Omnicom Group Reports Third Quarter and Year-to-Date 2018 Results

Omnicom Group Inc.

Consolidated Statements of Income

Three Months Ended September 30

(Unaudited)    

(Dollars in Millions, Except Per Share Data)

2018 ^(a)

2017

Revenue

$

3,714.3

$

3,719.5

Operating Expenses:

Salary and service costs

2,834.2

2,764.5

Occupancy and other costs

376.8

316.7

Net gain on dispositions of subsidiaries

(178.4)

—

Costs of services

3,032.6

3,081.2

Selling, general and administrative expenses

113.5

99.5

Depreciation and amortization

65.9

68.6

3,212.0

3,249.3

Operating Profit

502.3

470.2

Interest Expense

69.4

65.0

Interest Income

12.7

12.6

Income Before Income Taxes

445.6

417.8

Income Tax Expense

115.3

132.0

Income From Equity Method Investments

1.0

1.1

Net Income

331.3

286.9

Net Income Attributed To Noncontrolling Interests

32.4

23.3

Net Income - Omnicom Group Inc.

298.9

263.6

Net income allocated to participating securities

—

(0.3)

Net income available for common shares

$

298.9

$

263.3

Net income per common share  -  Omnicom Group Inc.

Basic

$

1.33

$

1.14

Diluted

$

1.32

$

1.13

Weighted average shares (in millions)

Basic

224.8

231.2

Diluted

225.9

232.7

Dividends declared per common share

$

0.60

$

0.55

(a) 

On January 1, 2018 we adopted FASB ASC Topic 606 "Revenue from Contracts with Customers" ("ASC 606"). ASC 606 was applied using the modified retrospective method, where the cumulative effect of initial application is recognized as an adjustment to opening retained earnings at January 1, 2018. Therefore, comparative prior periods have not been adjusted and continue to be reported under ASC 605 "Revenue Recognition" ("ASC 605"). The adoption of ASC 606 did not materially impact our financial position. For the three months ended September 30, 2018, the adoption of ASC 606 reduced revenue by $17.1 million and increased operating profit by $3.6 million. The adoption of ASC 606 did not have a material impact on Net Income - Omnicom Group Inc. or Diluted net income per common share - Omnicom Group Inc. for the three months ended September 30, 2018.  As required, a comparison of the current presentation under ASC 606 to the prior presentation under ASC 605 is provided below.

Omnicom Group Inc.

Impact of the Adoption of ASC 606

Three Months Ended September 30

(Unaudited)    

(Dollars in Millions)

2018

Reported

under
ASC 606

2018

Adjustments

2018

Excluding

Impact of

Adoption of

ASC 606

Revenue

$

3,714.3

$

17.1

$

3,731.4

Operating Expenses

3,212.0

20.7

3,232.7

Operating Profit

$

502.3

$

(3.6)

$

498.7

The above table presents the U.S. GAAP financial measures of Revenue, Operating Expenses and Operating Profit as reported, as well as the impact of the adoption of ASC 606 on these measures for the period presented. The impact of the adoption of ASC 606 on net income - Omnicom Group Inc. and diluted net income per share - Omnicom Group Inc. was not material.

Omnicom Group Inc.

Consolidated Statements of Income

Nine Months Ended September 30

(Unaudited)    

(Dollars in Millions, Except Per Share Data)

2018 ^(a)

2017

Revenue

$

11,203.5

$

11,097.1

Operating Expenses:

Salary and service costs

8,319.9

8,184.6

Occupancy and other costs

1,016.7

924.5

Net gain on dispositions of subsidiaries

(178.4)

—

Costs of services

9,158.2

9,109.1

Selling, general and administrative expenses

336.3

318.2

Depreciation and amortization

202.7

212.4

9,697.2

9,639.7

Operating Profit

1,506.3

1,457.4

Interest Expense

198.1

187.0

Interest Income

42.0

38.0

Income Before Income Taxes

1,350.2

1,308.4

Income Tax Expense

343.0

406.7

Income From Equity Method Investments

3.6

2.7

Net Income

1,010.8

904.4

Net Income Attributed To Noncontrolling Interests

83.6

70.4

Net Income -  Omnicom Group Inc.

927.2

834.0

Net income allocated to participating securities

(0.1)

(1.4)

Net income available for common shares

$

927.1

$

832.6

Net income per common share  -  Omnicom Group Inc.

Basic

$

4.08

$

3.58

Diluted

$

4.06

$

3.55

Weighted average shares (in millions)

Basic

227.2

232.6

Diluted

228.5

234.4

Dividends declared per common share

$

1.80

$

1.65

(a) 

On January 1, 2018 we adopted FASB ASC Topic 606 "Revenue from Contracts with Customers" ("ASC 606"). ASC 606 was applied using the modified retrospective method, where the cumulative effect of initial application is recognized as an adjustment to opening retained earnings at January 1, 2018. Therefore, comparative prior periods have not been adjusted and continue to be reported under ASC 605 "Revenue Recognition" ("ASC 605"). The adoption of ASC 606 did not materially impact our financial position. For the nine months ended September 30, 2018, the adoption of ASC 606 reduced revenue by $108.5 million and operating profit by $10.4 million. The adoption of ASC 606 did not have a material impact on Net Income - Omnicom Group Inc. or Diluted net income per common share - Omnicom Group Inc. for the nine months ended September 30, 2018.  As required, a comparison of the current presentation under ASC 606 to the prior presentation under ASC 605 is provided below.

Omnicom Group Inc.

Impact of the Adoption of ASC 606

Nine Months Ended September 30

(Unaudited)    

(Dollars in Millions)

2018

Reported

under 
ASC 606

2018

Adjustments

2018

Excluding

Impact of

Adoption of

ASC 606

Revenue

$

11,203.5

$

108.5

$

11,312.0

Operating Expenses

9,697.2

98.1

9,795.3

Operating Profit

$

1,506.3

$

10.4

$

1,516.7

The above table presents the U.S. GAAP financial measures of Revenue, Operating Expenses and Operating Profit as reported, as well as the impact of the adoption of ASC 606 on these measures for the period presented. The impact of the adoption of ASC 606 on net income - Omnicom Group Inc. and diluted net income per share - Omnicom Group Inc. was not material.

Omnicom Group Inc.

Impact of Net Gain on Dispositions and Repositioning Actions on Operating Expenses

Three and Nine Months Ended September 30, 2018

(Unaudited)

(Dollars in Millions)

Repositioning Actions

Net Gain on Dispositions

Total

Operating expenses:

Salary and service costs

$

73.7

$

—

$

73.7

Occupancy and other costs

73.5

—

73.5

Net gain on dispositions of subsidiaries

(178.4)

(178.4)

Costs of services

147.2

(178.4)

(31.2)

Selling, general and administrative expenses

2.2

—

2.2

Depreciation and amortization

—

—

—

Operating Expenses

$

149.4

$

(178.4)

$

(29.0)

The above table identifies the components of the net pre-tax gain on dispositions of certain subsidiaries and repositioning actions we took in the third quarter of 2018 on our operating expenses for the three and nine months ended September 30, 2018.

Omnicom Group Inc.

Non-GAAP Financial Measures - Excluding Impact of Dispositions, Repositioning Actions and Tax Expense related to Tax Reform

Three Months Ended September 30

(Unaudited)

(Dollars in Millions, Except Per Share Data)

2018

Reported ^{(a) (b)}

Non-GAAP
2018

Adjusted ^{(a) (b)}

2017

Operating Profit

$

502.3

$

473.3

$

470.2

Net Interest Expense

56.7

56.7

52.4

Income Tax Expense ^(b)

115.3

111.4

132.0

Income From Equity Method Investments

1.0

1.0

1.1

Net Income Attributed To Noncontrolling Interests

32.4

25.5

23.3

Net Income - Omnicom Group Inc.

298.9

280.7

263.6

Net income allocated to participating securities

—

—

(0.3)

Net income available for common shares

$

298.9

$

280.7

$

263.3

Diluted net income per common share  -  Omnicom Group Inc.

$

1.32

$

1.24

$

1.13

Diluted weighted average shares (in millions)

225.9

225.9

232.7

The above table identifies, in the column entitled "Non-GAAP 2018 Adjusted", the U.S. GAAP financial measures of Operating Profit, Income Tax Expense, Net Income - Omnicom Group Inc., Net Income allocated to participating securities and Earnings per Share - Diluted as reported, as well as the non-GAAP amounts excluding the impact of the net gain recognized on dispositions of certain subsidiaries, certain repositioning actions and the revision of the provisional income tax expense amounts recorded in connection with the enactment of the 2017 Tax Act in the column entitled "Non-GAAP 2018 Adjusted" for the three months ended September 30, 2018. We believe that the amounts presented in the "Non-GAAP 2018 Adjusted" column are useful measures for investors to understand the impact these items had on our reported results.  Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies.

(a) 

During the three months ended September 30, 2018, we disposed of certain subsidiaries & recorded a net gain, primarily related to the sale of Sellbytel, our outsourced sales, service and support company and we recorded expenses for certain repositioning actions related to the continued improvement of our strategic position and operating efficiencies of our businesses.  Additionally the "Non-GAAP 2018 Adjusted" income tax expense includes $28.9 million of additional expense related to an adjustment to the effects of the 2017 Tax Act recorded in the fourth quarter of 2017. The net impact of these items increased operating profit by $29.0 million, Net Income - Omnicom Group Inc. by $18.2 million, and Diluted net income per common share - Omnicom Group Inc. by $0.08 per share for the three months ended September 30, 2018.

(b)  

The 2017 Tax Act reduced the Federal statutory tax rate to 21% from 35% for tax years beginning after December 31, 2017 and made several changes to existing tax law which affect our tax assets and liabilities related to previously reported taxable income.  As a result, in 2017, we recorded tax expense on accumulated earnings of our foreign subsidiaries and adjusted our previously reported deferred tax assets and liabilities to reflect the impact of the revised statutory federal rate as of the enactment date.  Income tax expense for the fourth quarter of 2017 reflected a net increase of $106.3 million related to the impact of the 2017 Tax Act.  Due to the timing of the 2017 Tax Act, which was enacted on December 22, 2017, our 2017 financial statements reflected provisional amounts for these items.  In the third quarter of 2018, we revised these estimates and recorded additional tax expense of $28.9 million in compliance with guidance provided in SEC SAB 118.

Omnicom Group Inc.

Non-GAAP Financial Measures - Excluding Impact of Dispositions, Repositioning Actions and Tax Expense related to Tax Reform

Nine Months Ended September 30

(Unaudited)

(Dollars in Millions, Except Per Share Data)

2018

Reported ^{(a) (b)}

Non-GAAP

2018

Adjusted ^{(a) (b)}

2017

Operating Profit

$

1,506.3

$

1,477.3

$

1,457.4

Net Interest Expense

156.1

156.1

149.0

Income Tax Expense ^(b)

343.0

339.1

406.7

Income From Equity Method Investments

3.6

3.6

2.7

Net Income Attributed To Noncontrolling Interests

83.6

76.7

70.4

Net Income - Omnicom Group Inc.

927.2

909.0

834.0

Net income allocated to participating securities

(0.1)

(0.1)

(1.4)

Net income available for common shares

$

927.1

$

908.9

$

832.6

Diluted net income per common share  -  Omnicom Group Inc.

$

4.06

$

3.98

$

3.55

Diluted weighted average shares (in millions)

228.5

228.5

234.4

The above table identifies, in the column entitled "Non-GAAP 2018 Adjusted", the U.S. GAAP financial measures of Operating Profit, Income Tax Expense, Net Income - Omnicom Group Inc., Net Income allocated to participating securities and Earnings per Share - Diluted as reported, as well as the non-GAAP amounts excluding the impact of the net gain recognized on dispositions of certain subsidiaries, certain repositioning actions and the revision of the provisional income tax expense amounts recorded in connection with the enactment of the 2017 Tax Act in the column entitled "Non-GAAP 2018 Adjusted" for the nine months ended September 30, 2018. We believe that the amounts presented in the "Non-GAAP 2018 Adjusted" column are useful measures for investors to understand the impact these items had on our reported results.  Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies.

(a)

   During the third quarter of 2018, we disposed of certain subsidiaries & recorded a net gain, primarily related to the sale of Sellbytel, our outsourced sales, service and support company and we recorded expenses for certain repositioning actions related to the continued improvement of our strategic position and operating efficiencies of our businesses.  Additionally the "Non-GAAP 2018 Adjusted" income tax expense includes $28.9 million of additional expense related to an adjustment  to the effects of the 2017 Tax Act recorded in the fourth quarter of 2017. The net impact of these items increased operating profit by $29.0 million, Net Income - Omnicom Group Inc. by $18.2 million and Diluted net income per common share - Omnicom Group Inc. by $0.08 per share for the nine months ended September 30, 2018.

(b)

  The 2017 Tax Act reduced the Federal statutory tax rate to 21% from 35% for tax years beginning after December 31, 2017 and made several changes to existing tax law which affect our tax assets and liabilities related to previously reported taxable income.  As a result, in 2017, we recorded tax expense on accumulated earnings of our foreign subsidiaries and adjusted our previously reported deferred tax assets and liabilities to reflect the impact of the revised statutory federal rate as of the enactment date.  Income tax expense for the fourth quarter of 2017 reflected a net increase of $106.3 million related to the impact of the 2017 Tax Act.  Due to the timing of the 2017 Tax Act, which was enacted on December 22, 2017, our 2017 financial statements reflected provisional amounts for these items.  In the third quarter of 2018, we revised these estimates and recorded additional tax expense of $28.9 million in compliance with guidance provided in SEC SAB 118.

Omnicom Group Inc.

Reconciliation of Non-GAAP Financial Measures - 2018 Adjusted Operating Profit

Three Months Ended September 30

(Unaudited)

(Dollars in Millions)

2018

2017

Net Income -  Omnicom Group Inc.

$

298.9

$

263.6

Net Income Attributed To Noncontrolling Interests

32.4

23.3

Net Income

331.3

286.9

Income From Equity Method Investments

1.0

1.1

Income Tax Expense

115.3

132.0

Income Before Income Taxes

445.6

417.8

Interest Income

12.7

12.6

Interest Expense

69.4

65.0

Operating Profit

502.3

470.2

Net gain on dispositions of subsidiaries

(178.4)

—

Repositioning actions

149.4

—

Operating Profit - Non-GAAP 2018 Adjusted

$

473.3

$

470.2

Revenue

$

3,714.3

$

3,719.5

Operating Profit - Non-GAAP 2018 Adjusted

$

473.3

$

470.2

Operating Margin % - Non-GAAP 2018 Adjusted

12.7

%

12.6

%

The above table reconciles the U.S. GAAP financial measure of Net Income - Omnicom Group Inc. to the non-GAAP  "Non-GAAP 2018 Adjusted" financial measures of Operating Profit and Operating Margin, which exclude the impact of the net gain recognized on dispositions of certain subsidiaries, certain repositioning actions and the revision of the provisional income tax expense amounts recorded in connection with the enactment of the 2017 Tax Act  for the three months ended September 30, 2018. We believe the amounts excluding the impact of these items are useful measures for investors to understand the impact these actions had on our reported results. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies.

Omnicom Group Inc.

Reconciliation of Non-GAAP Financial Measures - 2018 Adjusted Operating Profit

Nine Months Ended September 30

(Unaudited)

(Dollars in Millions)

2018

2017

Net Income -  Omnicom Group Inc.

$

927.2

$

834.0

Net Income Attributed To Noncontrolling Interests

83.6

70.4

Net Income

1,010.8

904.4

Income From Equity Method Investments

3.6

2.7

Income Tax Expense

343.0

406.7

Income Before Income Taxes

1,350.2

1,308.4

Interest Income

42.0

38.0

Interest Expense

198.1

187.0

Operating Profit

1,506.3

1,457.4

Net gain on dispositions of subsidiaries

(178.4)

—

Repositioning actions

149.4

—

Operating Profit - Non-GAAP 2018 Adjusted

$

1,477.3

$

1,457.4

Revenue

$

11,203.5

$

11,097.1

Operating Profit - Non-GAAP 2018 Adjusted

$

1,477.3

$

1,457.4

Operating Margin % - Non-GAAP 2018 Adjusted

13.2

%

13.1

%

The above table reconciles the U.S. GAAP financial measure of Net Income - Omnicom Group Inc. to the non-GAAP  "Non-GAAP 2018 Adjusted" financial measures of Operating Profit and Operating Margin, which exclude the impact of the net gain recognized on dispositions of certain subsidiaries, certain repositioning actions and the revision of the provisional income tax expense amounts recorded in connection with the enactment of the 2017 Tax Act  for the nine months ended September 30, 2018. We believe the amounts excluding the impact of these items are useful measures for investors to understand the impact these actions had on our reported results. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies.

Omnicom Group Inc.

Reconciliation of Non-GAAP Financial Measures - 2018 Adjusted Net Income - Omnicom Group Inc.

Three and Nine Months Ended September 30, 2018

(Unaudited)

(Dollars in Millions)

Three Months

 ended

September 30, 

2018

Nine Months

ended

September 30, 

2018

Net Income -  Omnicom Group Inc., as reported

$

298.9

$

927.2

Net gain on dispositions, before income tax expense

(178.4)

(178.4)

Repositioning actions - Incremental Severance and other items, before income tax expense

75.9

75.9

Repositioning actions - Lease terminations, before income tax expense

73.5

73.5

Income tax benefit on repositioning actions, less income tax expense on net gain from dispositions

(25.0)

(25.0)

Allocation of above items to non-controlling interests

6.9

6.9

Increase in income tax expense for revision of provisional estimates in connection with adoption of 2017 Tax Act

28.9

28.9

Net Income -  Omnicom Group Inc., Non-GAAP 2018 Adjusted

$

280.7

$

909.0

The above table reconciles the U.S. GAAP financial measure of Net Income - Omnicom Group Inc. to the non-GAAP   financial measure of Net Income - Omnicom Group Inc., Non-GAAP 2018 Adjusted, which excludes the impact of the net gain recognized on dispositions of certain subsidiaries, certain repositioning actions and the revision of the provisional income tax expense amounts recorded in connection with the enactment of the 2017 Tax Act, for the periods presented.  We believe the amounts excluding the impact of these items are useful measures for investors to understand the impact these actions had on our reported results. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP. Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies.