Omnicom Group Inc (OMC) — Q2 2024 Earnings Call Transcript

Thank you for joining our second quarter 2024 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, you'll find a press release and a presentation covering the information that we're going to review today. An archived webcast will be available when today's call concludes. Before we start, I'd like to remind everyone to read the forward-looking statements and non-GAAP financial and other information that we've included at the end of our investor presentation. Certain of the statements made today may constitute forward-looking statements 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 2023 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. After our prepared remarks, we will open the line for your questions. I'll now hand the call to John.

Thank you, Greg. Good afternoon, everyone, and thank you for joining us today. We're pleased to share our second-quarter results. Organic growth was very strong at 5.2% for the quarter. The U.S. grew at 6.3% across our disciplines. Advertising & Media as well as Experiential all had outstanding performances. Non-GAAP adjusted EBITDA margin was 15.3% for the quarter, which excludes the effect of the severance costs related primarily to the formation of Omnicom production. Non-GAAP adjusted earnings per share, which excludes the after-tax effect of the amortization of acquired and strategic platform intangibles and the severance costs I just discussed, was $1.95, up 4.8% versus the comparable amount in 2023. Our cash flow continues to support our primary uses of cash: dividends, acquisitions, and share repurchases, and our liquidity and balance sheet remain very strong. We're pleased with our financial results for the quarter and the first half and are maintaining our full-year organic revenue growth target of between 4% and 5%, and full-year 2024 EBITDA margin target of close to flat with 2023. Phil will cover our results in more detail during his remarks. We made progress across several areas throughout the quarter. We expanded our end-to-end generative AI solution, grew our e-commerce offerings, launched a new production practice area, and secured numerous prominent client wins. Last year at Cannes, we unveiled Omni 3.0, the next generation of Omni powered by Gen AI. We also announced first-mover collaborations with Adobe, Amazon, Getty, Google, and Microsoft's OpenAI to gain early access to their large language models. Just over a year later, we're seeing these generative AI platforms' tools and partnerships being activated throughout every area of our business from strategy to creative to production, media, and precision marketing. One example is TBWA's launch of Collective AI, a suite of AI tools available to its employees and clients. Collective AI automates and drives efficiencies in basic tasks and provides AI-driven insights, allowing our teams to dedicate more time to helping brands bring distinctive products, services, and experiences to market. Another example is the recent launch of ArtBotAI, our intelligent content orchestration platform. Leveraging models powered by Omni, ArtBotAI assembles clients' digital assets to create and deliver high-quality personalized experiences to consumers at scale, maximizing the value of clients' creative content as well as the precision and performance of their media investments. These developments highlight the success of our generative AI strategy, which is to provide our agencies with tools and capabilities that can be used to make our people more effective and our operations more efficient and to drive transformative outcomes for our clients. During the quarter, we also continued to execute our strategic plans to further expand our market-leading retail media and e-commerce capabilities following the acquisition of Flywheel. At Cannes, we announced a collaboration with Amazon Ads that enables our media teams to access Amazon's browsing, shopping, and streaming insights to directly tie linear and CTV investments to purchases made on Amazon. Essential to this partnership are Flywheel's products and transactional signals, which are paired with Omni's audience and viewership data. This connection results in more effective marketing investments and increased ROI for our clients. Also at Cannes, Flywheel was certified with TikTok Shop, enabling us to connect creator content to product sales so we can measure marketing performance. These additions to our e-commerce offerings follow Omnicom's designation as a leader in the Q2 2024 Forrester Wave for Commerce Services. Our prominent position in the market is a testament to the early successes of our acquisition of Flywheel, aligned with the omnichannel capabilities of Omnicom Commerce Group and the MarTech consulting capabilities of Omnicom's Precision Marketing Group. In June, we announced the formation of Omnicom production, a new practice area that combines our global production units. Omnicom production provides best-in-class content production services throughout a network of studios powered by data-driven insights and the latest technologies. The centralization of our production agencies will improve how we deliver content to clients in a simpler, more integrated, and more effective way. More importantly, Omnicom production now has the breadth of capabilities to pursue a significant amount of incremental production revenue growth as we consolidate investments in new technologies and products that will provide better, cheaper services to our clients. The group has over 3,000 people across major markets worldwide. Through the combination of Omnicom content studios, eg+, Designory, Mother Tongue, Link9, and the production departments previously housed within our creative agencies. Sergio Lopez, one of the industry's most awarded creative production leaders, is leading Omnicom production. We're thrilled to have him at the helm. This centralized production capability coupled with ArtBotAI powered by Omni provides the industry's most comprehensive and intelligent content solution that delivers on the promise of mass personalization at scale. From Gen AI to e-commerce to production, we are continuing to enhance our offerings to meet our clients' needs for better informed strategic insights using AI, creatively inspired content that can be personalized at scale, and investments in targeted media that can be measured through quantifiable outcomes, all delivered in the most efficient and effective manner. Our differentiated capabilities uniquely position us to serve our current and future client needs. Our success is reflected through a series of recent client wins. Omnicom Precision Marketing Group won the consolidated CRM business from General Motors. TBWA was awarded the creative account for Carnival. AstraZeneca appointed Omnicom as one of its primary oncology network partners. Flywheel had several account wins including Cannon, Carter's, Lipton, and Nestle. Omnicom Media Group won the media account for Gap, PHD, retained Singapore Airlines and the Volkswagen accounts, and won David Yurman's and Priceline's media business. Our Media Group's strong showing was underpinned by two of its agencies, OMD and PHD being named the top two media agencies at time lines this year. Congratulations to everybody who played a role in these client wins as well as the award-winning work at Cannes. Overall, we're pleased with our first-half financial results and our progress on key strategic initiatives. Looking ahead, we expect stronger second-half results in line with our full-year organic growth and margin targets. I'm confident we can meet these targets even as we continue to monitor and adapt to changes in the macro environment. I'll now turn the call over to Phil for a closer look at our financial results.

Thanks, John. As you just heard, there are many exciting things underway at Omnicom and our success is driven by the investments we've made and continue to make in leading tools, platforms, and capabilities needed to serve our current and future clients in a rapidly changing marketplace. The strength of our business model is that we continue to make these investments while delivering solid financial results as we did in the second quarter. Let's review our performance beginning on Slide 4. Organic growth in the quarter was strong at 5.2%. The impact on revenue from foreign currency translation, as we expected, decreased reported revenue by 1%. If rates stay where they currently are, we estimate the impact of foreign currency translation will be negative 0.5% for Q3 2024 and for the full-year 2024. The net impact of acquisition and disposition revenue on reported revenue was positive 2.6% due primarily to the acquisition of Flywheel this January and partially offset by the cycling of some smaller dispositions. Based on transactions completed to date, we expect the impact of acquisition and disposition revenue will approximate 1.5% for Q3 and for the full-year. Now let's turn to Slide 5 to review our organic revenue growth by discipline. During the quarter, Advertising & Media growth was once again quite strong at 7.8%, driven by improved performance in advertising and excellent performance in our global media businesses. Precision Marketing grew 1.4%. While we saw a strong double-digit performance at Flywheel, some of our project-based consulting agencies within Precision Marketing encountered delays in client spending this quarter. We do expect a strong performance starting later in the second half as new wins are brought online and project spend returns to a more normal level. Public relations returned to growth in the quarter and was up 1%. In the U.S., growth was approximately 4% with a little more than half of that growth driven by U.S. election-related work. Healthcare grew 2% during the quarter with consistent performance for both our U.S. and international agencies. Branding and retail commerce declined by 3.8% as the environment for our branding agencies remains difficult. Experiential grew a strong 17.6%, driven primarily by client work related to the Olympics. And execution and support grew 1.2% with strong performance by our field marketing business, which was offset by our merchandising business. Turning to geographic growth on Slide 6, we had a solid quarter across our regions. Our largest market, the U.S., grew 6.3%. Europe and the U.K. also posted strong growth. Asia-Pacific, however, was flat on a challenging comparison to Q2 2023 at our experiential business in China, while Latin America continued its strong growth streak. Slide 7 is our revenue by industry sector for the quarter. Results year-to-date were generally stable as usual. Looking at our larger categories, we saw an increase in food and beverage and consumer products as a percentage of the total, driven by Flywheel's client mix, which was not part of our prior year revenue. Now let's turn to Slide 8 for a look at our expenses. In the first quarter, salary-related service costs grew with increased staffing levels, which primarily reflect our acquisition of Flywheel in January. However, these costs were down over one point as a percentage of revenue year-over-year, reflecting ongoing strategic repositioning actions and changes in our global employee mix. Third-party service costs grew in connection with the growth in our revenue, especially in disciplines that have a higher level of these costs, such as media, experiential, and field marketing. Third-party incidental costs increased along with growth in our business and related out-of-pocket costs billed directly to clients. Occupancy and other costs increased year-over-year, mostly due to the Flywheel acquisition. Our rent expense decreased, and although total occupancy and other costs increased, they were flat year-over-year as a percentage of revenues. SG&A expenses increased year-over-year, primarily from increases in professional fees incurred in connection with our strategic initiatives. As a percentage of revenue on a constant dollar basis, however, SG&A levels were only up slightly. Now let's turn to Slide 9 and look at our income statement in more detail. To start, in Q2 we took a repositioning charge of $57.8 million, which increased our operating expenses. This primarily reflects severance related to efficiency initiatives, including strategic agency consolidation in the smaller international markets of our advertising networks, the start of our centralized production strategy, and other efficiency efforts. These initiatives continue, and although we expect some additional steps to be taken in these areas in Q3, we expect them to be primarily self-liquidating. The table on this page shows the impact of this repositioning charge in the second quarter of 2024 as well as the net impact in Q2 of 2023 of the $72.3 million repositioning charge as well as the gain of $78.8 million that were recorded in Q2 of last year. On a non-GAAP adjusted basis, EBITDA grew 5.5% and EBITDA margin was 15.3% versus the comparable 15.5% margin in the second quarter of last year. As discussed last quarter, the relatively small decrease in margin includes the results of our Flywheel acquisition as well as the related integration costs. Similar to last quarter, EBITDA reflects the $21.5 million add-back to operating income, our amortization of acquired intangible assets and internally developed strategic platform intangible assets. We expect similar levels of amortization in the second half of the year. We also continue to expect our full-year 2024 adjusted EBITDA margin to be close to flat with our 2023 adjusted EBITDA margin of 15.6%. Moving down the income statement, net interest expense in the second quarter of 2024 increased $14.3 million to $41.7 million. The change was driven by a $5.2 million increase in interest expense due to higher outstanding debt from the Flywheel financing and a $9.1 million decrease in interest income due to lower average cash and short-term investment balances. Our income tax rate of 26% was close to flat compared to Q2 of 2023. For the second half of 2024, we continue to expect our income tax rate to be approximately 27%. Higher income from equity investments was offset by higher expense from earnings attributed to minority interests. Despite a reduced diluted share count, reported earnings per share declined due to the repositioning costs, but on a non-GAAP adjusted basis increased 4.8% to $1.95. Now please turn to Slide 11. Free cash flow year-to-date is up 2.4% from last year. We define free cash flow as cash provided by operating activities, excluding changes in working capital. In Q2 2024, our working capital use followed its typical seasonal cycle and declined from Q1 to Q2. Our Q2 performance improved compared to Q2 of 2023 and the first half of 2023. We're making progress as expected, and we continue to work towards our historically neutral levels of working capital. Regarding our uses of cash, we used $279 million of cash to pay dividends to common shareholders and another $34 million for dividends to non-controlling interest shareholders. Our capital expenditures increased to $62 million, which as discussed on prior calls, we expect to be somewhat higher than last year as we continue to invest in Flywheel and our strategic platform initiatives. Total acquisition payments were $829 million, which reflects the $845 million acquisition of Flywheel, net of cash acquired. There were no acquisitions in the second quarter. Finally, our stock repurchase activity, net of proceeds from stock plans, was $246 million year-to-date and $70 million in the quarter. Our expectation for the year is unchanged with total repurchases reduced as a result of the Flywheel acquisition, approximately half of our historical average of $600 million. We continue to maintain our balanced approach to capital allocation with a competitive dividend, strategic acquisitions, share repurchases, and an investment-grade balance sheet. Slide 12 is a summary of our credit, liquidity, and debt maturities. At the end of the second quarter of 2024, the book value of our outstanding debt was $6.2 billion, up over $600 million from funding a portion of the Flywheel acquisition during Q1 of 2024. Our cash equivalents and short-term investments at June 30 were $2.7 billion, down slightly from last year. We also have an undrawn $2.5 billion revolving credit facility, which backstops our $2 billion U.S. commercial paper program. We continue to monitor the credit markets regarding our $750 million of 3.65% senior notes that are due November 1st, 2024. At this point, given where interest rates are and our financing activity early in 2024 and the anticipated refinancing, our current estimate compared to last year is that net interest expense will increase by approximately $7 million in Q3 and $16 million in Q4. Slide 13 presents our historical returns on two important performance metrics for the 12 months ended June 30th, 2024. Omnicom's return on invested capital was 20% and return on equity is 43%, both of which consistently reflect our strong performance and solid balance sheet.

Hi, John and Phil, thanks for taking my questions. Advertising & Media growth was strong again this quarter with a lot of talk around generative AI. I was curious if you could help us parse out how creative is growing within that segment? And on that point, curious if you've seen customers start to experiment with any text-to-video platforms recently and if that has impacted client ad spend at all? Thanks.

Sure. Creativity really is at the core of everything that we do. You can take the most sophisticated AI enabling tools, and if you give them to everybody, you'd still be at parity and you need creative insights and thought in order to differentiate and to beat your competitor in effect. So the method and the activities that we go through which get attributed historically to advertising versus media versus CRM, they shift within the share of wallet, but the concept of advertising thought of from a creative point-of-view will continue to grow and prosper even as these tools develop. And that's why we look at truly share of wallet when we're reporting the numbers to you because it would be very inequitable to parse them any further.

In terms of some specifics though, ultimately the majority of the growth in the Advertising & Media discipline is from the strong performance of the media business, but the creative agencies within that overall grew this quarter, not at the same pace, but they grew relative to last year.

Got it. Okay. And thank you. And secondly, so could you discuss a bit further your recently-announced production initiatives? Curious how you're framing both the growth and cost impacts there? Thank you.

Sure. I would be happy to. This is something we've been planning since late last year. The person I mentioned earlier, Sergio Lopez, comes from a very successful competitor in this area, but we had to wait six months for him to join us. Our plans were on hold until he came on board in June. This is more related to future revenue possibilities and growth rather than the cost efficiencies from the organizational changes we've made. When I compare Omnicom's production revenue and performance, I note that at least two of my competitors report numbers that are two to three times higher than ours. We need to consider everything from a broader perspective since they are significantly larger than we are. We believe that the best way to grow effectively, especially in this rapidly changing AI environment which impacts traditional production businesses, is to centralize our operations with someone who has extensive experience in doing so, having worked on similar initiatives for two competitors in the past. We expect to complete the necessary changes over the next quarter or two, and I currently rank us just outside the top five in this area, but we anticipate being in the top three within the next 30 to 36 months. This initiative is primarily about revenue opportunities and aligns well with our new ArtBotAI tool and other projects we have in development, which will be introduced as we expand and onboard more clients.

Great. Thank you.

Hi, thank you. Regarding the organic guide, could you clarify why the outlook remains unchanged despite the 4.6% year-to-date growth? We've heard questions about why you wouldn't consider raising the low end, especially since you mentioned expecting stronger results in the second half and benefiting from some cyclical events.

Yes, my confidence is built upon my conversation with clients and the business that we have today. I really don't control macroeconomic items nor the election or whatever those impacts are. And I think you'll all recall me having said this for the last 20-odd years that the fourth quarter is always a project environment. So rather than change our forecast every day and every 90 days is the equivalent to every day. We're very comfortable with the forecast that we've given you. We're just slightly below the top-end having completed six months. When we get evidence that the fourth quarter post-election is going to be a stable period of time, we may elect at that point to review what guidance we've given you, but it's not our habit to be that flighty. We want you to believe what we say and so therefore we don't change what we say until we're confident about it.

Understood. And then, John, you talked a little bit recently about a need or desire to partly shift agency compensation models maybe to a performative or licensing aspect with Gen AI potentially as a catalyst for that. I'm curious what the reception has been among your clients for this so far? And do you think it's realistic for a sizable portion of the industry to make this kind of changes? Thank you.

I'm not prepared to talk to the business of others only to my own. Actually, that comment, and I have made that comment, is a business cycle comment, nothing changes overnight. What it has to do with is the enhancement of tools, the improvement of our algorithms to prove an ROI on a specific dollar spent and then getting clients to be able to articulate measurable KPIs regarding what they're hiring us to do. That's the journey that we're on. This journey isn't going to happen in 180 days or 360 days. This is a journey that I've tasked the organization to look at three years out and to start testing, discussing, improving our measurement tools hopefully, and we haven't done this as fully as or as fast as I would want, developing products which clients will be attracted to, primarily based on outcomes. Your question is going to be an excellent question for the next 36 months at least, and we're started on that.

Great. Thank you.

Hi, good afternoon. Thanks for taking a few questions. If I can, the first question is in Precision Marketing, you talked about some project work being delayed. Can you just talk a little bit about the environment for project-based work and how confident are you that those delays will result in work in the second half of the year? Is that kind of confirmed by the clients that's going to happen later, or is it more something you're hoping will happen?

Sure. I'll provide my thoughts, and then I'll ask Phil to add anything I might miss. I see a few challenges ahead. First, we experienced a client loss during the quarter, which will be resolved before the year ends, and that has had an impact. In the U.K., where we have a consulting business, some projects were postponed due to the recent election. The positive news is that, although this is not reflected in the quarterly figures, we feel encouraged that with the new labor government, those projects are back on track and will proceed as planned. This delay was temporary and resulted from an external situation beyond our control — the election. Additionally, we have some project transitions occurring. Since we reported our second-quarter results, the challenges related to Precision will lessen once the election is over, and the impacts of the client loss will continue for only four more months. More importantly, we secured a significant contract with a U.S. order manufacturer in the last couple of weeks. Usually, there is a six-month waiting period before we start to see revenue from such accounts. However, in this case, we began receiving payments in August and expect this to grow as we progress through the rest of the year. Given these factors, we are hopeful for a rebound in organic growth in the third and fourth quarters, and as we enter next year. I'll let Phil add anything I may have omitted.

I think that was pretty comprehensive.

Yes, that was really helpful. Thank you. And my last question is just on cash. The working capital outflow didn't improve in the first half. Do you think it will in the second half? And related to cash as well, the repositioning charge of $58 million, is that cash that's going to impact H2, or is it non-cash?

For most of the repositioning, it will primarily involve cash. The timing will vary, but the majority will occur in the second half of the year. We will manage this as we usually do. Working capital performance improved year-on-year during the quarter. In the first quarter, working capital was negative compared to last year, but after six months, it has turned positive. Our working capital performance has improved in the quarter, although the net figure is still negative, around $400 million, which is the annual number. Last year's figure was over 50% better than in 2022. We expect to continue making progress as the year progresses, but reaching a neutral position will take time due to the current rate environment. If and when that changes, we anticipate improvement and a closer move toward neutrality. This hasn’t happened yet, but we expect it will. The rising costs of money in recent years have led clients to retain more cash for longer periods. We have also maintained cash while paying our vendors, but we expect the situation to improve over time as we work toward neutrality. However, this won't happen overnight.

Sure.

Thank you. I was wondering if you could expand a little bit on the media business. You won a lot of media business over the last 12 to 18 months. You've defended some business successfully. And then we've also seen some of your peers who struggled a little bit on the media side. So I think what we're trying to understand is what's structural in media buying that's benefiting your strategy or the way you're going to market. Sometimes we see this where holding companies go through what seem like strings of wins and strings of losses, but they're not always sustainable. So really trying to understand what's structural here? And if the habits or behaviors of the clients have changed in a way that's better for OMD or your platform? And then also on Omnicom productions, could you give us any more insight as to what kind of margin you think you can generate in a business like that? And as you grow this business, is this going to have a material impact on the difference maybe between gross revenue and net revenue or how much of that delta is in the production business currently that you can look to capture through this initiative? Thank you.

Okay. The first question is a terribly important one because I think the behavior that you've seen over the last 18 to 24 months with who's been winning business and who has not is structural as well as other elements coming into play. In our particular case, I think the key differentiator, which in addition to having excellent people deployed, has been the decade-long investment and the progress that we've made in Omni. That was doubled in terms of its capabilities and the information that we gather to provide insights with the acquisition of the transactional information that we got when we repurchased Flywheel's Commerce Cloud earlier this year. So that is a key differentiator compared to what the competitor set was and how we did business three years ago. The improvement that we have in how we measure the effectiveness of media, coupled with the content production tools that we've now automated and also get included in some cases as modules that are compatible with the information that Omni generates, is a key factor in why I think we've been batting well above 600 and you'll see that reflected in the media wins and loss charts that seem to get published or updated daily. If you go back and look at that information, you'll see that has been the consistent pattern. That activity, even though I wouldn't attribute too much revenue yet, also further enables us to get closer to that longer project I referred to where we're looking to outcomes and improving our client ROI, but that's more to come on that. If you're looking for an immediate answer, that would probably be at the heart of it. I think even some of my competitors who are on the other side of this transaction truly understand the differentiation and the full capability that we have versus others. And it's gotten reflected in some technical reports. Forrester did a report in the second quarter and delved into some research that we haven't necessarily promoted, but it points out these differentiations. Having said that, I've now forgotten the second and third parts of your question. So could I ask you to just repeat?

Yes, sure. Just about Omnicom productions, what kind of margins could that business generate? And maybe how big that could become from a revenue perspective? Or if you could help us size within some of the gross revenue, how much of that might be up for grabs for the production company?

Sure. Gross revenue isn't the key factor regarding production as you might assume. It's more about assigning and allocating resources. Some of my immediate competitors are significantly larger than us, being two to three times our size, while we are under $1 billion in what I consider production revenue, which could range from $500 million to $1 billion. My competitors serve major clients, including Apple, which we've partnered with since 1984. Replacing that business won't happen quickly, but there is substantial revenue potential. By centralizing teams and strategically investing in the necessary tools and services for our clients, we’ve had well-defined plans and have been progressing quickly since the start of the year. This momentum will continue to build as we approach the end of the year and into next year. Regarding margins, this will support our overall healthy growth. One great aspect of Omnicom is that no single area we focus on has a lasting effect on the health of the company, so this can be seen as an additional support for our stability. Sure.

Thanks. Hi, John. I have a question for you on ArtBotAI. One of the concerns on the Street is that generative AI is going to make creative content much more efficient. The client is saying, look, this is incredibly efficient from the time spent and people required standpoint. So I wondered what are you seeing in terms of it is efficient, but what's the net impact to creative agency from using these tools on a revenue basis? That's what we're all trying to figure out. And you have a pretty good example here with ArtBotAI and AT&T.

Sure. I think the one thing maybe this you have to take on faith, but it's been true. I've only been in the seat for close to 30 years and god knows how many quarterly calls like this. Wherever we've been able to make the client's dollar work more efficiently, a significant portion of that dollar saved or proven gets reinvested by that client. They understand the impact and they're not fearful of investing in things that they can measure. ArtBotAI is just an amazing tool, and the creative work that goes into concepts and the insights of developing a campaign still takes those geniuses that little Rembrandts that we have, I think more than our fair share of within Omnicom. Historically, and this is what you're afraid of, there were dollars involved in the trafficking of that information or the reconfiguring of that information for different types of media in the past. That now with ArtBot, if the campaign is properly tagged when created, is done instantaneously. That one boring work that was kind of mundane for the people doing it, which did generate revenue, blurred the lines of how much of this money we're spending, are we getting a return on it? Now with things like ArtBot, we can reduce the cost and do something better, cheaper, and faster. Through Omni and the optimization tools that we have, we can measure the effectiveness of it. The point being a dollar saved becomes 95% incremental dollars invested from the clients. So I think your fear is really not well-placed. I think we have enough history because this business has evolved quite a bit during my tenure to at least believe in the fact that if you can measure it and it's beneficial to your activities, you're going to spend more until it's no longer beneficial.

Thanks, John. Sorry, Phil.

No worries.

I apologize, but my question is regarding your aim to enhance pay-for-performance. Does this require both the media and creative aspects? How can clients differentiate the effectiveness of the creative from that of the media planning and buying? What are your thoughts on going to market to ensure you get compensated for both the creativity and optimization components?

Yes, I apologize if I'm being repetitive. I believe I mentioned earlier that even with the most advanced tools, whether it’s two retailers in the same area or two car manufacturers trying to attract customers, those tools can optimize spending. However, without creativity, there would be no distinction between the two. Competitively, it would be like the old days of hunters wondering if buffalo would come by their village. It's the creative individuals and the timely insights generated by our tech platforms, like Omni and Flywheel Commerce Cloud, that provide us with the necessary information to act quickly and develop large-scale campaigns that attract customers. This helps highlight the differences between our products and explains why a client or potential buyer should choose them. Historically, the lines between technology optimization and creativity were clearer, but they have blended more now. This blending represents our future approach, emphasizing that neither aspect is more important; both are vital. When they work together, their combined effect is truly significant.

Thanks, John. Sorry, Phil.

No problem.

When I look at your firm, it seems that the adjustments you've made over the last few years, whether related to Omni or centralizing production of the Flywheel acquisition, are more significant than in the past. My first question is whether you agree with that statement. Additionally, are there any capabilities or skills you feel you're lacking that might prevent you from competing effectively in the marketplace?

Well, I probably shouldn't say this on a conference call, but as the CEO for 30 years who has built this company from a legacy perspective, I feel I have the right to make changes as necessary for our success. It's not just my decision; it involves my whole team and the insights we gather from consumers and customers, along with the rapid advancements in technology. You are correct that there has been a significant amount of change. Some of it is relatively minor compared to acquisitions, but most of it involves long-term investments of our internal resources to develop the necessary tools and hire the right people to make this work. My team would definitely agree with this sentiment. I am never satisfied, and they understand that our work is never complete. One of the real advantages of having so many creative individuals and diverse geographic teams is our ability to experiment with clients who are willing to take risks with us, knowing that things might break and we will fix them. Then we turn them into products that are more easily deployed to a larger group of people. When they become significant, that information bubbles to the top pretty quickly. I have a pretty astute group of folks that are always on the lookout for that as well as the formal things we do from Omnicom. When you see it, it's kind of buried in some of the announcements that we made. I talked about what TBWA has done. I've talked about what other parts of the company have done. They're all things that they've baited and tested and proven that, see this is a skill that or a product that we can white-label for the benefit of all of our clients. That's the constant process going on. Are there more things that we could do? Yes. Are there more things we're going to do? Absolutely. Am I satisfied that I believe we're appropriately ready for today? Yes. What the client requirements are today? Yes. But I don't think that is a stationary target. I don't think you can rest on those capabilities. They're in a constant state of improvement.

Perfect. Thank you.

Thanks. I have one more question about the Omnicom production operation that you just described. Operationally, is this a consolidated skill center that agencies will utilize, effectively taking certain activities out of the agencies to create a shared service center? If I understand correctly, is it a complex process to establish this? Additionally, will there be further repositioning costs in the upcoming quarters? Thank you.

I'll address the last part of your question first. Currently, based on a thorough plan and the information at hand, we believe that any future adjustments to our architecture and plan will be self-sustaining within the quarter. We don't anticipate any drastic actions based on our current knowledge to elevate this further. There is certainly a shift occurring, with a stronger emphasis on technology in production. Improvements are underway that have yet to be implemented regarding how production is conducted, making it better, cheaper, and faster. Previously, when these were simply departments within the agency or company serving a limited number of clients, they focused on their specific client needs and the tools required to adapt. By centralizing operations, we enhance our ability to meet those specific client needs while expanding our offerings to other significant clients. There are benefits to scale because with scale you can make better investments, you have more assets to deploy against particular assignments, and you should be able, and we will be able to do things better, cheaper, and faster for our clients, which again contribute to client savings, measurable ROIs, all of the other things which touch the continuum of services that we are increasingly offering.

Thank you. Just a matter of time with one question, guys. Can you talk about your technology clients? I noticed 7% of your revenues here in the first quarter, first half. Are you feeling like the worst is behind you there in terms of the growth rates year-over-year and it might start turning positive, I say the fourth-quarter going into next year? How you feel about the technology part of your clients? Thank you.

I believe that regarding the numbers, last year we saw them at around 8% of total revenue. The 7% recorded in the quarter or the first half reflects a minor change largely due to a shift in spending patterns. It seems we're leaning more towards consumer products and their client base in 2024, which slightly alters the overall percentages. We have not experienced a meaningful decline in spending from our tech clients. There have certainly been some fluctuations, but overall, I don't think these numbers have significantly affected us on a consolidated level.

Thank you. I'll just stick to one question, please. There's been a bit of a deterioration in some macro indicators of late in the U.S. And I know, John, you said you don't control macro, but I would still be curious if you've seen or you felt in your recent conversation with clients that there is perhaps a desire to pull back maybe on that spending towards the second half on the back of those weaker data points. Thank you.

I wouldn’t say there’s a pullback. The optimism we had at the beginning of the year, anticipating Fed cuts and other macro actions, has been pushed back. Until the first cut happens, people are choosing to be conservative in their forecasts. There was a bullish sentiment last December and January, but the situation has shifted. This applies not only to the United States but also with ongoing wars and a snap election in the U.K., which has caused some paralysis. We believe we are closely connected with our clients and understand their challenges, and we adjust accordingly. We remain confident that we will deliver on our commitments.

Thanks for joining us so late, Adrien.