Omnicom Group Inc. ($OMC)

All right. So I'm happy to have back at the conference this year. Omnicom. With us today, we have John Wren, Chairman and CEO; Philip Angelastro, EVP and CFO; and at the end, Paolo Yuvienco, CTO. Thanks so much for being here today, guys. .

John, maybe I'll start with you. So you recently reported your first full quarter following the IPG acquisition. Maybe we could start there. Can you update us on where things stand with integration and how the merits of the deal look relative to your initial expectations?

Okay. Well, we're well on target with our synergies and what we promised. Most of the synergies we promised this year were real estate related initially and then labor. Real estate is probably $150 million, that was taken care of immediately almost day 1. And the second part was labor. The labor started December 1 and goes through -- well, the first part of it goes through just about now. And that was the duplication management because we didn't need as much mineral manager as each company had, and we made a lot of changes in consolidations. So that was positive. We sunsetted quite a number of brands. To get to the final answer probably about $150 million to $160 million of labor was done in the first quarter. You'll see a lot more of that being completed as when we report the next quarter. So the synergies are well on target later on in the year. We have plans to outsource our accounting function for the most part and certain IT functions, which we believe we can hand over to experts, get a better result in the product -- but you'll see most of those benefits coming in late now, I would say, almost the fourth quarter by the time they come serve.

And into '27, yes.

Yes, and certainly into '27. And so that -- in terms of hitting the targets, which it was $900 million, I think, for this year. What do we say.

$900 million and in total, $1.5 billion that comes between '27 and '28.

Yes, lesser amount in '28. So we're well on track there. We're on track -- and we've changed our approach. We centralized quite a bit, and we're doing more and more of that, including the way we actually hunt for business. if I had to categorize or classify both companies operated prior to the merger is we essentially waited to be invited to a pitch. We're being far more aggressive now. We're identifying companies that we believe we can bring value to. And we're going out and trying to stimulate conversation, even though the company is not stimulating it. That is just beginning, and we have a great group of people who are working on that. And we think that will yield additional growth to us as we get further and further into the year because we've always won -- we've batted above average when it comes to a pitch that somebody else calls we're going out now and creating this environment because we think we have the tools, and we think we have Omni, which I'll let Paolo will talk about later, which actually differentiates us quite a bit and can add value to clients. And there's even things that I've been discovering, which I was unaware of, in a conversation, which I'm sure you'll get to, which will be live Ram. It used to be partners with a part of Acxiom, we had lengthy conversations with our folks yesterday, and we found out that like General Motors, where we don't do the media, we license the Omni platform to them. So we're engaging and trying to stimulate competitions with clients in far different ways than ever before. And last but not least, then we'll see how this works. We're changing the incentive programs we have for individuals in the operating companies for '26 to be more specific about focus on growth in the individual markets. the big global pitches come up, they come up by themselves, but there's quite a bit we can do to help ourselves in some of the larger local market business that we've otherwise not really focused on best.

Just 1 clarification in terms of the synergies as far as '26 goes, we have we're confident that we will get the $900 million of cost reduction synergies. We expect 75% to 80% of that to flow through to EBIT for the year.

Right. and you saw our margins in the first quarter. We'll be continuing to keep those, I think. .

John, when you announced the deal on December 24, remember, there was a lot of early concern on talent or client exit is. I'm curious what's been the experience data, especially as you've consolidated some of the offerings on the creative side?

We have very little. Nothing in terms of individuals that were noticeable that -- we're cause me any angst or so. There are a couple of clients that I think we lost because we deserved to lose that's coming out of Omnicom, but coming out of it public because of the pricing, where we were getting paid in excess of what we would normally charge. And that became very obvious. And there's also a change in management in 1 case, and we got what we deserved, but we learned from it. .

From a business mix standpoint, you've used this moment in time to reorient the portfolio. You've announced dispositions of agencies. I think that previously contributed over $3 billion in revenue. I guess, first, John, what's the key takeaway investors should have on the new Omnicom and where you're looking to operate? And then Phil, maybe you could just update us on the status of those dispositions.

Sure. The world has gotten even more and more complex than it was. So where we're focused on media and media-related assets, which in the first quarter were 62%. I think of our revenue by excuse me, 56%. We expect it to be 61% by the time we get to the full year. that plus the creative assets that we have, but real creative assets are not fully reorganized just yet. That connectivity clients are increasingly looking for and open to looking at assigning us their entire portfolio. The only industry I would say that isn't, and it's very wise that they're not is some of the studios, right? Because if you have a choice, you pick the 2 biggest because that's where you can get the most bang from. And -- but other than that, there's generally been a selection of a single agency answering all the complex needs of that client and also embedding Omni, which we use downwards at operating system, and we are increasingly training our groups into its uses and it's changing every day, which I'm sure Paolo will talk about in a few minutes.

So why don't we just follow up on that point. So in January, you launched the new Omni layering Acxiom data AI tools across the organization. Paolo, if you want to take it, maybe you could just speak to some of the changes, the advantage of own data maybe where you're seeing the early ROI on this iteration of the platform? .

Sure. So I think everyone probably knows this by now that data is really the fuel to artificial intelligence and really getting the most out of artificial intelligence. So Acxiom was such a critical part -- component part of the IPG acquisition because of that and using that to fuel our ecosystem and drive deeper level of intelligence across our clients' work is super critical. And more specifically, Acxiom's real ID which effectively connects 2.9 -- or 2.6 billion individuals across the globe, 98% of addressable adults in the U.S. I think connecting that to our commerce data to our cultural data and all the signals that we've been collecting over the years, connecting that to the capabilities, specifically around media, commerce and CRM is delivering exceptional results even in these early days for many of our clients already. So we've seen things like within financial services, 1 of the top 5 financial services companies in the world. I think we announced we said this and stated this on Investor Day, we were driving 25% increase in customer acquisition for certain parts of their business. Within 1 of our CPG clients, connecting kind of the retail transaction data with all of the wealth of behavioral data taken from Acxiom, we were driving a 15% increase across their investments. So they're marketing investments. So data has significantly shifted kind of our ability to drive better and faster outcomes for clients. and Omni, which Omnicom has had as an operating system for several years now, really allows us to actually propagate that across the entire enterprise and organization and every facet of our disciplines to drive those customer -- those client results.

And as you know, David, we relaunched on the -- at the beginning of the year and continue to improve it as we go, but we took the best parts of Omnicom's platform and the best parts of IPG's platform and essentially enhanced the platform that we use today and there'll be more investment in the platform as we go throughout '26 and beyond. But certainly, the things that Paolo is talking about, are going to only be enhanced by the new improved platform. .

I don't know if follow-up if you want add the agentic.

So I was going to say that the real kind of shift is this Agentic framework, which Omnicom started that journey roughly 2 years ago of building an agentic framework that would effectively orchestrate our marketing workflows using AI and generative AI having that layered on top of the data ecosystem and the business intelligence that resides within each 1 of our disciplines has been a game changer for us and has allowed us effectively to lead in certain areas like agenetic media buying, synthetic audience creation and deployment as well as creative execution and production.

With regards to your media practice, and you mentioned in Q1, I think it was 56% of the overall revenue. Even prior to the merger, this was a leading growth segment for you. Maybe we can just review some of the industry or Omnicom specific factors that have been driving that performance?

I think -- well, one, at this point, we're the largest in the world. that gives us permission to sit and negotiate almost in every market, the best deals we can possibly cut for our corn and we've been doing that. One of the interesting things that happened in the merger is there was a pretty fair balance in terms of the people that were let go between Omnicom people into public people. And 1 of the major changes we made, which I think is the best improvement to our approach and what our profitability from that media growth is going to be was we took the investment approach and people that were at IPG, and we actually poured ourselves with the way we're approaching it at Omnicom prior to the deal. And those are the people who are leading that aspect of the business today. And that's brought fresh eyes into that area and created better deals, actually. I think than we would have otherwise gotten to because prior to that, we were more bottoms up. Now we're more top down. And so those deals are available for us to show the benefit to our clients and to share it with our clients. I think that makes us more competitive in the long run. So media, our CRM assets, which are closely connected to that. We're operating completely separate. They're motivated and incented now to work more closely together. And between now and can, you'll see we're reorganizing that aspect of our business, those announcements will cap in the next 2 or 3 weeks. So that plus our flywheel Commerce Cloud, one thing that we didn't talk about is we are 1 of 2 companies that I'm aware of, because venerable started and the engineers we started with our friends with the ones who built Amazon -- we have a direct API into Amazon. So in addition to all the other data that we collect, we get that feed in real time every single day. So when you look through that and somebody you have to be table technological to understand it, we know quite a bit about every human being in the room and outside the room. And roaming on world and...

It certainly has an impact on what we can do from a media perspective as far as how the data is integrated which you might want to comment on, Paolo.

Yes. So bringing all that data together gives us, I think, the highest fidelity view of consumers around the globe. We understand not just their behavior as we not only understand the cultural kind of significance of those behaviors given all the cultural data that we've collected. But we understand the transactions that are happening across the ecosystem of marketplaces. That, in effect, gives us probably quite a unique view that I don't think any other holding company or any other entity for that matter, can provide around what consumers are doing what they -- and ultimately, what they want. That, again, gives us the advantage to then drive better messaging and better targeting for our clients.

Just 1 last clarification, David. So we -- I had said 56%. It was actually 52% in the first quarter. We expect it to be 56% for the -- by the time we get to the fourth quarter and then going forward to grow from there.

Okay. Maybe staying on media, bringing it a little topical. So yesterday, we saw the announcement of Publicis buying LiveRamp. There's a couple of different ways to unpack this. But why don't we start here Omnicom is a customer of LiveRamp. Does this potentially create a challenge or a conflict for you given your data would presumably sit with a competitor? Is there any need for adjustment on your part?

Yes, there's a contract between LiveRamp and us and it's mutual. It nets to 0 is -- they pay us $15 million for data every year, we pay $15 million for other services and other products LiveRamp, we could acquire in other places, but you have to go back in time a little bit. Acxiom and LiveRamp were 1 until interpublic purchased they separated in Paolo knows more because live emptive function and to be any value to a client, how to be Switzerland, couldn't be integrated into Acxiom and what we ultimately plan to do and did with it as opposed to what Interpublic was slow to do it act on. We had a plan. We -- there was a plan in place that any connection. As a result, since they were once together and they were doing different things, there's a lot of closeness between those people, but even went to market together in addition to the contracts we had with each other. Those contracts run until the very first quarter of '28. And as a result, Acxiom had plans to completely rid itself and come up with a real ID by the beginning of '28, no longer having to depend on LiveRamp at all. That changed just the afternoon when I move that drop dead date till yesterday, a year from now. where we'll be completely separated from them even if we have a invest a little money to honor our contract for the balance of the year. Why don't you comment -- and Paolo why don't you.

Yes, I think in the near term, it doesn't change much. changes. So if we're partnering with LiveRamp, through our Acxiom relationship, that is not going to change. But as John said, over the last 5 years, Acxiom has been building out real ID effectively as an alternative and more modern version of an identity solution. That identity solution is cloud native. It is interoperable by nature, which means that it can utilize any other identity graph, including the ramp ID from LiveRamp, UID from Trade Desk and various others to then integrate that graph on behalf of our clients. So again, there is no change in the immediate future, but there has been plans in place over the last few years already to start migrating existing clients and customers and new customers. to basically own their own identity graph through the real ID solution. And that is always kind of the take that we've pushed the narrative that we pushed with clients is that they should own their graph they should own their data and that privacy is the #1 thing that we think about, and there's no better company to execute on that narrative than Acxiom.

All right. I hate talking about competitors. So as at least that for 30 years should have that reputation of staying ahead of everybody's business, except from. But I don't see there's any way that you can get any value keeping LiveRamp independent of the rest of your infrastructure and owning it. So that will change over time. They still have to get clearance from the FTC to get this approved. So I don't -- it will take some time to get it done. But we've just accelerated some of the actions we were always planning to take.

I guess, John, coming off this, there'll probably be a natural question from investors about your own media offering. Does yesterday's announcement change your view on your assets and what you have entering RFPs? And then maybe for Paolo, I guess I'm interested in how you viewed some of the points in the presentation around data co-creation and it's rolling genic. And maybe you can just speak a little bit to your efforts to date on Agentic so far and some of your initiatives?

Sure. We have our own road map in terms of things that we're improving upon and ways that we're expanding our media offerings or capabilities through the Omni platform, including Paolo can speak to this to direct to publisher connections as opposed to having to go through DSPs and SSPs and et cetera. So that is always on our road map, that will keep our media operation, I think, well in advance of most of our competitors and make us very active to clients because right now, there's a lot of more tech companies that sit between the advertiser and the publisher. And as you have to go through those different martech companies, they're taking a toll. And I think technology is advancing fast enough that certainly within the next 2 years, that will be simplified quite a bit and benefiting both our clients and us. But Paolo, I don't know.

Yes. So I think we are very early on in realizing that agents and more specifically, agents with using generative AI was going to be the future. Two years ago, we embarked on a journey on building our Agentic framework on top of the Omni system, and now it is fully embedded into Omni. That agentic framework is quite mature and robust and its ability to actually drive all sorts of different automations and more importantly, to surface our proprietary intelligence and data into every facet of the marketing life cycle. As part of that journey and because we were so mature in our genetic capabilities, we started, as we've publicly stated in the past, last summer on really trying to understand some of the new protocols that were emerging around media buying. -- and things like ADP, AMP, looking to see how we would integrate those capabilities into our system. At CES, we announced that we started testing those pipes with real dollars, but not for real clients, and we're successful in doing so. And what we recently announced is that we actually have now started to test those pipes with real clients and real dollars flowing through. it's still quite small and very much still in the experimental stages, hasn't scaled across media budgets. But what we're trying to do is lay the groundwork for what the future of agenticmedia looks like. As it relates to LiveRamp and kind of the statements around Agentic capabilities, it's worth noting that we did not use LiveRamp for any of our agentic media buys. It was not necessary, because our whole thesis around agenetic media is around the idea of shortening the media supply chain. That doesn't mean that we're eliminating every part of the media supply chain, but shortening that path in order to drive a greater percentage of working media dollars for our clients, so efficiency plays is a key tenet of why we're doing this. Additionally, it's about driving effectiveness of those media buys. -- by shortening the path or -- with every hop in the media supply chain and supply path, you lose a certain level of fidelity across the ecosystem, even if you're using kind of identity solutions, what we're able to do in shortening that path is actually increase the fidelity and visibility of consumers that we're actually targeting and coupled with our data solution in Acxiom and our identity graph with real ID, -- we're actually in the tests that we've done. We've seen significant increases in effectiveness in the areas of the media buys that we've done. Now again, it's very early days. So it's still kind of -- we're still laying the foundation for this all, but what we're ensuring is that we are laying the path so that our clients can leverage that once it becomes a scaled offering.

Maybe we'll switch gears. John, I just wanted to go back to something you talked a bit earlier about which is integrated wins with work kind of crosses creative media production. Maybe if you can just discuss the model, kind of what it means in terms of the scope of work, retention with clients, the advantages to them?

Sure. Well, one of the key advantages we have is using Omni as a platform across all of our crafts, all of our various marketing services. burdens the perspective of our employees. I mean, suddenly, a great creative person who might have an idea isn't really -- doesn't have the time in the past to look at what that is actually out there, which Omni can bring to them very quickly and maybe stimulate different approaches than they would have otherwise started with, improving the value of that product. By having everything together or doing most of the work together, it's easy to -- it's much easier to, one, take complexity out two, to be more focused on the clients' business problems as well as what their marketing issues are. And it takes up bureaucracy, layers of people that are representing on craft or another craft. So I think by doing all of that, the client benefits they'll be able to see the benefits in real time they -- some clients who are interested will be trained on how to use the omni platform. And I would imagine over time because this changes quite quickly. they might decide to take certain aspects of that in-house, which is just fine. That's something we're very much used to. And we -- I think without exception, we've always collaborated with. And so this different approach is nice. It sounds great, as I said around my operating community and talk about it and everybody smiles because I'm 1 bringing it up. But we've also changed the incentives for how people get rather significant bonuses and what we want them to accomplish. And Omnicom never really did that before. I'm going to come rewarded its executives for the success that they had, but never with an intended purpose other than simply growth, all right? So -- and also when you get into a situation like this, and we found this to be true already, you wind up with multiyear contracts with the client. -- because they know that you're going to make certain investments going into it. And it's only fair to have multiyear relationships in order to sustain those. And that's very beneficial to our business. I mean, in advertising and marketing, there's typically 15% churn of people changing vendors or at least pitching business every single year. Well, as you extend your client relationship, you get to focus more on the things that you want to as opposed to things that are being put to -- so , I don't know if you want to add anything, Phil, or Paolo, you can.

I think the integration is something certainly that we can do, and we can do it at a global scale, and it's something that clients ultimately want because it benefits the clients. They can streamline the vendor relationships that they have and they can see the value in the product that truly -- that gets delivered in a truly integrated solution because if clients didn't need it, wanted and ask for it we certainly would respond probably in a little different way. But ultimately, we're trying to meet our clients' needs and make the investments in the business accordingly.

John, before -- I was going to say before we run out of time, I have to ask you about current trends. Obviously, there's a lot to consider with the macro, but just wanted to check in on the latest you're hearing from clients in terms of how they're thinking about spending or project commitments.

Well, many of the things that we've talked about here today are topical and clients want to hear about it. I want to -- and it benefits us given the state of where we are because we can typically prove because we have the tools, how we're optimizing and marketing dollars. And I can prove to you that you'll get $1.40 back for every dollar that you'll invest, you might not invest $1, you might put $0.20 in your market, but you'll invest some of therefore, increasing the organic growth I'm getting from existing clients. The other topics at the moment, as you imagine, global in nature, and the impact of what's going on in the Middle East? And how is it -- how quickly is it going to come to mind market and affect my products? And are there enough nobody is happy about the situation at all nobody has any positive things to say, other than they wish it was over and over quickly. But none of them are predicting that it's going to have an immediate impact on their business this so far in terms of what they're projecting. Now also, it's probably getting a little off script -- they also believe that the government will try to pull rabbits out of their hot between now and the midterm elections in order to preserve their position. So they see yet unidentified benefits that are going to come their way, which may offset some of these challenges. But most of them have gone through and cleaned up reorganize their supply chain. And it's really the price of oil and its impact that becomes very topical today.

So Phil, maybe 1 last one. You talked about $900 million run rate synergies. You talked about what would impact this year. There's an ultimate $1.5 billion target. It's a common question. But how do you kind of think about the out years, the flow-through and balancing kind of that versus need for reinvestment, just given all the change in the industry. .

Well, I think it is a balance for sure. I think we're certainly comfortable with the estimates we put out and more confident we can get the cost reductions achieved as we go through 2026 and into '27 and '28. what the world is going to look like, what the technology landscape is going to look like, what the marketing ecosystem is going to look like. would certainly way off. We know technology and the way consumers buy stuff is going to continue to change quite rapidly. One thing we know is we will continue to invest in the business and invest in the platform. so that we can deliver what our clients need and deliver it in an efficient and effective way. So it's hard to say how much of that is going to flow through, but certainly, our goal is to achieve the savings and to deliver as much of it as we can. But at the same time, invest in a sustainable platform, sustainable in terms of ongoing growth of the business.

That, we're out of time. John, Phil, thanks so much for being here.

Thank you.

Thanks for having us.

Thank you.