宏盟集團 (OMC) 2016 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Omnicom third-quarter 2016 earnings release conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. At this time, I would 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 2016 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 have posted on our website, www.OmnicomGroup.com, this morning's press release, along with the presentation covering the information that we will review this morning. 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 have included at the end of our investor presentation. And to point out that several 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 will find the reconciliation of those measures to the nearest comparable GAAP measures in the presentation material.

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

Thank you, Shub. Good morning, everyone, and thank you for joining our call. I'm pleased to speak to you this morning about our third-quarter 2016 business results.

Organic revenue growth for the third quarter was 3.2%, which is in line with our internal targets. For the nine months ended September 30, organic growth is 3.4%. Our EBITA margins exceeded our expectations and increased 40 basis points for the third quarter, and are up 40 basis points for the nine months ended September 30. Based on our year-to-date results, we are on track to meet our internal revenue and margin targets for the year.

As we have discussed, foreign exchange continued to have a negative impact on our earnings during the quarter, although the effect of currencies has significantly declined compared to what we experienced in 2015. At this point, the biggest movement is the decline of the British pound versus the US dollar. Phil will provide more details on our margin improvement and currency outlook during his remarks.

Turning to our organic growth, it was broad-based across our major regions and disciplines. This growth highlights the consistency and diversity of our operations, even in the face of tepid economic conditions and the uncertainty created by events in our two largest markets: the presidential election in the United States and Brexit in the UK. Our performance underscores the strong competitive position of our agencies across the spectrum of advertising and marketing disciplines and key geographic markets, as well as our digital and analytical expertise.

Looking at organic growth by region, North America was up 1.7%. This was in the face of difficult comps when compared to the third-quarter 2015. North American growth was driven by strong performance in media and public relations.

Our UK organic growth was 5.2%, reflecting very solid performance from our portfolio of agencies in the market. The situation in the UK is clearly something we're monitoring closely. At this point, we are not able to fully assess the effect Brexit could have on our operations in either the UK or the rest of Europe.

In Europe, we experienced growth of 2%. The eurozone markets were essentially flat for the quarter, as very strong growth in Italy and Spain was offset by a difficult quarter in Germany and declines in France and the Netherlands. Outside the euro markets, growth was in the low teens, with the Czech Republic, Russia and Sweden outperforming during the quarter.

Turning to Asia, third-quarter organic growth was 8%. Australia, India, Japan and New Zealand all had strong results, and growth in Greater China moderated to just over 4%. Latin America was up 11.9%, driven by very strong performance in Mexico. Brazil was also positive for the quarter, helped in part by Olympic activity.

EBITA for the quarter increased $27.4 million or 6% to $482.1 million. Our EBITA margin increased to 12.7% versus 12.3% in the third quarter of 2015. Looking at our bottom line, net income available for common shares for the third quarter of 2016 increased $15.8 million or 6.7% to $252.6 million. And our average share count was down 2.3% from the prior year. The combined result was an increase in EPS of 9.3% to $1.06 per share for the quarter, versus $0.97 per share for the same quarter a year ago.

For the nine months ended September 30, our cash flow balance sheet and liquidity remained very strong. We generated $1.1 billion in free cash flow, and returned approximately $800 million to shareholders through dividends and share repurchases.

Looking at the rest of the year, there are a couple of factors that result in less visibility as we plan for Q4. As has consistently been the case over a number of years, there's quite a bit of project work in the fourth quarter that can impact revenue. Each year, we have found this year-end project work is between $200 million and $250 million.

Client spending on these projects is not easily forecast, and typically is based on individual client circumstance and general economic conditions. This year is further complicated by the upcoming US presidential election, the increasing likelihood that the Fed will raise rates before year-end, and the potential effects of Brexit.

Partially offsetting these unknowns is our recent new business success. Some of these wins, like AT&T, will start generating incremental revenue in the fourth quarter. And others, like Volkswagen Media and McDonald's, will not contribute to incremental revenue until January 2017.

Let me now discuss what we are seeing in the industry and how our strategies allow us to achieve consistent financial results. During the third quarter, we stayed focused on executing our strategies for growth; attracting, retaining, and developing top talent; extending our capabilities around the world and moving into new service areas; building our digital and analytical competencies by investing in platforms and agencies and partnering with innovative technology companies; and collaborating to deliver big ideas and results based upon meaningful consumer insights across all channels.

The significant wins I just mentioned prove Omnicom has the brightest talent, using the latest digital and analytical tools in the marketplace. In August, we were awarded the consolidated data analytics, media, digital and creative business for AT&T across the United States and Mexico. AT&T is the largest advertised brand in the United States, and the second largest advertiser.

BBDO had a significant share of creative for many years, and now adds responsibility for the subscription TV business, including DirecTV and the Internet service businesses. Hearts & Science will be their new media agency. It will be a fully integrated offering, with people from BBDO, Hearts & Science and other Omnicom agencies sitting and working together in offices in New York, Dallas and Atlanta.

Late in the quarter, McDonald's chose Omnicom to consolidate its US creative account under the leadership of Wendy Clark, DDB North America CEO. We've been a partner of McDonald's for over 40 years, and look forward to taking our partnership to a new level. We are forming a dedicated agency for McDonald's based in Chicago, with data and digital at its core. It will house talent from several Omnicom agencies that will work jointly to deliver seamless execution across all platforms and disciplines, including creative, media and sales promotion.

The client feedback from these wins highlights two major themes. First, we have outstanding talent that can truly work together. And second, we have the ability to leverage superior data and analytics that drive sharper insights, more relevant and resident creative work, and more efficient and effective media delivery.

Effective collaboration among our agencies and with our clients and outside partners is part of the culture we have worked to organically build at Omnicom. It's gratifying to see that it is being recognized by clients. We believe the ability of our people to effectively and actively coordinate will be increasingly important as marketers use data-driven insights to inform creative and media planning.

Over the past few months, I've had the pleasure to work with our people on some of the biggest new business pitches we've ever seen. Many gave up their holidays and vacations, even honeymoons. I want to thank and congratulate all of our agencies and our people for their dedication, commitment and ongoing success on this front.

Underpinning all of this is Annalect, our cornerstone data and marketing and sciences group. We built it from within, and continue to invest in it. We developed this capability in-house, as opposed to trying to gain this competency through bolt-on acquisitions. As a result of this internal investment, the level of collaboration and integration of Annalect with our agencies across the group is second to none. Annalect's data scientists are embedded across our group in almost all disciplines, from media to creative, and most recently, to CRM and PR. It has evolved to play a major role in servicing our existing clients and winning new business, and is truly a differentiating asset for us.

Our belief in investment in talent, data and analytics, creativity and collaboration as core strategies, are paying off. Our ability to innovate was formally recognized last quarter when Forbes magazine named Omnicom one of the 100 most innovative companies in the world. It is a significant recognition for us. And what's more, it's a first for any advertising and marketing company.

On the topic of winning, let me just mention a few highlights from the Spikes Advertising Festival recently held in Singapore, which is considered the [con] of Asia. BBDO Asia Pacific received top honor, winning Network of the Year for the third year in a row. Pollenca BBDO won Agency of the Year, while its sister shop, Clemenger BBDO, came in second. TBWA Hakuhodo was the Digital Grand Pre-winner and won 12 Spikes. All told, 31 agencies in 10 countries contributed to more than 130 Spike awards.

I want to congratulate everyone who helped win these awards. Your talent is a great reflection on Omnicom, and your hard work is appreciated.

Omnicom's ability to win awards relies on talent, and for us, that means a diverse workforce. We recognize that a diverse group of people will create a stronger culture, perform at a higher level, and will be better at developing meaningful insights and creative content. That's why we continue to push hard on our diversity initiatives.

Last quarter, Omniwomen, which is well-established in the United States and Europe, formerly launched in Asia with an event in Shanghai to inspire and celebrate women in our agencies in Greater China. Omniwomen serves as a catalyst for increasing the influence and number of our women leaders, and I'm especially proud of this effort and the benefit it provides to our people, our clients and the Company.

We also launched Open Pride, a resource group, to inclusion and diversity efforts across Omnicom. Open Pride promotes awareness, acceptance and advocacy by fostering an inclusive and engaging work environment for Omnicom's LGBT community.

In closing, we achieved our goals for revenue growth margins and profitability in the third quarter, and remain cautiously optimistic for the fourth quarter. I will now turn the phone call over to Phil for a closer look at the third-quarter results. Phil?

Thank you, John, and good morning. As John said, our business has once again met the financial and strategic objectives we set for them. They also performed well in meeting the objectives of their clients, as well as winning new business. For the third quarter, organic growth was 3.2%, and for the year-to-date period, it was 3.4%.

FX continues to represent a headwind to our revenue, driven in large part by the weakening of the British proud year over year. For the third quarter, the FX impact reduced revenue 1.3% or about $50 million. Including the positive impact of 0.4% from our net acquisition activity, total revenue for the quarter was just under $3.8 billion, an increase of 2.3% versus Q3 of last year. I will review our revenue growth in detail in a few minutes.

Moving down the income statement to the items below revenue, our Q3 EBITA increased 6.0% to $482 million. And the resulting EBITA margin of 12.7% represents a 40-basis point increase over Q3 of last year. The increase, which exceeded by a bit our targeted 30-basis point improvement for the full year of 2016, is mainly the result of our ongoing initiatives to leverage scale and enhance efficiency on a Companywide basis, as well as a change in business mix for the quarter. Operating income, or EBIT, for the quarter increased 5.8% to $453 million, with operating margin improving to 12.0%, in line with the EBITA margin improvement.

Now turning to the items below operating income. Net interest expense for the quarter was $42 million, down $2.8 million versus the second quarter of 2016, and up $6.1 million versus Q3 of 2015. Gross interest expense was down slightly compared to Q2 2016.

As you know, when our $1 billion in 2016 senior notes reached maturity back in April, we issued $1.4 billion of 10-year senior notes due in 2026. We also entered into a fixed-to-floating interest rate swap on $500 million of the 2026 notes. Although we incrementally added $400 million in debt, the net effect of the reduction in rates on the new notes, combined with the rate swaps, reduced our gross interest expense. Third-quarter had the benefit of this reduction for the full quarter, compared to only a partial benefit in Q2, resulting in a reduction compared to Q2 of approximately $1.5 million in interest expense.

As compared to Q3 of last year, the increase in gross interest expense of $7.3 million primarily resulted from the termination of the fixed-to-floating rate swaps on our 2022 notes. Interest income earned in Q3 of 2016 was a bit higher when compared to both Q2 of 2016 and Q3 of 2015, resulting from higher interest earned on the cash held by our international treasury centers. Our effective tax rate for the third quarter was 32.7%, which is in line with our current expectations for our annual rate.

Earnings from our affiliates totalled $1.4 million for the quarter, down a little versus Q3 last year. The allocation of earnings to the minority shareholders in our less-than-fully-owned subsidiaries decreased $3 million to $24.4 million. The decrease is the result of purchase in minority interest in certain subsidiaries over the past year, operational changes in a few agencies, and the negative affect of FX because a large portion of our less-than-fully-owned subsidiaries are located outside the US. As a result, net income was $253.8 million. That's an increase of $14.5 million or 6.1% versus Q3 of last year.

Turning to slide 3, the remaining net income available for common shareholders for the quarter after allocation of $1.2 million of net income to participating securities was $252.6 million, up $15.8 million or 6.7% when compared to last year's Q3. You can also see that our diluted share count for the quarter was $238.7 million, which is down 2.3% versus last year as a result of repurchases of shares over the past year. As a result, diluted EPS for the quarter was $1.06, up $0.09 or 9.3% versus Q3 2015.

On slides 4 through 6, we provide the summary P&L, EPS and other information for the year-to-date period. Since the year-to-date results are essentially in line with the results for the quarter, I will just give you a few highlights. While organic revenue growth was 3.4% during the first nine months of the year, the FX headwind reduced revenue by 1.9%.

Factoring in the increase from acquisitions, net of dispositions of 0.3%, our revenue increased on year-to-date basis by 1.8% to just under $11.2 billion. EBITA increased 4.7% to just under $1.5 billion. And consistent with our third-quarter performance, both our EBITA and operating margins increased 40 basis points on a year-to-date basis compared to last year. And on slide 6, you can see our six-month diluted EPS was $3.31 per share, which is up $0.25 or 8.2% versus 2015.

Turning to slide 7, we shift the discussion to our revenue performance. Regarding FX, while the volatility in the foreign currency markets has declined over the past year, the continuing slide of the British pound after the Brexit vote in late June remains a notable exception. In isolation, the FX impact of the pound decline reduced our revenue by about $60 million in the third quarter.

As for other notable currency moves on a reported basis, compared to Q3 of 2015, the dollar strengthened in the quarter against the Chinese wan and the Mexican peso. And conversely, the dollar weakened against the Japanese yen, the Aussie dollar and the Brazilian real. As a result, the net impact of FX decreased our quarterly revenue by $50 million or about 1.3%.

Looking ahead, if rates stay where they currently are, the negative impact of FX is expected to reduce revenue by about 1% during the fourth quarter of 2016, which would bring the full-year estimated reduction to around 1.75%. Revenue from acquisitions net of dispositions increased revenue $15.3 million in the quarter or 0.4%. We expect the impact of acquisitions net of dispositions will remain roughly the same in Q4.

And finally, organic growth was positive $119 million or 3.2% this quarter. For the quarter, we had positive organic growth across all of our major markets, with the exception of Germany and Singapore, as well as France and the Netherlands. The primary drivers of our growth this quarter included the continued strong performance across our media businesses, as well as certain of our advertising agencies, in the face of difficult comparisons to the growth in the same quarter in 2015. As well as our full-service healthcare businesses, which had a strong quarter, with particular strength internationally. And our public relations businesses perform well across most markets, with particular strength in the US.

On slide 8, highlighting our regional mix of business, you can see during the quarter, split was 59% for North America, 9% for the UK, 16% for the rest of Europe, 11% for Asia Pacific, 3% for Latin America, and a little less than 2% for Africa and the Middle East.

Turning to the details of our performance by region on slide 9, in the face of difficult comparison to Q3 of last year, when organic revenue growth exceeded 6%, organic revenue growth in North America was 1.7%. In the quarter, we saw strong performances from our media and PR businesses.

In Europe, the UK had organic growth of 5.2%, with good performances across the portfolio, especially in our media, specialty healthcare and PR businesses. The rest of Europe was up 2%. Our agencies in Italy and Spain performed well, while Germany was negative organically for the first time in several years, and the Netherlands and France continued to struggle. Growth in Europe outside the eurozone was strong, and especially notable in the Czech Republic, Russia and Sweden.

The Asia Pacific region was up 8%. Once again, most major markets in the region performed well in the quarter, including Japan and Australia, as well as Greater China, which continues to grow albeit at a slower rate than in prior years. We also saw solid organic growth from the emerging market countries in the region, including India, Indonesia and the Philippines.

In Latin America, the region had an excellent quarter, with organic revenue growth of 11.9%, with Mexico leading the way. Brazil was positive in the quarter, helped some by Olympic activity. While the revenue performance in Brazil has improved each quarter this year, the questions regarding the political and economic climate remain too unsettled to confidently predict when we will see the market return to consistent growth going forward. And Africa and the Middle East, our smallest region, was up double-digits organically for the quarter, driven by the strength of our agencies in South Africa and the UAE.

Slide 10 shows our mix of business by discipline. For the quarter, the split was 52% for advertising services and 48% for marketing services. As for their performance, our advertising discipline was up 3.6% compared to Q3 of 2015, which was a challenging comparison given the strong performance last year. The growth was led by the performance of our media businesses, which performed well across almost all of their offerings and in all markets, as well as good performance at certain of our advertising agencies.

While CRM returned to positive organic growth, up 1.6% for the quarter, the results remain mixed across businesses and geographies. While our shopper, marketing and direct and interactive businesses had a nice quarter, our field marketing and point-of-sale businesses and our event businesses continued to struggle, as did our branding businesses.

PR was up 4.4% this quarter, although this is compared to a relatively easy comp in the prior year. And specialty communications was up 6.2% organically. The solid performance was driven by Omnicom Healthcare Group, with notable performances by its agencies outside the US.

Although we remain on track to meet the internal target we set for organic growth for the full year of 3% to 3.5%, as John said earlier, as we go through our planning process for Q4, there were several factors that result in less visibility that could have an impact on our current expectations for revenue growth for the fourth quarter.

On slide 11, we present our mix of business by industry sector. In comparing the year-to-date revenue for 2016 to 2015, you can see there were some minor shifts in the distribution of our client revenue between industries, with healthcare and travel and entertainment up slightly as a percentage of revenue, and retail and tech down. But nothing particularly significant.

Turning to our cash flow performance on slide 12, you can see that we generated just over $1.1 billion of free cash flow during the first nine months of the year, excluding changes in working capital. As for our primary uses of cash on slide 13, dividends paid to our common shareholders were $374 million. The 10% increase in our quarterly dividend was effective with the payments we made during Q3 of 2016. Only one of the three payments so far this year was at the higher amount. And the cash flow impact of that higher payment was partially offset by a lower share count due to repurchase activity.

Dividends paid to our noncontrolling interest shareholders totaled $71 million. This is down versus last year due to the purchase of additional shares from our local partners. Capital expenditures were $101 million, a reduction compared to 2015, resulting from lower spending on leasehold improvements and an increase in our equipment leasing program.

Acquisitions, including earn-out payments, totaled $438 million. And stock repurchases net of the proceeds received from stock issuances under our employee share plan, totalled $423 million. All in, we out-spent our free cash flow by just over $300 million in the first nine months of the year.

Turning to slide 14 regarding our capital structure at the end of the quarter, our total debt at September 30, 2016 of just over $5 billion is up about $435 million from this time last year. This increase reflects the incremental $400 million in our borrowings related to the debt issuance back in April. Along with an increase in the noncash fair value of our debt to about $20 million, directly related to and offset by positive fair value of the respective interest rate swaps on our debt, and as required to be reported on the balance sheet under US GAAP.

Our net debt position at the end of the quarter, $3.06 billion, down $105 million compared to September 30, 2015. The positive change in operating capital of approximately $440 million was partially offset by the overspend of our free cash flow by about $295 million for the 12 months ended September 30, 2016, as well as the noncash US GAAP adjustments for the carrying value of our debt. Net debt increased by $1.1 billion compared to year-end as a result of the use of cash in excess of our free cash flow of approximately $300 million, the uses of working capital that typically occur through the first nine months of the year, which approximated $785 million.

As for our debt ratios, they remain strong. Our total debt-to-EBITDA ratio was 2.2 times, and our net debt-to-EBITDA ratio was 1.3 times. And due to the year-over-year increase in our interest expense, our interest coverage ratio decreased to 11.1 times, but it remains quite solid.

Turning to slide 15, we continue to manage and build the Company through a combination of well-focused internal development initiatives and prudently priced acquisitions. For the last 12 months, our return on investment capital ratio improved 19.4%, while our return on equity increased to 47.1%.

And finally, on slide 16, we track our cumulative return of cash to shareholders over the past 10-plus years. The line on the top of the chart shows our cumulative net income from 2006 through the third quarter of 2016, which totaled $10.4 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 $11.4 billion, resulting in a cumulative payout ratio of 110% over the period.

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)

Alexia Quadrani, JPMorgan.

John, can you comment on the underlying health of the advertising business, what are the underlying trends? I know Q4 is difficult to project. You mentioned the project business, which obviously I totally understand. But trying to get a sense if you think the underlying revenue trends remain unchanged from what you've seen year to date?

And then specifically in the US, I know the comps were very hard in the quarter. But anything else influencing specifically the US that we should keep in mind when we're thinking about the rest of the year? And did P&G, did it benefit the quarter at all in Q3, or is that something we'll see more in Q4?

Well, I think this marks -- this call, I think, is about my 80th call as CEO. And for each of those 20 years, in the third quarter, I think I've said the last several years, it was 200 to 250. We talked about the project business that's very difficult for us to forecast today, and we just have to experience it as we go through the rest of the quarter. I think there's only one year that it didn't come in, out of those 20 years, and that was probably 2008.

So I'm cautious, but we're looking at everything. We don't see any fundamental changes to the trends that we've experienced and have been experiencing. Our new business wins, some of them don't kick in or start to contribute to incremental revenue until 2017. So we're glad to have them, but we're in the process of trying to staff up for them now. And there's no large contribution that's going to solve that problem for us immediately in the fourth quarter. But looking past that, those trends are good.

It's business as usual. I think the thing that's made this fourth quarter a little crazy is the general election and uncertainty with what the outcome is going to be. And clients who have the ability in a low-growth environment to hold back on projects, have been waiting to put this behind us. And hopefully it will be soon.

So that's really the state of the state, Alexia. And the US is the largest part of our portfolio. We're well-represented in the US, but all this noise isn't contributing anything. And in the past, we probably participated in years of presidential elections to a greater extent than we're participating this year, because whereas the Democrats are spending money, the Republicans are not, not to the same level.

Yes, so other than one small business that consults in political space, really haven't seen any impact of the general -- or frankly, any of the other national elections -- have an impact on our Q3. We don't expect it to really impact Q4.

And I think specifically, you asked about P&G, Alexia. There is a benefit for P&G in the quarter. We're going to stick to our approach of not discussing revenues of any particular one client, but there is a bit of a benefit, overall, not very large relative to the totality of Omnicom.

Okay, Angel, thank you. And just one more question, a broader question. You've won some, you pulled in some big high-profile accounts, consolidated to your benefit lately. And I know those are just the headlines, and you always have the engine running that we don't necessarily see. But talking about these big headline wins, is there anything different in the new business environment that is clearly to your benefit? Or is it still one competitor that's still a little bit losing more share than others? Is it more of the same? Any color on those bigger wins that we've seen? Thank you.

I think the key that we're seeing, in an environment of doing it better, cheaper and faster, is our ability to coordinate and the collaboration that I'm getting across disciplines, especially in the area of media and general media advertising. But I shouldn't limit it to that. That's where you see the biggest headlines. But it's really across the whole Company. And we got to exhibit that in a very strong way during the third quarter with the challenges that we had and the wins that we had.

All right, thank you very much.

Craig Huber, Huber Research.

A few housekeeping questions to start, thank you. In the third quarter, I'm curious, what was the net new billings? I assume you typically try to get about $1 billion on a net new billings basis. What was it?

The number was about $1.9 billion, so just under $2 billion.

Okay. And then what's going on with Germany? You said obviously it's been a good, strong market for you relative to the rest of Europe here for a number of years. All of a sudden now it's turned down year over year. Is it a local economy there, or is there something else going on, on the account front?

From our perspective, Craig, I think it's just one quarter. And the third quarter is relatively small compared to the second quarter and the fourth quarter. Last year, in the third quarter of 2015, we had growth in Germany of around 8% organic. So big quarter last year, the comps were difficult. We're not looking at the third quarter of 2016 here as a trend. And we think we've got challenges and difficulties at our agencies in Germany as we head into the fourth quarter in 2017.

So we wouldn't draw a trend as we look forward with Germany. We think they had some difficult comps. Some of it might be timing, quarter over quarter. So we're not overly concerned with our performance in Germany.

And then back on North America, please, the 1.7% organic number, that's third quarter. Are you feeling right now that the fourth quarter is setting up to be a similar-type growth rate as you saw in the third quarter? Or could it rebound potentially back to how it was in the first-half? Or is that too optimistic?

I think John can echo my comments, but I think it's still a little bit early to tell. We don't think there's anything fundamentally that's an issue in the US, in North America, for us and our agencies. We think there's some uncertainty out there in the overall environment that could have something to do with it. We certainly had some challenging comps in the third quarter versus Q3 of 2015. And we'll have a much better perspective on that as we go through our planning process over the next few weeks. Go ahead.

I was just going to -- lastly, what was the gross amount of shares you bought back in the quarter? Thank you.

Sure, just give me one second and I'll have that. During the quarter, that number is about 883,000 shares.

Great, thank you.

Tim Nollen, Macquarie.

Could I come back on the US growth question again? You basically had a declining growth rate for the past four quarters there, obviously off a very nice high a year ago. I'm struggling a little bit to understand, is it things like CRM and events that you mentioned in your general comments, that were in the US specifically? Was it anything to do with TV or internet spending that you could comment on?

And in general, is there any observation you could give us as to the TV versus online spending situation, which has been fluctuating between the two for the last few quarters? And we've heard, obviously we've seen very poor ratings for TV, and we've also had a lot of questions around measurement of internet viewership. So I'm wondering what your updated thoughts are there, please?

Sure. Well, in the area of field services, which has always been a revenue contributor, we've done a lot of consolidation in that it tends to be a good business, gives us positive EBIT, but at a lower margin. And as we look at some of those things, we haven't pushed as hard as we would have in the past. We saw a conservatism, I think, in terms of some of the events that have happened in the past. I think the Olympics was tepid, at best, so it didn't make the same level of contribution that we'd expect from almost any other Summer Olympics. And our branding businesses, we see a little bit of conservatism there in terms of projects getting pushed back or delayed, in terms of what clients are spending their money on.

So it's just a general conservatism. But I think it's been, as I said, and everyone knows this, a very unusual year with this presidential election. And people don't know how -- I think they can probably take a very good guess as to who's going to become President, but they don't know what's going to happen to the Congress. And so I think once that's cleared up, people will adjust and get back to doing whatever they can to grow their top line.

I think on your question regarding TV and online spend, in terms of our base of business and our revenues, we don't think that had much of an impact one way or the other on us, in terms of it being more beneficial to us or less beneficial to us. Certainly we've seen a bit of a shift over the years. Clients are spending more online versus in the traditional TV area.

Did that rate of growth or rate of shift slow a bit? It slowed a bit, but clients certainly didn't pull back and stop spending online versus TV. I think we see that trend continuing. We don't think it's going to dramatically impact our revenue streams, and didn't in the quarter.

And in the area of measurement, I think certainly that had something to do with it. We think there's plenty of players involved that are working closely to come up with a better solution, so that clients' comfort levels can get to the point where they are more confident that they're getting what they paid for. And I think we're going to see that continue to evolve, and continue to get better and better, and clients get more comfortable with where they are spending their money -- that they're getting the value that they're paying for.

Okay, thanks. So it sounds like from the TV versus online, it's a relative moderation on the online side. Has TV also moderated, or has that remained strong?

We think it has remained strong. I think the ratings declines are certainly having an impact on pricing, but certainly clients see it as a very valuable part of their media mix.

Sure. Thanks very much.

Julien Roch, Barclays.

Thank you for taking the question. First one is, could we have the contribution of Accuen in the organic in Q3?

Sure, yes. In Q3, Accuen contributed about $10 million in revenue growth.

$10 million. Thank you. The second question is, you won quite a few significant flagship accounts like AT&T, McDonald's, P&G. I know you said you weren't commenting client by client, but if you take the flagship accounts, would it be possible to have an idea of the boost to organic in 2017? Is my second question.

And then the third one, there was quite a few industry press articles about McDonald's and being a new type of contract, with zero budgeting and then you getting paid based on performance. Most of your competitors said they wouldn't do it, it wouldn't be profitable. But being competitors, they would say that. I'm sure you think it can be very profitable. So without getting into confidential information, can you give us some color on how that contract is structured, and whether it can be more or less profitable in a normal contract? Thank you.

Sure. First of all, we're not ready to talk about what our objectives are for 2017. We're very pleased with these wins, but they'll only be a component part of how the whole Company performs. And we have to go through a very bottoms-up profit planning process between now and the end of the year, that is traditional in the Company. But you would always rather win a client, a new piece of business, because that makes that process easier as you move forward.

With respect to McDonald's, the McDonald's contract, which I won't go into in detail, will be profitable. And whatever a competitor says, they have said. Our goals and objectives in that contract, which get us paid, are perfectly aligned with how we can impact the business and with their management's goals and objectives. So we have a high degree in confidence about what we'll be able to achieve.

Yes, I think one other comment on the wins. So while we do have some work to do in terms of our planning process, to get a better handle on the actual numbers, in terms of the impact as we look at 2017, certainly we look at the wins as bigger in the perspective that Hearts & Science really has a big strong base now, in addition to P&G. And PHD as a network, with the global Volkswagen win, certainly has more heft than many of the markets where they were a smaller player in the past. So as far as our media networks go, we feel really good that we've got three very strong platforms to grow off.

And I think the other comment, John had touched on this earlier, the investments we made in our data analytics business, you're really seeing them come to bear some fruit, especially when you look at some of these more recent wins. So we think the benefits to the foundation for growth in the future are as important, if not more important, than the actual revenues that the first few client wins here that we've had will give us in 2017.

Just echoing that for a second, during the quarter we didn't speak about it, Hearts & Science, in addition to the US and Canada, they launched in the UK. They're currently pitching for business in Germany. And with the AT&T win, Hearts & Science was opened in Mexico. So there you have a network that really is a year old, that's won the one and two largest -- the first and second largest advertisers in the US, as a base. And we're starting to expand and win business in other markets.

And what Phil said about PHD is important. We've had PHD for a very long time, and it was pretty much Anglo-based in Northern Europe and the US. With the Volkswagen win, that allows us to compete in many more markets and fills out -- that was the one thing that company actually needed. And so we're expecting more opportunities to win business through both of those vehicles as we move forward.

The other thing, which is an intangible but a terribly important one, is the way that we've won businesses, these accounts that we've won. The level of collaboration and coordination was second to none. And I can't say that enough. We work very hard at that, culturally, within Omnicom, and always have. But this was, I'd have to say, the first time where I saw it payout in big, tangible, real wins. So I'm very bullish with regard to all these positive signs, and what we might expect as we move forward as a result of the strength that we've built.

Okay, thank you very much.

Dan Salmon, BMO Capital Markets.

John, we just went through Advertising Week, and one of the dominant themes continues to be around transparency. I wanted to ask a little bit about Accuen in particular. We know that business has used a principle-based model at times. I'm curious how you see that business evolving as client needs evolve?

And then secondly, if you could spend a little bit of time on where you're doing programmatic ad buying outside of Accuen? I think sometimes it's lost on the outside community vendors, investors alike, that this is a discipline that is increasingly embedded right at OMG's various agencies, at Hearts & Science, PHD and OMD. And if you could remind us a little bit about how programmatic buying is spreading down through those agencies, that would be helpful as well. Thanks.

Sure. Well, the programmatic business, as you know, is continuing to evolve, and has been evolving pretty rapidly for the last, I'd say, two years, maybe a little bit more. It's all based upon ROI at the end of the day, and effective targeting of audiences through programmatic.

What we've done is, we can offer clients a bundled product which has certain guarantees, and they know the price that they're going to pay and what they're expecting to get out of it. And we also, through the three media groups that you talked about, are quite able to offer them unbundled products, where they do have a level of transparency.

It depends upon what the client's objectives are, and how well -- what their preference really is. But we're capable and willing and able to offer both solutions, or either solution, to the brands that we serve. And the clients, they all have different objectives. So one model might meet certain clients' objectives and a more disclosed model, other clients.

So I think there's a lot more choice associated than the headlines would lead you to believe. And the biggest question, I think, is one that was alluded to earlier, which is really, ultimately, what measurement is going to be used, and is the client getting the value that they've signed up for. And what is true and it's always been true is, if you're providing the service, you can't grade your own homework.

And then one quick follow-up. In your prepared remarks, you noted, within North America, one of the stronger areas was PR. And I know you made some organizational changes there earlier in the year. I would assume that you're starting to see the effects of those. And I'm wondering, you mentioned it specifically within the North American segment, I believe, but do you expect to see those changes start to billow out around the global PR regime?

Yes, I'll start. I think that is certainly our expectation, yes. I think from a timing perspective, we're probably close. The group has been operating now -- it's still relatively young, a couple quarters, in reality.

What helped in the third quarter was, last year in 2015, the relative comp was pretty easy for PR. So we're happy that they showed some organic growth this quarter. We certainly think that having the group together, in addition to taking advantage of some operational efficiencies and back-office efficiencies, they're going to be able to use the group as a growth driver going forward. And I think we expect that to continue on into the future.

Is the third quarter a trend? We certainly expect that the business will continue to perform well. What the growth rate will be, we'll see, but we're pretty optimistic and happy with things so far.

Sure. And I'd only echo, in the near term, we're very happy with the management. We know what we're trying to accomplish, and we think we have the right people to do it. And all that's been very positive.

When we look at our PR profile throughout the world, we are going to make, in some of the small markets where we have operations, be making changes which might in any one quarter effect that quarter's revenue. But we'll become stronger in those markets as a result of the moves that we make. So as you look to 2017 and beyond, we're very happy with our PR assets, and very, very pleased with them.

Great, thank you.

I think we have time for one more call, operator.

John Janedis, Jefferies.

Thank you. Phil, your margin expansion in the quarter was the best, I think, in about five years for a third quarter. And I was wondering if you could talk a little more about the drivers, and if there were any benefits from business either rolling on or off? And is the implication that there will be more reinvestment in the fourth quarter, given your margin growth year to date?

We're certainly pleased with the performance in the third quarter. I think we do keep in mind, though, that the third quarter is a relatively small quarter. So in any one particular quarter, 10 basis points isn't all that large. The drivers for this quarter, we continue to see some benefits from the work we've been doing to leverage scale and efficiency throughout the organization. We also saw a decline in our use of freelance labor and, frankly, some better performance at some of our underperforming agencies in the quarter, year on year.

So I think when you look at the relative year-to-date margin, most of the benefit is coming from our leverage and scale efficiency initiatives, which we expect we'll continue to push, and we expect we're going to be able to sustain. As we look at the fourth quarter, we're still somewhat conservative, given a little bit less visibility than we traditionally have in our other quarters -- so similar to prior years. We're not ready yet to change our expectations of 30 basis points of improvement in Q4, but certainly we're going to continue to push the initiatives we been working on.

And we always re-evaluate the portfolio and we're going to continue to look at the portfolio strategically. And where there are some situations that it might make sense to do some pruning, we may do that as we head into 2017. So overall, we're pleased with the performance, but we're still a little bit conservative as we head into Q4.

Thanks, Phil, and another question. In terms of staffing levels, have you fully staffed up at Hearts & Sciences and the other agencies, given the new business wins?

No, we're in the process of doing that. We're hiring quite a number of people every week. But we're probably two months away from being completely staffed up for the business that we have in-house today. So that's a process that continues.

Thank you.

Okay, thank you, everybody, for listening in.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Teleconference Services. You may now disconnect.