The operator introduces the Omnicom First Quarter 2024 Earnings Release Conference Call and introduces the host, Senior Vice President of Investor Relations, Gregory Lundberg. Lundberg then introduces the speakers, John Wren, Chairman and CEO, and Phil Angelastro, Executive Vice President and CFO. He also reminds listeners to read the forward-looking statements and non-GAAP financial information. The call will include an overview of the business, financial results, and a Q&A session. John Wren reports a solid start to the year.

In the first quarter, the company saw a 4% organic growth with strong performance in advertising and media, and precision marketing. They also saw an increase in EBITA margin and non-GAAP adjusted earnings per share. The company raised EUR600 million through a senior note offering to finance the acquisition of Flywheel, which has been integrated into their Omni platform and is already delivering enhanced value to clients. The combined data set of Omni and Flywheel is helping clients sell more goods efficiently across digital marketplaces and optimize their media investment.

Omnicom has made updates to their generative AI functionality in Omni, including a partnership with Shutterstock and access to Google's next-generation model. Their Omni Assist tool has seen success with employees in over 40 markets using it for audience intelligence and other tasks. Omnicom's consulting firm, Credera, has simplified its organization and now offers services in digital and consulting, with a significant increase in employees since joining Omnicom in 2018.

The company has seen significant growth in new market segments and has developed standardized platforms and processes to meet the demands of their clients. This has resulted in industry recognition and optimism for future performance, despite potential risks and uncertainties. In the first quarter, the company saw a 4% organic growth and a relatively flat impact from foreign currency on reported revenue.

In the fourth quarter of 2024, the estimated impact of foreign currency translation on revenue is negative 1%, while the net impact of acquisition and disposition is positive 1.5%. Advertising and media had a strong growth of 7%, while Precision Marketing grew by 4.3%. Public Relations declined by 1.1%, but is expected to improve later in the year. Healthcare grew by 2.1%, while Branding and retail commerce declined by 3.8%. Experiential had a strong growth of 9.5%, while Execution and Support declined by 4.3%. In terms of geographic growth, six out of seven regions saw growth, with the U.S. and Europe leading the way. Advertising and media also drove strong growth in Latin America.

The first quarter results were similar to last year, with increased staffing levels and revenue growth leading to higher expenses. However, due to repositioning efforts and changes in employee mix, salary related service costs were down as a percentage of revenue. Third-party service costs and incidental costs also increased, while occupancy and SG&A expenses were essentially flat. Operating income increased slightly, but the margin was down due to acquisition activity. The margin estimate is now based on EBITDA, which reflects an adjustment for the amortization of intangible assets related to both acquired and internally developed platforms.

In the first quarter of 2024, the company's EBITDA increased by 4.1% compared to the same period in the previous year, with a margin of 13.8%. The company expects the full year EBITDA margin to be similar to the previous year's margin of 15.6%. The income tax rate for the first quarter remained at 26% and is expected to be around 27% for the full year. The company has also introduced a new metric, non-GAAP adjusted net income per diluted share, which excludes after-tax amortization expenses related to acquired and internally developed intangible assets. This metric increased by 3.7% in the first quarter of 2024 compared to the same period in the previous year.

The company's free cash flow for 2024 decreased slightly by 3.2%, with cash used for dividends, capital expenditures, and acquisition payments. The company also repurchased $178 million in stock and has a strong credit and liquidity position with a $2.5 billion revolving credit facility. The company expects an increase in net interest expense for the full year 2024 due to recent financing activity.

The speaker discusses the recent acquisition of Flywheel and its potential impact on the company's performance. Flywheel is a fully integrated retail commerce cloud platform with extensive knowledge and experience in e-commerce. This acquisition is expected to unlock significant value in the short and long term, particularly in the rapidly growing online retail market. The speaker also mentions the global presence of Flywheel and its expertise in e-commerce.

The acquisition of Flywheel has allowed for Omnicom to combine their Commerce Cloud and Omni Assist, creating an end-to-end marketing and sales platform. This gives them a competitive advantage and opportunities for growth in the e-commerce market. The integration process is going well and Flywheel's margins are expected to be similar to Omnicom's by the fourth quarter of this year, making the overall results accretive.

Omnicom expects the deal to be profitable in the long term and is focused on strategic acquisitions in areas such as MarTech, transformation, and content production. They are not currently looking at any major acquisitions like Flywheel. The growth potential of Precision Marketing, which now includes Flywheel, is not specified, but Omnicom hopes for mid-single digit to double-digit growth. The organic growth of Flywheel in Q1 is not specified. It is unclear if the group adjusted EBITA margin would have been up without Flywheel. Omnicom is also focused on Advertising and Media.

In the first quarter, Advertising and Media saw a growth of 7%, which was slightly slower than the previous quarter. The Precision Marketing sector is expected to have low double-digit growth, with the addition of Flywheel contributing to its success. The company is optimistic about Flywheel's potential in the future. The exact growth number for Flywheel was not disclosed. The company did not break down individual businesses and did not provide a specific margin for Flywheel, but stated that its margins are lower than the company's average. The integration costs of Flywheel also impacted the company's EBITDA margins.

The speaker believes that the company's margins would have been flat, but there may have been some costs associated with integration. The company is not concerned with the margin impact in the first quarter after the integration. The speaker is pleased with the growth of the Advertising and Media group, which has been consistently strong for the past two years. The group's growth in the first quarter was 7%, slightly lower than the 9% growth in the previous quarter, but still strong. The speaker and the company are not worried about the slight decrease in growth and expect the group to continue growing throughout the year.

During a recent earnings call, an analyst asked about the decision to raise guidance and the outlook for Precision Marketing. The CEO explained that the forecast was adjusted due to increased confidence in the business and a lack of significant headwinds. He also mentioned that the company expects Precision Marketing to grow in the low double-digits and that this was factored into the overall guidance.

During the call, John and David discuss the performance of Flywheel, which is weighted towards the end of the year. They expect to see improvement in the growth rate as the year progresses. David asks about the non-Flywheel part of the business and whether there has been movement on projects. John responds that the business is healthy and any potential headwinds may be due to specific client plans. Tim asks about the company's organic growth calculation and whether it includes Flywheel's growth. He also asks about the decline in branding and retail commerce, wondering if there is any Flywheel business included in that segment and if it has contributed to organic growth. Philip explains that the company has consistently calculated organic growth.

The speaker discusses how the company's recent acquisition of Flywheel for $800 million factors into their organic growth calculation. They state that they are responsible for the results of the acquisition and that it is included in their overall growth figures. The speaker also clarifies that the organic growth calculation does not exclude acquisitions and that Flywheel's growth would be reflected in the reported growth numbers.

Philip Angelastro and Tim Nollen discuss the balance between acquisition revenue and organic growth in the company's presentation. They mention that 12 months after an acquisition, there will be no more acquired revenue and it will all be organic. They also mention that the retail commerce proportion of the branding number is all in Precision Marketing, as it is challenging to split up the business between disciplines. In response to a question from Steven Cahall, John Wren explains that the company has moved to a higher range in their guidance due to a stronger start to the year and solid performance in Advertising and Media, particularly in media buying. There have been some challenges in the creative part of the business, but no major inflection points or trends.

John Wren, CEO of Omnicom, states that their business is performing in line with expectations and they are seeing growth in expected areas. They have a strong pipeline of new business opportunities and are confident in their ability to secure them. Philip Angelastro, CFO, expects the creative advertising agencies to improve in the rest of the year and acknowledges that they are evolving to adapt to new technology and ways of working. Overall, they are optimistic about the future growth of their business.

The speaker is responding to a question about the use of generative AI in the advertising industry and its potential impact on creative services and capital intensity. They mention that it is a combination of industry trends, macro factors, and technology that has led to changes in the business. They also mention that they are not much different from other companies in this regard. The speaker then discusses the benefits of using generative AI, including making it easier for creative individuals to come up with different ideas and reach consumers using data from Omni and Flywheel commerce. They also mention that someone else on the call, Paulo, who is working closely with AI, may have more to add. Finally, the speaker asks Phil to address the question about capital intensity of Flywheel.

The speaker discusses how automation and AI will affect every aspect of the business and how the company is adapting to this change. They mention the potential downside of eliminating manual work, but highlight the benefits of using generative AI to improve ideas and ROI for clients. They also mention the importance of clarity in explaining the ROI to clients and acknowledge the role of Paolo in working with suppliers and vendors on this.

The speaker believes that generative AI will empower employees and become a true partner in the future. The company is approaching it through a maturity model and incorporating it into their platform, Omni. The speaker also mentions that the company will continue to develop their Flywheel Commerce Cloud platform, but the increase in CapEx spend will be manageable.

The majority of work for the deal was completed before it was announced, and going forward, the focus will be on enhancements and incorporating new technology. The company sees the investment as worthwhile. The add back of amortization includes both intangible amortization and internally developed strategic platform asset amortization, which the company believes is a more comparable way to look at the numbers compared to others in the marketplace. This accounts for about 75% of the total add back, with the remaining 25% being administrative amortization.

John Wren, CEO of Omnicom, discusses the potential impact of the company's recent acquisition of Flywheel on their long-term organic revenue growth. He believes that the company's improved portfolio and market-leading products will sustain their organic growth and make them the top choice for clients. He also credits the management teams for executing and delivering their products worldwide. However, Wren is hesitant to give specific guidance for the future and remains focused on the current year.

The speaker discusses the creative genius and innovation that are constantly improving a product, making them bullish about the future. The margins for the year are expected to be flat due to integration costs and investments in the business, but the company is focused on long-term growth and maximizing operating profit.

The speaker discusses the Flywheel transition and integration, as well as investments in Omni and the Flywheel Commerce Cloud platform and AI. They also mention other initiatives such as real estate portfolio, offshoring, and near-shoring. These factors contribute to their expectations for 2024. There are no further questions at this time.

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