OMNICOM GROUP INC. AND SUBSIDIARIES
The accompanying notes to the consolidated financial statements are an integral part of these statements.
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSEQUITY
(Unaudited)
(In millions)millions, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Common Stock, shares | 297.2 | | | 297.2 | | | | | |
Common Stock, par value | $ | 44.6 | | | $ | 44.6 | | | | | |
ADDITIONAL PAID-IN CAPITAL: | | | | | | | |
Beginning Balance | 492.0 | | | 571.1 | | | | | |
Net change in noncontrolling interests | 24.6 | | | (38.5) | | | | | |
Change in temporary equity | (16.4) | | | 21.3 | | | | | |
Share-based compensation | 22.1 | | | 20.7 | | | | | |
Stock issued, share-based compensation | (10.3) | | | 6.1 | | | | | |
Ending Balance | 512.0 | | | 580.7 | | | | | |
RETAINED EARNINGS: | | | | | | | |
Beginning Balance | 10,571.5 | | | 9,739.3 | | | | | |
| | | | | | | |
Net income | 318.6 | | | 227.5 | | | | | |
Common stock dividends declared | (138.8) | | | (141.3) | | | | | |
Ending Balance | 10,751.3 | | | 9,825.5 | | | | | |
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): | | | | | | | |
Beginning Balance | (1,337.6) | | | (1,437.9) | | | | | |
| | | | | | | |
Other comprehensive income (loss) | (78.3) | | | 53.4 | | | | | |
Ending Balance | (1,415.9) | | | (1,384.5) | | | | | |
TREASURY STOCK: | | | | | | | |
Beginning Balance | (6,154.2) | | | (5,665.0) | | | | | |
Stock issued, share-based compensation | 13.6 | | | 20.4 | | | | | |
Common stock repurchased | (181.9) | | | (305.1) | | | | | |
Ending Balance | (6,322.5) | | | (5,949.7) | | | | | |
SHAREHOLDERS' EQUITY | 3,569.5 | | | 3,116.6 | | | | | |
NONCONTROLLING INTERESTS: | | | | | | | |
Beginning Balance | 608.8 | | | 524.3 | | | | | |
Net income | 18.4 | | | 16.4 | | | | | |
Other comprehensive income (loss) | (7.2) | | | (0.2) | | | | | |
Dividends to noncontrolling interests | (13.3) | | | (12.5) | | | | | |
Net change in noncontrolling interests | (42.0) | | | (13.4) | | | | | |
| | | | | | | |
Ending Balance | 564.7 | | | 514.6 | | | | | |
| | | | | | | |
TOTAL EQUITY | $ | 4,134.2 | | | $ | 3,631.2 | | | | | |
| | | | | | | |
Dividends Declared Per Common Share | $ | 0.70 | | | $ | 0.70 | | | | | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Cash Flows from Operating Activities: | | | |
Net income | $ | 904.4 |
| | $ | 866.3 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | |
Depreciation | 125.6 |
| | 134.6 |
|
Amortization of intangible assets | 86.8 |
| | 85.7 |
|
Amortization of net deferred gain from settlement of interest rate swaps | (13.7 | ) | | (12.2 | ) |
Share-based compensation | 60.6 |
| | 69.8 |
|
Other, net | 7.6 |
| | (9.8 | ) |
Decrease in operating capital | (1,327.3 | ) | | (798.7 | ) |
Net Cash (Used In) Provided By Operating Activities | (156.0 | ) | | 335.7 |
|
Cash Flows from Investing Activities: | | | |
Capital expenditures | (108.3 | ) | | (100.5 | ) |
Acquisition of businesses and interests in affiliates, net of cash acquired | (27.3 | ) | | (268.5 | ) |
Sale (purchase) of investments | 58.1 |
| | (16.4 | ) |
Net Cash Used In Investing Activities | (77.5 | ) | | (385.4 | ) |
Cash Flows from Financing Activities: | | | |
Change in short-term debt | 7.5 |
| | (1.2 | ) |
Proceeds from borrowings | — |
| | 1,389.6 |
|
Repayment of debt | — |
| | (1,000.0 | ) |
Dividends paid to common shareholders | (387.9 | ) | | (374.2 | ) |
Repurchases of common stock | (522.3 | ) | | (463.8 | ) |
Proceeds from stock plans | 8.6 |
| | 22.2 |
|
Acquisition of additional noncontrolling interests | (10.2 | ) | | (59.8 | ) |
Dividends paid to noncontrolling interest shareholders | (87.1 | ) | | (71.1 | ) |
Payment of contingent purchase price obligations | (107.7 | ) | | (93.6 | ) |
Other, net | (22.8 | ) | | (24.7 | ) |
Net Cash Used In Financing Activities | (1,121.9 | ) | | (676.6 | ) |
Effect of foreign exchange rate changes on cash and cash equivalents | 196.2 |
| | 57.7 |
|
| | | |
Net Decrease in Cash and Cash Equivalents | (1,159.2 | ) | | (668.6 | ) |
Cash and Cash Equivalents at the Beginning of Period | 3,002.2 |
| | 2,605.2 |
|
Cash and Cash Equivalents at the End of Period | $ | 1,843.0 |
| | $ | 1,936.6 |
|
The accompanying notes to the consolidated financial statements are an integral part of these statements.
OMNICOM GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 337.0 | | | $ | 243.9 | |
Adjustments to reconcile net income to net cash used in operating activities: | | | |
Depreciation and amortization of right-of-use assets | 33.8 | | | 34.6 | |
Amortization of intangible assets | 25.8 | | | 19.3 | |
Amortization of net deferred loss on interest rate swaps | 1.4 | | | 1.4 | |
Share-based compensation | 22.1 | | | 20.7 | |
Real estate repositioning costs | — | | | 119.2 | |
| | | |
| | | |
Other, net | (5.0) | | | (10.2) | |
Use of operating capital | (1,033.6) | | | (951.0) | |
Net Cash Used In Operating Activities | (618.5) | | | (522.1) | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Capital expenditures | (23.1) | | | (23.1) | |
Acquisition of businesses and interests in affiliates, net of cash acquired | (801.5) | | | — | |
| | | |
Other, net | (13.7) | | | (14.5) | |
Net Cash Used In Investing Activities | (838.3) | | | (37.6) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Proceeds from borrowings | 645.9 | | | — | |
| | | |
Change in short-term debt | 0.3 | | | 1.0 | |
Dividends paid to common shareholders | (138.8) | | | (142.3) | |
Repurchases of common stock | (180.1) | | | (305.1) | |
Proceeds from stock plans | 2.1 | | | 26.3 | |
Acquisition of additional noncontrolling interests | (10.4) | | | (29.2) | |
Dividends paid to noncontrolling interest shareholders | (13.3) | | | (12.5) | |
Payment of contingent purchase price obligations | (0.5) | | | (9.2) | |
Other, net | (21.8) | | | (8.0) | |
Net Cash Provided By (Used In) Financing Activities | 283.4 | | | (479.0) | |
Effect of foreign exchange rate changes on cash and cash equivalents | (85.8) | | | 18.4 | |
| | | |
Net Decrease in Cash and Cash Equivalents | (1,259.2) | | | (1,020.3) | |
Cash and Cash Equivalents at the Beginning of Period | 4,432.0 | | | 4,281.8 | |
Cash and Cash Equivalents at the End of Period | $ | 3,172.8 | | | $ | 3,261.5 | |
The accompanying notes to the consolidated financial statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unaudited)(Dollars in tables in millions, except per share amounts)
1. Presentation of Financial Statements
The terms “Omnicom,” the “Company,“the Company,” “we,” “our” and “us” each refer to Omnicom Group Inc. and its subsidiaries, unless the context indicates otherwise. The accompanying unaudited consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States, (“or U.S. GAAP”GAAP or “GAAP”)GAAP, for interim financial information and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosuredisclosures have been condensed or omitted.
In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation, in all material respects, of the information contained herein. These unaudited consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016 (“2016 10-K”).2023, or 2023 10-K. Results for the interim periods are not necessarily indicative of results that may be expected for the year. Certain reclassifications have been made
Risks and Uncertainties
Global economic challenges, including geopolitical events, international hostilities, acts of terrorism, public health crises, high and sustained inflation in countries that comprise our major markets, high interest rates, and labor and supply chain issues could cause economic uncertainty and volatility. The impact of these issues on our business will vary by geographic market and discipline. We monitor economic conditions closely, as well as client revenue levels and other factors. In response to reductions in revenue, we can take actions to align our cost structure with changes in client demand and manage our working capital. However, there can be no assurance as to the prior year financial informationeffectiveness of our efforts to conform tomitigate any impact of the current year presentation.and future adverse economic conditions, reductions in client revenue, changes in client creditworthiness and other developments.
Accounting Changes
On January 1, 2017, we adopted FASB Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation: Improvements2. Revenue
Nature of our services
We provide an extensive range of advertising, marketing and corporate communications services through various client-centric networks that are organized to Employee Share-Based Payment Accounting (“ASU 2016-09”),meet specific client objectives. Our networks, practice areas and agencies provide a comprehensive range of services in the following fundamental disciplines: Advertising & Media, Precision Marketing, Public Relations, Healthcare, Branding & Retail Commerce, Experiential, and Execution & Support. Advertising & Media includes creative services across digital and traditional media, strategic media planning and buying, performance media and data analytics services. Precision Marketing includes digital and direct marketing, digital transformation consulting, e-commerce operations, media execution, market intelligence and data and analytics. Public Relations services include corporate communications, crisis management, public affairs and media and media relations services. Healthcare includes corporate communications and advertising and media services to global healthcare and pharmaceutical companies. Branding & Retail Commerce services include brand and product consulting, strategy and research and retail marketing. Experiential marketing services include live and digital events and experience design and execution. Execution & Support includes field marketing, sales support, digital and physical merchandising, point-of-sale and product placement, as well as other specialized marketing and custom communications services. At the core of all our services is the ability to create or develop a client’s marketing or corporate communications message into content that can be delivered to a target audience across different communications mediums.
Economic factors affecting our revenue
Global economic conditions have a direct impact on our revenue. Adverse economic conditions pose a risk that our clients may reduce, postpone or cancel spending for our services, which requires additional tax benefitswould impact our revenue.
Revenue by discipline: | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Advertising & Media | $ | 1,906.8 | | | $ | 1,776.5 | | | | | |
Precision Marketing | 438.2 | | | 360.0 | | | | | |
Public Relations | 390.3 | | | 375.5 | | | | | |
Healthcare | 323.6 | | | 318.4 | | | | | |
Branding & Retail Commerce | 200.2 | | | 209.6 | | | | | |
Experiential | 159.9 | | | 147.8 | | | | | |
Execution & Support | 211.5 | | | 255.5 | | | | | |
Revenue | $ | 3,630.5 | | | $ | 3,443.3 | | | | | |
Revenue by geographic market: | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Americas: | | | | | | | |
North America | $ | 2,040.9 | | | $ | 1,926.8 | | | | | |
Latin America | 96.5 | | | 74.0 | | | | | |
EMEA: | | | | | | | |
Europe | 1,005.8 | | | 951.9 | | | | | |
Middle East and Africa | 79.6 | | | 84.9 | | | | | |
Asia-Pacific | 407.7 | | | 405.7 | | | | | |
Revenue | $ | 3,630.5 | | | $ | 3,443.3 | | | | | |
The Americas is comprised of North America, which includes the United States, Canada and tax deficiencies relatedPuerto Rico, and Latin America, which includes South America and Mexico. EMEA is comprised of Europe, the Middle East and Africa. Asia-Pacific includes Australia, Greater China, India, Japan, Korea, New Zealand, Singapore and other Asian countries. Revenue in the United States for the three months ended March 31, 2024, and 2023 was $1,925.9 million and $1,812.2 million, respectively.
Contract balances
Contract balances include work in process and customer advances, which primarily consist of advance billings to share-based compensation becustomers in accordance with the terms of the client contracts, primarily for the reimbursement of third-party costs.
| | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 | | March 31, 2023 |
Work in process: | | | | | |
| | | | | |
Media and production costs | $ | 788.8 | | | $ | 664.4 | | | $ | 710.9 | |
Unbilled fees and costs and contract assets | 922.8 | | | 678.1 | | | 798.0 | |
Work in process | $ | 1,711.6 | | | $ | 1,342.5 | | | $ | 1,508.9 | |
Customer advances | $ | 1,238.2 | | | $ | 1,356.2 | | | $ | 1,279.6 | |
There were no impairment losses to work in process recorded in resultsthe three months ended March 31, 2024 and 2023.
3. Net Income per Share
Basic and diluted net income per share: | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Net Income - Omnicom Group Inc. | $ | 318.6 | | | $ | 227.5 | | | | | |
| | | | | | | |
| | | | | | | |
Weighted Average Shares (millions): | | | | | | | |
Basic | 197.9 | | | 202.2 | | | | | |
Dilutive stock options and restricted shares | 2.2 | | | 2.3 | | | | | |
Diluted | 200.1 | | | 204.5 | | | | | |
| | | | | | | |
| | | | | | | |
Net Income per Share - Omnicom Group Inc.: | | | | | | | |
Basic | $1.61 | | $1.13 | | | | |
Diluted | $1.59 | | $1.11 | | | | |
4. Business Combinations
On January 2, 2024, we acquired Flywheel Digital, the digital commerce business of operations effective January 1, 2017, upon vesting of restricted stock awards or exercise of stock options. In the prior year, tax benefits and deficiencies were recorded in additional paid-in capital. The additional tax benefit or deficiency is calculated as the difference between the grant dateAscential plc, for a net cash purchase price of the awardapproximately $845 million. The financial statements of Flywheel Digital are included in our consolidated financial statements as of and the price of our common stock on the vesting or exercise date. As a result, we recognized an additional tax benefit of $19.5 million for the nine monthsperiod ended September 30, 2017.
ASU 2016-09 requires that cash flows related to the additional tax benefits or deficiencies be classified in operating activities. Accordingly, for the nine months ended September 30, 2016, we retrospectively adjusted the statementMarch 31, 2024. The acquisition of cash flows to conform to the current year presentation, resulting in a decrease in net cash used in operating activities of $19.1 million and increase in net cash used in financing activities of $19.1 million. Further, ASU 2016-09 permits a policy election to either continue to estimate the number of awards that will be forfeited or to account for forfeitures as they occur. We elected to account for forfeitures as they occur. Accordingly, we recorded a cumulative catch-up adjustment to reduce opening retained earnings by $4.5 million reflecting the estimate of unvested awards at December 31, 2016 that are not expected to vest.
On January 1, 2017, we adopted FASB ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other than Inventory, which requires that the income tax effects of intra-entity transfers of assets other than inventory are recognized when the transfer occurs. ASU 2016-16 is applied on a modified retrospective basis with a cumulative catch-up adjustment to opening retained earnings. The adoption of ASU 2016-16Flywheel Digital did not have a material impacteffect on our financial position or results of operations.
In January 2017,operations in the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the subsequent measurement of goodwill and eliminates the two-step goodwill impairment test. ASU 2017-04 is applied prospectivelythree months ended March 31, 2024 and is effectivenot expected to do so for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We adopted ASU 2017-04 for our annual goodwill impairment test at June 30, 2017. The adoption of ASU 2017-04 did not have any impact on our financial position or results of operations.
2. New Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which will replace all existing revenue recognition guidance under U.S. GAAP. On July 9, 2015, the FASB approved a one-year deferralremainder of the effective dateyear. The principal tangible assets and liabilities acquired were net working capital, and the intangible assets acquired were primarily comprised of ASU 2014-09 to all annualcustomer relationships, intellectual property, trade name and interim periods beginning after December 15, 2017. ASU 2014-09 provides for one of two methods of transition: retrospective application to each prior period presented or recognitiongoodwill. The allocation of the cumulative effect of retrospective application ofpurchase price to the new standardunderlying assets is undergoing a formal valuation process that is not yet complete. As a result, as of the beginning of the period of initial application.March 31, 2024, we estimated amortizable intangible assets to be $182.6 million. We expect to
apply ASU 2014-09 on January 1, 2018 using the full retrospective method. However, the final determination of our method of adoption is subject to the completion of our analysis. Based on our initial assessment, the impact of the new standard will likely result in a change in the timing of our revenue recognition for performance incentives received from clients. Performance incentives are currently recognized in revenue when specific quantitative goals are achieved, or when our performance against qualitative goals is determined by the client. Under the new standard, we will be required torevise this estimate, the amount of the incentive that will be earned at the inception of the contract and recognize the incentive over the term of the contract. While performance incentives are not material to our revenue, this will result in an acceleration of revenue recognition for certain contract incentives compared to the current method. Additionally, in certain of our businesses we record revenue as a principal and include certain third-party pass-through and out-of-pocket costs, which are billed to clients in connection with our services, in revenue. In March 2016, the FASB issued further guidance on principal versus agent revenue recognition considerations. While our evaluation is ongoing,however, we do not expect the change in the principal versus agent determination, if any changes to have abe material effect onto our financial position and results of operations. ASU 2014-09 also includes additional disclosure requirements. Currently, we provide comprehensive revenue disclosures in Management's Discussion and Analysis of Financial Condition and Results of Operations.
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (“ASU 2017-07”). ASU 2017-07 requires that only the service cost component of periodic benefit cost will continue to be recorded in salary and service cost. All other components of net periodic benefit cost are to be presented separately in interest and other expense and are excluded from operating profit. ASU 2017-07 will affect operating profit but will not have any effect on income before income taxes and equity method investments, net income or earnings per share. ASU 2017-07 is effective for annual and interim periods beginning January 1, 2018 and will be applied retrospectively to all periods presented.
3. Net Income per Common Share
The computations of basic and diluted net income per common share for the three and nine months ended September 30, 2017 and 2016 were (in millions, except per share amounts):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net Income Available for Common Shares: | | | | | | | |
Net income - Omnicom Group Inc. | $ | 263.6 |
| | $ | 253.8 |
| | $ | 834.0 |
| | $ | 798.3 |
|
Net income allocated to participating securities | (0.3 | ) | | (1.2 | ) | | (1.4 | ) | | (4.8 | ) |
| $ | 263.3 |
| | $ | 252.6 |
| | $ | 832.6 |
| | $ | 793.5 |
|
Weighted Average Shares: | | | | | | | |
Basic | 231.2 |
| | 237.4 |
| | 232.6 |
| | 238.4 |
|
Dilutive stock options and restricted shares | 1.5 |
| | 1.3 |
| | 1.8 |
| | 1.2 |
|
Diluted | 232.7 |
| | 238.7 |
| | 234.4 |
| | 239.6 |
|
| | | | | | | |
Anti-dilutive stock options and restricted shares | 1.0 |
| | — |
| | 1.0 |
| | — |
|
Net Income per Common Share - Omnicom Group Inc.: | | | | | | | |
Basic | $ | 1.14 |
| | $ | 1.06 |
| | $ | 3.58 |
| | $ | 3.33 |
|
Diluted | $ | 1.13 |
| | $ | 1.06 |
| | $ | 3.55 |
| | $ | 3.31 |
|
4.5. Goodwill and Intangible Assets
Goodwill and intangible assets at September 30, 2017 and December 31, 2016 were (in millions):Change in goodwill: | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2024 | | 2023 |
January 1 | | $ | 10,082.3 | | | $ | 9,734.3 | |
Acquisitions | | 688.3 | | | — | |
| | | | |
| | | | |
Dispositions | | (5.9) | | | (1.4) | |
Foreign currency translation | | (70.9) | | | 59.7 | |
March 31 | | $ | 10,693.8 | | | $ | 9,792.6 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
Goodwill | $ | 9,854.1 |
| | $ | (531.1 | ) | | $ | 9,323.0 |
| | $ | 9,481.4 |
| | $ | (505.3 | ) | | $ | 8,976.1 |
|
Intangible assets: | | | | | | | | | | | |
Purchased and internally developed software | $ | 364.2 |
| | $ | (297.3 | ) | | $ | 66.9 |
| | $ | 342.6 |
| | $ | (270.2 | ) | | $ | 72.4 |
|
Customer related and other | 886.7 |
| | (563.2 | ) | | 323.5 |
| | 862.4 |
| | (507.4 | ) | | 355.0 |
|
| $ | 1,250.9 |
| | $ | (860.5 | ) | | $ | 390.4 |
| | $ | 1,205.0 |
| | $ | (777.6 | ) | | $ | 427.4 |
|
ChangesThe increase in goodwill forduring the ninethree months ended September 30, 2017March 31, 2024 is primarily attributable to the acquisition of Flywheel Digital. There were no goodwill impairment losses recorded in the three months ended March 31, 2024 and 2016 were (in millions):2023, and there are no accumulated goodwill impairment losses.
Intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Acquired intangible assets and internally developed strategic platform assets | $ | 1,084.3 | | | $ | (585.6) | | | $ | 498.7 | | | $ | 902.6 | | | $ | (572.9) | | | $ | 329.7 | |
Other purchased and internally developed software | 306.2 | | | (271.9) | | | 34.3 | | | 327.9 | | | (290.7) | | | 37.2 | |
Total Intangible Assets | $ | 1,390.5 | | | $ | (857.5) | | | $ | 533.0 | | | $ | 1,230.5 | | | $ | (863.6) | | | $ | 366.9 | |
Amortization of intangible assets: | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
Acquired intangible assets and internally developed strategic platform assets | $ | 21.5 | | | $ | 14.8 | |
Other purchased and internally developed software | 4.3 | | | 4.5 | |
Amortization Expense | $ | 25.8 | | | $ | 19.3 | |
|
| | | | | | | |
| 2017 | | 2016 |
January 1 | $ | 8,976.1 |
| | $ | 8,676.4 |
|
Acquisitions, net of dispositions | 18.9 |
| | 228.9 |
|
Noncontrolling interests in acquired businesses | 20.3 |
| | 66.0 |
|
Contingent purchase price of acquired businesses | 26.9 |
| | 150.9 |
|
Foreign currency translation and other | 280.8 |
| | (76.1 | ) |
September 30 | $ | 9,323.0 |
| | $ | 9,046.1 |
|
5.6. Debt
Credit Facilities
At September 30, 2017, our short-term liquidity sources includeWe have a $2.5 billion unsecured multi-currency revolving credit facility, (“or Credit Facility”) expiringFacility, terminating on JulyJune 2, 2028. On January 3, 2024, we entered into a $600 million Delayed Draw Term Loan Agreement, or Term Loan Facility, terminating on December 31, 2021, domestic and international uncommitted credit lines and2026. We have the ability to issue up to $2 billion of U.S. Dollar denominated commercial paper. The uncommitted credit lines at September 30, 2017paper and Decemberissue up to the equivalent of $500 million in British Pounds or Euro under a Euro commercial paper program. During the three months ended March 31, 2016 aggregated $1.2 billion and $1.1 billion, respectively. There2024, there were no outstanding commercial paper issuances or borrowingsdrawings under the Credit Facility or the Term Loan Facility, and no commercial paper issuances. In addition, certain of our international subsidiaries have uncommitted credit lines, at September 30, 2017aggregating $507.0 million, that are guaranteed by Omnicom. All of these facilities provide additional liquidity sources for operating capital and December 31, 2016.
Available and unused credit lines at September 30, 2017 and December 31, 2016 were (in millions):
|
| | | | | | | |
| 2017 | | 2016 |
Credit Facility | $ | 2,500.0 |
| | $ | 2,500.0 |
|
Uncommitted credit lines | 1,157.6 |
| | 1,132.0 |
|
Available and unused credit lines | $ | 3,657.6 |
| | $ | 3,632.0 |
|
general corporate purposes.The Credit Facility containsand Term Loan Facility each contain a financial covenantscovenant that requirerequires us to maintain a Leverage Ratio of consolidated indebtedness to consolidated EBITDA (earnings before interest, taxes, depreciation, amortization and non-cash charges) of no more than 3 times for the most recently ended 12-month period (EBITDA is defined as earnings before interest, taxes, depreciation and amortization) and an Interest Coverage Ratio of consolidated EBITDA to interest expense of at least 53.5 times for the most recently ended 12-month period. At September 30, 2017March 31, 2024, we were in compliance with these covenantsthis covenant as our Leverage Ratio was 2.2 times and our Interest Coverage Ratio was 10.52.5 times. The Credit Facility doesand Term Loan Facility do not limit our ability to declare or pay dividends or repurchase our common stock.
Short-Term Debt
Short-term debt of $11.2 million and $10.9 million at September 30, 2017March 31, 2024 and December 31, 2016 was $38.7 million and $28.7 million, respectively. The debt represents2023, respectively, represented bank overdrafts and short-term borrowings primarily of our international subsidiaries. Due to the short-term nature of this debt, carrying value approximates fair value.
8
Long-Term Debt
Long-term debt at September 30, 2017debt: | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
3.65% Senior Notes due 2024 | $ | 750.0 | | | $ | 750.0 | |
3.60% Senior Notes due 2026 | 1,400.0 | | | 1,400.0 | |
€500 million 0.80% Senior Notes due 2027 | 539.4 | | | 553.0 | |
2.45% Senior Notes due 2030 | 600.0 | | | 600.0 | |
4.20% Senior Notes due 2030 | 600.0 | | | 600.0 | |
€500 million 1.40% Senior Notes due 2031 | 539.4 | | | 553.0 | |
2.60% Senior Notes due 2031 | 800.0 | | | 800.0 | |
€600 million 3.70% Senior Notes due 2032 | 647.3 | | | — | |
£325 million 2.25% Senior Notes due 2033 | 410.2 | | | 413.9 | |
Long-Term Debt, Gross | 6,286.3 | | | 5,669.9 | |
Unamortized discount | (8.9) | | | (7.8) | |
Unamortized debt issuance costs | (25.7) | | | (22.3) | |
Unamortized deferred loss from settlement of interest rate swaps, net | (0.4) | | | (0.2) | |
| | | |
Current portion | (750.3) | | | (750.5) | |
Long-Term Debt | $ | 5,501.0 | | | $ | 4,889.1 | |
On March 6, 2024, Omnicom Finance Holdings plc, or OFH, a U.K.-based wholly owned subsidiary of Omnicom, issued €600 million 3.70% Senior Notes due 2032. The net proceeds from the issuance, after deducting the underwriting discount and December 31, 2016 was (in millions):offering expenses, were $643.1 million. Omnicom has fully and unconditionally guaranteed the obligations of OFH.
Our 2.45% Senior Notes due 2030, 4.20% Senior Notes due 2030 and 2.60% Senior Notes due 2031 are senior unsecured obligations of Omnicom that rank equal in right of payment with all existing and future unsecured senior indebtedness. |
| | | | | | | |
| 2017 | | 2016 |
6.25% Senior Notes due 2019 | $ | 500.0 |
| | $ | 500.0 |
|
4.45% Senior Notes due 2020 | 1,000.0 |
| | 1,000.0 |
|
3.625% Senior Notes due 2022 | 1,250.0 |
| | 1,250.0 |
|
3.65% Senior Notes due 2024 | 750.0 |
| | 750.0 |
|
3.60% Senior Notes due 2026 | 1,400.0 |
| | 1,400.0 |
|
Other debt | — |
| | 0.1 |
|
| 4,900.0 |
| | 4,900.1 |
|
Unamortized premium (discount), net | 6.6 |
| | 7.6 |
|
Unamortized debt issuance costs | (21.2 | ) | | (24.2 | ) |
Unamortized deferred gain from settlement of interest rate swaps | 70.9 |
| | 84.7 |
|
Fair value adjustment attributed to outstanding interest rate swaps | (28.9 | ) | | (47.6 | ) |
| 4,927.4 |
| | 4,920.6 |
|
Current portion | — |
| | (0.1 | ) |
Long-term debt | $ | 4,927.4 |
| | $ | 4,920.5 |
|
At September 30, 2017, we recorded a long-term liability of $8.3 million in connection withOmnicom and its wholly owned finance subsidiary, Omnicom Capital Inc., or OCI, are co-obligors under the outstanding $750 million fixed-to-floating interest rate swap on our 3.65% Senior Notes due 2024 (“2024 Notes”) and a long-term liability of $20.6 million in connection with the outstanding $500 million fixed-to-floating interest rate swap on our 3.60% Senior Notes due 2026 (“2026 Notes”). The liabilities represent2026. These notes are a joint and several liability of Omnicom and OCI, and Omnicom unconditionally guarantees OCI’s obligations with respect to the fair valuenotes. OCI provides funding for our operations by incurring debt and lending the proceeds to our operating subsidiaries. OCI’s assets primarily consist of cash and cash equivalents and intercompany loans made to our operating subsidiaries, and the swapsrelated interest receivable. There are no restrictions on the 2024ability of OCI or Omnicom to obtain funds from our subsidiaries through dividends, loans, or advances. Such notes are senior unsecured obligations that rank equal in right of payment with all existing and future unsecured senior indebtedness.
Omnicom and OCI have, jointly and severally, fully, and unconditionally guaranteed the obligations of OFH with respect to the €500 million 0.80% Senior Notes due 2027 and the €500 million 1.40% Senior Notes due 2031, and Omnicom has fully and unconditionally guaranteed the obligations of OFH with respect to the €600 million 3.70% Senior Notes due 2032, collectively the Euro Notes. OFH’s assets consist of its investments in several wholly owned finance companies that function as treasury centers, providing funding for various operating companies in Europe, Australia, and other countries in the Asia-Pacific region. The finance companies’ assets consist of cash and cash equivalents and intercompany loans that they make or have made to the operating companies in their respective regions and the related interest receivable. There are no restrictions on the ability of Omnicom, OCI or OFH to obtain funds from their subsidiaries through dividends, loans, or advances. The Euro Notes and 2026the related guarantees are senior unsecured obligations that rank equal in right of payment with all existing and future unsecured senior indebtedness of OFH and each of Omnicom and OCI, as applicable.
Omnicom has fully and unconditionally guaranteed the obligations of Omnicom Capital Holdings plc, or OCH, a U.K.-based wholly owned subsidiary of Omnicom, with respect to the £325 million 2.25% Senior Notes respectively,due 2033, or the Sterling Notes. OCH’s assets consist of its investments in several wholly owned finance companies that was substantially offset by the changefunction as treasury centers, providing funding for various operating companies in EMEA, Australia, and other countries in the fair valueAsia-Pacific region. The finance companies’ assets consist of cash and cash equivalents and intercompany loans that they make or have made to the notes.operating companies in their respective regions and the related interest receivable. There are no restrictions on the ability of Omnicom or OCH to obtain funds from their subsidiaries through dividends, loans, or advances. The fixed-to-floating interest rate swaps haveSterling Notes and the economic effectrelated guarantee are senior unsecured obligations that rank equal in right of converting our debt portfolio to approximately 75% fixed rate obligationspayment with all existing and 25% floating rate obligations.future unsecured senior indebtedness of OCH and Omnicom, respectively.
7. Segment Reporting
Our five branded agency networks operate in the advertising, marketing and corporate communications services industry, and are organized into agency networks, virtual client networks, regional reporting units and operating groups.groups or practice areas. Our networks, virtual client networks and agencies increasingly share clients and provide clients with integrated services. The main economic components of each agency are employee compensation and related costs, and direct service costs and occupancy and other costs, which include rent and occupancy costs, technology costs and other overhead expenses. Therefore, given these similarities, we aggregate our six operating segments, which are our five agency networks, into one reporting segment.
The agency networks' regional reporting units comprise three principal regions: the Americas, EMEA and Asia Pacific.Asia-Pacific. The regional reporting units monitor the performance of and are responsible for the agencies in their region. Agencies within the regional reporting units serve similar clients in similar industries and, in many cases, the same clients, and have similar economic characteristics.
Revenue and long-lived assets and goodwill by geographic region at and for the three and nine months ended September 30, 2017 and 2016 were (in millions):region: | | | | | | | | | | | | | | | | | |
| Americas | | EMEA | | Asia-Pacific |
March 31, 2024 | | | | | |
| | | | | |
Revenue - Three months ended | $ | 2,137.4 | | | $ | 1,085.4 | | | $ | 407.7 | |
Long-lived assets and goodwill | $ | 8,092.0 | | | $ | 3,776.5 | | | $ | 706.6 | |
March 31, 2023 | | | | | |
| | | | | |
Revenue - Three months ended | $ | 2,000.8 | | | $ | 1,036.8 | | | $ | 405.7 | |
Long-lived assets and goodwill | $ | 7,642.2 | | | $ | 3,377.2 | | | $ | 734.4 | |
|
| | | | | | | | | | | |
| Americas | | EMEA | | Asia Pacific |
2017 | | | | | |
Revenue - Three months ended | $ | 2,225.2 |
| | $ | 1,083.1 |
| | $ | 411.2 |
|
Revenue - Nine months ended | 6,768.0 |
| | 3,137.6 |
| | 1,191.5 |
|
Long-lived assets and goodwill | 6,657.0 |
| | 2,801.3 |
| | 555.2 |
|
2016 | | | | | |
Revenue - Three months ended | $ | 2,366.4 |
| | $ | 1,005.8 |
| | $ | 418.9 |
|
Revenue - Nine months ended | 6,993.5 |
| | 3,008.1 |
| | 1,173.5 |
|
Long-lived assets and goodwill | 6,577.0 |
| | 2,606.7 |
| | 541.3 |
|
The Americas comprises North America, which includes the United States, Canada and Puerto Rico, and Latin America, which includes Mexico. EMEA comprises Europe, the Middle East and Africa. Asia Pacific comprises Australia, China, India, Japan, Korea, New Zealand, Singapore and other Asian countries. Revenue in the United States for the three and nine months ended September 30, 2017 and 2016 was $1,992.4 million and $6,065.1 million and $2,110.7 million and $6,308.7 million, respectively.
7.8. Income Taxes
Our effective tax rate for the ninethree months ended September 30, 2017, decreasedMarch 31, 2024 increased period-over-period to 31.1%25.7% from 32.6%25.5%. The decrease in the effective tax rate was primarily attributablefor three months ended March 31, 2024 includes the favorable impact from the resolution of certain non-U.S. tax positions of $7.5 million. The effective tax rate for the three months ended March 31, 2023 includes the favorable impact from the resolution of certain tax positions of approximately $10.0 million of previously unrecognized tax benefits, partially offset by approximately $6.0 million related to the recognition of an additionala lower tax benefit from share-based compensationin certain jurisdictions for the real estate repositioning costs in the quarter, and an increase in the U.K. statutory tax rate.
The Inflation Reduction Act of $19.5 million resulting from2022, or IRA, levies a 1% excise tax on net stock repurchases after December 31, 2022. The excise tax is recorded as a cost of acquiring treasury stock and is not material. Additionally, the prospective adoption of ASU 2016-09 (see Note 1), which requires that additionalIRA imposes a 15% corporate alternative minimum tax, benefits and deficiencies arising from share-based compensation be recognized inor CAMT, for tax years beginning after December 31, 2022. The CAMT does not have a material impact on our results of operations or financial position.
Numerous foreign jurisdictions have enacted or are in the period whenprocess of enacting legislation to adopt a minimum effective tax rate described in the awards vestGlobal Anti-Base Erosion, or Pillar Two, model rules issued by the Organization for Economic Co-operation and Development, or OECD. Under such rules, a minimum effective tax rate of 15% would apply to multinational companies with consolidated revenue above €750 million.
Under the Pillar Two rules, a company would be required to determine a combined effective tax rate for all entities located in a jurisdiction. If the jurisdictional effective tax rate determined under the Pillar Two rules is less than 15%, a top-up tax will be due to bring the jurisdictional effective tax rate up to 15%. We are exercised. Incontinuing to monitor the prior year, tax benefitspending implementation of Pillar Two by individual countries and deficiencies were recordedthe potential effects of Pillar Two on our business. We do not expect the provisions effective in additional paid-in capital.2024 to have a materially adverse impact on our results of operations, financial position or cash flows.
At September 30, 2017,March 31, 2024, our unrecognized tax benefits were $106.8$168.7 million. Of this amount, approximately $73.3$161.8 million would affect our effective tax rate upon resolution of the uncertain tax positions.
9. Pension and Other Postemployment Benefits
Defined Benefit Pension Plans
The components of netNet periodic benefit expense for the nine months ended September 30, 2017 and 2016 were (in millions):expense: | | | | | | | | | | | | | | | | | | | | | | | |
| Defined Benefit Pension Plans | | Postemployment Arrangements |
| Three Months Ended March 31, |
| 2024 | | 2023 | | 2024 | | 2023 |
Service cost | $ | 0.6 | | | $ | 0.9 | | | $ | 0.8 | | | $ | 0.9 | |
Interest cost | 1.0 | | | 2.3 | | | 1.5 | | | 1.4 | |
Expected return on plan assets | (0.2) | | | (0.2) | | | — | | | — | |
Amortization of prior service cost | 0.1 | | | 0.1 | | | 1.1 | | | 1.0 | |
Amortization of actuarial losses | 0.2 | | | 0.2 | | | 0.1 | | | — | |
Total net periodic benefit expense | $ | 1.7 | | | $ | 3.3 | | | $ | 3.5 | | | $ | 3.3 | |
|
| | | | | | | |
| 2017 | | 2016 |
Service cost | $ | 7.8 |
| | $ | 6.1 |
|
Interest cost | 5.4 |
| | 5.3 |
|
Expected return on plan assets | (2.2 | ) | | (2.2 | ) |
Amortization of prior service cost | 3.5 |
| | 3.3 |
|
Amortization of actuarial losses | 4.8 |
| | 3.6 |
|
| $ | 19.3 |
| | $ | 16.1 |
|
We contributed $1.1 million and $0.8$0.1 million to our defined benefit pension plans in each of the ninethree months ended September 30, 2017March 31, 2024 and 2016, respectively.2023.
Postemployment Arrangements
The components10. Real Estate Repositioning Costs
In connection with the transition to a flexible working environment, a hybrid model which allows for partial remote work, we took certain actions in the first quarter of net periodic benefit expense2023 to reduce and reposition our office lease portfolio.
As a result, for the ninethree months ended September 30, 2017 and 2016March 31, 2023, operating expenses included $119.2 million ($91.0 million after tax), primarily related to non-cash impairment charges for the operating lease right-of-use, or ROU, assets. Substantially all of the operating lease payments related to the ROU assets will be paid out over two years. There were (in millions):no real estate repositioning charges during the three months ended March 31, 2024.
|
| | | | | | | |
| 2017 | | 2016 |
Service cost | $ | 3.3 |
| | $ | 3.0 |
|
Interest cost | 2.8 |
| | 2.6 |
|
Amortization of prior service cost | 2.6 |
| | 2.2 |
|
Amortization of actuarial losses | 0.8 |
| | 0.8 |
|
| $ | 9.5 |
| | $ | 8.6 |
|
9.11. Supplemental Cash Flow Data
The decreaseChange in operating capital for the nine months ended September 30, 2017 and 2016 was (in millions):capital: | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
(Increase) decrease in accounts receivable | $ | 884.2 | | | $ | 1,065.0 | |
(Increase) decrease in work in process and other current assets | (393.9) | | | (295.6) | |
Increase (decrease) in accounts payable | (1,347.0) | | | (1,458.8) | |
Increase (decrease) in customer advances, taxes payable and other current liabilities | (157.8) | | | (212.9) | |
Change in other assets and liabilities, net | (19.1) | | | (48.7) | |
Increase (decrease) in operating capital | $ | (1,033.6) | | | $ | (951.0) | |
Supplemental financial information: | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
Income taxes paid | $ | 69.4 | | | $ | 73.6 | |
Interest paid | $ | 8.5 | | | $ | 13.7 | |
Non-cash increase in lease liabilities: | | | | | | | | | | | |
Operating leases | $ | 47.2 | | | $ | 41.2 | |
Finance leases | $ | 12.3 | | | $ | 11.7 | |
|
| | | | | | | |
| 2017 | | 2016 |
(Increase) decrease in accounts receivable | $ | 645.3 |
| | $ | 818.1 |
|
(Increase) decrease in work in process and other current assets | (280.9 | ) | | (212.3 | ) |
Increase (decrease) in accounts payable | (1,310.8 | ) | | (1,105.9 | ) |
Increase (decrease) in customer advances and other current liabilities | (367.9 | ) | | (293.7 | ) |
Change in other assets and liabilities, net | (13.0 | ) | | (4.9 | ) |
| $ | (1,327.3 | ) | | $ | (798.7 | ) |
| | | |
Income taxes paid | $ | 398.0 |
| | $ | 427.6 |
|
Interest paid | $ | 168.6 |
| | $ | 158.5 |
|
10.12. Commitments and Contingent Liabilities
In the ordinary course of business, we are involved in various legal proceedings. We do not presently expect that thesesuch proceedings will have a material adverse effect on our results of operations or financial position.
11
In addition, in December 2016, two of our subsidiaries received subpoenas from the U.S. Department of Justice Antitrust Division concerning its ongoing investigation of video production and post-production practices in the advertising industry. The Company is fully cooperating with the investigation. While the ultimate effect of the investigation is inherently uncertain, we do not at this time believe that the investigation will have a material adverse effect on our results of operations or financial position. However, the ultimate resolution of these matters could be different from our current assessment and the differences could be material.
11. Equity13. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss), net of income taxes,taxes: | | | | | | | | | | | | | | | | | | | | | | | |
| Cash Flow Hedge | | Defined Benefit Pension Plans and Postemployment Arrangements | | Foreign Currency Translation | | Total |
| Three Months Ended March 31, 2024 |
January 1 | $ | (8.1) | | | $ | (42.7) | | | $ | (1,286.8) | | | $ | (1,337.6) | |
Other comprehensive income (loss) before reclassifications | — | | | — | | | (79.1) | | | (79.1) | |
Reclassification from accumulated other comprehensive income (loss) | 1.0 | | | (0.2) | | | — | | | 0.8 | |
March 31 | $ | (7.1) | | | $ | (42.9) | | | $ | (1,365.9) | | | $ | (1,415.9) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
January 1 | $ | (12.1) | | | $ | (41.3) | | | $ | (1,384.5) | | | $ | (1,437.9) | |
| | | | | | | |
Other comprehensive income (loss) before reclassifications | — | | | — | | | 52.0 | | | 52.0 | |
Reclassification from accumulated other comprehensive income (loss) | 1.0 | | | 0.4 | | | — | | | 1.4 | |
March 31 | $ | (11.1) | | | $ | (40.9) | | | $ | (1,332.5) | | | $ | (1,384.5) | |
14. Fair Value
Financial assets and liabilities are recorded at fair value based on the following:
•Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities; unadjusted quoted prices for identical assets or liabilities in markets that are not active; and model-derived valuations with observable inputs.
•Level 3: Unobservable inputs for the nine months ended September 30, 2017 and 2016 were (in millions):asset or liability.
|
| | | | | | | | | | | | | | | | | | | |
2017 | Cash Flow Hedge | | Available-for-Sale Securities | | Defined Benefit Pension Plans and Postemployment Arrangements | | Foreign Currency Translation | | Total |
January 1 | $ | (29.5 | ) | | $ | (0.8 | ) | | $ | (90.6 | ) | | $ | (1,235.1 | ) | | $ | (1,356.0 | ) |
Other comprehensive income (loss) before reclassifications | — |
| | 0.3 |
| | — |
| | 388.5 |
| | 388.8 |
|
Reclassification from accumulated other comprehensive income (loss) | 2.4 |
| | — |
| | 6.6 |
| | — |
| | 9.0 |
|
September 30 | $ | (27.1 | ) | | $ | (0.5 | ) | | $ | (84.0 | ) | | $ | (846.6 | ) | | $ | (958.2 | ) |
|
| | | | | | | | | | | | | | | | | | | |
2016 | | | | | | | | | |
January 1 | $ | (3.3 | ) | | $ | (0.9 | ) | | $ | (87.9 | ) | | $ | (923.3 | ) | | $ | (1,015.4 | ) |
Other comprehensive income (loss) before reclassifications | (28.5 | ) | | 0.1 |
| | — |
| | (53.4 | ) | | (81.8 | ) |
Reclassification from accumulated other comprehensive income (loss) | 1.5 |
| | — |
| | 6.0 |
| | — |
| | 7.5 |
|
September 30 | $ | (30.3 | ) | | $ | (0.8 | ) | | $ | (81.9 | ) | | $ | (976.7 | ) | | $ | (1,089.7 | ) |
12. Fair Value
Financial assets and liabilities measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016 were (in millions):basis: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | | December 31, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 3,172.8 | | | | | | | $ | 3,172.8 | | | | $ | 4,432.0 | | | | | | | $ | 4,432.0 | |
| | | | | | | | | | | | | | | | |
Marketable equity securities | 0.8 | | | | | | | 0.8 | | | | 0.9 | | | | | | | 0.9 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Cross currency swaps - net investment hedge | | | $ | 4.2 | | | | | 4.2 | | | | | | $ | — | | | | | — | |
Liabilities: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Cross currency swaps - net investment hedge | | | — | | | | | — | | | | | | $ | 6.6 | | | | | $ | 6.6 | |
Contingent purchase price obligations | | | | | $ | 258.6 | | | 258.6 | | | | | | | | $ | 229.5 | | | 229.5 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
2017 | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Cash and cash equivalents | $ | 1,843.0 |
| | |
| | | | $ | 1,843.0 |
|
Short-term investments | 8.0 |
| | |
| | | | 8.0 |
|
Available-for-sale securities | 3.7 |
| | | | | | 3.7 |
|
Foreign currency derivative instruments | | | $ | 0.4 |
| | | | 0.4 |
|
Liabilities: | |
| | |
| | | | |
|
Interest rate and foreign currency derivative instruments | | | $ | 29.7 |
| | | | $ | 29.7 |
|
Contingent purchase price obligations | | | | | $ | 261.0 |
| | 261.0 |
|
|
| | | | | | | | | | | | | | | |
2016 | | | | | | | |
Assets: | | | | | | | |
Cash and cash equivalents | $ | 3,002.2 |
| | |
| | | | $ | 3,002.2 |
|
Short-term investments | 20.6 |
| | |
| | | | 20.6 |
|
Available-for-sale securities | 4.3 |
| | |
| | | | 4.3 |
|
Foreign currency derivative instruments | | | $ | 0.2 |
| | | | 0.2 |
|
Liabilities: | | | | | | | |
Interest rate and foreign currency derivative instruments | | | $ | 48.9 |
| | | | $ | 48.9 |
|
Contingent purchase price obligations | | | | | $ | 386.1 |
| | 386.1 |
|
Changes in contingent purchase price obligations for the nine months ended September 30, 2017 and 2016 were (in millions):obligations:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
January 1 | $ | 229.5 | | | $ | 115.0 | |
Acquisitions | 26.5 | | | 21.6 | |
Revaluation and interest | 3.2 | | | 0.4 | |
Payments | (0.5) | | | (9.2) | |
Foreign currency translation | (0.1) | | | 0.2 | |
March 31 | $ | 258.6 | | | $ | 128.0 | |
|
| | | | | | | |
| 2017 | | 2016 |
January 1 | $ | 386.1 |
| | $ | 322.0 |
|
Acquisitions | 41.7 |
| | 156.0 |
|
Revaluation and interest | 0.2 |
| | 16.7 |
|
Payments | (182.9 | ) | | (86.8 | ) |
Foreign currency translation | 15.9 |
| | (3.4 | ) |
September 30 | $ | 261.0 |
| | $ | 404.5 |
|
The carryingCarrying amount and fair value of our financial assets and liabilities at September 30, 2017 and December 31, 2016 were (in millions):
|
| | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets: | | | | | | | |
Cash and cash equivalents | $ | 1,843.0 |
| | $ | 1,843.0 |
| | $ | 3,002.2 |
| | $ | 3,002.2 |
|
Short-term investments | 8.0 |
| | 8.0 |
| | 20.6 |
| | 20.6 |
|
Available-for-sale securities | 3.7 |
| | 3.7 |
| | 4.3 |
| | 4.3 |
|
Foreign currency derivative instruments | 0.4 |
| | 0.4 |
| | 0.2 |
| | 0.2 |
|
Cost method investments | 15.8 |
| | 15.8 |
| | 14.2 |
| | 14.2 |
|
Liabilities: | | | | | | | |
Short-term debt | $ | 38.7 |
| | $ | 38.7 |
| | $ | 28.7 |
| | $ | 28.7 |
|
Interest rate and foreign currency derivative instruments | 29.7 |
| | 29.7 |
| | 48.9 |
| | 48.9 |
|
Contingent purchase price obligations | 261.0 |
| | 261.0 |
| | 386.1 |
| | 386.1 |
|
Long-term debt, including current portion | 4,927.4 |
| | 5,080.6 |
| | 4,920.6 |
| | 5,035.1 |
|
liabilities: | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets: | | | | | | | |
Cash and cash equivalents | $ | 3,172.8 | | | $ | 3,172.8 | | | $ | 4,432.0 | | | $ | 4,432.0 | |
| | | | | | | |
Marketable equity securities | 0.8 | | | 0.8 | | | 0.9 | | | 0.9 | |
Cross currency swaps - net investment hedge | 4.2 | | | 4.2 | | | — | | | — | |
Non-marketable equity securities | 12.5 | | | 12.5 | | | 6.7 | | | 6.7 | |
| | | | | | | |
| | | | | | | |
Liabilities: | | | | | | | |
Short-term debt | $ | 11.2 | | | $ | 11.2 | | | $ | 10.9 | | | $ | 10.9 | |
| | | | | | | |
Cross currency swaps - net investment hedge | — | | | — | | | 6.6 | | | 6.6 | |
Contingent purchase price obligations | 258.6 | | | 258.6 | | | 229.5 | | | 229.5 | |
Long-term debt | 6,251.3 | | | 5,822.1 | | | 5,639.6 | | | 5,237.8 | |
The estimated fair valuevalues of the foreign currency and interest rate derivative instruments iscross-currency swaps are determined using model-derived valuations, taking into consideration foreign currency rates, for the foreign currency derivatives and readily observable inputs for LIBOR interest rates, and yield curves to derive the present value of the future cash flows for the interest rate swap derivatives and counterparty credit risk for each.risk. The estimated fair value of the contingent purchase price obligations is calculated in accordance with the terms of each acquisition agreement and is discounted. The fair value of long-term debt is based on quoted market prices.
13.15. Subsequent Events
We have evaluated events subsequent to the balance sheet date and determined that there have not been any events that have occurred that would require adjustmentadditional adjustments to, or disclosuredisclosures in, thethese consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements, including statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, from time to time, the Company or its representatives have made, or may make, forward-looking statements, orally or in writing. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial position, or otherwise, based on current beliefs of the Company’s management as well as assumptions made by, and information currently available to, the Company’s management. Forward-looking statements may be accompanied by words such as “aim,” “anticipate,” “believe,” “plan,” “could,” “should,” “would,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “will,” “possible,” “potential,” “predict,” “project” or similar words, phrases or expressions. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the Company’s control. Therefore, you should not place undue reliance on such statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include:
•adverse economic conditions, including those caused by geopolitical events, international hostilities, acts of terrorism, public health crises, high and sustained inflation in countries that comprise our major markets, high interest rates, and labor and supply chain issues affecting the distribution of our clients’ products;
•international, national or local economic conditions that could adversely affect the Company or its clients;
•losses on media purchases and production costs incurred on behalf of clients;
•reductions in client spending, a slowdown in client payments and a deterioration or disruption in the credit markets;
•the ability to attract new clients and retain existing clients in the manner anticipated;
•changes in client advertising, marketing and corporate communications requirements;
•failure to manage potential conflicts of interest between or among clients;
•unanticipated changes related to competitive factors in the advertising, marketing and corporate communications industries;
•unanticipated changes to, or the ability to hire and retain key personnel;
•currency exchange rate fluctuations;
•reliance on information technology systems and risks related to cybersecurity incidents;
•effective management of the risks, challenges and efficiencies presented by utilizing Artificial Intelligence (AI) technologies and related partnerships in our business;
•changes in legislation or governmental regulations affecting the Company or its clients;
•risks associated with assumptions the Company makes in connection with its acquisitions, critical accounting estimates and legal proceedings;
•the Company’s international operations, which are subject to the risks of currency repatriation restrictions, social or political conditions and an evolving regulatory environment in high-growth markets and developing countries; and
•risks related to our environmental, social and governance goals and initiatives, including impacts from regulators and other stakeholders, and the impact of factors outside of our control on such goals and initiatives.
The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that may affect the Company’s business, including those described in Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, or 2023 10-K, and in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and in other documents filed from time to time with the Securities and Exchange Commission. Except as required under applicable law, the Company does not assume any obligation to update these forward-looking statements.
EXECUTIVE SUMMARY
The unaudited consolidated financial statements and related notes to the unaudited consolidated financial statements, including our critical accounting estimates, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report, should be read in conjunction with our 2023 10-K. In the following tables, dollars are presented in millions, except share amounts.
Given our size and breadth, we manage our business by monitoring several financial indicators. The key performance indicators we focus on are revenue growth, operating income, and EBITA (defined as operating income before amortization of acquired intangible assets and internally developed strategic platform assets) and EBITA margin (defined as EBITA divided by revenue). We areanalyze revenue growth by reviewing the components and mix of the growth, including growth by principal regional market, practice area and marketing discipline, the impact from foreign currency exchange rate changes, growth from acquisitions,
net of dispositions, and growth from our largest clients. Variability in operating expenses is analyzed in the following categories: cost of services, selling, general and administrative expenses, or SG&A, and depreciation and amortization.
Financial Performance
Worldwide revenue for the three months ended March 31, 2024, increased $187.2 million, or 5.4%, to $3,630.5 million, compared to $3,443.3 million in the prior year quarter. Worldwide organic revenue growth (defined below) increased revenue $136.9 million, or 4.0%, primarily reflecting increased client spending in our Advertising & Media, Precision Marketing, Experiential, and Healthcare disciplines and most geographic markets compared to the prior year period. Changes in foreign exchange rates period-over-period reduced revenue $2.7 million, or 0.1%. Acquisition revenue, net of disposition revenue, increased revenue $53.0 million, or 1.5%, primarily related to the purchase of Flywheel Digital in January 2024 (see Note 4 to the unaudited consolidated financial statements) and acquisition activity in the second half of 2023, partially offset by dispositions in the Execution & Support discipline in the first half of 2023.
The period-over-period change in worldwide revenue for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, in our fundamental disciplines was: Advertising & Media increased $130.3 million, Precision Marketing increased $78.2 million, Branding & Retail Commerce decreased $9.4 million, Experiential increased $12.1 million, Execution & Support decreased $44.0 million, Public Relations increased $14.8 million, and Healthcare increased $5.2 million.
The period-over-period change in worldwide revenue across our geographic markets for the three months ended March 31, 2024 was: North America increased $114.1 million, or 5.9%, Latin America increased $22.5 million, or 30.4%, Europe increased $53.9 million, or 5.7%, the Middle East and Africa decreased $5.3 million, or 6.2%, and Asia-Pacific increased $2.0 million, or 0.5%.
A summary of our consolidated results of operations period-over-period is: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | | | $ Change | | % Change | | | | | | | | |
Revenue | $ | 3,630.5 | | | $ | 3,443.3 | | | | | | | $ | 187.2 | | | 5.4 | % | | | | | | | | |
Operating Income2 | $ | 478.9 | | | $ | 346.5 | | | | | | | $ | 132.4 | | | 38.2 | % | | | | | | | | |
Operating Margin2 | 13.2 | % | | 10.1 | % | | | | | | | | 3.1 | % | | | | | | | | |
Interest expense, net | $ | 26.8 | | | $ | 19.3 | | | | | | | $ | 7.5 | | | 38.9 | % | | | | | | | | |
Net Income - Omnicom Group Inc.2 | $ | 318.6 | | | $ | 227.5 | | | | | | | $ | 91.1 | | | 40.0 | % | | | | | | | | |
Net Income per Share - Omnicom Group Inc.: Diluted2 | $ | 1.59 | | | $ | 1.11 | | | | | | | $ | 0.48 | | | 43.2 | % | | | | | | | | |
Non-GAAP Measures: | | | | | | | | | | | | | | | | | | | |
EBITA1,2,3 | $ | 500.4 | | | $ | 361.3 | | | | | | | $ | 139.1 | | | 38.5 | % | | | | | | | | |
EBITA Margin %1,2,3 | 13.8 | % | | 10.5 | % | | | | | | | | 3.3 | % | | | | | | | | |
After-tax amortization per diluted share3 | $ | 0.08 | | | $ | 0.05 | | | | | | | $ | 0.03 | | | 60.0 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
1) Reconciliation of Non-GAAP Financial Measures on page 23. 2) For the three months ended March 31, 2023, operating expenses include $119.2 million ($91.0 million after tax) related to real estate repositioning costs, which decreased diluted net income per share - Omnicom Group Inc. by $0.45 (see Note 10 to the unaudited consolidated financial statements).
3) Beginning with the three months ended March 31, 2024, EBITA is defined as operating income before amortization of acquired intangible assets and internally developed strategic platform assets. As a result, we reclassified the prior year period to be consistent with the revised definition, which reduced EBITA from previously reported amounts. We believe EBITA is useful in evaluating the impact of amortization of acquired intangible assets and internally developed strategic platform assets on operating performance and allows for comparability between reporting periods.
Our Business
Omnicom is a strategic holding company providing advertising, marketing and corporate communications services to clients throughmany of the largest global companies. Our portfolio of companies includes our global networks, BBDO, DDB, TBWA, Omnicom Media Group, the DAS Group of Companies, and the Communications Consultancy Network. All of our global networks integrate their service offerings with the Omnicom branded networkspractice areas, including Omnicom Health Group, Omnicom Precision Marketing Group, Omnicom Commerce Group, Omnicom Advertising Collective, Omnicom Public Relations Group, Omnicom Brand Consulting Group and agencies around the world. Flywheel Digital, as well as our Experiential businesses and Execution & Support businesses, which includes Omnicom Specialty Marketing Group.
On a global, pan-regional, and local basis, our networks, practice areas, and agencies provide a comprehensive range of services in fourthe following fundamental disciplines: Advertising & Media, Precision Marketing, Public Relations, Healthcare, Branding & Retail Commerce, Experiential, and Execution & Support. Advertising & Media includes creative services across digital and traditional media, strategic media planning and buying, performance media and data analytics services. Precision Marketing includes digital and direct marketing, digital transformation consulting, e-commerce operations, media execution, market intelligence and data and analytics. Public Relations services include corporate communications, crisis management, public affairs and media and media relations services. Healthcare includes corporate communications and advertising CRM, public relations and specialty communications. media services to global healthcare and pharmaceutical companies. Branding & Retail Commerce services include brand and product consulting, strategy and research and retail marketing. Experiential marketing services include live and digital events and experience design and execution. Execution & Support includes field marketing, sales support, digital and physical merchandising, as well as other specialized marketing and custom communications services. Our geographic markets include the Americas, which includes North America and Latin America, Europe, the Middle East and Africa, or EMEA, and Asia-Pacific.
Our business model was built and continues to evolve around our clients. While our networks, practice areas and agencies operate under different names and frame their ideas in different disciplines, we organize our services around our clients. TheOur fundamental premise of our business principle is that our clients’ specific marketing requirements should beare the central focus inof how we structure our service offerings and allocate our resources. This client-centric business model requires that multiple agencies within Omnicom collaborate in formal and informal virtual client networks that cut across internal organizational structures throughutilizing our key client matrix organization structure. This collaboration allows us to cut across our internal organizational structurestructures to execute against each of our clients’ specific marketing requirements.requirements in a consistent and comprehensive manner. We believe that this organizational philosophy anduse our ability to execute on it differentiate us from our competition. We continually seekclient-centric approach to grow our business withby expanding our service offerings to existing clients, by maintaining our client-centric approach, as well as expanding our existing business relationshipsmoving into new markets and withobtaining new clients. In addition, we pursue selective acquisitions of complementary companies with strong entrepreneurial management teams that typically currently serve or have the ability tocould serve our existing clients. In addition to collaborating through our client base.service models, our agencies, practice areas and networks collaborate across internally developed technology platforms. Annalect and Omni, our proprietary data and analytics platforms, serve as the strategic resource for all of our agencies, practice areas and networks to share when developing client service strategies across our virtual networks. These platforms provide precision marketing and insights at scale across creative, media and other disciplines.
We believe generative AI will have a significant effect on how we provide services to our clients and how we enhance the productivity of our people. As with any new technology, we are working closely with our clients and technology partners to take advantage of the benefits of AI while being mindful of its limitations, risks, and privacy concerns. We are committed to responsible AI practices and collaboration to harness AI’s potential, while evaluating related risks, such as ethical considerations, public perception and reputational concerns, intellectual property protection, regulatory compliance, privacy and data security concerns and our ability to effectively adopt this new emerging technology. The rapidly developing nature of AI technology makes it difficult to assess the full impact on our business at this time.
As a leading global advertising, marketing and corporate communications company, we operate in all major markets and have a large and diverse client base. For the ninetwelve months ended September 30, 2017,March 31, 2024, our largest client accounted for 3.2%3.0% of our revenue, and our 100 largest clients, which represent many of the world'sworld’s major marketers, accounted for approximately 51%53.8% of our revenue. Our business is spread across a numberclients operate in virtually every sector of industry sectorsthe global economy with no one industry comprisingrepresenting more than 14%16% of our revenue for the ninethree months ended September 30, 2017.March 31, 2024. Although our revenue is generally balanced between the United States and international markets, and we have a large and diverse client base, we are not immune to general economic downturns.
As described in more detail below, for the nine months ended September 30, 2017, revenue decreased $78.0 million or 0.7%, compared to the nine months ended September 30, 2016. Throughout 2016
Risks and continuing into the second quarter of 2017, a substantial number of foreign currencies weakened against the U.S. Dollar. In the third quarter of 2017, the Euro and a number of other currencies strengthened against the U.S. Dollar compared to the third quarter of 2016; however, for the nine months ended September 30, 2017, changes in foreign exchange rates continued to have a negative effect on our revenue. For the nine months ended September 30, 2017, changes in foreign exchange rates reduced revenue $59.2 million, or 0.5% compared to 2016. Acquisition revenue, net of disposition revenue, reduced revenue $412.8 million, or 3.7%, reflecting the disposition of certain non-strategic businesses in the past year and organic growth increased revenue $394.0 million, or 3.5%. As a result, the reduction in revenue from our disposition activity exceeded the revenue from our acquisition activity in the period, and based on our activities completed to date, we expect the net reduction in revenue for acquisitions and dispositions to be approximately 4% for the full year 2017.Uncertainties
Global economic conditions have a directchallenges, including geopolitical events, international hostilities, acts of terrorism, public health crises, high and sustained inflation in countries that comprise our major markets, high interest rates, and labor and supply chain issues could cause economic uncertainty and volatility. The impact of these issues on our business and financial performance. Adverse global or regional economic conditions pose a risk that our clients may reduce, postpone or cancel spending on advertising, marketing and corporate communications services, which would reduce the demand for our services. In the first nine months of 2017, our agencies in North America continued their modest growth as activity in the United States varied across our service disciplines. Our businesses in the United Kingdom, or U.K., and Europe continued their solid performance and growth. However, the continuing uncertain economic and political conditions in the European Union, or EU, have been further complicatedwill vary by the official notification from the U.K., to the European Council to withdraw from the EU. In Brazil, unstable economic and political conditions contributed to the continuing volatility in thegeographic market and our agencies experienced negative growth. Most of our businesses in Asia continue their modest growth consistent with recent periods. The economic and fiscal issues facing countries in Europe and Latin America continue to cause economic uncertainty in those regions; however, the impact on our business varies by country.discipline. We will continue to monitor economic conditions closely, as well as client revenue levels and other factors and, infactors. In response to reductions in our client revenue, if necessary, we willcan take actions available to us to align our cost structure with changes in client demand and manage our working capital. ThereHowever, there can be no assurance whether, oras to what extent,the effectiveness of our efforts to mitigate any impact of the current and future adverse economic conditions, reductions in client revenue, changes in client creditworthiness and other developments will be effective.developments.
Revenue is typically lower in the first and third quarters and higher in the second and fourth quarters, reflecting client spending patterns during the year and additional project work that usually occurs in the fourth quarter. Certain business trendsglobal events targeted by major marketers for advertising expenditures, such as the FIFA World Cup and the Olympics, and certain national events, such as the U.S. election process, may affect our revenue period-over-period in certain businesses. Typically, these events do not have had a positivesignificant impact on our business and industry. These trends include clients increasingly expanding the focus of their brand strategies from national markets to pan-regional and global markets and integrating traditional and non-traditional marketing channels, as well as utilizing new communications technologies and emerging digital platforms.
revenue in any period.
CONSOLIDATED RESULTS OF OPERATIONS
Additionally, as clients increase their demands for marketing effectiveness and efficiency, they require greater integration
The period-over-period change in results of their marketing activities and tend to consolidate their business with one holding company. We believe these trends and our virtual client network approach to collaboration and integrationoperations were:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | $ Change | | | | | | |
Revenue | $ | 3,630.5 | | | $ | 3,443.3 | | | $ | 187.2 | | | | | | | |
Operating Expenses: | | | | | | | | | | | |
Salary and service costs | 2,692.6 | | | 2,542.9 | | | 149.7 | | | | | | | |
Occupancy and other costs | 314.1 | | | 291.6 | | | 22.5 | | | | | | | |
Real estate repositioning costs2 | — | | | 119.2 | | | (119.2) | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Cost of services | 3,006.7 | | | 2,953.7 | | | 53.0 | | | | | | | |
Selling, general and administrative expenses | 85.3 | | | 89.2 | | | (3.9) | | | | | | | |
Depreciation and amortization | 59.6 | | | 53.9 | | | 5.7 | | | | | | | |
Total operating expenses2 | 3,151.6 | | | 3,096.8 | | | 54.8 | | | | | | | |
Operating Income2 | 478.9 | | | 346.5 | | | 132.4 | | | | | | | |
Interest Expense | 53.8 | | | 54.9 | | | (1.1) | | | | | | | |
Interest Income | 27.0 | | | 35.6 | | | (8.6) | | | | | | | |
Income Before Income Taxes and Income From Equity Method Investments | 452.1 | | | 327.2 | | | 124.9 | | | | | | | |
Income Tax Expense | 116.0 | | | 83.4 | | | 32.6 | | | | | | | |
Income From Equity Method Investments | 0.9 | | | 0.1 | | | 0.8 | | | | | | | |
Net Income2 | 337.0 | | | 243.9 | | | 93.1 | | | | | | | |
Net Income Attributed To Noncontrolling Interests | 18.4 | | | 16.4 | | | 2.0 | | | | | | | |
Net Income - Omnicom Group Inc.2 | $ | 318.6 | | | $ | 227.5 | | | $ | 91.1 | | | | | | | |
Net Income Per Share - Omnicom Group Inc.:2 | | | | | | | | | | | |
Basic | $ | 1.61 | | | $ | 1.13 | | | $ | 0.48 | | | | | | | |
Diluted | $ | 1.59 | | | $ | 1.11 | | | $ | 0.48 | | | | | | | |
| | | | | | | | | | | |
Revenue | $ | 3,630.5 | | | $ | 3,443.3 | | | $ | 187.2 | | | | | | | |
Operating Margin %2 | 13.2 | % | | 10.1 | % | | | | | | | | |
Non-GAAP Measures:1 | | | | | | | | | | | |
EBITA2,3 | $ | 500.4 | | | $ | 361.3 | | | $ | 139.1 | | | | | | | |
EBITA Margin %2,3 | 13.8 | % | | 10.5 | % | | 3.3 | % | | | | | | |
After-tax amortization effect per diluted share3 | $ | 0.08 | | | $ | 0.05 | | | $ | 0.03 | | | | | | | |
| | | | | | | | | | | |
1) Reconciliation of services and solutions have benefited our business in the past and over the medium and long term will continue to provide a competitive advantage to us.Non-GAAP Financial Measures on page 23. In the near term, barring unforeseen events and excluding the impact of changes in foreign exchange rates, as a result of continued improvement in operating performance by many of our agencies and new business activities, we expect our 2017 organic growth in revenue to increase modestly in excess of the weighted average nominal GDP growth in our major markets. We expect to continue to identify acquisition opportunities intended to build upon the core capabilities of our strategic business platforms, expand our operations in the high-growth and emerging markets and enhance our capabilities to leverage new technologies that are being used by marketers today. In addition, we continually evaluate our portfolio of businesses to identify non-strategic or underperforming businesses for disposition.
Given our size and breadth, we manage our business by monitoring several financial indicators. The key indicators that we focus on are revenue and operating expenses. We analyze revenue growth by reviewing the components and mix of the growth, including growth by principal regional market and marketing discipline, the impact from foreign currency exchange rate changes, growth from acquisitions and growth from our largest clients. Operating expenses are comprised of cost of services, selling, general and administrative, or SG&A, expenses and depreciation and amortization.
2) For the quarter ended September 30, 2017, our revenue decreased 1.9% compared to the quarter ended September 30, 2016. Changes in foreign exchange rates increased revenue 1.0%, acquisition revenue, net of disposition revenue, reduced revenue 5.7%, and organic growth increased revenue 2.8%. Across our principal regional markets, the changes in revenue were: North America decreased 6.5%, Europe increased 8.4%, Asia Pacific decreased 1.8% and Latin America increased 4.6%. The decrease in revenue in North America reflects the disposition of our specialty print media business, which was partially offset by modest growth in the U.S. and the strengthening of the Canadian Dollar against the U.S. Dollar. The revenue increase in Europe resulted from growth in the U.K. and substantially all markets in the Euro Zone and the strengthening of the Euro against the U.S. Dollar. The increase in revenue in Latin America was a result of growth in Mexico and our acquisition activity in Colombia, as well as the strengthening of the Brazilian Real against the U.S. Dollar, which partially offset negative growth in that market. In Asia Pacific, strong growth in most countries in the region, especially India, Japan and Singapore, was partially offset by disposition activity and negative growth in China. The change in revenue in the third quarter of 2017 compared to the third quarter of 2016, in our four fundamental disciplines was: advertising decreased 1.4%, CRM decreased 4.5%, public relations decreased 0.5% and specialty communications increased 4.2%.
For the ninethree months ended September 30, 2017, our revenue decreased 0.7% compared to the nine months ended September 30, 2016. Changes in foreign exchange rates reduced revenue 0.5%, acquisition revenue, net of disposition revenue, reduced revenue 3.7%, and organic growth increased revenue 3.5%. Across our principal regional markets, the changes in revenue were: North America decreased 4.2%, Europe increased 3.4%, Asia Pacific increased 1.5% and Latin America increased 20.6%. In North America, moderate growth in the United States and Canada was offset by our disposition activity. In Europe, growth in the U.K. and substantially all markets in the Euro Zone was offset by the weakening of the British Pound and Euro against the U.S. Dollar and negative performance in Turkey and The Netherlands. The increase in revenue in Latin America was a result of our acquisition activity in Colombia, and the strengthening of the Brazilian Real, as well as growth in Mexico. In Asia Pacific, growth in most countries in the region including Australia, India and Japan was offset by disposition activity and negative growth in China. The change in revenue in the nine months of 2017 compared to the nine months of 2016, in our four fundamental disciplines was: advertising increased 0.7%, CRM decreased 4.3%, public relations decreased 0.2% and specialty communications increased 3.9%.
We measure cost of services in two distinct categories: salary and service costs and occupancy and other costs. As a service business, salary and service costs make up the vast majority of ourMarch 31, 2023, operating expenses and substantially all these costs comprise the essential components directly linkedinclude $119.2 million ($91.0 million after tax) related to the delivery of our services. Salary and service costs include employee compensation and benefits, freelance labor and direct servicereal estate repositioning costs, which include third-party supplier costs and client-related travel costs. Occupancy and other costs consist of the indirect costs related to the delivery of our services, including office rent and other occupancy costs, equipment rent, technology costs, general office expenses and other expenses.
SG&A expenses primarily consist of third-party marketing costs, professional fees and compensation and benefits and occupancy and other costs of our corporate and executive offices, which includes group-wide finance and accounting, treasury, legal and governance, human resource oversight and similar costs.
Operating expenses for the third quarter and nine months of 2017 decreased 2.5% and 1.1%, respectively, period-over-period from 2016. Salary and service costs, which tend to fluctuate with changes in revenue, decreased $81.1 million, or 2.8% in the third quarter of 2017 compared to the third quarter of 2016 and decreased $98.1 million or 1.2% in the nine months of 2017 compared to the nine months of 2016. Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, increased $7.5 million, or 2.4%, in the third quarter of 2017 compared to the third quarter of 2016 and decreased $10.1 million or 1.1% in the nine months of 2017 compared to the nine months of 2016.
Operating margins for the third quarter and nine months of 2017 were 12.5% and 13.0%, respectively, compared to 12.0% and 12.6% for the third quarter and nine months of 2016, respectively. Earnings before interest, taxes and amortization of intangible assets, or EBITA, margins for the third quarter and nine months of 2017 were 13.2% and 13.8%, respectively, compared to 12.7% and 13.4% for the third quarter and the nine months of 2016, respectively.
Net interest expense increased $4.4 million to $46.4 million for the third quarter of 2017 and increased $4.2 million to $131.2 million for the nine months of 2017 compared to 2016. Interest expense increased $6.1 million to $59.0 million in the third quarter of 2017 and increased $11.6 million to $169.2 million in the nine months of 2017. Interestdiluted net income for the third quarter and nine months of 2017 increased $1.7 million and $7.4 million, respectively, compared to the prior year periods.
Our effective tax rate for the third quarter and nine months ended September 30, 2017, decreased period-over-period to 31.6% and 31.1% from 32.7% and 32.6%, respectively. The decrease was attributable to the recognition of an additional tax benefit from share-based compensation of $19.5 million, primarily in the first quarter resulting from the adoption of FASB ASU 2016-09per share - Omnicom Group Inc. by $0.45 (see Note 110 to the unaudited consolidated financial statements), which requires that beginning in 2017 additional tax benefits.
3) Beginning with the three months ended March 31, 2024, EBITA is defined as operating income before amortization of acquired intangible assets and deficiencies arising from share-based compensation be recognized in results of operations in the period when the restricted stock awards vest or stock options are exercised. Ininternally developed strategic platform assets. As a result, we reclassified the prior year tax benefits and deficiencies were recordedperiod to be consistent with the revised definition, which reduced EBITA from previously reported amounts. We believe EBITA is useful in additional paid-in capital. Because the income tax benefit is based on our common stock price on the vesting or exercise date, it is not possible to estimate the impact on income tax expense for the remainder of the year.
Net income - Omnicom Group Inc. in the third quarter of 2017 increased $9.8 million, or 3.9%, to $263.6 million from $253.8 million in the third quarter of 2016, and net income - Omnicom Group Inc. in the nine months of 2017 increased $35.7 million, or 4.5%, to $834.0 million from $798.3 million in the nine months of 2016. The period-over-period increase is due to the factors described above. Diluted net income per common share - Omnicom Group Inc. increased 6.6% to $1.13 in the third quarter of 2017, compared to $1.06 in the third quarter of 2016, and diluted net income per common share - Omnicom Group Inc. increased 7.3% to $3.55 in the nine months of 2017, compared to $3.31 in the nine months of 2016, due to the factors described above, as well asevaluating the impact of the reduction in our weighted average common shares outstanding resulting from repurchases of our common stock, net of shares issued for restricted stock awards, stock option exercises and employee stock purchase plan.
RESULTS OF OPERATIONS - Third Quarter 2017 Compared to Third Quarter 2016 (in millions):
|
| | | | | | | |
| 2017 | | 2016 |
Revenue | $ | 3,719.5 |
| | $ | 3,791.1 |
|
Operating Expenses: | | | |
Salary and service costs | 2,770.5 |
| | 2,851.6 |
|
Occupancy and other costs | 316.7 |
| | 309.2 |
|
Cost of services | 3,087.2 |
| | 3,160.8 |
|
Selling, general and administrative expenses | 99.5 |
| | 104.1 |
|
Depreciation and amortization | 68.6 |
| | 73.1 |
|
| 3,255.3 |
| | 3,338.0 |
|
Operating Profit | 464.2 |
| | 453.1 |
|
Operating Margin - % | 12.5 | % | | 12.0 | % |
Interest Expense | 59.0 |
| | 52.9 |
|
Interest Income | 12.6 |
| | 10.9 |
|
Income Before Income Taxes and Income From Equity Method Investments | 417.8 |
| | 411.1 |
|
Income Tax Expense | 132.0 |
| | 134.3 |
|
Income From Equity Method Investments | 1.1 |
| | 1.4 |
|
Net Income | 286.9 |
| | 278.2 |
|
Net Income Attributed To Noncontrolling Interests | 23.3 |
| | 24.4 |
|
Net Income - Omnicom Group Inc. | $ | 263.6 |
| | $ | 253.8 |
|
Non-GAAP Financial Measures
We use EBITA and EBITA Margin as additional operating performance measures that exclude the non-cash amortization expense of intangible assets, which primarily consists of amortization of intangible assets arising from acquisitions. We define EBITA as earnings before interest, taxes and amortization ofacquired intangible assets and EBITA Margin as EBITA divided by revenue. EBITAinternally developed strategic platform assets on operating performance and EBITA Margins are non-GAAP Financial measures. We believe that EBITA and EBITA Margin are useful measuresallows for investors to evaluate the performance of our business.comparability between reporting periods.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies.
The following table reconciles the U.S. GAAP financial measure of Net Income - Omnicom Group Inc. to EBITA and EBITA Margin for the for the periods presented (in millions):
|
| | | | | | | |
| 2017 | | 2016 |
Net Income - Omnicom Group Inc. | $ | 263.6 |
| | $ | 253.8 |
|
Net Income Attributed To Noncontrolling Interests | 23.3 |
| | 24.4 |
|
Net Income | 286.9 |
| | 278.2 |
|
Income From Equity Method Investments | 1.1 |
| | 1.4 |
|
Income Tax Expense | 132.0 |
| | 134.3 |
|
Income Before Income Taxes and Income From Equity Method Investments | 417.8 |
| | 411.1 |
|
Interest Expense | 59.0 |
| | 52.9 |
|
Interest Income | 12.6 |
| | 10.9 |
|
Operating Profit | 464.2 |
| | 453.1 |
|
Add back: Amortization of intangible assets | 27.9 |
| | 29.0 |
|
Earnings before interest, taxes and amortization of intangible assets (“EBITA”) | $ | 492.1 |
| | $ | 482.1 |
|
| | | |
Revenue | $ | 3,719.5 |
| | $ | 3,791.1 |
|
EBITA | $ | 492.1 |
| | $ | 482.1 |
|
EBITA Margin - % | 13.2 | % | | 12.7 | % |
Revenue
In the third quarter of 2017, revenue decreased $71.6 million, or 1.9%, to $3,719.5 million from $3,791.1 million in the third quarter of 2016. Changes in foreign exchange rates increased revenue $38.9 million, acquisition revenue, net of disposition revenue, reduced revenue $216.4 million, and organic growth increased revenue $105.9 million.
The reduction in revenue in the third quarter resulting from our acquisition and disposition activity arose principally from the sale of our specialty print media business. Based on our acquisition and disposition activity completed to date, we expect the net reduction in revenue for acquisitions and dispositions to be approximately 4% for the year.
For the third quarter of 2017, changes in foreign exchange rates increased revenue by 1.0%, or $38.9 million, compared to the third quarter of 2016, primarily resulting from the strengthening of the Euro, Australian Dollar, Canadian Dollar and Russian Ruble against the U.S. Dollar, partially offset by the weakening of the British Pound and Japanese Yen against the U.S. Dollar.
The components of period-over-period revenue change for the third quarter of 2017 in the United States (“Domestic”) and the remainder of the world (“International”) were (in millions):
|
| | | | | | | | | | | | | | | | | | | | |
| Total | | Domestic | | International |
| $ | | % | | $ | | % | | $ | | % |
September 30, 2016 | $ | 3,791.1 |
| | | | $ | 2,110.7 |
| | | | $ | 1,680.4 |
| | |
Components of revenue change: | | | | | | | | | | | |
Foreign exchange rate impact | 38.9 |
| | 1.0 | % | | — |
| | — | % | | 38.9 |
| | 2.3 | % |
Acquisition revenue, net of disposition revenue | (216.4 | ) | | (5.7 | )% | | (168.0 | ) | | (8.0 | )% | | (48.4 | ) | | (2.9 | )% |
Organic growth | 105.9 |
| | 2.8 | % | | 49.7 |
| | 2.4 | % | | 56.2 |
| | 3.4 | % |
September 30, 2017 | $ | 3,719.5 |
| | (1.9 | )% | | $ | 1,992.4 |
| | (5.6 | )% | | $ | 1,727.1 |
| | 2.8 | % |
were: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | Domestic | | International |
| $ | | % | | $ | | % | | $ | | % |
Three months ended March 31, 2023 | $ | 3,443.3 | | | | | $ | 1,812.2 | | | | | $ | 1,631.1 | | | |
Components of revenue change: | | | | | | | | | | | |
Foreign exchange rate impact | (2.7) | | | (0.1) | % | | — | | | — | % | | (2.7) | | | (0.2) | % |
Acquisition revenue, net of disposition revenue | 53.0 | | | 1.5 | % | | 35.1 | | | 1.9 | % | | 17.9 | | | 1.1 | % |
Organic growth | 136.9 | | | 4.0 | % | | 78.6 | | | 4.3 | % | | 58.3 | | | 3.6 | % |
Three months ended March 31, 2024 | $ | 3,630.5 | | | 5.4 | % | | $ | 1,925.9 | | | 6.3 | % | | $ | 1,704.6 | | | 4.5 | % |
The components and percentages are calculated as follows:
•Foreign exchange rate impact is calculated by translating the current period’s local currency revenue using the prior period average exchange rates to derive current period constant currency revenue (in this case $3,680.6$3,633.2 million for the Total column). The foreign exchange impact is the difference between the current period revenue in U.S. Dollars and the current period constant currency revenue ($3,719.53,630.5 million less $3,680.6$3,633.2 million for the Total column).
•Acquisition revenue is calculated as if the acquisition occurred twelve months prior to the acquisition date by aggregating the comparable prior period revenue of acquisitions through the acquisition date. As a result, acquisition revenue excludes the positive or negative difference between our current period revenue subsequent to the acquisition date and the comparable prior period revenue and the positive or negative growth after the acquisition is attributed to organic growth. Disposition revenue is calculated as if the disposition occurred twelve months prior to the disposition date by aggregating the comparable prior period revenue of dispositions through the disposition date. The acquisition revenue and disposition revenue amounts are netted in the table.
•Organic growth is calculated by subtracting the foreign exchange rate impact, and the acquisition revenue, net of disposition revenue components from total revenue growth.
•The percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component ($3,791.13,443.3 million for the Total column).
OurChanges in the value of foreign currencies against the U.S. Dollar affect our results of operations are subject to risk from the translation to U.S. Dollars of the revenue and expenses of our foreign operations, which are generally denominated in their local currency. However, forfinancial position. For the most part, because the revenue and expensesexpense of our foreign operations are both denominated in the same local currency, the economic impact on operating margin is minimized. Assuming exchange rates at October 16, 2017April 12, 2024 remain unchanged, we expect the impact of changes in foreign exchange rates will reduce revenue in the second quarter by 1.0% and be flat for the year. Based on our acquisition and disposition activity to date, we expect that the net impact will increase revenue approximately 2%by 2.5% for the fourthsecond quarter resulting in a slight increaseand 2.0% for the full year.
Revenue for the third quarter of 2017 and the percentage change in revenue and organic growth from the third quarter of 2016 in our principal regional markets were (in millions):by Discipline
|
| | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | $ Change | | % Change | | % Organic Growth |
Americas: | | | | | | | | | |
North America | $ | 2,107.5 |
| | $ | 2,253.9 |
| | $ | (146.4 | ) | | (6.5 | )% | | 2.1 | % |
Latin America | 117.7 |
| | 112.5 |
| | 5.2 |
| | 4.6 | % | | (5.4 | )% |
EMEA: | | | | | | | | | |
Europe | 1,017.7 |
| | 938.6 |
| | 79.1 |
| | 8.4 | % | | 6.3 | % |
Middle East and Africa | 65.4 |
| | 67.2 |
| | (1.8 | ) | | (2.7 | )% | | (1.6 | )% |
Asia Pacific | 411.2 |
| | 418.9 |
| | (7.7 | ) | | (1.8 | )% | | 1.4 | % |
| $ | 3,719.5 |
| | $ | 3,791.1 |
| | $ | (71.6 | ) | | (1.9 | )% | | 2.8 | % |
Our primary markets in Europe comprise the U.K. and the Euro Zone. In the third quarter of 2017, the U.K. comprised 9.6% of revenue and the Euro Zone and the other European countries together comprised 17.7% of revenue. In the third quarter of 2017, revenue, including the impact of foreign exchange rates, increased 2.8% in the U.K. and increased 11.7% in the Euro Zone and the other European countries.
The decrease in revenue in North America reflects the disposition of our specialty print media business, which was partially offset by modest growth in the U.S. and the strengthening of the Canadian Dollar against the U.S. Dollar. The revenue increase in Europe resulted from growth in the U.K. and substantially all markets in the Euro Zone and the strengthening of the Euro against the U.S. Dollar. The increase in revenue in Latin America was a result of growth in Mexico and our acquisition activity in Colombia, as well as the strengthening of the Brazilian Real against the U.S. Dollar, which partially offset negative growth in that market. In Asia Pacific, strong growth in most countries in the region, especially India, Japan and Singapore, was partially offset by disposition activity and negative growth in China.
In the normal course of business, our agencies both gain and lose business from clients each year due to a variety of factors. The net change through the third quarter of 2017 was an overall gain in new business. Under our client-centric approach, we seek to broaden our relationships with all of our clients. Our largest client represented 3.6% and 2.9% of our revenue for the third quarter of 2017 and 2016, respectively. Our ten largest and 100 largest clients represented 20.4% and 51.1% of our revenue for the third quarter of 2017, respectively, and 19.0% and 52.9% of our revenue for the third quarter of 2016, respectively.
Driven by our clients’ continuous demand for more effective and efficient marketing activities, we strive to provide an extensive range of advertising, marketing and corporate communications services through various client-centric networks that are organized to meet specific client objectives. These services include advertising, brand consultancy, content marketing, corporate social responsibility consulting, crisis communications, custom publishing, data analytics, database management,
direct marketing, entertainment marketing, environmental design, experiential marketing, field marketing, financial/corporate business-to-business advertising, graphic arts/digital imaging, healthcare communications, instore design, interactive marketing, investor relations, marketing research, media planning and buying, mobile marketing, multi-cultural marketing, non-profit marketing, organizational communications, outsource sales support, package design, product placement, promotional marketing, public affairs, public relations, reputation consulting, retail marketing, search engine marketing, social media marketing and sports and event marketing.
In an effort toTo monitor the changing needs of our clients and to further expand the scope of our services to key clients, we monitor revenue across a broad range of disciplines and group them into the following four categories: advertising, CRM, public relationsAdvertising & Media, Precision Marketing, Branding & Retail Commerce, Experiential, Execution & Support, Public Relations, and specialty communications. Revenue for the third quarter of 2017 and 2016 and theHealthcare.
The period-over-period change in revenue and organic growth from the third quarter of 2016 by discipline were (in millions):was: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 | | 2024 vs. 2023 |
| $ | | % of Revenue | | $ | | % of Revenue | | $ Change | | % Organic Growth |
Advertising & Media | $ | 1,906.8 | | | 52.5 | % | | $ | 1,776.5 | | | 51.6 | % | | $ | 130.3 | | | 7.0 | % |
Precision Marketing | 438.2 | | | 12.1 | % | | 360.0 | | | 10.5 | % | | 78.2 | | | 4.3 | % |
Public Relations | 390.3 | | | 10.8 | % | | 375.5 | | | 10.9 | % | | 14.8 | | | (1.1) | % |
Healthcare | 323.6 | | | 8.9 | % | | 318.4 | | | 9.2 | % | | 5.2 | | | 2.1 | % |
Branding & Retail Commerce | 200.2 | | | 5.5 | % | | 209.6 | | | 6.1 | % | | (9.4) | | | (3.8) | % |
Experiential | 159.9 | | | 4.4 | % | | 147.8 | | | 4.3 | % | | 12.1 | | | 9.5 | % |
Execution & Support | 211.5 | | | 5.8 | % | | 255.5 | | | 7.4 | % | | (44.0) | | | (4.3) | % |
Revenue | $ | 3,630.5 | | | | | $ | 3,443.3 | | | | | $ | 187.2 | | | 4.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | 2017 vs. 2016 |
| $ | | % of Revenue | | $ | | % of Revenue | | $ Change | | % Change | | % Organic Growth |
Advertising | $ | 1,946.1 |
| | 52.3 | % | | $ | 1,972.8 |
| | 52.0 | % | | $ | (26.7 | ) | | (1.4 | )% | | 4.7 | % |
CRM | 1,149.4 |
| | 30.9 | % | | 1,203.8 |
| | 31.8 | % | | (54.4 | ) | | (4.5 | )% | | 0.1 | % |
Public relations | 345.9 |
| | 9.3 | % | | 347.6 |
| | 9.2 | % | | (1.7 | ) | | (0.5 | )% | | (0.4 | )% |
Specialty communications | 278.1 |
| | 7.5 | % | | 266.9 |
| | 7.0 | % | | 11.2 |
| | 4.2 | % | | 5.1 | % |
| $ | 3,719.5 |
| | | | $ | 3,791.1 |
| | | | $ | (71.6 | ) | | (1.9 | )% | | 2.8 | % |
The period-over-period change in worldwide revenue for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, in our fundamental disciplines was: Advertising & Media increased $130.3 million, Precision Marketing increased $78.2 million, Public Relations increased $14.8 million, Healthcare increased $5.2 million, Branding & Retail Commerce decreased $9.4 million, Experiential increased $12.1 million, and Execution & Support decreased $44.0 million. Worldwide organic revenue growth increased revenue $136.9 million, or 4.0%, primarily reflecting increased client spending in Advertising & Media, led by our Media, Precision Marketing, Experiential, and Healthcare disciplines compared to the prior year period. Changes in foreign exchange rates period-over-period reduced revenue $2.7 million, or 0.1%. The decrease in revenue from foreign exchange translation was primarily related to the weakening of several currencies against the U.S. Dollar, substantially offset by the strengthening of the British Pound and Euro against the U.S. Dollar. Acquisition revenue, net of disposition revenue, increased revenue $53.0 million, or 1.5%, primarily related to the purchase of Flywheel Digital in January 2024, which is included in our Precision Marketing discipline, and acquisition activity in the second half of 2023.
We provide servicesIn the normal course of business, our agencies both gain and lose business from clients each year due to a variety of factors. Under our client-centric approach, we seek to broaden our relationships with all of our clients. Our largest client represented 3.0% and 2.7% of revenue for the twelve months ended March 31, 2024 and 2023, respectively. Our ten largest and 100 largest clients that operate in various industry sectors. represented 20.0% and 53.8% of revenue for the twelve months ended March 31, 2024, respectively, and 19.3% and 52.7% of revenue for the twelve months ended March 31, 2023, respectively.
Revenue by sectorGeography
The period-over-period change in revenue and organic growth in our geographic markets was:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 | | 2024 vs. 2023 |
| $ | | % of Revenue | | $ | | % of Revenue | | $ Change | | % Organic Growth |
Americas: | | | | | | | | | | | |
North America | $ | 2,040.9 | | | 56.2 | % | | $ | 1,926.8 | | | 55.9 | % | | $ | 114.1 | | | 4.1 | % |
Latin America | 96.5 | | | 2.7 | % | | 74.0 | | | 2.1 | % | | 22.5 | | | 22.3 | % |
EMEA: | | | | | | | | | | | |
Europe | 1,005.8 | | | 27.7 | % | | 951.9 | | | 27.7 | % | | 53.9 | | | 3.4 | % |
Middle East and Africa | 79.6 | | | 2.2 | % | | 84.9 | | | 2.5 | % | | (5.3) | | | (4.2) | % |
Asia-Pacific | 407.7 | | | 11.2 | % | | 405.7 | | | 11.8 | % | | 2.0 | | | 3.0 | % |
Revenue | $ | 3,630.5 | | | | | $ | 3,443.3 | | | | | $ | 187.2 | | | 4.0 | % |
The period-over-period change in worldwide revenue across our geographic markets for the third quarterthree months ended March 31, 2024 was: North America increased $114.1 million, or 5.9%, Latin America increased $22.5 million, or 30.4%, Europe increased $53.9 million, or 5.7%, the Middle East and Africa decreased $5.3 million, or 6.2%, and Asia-Pacific increased $2.0 million, or 0.5%. Organic revenue for the three months ended March 31, 2024 increased across most countries within our major markets.
North America
In North America, organic revenue growth for the three months ended March 31, 2024 was primarily driven by strong performance in the United States, especially in the Advertising & Media discipline, led by our media business, and our Precision Marketing, Healthcare and Experiential disciplines, partially offset by negative performance in our Execution & Support discipline, which faced difficult comparisons to the prior year period, and our Branding & Retail Commerce discipline. Acquisitions net of 2017dispositions positively impacted revenue and 2016were primarily related to the purchase of Flywheel Digital in January 2024 and acquisitions in the prior year in our Public Relations discipline, partially offset by dispositions in the Execution & Support discipline in the prior year.
Latin America
In Latin America, organic revenue for the three months ended March 31, 2024 increased in substantially all our disciplines, led by Advertising & Media, and in all countries in the region, compared to the prior year period. The strengthening of most currencies, especially the Colombian Peso, Brazilian Real and Mexican Peso against the U.S. Dollar, partially offset by the weakening of the Chilean Peso and Argentine Peso, increased revenue in the three months ended March 31, 2024 compared to the same period in 2023. Acquisitions positively impacted revenue and were primarily related to acquisition activity in our Advertising & Media discipline during the prior year.
EMEA
In Europe, compared to the prior year period, organic revenue for the three months ended March 31, 2024 increased in most countries and disciplines driven by strong performance in our Advertising & Media discipline, led by our media business, and in our Healthcare and Execution & Support disciplines, and was partially offset by negative performance in our Public Relations, and
Experiential disciplines, which faced difficult comparisons to the prior year period. Foreign currency changes increased revenue for the three months ended March 31, 2024, primarily as a result of the strengthening of the British Pound and Euro against the U.S. Dollar period-over-period. Acquisitions, net of dispositions positively impacted revenue and were primarily related to the purchase of Flywheel Digital in January 2024 and acquisition activity in our Advertising & Media discipline, partially offset by the impact of dispositions in our Execution & Support discipline in the second half of the prior year.
In the U.K., organic revenue growth for the three months ended March 31, 2024 of 3.2% was led by our Advertising & Media and Healthcare disciplines, partially offset by weakness in our Precision Marketing discipline. In Continental Europe, which includes the Euro Zone and the other European countries, organic growth for the three months ended March 31, 2024 of 3.5% was led by Italy, Germany, and Spain and in most disciplines, except for Experiential, which faced difficult comparisons to the prior year period.
In the Middle East and Africa for the three months ended March 31, 2024, organic revenue decreased period-over-period, primarily as a result of decreases in our Advertising & Media discipline, which faced a difficult comparison in the region.
Asia-Pacific
In Asia-Pacific, organic revenue increased period-over-period for the three months ended March 31, 2024 led by our Advertising & Media discipline. Most major markets in the region, especially China, India, and Japan, had positive organic growth period-over-period. The organic growth in the region was partially offset by an underperformance in Australia and Singapore and the weakening of certain foreign currencies against the U.S. Dollar, especially the Japanese Yen, Australian Dollar, and Chinese Renminbi. Acquisition activity, including the purchase of Flywheel Digital in January 2024, increased revenue in the period compared to the prior year period.
Revenue by Industry
Revenue by type of client industry sector was:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Pharmaceuticals and Healthcare | 16 | % | | 16 | % | | | | |
Food and Beverage | 16 | % | | 16 | % | | | | |
Auto | 11 | % | | 11 | % | | | | |
Consumer Products | 9 | % | | 8 | % | | | | |
Technology | 7 | % | | 8 | % | | | | |
Financial Services | 7 | % | | 8 | % | | | | |
Travel and Entertainment | 7 | % | | 7 | % | | | | |
Retail | 6 | % | | 6 | % | | | | |
Telecommunications | 4 | % | | 4 | % | | | | |
Government | 4 | % | | 4 | % | | | | |
Services | 3 | % | | 3 | % | | | | |
Oil, Gas and Utilities | 2 | % | | 2 | % | | | | |
Not-for-Profit | 1 | % | | 1 | % | | | | |
Education | 1 | % | | 1 | % | | | | |
Other | 6 | % | | 5 | % | | | | |
Total | 100 | % | | 100 | % | | | | |
|
| | | | | |
| 2017 | | 2016 |
Food and Beverage | 14 | % | | 13 | % |
Consumer Products | 10 | % | | 10 | % |
Pharmaceuticals and Health Care | 12 | % | | 13 | % |
Financial Services | 7 | % | | 7 | % |
Technology | 9 | % | | 9 | % |
Auto | 10 | % | | 8 | % |
Travel and Entertainment | 6 | % | | 7 | % |
Telecommunications | 5 | % | | 5 | % |
Retail | 6 | % | | 6 | % |
Other | 21 | % | | 22 | % |
Operating Expenses
The period-over-period change in operating expenses was:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 | | 2024 vs. 2023 |
| $ | | % of Revenue | | $ | | % of Revenue | | $ Change | | % Change |
Revenue | $ | 3,630.5 | | | | | $ | 3,443.3 | | | | | $ | 187.2 | | | 5.4 | % |
Operating Expenses: | | | | | | | | | | | |
Salary and service costs: | | | | | | | | | | | |
Salary and related costs | 1,847.3 | | | 50.9 | % | | 1,778.0 | | | 51.6 | % | | 69.3 | | | 3.9 | % |
Third-party service costs | 698.2 | | | 19.2 | % | | 639.3 | | | 18.6 | % | | 58.9 | | | 9.2 | % |
Third-party incidental costs | 147.1 | | | 4.1 | % | | 125.6 | | | 3.6 | % | | 21.5 | | | 17.1 | % |
Total salary and service costs | 2,692.6 | | | 74.2 | % | | 2,542.9 | | | 73.9 | % | | 149.7 | | | 5.9 | % |
Occupancy and other costs | 314.1 | | | 8.7 | % | | 291.6 | | | 8.5 | % | | 22.5 | | | 7.7 | % |
| | | | | | | | | | | |
Real estate repositioning costs | — | | | — | % | | 119.2 | | | 3.5 | % | | (119.2) | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Cost of services | 3,006.7 | | | | | 2,953.7 | | | | | 53.0 | | | 1.8 | % |
Selling, general and administrative expenses | 85.3 | | | 2.3 | % | | 89.2 | | | 2.6 | % | | (3.9) | | | (4.4) | % |
Depreciation and amortization | 59.6 | | | 1.6 | % | | 53.9 | | | 1.6 | % | | 5.7 | | | 10.6 | % |
Total operating expenses | 3,151.6 | | | 86.8 | % | | 3,096.8 | | | 89.9 | % | | 54.8 | | | 1.8 | % |
Operating Income | $ | 478.9 | | | 13.2 | % | | $ | 346.5 | | | 10.1 | % | | $ | 132.4 | | | 38.2 | % |
| | | | | | | | | | | |
We measure cost of services in two distinct categories: salary and service costs and occupancy and other costs. As a service business, salary and service costs make up the significant portion of our operating expenses and substantially all these costs comprise the essential components directly linked to the delivery of our services. Salary and service costs include employee compensation and benefits, freelance labor, third-party service costs, and third-party incidental costs. Third-party service costs include vendor costs when we act as principal in providing services to our clients. Third-party incidental costs that are required to be included in revenue primarily consist of client-related travel and incidental out-of-pocket costs, which are billed back to the client directly at our cost. Occupancy and other costs consist of the indirect costs related to the delivery of our services, including office rent and other occupancy costs, equipment rent, technology costs, general office expenses and other expenses. Adverse and beneficial fluctuations in foreign currencies from period to period impact our results of operations and financial position when we translate our financial statements from local foreign currencies to the U.S. Dollar. However, substantially all of our foreign operations transact business in their local currency, mitigating the impact of changes in foreign currency exchange rates on our operating margin percentage. As a result, the changes in our operating expenses period-over-period from foreign currency translation were in line with the percentage impact from changes in foreign currencies on revenue for the three-month period ended March 31, 2024.
Operating expenses for the third quarter of 2017three months ended March 31, 2024 compared to the third quarterprior year period increased 1.8% to $3,151.6 million from $3,096.8 million. Included in operating expense for the three months ended March 31, 2023 is the impact of 2016 were (in millions):the real estate repositioning costs of $119.2 million (see Note 10 to the unaudited consolidated financial statements).
|
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | 2017 vs. 2016 |
| $ | | % of Revenue | | $ | | % of Revenue | | $ Change | | % Change |
Revenue | $ | 3,719.5 |
| | | | $ | 3,791.1 |
| | | | $ | (71.6 | ) | | (1.9 | )% |
Operating Expenses: | | | | | | | | | | | |
Salary and service costs | 2,770.5 |
| | 74.5 | % | | 2,851.6 |
| | 75.2 | % | | (81.1 | ) | | (2.8 | )% |
Occupancy and other costs | 316.7 |
| | 8.5 | % | | 309.2 |
| | 8.2 | % | | 7.5 |
| | 2.4 | % |
Cost of services | 3,087.2 |
| | | | 3,160.8 |
| | | | (73.6 | ) | | (2.3 | )% |
Selling, general and administrative expenses | 99.5 |
| | 2.7 | % | | 104.1 |
| | 2.7 | % | | (4.6 | ) | | (4.4 | )% |
Depreciation and amortization | 68.6 |
| | 1.8 | % | | 73.1 |
| | 1.9 | % | | (4.5 | ) | | (6.2 | )% |
| 3,255.3 |
| | 87.5 | % | | 3,338.0 |
| | 88.0 | % | | (82.7 | ) | | (2.5 | )% |
Operating Profit | $ | 464.2 |
| | 12.5 | % | | $ | 453.1 |
| | 12.0 | % | | $ | 11.1 |
| | 2.4 | % |
Operating expenses decreased 2.5% in third quarter of 2017 compared to the third quarter of 2016. Expenses - Salary and Service Costs
Salary and service costs, which tend to fluctuate with changes in revenue, decreased $81.1 million, or 2.8%, inare comprised of salary and related costs, third-party service costs, and third-party incidental costs. Salary and service costs for the third quarter of 2017three months ended March 31, 2024 compared to the third quarterprior year period increased $149.7 million, or 5.9%, to $2,692.6 million. Salary and related costs for the three months ended March 31, 2024 increased $69.3 million, or 3.9%, to $1,847.3 million. Headcount increased for the three months ended March 31, 2024, primarily as a result of 2016. our acquisition of Flywheel Digital. Third-party service costs for the three months ended March 31, 2024 increased $58.9 million, or 9.2%, to $698.2 million, primarily as a result of organic growth. Third-party incidental costs for the three months ended March 31, 2024, increased $21.5 million, or 17.1%, to $147.1 million.
Operating Expenses - Occupancy and Other Costs
Occupancy and other costs for the three months ended March 31, 2024, which are less directly linked to changes in revenue than salary and service costs, increased $7.5by $22.5 million or 2.4%,7.7% to $314.1 million, primarily resulting from our acquisition activity. Increased occupancy costs were partially offset by lower rent expense in the third quarterperiod.
Operating Expenses - Selling, General & Administrative Expenses
SG&A expenses primarily consist of 2017third-party marketing costs, professional fees, and compensation and benefits and occupancy and other costs of our corporate and executive offices, including group-wide finance and accounting, treasury, legal and governance, human resource oversight and similar costs. SG&A expenses for the three months ended March 31, 2024 compared to the third quarter of 2016. same period in 2023 decreased by $3.9 million.
Operating Income
Operating income for the three months ended March 31, 2024 compared to the same period in 2023, increased $132.4 million to $478.9 million, and operating margin increased to 12.5% in the third quarter of 201713.2% from 12.0% in the third quarter of 2016.10.1%. EBITA increased $139.1 million to $500.4 million, and EBITA margin increased to 13.2% in13.8% from 10.5%. In the third quarterthree months ended March 31, 2023, the effect of 2017 from 12.7% in the third quarter of 2016. The increase in margins reflects our continuing effort to manage occupancyreal estate repositioning costs reduced operating income and other costs related to back-officeEBITA by $119.2 million, and procurement functionsdecreased operating margin by 3.4% and improve the operational efficiency of our businesses, as well as a positive impact resulting from the mix of business activity in the quarter and our disposition activity.EBITA Margin by 3.5%.
Net Interest Expense
Net interest expense for the three months ended March 31, 2024 increased $4.4$7.5 million period-over-period to $46.4$26.8 million. Interest expense on debt for the quarter increased $0.4 million period-over-period to $50.6 million, primarily related to the issuance of €600 million 3.70% Senior Notes due 2032. Interest income in the thirdfirst quarter of 2017 from $42.02024 decreased $8.6 million in the third quarter of 2016. In the third quarter of 2017, interest expense increased $6.1period-over-period to $27.0 million, to $59.0 million, primarilyprincipally due to higher interest rates in the period, which reduced the benefit from the fixed-to-floating interest rate swaps and increased interest expense on commercial paper. At September 30, 2017, our debt portfolio was approximately 75% fixed rate obligations and 25% floating rate obligations, after taking into consideration our interest rate swaps, and was unchanged from December 31, 2016. Note 5 to the unaudited consolidated financial statements includes a discussion of our interest rate swaps. Interest income increased $1.7 million in the third quarter of 2017 compared to the prior year period resulting from higher interest earned on thelower cash held by our international treasury centers.balances.
Income Taxes
Our effective tax rate for the third quarter of 2017, decreasedthree months ended March 31, 2024 increased period-over-period to 31.6%25.7% from 32.7%25.5%. The decrease was primarily attributableeffective tax rate for three months ended March 31, 2024 includes the favorable impact from the resolution of certain non-U.S. tax positions of $7.5 million. The effective tax rate for the three months ended March 31, 2023 includes the favorable impact of approximately $10.0 million of previously unrecognized tax benefits, partially offset by approximately $6.0 million related to the recognition of an additionala lower tax benefit from share-based compensation of $4.8 million resulting fromin certain jurisdictions for the adoption of FASB ASU 2016-09 (see Note 1 to the unaudited consolidated financial statements), which requires that beginning in 2017 additional tax benefits and deficiencies arising from share-based compensation be recognized in results of operationsreal estate repositioning costs in the period whenquarter, and an increase in the restricted stock awards vest or stock options are exercised. In the prior year,U.K. statutory tax benefits and deficiencies were recorded in additional paid-in capital.rate.
Net Income and Net Income Per Common Share - Omnicom Group, Inc.
Net income - Omnicom Group Inc. in the third quarter of 2017three months ended March 31, 2024 increased $9.8$91.1 million or 3.9%, to $263.6$318.6 million from $253.8 million in the third quarter of 2016.$227.5 million. The period-over-period increase is due to the factors described above. Diluted net income per common share - Omnicom Group Inc. increased 6.6% to $1.13$1.59 in the third quarter of 2017, compared to $1.06three months ended March 31, 2024, from $1.11 in the third quarter of 2016,three months ended March 31, 2023, due to the factors described above as well asand the impact of the reduction in our weighted average common shares outstanding resulting from the repurchases of our common stock,stock. For the three months ended March 31, 2023, the impact of the real estate repositioning costs reduced net income - Omnicom Group Inc. by $91.0 million and diluted net income per share - Omnicom Group Inc. by $0.45.
In the three months ended March 31, 2024, the effects of shares issuedafter-tax amortization of acquired intangible assets and internally developed strategic platform assets decreased diluted net income per share by $0.08 and $0.05 for restricted stock awards, stock option exercisesthe three months ended March 31, 2024 and the employee stock purchase plan.
2023, respectively.
NON-GAAP FINANCIAL MEASURES
RESULTS OF OPERATIONS - Nine Months of 2017 Compared to Nine Months of 2016 (in millions):
|
| | | | | | | |
| 2017 | | 2016 |
Revenue | $ | 11,097.1 |
| | $ | 11,175.1 |
|
Operating Expenses: | | | |
Salary and service costs | 8,200.8 |
| | 8,298.9 |
|
Occupancy and other costs | 915.7 |
| | 925.8 |
|
Cost of services | 9,116.5 |
| | 9,224.7 |
|
Selling, general and administrative expenses | 328.6 |
| | 323.1 |
|
Depreciation and amortization | 212.4 |
| | 220.3 |
|
| 9,657.5 |
| | 9,768.1 |
|
Operating Profit | 1,439.6 |
| | 1,407.0 |
|
Operating Margin - % | 13.0 | % | | 12.6 | % |
Interest Expense | 169.2 |
| | 157.6 |
|
Interest Income | 38.0 |
| | 30.6 |
|
Income Before Income Taxes and Income From Equity Method Investments | 1,308.4 |
| | 1,280.0 |
|
Income Tax Expense | 406.7 |
| | 417.7 |
|
Income From Equity Method Investments | 2.7 |
| | 4.0 |
|
Net Income | 904.4 |
| | 866.3 |
|
Net Income Attributed To Noncontrolling Interests | 70.4 |
| | 68.0 |
|
Net Income - Omnicom Group Inc. | $ | 834.0 |
| | $ | 798.3 |
|
Non-GAAP Financial Measures
We use certain non-GAAP financial measures in describing our performance. We use EBITA and EBITA Margin as additional operating performance measures, that excludewhich excludes from operating income the non-cash amortization expense of intangible assets, which primarily consists of amortization of intangible assets arising from acquisitions. We define EBITA as earnings before interest, taxes and amortization ofacquired intangible assets and EBITA Margin as EBITA divided by revenue. EBITA and EBITA Margins are non-GAAP Financial measures.internally developed strategic platform assets. We believe that EBITA and EBITA Margin are useful measures for investors to evaluate the performance of our business.
business and allows for comparability between the periods presented. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies.
Reconciliation of Non-GAAP Financial Measures
The following table reconciles the U.S. GAAP financial measure of Net Income -Income- Omnicom Group Inc. to EBITDA, EBITA and EBITA Margin for the for the periods presented (in millions):Margin:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Net Income - Omnicom Group Inc. | $ | 318.6 | | | $ | 227.5 | | | | | |
Net Income Attributed To Noncontrolling Interests | 18.4 | | | 16.4 | | | | | |
Net Income | 337.0 | | | 243.9 | | | | | |
Income From Equity Method Investments | 0.9 | | | 0.1 | | | | | |
Income Tax Expense | 116.0 | | | 83.4 | | | | | |
Income Before Income Taxes and Income From Equity Method Investments | 452.1 | | | 327.2 | | | | | |
Interest Expense | 53.8 | | | 54.9 | | | | | |
Interest Income | 27.0 | | | 35.6 | | | | | |
Operating Income | 478.9 | | | 346.5 | | | | | |
Add back: Amortization of acquired intangible assets and internally developed strategic platform assets | 21.5 | | | 14.8 | | | | | |
Earnings before interest, taxes and amortization of intangible assets (“EBITA”) | $ | 500.4 | | | $ | 361.3 | | | | | |
| | | | | | | |
Amortization of other purchased and internally developed software | 4.3 | | | 4.5 | | | | | |
Depreciation | 33.8 | | | 34.6 | | | | | |
EBITDA | $ | 538.5 | | | $ | 400.4 | | | | | |
| | | | | | | |
Revenue | $ | 3,630.5 | | | $ | 3,443.3 | | | | | |
| | | | | | | |
EBITA | $ | 500.4 | | | $ | 361.3 | | | | | |
EBITA Margin % | 13.8 | % | | 10.5 | % | | | | |
|
| | | | | | | |
| 2017 | | 2016 |
Net Income - Omnicom Group Inc. | $ | 834.0 |
| | $ | 798.3 |
|
Net Income Attributed To Noncontrolling Interests | 70.4 |
| | 68.0 |
|
Net Income | 904.4 |
| | 866.3 |
|
Income From Equity Method Investments | 2.7 |
| | 4.0 |
|
Income Tax Expense | 406.7 |
| | 417.7 |
|
Income Before Income Taxes and Income From Equity Method Investments | 1,308.4 |
| | 1,280.0 |
|
Interest Expense | 169.2 |
| | 157.6 |
|
Interest Income | 38.0 |
| | 30.6 |
|
Operating Profit | 1,439.6 |
| | 1,407.0 |
|
Add back: Amortization of intangible assets | 86.8 |
| | 85.7 |
|
Earnings before interest, taxes and amortization of intangible assets (“EBITA”) | $ | 1,526.4 |
| | $ | 1,492.7 |
|
| | | |
Revenue | $ | 11,097.1 |
| | $ | 11,175.1 |
|
EBITA | $ | 1,526.4 |
| | $ | 1,492.7 |
|
EBITA Margin - % | 13.8 | % | | 13.4 | % |
Revenue
In the nine months of 2017, revenue decreased $78.0 million, or 0.7%, to $11,097.1 million from $11,175.1 million in the nine months of 2016. Changes in foreign exchange rates reduced revenue $59.2 million, acquisition revenue, net of disposition revenue, reduced revenue $412.8 million, and organic growth increased revenue $394.0 million.
The reduction in revenue in the nine months of 2017 resulting from our acquisition and disposition activity arose principally from the sale of our specialty print media business. Based on our acquisition and disposition activity completed to date, we expect the net reduction in revenue for acquisitions and dispositions to be approximately 4% for the full year.
For the nine months of 2017, changes in foreign exchange rates continued to negatively impact revenue. The impact of changes in foreign exchange rates reduced revenue by 0.5%, or $59.2 million, compared to the nine months of 2016, primarily resulting from the weakening of the British Pound and the Euro against the U.S. Dollar, partially offset by the strengthening of the Brazilian Real, Australian Dollar and Russian Ruble against the U.S. Dollar.
The components of revenue change for the nine months of 2017 in the United States (“Domestic”) and the remainder of the world (“International”) were (in millions):
|
| | | | | | | | | | | | | | | | | | | | |
| Total | | Domestic | | International |
| $ | | % | | $ | | % | | $ | | % |
September 30, 2016 | $ | 11,175.1 |
| | | | $ | 6,308.7 |
| | | | $ | 4,866.4 |
| | |
Components of revenue change: | | | | | | | | | | | |
Foreign exchange rate impact | (59.2 | ) | | (0.5 | )% | | — |
| | — | % | | (59.2 | ) | | (1.2 | )% |
Acquisition revenue, net of disposition revenue | (412.8 | ) | | (3.7 | )% | | (312.8 | ) | | (5.0 | )% | | (100.0 | ) | | (2.1 | )% |
Organic growth | 394.0 |
| | 3.5 | % | | 69.2 |
| | 1.1 | % | | 324.8 |
| | 6.7 | % |
September 30, 2017 | $ | 11,097.1 |
| | (0.7 | )% | | $ | 6,065.1 |
| | (3.9 | )% | | $ | 5,032.0 |
| | 3.4 | % |
The components and percentages are calculated as follows:
Foreign exchange rate impact is calculated by translating the current period’s local currency revenue using the prior period average exchange rates to derive current period constant currency revenue (in this case $11,156.3 million for the Total column). The foreign exchange impact is the difference between the current period revenue in U.S. Dollars and the current period constant currency revenue ($11,097.1 million less $11,156.3 million for the Total column).
Acquisition revenue is calculated as if the acquisition occurred twelve months prior to the acquisition date by aggregating the comparable prior period revenue of acquisitions through the acquisition date. As a result, acquisition revenue excludes the positive or negative difference between our current period revenue subsequent to the acquisition date and the comparable prior period revenue and the positive or negative growth after the acquisition is attributed to organic growth. Disposition revenue is calculated as if the disposition occurred twelve months prior to the disposition date by aggregating the comparable prior period revenue of dispositions through the disposition date. The acquisition revenue and disposition revenue amounts are netted in the table.
Organic growth is calculated by subtracting the foreign exchange rate impact, and the acquisition revenue, net of disposition revenue components from total revenue growth.
The percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component ($11,175.1 million for the Total column).
Revenue for the nine months of 2017 and the percentage change in revenue and organic growth from the nine months of 2016 in our principal regional markets were (in millions): |
| | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | $ Change | | % Change | | % Organic Growth |
Americas: | | | | | | | | | |
North America | $ | 6,422.5 |
| | $ | 6,706.9 |
| | $ | (284.4 | ) | | (4.2 | )% | | 1.1 | % |
Latin America | 345.5 |
| | 286.6 |
| | 58.9 |
| | 20.6 | % | | 1.0 | % |
EMEA: | | | | | | | | | |
Europe | 2,917.8 |
| | 2,822.0 |
| | 95.8 |
| | 3.4 | % | | 7.6 | % |
Middle East and Africa | 219.8 |
| | 186.1 |
| | 33.7 |
| | 18.1 | % | | 17.8 | % |
Asia Pacific | 1,191.5 |
| | 1,173.5 |
| | 18.0 |
| | 1.5 | % | | 5.7 | % |
| $ | 11,097.1 |
| | $ | 11,175.1 |
| | $ | (78.0 | ) | | (0.7 | )% | | 3.5 | % |
Our primary markets in Europe comprise the U.K. and the Euro Zone. In the nine months of 2017, the U.K. comprised 9.2% of revenue and the Euro Zone and the other European countries together comprised 17.1% of revenue. In the nine months of 2017, revenue, including the impact of foreign exchange rates, decreased 3.0% in the U.K. and increased 7.2% in the Euro Zone and the other European countries.
In North America, moderate growth in the United States and Canada was offset by our disposition activity. In Europe, growth in the U.K. and substantially all markets in the Euro Zone was offset by the weakening of the British Pound and Euro against the U.S. Dollar and negative performance in Turkey and The Netherlands. The increase in revenue in Latin America was a result of our acquisition activity in Colombia, and the strengthening of the Brazilian Real, as well as growth in Mexico. In Asia Pacific, growth in the major economies, including Australia, India and Japan was offset by disposition activity and negative growth in China.
In the normal course of business, our agencies both gain and lose business from clients each year due to a variety of factors. The net change through the nine months of 2017 was an overall gain in new business. Under our client-centric approach, we seek to broaden our relationships with all of our clients. Our largest client represented 3.2% and 2.8% of our revenue for the nine months of 2017 and 2016, respectively. Our ten largest and 100 largest clients represented 19.7% and 51.4% of our revenue for the nine months of 2017, respectively, and 18.1% and 52.7% of our revenue for the nine months of 2016, respectively.
For the full year, barring unforeseen events and excluding the impact of changes in foreign exchange rates, as a result of continued strong operating performance by many of our agencies and new business activities, we expect our organic revenue growth to increase modestly in excess of the weighted average nominal GDP growth in our major markets.
Revenue for the nine months of 2017 and 2016 and the change in revenue and organic growth from the nine months of 2016 by discipline were (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 vs. 2016 |
| $ | | % of Revenue | | $ | | % of Revenue | | $ Change | | % Change | | % Organic Growth |
Advertising | $ | 5,884.7 |
| | 53.0 | % | | $ | 5,842.0 |
| | 52.3 | % | | $ | 42.7 |
| | 0.7 | % | | 5.0 | % |
CRM | 3,352.4 |
| | 30.2 | % | | 3,502.8 |
| | 31.3 | % | | (150.4 | ) | | (4.3 | )% | | 1.9 | % |
Public relations | 1,013.8 |
| | 9.2 | % | | 1,016.0 |
| | 9.1 | % | | (2.2 | ) | | (0.2 | )% | | 0.3 | % |
Specialty communications | 846.2 |
| | 7.6 | % | | 814.3 |
| | 7.3 | % | | 31.9 |
| | 3.9 | % | | 3.5 | % |
| $ | 11,097.1 |
| | | | $ | 11,175.1 |
| | | | $ | (78.0 | ) | | (0.7 | )% | | 3.5 | % |
We provide services to clients that operate in various industry sectors. Revenue by sector for the nine months of 2017 and 2016 was:
|
| | | | | |
| 2017 | | 2016 |
Food and Beverage | 14 | % | | 13 | % |
Consumer Products | 9 | % | | 10 | % |
Pharmaceuticals and Health Care | 12 | % | | 12 | % |
Financial Services | 7 | % | | 7 | % |
Technology | 9 | % | | 9 | % |
Auto | 10 | % | | 8 | % |
Travel and Entertainment | 6 | % | | 7 | % |
Telecommunications | 5 | % | | 5 | % |
Retail | 6 | % | | 6 | % |
Other | 22 | % | | 23 | % |
Our regional treasury centers in North America, Europe and Asia manage our cash and liquidity. Each day, operations with excess funds invest thesethose funds with their regional treasury center. Likewise, operations that require funds borrow from their regional treasury center. TheTreasury centers with excess cash invest on a short-term basis with third parties, with maturities generally ranging from overnight to 90 days. Certain treasury centers aggregatehave notional pooling arrangements that are used to manage their cash and set-off foreign exchange imbalances. The arrangements require each treasury center to have its own notional pool account and to maintain a notional positive account balance. Additionally, under the net position which is either invested with or borrowed from third parties.terms of the arrangement, set-off of foreign exchange positions are limited to the long and short positions within their own account. To the extent that our treasury centers require liquidity, they have the ability to issue up to a total of $2 billion of U.S. Dollar-denominated commercial paper and issue up to the equivalent of $500 million in British Pounds or Euro under a Euro commercial paper program, or borrow under the Credit Facility, Term Loan Facility or the uncommitted credit lines. This process enables us to manage our debt more efficiently and utilize our cash more effectively, as well as manage our risk to foreign exchange rate imbalances. In countries where we either do not conduct treasury operations or it is not feasible for one of our treasury centers to fund net borrowing requirements on an intercompany basis, we arrange for local currency uncommitted credit lines.
Omnicom and its wholly owned finance subsidiary, Omnicom Capital Inc., or OCI, are co-obligors under all the senior notes. The senior3.65% Senior Notes due 2024 and the 3.60% Senior Notes due 2026. These notes are a joint and several liability of usOmnicom and OCI, and weOmnicom unconditionally guaranteeguarantees OCI’s obligations with respect to the senior notes. OCI provides funding for our operations by incurring debt and lending the proceeds to our operating subsidiaries. OCI’s assets primarily consist of cash and cash equivalents and intercompany loans made to our operating subsidiaries, and the related interest receivable. There are no restrictions on the ability of OCI or usOmnicom to obtain funds from our subsidiaries through dividends, loans, or advances. Our seniorSuch notes are senior unsecured obligations that rank equal in right of payment with all existing and future unsecured senior indebtedness.
We provide advertising, marketing and corporate communications services to several thousand clients whothat operate in nearly every industry sector of the global economy, and we grant credit to qualified clients in the normal course of business. Due to the diversified nature of our client base, we do not believe that we are exposed to a concentration of credit risk, as our largest client accounted for 3.2%represented 3.0% of our revenue for the first ninetwelve months of 2017.ended March 31, 2024. However, during periods of economic downturn, the credit profiles of our clients could change.
In the normal course of business, our agencies enter into contractual commitments with media providers and production companies on behalf of our clients at levels that can substantially exceed the revenue from our services. These commitments are included in accounts payable when the services are delivered by the media providers or production companies. If permitted by local law and the client agreement, many of our agencies purchase media and production services for our clients as an agent for a disclosed principal. In addition, while operating practices vary by country, media type and media vendor, in the United States and certain foreign markets, many of our agencies’ contracts with media and production providers specify that our agencies are not liable to the media and production providers under the theory of sequential liability until and to the extent we have been paid by our client for the media or production services.
Where purchases of media and production services are made by our agencies as a principal or are not subject to the theory of sequential liability, the risk of a material loss as a result of payment default by our clients could increase significantly, and such a loss could have a material adverse effect on our business, results of operations and financial position.
ITEM 3. QUANTATIVEQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file with the SEC is recorded, processed, summarized and reported within applicable time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is accumulated and communicated to management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate to allow timely decisions regarding required disclosure. Management, including our CEO and CFO, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2017.March 31, 2024. Based on that evaluation, our CEO and CFO concluded that, as of September 30, 2017,March 31, 2024, our disclosure controls and procedures are effective to ensure that decisions can be made timely with respect to required disclosures, as well as ensuring that the recording, processing, summarization and reporting of information required to be included in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2017March 31, 2024 are appropriate.
KPMG LLP, an independent registered public accounting firm that audited our consolidated financial statements included in our 20162023 10-K, has issued an attestation report on Omnicom’s internal control over financial reporting as of December 31, 2016,2023, dated February 9, 2017.7, 2024.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, we are involved in various legal proceedings. We do not presently expect that these proceedings will have a material adverse effect on our results of operations or financial position.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in Item 1A in our 20162023 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds