The Operator introduces the Omnicom Fourth Quarter and Full Year 2023 Earnings Release Conference Call and the participants. Senior Vice President of Investor Relations, Gregory Lundberg, welcomes everyone and introduces the speakers for the call. He reminds listeners to read the forward-looking statements and non-GAAP financial information and introduces the presentation materials. John Wren, Chairman and CEO, will give an overview of the business, followed by Phil Angelastro, Executive Vice President and CFO, who will review the financial results for the quarter.

In the fourth quarter and full year 2023 results call, John Wren reports strong performance with organic growth exceeding expectations and a significant acquisition of Flywheel Digital. This acquisition expands Omnicom's capabilities in retail, media, and digital commerce, transforming the company into a marketing and sales-focused organization. Free cash flow and shareholder returns remain strong, and the company's balance sheet supports its primary uses of cash. The acquisition of Flywheel allows for seamless integration of services and better results for clients.

Omnicom has been making strides in combining data from Omni and Flywheel to drive sales for clients and measure return on advertising spend. They have also acquired Coffee & TV to expand their production capabilities and launched Omnicom Content Studios to create content for brands across all consumer experiences. Additionally, they have made partnerships in the areas of influencers and generative AI technology.

In 2023, the company launched Omni Assist, a virtual assistant that uses data from Omni and Open AI's GPT miles through Microsoft to create and execute ad campaigns. The company has a first-mover advantage in this area and plans to continue investing in AI to improve productivity and success for clients. They also had a successful year in securing new business with major companies and welcomed a new member to their diverse Board of Directors.

The speaker thanks their team and clients for a successful 2023 and discusses the company's strong financial performance and strategic investments. They are cautiously optimistic about 2024, targeting organic revenue growth of 3.5% to 5%. The speaker then hands over to Phil to review the financial results of the quarter, which saw a 4.4% organic growth and a 1.2% increase in reported revenue due to foreign currency translation. The net impact of acquisition and disposition revenue was negative 0.7%.

In 2024, the company expects a positive contribution to revenue growth, driven by recent acquisitions and overcome recent dispositions. Organic revenue growth for the full year was 4.1%, meeting the revised guidance of 3.5% to 5%. Advertising and media had strong growth of 9.3%, while precision marketing declined 1.1% due to tough comparisons and client spending reductions. Commerce and branding grew by 1%, experiential was down 8%, and execution and support declined by 0.4%. Public relations declined 2.9% due to difficult comps and softness in certain markets. The company expects precision marketing to be one of the fastest-growing disciplines in 2024.

The healthcare sector saw steady growth of 3.6% during the quarter, while the five largest markets showed growth but were offset by declines in Canada and the Middle East and Africa. The U.S. saw a 0.6% increase, led by advertising and media, but offset by declines in execution and support, public relations, and commerce and branding. Automotive, food and beverage, and financial services saw increases, while technology and entertainment saw decreases in revenue for the full year. Expenses were higher due to increased staffing levels, but lower as a percentage of revenue due to repositioning efforts and changes in employee mix. Third-party service costs increased with revenue growth, and profit was generated in this area. Disposition activity did not have a significant impact. Third-party incidental costs remained consistent and reflect client-related travel and out-of-pocket expenses.

The company's occupancy and other costs decreased due to real estate portfolio rationalizations, but SG&A expenses increased due to professional fees related to the Flywheel acquisition. Adjusting for these costs, the company's operating income margin and EBITDA margin were within expected ranges. The Flywheel acquisition will result in higher amortization expenses, but the company expects it to be accretive to diluted EPS by the fourth quarter and to have a minimal impact on the adjusted EBITDA margin for the full year. The non-GAAP adjusted income tax rate for 2023 was comparable to 2022, but it is expected to increase slightly for 2024 due to changes in international statutory rates.

The acquisition of Flywheel and improved performance at agencies with minority shareholders led to a slight decrease in reported net income but an increase in adjusted net income. Free cash flow for the year increased by 6.5%, driven by operational improvements and the use of operating capital. The company used cash for dividends, capital expenditures, and acquisitions, and expects to finance the majority of the Flywheel acquisition with new debt. Stock repurchases were within the expected range and the company plans to continue returning cash to shareholders through dividends, strategic acquisitions, and stock repurchases in 2024. The company's credit, liquidity, and debt maturities are summarized on Slide 11.

In the fourth quarter of 2023, the book value of outstanding debt was $5.6 billion with no changes other than foreign exchange translations. The company plans to enter the debt market to finance a portion of the $845 million spent on the Flywheel acquisition and will also refinance $750 million of senior notes due in 2024. This may lead to an increase in interest expense, but the company expects lower interest income due to internal financing and declining interest rates. Historical returns for Omnicom show strong performance in terms of return on invested capital and return on equity. The company expects growth in margins to ease as the year progresses, with the Summer Olympics and U.S. presidential elections potentially boosting revenue.

In response to a question about how the upcoming election will impact the company, John Wren explains that the first quarter will have difficult comps and that the recent business wins will not have a significant impact until the second quarter. He also mentions that the Olympics and the election will provide a boost in revenue later in the year. Philip Angelastro adds that the margins will reflect this performance as well. Cameron McVeigh then asks Duncan Painter, who recently joined Omnicom, about his thoughts on the company. Duncan expresses his excitement to be a part of the leadership group at Omnicom.

The speaker discusses their long-standing partnership with Omnicom and how they admire the company's focus on high-quality products and services. They also mention the potential for growth and access to new clients through this partnership. The most exciting aspect for them is the opportunity to combine their trading data with Omnicom's to provide clients with a comprehensive measurement of marketing and sales.

John Wren, CEO of Omnicom, discusses the potential impact of AI on the advertising industry. He believes that AI will make the company more productive and help their knowledge workers provide better insights for clients. However, Wren also acknowledges the need to tread carefully and ensure that the company does not expose clients to any potential problems or legal issues. Omnicom has already taken steps to address this, such as entering into agreements with DoD images to teach their programs and platforms. Wren also notes that governments may be slow to catch up with regulations surrounding AI, so the company must be cautious in their approach.

The speaker believes that our ability to do things will exceed our use of those abilities, and the company prioritizes client safety and interests. They have been working with various partners to integrate Generative AI into their operating system and have already launched this capability with Omni Assist. This has made jobs easier for their employees and improved outcomes for clients.

In the paragraph, David Karnovsky asks about the impact of technology on Omnicom's business and John Wren responds by saying that while there will be easier comps in the future, Omnicom has not been as affected by technology as its competitors. He also mentions that they expect an uplift in the base of technology clients and that the advertising and media segment was strong in the fourth quarter due to account wins and projects being released. Wren also notes that media was stronger than advertising and that the strength was seen in the West, including Western Europe.

During a conference call, Adam Berlin asked Philip Angelastro about the company's working capital and if they expect it to come down in 2024. Angelastro explained that they have seen a positive improvement of almost $400 million in working capital for the year, but it is still a challenge to manage due to the actions of the Fed and global treasuries. They are focused on improving their performance and hope to get the number back to neutral or positive as the economic environment changes. The next question from Steven Cahall was about the company's advertising and media. Angelastro mentioned that their creative has been lagging behind, but they have been strong in media and have won a lot of business.

The speaker asks John about the impact of technology on the advertising industry and if it will change the way marketers think about marketing and spending. They also mention the Q4 results and ask about the potential for margin expansion in the future. John responds by mentioning the importance of creative and how it is affected by technology, and how the two aspects of the business are interconnected. He also mentions that there will continue to be shifts in the industry.

The company is confident that bringing new technologies and benefits to clients will result in an expansion of their relationship. They strive to make steady progress on margins and make improvements, with opportunities for cost savings in areas such as salary and service costs and real estate rationalization. However, investments in AI and other areas are necessary for sustainable growth and a balance must be struck between making these investments and generating returns for shareholders.

The operator introduces a question from Michael Nathanson of MoffettNathanson for Duncan and John about client mix and channel conflict. John explains that conflicts are not a concern and clients are more interested in the teams servicing them. He also mentions potential challenges and benefits in different sectors, with CPJ being an area that has not been as strong for Omnicom.

Omnicom has made changes to their Commerce Group and added Flywheel, which has made them more competitive in the CPG market. Flywheel already serves 50 of the top 100 CPG brands and the combination of their capabilities with Omnicom's has led to opportunities for growth in other categories such as electronics and tech. Additionally, the industry's shift towards marketplaces, particularly in the automotive sector, presents further potential for Omnicom and Flywheel to work together.

The speaker discusses the strength of existing segments and the opening up of new segments. They also mention the strong growth in media and the impact of third-party service costs. A question is then asked about the shift in growth rates between the US and international markets, as well as the potential impact of cookie deprecation on the industry. The speaker responds by stating that the US market slowed in Q4 while international markets saw acceleration. They also comment on the likelihood of cookies being fully depreciated and discuss Omnicom agencies' involvement in the privacy sandbox.

The company has seen strong new business wins, particularly in Western Europe, and has cycled through losses in North America. They are cautious about the current year due to external factors, but are confident that 2024 will be more traditional. They have been preparing for cookie deprecation and have integrated with clean rooms to utilize first-party data.

John Wren, CEO of Omnicom Group, discusses the recent acquisition of Flywheel and its impact on consumer understanding without the use of third-party cookies. He also expresses optimism for the pharmaceutical and healthcare sector, citing steady growth and opportunities for continued growth. Wren also mentions the tension in the auto sector regarding the mix of electric, conventional, and hybrid cars, but overall remains optimistic due to strong clients and long lead times for decision-making.

The company's acquisition of Flywheel has strengthened their position in the aftersales parts sector and they expect it to continue to grow in the future. The amortization expense will increase due to the acquisition, but the company believes it will be a wise investment. In terms of project spend, the fourth quarter was strong but not as strong as the previous year.

In late 2022 and early 2023, there were concerns about the future, but the fourth quarter of 2022 is expected to be more robust. The company is satisfied with their performance in capturing project spend. The year 2022 is expected to be more robust than the current year. The upcoming Olympics and presidential election in 2024 may also have a positive impact on the economy. The company is cautious but optimistic about the future.

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