Omnicom Group Inc. (OMC) Earnings Call Transcript & Summary

Yes, the 51, Dave, it's not 51 pitches that clients have come to us on. These are it's -- some of them are pitches, but most of them are target lists that we and Flywheel are jointly going after either with the existing Omnicom clients or existing flywheel clients as new opportunities grow for both of us.

Great. Maybe just following up one on new business. I was curious, we saw GAAP retained Omnicom for media. They did shift agencies were at, I think, to MD from PhD. What's usually going on to the surface in a situation like that?

It's just a change in personnel, change in management that we -- once they put it into review, they had a change in management. And it was more than simply a defense, we were defending a small part of that business, and we extended having it all at this point. And there's a new CEO in there by the name of Richard Dickerson, who's just recently been appointed, I think there was an article on him in the Wall Street Journal this past weekend, and he comes from Mattel, he is the guy behind Barbie. And he sent in to reinvent the company, part of that. He's starting with this outside vendors and through a very arduous long process. He selected us.

So at earnings, you raised the bottom end of your organic guide. You're now looking at a range of 4% to 5%. Obviously, macro year-end project work play a big role in how the year turns out. But John, maybe you can update what your conversations with clients are like, what you're hearing in terms of their level of investment, anything incremental by vertical that you could say?

Well, we're very confident in the guidance that we gave. I'm not planning to changes here. So...

I'm not expecting to make new -- anything on the conversation.

Clients are all obviously cautious because of the consumer and how much debt the consumers are on up. Having said that, they're all very focused on their brands and growing their revenue. So you go sector by sector, there are different attitudes, nuances, concerns. But when you measure the concerns with the opportunities, I'd say on balance, they're all optimistic. Now that's also benefited by no small manner and the fact that this is an election in an Olympics here. And so the economy historically has always performed very well through an election. And even though the Fed has been locked in to raise, I think people are beginning -- I mean, to cut, people don't expect any increases in interest rates and they're becoming more and more comfortable with the current rate environment. Now thankfully, we're not in the mortgage business or selling new homes. If we were then would be of an industry, we could talk negatively about -- but on balance, we're fine.

Anything to call up by verticals?

No. I mean our auto business is strong. Not for the reasons I would have suggested would be strong September last year because electric cars haven't taken off the way that people expected them to, but they have all adjusted. Travel is still growing very strong. Health care has been strong, continues to be strong. I don't see anything let up in that. Check for us has been strong, it's an opportunity more than anything else.

I don't think there's anything else that really stands out as notable from a negative perspective, certainly.

You talked to the cyclical events, Olympics with the events. You have the political consultancies. You had added to that last year. Say anything about how that's tracking, Phil, anything on the -- what the cyclical contribution is expected to be?

I think certainly, the businesses we expect to perform better in an Olympic year first, our experiential business is primarily -- are tracking as we would expect. They're going to -- we expect that they're going to have a good middle of the year, given it's a summer Olympics. What happens in the fourth quarter with those businesses in this type of a year, most likely, there'll be -- they'll tail off a bit. But certainly, they're tracking very well as we would expect. And the PR business, we expect it to ramp up in particular, in the second half of the year. They're doing fine, and the new acquisition has been integrated quite well. And we certainly still expect some good performance from both of those disciplines around the Olympics and the elections. I think the Olympics and the elections don't really meaningfully impact the other disciplines, generally positive, not negative, but they don't really drive the growth on a one-off basis.

It's -- we went back 15 years, I would have said a tailwind. Now it's a breeze.

Well put. Advertising has been a leading discipline for you going on several quarters, media in particular. You don't break it out, but assuming -- if we assume by the growth in third-party costs that principal media has been a nice contributing factor, John, maybe you can speak to that, the strength you're seeing in your media offering, how that's resonating with clients?

Sure. Well, if you go back, we do have a principal media business. It's about the third of the size I would say Publicis business in the same area. If you go back 5 or 6 years, it was a controversial topic because it's an opt-in product. And 5 or 6 years ago, when the problems were first raised, Martin Sorrell was the Head of WPP, and he took a little bit too much liberty in how he was using it. What we learned from that experience is we still do an opt-in. The client has to agree to utilize that product. They utilize it when it's to their benefit. If we took any learning away from that experience 5 or 6 years ago where people were somewhat critical of it, it was compliance. So what we've put in since then is a compliance department because you could hire me today as the CMO, agree that there's a good product you want to opt in, it's in the contract. The average tenure of a CMO is about 3 years, 9 months. So Four years from now, I'm going to be dealing with somebody else who didn't sign that contract. So we put a compliance department, which basically says is not only every statement of work has to be signed off on. Quarterly, we compile it. We do a separate report. That separate report is then sent back to the management to say, you've opted in every which way, but lose on this. And here's confirmation of what you did last quarter. You always have the ability to opt-out if you choose to. And so we're very confident that where 5 or 6 years ago, there was fuzziness around it, and there was some controversy clients utilize it and they utilize it for -- because it helps to mitigate the inflation costs that they have in media. And everyone is in a blue moon, I think recently, there was some articles about the ANA...

Yes, they can now...

Resurfacing this. But if you can imagine your Marc Pritchard, I'm not saying anything bad about Marc, P&G, they don't use it, stands up on stage and complains about it. And all of your CMOs who do use it, you're not going to stand up and say, "Marc, shut up. We use it. You don't use it." Because you don't want Marc to know your business. So we do have constant compliance with it. Also, laws have changed in the United States, laws have changed especially in Europe during that period of time. So making sure that we have proper compliance of opt-in is fundamental. So this is -- it was a big nothing when it first came out. It's something that I'm terribly confident about as we sit here today. And probably the one reason where 1/3 the size of what I think Publicis is in this area is we kind of cap and it's our own internal control measures. How much of this product will offer to a particular client because the client puts us to count and review, I don't want to be recovering from too much -- I mean, to recover too much principal product. So having had a better experience in that 3 or 4 years ago. So I think we're conservative at just about every point you can bring up on the subject.

Yes. I mean it's another tool in the toolkit of services that we offer, but the only reason we offer them is because the clients want them and the clients ask for them. And the clients are well aware of the services that are being provided to them. And the media business itself is robust, the assets we have, the people we have, the platform we have in Omni and now add in Flywheel, those are really the driving reasons for the good performance on media business.

Just sticking on advertising for a second. Creative has been a laggard. That's true for the industry, though. Phil, I think you said at earnings, you expected an improvement through the year. I just want to follow up on that, so what the drivers of the better performance would be?

Sure. It's not a laggard in the sense that creative is our IP. We are known as an advertising and media company, advertising which used to be 50% of our revenue is now general media advertising, probably 20%. Technology as strip revenue from those agencies when you take a look at the various forms of media that you can -- if you come up with a great campaign, you can utilize that 4 years ago, 5 years ago, if you want to change the medium that it was originally designed for, you had to send it back to the agency to be recorded or whatever. We now have dynamic content tools that when a campaign is created, it's tagged, it's put into a computer, and we can reconfigure it instantly, right, for TikTok or for YouTube, for whatever the media is selected that we want to reach. Well, that technology has replaced some of the arms and the legs that used to be in that 50% of advertising, but it hasn't changed the necessary need for the creative talent for where the real IP is, it's just taking some of the hours when we were paid fee-for-service out of that particular P&L center. And people like me haven't changed the P&L centers to necessarily reflect all of that. And so when you look at it, when we report it, that's why we reported it as one, it's always going to be our IP, no matter what technology does because if it was just technology, technology doesn't bring motion, empathy and influence to a particular problem to distinguish you as a client from your competitor, it's that IP, it's those people, those knowledge workers that make little bid difference in world. So at some point, I'm not quite ready for it now, we'll force you to change how you refer to this. But we're not there yet. So...

Got it. Fair enough. GenAI continues a point discussion for you and your peers over the past year. Paul, our CTO, had an interesting comment. He said GenAI is a Copilot today. Eventually, it moves to a true partner at the creative and strategic level, John, what are the steps to implement from here? And why are you better positioned in your peers?

Well, we've been at this for 15 years, number one. Number two, the addition of Flywheel, doubled the amount of data that we have and the data that we own. We've been able to increase, and we're always improving our optimization tools. Our people -- and we've introduced large language models, which makes it more useful to a larger group of people and more intuitive for people to use. Currently, it works off a chat 3.5. We are planning to convert it to 4.0 in the coming months, but we can also use Llama. We can use Claude. We can use whatever gets invented next week, too, because the platform was built to adapt itself to that. Now the difference is, it's the vast amount of information that we have. It's our ability to optimize it, but it's also that 15 years of ingrain training and integrity about how do you cross examine or interrogate the database that you have in order to get the best most effective plan for a client. So it's not only picking audience, it's picking audience and what time of the day should I message that audience, what is the medium I should message them from? What's the tone of that? What should the creative be? All of that, no matter how good the technology is, all of that has to be intuitively built into the people that you have working for you and be part of the system in order to make a difference. Otherwise, you can buy something off the shelf and if you selling skin cream, you'd have the same media plan and the next guy who is trying to sell skin cream. So that's what's going to -- there are 2 things that are going to differentiate us is, one, we're not building it. We're actively -- have the people who had built it, engaged and improving it constantly. Two, we have a workforce that is used to it, certified to use it and they know how to interrogate it for the benefit of the client. And so all these improvements just make my knowledge workers more efficient, more powerful. And along the way, we're able to measure ourselves increasingly because of the technology. So we know that $1 spent should yield $1.29 or $1.39. And increasingly, as we can do that to the services that we offer, that makes us terribly important to our clients because if I can prove to you that you spend a buck with me, I can get you back to $1.29. The laws of the economy and ups and downs are not going to be affected if you can prove what you're doing.

So you're alluding to a performance-based model.

Yes. And increasingly, we're moving towards that. I mean what Flywheel brings to us is, Flywheel gets paid based upon gross sales that it brings to the platforms that it operates on. It doesn't get paid for the services that it provides to those clients. So that's the biggest single chunk of our company that's outcome-based. But increasingly, as these things improve, we're starting to interrogate things that we can do where we used to be paid purely fee-for-service, where maybe we can segment those KPIs and get intelligent clients that talk to us about it. A simple example, I'm building a brand for a big car company. Great. I'm going to want to be paid for the creative people and things that I bring to that. If one of those elements, it's how many people can I get into your dealership? I'm actually -- if you want to segregate that as a KPI, I'm going to do that at pure risk basis, right? Because you want to pay me X dollars to get people in, I'm happy to do that. As our tools get better, as our optimization is better, it's not going to be a giant leap towards this fantasy of getting paid only on outcomes, but we're increasingly learning how to segment these things and move closer and closer to that. And the day that we can get there -- that's when this will be just an incredible business with incredible growth. But it's a journey.

So good note to end on. Thanks, John. Thanks, Phil, for being here. Thanks.