宏盟集團 (OMC) 2015 Q3 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Omnicom third-quarter 2015 earnings release conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. At this time, I'd like to introduce you to your host for today's conference, Vice President of Investor Relations, Shub Mukherjee. Please go ahead.

Good morning. Thank you for taking the time to listen to our third-quarter 2015 earnings call. On the call with me today is John Wren, President and Chief Executive Officer, and Phil Angelastro, Chief Financial Officer.

We hope everyone has had a chance to review our earnings release. We've posted on our website at www.omnicomgroup.com this morning's press release, along with the presentation which covers the information that we will review.

This call is also being simulcast and will be archived on our website. Before we start, I've been asked to remind everyone to read the forward-looking statements and other information that we've included at the end of our investor presentation. And to point out that certain of the statements made today may constitute forward-looking statements and that these statements are our present expectations and that actual events or results may differ materially.

I would also like to remind you that during the course of the call, we will discuss some non-GAAP measures in talking about Omnicom's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the presentation materials.

We are going to begin this morning's call with an overview of our business from John Wren. Then, Phil Angelastro will review are financial results. And then we will open up the line for your questions.

Thank you, Shub. Good morning and thanks for joining us this morning. I am pleased to speak to you about our third-quarter 2015 business results.

As I'm sure you have seen, Omnicom had a strong quarter with organic growth up 6.1%, ahead of our expectations. Margins and net income were in line with our expectations and overall our operations continue to show steady progress in the face of challenging macroeconomic conditions and volatile markets.

As we had anticipated, we continue to face significant currency headwinds in the quarter. FX reduced our revenues by 7%, or $272 million in the quarter. On a year-to-date basis, the strong US dollar versus other currencies reduced our revenue by 7% or $773 million.

EPS for the quarter was $0.97, up from $0.95 in the prior year, or about 2%. On a constant currency basis, EPS would have increased by approximately an additional 9% to the quarter and 8% for the year.

Looking forward, we expect currency effects to moderate in the fourth quarter and into next year. Phil will provide more details about the impact of foreign exchange by market and on our future results later in the call.

Turning now to organic revenue growth, North America increased in excess of 6%, reflecting strong performances in brand advertising, media and our specialty healthcare business.

The UK was up 9%, which was broad-based across our operations. Our UK business has consistently performed well, which reflects the high caliber and diverse group of agencies we have in that market.

Overall growth in Continental Europe was 4.5%. In the euro markets, Germany was up in mid-single digits. Spain also outperformed, while France and the Netherlands weighed on our results. Outside the euro countries, Russia and Poland performed well and most other markets were positive.

Moving to Asia-Pacific, organic growth was in excess of 8% with solid performance throughout the region. While our operations in China slowed a bit, to mid-single digits, we remain bullish and see a long runway of growth ahead. We continue to see strong marketing spend in such categories as telecommunications, travel and personal care.

Latin America was our most difficult region in the quarter, with organic revenue declining almost 7%. Mexico and Argentina had double-digit growth, but this growth was offset by Brazil, which is our largest market in the region.

Brazil's performance was affected by both the economy as well as difficult year-over-year comps. While the current political and economic situation in Brazil is concerning, there are opportunities to invest and grow. The 2016 Summer Olympics should mitigate some of the risks in the short term.

Our performance this quarter, and for the year, is reflective of the strategies we have in place to drive our growth. These strategies help us meet rapidly changing needs of our clients by giving them access to the best people and the latest technologies when and where they need them.

First is attracting, retaining and developing top talent. Next is expanding our global footprint and moving into new service areas. Third is leveraging our data and analytic capabilities. Finally, we continue to deliver breakthrough creative ideas and solutions based upon meaningful consumer insights across all marketing disciplines and communications.

This morning I'd like to discuss our progress against these strategies and also provide some updates, to provide an update on the media reviews and address recent industry concerns on topics of viewability and fraud in online advertising and transparency.

At Omnicom, we've always strived to be a great place for great people to work. It's been a priority to attract and retain the best talent and make sure they are continuously learning and being challenged. Our agencies and networks do an excellent job of training and developing our people within the context of their specific disciplines and Omnicom further supports this through advanced management programs at Omnicom University.

We just completed the 21st year of Omnicom University in the United States, and have expanded the program to China and Europe. This summer, for the first time, we hosted a joint education session with one of our large multinational clients, which was a huge success.

Another aspect of achieving our talent development goals is creating a diverse and inclusive workforce. Diversity at Omnicom, in backgrounds, experiences and perspectives, is critical to ensuring we have the best talent. It's not just a word or a concept to us. We have put diversity into action by creating groups, programs, scholarships that promote diversity and inclusion.

One barometer we use to measure our success is our performance in award shows. Once again, our agencies and networks continue their tradition of being the most creatively awarded Companies in the world. Let me just mention a few highlights from the Spikes Advertising Festival, held recently in Singapore, which is considered the [tawn] of Asia.

BBDO received top honor, winning network of year for the second year in a row. DDB placed third. BBDO and DDB have finished in the top three networks for seven consecutive years. Colenso BBDO won agency of the year.

All told, 40 agencies in 12 countries contributed to nearly 150 Spike awards. I want to congratulate all of our people for their outstanding work.

During the quarter, we continued to expand our capabilities to internal investments in our agencies and service platforms, specifically in the areas of production, technology and content development. Today's market complexity demands our agencies produce ever more creative content that can be distributed quickly across different devices, channels and markets.

To meet the increasing needs of our clients, you may recall last year Omnicom formed eg+ worldwide, a global implementation and production agency. And since then, it has expanded capabilities in various markets.

With over 1400 employees in 14 countries, eg+ has become a leader in leveraging the latest technologies to help global brands implement and localize creative content across video, digital and print media channels. The result is a broader and deeper service offering that fuses the best talent and the latest technologies. And our efforts in this area will continue to expand and provide value to our clients.

Turning to the media accounts in review, most of the high-profile reviews should be decided by Thanksgiving. As I discussed our last call, we have been very selective in choosing which media assignments to pursue and have elected not to participate in several reviews, including Citibank, Coke, Coty and L'Oreal.

In terms of our progress, we have done pretty well. We've added new media business from well-known advertisers such as SC Johnson and Bacardi globally, Wells Fargo in the United States. We've also successfully defended a number of accounts, such as JCPenney, and GlaxoSmithKline, adding significant assignments from Novartis.

These and a number of other wins brought in billings of over $1.4 billion so far. At this point, we still have an opportunity to gain additional business as the remaining pitches come to a conclusion.

Annalect played a key rule in each of our wins. As a result of our investments early on in Annalect and its data management platform, we picked up a significant share of the new business in digital specifically around data and analytics. Annalect is embedded in our accounting and is truly a differentiating asset for us.

Turning now to look at some of the issues facing our industry. The growing scale of programmatic and online video advertising has led to valid concerns over fraud and the viewability of online ads.

In other words, how much of an ad is seen by an actual consumer and for how long. One key factor in this area is independent verification. Marketers and agencies are pushing publishers, and rightly so, to prove that ads are being seen by real people are effective in driving sales.

We believe that third party verification is a fundamental requirement. Publishers should not grade their own homework. For our part, since 2013, we've been providing third party verification services in the US on our clients programmatic and digital network buys.

This has been invaluable in giving us the data and visibility we need to adjust publisher pricing based upon viewability rates, and to ensure that our clients receive the value they expect. We recognize that digital publishers face a complex environment due to the varied nature of their content or the device it's being delivered on.

In light of this, our digital media leadership is active on joint industry efforts, such as IAC and Tag to shape measurement standards. This is especially important for ads delivered on mobile devices, where standards are only now being discussed.

In sum, the ecosystem is complex but the goal is simple: to make sure advertisers get what they pay for. And we are working towards practical solutions to help move the entire industry forward.

Finally, I also want to touch on the subject from earlier this year: the joint task force of the A&A and 4A's to create US media transparency standards. We have been actively involved in this work over the past month and we're pleased with progress in terms of collaboration and understanding between the advertiser and agency members.

We expect principles will be issued shortly and we support any constructive steps that increase advertiser confidence across our industry, while encouraging competition and innovation.

In our conversations with our clients, advertisers are seeking more choices today in terms of service or performance requirements, but this only underscores the industry's obligation to strict contract compliance, which includes the return of any media rebates in the United States and disclosure of all of our services and various equity interests we may have. From an Omnicom standpoint, this is a fundamental to the essential trust between client and agency that our business is built on.

Before concluding my prepared remarks, I'd like to say that while I'm pleased with our strategic and financial performance, the remainder of 2015 has numerous economic and political challenges. From Brazil to China and the Middle East as well as the potential actions by the Federal Reserve and other central banks.

With one quarter left to the year, I'm confident that we are on track to achieve our revenue and margin targets for the full year. I will now turn the call over to Phil and he'll take a close look at the quarter's results. Phil.

Thank you, John, and good morning. John said our business has continued to deliver against their financial and strategic objectives and meeting the needs of their clients.

For the third quarter, our organic revenue growth of 6.1% once again exceeded our expectations as the US continued its strong performance and we experienced solid growth in the UK and Canada and across most of our Asia-Pacific markets, as well as in several of the European markets.

While our underlying businesses continue their solid performance, exchange rates continue to create a considerable headwind on our international revenue. Again this quarter, FX was negative in all of our significant foreign markets, reducing our total revenue by 7.2% or $272 million.

When accounting for the small net positive impact from our acquisitions, net of dispositions, revenue for the quarter was about $3.7 billion, down 1.1% versus Q3 of last year. We will go over our revenue growth in detail in a few minutes.

Turning to EBITDA and operating income, EBITDA for the third quarter of 2015 decreased by $6 million to $455 million versus $461 million in Q3 of last year. As you would expect, exchange rates also had a significant negative impact on our total EBITDA for the quarter, and more significant than in the first six months of the year.

While the vast majority of our expenses are denominated in the same local currencies as our revenues, essentially serving as a natural hedge. In a few of our higher-margin markets including Canada, Australia and Brazil, FX had a larger negative impact this quarter than earlier in the year and through the first nine months of 2015 FX reduced our overall EBITDA margin by roughly 18 basis points.

However, helping to offset the FX headwinds on EBITDA has been our focus on maintaining flexibility in our cost structure and our continued efforts to increase efficiencies throughout the organization.

Our initiatives have had a positive impact and we expect they will continue to make our operations more efficient as we extend them throughout the organization. As a result, for the third quarter, our EBITDA margin of 12.3% was unchanged versus Q3 of 2014.

Moving to operating income. It decreased by $5 million to $428 million for the quarter, and was also negatively impacted by FX. Our operating margin of 11.6% remained flat as compared to Q3 2014, similar to our EBITDA margin.

Net interest expense for the quarter was $35.9 million, up $4.5 million versus Q3 of 2014 and was relatively flat, up about $1.3 million from the second quarter of this year. Versus Q3 of last year, the additional interest expense related to the issuance last October of 750 million of our 10-year senior notes was partially offset by the benefit of the floating interest rate swaps we entered into during Q3 of 2014.

Additionally our interest income on our cash balances, held by our international treasury centers, decreased, primarily driven by negative FX translation. And versus the previous quarter, the increase in net interest expense of $1.3 million was the result of a decrease in the interest benefit from the floating interest rate swaps as well as a reduction in interest income.

Our quarterly tax rate of 32.8% continues to be in line with our current tax rate expectations for 2015. Earnings from our affiliates of $3.2 million is down $2.6 million this quarter, related to a reduction in the contribution of certain international affiliates, which were negatively impacted by FX.

The allocation of earnings for the minority shareholders in our less-than-fully-owned subsidiaries decreased $2.4 million to $27.4 million, also due to the impact of FX. Because a significant portion of our less-than-fully-owned subsidiaries are located outside the US.

In general, excluding the impact of FX, the underlying performance of these businesses remains strong. As a result, net income for the quarter was $239 million. That's down 1.8% or $4.5 million versus our Q3 results last year.

Now turning to slide 3, the remaining net income available for common shareholders for the quarter, after the allocation of $2.5 million of net income to participating securities, which Roths, or the dividend paying on vested restriction shares held by our employees, was $236.8 million.

You can also see that our diluted share count for the quarter was 244.4 million shares. That's down 3.2% versus last year, driven by our share buyback activity in prior periods. The resulting diluted EPS for the quarter was $0.97 per share, an increase of $0.02 or 2.1% versus Q3 of 2014.

On slides 4 through 6, we provide the summary P&L, EPS and other information for the year-to-date period. The brief highlights our while organic revenue growth was 5.5% during the first nine months of the year, the FX headwind was even larger, decreasing revenue by 7%.

Net of the impact of our recent acquisitions of dispositions at $20 million, revenue declined on a year-to-date basis by 1.3% to just under $11 billion. While FX also negatively impacted EBITDA, which decreased 1.1%, to $1.425 billion, our year-to-date EBITDA margin of 13% was unchanged when compared to last year.

Turning to taxes on page 5, our effective tax rate for 2015, 32.8%, is in line with our current expectations for our annualized rate and reflects the impact of the legal restructuring of our European entities, which was largely completed earlier this year.

Keep in mind that the reported 2014 tax expense and tax rate reflect the impact of the $11 million tax benefit we recognized in Q2 of 2014, related to merger expenses that were incurred in 2013 and which became deductible after the termination of the merger. Because of this, we have presented the prior year's nine-month results, both including and excluding the tax benefit.

And on page 6, you can see our nine-month diluted EPS was $3.06 per share, which is up $0.11 or 3.7% versus 2014's reported figure of $2.95 per share. And up $0.15 or 5.2% versus EPS when excluding the impact of the tax benefit that was recorded in Q2 of 2014.

On slide 7, we turn the discussion to our revenue performance. First, as I mentioned a few minutes ago, this quarter we continue to see organic growth across most of our regions and service offerings. However, the effects of FX continue to more than offset the performance of our businesses.

On a year-over-year basis, in the third quarter, the US dollar strengthened against every one of our major currencies. This decreased our revenue for the quarter by $272 million or 7.2%. The decline in the value of the euro represented approximately 1/3 of the overall FX impact.

But during the third quarter, we also saw significant decreases due to declines in the pound, the Australian and Canadian dollars, and both the Brazilian reais and the Russian ruble declined by approximately 40% versus the third quarter of last year.

This latest cycle of currencies weakening against the US dollar started to impact us in the latter part of 2014. So as we cycle past the one-year mark, the currencies stay where they currently are, the FX headwinds may begin to subside.

Based on our recent projections, FX could negatively impact our revenues by approximately 4.5% during the fourth quarter, which would bring the full-year reduction to a little under $1 billion, or approximately 6.3%.

Revenue from acquisitions net of dispositions increased revenue marginally. While we've recently added businesses both domestically and internationally, we've made some strategic dispositions over the past year as well. And finally, organic growth was a positive $228 million or 6.1% this quarter.

Much as we experienced in a second quarter, we had another quarter with solid organic growth across most of our major markets, with the notable exceptions being France and the Netherlands, which continue to struggle, and Brazil which was facing a difficult economic environment and difficult comps. And we again had good growth across our disciplines, most notably healthcare, with the exception being PR, which was down for the quarter but remains up for the year.

The primary drivers of our growth this quarter included our median brand advertising businesses, which had strong performances this quarter, our full-service healthcare businesses, which continue to see the positive impact of their new business wins over the past year or so. The continued outstanding performance of our UK operations, recovery in certain euro markets driven by Germany and Spain, the performance of our emerging markets this quarter, including strong results in South Africa, Malaysia, Singapore and Thailand.

And despite the recent market turbulence in China, we also posted positive organic growth there.

Slide 8 covers our year-to-date revenue performance. The impact of FX reduced revenue by over $750 million over the first three quarters of 2015, or 7%, while organic growth over that same period was 5.5%.

On slide 9, we present are regional mix of business. During the quarter, the split of revenue was 60% from North America, 11% from the UK, 16% for the rest of Europe and 10% for Asia-Pacific. With a remaining revenue coming from our Latin America and Africa and the Middle East region.

Turning to slide 10, in North America, both US and Canada turned in solid performances and we had organic revenue growth of 6.3%. Turning to international, as I just mentioned, the UK had another strong performance this quarter. The rest of Europe was up 4.5% led by Germany and Spain.

Our businesses in France continued to face challenges with negative organic growth, while the Netherlands also continues to lag behind. As we mentioned during the Q2 call, our presence in Greece is very small, accounting for less than 0.1% of our consolidated revenue. So while our businesses in the market declined this quarter as we had anticipated, the impact overall was negligible.

The Asia-Pacific region was up 8.6% with most markets performing well, including Australia, China, Malaysia, Singapore and Thailand. The one region that lagged was Latin America which was down 6.9% organically.

While Mexico had another positive quarter, it was overshadowed by a reduction in Brazil. In Brazil, the decline resulted from the weakening of the overall economy as well as difficult comp when compared to the fairly strong performance we had in Q3 of 2014. And finally, our Africa and Middle East region was up marginally in the quarter.

Slide 11 shows our mix of business for the quarter. Once again, they are just about split equally between advertising services and marketing services. As for the respective organic growth rate, advertising services were up 9.9% or $183 million.

Marketing services were up 2.3% or $44 million. Within marketing services, CRM was up 2.8% maintaining year-to-date growth of over 3%. The trend for the quarter for the vast majority of our sub categories within the CRM discipline is up year-over-year, with the exception being our sales promotion businesses.

PR was down 1.5% in the quarter but it's still positive year-to-date. And specialty communications was up about 5.4%, with nearly double-digit organic growth in our full-service healthcare businesses, which was partially offset by a decrease in our other specialty agencies. Year-to-date, our healthcare business is up about 8% organically, driven primarily by new business wins.

On slide 12, we present our mix of business by industry sector. Comparing our year-to-date revenue in 2015 to last year's figures, you can see there were no meaningful changes in this mix by industry.

Turning to our cash flow performance on slide 13, in the first nine months of the year, we generated over $1.1 billion of free cash flow, excluding changes in working capital. As for our primary uses of cash on slide 14, dividends paid to our common share holders of $374 million were up when compared to last year as a result of the 25% increase in our quarterly dividend during 2014.

Dividends paid to our non-controlling interest shareholders totaled $87 million. Capital expenditures were $146 million. As we mentioned previously, CapEx is up from last year due to an increase in leasehold improvements related to some recent real estate consolidation initiatives.

Acquisitions including earn out payments, net of the proceeds received from the sale of investments, totaled $86 million. And stock repurchases, net of the proceeds received from stock issuances under our employee share plan, totaled $474 million. All in, we outspent our free cash flow by about $55 million for the first nine months of this year.

Turning to slide 15, focusing first on our capital structure, our total debt of $4.6 billion is up about $48 million from the second quarter. The increase is entirely due to the change in the fair value of our debt's carrying value related to the in-the-money amount of our interest rate swap as required under US GAAP. Our net debt position at the end the quarter is $3.2 billion.

The increase in our net debt of about $224 million over the past 12 months, using period end spot rates, was driven primarily by the negative impact of FX translation on our cash balances over the last 12 months of approximately $373 million, the impact of the fair value adjustment to our debt's carrying value, related to our floating rate swaps, which totaled $86 million, the use of cash in excess of our free cash flow of $42 million, and miscellaneous other items, which was partially offset by a positive contribution from operating capital of $315 million.

Although our net debt has increased over the past year, our ratios remain very strong. Our total debt to EBITDA was 2.1 times and our net debt to EBITDA ratio was 1.4 times. And our interest coverage ratio improved to 12.6 times.

Turning to slide 16, we continue to successfully manage and build the Company through a combination of strategic acquisitions and well-focused internal development initiatives. For the last 12 months, our return on invested capital increased to 17.9% and our return on equity increased to 39.6%.

And finally, on slide 17, we track our accumulative return of cash to shareholders since 2004. The line on the top of the chart shows our cumulative net income, from 2004 through the third quarter, which totaled $10.8 billion.

And the bars show the cumulative return of cash to shareholders, including both dividends and net share repurchases, the sum of which, during the same period, totaled $11.6 billion for a cumulative payout ratio of 107%.

And that concludes our prepared remarks. Please note that we've included a number of other supplemental slides in the presentation materials for your review. But at this point, we're going to ask the operator to open the call for questions. Thank you.

(Operator Instructions)

Peter Stabler, Wells Fargo Securities.

Good morning. One for John and one for Phil. John, there's some investors who are concerned that technology is enabling marketers to take more of their advertising duties in-house, effectively reducing the scope of work available for agencies. Wondering if you can comment on that.

And then Phil, could you help us understand Accuen's contribution to organic growth in the quarter? Thanks very much.

Sure. Good morning, Peter. That concern is true, but advertisers have taken various functions in-house for a very long time.

We've lived with that situation and it has not impacted our ability to grow in other areas or grow with them or collaborate with them on the areas that they've decided to take in-house.

With respect to programmatic, we continue to see growth throughout and especially -- and even with clients that have taken certain aspect of this in-house, we sit beside them and do other things. We complement their services. Out of all the concerns that we have, it's not a very impactful one.

And then on your second question, Peter, the contribution this quarter from Accuen was about $25 million in growth year-over-year for the quarter. That's a little bit less than the second quarter. Third quarter is typically a smaller quarter than the second and/or the fourth.

The rate of growth has slowed a bit versus last year in the third quarter. I think the number was about $40 million. We expect, given Accuen's been around for just about two years now, we expect that as the numbers get bigger in the base, the rate of growth was going to slow a little bit.

We're happy with the performance. Our clients are happy with the product that they're getting and we expect it to be a good business going forward as well.

Thanks very much.

Alexia Quadrani, JPMorgan.

Thank you. I guess my first question's on organic revenue growth, which has been so strong the last few quarters, including this one.

I know you have a lot less visibility, always in Q4 given sort of the project business, but any other variables that we should consider that might suggest this impressive growth rate might be a bit more muted in Q4? Then I have a follow-up.

Our internal targets are not to reach 6.1% in the fourth quarter, they are more in line with what we've said for the year. So that's number one.

And number two, as you said, and I think I've said for the last almost consistently for the last twenty years on third quarter calls, there's so much project business in the fourth quarter. It's the quarter where we have the least amount of visibility between now and December 31, because we don't know how clients with their budgets are and what they're going to do with them just yet.

Yes, that number we typically have found to be in the neighborhood of $150 million to $200 million, in potential year-end project work, closing out budgets on the client side, et cetera.

We typically don't get none of it and we typically may not get all of it, but sitting here today we don't have a lot of visibility into what that number is going to be for the fourth quarter. So as John had said, we're going to stick with our assumptions for the year, as they relate specifically to the fourth quarter.

And then just a follow-up on profitability here. I know your style has always been to optimize margins and not necessarily maximize them in any one given quarter and that's always proven to be a great strategy historically.

I guess my question though is given the organic revenue growth has outperformed at least our expectations, and then it trending a little bit above average, perhaps you could give us some more color in terms of what the puts and takes of what's leaving the margins flat and why we're not seeing expansion. I know, obviously, foreign exchange is part of it. I guess what else is limiting the margin expansion given the top line growth?

Well I think FX, actually in the third quarter, was a little counterintuitive for us relative to the first half of the year. As I said earlier, the year-to-date impact of FX was about 18 basis points.

But in the third quarter, which again is a relatively small quarter, FX impacted us by an excess of about 30 basis points. So we were a little surprised by that, but that's really just the math of where the FX impacts us. We've got a lot of corporate cost, primarily in the US, and some of our higher-margin markets outside the US were impacted a little bit more heavily by FX this quarter, as an overall percentage or proportion of the total pie.

So we think we've done a pretty good job to get back to the margins we delivered overall for the third quarter, which was where our internal targets were coming out. But FX certainly has been a big challenge for us this year. On top line, and I think in the third quarter, we had a little bit higher-than-expected impact on our overall operating costs and our operating margins.

So I think we're comfortable with the performance. I think we look at the fourth quarter, if FX rates stay where they are now, we'd expect revenues to be down about 4.5%. FX had started to come down, say late September, early October of 2014. That's when the dollar really started to strengthen significantly.

But the euro and pound actually didn't start to weaken relative to the dollar on a reported basis until early in 2015, so we expect to see some of the weakness in the fourth quarter relative to the euro and the pound, which are our biggest international markets.

And, yes, I think from a margin perspective, our expectation is the same. We're going to continue to internally drive toward maintaining margins and overcoming whatever FX has in store for us in the fourth quarter.

Thank you.

Craig Huber, Huber Research Partners.

Good morning, thank you. John, I know it's very early here, but just with the various conversations you're having with your clients out there, is there anything that you're sensing out there that the rate of growth on a organic basis as you look out into say the first half of next year, is going to be materially different or lower than the 5.5% you guys have reported year-to-date?

I don't have any specific information yet. Clients are really focused on finishing out this year and we won't start those dialogues probably until late November, the beginning of December.

Every one of the CEOs that I've talked to remain cautious and some are conservative because of all the macroeconomic issues there are once you get outside the United States. And so it's a little too early to give you more color or depth on that question.

Then John also, in the third quarter, what was your net new billings winnings? I know you generally try to get at least $1 billion. What was it for the third quarter?

Yes, it was just under $1 billion, probably close to $950 million for the quarter.

Okay, then lastly, can you just give us a little more flavor on the countries outside the US that would have cost and their revenues are not perfectly matched, just give us a sense what regions or countries specifically that's hurting your margins, please, from FX.

Brazil, right?

Yes, just to clarify, Craig, it's not really an issue of the cost and the revenues not matching up. We probably have a couple of exceptions here and there. It's not necessarily a region that's an exception as far as our revenue and costs being denominated in the same local currency. It's really just a matter of mix.

So, some of our higher-margin markets, Canada, Australia, Brazil and actually Russia, although Brazil and Russia, given the currency impacts are much smaller than they were last year.

When we have higher-margin markets that are impacted significantly by FX, we have less revenue and less EBIT. The less EBIT over what is a large US dollar driven denominator ends up having slightly lower margins because there's less EBIT from those markets where the currency negative was larger than the proportion of the total.

Great.

So hopefully that clarifies it for you, but it's back to, it's not always intuitive. It's not always in a straight-line how FX impacts each of our international operations.

Got it, thank you.

Dan Salmon, BMO Capital Markets.

Good morning, everyone. John, you took some time out your prepared remarks to comment around the role of independent verification, and in particular, noting publishers cannot grade their own homework. And of course the advertisers and their agents, they have some conflicts in these sort of dealings as well.

And so, I was hoping you could expand a little bit on what type of services you feel Omnicom is doing well providing to the advertisers within that traditional construct and where you see the role of companies like Nielsen, really truly independent measurement companies today, and then maybe also a follow-up comment on how you view the comScore and Rentrak merger, especially in light of the fact that one of your competitors remains a minority investor there, if not a board member?

Sure. Just one clarification. We don't have any -- when it comes to verification or any of these immediate ownership, we don't have any of those conflicts with our clients. It's very important to make sure that everybody understands what Omnicom owns and doesn't own.

And in terms of the verification services that I mentioned, we paid for those. We haven't -- they've been embedded in our performance Accuen type of revenue associated with clients where we promise a result and to make sure that our result is accurate, we've gone out since 2013 and hired third-party verification people to come in and tell us -- Gee, what is the viewability? Where's the audience coming from? You look like you're reaching enough people but are they really out of the market, are they coming in from India or someplace that you don't even sell your product?

So we've gone through that exercise to legitimize our efforts in this area and it expands all the time. We believe that the time has come to agree industry standards and select third-party verification firms that clients are comfortable with and the providers are comfortable with and make them a part of the normal practices that occur between client and agency as we perform these duties.

The firms that you mentioned, Nielsen [and Scott], a fabulous business and you can do all sorts of wonderful things. I don't know specifically what it is working on in this area, especially mobile and comScore and Rentrak is a great firm we have relationships with them and we get certain data and information from them as well, irrespective of the fact that W3P owns 20% of them.

So this is a process, but I think the time has come because of the amount of spending that clients are directing towards digital channels to really agree these areas. And publishers, they're the ones selling the content. We believe they need to step up and provide third-party verification.

Great, thank you.

John Janedis, Jefferies.

Thank you. Phil, the buyback pay slowed a bit in the third quarter and so I wanted to ask should we assume that there are some assets you're looking at in maybe the $100 million-plus range and if those don't close you'd look to increase the buyback?

(Laughter) I think certainly our capital allocation strategy hasn't changed. I'll start with that. We're going to continue to look for acquisitions that are the right fit, meet our strategic requirements, and we're going to be aggressive in trying to find those assets and help us to grow the business, where we think it makes sense.

But to the extent that the right opportunities aren't available or we're not successful in reaching a deal that make sense for us and frankly for the seller, for the long-term, we're going to put that money to use in terms of buybacks.

So that approach hasn't changed. We are in the process of negotiating some deals. The pipeline is strong at the moment. We're not certain ultimately where we're going to get to in each of these cases, but there are some transactions we're certainly evaluating. And we're going to continue to evaluate and frankly that's no different than any quarter.

But given we're headed into the fourth quarter here, either we're going to spend some of this excess free cash that we have on some acquisitions, and if we don't, we'll hold true to our pattern of putting that cash to use in the way of buybacks prior to closing out the year.

That's helpful, thanks. And maybe a follow-up to Alexia's question. I know there are a lot of moving pieces, but with the FX moderating and the cost initiatives kicking in, should margins start to ramp into next year assuming organic growth remains healthy or have you deferred some investment given the FX pressures?

I don't think we've deferred any investment, certainly no investments that we've felt are necessary to continue to build on the foundation to provide for stable and consistent growth into the future. But we're always looking for ways to be more efficient.

We've got some initiatives that have started to give us some traction. We think we're pretty efficient already but we know we can be more efficient and there are more opportunities to take some cost out of the business.

I don't think we're ready yet to commit to what our expected growth rate is in 2016 or what our expected margins are in 2016, but we think as we continue to grow and as we continue to push these initiatives we're going to find some ways to find some leverage in the business, yes.

And then just maybe one quick organic expense question. Can you give us organic expense growth for third-quarter maybe ex currency?

Organic expense growth? I'm not sure -- we don't really track expenses on an organic basis, but if you give me a minute I can give you an idea what the constant dollar numbers were for our major line items. I think on a constant dollar basis, salary and service was just over $3 billion and office in general was just over $480 billion.

Thanks so much.

Sure.

Ben Swinburne, Morgan Stanley.

Thank you. Two for John and one for Phil. John, can you just talk about the European markets, which performed well, I think this was your best euro quarter, going back on the way until 2010, and last quarter was showing improvement too. I know you called out some countries that are holding you back, but are you more confident in the euro outlook as you go from here, given what you've seen the last six months?

Yes is the short answer. We just had our Board meeting last week in Berlin and we had the opportunity to visit with all of our German subsidiaries and they were very confident. The German economy is very, very strong, that's why we called it out.

Spain has really turned around compared to what it was in the past. We didn't call out Italy, although in the quarter it had year-over-year growth. The reason we didn't call it out is because we still have a quarter to go, so we're a little bit cautious.

And both France, which has been almost flat for the first six months, went a little negative in the last quarter, and the Netherlands has been an issue for us for the last really almost two years.

So the big markets in Europe are all showing signs of progress, with the exception of the Netherlands. But at some point, that will flatten out on us as well, and won't drain from the growth of the stronger markets. So yes, I think Europe still has a long way to go, but our performance has been pretty steady and we continue to make progress.

Great.

Yes, we're making good progress actually in certainly smaller markets, so temperate with that, but the non-euro markets our businesses have actually continued to perform well there as well.

And in those small markets, we've also taken actions to refocus and resize our offerings.

Then I just had two questions related to the broad topic of digital. John, a year ago, a little over a year ago at Adweek, you announced a pretty big Facebook partnership.

I just was curious if you could give us, at the 12-month mark, how that's going, if you're integrating Atlas as you expected, any surprises, positive or negative. And then, kind of related, hopefully related, for Phil, if you look at your salary and services margins as a percent of revenue, I think since 2012 it's been going up about 50 bps a year, you talked about currency this year. I'm guessing digital is a factor there as well.

I'm just wondering if there are anything we're missing that might be driving that up as a percent of revs that we don't talk about and as we think about going forward whether that is something you expect to continue or any visibility on what's happening there beyond currency would be really helpful. Thank you.

Well, with respect to Facebook, we did announce last year this time and our relationship with them is very, very positive. We find them extremely cooperative and we utilize their services. We've had growth in our spending with Facebook.

Is not limited to Facebook. We also have very strong relationships with the other major players: Google, we've experienced a lot of growth, and Twitter, our relationship with Twitter has expanded recently. So we are growing with them in most instances. And our relationships are solid across the board, I think.

Back to the second question, so salary and service we expect they're more variable and flexible than our office in general costs and we'd expect them to grow a bit as our revenue grows.

I think, in this year, we found through September 30, our headcount numbers are up a bit primarily probably in the US and a little bit in the UK. So the number we expect to grow with our revenues office in general, which are more fixed in nature, we expect them to, as a percentage of revenue, which is how we look at the numbers, we'd expect them to decline over time.

And given some of the initiatives we have, especially in the area of real estate, we'd expect to continue to pursue those opportunities to reduce those costs and keep them as low as possible. So I think the trend is what we would expect to see.

Okay. Thank you.

(Multiple speakers) I think we're right about the time that the market's going to open, so I think if we could do one more question.

Tim Nollen, Macquarie.

Thanks very much for fitting me in. I just had one other issue. You mentioned the question about viewability and measurement. I wonder if you have any comment on this latest scourge of ad blocking.

There's been a lot of back-and-forth and I just wonder what your view is on what happens with ad blocking, what the impact is to you and the agency, and also to the various media? Thanks.

Ad blocking is a very -- it's a large question, both advertising, because it was almost center stage at the [A&A] last week. We have taken the view, although we watch it, that if you -- the consumer is in control. It's never been more evident than it is today. And consumers will embrace an ad supported content model when they understand what it is we're trying to communicate and the quality of the creative.

I tend to agree with some CMOs which have basically said if we focus on great work, that consumers will be interested in, that we'll get past the ad blocking concerns that are in the marketplace.

It's an ongoing battle. People don't have to sit there and suffer things that are not of interest to them and so it's incumbent upon us to improve the product, and the battle, though, has gone on. Some high-quality publishers are already requiring users to disable their ad blockers in order to gain access to their content.

We'll see what happens in that battle. Everybody front and center. We're certainly addressing ourselves to it by focusing on the work and the content that we provide to the consumer.

Thanks a lot.

Okay. Thank you all for joining the call. We appreciate it.

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation in using the AT&T executive teleconference. You may now disconnect.