The Omnicom Group is hosting a conference call to discuss their second quarter 2023 earnings. The call is being hosted by Senior Vice President of Investor Relations, Gregory Lundberg, and will include remarks from Chairman and Chief Executive Officer John Wren and Executive Vice President and Chief Financial Officer Phil Angelastro. The call will include a press release and webcast, and participants are asked to read the forward-looking statements and non-GAAP financial and other information included in the presentation. The call will begin with an overview of the business from John Wren, followed by a review of the financial results from Phil Angelastro, and will conclude with a question and answer session.

Omnicom reported a 3.4% organic growth and a 15.1% adjusted operating income margin for the quarter, resulting in a 7.7% increase in adjusted diluted earnings per share. The company is increasing its full-year organic growth target to 3.5% to 5%, and maintaining its 15% to 15.4% operating margin target. Omnicom has made progress on its AI strategy by adding generative AI to its Omni platform and entering into technology partnerships. The company is embracing the technology to boost productivity and deliver better work to clients, while being mindful of its limitations, risks, and privacy concerns.

Omni is a platform used by over 50,000 people in over 100 countries, and has over 1 billion IDs globally. Generative AI will be used to turbocharge Omni users, and the open architecture of Omni allows for quick adaptation of Generative AI models. The launch of Omni 3.0 at the Cannes Lions Festival of Creativity included Omni Assist, a custom-trained enterprise-level Omnicom proprietary version of ChatGPT, and collaborations with Google Marketing Cloud, Vertex AI platform, and Imagen, as well as Adobe's Firefly creative generative AI models. These models will enable automated content creation for marketing campaigns in a brand's unique style and language.

Omnicom has collaborated with Amazon Web Services to automate advertising campaigns and the creative journey development, launched Omni Commerce to harness the full power of retail media, and appointed Jacquelyn Baker as CEO of the Omnicom Commerce Group. Additionally, Omnicom was recognized as the Most Creative Company in the world at the Cannes Lions Festival of Creativity, with two of their creative networks placing in the top three in the Network of the Year competition. They continue to invest in their global creative capabilities.

Omnicom announced the acquisition of Grabarz & Partner, a world-class creative agency headquartered in Hamburg, and Ptarmigan Media, a specialist agency providing end-to-end media and marketing solutions to financial services brands, in early July. Omnicom's financial results for the first half of the year have been solid, with reported revenue increasing by 1.5% and reported operating income increasing by 1.7%. Reported net income and diluted earnings per share in Q2 increased by 5.1% and 8.3% respectively.

In the second quarter, the company recognized a gain of $79 million from the disposition of research businesses and incurred repositioning costs of $72.5 million. Organic growth was 3.4%, and acquisition and disposition revenue was negative 1.5%. Advertising and media posted 5.1% growth, while precision marketing grew 2.3%. The company is investing in generative AI to benefit this discipline, and expects future growth to accelerate.

In the second quarter of 2021, commerce and brand consulting grew by 2.4%, while experiential growth was 9.2%. Execution and support revenue fell 3.8%, and public relations was flat. Healthcare performance was solid at 3%. Asia Pacific saw strong growth, particularly in China, and food and beverage, pharma, health, and automotive had higher relative weights, while technology and telecom had lower relative weights. Operating expenses were down year-over-year due to repositioning actions and global employee mix changes, but third-party service costs increased due to an increase in organic revenue. These costs are an integral part of the service offering to clients and generate profit.

Third-party incidental costs decreased compared to the prior year, while occupancy and other costs were up slightly in dollar terms. SG&A expenses decreased in both dollar terms and as a percentage of revenue. Operating income was up 1.7% on a reported basis and up 50 basis points on a non-GAAP adjusted basis. Net interest expense was $27.4 million for the quarter, a reduction of $12.7 million due to higher levels of interest income. The second-half of 2023 is expected to have net interest expense that is flat to up slightly.

In the second quarter of 2023, the reported income tax rate was 27%, the non-GAAP adjusted tax rate was 26.3%, and reported net income increased by 5.1%. Diluted earnings per share was up 8.3% on a reported basis and up 7.7% on a non-GAAP adjusted basis. Free cash flow for the quarter was $880 million, and $285 million of cash was used to pay dividends to common shareholders. The company also repurchased $506 million of stock and had $2.8 billion in cash equivalents and short-term investments. At the end of the quarter, the book value of outstanding debt was $5.6 billion and the next debt maturity is not until November 2024.

John Wren believes that technology will have an impact on every aspect of their business, and Michael Nathanson asked if this technology would lower their competitive advantage or allow for new entrants into the industry. He also asked Phil for more information on the repositioning charge, wondering what the charge was related to, if it was the end of it for the year, and what type of benefit it would have on their margins.

Phil Angelastro explains that the repositioning charge in Q1 and Q2 was related to severance actions that were taken to align the cost structure with revenue expectations. He also states that they do not expect the same level of repositioning in the second half of the year, but will continue to look at the business to balance the cost base with revenue expectations. Finally, he states that their expectations for the full-year margins remain the same, at 15-15.4%, and that they are making investments in GenAI and other areas which will run through the P&L.

John Wren explains that there is always budget flush and projects in the fourth quarter, which they will become increasingly focused on as they get out of the summer. He also mentions that in the last 22 years, there have only been two years where project revenue didn't come through. Wren then updates on how clients are approaching larger projects, noting that the biggest pause was in the tech and telecommunications sectors, but they did not lose any clients.

John Wren of Omnicom Group believes that AI will lead to increased productivity and organic growth in the near and long-term. He suggests that AI will make the gathering and refining of data more efficient and labor-less intensive, leading to better insights. Additionally, it will help prove the ROI of a dollar spent and help navigate different markets, laws, and regulations.

John Wren explains that the Precision Marketing sector of Omnicom is expected to continue to grow, and that the softness in some of the other areas is due to the disruption of companies like Facebook when they cut jobs. He also highlights the strength of Omnicom's client base and geographic base in which it operates.

John Wren discusses the slowdown in US organic growth, attributing it to weakness in tech and telecom, and the reduction of 9.1% in the events and entertainment sector. He then addresses Steven Cahall's question about the margin guide, stating that generative AI investments will be made this year but that they are still comfortable with the top-end of the range, closer to 15.4%, excluding repositioning charges.

Phil Angelastro has addressed the margin comment, stating that their outlook for the year has not changed and they are looking to find the right balance between sustainable growth and delivering to shareholders. John Wren then goes on to explain what makes the Omni platform attractive to big tech companies, which are largely creative efforts, with some media planning and buying functionality as part of these.

Omni's open architecture and commitment to transparency and privacy make it an attractive partner for tech companies. Its platform, deployed to over 50,000 people around the world, allows for flexibility and the ability to incorporate new features and discard outdated ones. This makes it a leader in the industry and a reliable partner for companies whose products may be subject to government regulations.

John Wren explains that the company is focused on improving creativity through generative AI and cleanroom technologies, but they also help clients with their data by guaranteeing that their first-party data remains exclusively theirs. They are also looking to incorporate APIs for CRM, commerce, and PR to drive efficiency.

John Wren states that clients have been trying to create flexibility by holding back on upfront commitments and preserving their rights to enter into the scatter markets. He also mentions that with the lack of governmental support, companies have had to adjust their businesses depending on their industry. Lastly, he notes that consumer behavior is changing, with the travel industry booming while other spending is becoming more conservative.

John Wren comments on the wins and losses of Omnicom in the first-half of the year, noting that they have had very few losses and many gains, especially in media. He also notes that PR has seen some slowness year-over-year due to elections and government activity, but that they are hopeful for the balance of the year due to a number of pitches they are involved in. Finally, he mentions the two ongoing strikes in Hollywood.

John Wren is agnostic to any form of media and is using technology and databases to attract audiences. He hopes the current situation will end soon, but he has not given any thought to what percentage of their revenues would be using generative AI in five years. He is, however, acting as if they want to be leaders in the area.

John Wren, a business leader, states that he does not spend time worrying about the past, but instead focuses on the present and the future. He is able to offer clients the best technology and tools available in the marketplace and expects to be paid fairly for this premium service. This concludes the conference call.

This summary was generated with AI and may contain some inaccuracies.