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Q3 2024 Omnicom Group Inc Earnings Call

Q3 2024 Omnicom Group Inc Earnings Call Read More...

Participants

Gregory Lundberg; Senior Vice President, Investor Relations; Omnicom Group Inc

John Wren; Chairman of the Board, Chief Executive Officer of Omnicom; Omnicom Group Inc

Philip Angelastro; Chief Financial Officer, Executive Vice President; Omnicom Group Inc

David Karnovsky; Analyst; JPMorgan

Cameron McVeigh; Analyst; Morgan Stanley

Steven Cahall; Analyst; Wells Fargo Securities

Jason Bazinet; Analyst; Citi

Tim Nollen; Analyst; Macquarie Capital

Craig Huber; Analyst; Huber Research Partners

Adam Berlin; Analyst; UBS

Presentation

Operator

Good afternoon and welcome to the Omnicom third-quarter 2024 earnings conference call. Please note that this call is being recorded. (Operator Instructions)
I will now turn the call over to Gregory Lundberg, Senior Vice President, Investor Relations. You may begin.

Gregory Lundberg

Thank you for joining our third-quarter 2024 earnings call. With me today are John Wren, Chairman and Chief Executive Officer; and Phil Angelastro, Executive Vice President and Chief Financial Officer. On our website, omnicomgroup.com, you’ll find the press release and the presentation covering the information that we’ll review today. An archived webcast will be available when today’s call concludes.
Before we start, I’d like to remind everyone to read the forward-looking statements and non-GAAP financial and other information that we’ve included at the end of our investor presentation. Certain of the statements made today may constitute forward-looking statements from these statements, and these statements are our present expectations. Relevant factors that could cause actual results to differ materially are listed in our earnings materials and in our SEC filings, including our 2023 Form 10-K.
During the course of today’s call, we will also discuss certain non-GAAP measures. You can find the reconciliation of these to the nearest comparable GAAP measures in the presentation materials. We will begin the call with an overview of our business from John, and then Phil will review our financial results for the quarter. And after our prepared remarks, we’ll open the line up for your questions.
And I’ll now hand the call over to John.

John Wren

Thank you, Greg. Good afternoon, everyone, and thank you for joining us today. We’re very pleased to share our third-quarter results. Organic growth was very strong at 6.5% for the quarter, with the US also growing at 6.5%. Across our disciplines, advertising and media, as well as experiential, had outstanding performances.
Non-GAAP adjusted EBITDA margin was 16% for the quarter. Non-GAAP adjusted earnings per share was $2.03, up 5.7% versus the comparable amount in 2023. Our cash flow continues to support our primary uses of cash, dividends, acquisitions, and share repurchases, and our liquidity and balance sheet remained very strong.
We’re very pleased with our financial results for the quarter and the last nine months and are on track to achieve the higher end or organic growth target of between 4% to 5% for the year. We’re also maintaining our full-year 2024 EBITDA margin target of close to flat with 2023. Phil will cover our financial results in more detail during his remarks.
During the quarter, we announced the formation of Omnicom Advertising Group, a new practice area that aligns our creative agencies globally under one leadership team. OAG includes global advertising networks, BBDO, DDB, and TBWA, as well as the advertising collective, which has agencies could be Silverstein & Partners, GSD&M, Merkley & Partners, and Zimmerman, among others.
The group will be led by a strong core of executives with Troy Ruhanen as Global CEO of OAG, being joined by Nancy Reyes, who was recently promoted to Global CEO of BBDO, with Andrew Robertson becoming Chairman; Erin Riley, who is succeeding Troy, who is promoted to the Global CEO of TBWA; Alex Lubar as CEO of DDB; and James Fenton as CEO of the Advertising Collective.
OAG aims to bolster Omnicom’s advertising brands by scaling access to solutions, technology platforms, tools and investments across its creative agencies and clients globally. Additionally, as clients demand more integrated and tailored solutions from agencies, AOG will help facilitate access to talent and teams across our networks while providing our talent with the mobility across our different agencies and client teams.
As with other practice areas, the creative networks within OAG will retain their unique brand, culture, and people. In fact, we believe this new structure will strengthen our agency brands.
Late in the quarter, Omnicom Precision Marketing Group expanded its capabilities by acquiring LeapPoint, a digital advisory firm with expertise across the Adobe content supply chain. The acquisition is part of our strategic efforts to offer the industry’s most comprehensive end-to-end content solution, empowering marketers to accelerate workflows and deliver personalized experiences to their customers at speed and scale.
LeapPoint’s offering streamlined and automated processes, breakdown operational silos, and improve team collaboration for large enterprise clients.
In digital commerce, we achieved an industry-first in the quarter. When we acquired Flywheel, we knew connecting marketing to sales would be a game changer for our company and our clients. Leveraging and connecting the capabilities of Omnicom Media Group and Flywheel, we can now directly measure online retail sales generated from media campaigns across the full advertising journey from broadcast TV to upper funnel performance, media, and retail media.
This is a significant development and unique to Omnicom. Our partnership with Amazon was instrumental in enabling this breakthrough.
As I mentioned in our last call, we consolidated our production units and formed Omnicom production to capitalize on the significant market opportunity for production services. We are investing in scaled and high-quality capabilities in multiple ways. Omnicom production inaugurated a new state-of-the-art content studio in New York and leveraged Omnicom’s first-mover partnership in AI to develop innovative capabilities in content development.
The investment is already paying off with Omnicom production, winning the Kenvue and Bimbo Bakeries USA production business. In the next several months, you will hear more about how we are using AI across our enterprise to drive more effective campaigns and marketing outcomes to improve how our people worked and to deliver efficiencies for our clients.
In addition to the reduction wins, we had a very strong new business performance across the group. After an extensive review process, Omnicom Media Group won the biggest picture of the year by being awarded Amazon’s media business in the Americas. We are incredibly honored to have been selected by Amazon and to have the opportunity to extend our strong partnership.
OMG also won Michelin global media business. Omnicom Media Group top the convergence first-half 2024 report with $5.3 billion in total new business wins. Omnicom agencies collaborated to an integrated services pitches for Barclays and Bimbo Bakeries USA.
Corona Extra appointed GSD&M, its lead creative agency. General Mills hired Goodby Silverstein and Partners for creative. Pepsi added BBDO to its creative agency roster. OPMG picked up Adobe’s digital experience business. And RAPP was selected as Princess Cruises’ precision marketing agency.
Overall, we’re very pleased with our new business wins, financial results, and progress on our key initiatives. I want to thank all of our teams for their terrific work. While significant market uncertainties remain due to the upcoming elections in the US and the ongoing conflicts in the Ukraine and the Middle East, we are actively managing what we can control. We are focused on achieving organic growth and margin targets for the year and remain confident in our guidance.
I will now turn the call over to Phil for a closer look at our financial results. Phil?

Philip Angelastro

Thanks, John. As John said, the third-quarter performance of our business builds on the solid performance of the first half of 2024. And we continue to make the strategic investments needed to position Omnicom to meet the marketing needs of our customers through acquisitions like Flywheel and LeapPoint and our ongoing investments in Omni, Flywheel Commerce Cloud, AI, and other technology platforms and tools.
Let’s review our business performance in the third quarter, beginning with our revenue change on slide 4. Organic growth in the quarter was strong at 6.5%. The impact on revenue from foreign currency translation was nominal, decreasing reported revenue by just 0.1%.
Given the recent changes in the relative value of the US dollar, if rates stay where they are currently, we estimate the impact of foreign currency translation will be positive 1% for Q4 of 2024 and flat for the full-year 2024. The net impact of acquisition and disposition revenue on reported revenue was positive 2.1%, due primarily to the acquisition of Flywheel in January along with a few small acquisitions from prior quarters, which were partially offset by some smaller dispositions.
Based on transactions completed to date, we expect the impact of acquisition and disposition revenue will approximate 1.75% for Q4 and 2.0% for the full year.
Now let’s turn to slide 5 to review our organic revenue growth by discipline. During the quarter, advertising and media growth of 9% reflected continued strong growth in media and improved performance in advertising, including positive contributions from our production initiative. Precision Marketing growth of 1% was similar to last quarter with continued strong growth at Flywheel. And our Precision Marketing Group performance was driven by strong growth in the US and our customer experience agencies, which was offset by lower client spending primarily concentrated in a few markets outside the US.
With the full contribution from recent client wins, we continue to expect stronger performance in our Precision Marketing Group in the fourth quarter and beyond.
Public relations grew 4%. This reflects growth related to US election spending, offset by softer performance internationally. Healthcare revenues were down 1%. By the end of this year, we will be lapping a significant client loss and recent wins should start contributing to improved performance.
Branding and retail commerce declined by 5%, resulting from reduced client spending in our branding agencies and flat performance in retail commerce. Experiential growth was very strong at 35%, driven by activations for the Summer Olympics. And execution and support was flat, reflecting good results in fuel marketing offset by declines at our merchandising businesses.
Turning to geographic growth on slide 6. The US, our largest market, had organic growth of 6.5%, continuing a strong performance trend this year. Performance in Europe was also strong in most markets and the Asia Pacific, Latin America, and Middle East regions all posted solid growth.
Slide 7 is our revenue by industry sector for the quarter and year to date. Both of which maintained their historical stability with no significant changes in mix.
Now let’s turn to slide 8 for a look at our expenses. In the quarter, salary-related service costs grew with increased staffing levels, primarily reflecting our acquisition of Flywheel Digital in January. Year over year, as a percentage of revenue, these costs were down 1.5% as we continue to nearshore, offshore, and reposition our workforce towards the higher-growth services that our clients need.
Third-party service costs grew in connection with the growth in our revenue, especially in disciplines that have a higher level of these costs such as media, experiential, and field marketing. Third-party incidental costs reflect out-of-pocket costs billed directly to clients and were up a bit.
Occupancy and other costs increased due to the Flywheel acquisition and greater in-office activity, partially offset by lower rent expense. SG&A expenses increased primarily from increases in professional fees and other costs related to our strategic initiatives.
Now let’s turn to slide 9 and look at our income statement in more detail. With no adjustments during the third quarter, EBITDA and non-GAAP adjusted EBITDA both grew 7.9%. And the EBITDA margin was 16.0% versus the comparable 16.1% margin last year.
EBITDA reflects the add-back to operating income for amortization of acquired intangible assets and internally developed strategic platform and tangible assets. Approximately 85% of the amount added back relates to acquired intangible assets. We expect similar levels of amortization in the fourth quarter.
The EBITDA margin reflects our performance and includes costs incurred in connection with our investments in Omni, Flywheel Commerce Cloud, AI, and other technology platforms and tools, as well as costs related to the integration of Flywheel. It also reflects the relative weighted performance of our disciplines.
Year to date, our adjusted EBITDA margin is 15.1% compared to 15.2% last year. For the full-year 2024, we continue to expect this margin to be close to flat with our 2023 adjusted EBITDA margin of 15.6% as we balance cost savings initiatives with strategic investment opportunities that we believe will drive strong future revenue and EBITDA growth.
Moving down the income statement. Net interest expense in the third quarter of 2024 increased $2.1 million to $40.4 million. The change was driven by a $12.9 million increase in interest expense due to higher outstanding debt from the Flywheel financing and the recent note issuance in advance of our November maturity.
The change in net interest expense also reflects a $10.8 million increase in interest income due to higher average cash and short-term investment balances. Our income tax rate of 26.8% was in line with our expectation of 27%. We also expect the rate for the fourth quarter to approximate 27%.
Below the line, I’d like to point out that our strong growth in revenue and EBITDA were driven in part, as always, by some agencies that have been already interest, including recent acquisitions. This resulted in a higher minority interest expense in Q3 compared to last year.
Net income growth of 3.8%, coupled with fewer diluted shares outstanding from our buyback activity, drove a 4.8% lift in diluted earnings per share. On an adjusted basis, excluding after-tax amortization, diluted earnings per share was up 5.7% to $2.03.
Now please turn to slide 10. Free cash flow is up 4% from last year. Our definition, like other peers, excludes changes in working capital. For the nine months ended September 30, our use of working capital improved by 8%, as you can see in the appendix on slide 18. We remain focused on working capital management and continue to work towards our historically neutral annual level over time.
Regarding our uses of cash, we used $416 million of cash to pay dividends to common shareholders and another $64 million for dividends to non-controlling interest shareholders. Our capital expenditures were $94 million, which as discussed on prior calls, reflect our investment in Flywheel and our strategic technology platform initiatives as well as investments in our facilities.
Total acquisition payments, which include earnout payments and the acquisition of additional non-controlling interests, were $953 million, which primarily reflects the $845 million acquisition of Flywheel, net of cash acquired in January and the late September acquisition of LeapPoint.
Finally, our share repurchase activity. Net of proceeds from stock plans was $359 million year to date and $113 million in the quarter. Our expectation for the year has been for annual repurchases in 2024 to be approximately half of our historical average of about $600 million. While we exceeded that level as of September 30, Q4 repurchases will depend on a variety of factors.
Slide 11 is a summary of our credit, liquidity, and debt maturities. At the end of the third quarter of 2024, the book value of our outstanding debt was $6.9 billion, which reflects a $655 million euro financing, which we did earlier this year to fund a portion of the Flywheel acquisition; and a USD600 million financing this summer, to be used with cash on hand to repay our $750 million notes due November 1, 2024. The effects of foreign currency translation also increased book value of our debt by $98 million.
Our cash equivalents and short-term investments at September 30 were $3.5 billion, up from last year primarily reflecting the $600 million note issued this summer. We also have an undrawn $2.5 billion revolving credit facility, which backs up our $2 billion US commercial paper program. After the November maturity, we have no further maturities until April of 2026.
The financing activity I just discussed has given us the opportunity to invest cash at favorable rates relative to the 3.65% coupon on our notes that are due in November. We will pay off the notes in November, and we currently estimate that net expense in Q4 will be a little higher than Q3 of 2024.
Slide 12 presents our historical returns on two important performance metrics for the 12 months ended September 30, 2024. Omnicom’s return on invested capital was 20% and return on equity was 41%. Both of which consistently reflect our strong performance and solid balance sheet.
I will now ask the operator to please open the lines up for questions and answers. Thank you.

Question and Answer Session

Operator

(Operator Instructions) David Karnovsky, JPMorgan.

David Karnovsky

Hey, thank you. John, I wanted to check in on what you’re hearing lately from clients. You previously talked about Fed a lot and what they might do as a point of hesitation. We have some clarity there now, but there’s obviously other factors like the election creating uncertainty. So can you give an update on the tone of conversations and maybe how that’s informing your view of Q4 or ’25?

John Wren

Sure. I don’t think that Fed, in terms of the balance of the year, is much of a subject that we’re currently discussing. It’s turned primarily to the election and even that won’t really significantly impact what typically happens in the fourth quarter, which is project spend, which God knows you’ve been on the call a long enough, David, you would hear me say this every time this year. We gained visibility as we go through the quarter to see what clients are going to spend and that number goes from some number to $250 million depending upon client activity. I think that’s more the case at the moment.
If depending on who you talked to. A lot of people were talking about, we’ve achieved the soft landing. Our business reflects that, but who knows? So I probably be doing something else if I actually could answer that question with some accuracy. I don’t know if that’s helpful or not.

David Karnovsky

Yes, John, that’s helpful. And then feel like I have to ask on Amazon, just given that the largest media shift, at least the recent memory. Can you expand a bit on the win factors you think kind of gave you an edging review what it means for the wider media base? And then anything you could say on when you would expect that to start to flow through the results.

John Wren

Sure. Well, Amazon was just the largest win in quite a while, and it’s quite phenomenal. And we’re very, very happy to have been selected and proud of it. It proves a number of points. One is the solid relationship we had with Amazon coming off of the Flywheel acquisition, which we did earlier in the year.
But more importantly with that, as I think you’d see in the convergence reports, if you looked at them, our Media Group has been incredibly successful this year. And we have every belief that it will continue to do that as opportunities come up. So the skills, the investments, Omni, all that all adds to an extremely strong media offering. And overall, from an Amazon point of view, this has created a real enterprise relationship between the two companies.
And it’s going to permit us to do other things forward. So very, very proud of that. It was a complicated long process because they were very thorough in what they did, and we invested a great deal of time and energy demonstrating to them what we could bring to the party.
The one thing is, as you mentioned flow-through or something along that line, when you’re pitching a piece of business like that, it’s expensive, the revenue will start in the new year. What we’re currently doing is making sure that we’re staffing up properly. So no balls have dropped and that is something that will continue through the fourth quarter.

Operator

Cameron McVeigh, Morgan Stanley.

Cameron McVeigh

Thanks. Hey, John. As you think about growth over the next couple of years, with mid-single-digit top-line growth, can you get to margin expansion and then back to being a double-digit EPS grower? In your view, what would need to go right to make that happen?

John Wren

Well, there’s a number of things that are going on. There’s what we’ve done in production earlier in the year, what we did with OAG just in the last quarter, those are all efficiencies, which are going to help us perform better as we go forward.
What is unknown is the level of investments that we continue to make to get AI and all the associated benefits associated with that functioning at a level that is really bulletproof or tested to the point where it won’t break if we deploy it to clients, and we’re in the process of doing that right now. And that process is going to continue through the balance of this year, where we’ve developed some incredibly interesting tools, which should make us more effective going forward.
But there’s a cost associated with the development of those tools. And that’s how you stay at top of that convergence list and the new business list by constantly making those investments while striving for the appropriate margins that we should be receiving. So I’m bullish as we go forward because our guys have done amazing things so far. And now we’re just testing its tolerance.

Cameron McVeigh

Got it. Thanks. And then secondly, how is the integration of Flywheel been going? What have you learned? How are the potential growth and margin impacts trending as we head into the fourth quarter and look into 2025? Would you still expect Flywheel to grow top-line double digit?

John Wren

The answer to that question is yes. I do expect it to grow. There’s no better demonstration of collaborative effort than the Amazon win, which I just spoke about a second ago. I mentioned in my call that we’re able to measure marketing spend for the very first time. And that’s done with rather important CPG that we have where we’ve proven that it’s all measurable.
And as we get other clients, where we have the opportunity to do that, that’s going to further distinguish Omnicom in terms of justifying media spend and ROI and investment in just the general area.

Philip Angelastro

I think the other thing that’s helpful from a Flywheel perspective is the integration that’s happened between Omni and the data and analytics platform that we have with Omni and the Flywheel data that now Flywheel Commerce Cloud data, that I was part of that solution and service offering. So having the behavioral data of an Omni, which is a very robust data set, along with the Flywheel Commerce transaction data set, is a very powerful proposition.
Certainly, our clients are interested in that solution. And we think over time, those are going to be more and more examples of that really being a powerful tool for us with our clients and with new business wins going forward.

Cameron McVeigh

Great. Thank you.

Operator

Steven Cahall, Wells Fargo.

Steven Cahall

Thank you. So I think the higher end of the 4% to 5% guidance range that you’ve talked about implies like low-4s organic growth in Q4. So just trying to think about whether that’s an intentional walk towards that level for Q4? Or with some of that uncertainty that always is there with projects spend, if you just want to be conservative, as I know you often are at this point because I think you’ve talked about a sequential acceleration in growth in the second half of the year. So I just want to think about how we can think about Q4 within that that has bigger implications for 2025.
And then, John, I think a few quarters ago when you closed on Flywheel, you talked about Precision Marketing possibly exiting this year at close to double-digit growth. So I know you gave some reasons as to why it was a little slower and that you expect it to accelerate in Q4. I was just wondering if you could go maybe a level deeper as to what you’re seeing in the Precision Marketing segment and how we can think about maybe the longer-term performance in that business. Thank you.

John Wren

Sure. Well, I’m sticking with our guidance because I don’t know the project spend in the fourth quarter. We’re certainly trying to continue to win whatever business we can and to service our clients wherever we can profitably service them. So there’s no lack of effort going on anywhere within the four walls of this company.
I’ll stick with my statement. I expect to be at the very high end of what my guidance has been for the year. And I’m confident, as I sit here today, that I’m going to be able to achieve that. If I’m lucky in this small project spend, obviously, that will flow through as well.
In terms of Precision, Phil can add to it, but the United States has been very strong. The shortfall, if there has been, it’s been primarily outside the United States. And specifically, outside the United States, we were consulting business that was very tied to the UK government and the snap election that was called kind of suspended spending in the short run, while that election was being executed. And we expect that’ll return to growth in the fourth quarter based upon everything we know as we sit here today.
Phil may have something that he wants to add.

Philip Angelastro

Yes. Our view of the Precision Marketing group in that space hasn’t changed. We think it’s a strategic growth area for us, no question. we’re committed to continue to invest over the long term in that space, most recently through the acquisition of LeapPoint, which we closed just at the end of September.
The growth prospects in that business are great, both in the US and outside the US. They had some recent new business wins that have just started to kick in, GM in the US in particular, as an example. And we expect excellent growth prospects in the relatively near term and we’re optimistic about its performance in Q4 for sure.

Steven Cahall

Great. Thank you.

Philip Angelastro

Sure.

Operator

Jason Bazinet, Citi.

Jason Bazinet

I just had a question about your view of the overall industry. And I ask because your growth rate has been in the sort of mid-single-digit range, which is a bit better than it was maybe a decade ago. And do you think that this is a function of just you’re taking share from other holding companies? Or do you think that the overall industry is actually doing a bit better and growing a bit more briskly? Thanks.

John Wren

Well, I think our product mix has certainly shifted as we’ve made investments in things like Flywheel, things like Omni. We can measure better than we could a decade ago. And anything you can measure, clients separately will sit and give you a very fair hearing about where to invest that money.
So I do think that the industry is in better shape than it was in the last five or six years. And I’m confident that that will only continue. And I think that the investments that we made and where we placed our focus have paid off and they will continue to pay off because we can distinguish ourselves in ways that we’ve never been able to do five years ago.
So I remain bullish about our prospects. And as I enter into ’25, they get supported by the laundry list of wins that I talked about in my prepared remarks, really contributing revenue in this calendar year. They’re contributing expenses as we get ready to service that revenue. So we should be off to a very solid start, I would think, as we get into ’25 and beyond.

Jason Bazinet

That’s great.

Philip Angelastro

Yeah. In terms of the portfolio and where it stands today, we’ve done quite a bit of work over the last five, six years. To strengthen the portfolio, we’ve exited a few different businesses and service lines, and we’re confident about the parts of the business we’ve been making investments and in terms of their growth prospects. So certainly, the business we have today is quite a bit different than what we had just six, seven, eight years ago. And the world is different.
But one of the other things that we think we’ve been able to capitalize on is the convergence or merging of certain budgets within the client that we have access to today because of the services and disciplines we offer clients, which didn’t necessarily have access to in the past and that’s opening up beyond marketing and advertising budgets and having access to services that we can provide to the CIO organization and the sales organization at our clients as well. So we’ve got a broader group of services and a broader group of clients to kind of potentially access if we’re successful.

Jason Bazinet

That’s great. Thank you.

Philip Angelastro

Sure.

Operator

Tim Nollen, Macquarie.

Tim Nollen

Hi, thanks. I’ve got a couple as well separately. So first, John, could you explain a bit more about the Omnicom Advertising Group you announced this, I think, over the summer after you had last reported numbers? It seems to me like it follows a bit on what you did many years ago putting Omnicom Media Group together. And then just last quarter, you announced the Omnicom production studios. So kind of consolidating agency operations.
And then you’ve got Flywheel in the mix now, which I think is sort of tapping into all these things. So are you just going to be coming one bigger, better integrated company now, versus how do you service individual clients as individual agency brands? I guess that’s the question, how integrated versus separate are you now?

John Wren

Sure. The short answer is that is we’re much more integrated than we’ve ever been in the past. But the motivation for doing Omnicom Advertising Group was — as you look into the technological changes, which are impacting our business and the use of artificial intelligence and how it’s going to be implied in efforts that we are engaged in, it is more sensible for us to be making those investments on a singular basis and then white labeling those products and deploying them to the various cultures that we have.
The move of OAG was really done on our front foot, saying that we can do a better job for our clients, a better deployment of our talent, a better creation and execution of tools. If we look at those efforts singularly, but we’re still very dedicated to the brands and the various cultures that the brands bring to the party because every one of our agency groups is somewhat different in their approach and how they go to market and different clients have different needs for those approaches.
So it puts us in a situation where I think we can optimize the best of both worlds, maintaining a very strong past, which allows us to continue to attract the strongest talent in the market, but yet concentrate and make meaningful investments in tools that are deployed that are useful to every client and will create efficiencies in the case of many, many clients, and improve the speed and the information that our knowledge workers, be they creative, be they strategic people, will have access to.

Tim Nollen

So is it more top-line synergies, I guess? Or was it more cost savings? Or is it equally both?

John Wren

The cost savings are de minimis in terms of its waste avoidance. More than anything else, rather than loosening to 75 different agencies, slightly variant approach towards AI, what we’re able to do is to put them in a room and have them come up with a consensus as to what they think would be most useful for their clients and then make those investments behind that. Had we not put media together 20-odd years ago, we would have never been able to create Omni if you had 14 different media groups.
So this is — nothing is the same as it was in the past, but it’s very similar. And with the resources that we have and the intelligence that we have making those investments properly where they can be most useful to clients and most useful to us in terms of being the group that gets selected when clients put their business up for review, it’s a balance of both. So it’s waste avoidance as opposed to cost synergy.
We weren’t looking to cut heads. We were looking to improve the quality of the products of our brands and the tools that those folks had available to.

Tim Nollen

Okay. Got it. Thanks for that explanation. That’s clear.
My second topic I wanted to bring up is about retail media. You were talking a bit about Flywheel and how it helped with Amazon. And my question really is, do you feel like you’re active in both on-site as well as off-site retail media?
And if you could just talk about maybe what the opportunities are in each, on-site being bringing ads on to a retailer’s website or apps; and then off-site being able to do what it seems to me is really what agency should be good at is understanding where rumors are, how to reach them wherever they are and bring them to the retailer side. I hope it’s not too deep in the weeds, but I wonder if you could maybe talk about how Flywheel might help with your agency’s abilities to do that.

John Wren

Well, Flywheel is the leader, bar none, by multiple of activity in the leading online retail type of providers, be it Amazon, Walmart. If you go down the list, Target, who outside of the United States and China, which have some pretty cutting-edge things, we’re engaged with them as well.
So we were first to the market or they were first to the market before we acquired them. We have a great depth of knowledge. We have a lot of trust built up with the pioneers who really blaze the retail trail because of our history. So I think we’re in very good shape.
Now does it mean have monopoly in it? No. There’ll be other pretenders that come to play to the market, and we’ll compete against them, but we’ll compete successfully. But Flywheel was, in fact, a decade ahead of the next closest thing. People will put together fancy press releases and say that they can accomplish things, but substantively, Flywheel has done it.
And we continue to make further investments in Flywheel and the team that envision that before a marketplace really existed and the people responsible for it are the best in a relatively small industry in terms of whether the talent lies. So I think we’re very fortunate to have Flywheel and it will tribute very strongly to our growth as we move forward.

Tim Nollen

Thanks, John.

Operator

Craig Huber, Huber Research Partners.

Craig Huber

Thank you. I had a couple of questions. John, it’s not often we hear you use the word bullish to describe your business. I think I heard you say it twice your business and your outlook and stuff. (multiple speakers)
I’m listing here. Just a little more depth there about what you’re seeing in the marketplace, US, overseas. Why do you use the word bullish, and what’s changed your mind?

John Wren

Well, I’m bullish about Omnicom. First and foremost, we just at the level of wins that we’ve had in the last four months of the year, which will be contributing to revenues that we start into next year. I’m also bullish about our percentage of winning and our ability to compete in the marketplace and the sophistication of the clients that have selected us in this whole process.
So we’ve got a lot of confidence in the beginning and make sure I have a lot of confidence in the teams that are pitching, I have a lot of confidence in the tools that we’ve developed and the ones we are currently metering. So that’s what really seems to be bullish. And with each one of these technological improvements, we’re able to increasingly optimize and measure our performance.
And anything that can be measured can be sold to a sophisticated client. Are there going to be bumps in the road and interruptions in certain industries in the economy? Of course. But from an overall point of view, I’m bullish. I’m very confident, but mostly confident in the team that surrounds me and the investments that we’ve made.

Craig Huber

And my second question, John —

John Wren

My wife will use the same thing, gee, haven’t been bullish about this either happened. But no, I’m bullish. I did use it twice, but now I’ve used it five times.

Craig Huber

Right. Good to hear. And then on margins, if one of you could comment, I mean, obviously, if you have roughly — you’re saying roughly 5% organic growth for the year, you’re talking about margins close to flat with a year ago. Can you just go through for us what’s holding back your margins this year? What’s unique this year holding back?
I mean, obviously, you guys invest very heavily every year, but is it significantly higher this year than prior years? And then what’s going to fall off potentially next year to help margins potentially next year if you have roughly similar growth?

John Wren

Well, I’ll let Phil do this one. I’ll just add one or two small comments on front. One is to get business, you have to invest money. Two, you see the revenue from it. And I think I’ve said this 10,000 times before, not just twice.
When you win in a piece of business, it’s the most expensive time of your relationship because you’re staffing up without the revenue. And unfortunately, when you lose business, would you counterintuitively, but you expect to see margin improvement because you can reduce your staff pretty quickly and the revenue is still coming to contractually.
So don’t be deceived by any 90-day period would be my word of caution. We are trying to balance in our judgment where we should be making investments and how we make those investments internally through our P&L in order to develop the products which make us successful in the marketplace. So it’s a balance of delivering margin to the shareholder, but making sure that we’re fit for purpose as we go forward.
Phil, do you want to –?

Philip Angelastro

Yeah. I think those are certainly a couple of the key parts of how we look at the margin profile overall and how we manage the company strategically overall. And 2024 is no different in terms of our approach.
As we said throughout the year, we expect margins for the year to be close to flat. As John indicated, there have been quite a few pitches that we’ve been successful in, those pitches do require an investment. And then when you win them, staffing up requires an investment in the near term.
We’re going to continue to make strategic investments in the business, the Omni platform, Flywheel Commerce Cloud platform. And this year, certainly, there’s been more of a focus on GenAI, and there’ve been a number of initiatives that we pursue and continue to pursue in a space that we think is going to be very important for our business going forward.
And the goal ultimately is to make those investments to position us for sustainable future growth. And we’ve done that in the past. We’ve seen it benefit us in terms of the Omni platform and the many wins we’ve had over the years because of the investments we’ve made.
We look at the business long term, we reevaluate the portfolio. But the goal ultimately is to grow sustainably and over time grow margins. So we’ve got a number of efficiency initiatives that are well underway. We’re going to continue to pursue the areas of offshoring and nearshoring.
Automation certainly is a big push of ours we continue to push that and look for efficiencies wherever we can find them. And ultimately, that’s where some of these benefits in terms of margin improvement are going to come from. But we’re not going to be shortsighted not make the investments that need to be made to have sustainable growth just because we want to maximize margins in the short term.
But certainly, we’re going to continue to strive to improve margins over time. And we think we have a portfolio that’s going to allow us to do that. And some of the recent wins certainly are very encouraging towards that as we go forward.

Craig Huber

Great. Thank you very much.

John Wren

Sure.

Operator

Adam Berlin, UBS.

Adam Berlin

Hi, good evening. Two questions, if I can. Very strong quarter with 6.5% organic growth. You mentioned there were some benefits from the US election cycle and the Olympics in there.
But can this be a typical quarter? Is this the kind of growth you’re looking to achieve? Or should we just think of this is a bit of a one-off special quarter just given those special events? That’s the first question.

John Wren

Well, the election probably contributed less than it has in prior presidential elections, but it did contribute something. And wherever there’s Olympics, we generally get a bump, and that’s every two years or so. We also get a bump going congressional elections in the United States as well over two years.
So I think there is some contribution in the 6.5% to those activities. But whilst they’re not every quarter, they are ongoing because we have the best players servicing those areas.

Philip Angelastro

Yeah. I mean, we’ve grown a little over 5% through nine months. We expect to be at the high end of our range for the year. We grew 4.1% last year. Coming out of COVID, double digits in ’21, 9.5% in ’22. We’re expecting to grow in the future is 5% a new normal. I think it’s early to say that, certainly.
But what we’ve made — we spoke a lot about the investments we continue to make. We expect that to be — we expect the business to be a good platform for growth into the future. But when it comes to elections and the benefit we get in the experiential businesses, along with the PR businesses from an election perspective, that’s a two-year cycle. We’ll take it when we can get it.
We don’t expect experiential to grow at the same rate in a non-Olympic year, but it depends on other factors as the World Cup or the European championships that year. Those businesses are going to grow. They’re going to be a little choppier quarter to quarter.
I think we don’t make conclusions based on any one particular quarter. But longer term, we think the performance in ’24 and ’23 certainly as good perform and we expect and strive to continue to grow at those rates going forward.

John Wren

Yeah. The other thing I’d add, [Andy], to the election that — is that money is being spent in very few states this time around because the country. In the United States anyway, so divided that I think this election will be called based upon very thin margins Adam — excuse me, in a number of places. And personally, I don’t think the election is going to be known on November 5, but it will probably go on beyond that personal speculation.

Adam Berlin

Thanks. That’s helpful. And I just want to ask one more, which is, obviously, you’re outperforming some of your peers. I just wondered how that’s impacting kind of talent. So are you looking to add talent into our organization from your peers? Is it helping you to retain talent? Just can you give some comments about how the strong performance is helping you with the people you have?

John Wren

Sure. We have a very strong bench of talent. I’m always open and we’re already recruiting for more talent, especially as we win these businesses, staffing up for them. There are no small projects. They require a lot of people to be brought on board and in a very relatively quick manner. So some of them are coming from competitors, others are new entries into the marketplace.
And as Phil said, we don’t have the proof points yet, but we’re well on our way towards automation. And we also think AI, if we don’t break the tools that we’ve been able to build through overcapacity, will help us attract more knowledge workers, as I referred to them, because the mundane tasks that some of these efforts require get eliminated through this new technology. So the business is changing more rapidly than I think it has during my career and all to the positive from my perspective.

Adam Berlin

Thank you very much.

John Wren

Thank you.

Operator

We have no further questions at this time. This will conclude today’s conference call. Thank you all for your participation. You may now disconnect.

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