forefront of change and innovation. In new business, we had a very successful 2023. We secured record business with Amazon, Beiersdorf, HSBC, Jaguar, Land Rover, Novartis, Phillips, Telstra, Uber, Under Armour, Vans and Virgin Voyages, among others. And we closed the year with exciting news that BMW consolidated its U.S. creative, digital and CRM and its media accounts with us. Before I discuss our outlook for 2024, I want to welcome the newest member of our Board of Directors, Casey Santos, who was recently appointed as an independent director and a member of the Finance Committee. Casey joins one of the most diverse boards in the Fortune 500. Now at 11 members, our Board is proud to have seven women and six diverse members. Casey's deep expertise in technology makes her a valuable addition to our Board. I also want to thank our people around the world for helping us successfully close out 2023. Your dedication and commitment to outstanding work allows our agencies, clients and Omnicom to succeed. We entered 2024 from a position of strength, supported by our solid financial performance and balance sheet, new business wins and key strategic investments in the areas that will drive significant growth in the years ahead. While we continue to plan cautiously, given the uncertainties in the macroeconomic and geopolitical environment based on current marketing conditions, we are targeting 2024 organic revenue growth between 3.5% to 5%. Our range of organic growth during the year will be impacted by new business won in the fourth quarter, which doesn't positively impact us until the second quarter and Flywheel's growth, which is typically stronger in the second half of the year. I'll now turn the call over to Phil for a closer look at our financial results.

Thanks, John. We finished the year on a strong note in terms of revenue growth and profitability, even though the business environment was uncertain in 2023. As we look towards 2024, we're optimistic about the performance of our agencies and an improving economy. Let me spend a few minutes reviewing the financial details of the quarter and then we'll open the lines up for questions and answers. Let's start with a review of our revenue performance on Slide 4. Organic growth in the quarter was 4.4%. The impact on foreign currency translation increased reported revenue by 1.2%. If rates stay where they are currently, we estimate the impact of foreign currency translation will be close to flat in Q1, 2024 and for the full year. The net impact of acquisition and disposition revenue on reported revenue was negative 0.7%, primarily reflecting the sale in Q2 of '23 of our research businesses. In 2024, we expect a positive contribution beginning in the first quarter with an increase of about 1.5% and around 2% for the full year, reflecting recent acquisitions and having moved past recent dispositions. For the full year, organic revenue growth was 4.1%, this was in line with our revised guidance of 3.5% to 5%. We made some good progress toward this target, despite a challenging comparison to 9.4% growth in 2022 and an uncertain macroeconomic environment during the year. As John discussed, our organic revenue growth outlook for the full year 2024 is between 3.5% and 5%. Now let's turn to Slide 5 to review our organic revenue growth by discipline. During the quarter, advertising and media growth was very strong at 9.3%, once again driven by Global Media performance, which was partially offset by softer results from our advertising agencies. Precision marketing growth contracted 1.1%, reflecting a difficult comp to 11.5% growth in Q4 of 2022 and cycling some client spending reductions from earlier in the year. As we look forward to 2024, we expect this to once again be one of our fastest-growing disciplines. Commerce and branding grew by 1% compared to growth of 7.5% last year, driven primarily by growth in specialty production, offset reductions in the quarter at our branding and commerce agencies. Experiential was down 8%, reflecting a difficult comp of 17% growth in Q4 of 2022, with the FIFA World Cup in Qatar, primarily offset by strong growth in Europe in the quarter, while quarterly results can be choppy based on the timing of certain client events. Experiential remains a solid business and is important to our clients' marketing plans. Execution and support declined by 0.4% with mixed results that included a solid performance in field marketing. Public relations declined 2.9% in the quarter due to difficult comps related to the U.S. midterm elections of 2022, when growth exceeded 12%, as well as softness in certain international markets. Finally, Healthcare continued its steady growth of 3.6% during the quarter. Turning to geographic growth on Slide 6, we saw growth in our five largest markets offset again by declines in Canada and the cyclical impact of experiential revenue in the Middle East and Africa. The U.S. was up 0.6% in the quarter on solid performances by advertising and media, led by media, and our healthcare businesses, offset primarily by execution and support, public relations and commerce and branding. Slide 7 shows our revenue by industry sector for the full year and the quarter. Looking at the full year, which tends to eliminate the volatility of client changes in the quarter, we saw a notable increase of 2 points in automotive and 1 point increases in both food and beverage and financial services. Weaker markets in technology and entertainment, which have been discussed widely in the industry over the course of the year, resulted in reductions of 3 points and 1 point, respectively. Now let's turn to Slide 8 for a look at our expenses. In the fourth quarter, salary and related service costs were higher due to increased staffing levels, but were down as a percentage of revenue year-over-year, driven by our repositioning actions earlier in the year and through ongoing changes in our global employee mix. Third-party service costs increased in connection with the growth in our revenues. We generated profit on these costs and the higher levels in the fourth quarter of 2023 compared to '22 were driven primarily by strong growth in our media business. Our disposition activity during the quarter and the year did not have much of an impact on this cost category. Third-party incidental costs were close to the same level as last year and reflect client-related travel and incidental out-of-pocket costs that a bill declines directly at our cost with no profit. Occupancy and other costs were down in both dollar amount and relative to revenue, driven by ongoing rationalizations in our real estate portfolio. SG&A expenses were up primarily due to $14.5 million in professional fees related to acquisition costs incurred in the quarter, the majority of which related to Flywheel. Excluding these costs, quarterly SG&A levels were comparable to last year. Now let's turn to Slide 9 and look at our quarterly and annual income statement. To make the numbers more comparable, the table and footnotes describe some of the other adjustments that were made during this year and last year that we discussed on prior calls. Our operating income margin was negatively impacted by $14.5 million of costs in connection with the Flywheel acquisition, as I just discussed; adjusting for this amount results in an operating income margin of 16.3% and an EBITDA margin of 16.8%. For the full year, our adjusted operating income margin was 15.2%, within our expected range of 15% to 15.4%. As a result of the Flywheel acquisition, we'll have higher levels of amortization expense than past years, and we will be focusing our margin expectations on EBITDA. We continue to expect integration costs, as well as operating synergies related to the Flywheel acquisition during 2024, and the acquisition will be accretive to diluted EPS adjusted for amortization expense by the fourth quarter. For the full year 2024, we expect adjusted EBITDA as a percentage of reported revenue to be close to flat with last year. Also in this slide, you can see that our non-GAAP adjusted income tax rate of 26% for the full year 2023 and was comparable to 2022. We do not expect the Flywheel business to change our tax rate outlook for 2024, but the 2024 rate will be negatively impacted, primarily related to increases in the statutory rates of certain international countries. For the full year 2024, we expect our rates to approximate 27%. Acquisition costs related to Flywheel and better performance at agencies with minority shareholders contributed to a decrease in reported net income of 1%, but an increase of 2.1% on an adjusted basis. Lastly, adjusted diluted EPS of $2.20 for the fourth quarter increased 5.3% from last year. For the year, adjusted EPS increased by 6.9%. Slide 10 is our cash flow performance for the year. We define free cash flow as net cash provided by operating activities excluding changes in operating capital. Free cash flow for 2023 was $1.9 billion, an increase of 6.5%. This increase was driven in part from operational improvements compared to 2022 and the use of operating capital, which we expect to improve further in the future. Regarding our uses of cash, we used $563 million of cash to pay dividends to common shareholders and another $71 million for dividends and non-controlling interest shareholders. Our capital expenditures were $78 million, similar to last year, and we expect 2024 levels to be higher due to growth investments at Flywheel. Total acquisition payments were $249 million, although we closed the Flywheel acquisition on January 2, 2024, using cash-on-hand of approximately $845 million. It remains our intention, as we stated in the October 30 announcement to finance two-thirds of the purchase price with new debt, which I'll discuss in a moment. Finally, our stock repurchase activity, net of proceeds from stock plans, was $535 million year-to-date within our expected range. Our capital allocation in 2024 will be consistent with our practice of returning cash to shareholders through a healthy dividend, making strategic acquisitions that lead to accelerated growth and using a portion of residual cash to repurchase common stock. Since 2024 began with the closing of a larger-than-normal acquisition, we expect the total share repurchases in 2024 to be approximately 50% of our recent average.

How are you guys thinking about the cadence of growth in margins over the course of 2024 from what you can see now, the comp to ease as the year progresses when you have the Summer Olympics and the U.S. election in November? So curious any color you can provide on how you expect the year to shape up? And then I have a follow-up.

Sure. Well, the comps in the first quarter remain probably the most difficult comps that we have going into the year, but it's not that as much as it is Flywheel, which we closed on January 2 is just seasonally natural at least stronger in the second half than the first. So that's one point. And as I said in my prepared remarks, a number of the new business wins we had late in the third quarter, early in the fourth quarter or throughout the fourth quarter. Whilst we won them and we have to ramp up our expenses in order to handle them with the notice periods, the companies that lost those accounts. We don't start getting revenue really until the second quarter or so. So the additive tailwind for that won't happen until then. You're absolutely correct that as we go through the year, if all of those well. The Olympics will add something to the revenue as will the U.S. election add something as we get a little bit later into the second quarter than the third quarter. And there'll be a tail to it also in the fourth quarter. So that's kind of reflected in the range that we have given you. And we want to emphasize that whilst we expect this to ramp, it didn't start ramping on January 1.

Yes, I would add that it makes sense for our margin expectations to align with that as the year progresses. As performance improves, as John mentioned, you will notice a consistent trend in margin performance as well.

Great. Makes sense. And a question for Duncan. As you ran essential and built Flywheel, what are you excited about now that you're part of Omnicom? I love your thoughts.

Yes. Firstly, it's a pleasure to be on the call, and I’m thrilled to be part of the leadership team at Omnicom. I’ve had the opportunity to work alongside Omnicom for quite a long time, 12 years for me, and I’ve always admired their commitment to pride and quality, consistently offering the best-in-class products and services. This emphasis on quality aligns closely with the platform we built at Flywheel. Since joining, I’ve really observed how dedicated the company is to high-quality products and excellent customer service, which feels like a natural fit. The saying that form is temporary, but class is permanent truly reflects the essence of the company. We also believe the scale of clients and the early engagement we've experienced with Omnicom's trusted relationships will provide us with significant access. This not only helps us maintain our growth rates but also gives us the potential to accelerate them, which is truly exciting. We're enthusiastic about expanding our reach across a range of high-quality clients. Lastly, as John mentioned in his presentation, we see a unique opportunity with the modern next-generation platform that offers the largest scale trading data on the marketing side. Coupling that with the significant trading data platform we’ve established at Flywheel presents a fantastic opportunity. For the first time, clients will be able to measure marketing sales comprehensively, which is definitely the most thrilling aspect we see ahead.

That's great. Thank you.

Thanks for taking the question. John, some of your peers have pushed AI to the front of conversations recently and highlighted potential competitive advantages around data attack. I'm interested first, do you think as AI is integrated into the holding companies that real differentiation and execution will emerge that will be visible to clients? And then secondly, for Omnicom how do you think about the timeline of moving from testing AI capabilities to deploying it in a way that is going to be visible to investors on the top line or in cost?

Sure. There’s a lot to cover. First off, AI is simply AI. We’ve been investing in it for nearly a decade, with increased focus over the last five years, which you can see in Omni Assist. The discussion is really about the impact of Generative AI and its potential effects on the whole landscape. We believe it will enhance our productivity and empower our knowledge workers to deliver better, faster answers and insights for our clients. This is largely uncharted territory. One immediate concern we've highlighted is that technology often advances more quickly than society's capacity to adapt, as well as the laws and regulations that typically follow. It’s crucial to ensure we don’t expose our clients to risks arising from improper handling. The first step we took was engaging with the Department of Defense images to help train our programs efficiently. We expect to see more such arrangements in the future. Additionally, I think governments will be slow to catch up in terms of consumer protection, so we have to proceed with caution. Our potential capabilities may surpass our actual implementation of them, and we will prioritize our clients' interests and safety above all else. Regarding product enhancements, we already have some clients who are aware of the associated risks and understand that we may encounter some challenges along the way. Ultimately, we aim to create a more efficient solution. Now, I’d like to pass the question to my colleague Paulo, who has been deeply involved in these discussions. Paulo?

Thank you for the question, David. To address the first part, the answer is yes. This is why we've extensively integrated artificial intelligence into our industry-leading operating system, Omni, since its inception over five years ago. Over the past 18 months, we have collaborated with major players in enterprise-ready Generative AI, such as Microsoft, Google, Amazon, Adobe, and, as John mentioned, Getty. We've leveraged our first-mover advantage with these partners to test and integrate their models, enhancing the outcomes we deliver to our clients. With over 50,000 users, including both clients and employees accessing Omni, we’ve begun to implement these capabilities, as John noted, for several clients and select accounts. In fact, we launched these features in June 2023 with Omni Assist, which employs large language models and fusion models. They are already simplifying our employees' tasks and enhancing service for our clients.

Great. And then maybe one more. Just on the technology vertical, it's been a headwind across the industry for some time now. I think there's been some investor optimism that this could improve with easier comps for the year. Same time, we keep seeing layoffs in the technology space. I know it's been generally less an issue for Omnicom, but interested to know what you're seeing here and whether there's any read-through to business lines like precision marketing.

Certainly, there'll be easier comps. But as you suggest, I don't think in our prior calls, we've been learning too much about the impact that technology has had whereas I think our competitors have had much greater hits, which probably means that they buy have much easier comps going forward. But yes, we expect an uplift from the base of technology clients that we have in the forecast as it rolls through the rest of the year.

I'll ask two questions, if I can? And the first one is, can you say a bit more about why advertising and media was so strong in the fourth quarter? Was it to do with account wins? Can you quantify how big the account wins were? And can you say something about how much was media and how much was created within that segment?

Well, I'll answer the second part of your question first. Media certainly was stronger in advertising, but we choose to treat it as one reporting entity when we put both of those numbers together because quite often, they've come together. More specific than that, I don't think is a protective way to look at the business. Yes, there is a lot of strength in the fourth quarter in media. There are a great number of projects and spending that was conservatively held back and then released into the fourth quarter, and we benefited from it, as you can see in the numbers. And I would say that was through the West including Western Europe.

And can I ask one more question then about working capital. I know you exclude it from your free cash flow but it was still quite a large number, $460 million. Do you expect that to come down in 2024? Or can you say a little bit about why it's still so high?

Sure. For the year, certainly, the change in working capital was positive, almost a $400 million improvement which we're pretty satisfied with. I think relatively speaking, though the overall negative reflects the actions of the Fed and over time, global treasuries have obviously made it a more challenging area to manage. I think the fact that we cut the change in half where we cut the number in half in 2023 is really reflective of good performance all throughout the organization. It's really a matter of 3 yards in a cloud of dust in terms of blocking and tackling to improve those numbers. We're certainly going to strive to get the number back to neutral, if not positive as we go but that isn't going to happen overnight. I think as the economic environment changes and as the rates eventually come down, I think you'll see some continued improvement. It's certainly an area we're very focused on and we're not done in terms of improving our performance. But it has been more challenging in the last few years than in half.

Thank you very much.

Sure.

Thanks, maybe to first just to expand on the question around advertising and media. So I think you talked about how creative has been lagging, and then you've had a lot of strength in media, and you've definitely showed off strong capability there and want a lot of business. John, I'm just wondering if there's anything bigger to read about how the industry is changing and the acceleration in media with the slowdown in creative, do you think that's a change in the way marketers just think about the future of marketing and marketing spend is much more about the delivery than the content? And if so, are there any other changes that you might think about to your business longer term if that is, in fact, the case? And then just in Q4, your organic growth was pretty similar to what you've guided to for 2024. The EBIT margins were solid. They weren't necessarily up year-on-year. I know there's a lot of moving pieces then this year with Flywheel. But can you just talk about what's holding those margins a little flattish, like the guidance that you gave? And is there anything that could drive more margin expansion in the future? Thank you.

There's a lot to unpack here. You raise a valid point, and my response may not capture it fully. Creative work is essentially our intellectual property. Your observations reflect how we've organized and reported our business. Technology has significantly influenced the traditional agency model, enabling us to leverage great ideas through algorithms and automation to effectively deliver those ideas to the right platforms for reaching customers. This relationship is important; we don't separate the two because they enhance one another. What sets us apart is the quality of our creative output and the talent we attract, which should not be overlooked, even when others conduct analyses that don't truly represent our goals. These elements should be evaluated together. We anticipate that changes will continue, but they will ultimately benefit us as we provide new technologies and advantages to our clients. Whenever we can demonstrate cost savings for a client, they tend to deepen their partnership with us. I'm very optimistic about that. I would not want to jeopardize our valuable intellectual property due to changes in our organizational structure.

Yes, I'll give one on margins and expectations. I think as we've said in the past, we certainly strive over time to make steady progress on margins and make improvements. Certainly, in our two of our largest expenses, salary and service costs and occupancy and another, we see future opportunities. On the salary-related side, there's still quite a few initiatives we have to benefit from offshoring and automation. There are strong initiatives that we're pushing, and we'll continue to push in those areas. And we continue to go through a real estate rationalization and expect to benefit from that over time as well, and we continue to make some improvements there. I think, however, we talked a lot about AI on this call. That will be part of what helps us be more efficient and generate some of these benefits. But at the same time, it requires investments that we're going to continue to make in the business that, as we've talked about in the past, many of the investments we've made have run through the P&L. It's the right thing to do to make sure that our platforms are ready to give us the sustainable growth that we've been able to achieve and expect to achieve in the future. So it's a continual balance that we go through in terms of making those investments and generating the appropriate returns from a margin perspective and benefits for our shareholders ultimately as well. So I think that's a balance that we continue to manage. We look at it every year. We look at it every day. It's both. So hopefully, that's helpful.

Thank you.

Thanks. I have one for Duncan and John. Duncan, can you give us a sense of your client mix, you see Omnicom kind of you know their clients and their exposures. Can you talk a bit of your biggest clients for verticals you serve? And then John, this is a big deal to you obviously. Anything you said about channel conflict, client conflict. When you look at Dunkin's list in euros and perhaps either the ability to upsell your common list of clients or any kind of challenges? And then Phil, over the years, we've asked you about media and then third-party service costs. This quarter looks like you grew media or the media line very, very quickly organically. But your service costs, we're actually pretty glad on a constant currency basis. Can you talk a bit about what's happening on the ground on margin when you dig into that sector between organic and service costs? Thanks.

Sure. Conflicts are not an issue for us. It's been quite some time since this has been a concern. Most clients today are quite sophisticated and are more focused on the teams servicing them consistently. This is an experience seen throughout the industry; we've managed well because these teams typically do not interact, only consolidating at the holding company level. Regarding sectors, there will be various challenges and benefits; some will face lower comparisons while others will have tougher ones. Historically, Omnicom has not been particularly strong in CPG. However, with our recent changes in the Commerce Group leadership and the addition of Flywheel, we now have significantly more people equipped to meet the needs in the CPG space. This will enhance our competitiveness in this area. I'm really excited about this development. Let's turn it over to you first, Duncan, if you have any comments to add.

Thank you for the question. Flywheel has consistently performed well in the consumer packaged goods sector. We are currently working with 50 of the top 100 companies in that space and see opportunities to leverage both our capabilities and those of Omnicom to improve client experiences. Omnicom also has a client base that allows us to move into several product groups we haven't engaged with yet, creating a strong synergy. What excites us even more are other categories where we've identified significant potential. Omnicom has established strong connections in the electronics field, particularly with leading tech companies. For instance, we have the chance to collaborate with several of the top 20 brands that sell through Amazon, which is an exciting prospect. Additionally, there are emerging opportunities related to the industry's business transformation, especially in automotive. The secondary parts and service markets in this sector are experiencing rapid growth, and Omnicom is well-positioned to help us engage with organizations that want to capitalize on that potential. We see a solid foundation in our existing segments while also uncovering promising new areas for growth.

And then on your last question, I think certainly, media experienced very strong growth in the fourth quarter and had a great year. That growth was pretty consistent and strong across most of the media businesses and agencies we have in most markets for a number of reasons. And certainly, some of what you see in third-party service costs is a result of the gross media business performing well also. There is a bit of a mix difference between those businesses within our media operation, but they complement each other quite nicely. And I think we certainly have an offering that clients are very attracted to, and find very helpful and useful and valuable to meet their needs.

Thank you.

Hi, everyone. Thanks very much. I've got a numbers question and a broader question. Well. The numbers question is, if you could please comment a bit further on the shift in growth rates between the U.S. slowing in Q4 and a lot of international markets, it looks like accelerating Europe, Asia Pac. Just kind of curious, I heard what you said about the U.S. side, just maybe a bit more color on that. And then why conversely some of those international markets like they accelerated year-over-year. ? And then the broader question is about cookie deprecation and all the changes that Google is perhaps bringing about this year. I just wonder what your take is on the likelihood of cookies ending up being fully depreciated by year-end or some of the recent news flow is perhaps holding up progress there. Just curious how engaged Omnicom agencies may be in the privacy sandbox.

When analyzing the fourth quarter, there are three key factors to consider. Clients initiated projects, we secured new business, and there were impacts from any lost business that affect our organic growth figures. Project work was particularly strong, exceeding our expectations in certain areas of Western Europe. We have our theories about this, though it wasn't part of our initial plans. In North America, performance was decent, but we were also facing a number of losses from the advertising sector that happened over a year ago. Losing business is unfortunate, and we must manage the consequences as we move forward. This situation contributes to our organic growth calculations, and while we remain cautious about the current year due to ongoing economic unrest and the Federal Reserve's reluctance to lower interest rates, most of our issues seem to be behind us. However, we have yet to reap the full benefits of some new business we gained. I'm optimistic that 2024 will likely resemble more traditional patterns compared to 2023. Regarding cookie deprecation, this is something we've anticipated for quite some time. I could discuss it further, but I’ll pass it to Paulo, who is more knowledgeable and handles it on a daily basis.

Yes. So as John said, we have been expecting very long time. And to predict if it's going to actually happen at the end of this year, I mean, frankly, your guess is as good as ours, but we've been preparing for it, and we're ready for it. In fact, Omni has been purpose-built to actually address a cookie-less world just with respect to third-party cookies on Google. So in addition to that, we've been preparing in other ways like some of the deals that we've struck with clean rooms and the integration into various clean rooms that are helping us to facilitate first-party data. And then, of course, the acquisition of Flywheel and all the data that they bring directly from the marketplaces that is helping to drive a better understanding of consumers without the need for those third-party cookies.

Great. Thank you. John, I wanted to hear your thoughts if I could on two sectors; your pharmaceutical healthcare area, what your outlook is for this upcoming year. It's obviously been very steady growth for a number of years. And also your thoughts on the auto sector. It looks like you had a very good year. Last year, you won the BMW account recently and stuff. How optimistic about auto sector for you guys this upcoming year? And I have a follow-up for Phil.

Pharma, we remain very optimistic on. The only headwind I think we face as we go into '24 with pharma was earlier in the year, we lost Pfizer, so we'll be cycling through that. But the only limitations we are currently looking through, not things that we haven't won or we haven't been asked to work on, but have they gotten through the FDA because pharma. And just the simple science of things in the advances that are occurring give us tremendous opportunities to continue to grow. And I think that will be not only '24 but '24 and beyond a very strong sector for us. Autos, when it comes down to is, we're very well represented in autos, and I think we have the best clients one could ask in the sector. There is this tension going on in the marketplace that most auto OEMs are dealing with in terms of what's the mix between the electric cars that we're going to be out in the market, more conventional cars and hybrid. And there's a lot of decision-making and a lot of long lead times that go into that. But in terms of the sector itself, there's no question. It becomes an information platform for the OEMs as we go forward and the more merrier from my perspective. And as Duncan mentioned, now with the addition of Flywheel, there is a whole sector of aftersales parts that we could do a modest job on, but now we can do a much more robust job when you look through how those goods are distributed to the ultimate consumer, which is, in many cases, increasingly in marketplaces. So it's been a strong sector. It should even get stronger for us as we extend that over the coming months and years, and we're very comfortable with it.

And then, Phil, just I can just ask two quick housekeeping things. How would you sum up how your project-related work did for the whole company in the fourth quarter versus a year ago? And then a nit-pick question, your amortization for a number of quarters here has been sitting around $20 million. How much do you think it's going to go up here with this Flywheel acquisition? Do you have that handy?

We don't have the final number yet because there are several steps to complete following the acquisition that closed in early January. We still need to finalize valuations and work on the intangible assets. I can say that there will be a significant increase in amortization expense, and we believe the value of the Flywheel asset and team will prove to be a wise investment. However, we don't have a specific number to share at this time, but we are diligently working on it over the coming weeks and months. Regarding project spending, it was strong in the fourth quarter of 2022, although not as strong as in 2022, which was a more robust time frame. Discussions in late 2022 and early 2023 highlighted some concerns that ended up being less severe than anticipated. Nonetheless, the fourth quarter environment in 2022 was much more active compared to this year. We're satisfied with how agencies performed in capturing project spending in the fourth quarter of 2023, but in comparison to 2022, that year was certainly stronger.

And don't lose sight of the fact that in '24 as we get into it, we do have the Olympics. We do have a presidential election, and it's been my experience that presidential election years are generally very good one way or the other for the economy, and there gets to be some tension in the media marketplaces, especially in the U.S. as you get later in the year. So that makes people foster to make decisions sooner. And if the Fed comes through and starts to cut, that will be the beginning of, I think, fuel to aid in the outcomes that I just suggested will be there. So we're cautious, but we are optimistic.

Great. Thank you both.