Omnicom Group Inc.
Q3 2013 Earnings Call Transcript

Published: 15 Oct 2013

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Omnicom Third Quarter 2013 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I'd like to now introduce to you today's conference call host, Executive Vice President, Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead.

[Randall J. Weisenburger:]

Good morning. Thank you for taking the time to listen to our third quarter 2013 earnings call. We hope everyone's had a chance to review our earnings release. We have posted to our website both the press release and the presentation covering the information that we'll be presenting 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's 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'd also like to remind you that during the course of the call, we'll discuss some non-GAAP measures in talking about our performance. And due to the pending merger with Publicis, we'll be giving a few more non-GAAP measures than we have in the past. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the presentation materials. John is going to begin the call with some brief remarks about the quarter, as well as the status report and overview of our pending merger with Publicis. Following John's remarks, I'll review our financial performance for the quarter in more detail. And then both John and I will be happy to take questions.

[John D. Wren:]

Good morning, and thank you for joining our conference call. We're now 3 quarters through 2013, and I'm pleased to say our performance for the quarter and for the year-to-date remains strong. I'm going to start with comments on the quarter and then a brief update on the proposed Publicis Omnicom Group merger. Please bear in mind that our groups are operating independently as we go through the required approval process. For the third quarter, organic growth was over 4.1%, and operating income and margin, excluding merger-related expenses, improved over the same period of 2012. On a regional basis, our performance reflects some broader macroeconomic conditions in the global market. We continue to experience strong organic growth in the U.S. and the U.K. The Eurozone has not yet returned to growth, and our businesses in both Latin America and Asia performed well during the quarter. While we are cautiously optimistic about economic conditions, we remain focused on the things we can control. Our results are an affirmation of the success of Omnicom's strategic priorities to drive growth

[Randall J. Weisenburger:]

Thank you, John. It has certainly been an eventful quarter with the announcement of the merger and all of the activities that it's involved. That said, I wouldn't want the upcoming merger to distract from the excellent performance Omnicom's agencies had this quarter and through the first 9 months of this year. To make our financial presentation easier to follow, we've added a third column of numbers labeled Non-GAAP. This column excludes the incremental costs we've incurred in the third quarter related to the merger. These costs, which are predominantly professional fees, totaled $28.1 million and net of taxes, reduced EPS by $0.08 per share. As you all know, we do not typically present non-GAAP results, but in this case, we think it will help to evaluate the relative performance of our operations. For the presentation, I will focus my comments on the Non-GAAP column, but we have the reported GAAP numbers side by side for easy reference and clarity. Again, the only difference between the GAAP and non-GAAP results are the exclusion of the merger-related costs and then the follow-on effects on taxes and obviously, the summary numbers, like net income and EPS. So moving on. On the revenue front, as John said, our agencies are continuing to have a good year despite the relatively weak economic environment. In the third quarter, revenue came in at just under $3.5 billion. Total growth was approximately 2.5%, while organic growth was 4.1%. FX headwinds and net dispositions brought the growth rate down by 1.6%. I'll address our revenue growth in more detail in a few slides. From an earnings perspective, our agencies had another excellent quarter. The ongoing initiatives that focus on efficiency improvements and streamlining our portfolio, combined with our individual agency's intense focus on cost control, resulted in EBITA increasing 4.5% to $433 million. The resulting EBITA margin was 12.4%, which was up almost 25 basis points over last year. Operating income or EBIT for the quarter increased 5.2% to $408 million, and margins increased just over 30 basis points to 11.7%. Looking at the items below operating income. Net interest expense for the quarter was $42.8 million, up $2.5 million from the third quarter of last year and up $2.1 million sequentially from the second quarter of this year. This increase is due to the accrual of contingent interest on a remaining convertible bond. During the measurement period in the quarter, the stock price crossed the threshold requiring us to pay contingent interest on the bond, and in accordance with GAAP, we accrued the potential interest to be paid through the next call date, which is July of 2014. On the tax front, our operating tax rate for the quarter was 33.6%, which is in line with our expectations for the full year. The reported rate was somewhat higher at 34.5% because certain of the merger-related costs are capitalized and nondeductible for tax purposes. Looking at income from our affiliates and income allocated to our minority shareholders. There were numerous ups and downs from a year ago, as well as currency variances in the quarter, with the aggregate effect being no change year-over-year. As a result of all of that, our total non-GAAP net income increased 6.8% to $218 million and net income available for our common shareholders increased by 6.5% to $212 million. The GAAP net income figures, which include the merger-related costs, was $196 million and $191 million, respectively. On Slide 3, we compute EPS. First, as a result of stock repurchases we've made over the past 12 months, our diluted share count was down about 8.6 million shares or about 3.2% to just under 260 million shares. As a result, our non-GAAP diluted EPS was $0.82, representing an increase of 10.8%. As I mentioned earlier, the costs through the third quarter related to the merger reduced GAAP EPS by about $0.08, down to $0.74 per share, which was flat compared to 2012. On slides 4, 5 and 6, we present the summary P&L and EPS information for the year-to-date period, but I'm going to leave those pages for you to read. On Slide 7, we take a closer look at our revenue performance. First, with regard to foreign exchange, on a year-over-year basis, the U.S. dollar strengthened against most of our major currencies in the quarter, except the euro and the Chinese yuan. The net result reduced revenue in the quarter by $21.7 million or about 0.6%. As a reminder, the majority of our costs are incurred in the same currency as our revenues. As a result, the FX impact on our revenue flows pro rata through to our earnings, thus having a negligible effect on our operating margins. Looking ahead, if rates stay where they are currently, we expect foreign exchange to be negative between 50 and 75 basis points in the fourth quarter. Revenue from acquisitions, net of dispositions, decreased revenue by $34.2 million in the quarter or about 1%. As we mentioned in July, we completed the sale of our recruitment marketing business in the second quarter, so the net decrease was in line with our projections. In terms of organic growth, we had a very good quarter. The growth rate accelerated to 4.1%, adding $140 million in absolute terms. This increase was driven by continuing very strong performance from our media businesses, especially in the United States and in Asia, further acceleration in our specialty health care businesses and the pharma sector overall. Another quarter of strong performance from our leading PR brands and then, geographically, good performance overall in U.S., the U.K. and Russia, as well as the emerging markets of Asia and Latin America. Turning to our mix of business on Slide 8. Brand advertising accounted for 47% of our revenue, and marketing services contributed 53%. As for their respective growth rates, brand advertising's organic growth was 4.8%, driven by the strong performance of our media businesses, offsetting a few larger client losses in advertising earlier in the year. Marketing services in aggregate was up 3.5%. And within marketing services, CRM was up 2.3%, primarily driven by increases in our field marketing and branding businesses; and continuing strong performance in public relations posted organic growth of 4.6%; and specialty communications increased 8.3%, again, primarily driven by the strong performance of our specialty health care businesses. On Slide 9, our geographic mix of business in the quarter was split 52% domestic and 48% international. Turning to Slide 10. In the United States, revenue increased $57 million or 3.2%. Organic growth was very strong, up 5% or $88 million. Again, media continued to lead our domestic growth, with most of our other disciplines and industries contributing positively as well. Acquisitions, net of dispositions, decreased revenue by $31 million or 1.8%. Again, this was driven primarily by the sale of our recruitment marketing business in the second quarter. International revenue increased $26.5 million or 1.6%. FX created a headwind causing a revenue decline of $22 million. Acquisitions, net of dispositions, decreased revenue by $3 million or about 0.2%, again related to the recruitment marketing business that we sold. And organic growth, which continues to improve although slowly and with quite a bit of variance by region, was positive at 3.1% adding $51 million. In our larger European markets, consistent with our performance in Q2, Russia and the U.K. continued to perform very well, while Germany and France were down. Although the Eurozone markets in aggregate were down 1.6% organically in the quarter, it was an improvement from the second quarter. In Asia Pacific, we had strong performances across most of the region, with very strong results in South Korea, Singapore, China, India, New Zealand and Vietnam. And the Middle East and Latin America turned in solid organic results as well. We've also provided 2 additional slides, slides 11 and 12, that present our geographic revenue by regional subsets

[Operator:]

[Operator Instructions] And we'll go to the line of John Janedis with UBS.

[John Janedis:]

When you initially announced the transaction, there was a bit of concern about potential account losses or client conflicts. Now that you're a couple of months in, what have you heard from clients? And does the risk appear to be somewhat maybe more modest than other deals of size you've seen in the past?

[John D. Wren:]

We have -- we've seen no difficulties thus far. There -- we've been in the business for a long time, and each one of the holding companies has long had the procedures and firewalls to deal with conflicts. If issues arise in the future, we'll deal with it. But to date, we're in good shape.

[John Janedis:]

Okay, good. And then maybe one other quick one. The euro currency markets, obviously, as you mentioned, improved to levels we haven't seen in a few quarters. I know you've talked about some moving pieces in those markets in the past, but is it your sense that you're moving off of the bottom across the entire region?

[Randall J. Weisenburger:]

No. I think we might be stabilizing near the bottom. We had good performance in a couple markets where we have businesses that are growing not necessarily because of the individual markets, that's in Spain and Portugal. But Germany and France, Belgium, those markets in[ph] Netherlands, they were all negative.

[Operator:]

And next, we'll go to the line of Alexia Quadrani with JP Morgan.

[Alexia S. Quadrani:]

Just a couple of questions. I guess, first, you saw some real nice growth in the U.S., improvement in the U.S. in the quarter and continued strength in the U.K. I guess, any color you can give in terms of how we should view those sort of important markets going into the fourth quarter? Will the trend continue, I guess?

[John D. Wren:]

It's hard to say. I think it's down to the individual performance of our agencies, not necessarily economic growths. And you have to remember that this year, the fourth quarter, the retail schedule is shorter than in the past because of the late Thanksgiving.

[Randall J. Weisenburger:]

The next quarter is also -- as you know, like the fourth quarter every year, we've been talking about it for years now, with sort of year-end project revenues, is always a little bit more difficult to forecast.

[Alexia S. Quadrani:]

Okay. And then also, I guess, my second question is, you've got obviously, a very strong balance sheet and very healthy cash flow, and now with the buyback suspended due to the pending merger, I think you'll have even a stronger cash position whenever sort of this deal -- when this deal gets done and when you're allowed to sort of step back into the market. Could you give us an update, I guess, on your priorities of use of cash maybe longer term? Can we expect a more accelerated buyback potentially, once you get the green light? I guess any comments on that front would be great.

[John D. Wren:]

Well, as we sit here today from the Omnicom side of the table, our intention is to follow pretty similar -- follow what we've done in the past. When the new company [ph] comes into existence, there'll be a new Board of Directors, and we'll have to sit down with the Board of Directors and -- Maurice and myself, and determine what that board will authorize. So I think it's a little premature to be talking about accelerations or changes from our past behavior.

[Alexia S. Quadrani:]

Okay. And just lastly, thank you for the color you guys gave in terms of where you are on the merger and the outlook there. From the outside -- for us that are sitting on the outside, is there something we can look at in terms of a benchmark or points that we can see that's saying now progress has been made or these hurdles have sort of been overcome? I guess, I don't know if there's any answer to that question, but I thought I'd ask.

[Randall J. Weisenburger:]

On the deal, there's -- I assume you're talking from a transaction perspective.

[Alexia S. Quadrani:]

Yes, yes.

[Randall J. Weisenburger:]

Okay. So there's really sort of 4 gating items. There's the antitrust track. So at this point in time, as John pointed out, we've done our filings or at least the preliminary filings. And I think every jurisdiction -- maybe some small markets, some place we haven't gotten done quite yet, but every major jurisdiction, we've got the filings in, and we're in really sort of the information stage. We're answering questions, following up and people are evaluating it, so we don't have any news really one way or the other. It's progressing on a very good track. People spent a huge amount of time and effort getting those filings done. We did get clearance in South Korea and -- okay.

[John D. Wren:]

Michael?

[Michael O'Brien:]

Yes. This is Mike O'Brien, General Counsel. We've received clearance actually in South Korea, and also in South Africa, we just found out yesterday. So we have had a couple of minor victories there, if you will. And everything else that Randy described is the best way to describe it, it's in process. We're comfortable with the way things have gone so far and the conversations we've had so far, and we're optimistic, but it's still in process.

[Randall J. Weisenburger:]

The second track is taxes. There's 3 jurisdictions that we need to get tax approvals on, and we're in process of doing that, again still early. And then there's the SEC and AMF or AFM filings, and again, that's -- we're also in process on. It's hard to determine which one of those will be the specific gating item at the end, but I think everything is proceeding as we would have expected.

[John D. Wren:]

And as we clear major hurdles, as we go through this, we'll inform the public.

[Operator:]

And next, we'll go to the line of Tim Nollen with Macquarie.

[Tim Nollen:]

A couple of things, please. First, just one question on the numbers. You've had some dispositions taking away from numbers a little bit in the last couple of quarters. Just wondering when we'll be cycling through that. And also, I may have remembered this wrong, but I think, as I recall, some of those dispositions actually were profitable. So my question is, would your margin have actually been a bit better had you not gotten rid of those assets during the quarter? And then secondly, on the merger again, I hear your comments and I understand what you're saying about not shutting down agencies and this is about size and scale. I'm wondering in particular about your digital businesses, though. How will you treat your data and digital operations between Publicis and Omnicom? Is it a question of merging databases? Is it a question of putting teams into larger organizations? It just seems like there's so much opportunity to gain scale, but if you intend to keep things separate, I just wonder how you plan to run it.

[John D. Wren:]

Those -- you're talking about the various platforms that we invest in?

[Tim Nollen:]

Yes.

[John D. Wren:]

As opposed to the agencies -- and when I say agencies, I mean the networks and the companies. There's an integration process that Maurice and I and our management teams have agreed to, and so we're going to valuably use the time that it takes us to get through all these regulatory issues to sit and plan what is the most sensible, profitable thing to do and what the priority in which we should act once we're allowed to act, after the deal is approved. So that process is just about to begin. And intuitively, I know exactly what you're saying. We will go through it in detail with the people who are the experts in it and make that determination in the coming weeks and months.

[Randall J. Weisenburger:]

As far as your divestitures questions go, the biggest single divestiture we did we completed pretty much at the end of the second quarter, so that's going to take us 4 quarters to cycle on that. It was roughly $35 million a quarter of revenue, probably a little bit of variance quarter-to-quarter. And as far as the margins go, no, those companies -- if we had those companies in the portfolio, our margins would not have been higher. Those companies that we've divested, its margins, are less than Omnicom's average margin.

[Operator:]

Next, we'll go to the line of Craig Huber with Huber Research Partners.

[Craig Huber:]

A few questions, please. Each quarter, you generally will give us what your net new business wins were in the quarter. I think your quarterly target is generally about $1 billion. How did that track this last quarter, please?

[Randall J. Weisenburger:]

It's a little bit under $900 million.

[Craig Huber:]

Okay. Then, secondly, can you talk a little bit further about your very strong U.K. performance? Why was it so strong, please?

[John D. Wren:]

Again, it's specific agency performance.

[Randall J. Weisenburger:]

Specific agency performance.

[John D. Wren:]

Really, just people in the right place at the right time and winning a few pieces of business.

[Randall J. Weisenburger:]

Yes.

[Craig Huber:]

So there's no...

[Randall J. Weisenburger:]

Those agencies there in particular had a very good run.

[Craig Huber:]

Okay. Because I remember last quarter, the second quarter, you guys mentioned that there's a large French account that shifted, I guess, from France to London. That helped this quarter as well or no?

[John D. Wren:]

It probably added to the overall performance between the 2 countries, but it's not the sole reason for it.

[Randall J. Weisenburger:]

Yes. It wasn't the major -- it was -- again, the revenue moved, but it was not a major driver in the quarter.

[Craig Huber:]

And then also, concerning your merger, I wanted to ask if you could just give us further clarity or further update here on that $500 million cost savings target. Can you just maybe give us a little more clarity on what's behind that number in terms of how confident are you that you can get the $500 million number and what's the big nuggets to get to that $500 million cost savings? I think you've talked about getting there by Year 5.

[John D. Wren:]

Yes. I believe the $500 million number we used is modest and comes from a variety of just natural things that you would expect when 2 groups this size come together. We, together, spend over $4 billion in third-party services and other type of costs, and we should gain quite a bit of efficiency in having a common insurance platform to be able to utilize what little excess rent occurs in any particular city at any particular time. Our auditors shouldn't cost as much as they do individually. There's a whole series of things buried in that, that are just natural. There's hard work and -- there's some work and planning in getting to those results, but sometimes, you have to wait until your current policies have lapsed before you can move to the next level. So it's not all Day 1. But there's a great deal of that cost that's buried in that number itself.

[Randall J. Weisenburger:]

Yes. We went through when we were developing, I'll say, the potential efficiencies on that level. We started at our billings numbers and worked our way down looking at our P&Ls sort of line by line. As John pointed out, there's over $4 billion of third-party costs. There is $15 billion or $14 billion of salary and service costs. We have a number of ideas of how we can get efficiencies across the board. Obviously, each company has a lot of their own best practices. We're going to evaluate each company's best practices and move towards them. I think everybody is pretty confident that there's -- the $500 million worth of efficiencies is a pretty conservative number.

[Craig Huber:]

And then lastly, if I could ask, you've mentioned in the past you have to spend, you think, $400 million over, I think 5, years to achieve these synergies. Is that still your -- the correct number, you think?

[Randall J. Weisenburger:]

I don't think we have any better data than we had when we first put it out. As John also pointed out, due to the process that we're in, the 2 companies have to continue to operate separately and can share limited amounts of data and information. So we're -- frankly, as far as identifying specifics, we're not allowed further than we were, I'll say, pre-deal announcement.

[Operator:]

Next, we'll go to the line of Matt Chesler with Deutsche Bank.

[Matthew Chesler:]

A quick first question on business trends. So you came in at 4.1% organic growth for the quarter. Can you comment at all on any major variances versus your expectations for that by geography or discipline?

[John D. Wren:]

Just really repeating what Randy said on the call. The U.S., we were fortunate. We certainly grew faster than the economy, and that's due to specific performance of specific agencies. And I'd say the same is pretty much true in the U.K.

[Randall J. Weisenburger:]

Yes. And some standout areas, our media companies have been -- frankly, for a few quarters at least, have been doing a great job. I think that's predominantly driven by their performance, just good business practices at this point, good new business wins. The pharma and health care area is rebounding pretty well also.

[Matthew Chesler:]

Okay. And then based on September, are those statements as true based on how September came in, which I understand is generally a large marketing month for the industry?

[John D. Wren:]

Yes. I mean, we don't -- September was good first, no question. We don't dissect this analysis down to that microscopic level.

[Randall J. Weisenburger:]

We're the first guys to tell you that we even think the quarter-to-quarter analysis has flaws, if you're trying to draw conclusions at this level of granularity. When you get month-to-month, you're really trying to -- you're trying to find something that's really not there.

[Matthew Chesler:]

Okay. Then just can you just comment a little bit on some of the emerging markets, just in general terms, what you're seeing going on in markets such as China and Latin America and just maybe emerging markets in general?

[John D. Wren:]

Our performance continues to be strong. Those markets aren't growing this past 6 months in the same way that they were growing 2 years ago. But there's still good growth and there's still plenty of opportunity because there's a lot of share opportunity in those markets for us.

[Randall J. Weisenburger:]

And they're extremely impactful because they've gotten bigger as well. So while the maybe growth percentage numbers were bigger a couple of years ago, when I look at the rank order of who's adding dollars of organic growth, because that's, ultimately, what counts, China and Russia are in the top 4 or top 5. That's impressive to me. The U.S. is always the most important market because of the size, as well as combining it with 5% growth, so certainly not an emerging market, but an extremely important growth market.

[Matthew Chesler:]

And Randy finally, so you're not buying back shares currently. Are there any prospects that you may be able to buy back shares at all before the merger closes? Or should we just presume that you're out of the market until it does?

[Randall J. Weisenburger:]

Prospects, yes.

[John D. Wren:]

I think you have to presume that we're out of the market until the merger closes because that's, right now, what our agreement says.

[Operator:]

Next, we'll go to the line of Brian Wieser with Pivotal Research.

[Brian W. Wieser:]

I have 2. First, on the merger costs. I was wondering if you can give any color as to how much you expect to incur prior to the closure, if any costs are coming out of the normal operating expenses. But just any extra color on how you expect that to proceed. And a separate question, I was just curious, production decouplings kind of, I think, a fascinating new space. We've seen Publicis just announce Prodigious. I'm curious how much interest you're seeing from clients on the topic and how you expect that to play out going forward.

[John D. Wren:]

There's a couple of questions there. We have -- we're in the process actually of sitting down with our production companies to see -- because we are global, we're not yet globally branded or managed globally, I suspect that will occur in the coming months as we've seen the benefits of it. Clients are, in fact, pitching or requesting bids on larger areas of its production. They used to be done more regionally. Now they're getting outside of regions. So that's an opportunity for us before we close, and then, certainly, it will be an opportunity post closing for us. With respect to merger-related costs...

[Randall J. Weisenburger:]

I didn't actually get the question, if you'd repeat it.

[Brian W. Wieser:]

Sure. I was curious if you have a sense of how many -- what your costs will be through the remainder of the merger process. And are all those costs associated with the transaction incremental? In other words, are there any costs that you're normally incurring that are incorporated in those costs?

[Randall J. Weisenburger:]

The answer to the second part is no. The answer to the first part, unfortunately, I don't have -- a great estimate, it's a lot. A lot of attorneys running around nonstop. This is a fairly large and complex transaction, as we mentioned, on just the antitrust alone. We did economic studies on something like 47 different markets. So I suspect the transaction fees will be at least 1.5, 2x what we've already spent, I would think.

[Brian W. Wieser:]

Okay. And just a follow-up on the production decoupling topic, if I may. I'm curious if you have a point of view on the net economics of it. In other words, the notion of a standalone production decoupling business, is it a higher-return-on-capital business? Is it a lower one but it's something clients just increasingly want? I'm curious on your thoughts on the economics of that trend.

[John D. Wren:]

Well, we actually have 3 at the moment, 3 standalone businesses, which are really serving different regions of the world. We're looking to see whether or not we should be expanding that and combining to respond to pitches. And I suspect when we're done with that evaluation, the answer is probably going to be yes. It's good business. It's a growing business. I don't quite understand where you're going with the economics of it.

[Brian W. Wieser:]

Well, I guess, what we've heard from the procurement trade, certainly, is the substantial savings that comes out of the creative agency fees paid. Although it's possible that the savings that come out of what they're spending, you recoup with a higher-margin business essentially. I'm just curious if that's something that is accurate, if -- or if it's not at all.

[Randall J. Weisenburger:]

There's -- we even -- we joke internally, production is a fat word. Production means a lot of different things because we have a breadth. Whether it's print production or creating digital websites or doing banner ads or doing TV commercials, doing postproduction, there's a lot of different aspects to production. So when you're saying creating -- when we talk about creating a production unit, we've basically been globalizing and creating 3 separate production companies for the last several years.

[John D. Wren:]

Correct.

[Randall J. Weisenburger:]

There are also a number of other production capabilities we have internally, and we also manage a very large amount of third-party production. I think it's well over $4 billion or $5 billion. So in looking at that whole space, it's a very interesting business. It's a business where we're managing a lot of client spend, and we're doing a lot of different pieces of the work, so we think there's a very significant opportunity bringing those businesses together and focusing on it in a more aggregated global way going forward.

[Operator:]

And next, we'll go to the line of Doug Arthur with Evercore.

[Douglas M. Arthur:]

Just going back to Europe for a second. I was struck by your comment on Germany still being down. I mean there have been some economic indicators saying that market is starting to turn. Are you seeing any hope there near-term?

[John D. Wren:]

It was down slightly for us in the quarter, yes. Post elections, confidence is there again, but we haven't seen signs of -- tangible signs of it really coming back in the manner that it was -- it performed in the past. But it has stabilized, as Randy said. And so we're cautiously optimistic that at the center of Europe, coming back at all is going to be Germany's performance, and we're optimistic that we'll see it.

[Randall J. Weisenburger:]

Just to make sure we're consistent. Don't read too much into 1 quarter's set of numbers, especially when you cut it up by 1 country at a time. Our numbers are our numbers. New business activity, wins or losses, individual performance of our clients in that country, year-over-year timing and the economy affect the number. A lot of people read those numbers, they hear the number and think it's just a straight indication of the economy, economics in that specific market in the quarter and are also, generally, thinking of that sequentially from last quarter. The numbers we're presenting are year-over-year numbers and they had a lot of different things in that mix, so...

[Operator:]

Next, we'll go to the line of James Dix with Wedbush Securities.

[James G. Dix:]

Randy, I will make it a 2-parter then. Hopefully, I don't make it too long a 2-parter. How have you been explaining to clients the potential for better service and/or pricing in the media buying and planning businesses as a result of the merger? Because where I'm kind of getting at is, I mean, you've talked about, say, $4 billion in third-party spending that you're doing and you came up with a synergy number on that. So I'm just curious as to whether there's any way of thinking about synergies in the much larger amount of third-party spending you do on media platforms on behalf of clients. And then, secondly, as you've gone through the merger process to the extent you have so far, has your outlook on what margins should be for Omnicom just on a standalone basis over the next few years changed at all?

[John D. Wren:]

In the first question, because we are still functioning as 2 completely separate companies, we -- and as I earlier -- an answer to an earlier comment on the digital side and platforms, we have not yet sat down and done an evaluation to determine what we might do in the areas of platforms. We just have not. When you get into media, if you look in the traditional medias, it's a supply-and-demand business no matter how large you are, and clients have specific needs. So I don't see seismic moves in pricing our ability to control anything because of us combining. In the digital area, I think there are grand opportunities even if we weren't combining because there's an awful lot of media. And more and more budget is being shifted that way, and when that happens, if you get to a point where you can aggregate certain aspects of it and get lot -- get a full library of premium digital inventory, there's more and more you can do with it. Those benefits get shared with the client currently. That will only increase, I think, as we move forward.

[Randall J. Weisenburger:]

As far as margins go, we've been committed for decades of using the power of the holding company to drive the efficiencies that are possible at each individual agency. And keeping -- we want to make sure our agencies, each of them, are operating at the right margin for their business or their optimal margin and using the holding company to make those margins continuously a little bit higher and hopefully, to reduce the volatility of performance. Mix of business is also an important driver in evaluating margins, overall. Not every business and every geography has the same potential margin. So as we move forward with greater size, we certainly believe there's new heights that we can drive margins, greater efficiencies to be had. I'm sure we're going to learn quite a bit from the standpoint of best practices. I'm sure that some of our agencies and some of the way we do things is fantastic, and I'm sure a lot of the ways that we're going to learn from our -- our new partners, what they do is fantastic, and the combination should get us to a new level. Thank you, all, very much. We appreciate your time.

[Operator:]

And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and using AT&T Executive Teleconference. You may now disconnect.