What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-19 compared with 2023-04-19 · 302 added, 116 removed, 332 unchanged (56% of the section changed)

25 unchanged sentences

political conditions and regulatory environment;

• effectively managing the risks, challenges and efficiencies presented by utilizing Artificial Intelligence (AI) technologies and partnerships in our business;

• risks related to our environmental, social and governance goals and initiatives, including impacts from regulators and

12 unchanged sentences

Financial Performance

Revenue for the quarter ended March 31, 2023 increased slightly to $3,443.3 million, compared to $3,410.3 million in the prior year quarter.

Organic revenue growth (defined below) increased $178.7 million, or 5.2%, primarily reflecting increased client spending in all our disciplines and across all our geographic markets compared to the prior year period.

Changes in foreign exchange rates reduced revenue $110.0 million, or 3.2%, primarily due to weakening of the British Pound and the Euro against the U.S.

Revenue for the three months ended June 30, 2023 increased to $3,609.9 million, compared to $3,567.2 million in the prior year quarter.

Organic revenue growth (defined below) increased $121.4 million, or 3.4%, primarily reflecting increased client

spending in most of our disciplines and all of our major geographic markets compared to the prior year period.

Changes in foreign exchange rates reduced revenue $24.4 million, or 0.7%, primarily due to the weakening of the Australian Dollar, Canadian Dollar, and Renminbi against the U.S.

Dollar, which was partially offset by the strengthening of the Euro against the U.S.

Acquisition revenue, net of disposition revenue, reduced revenue $54.3 million, or 1.5%.

The reduction from acquisition revenue, net of disposition revenue, primarily reflects dispositions in the Execution & Support discipline in the first and second quarters of 2023.

Revenue for the six months ended June 30, 2023 increased slightly to $7,053.2 million, compared to $6,977.5 million in the prior year period.

Organic revenue growth increased $300.1 million, or 4.3%, primarily reflecting increased client spending in most of our disciplines and across all of our major geographic markets compared to the prior year period.

Changes in foreign exchange rates reduced revenue $134.4 million, or 1.9%, primarily due to the weakening of the British Pound, Australian Dollar, Canadian Dollar, Euro, and Yen against the U.S.

Dollar, and acquisition revenue, net of disposition revenue, reduced revenue $90.0 million, or 1.3%.

The reduction in acquisition revenue, net of disposition revenue, primarily reflects dispositions in the Execution & Support discipline in the first quarter of 2023 and the disposition of our businesses in Russia in the first quarter of 2022, partially offset by acquisitions in the Precision Marketing discipline in the first quarter of 2022.

The change in revenue in the first quarter of 2023 compared to the prior year period in our fundamental disciplines was:

Advertising & Media increased $6.3 million, Precision Marketing increased $20.8 million, Commerce & Brand Consulting decreased $1.8 million, Experiential increased $8.1 million, Execution & Support decreased $21.5 million, Public Relations increased $13.1 million and Healthcare increased $8.0 million.

The change in revenue across our geographic markets was:

The reduction in acquisition revenue, net of disposition revenue, primarily reflects dispositions in the Execution & Support discipline in the first and second quarters of 2023 and the disposition of our businesses in Russia in the first quarter of 2022, partially offset by acquisitions in the Precision Marketing discipline in the first quarter of 2022.

The change in revenue period-over-period for the three months ended June 30, 2023 was:

Advertising & Media increased $77.1 million, Precision Marketing increased $5.1 million, Commerce & Brand Consulting increased $3.5 million, Experiential increased $12.4 million, Execution & Support decreased $60.6 million, Public Relations decreased $0.4 million and Healthcare increased $5.6 million.

The change in revenue period-over-period for the six months ended June 30, 2023 was:

Advertising & Media increased $83.4 million, Precision Marketing increased $25.9 million, Commerce & Brand Consulting increased $1.7 million, Experiential increased $20.5 million, Execution & Support decreased $82.1 million, Public Relations increased $12.7 million and Healthcare increased $13.6 million.

The change in revenue period-over-period across our geographic markets for the three months ended June 30, 2023 was:

North America increased $9.3 million, or 0.5%, Latin America increased $4.7 million, or 5.9%, Europe increased $20.7 million, or 2.0%, the Middle East and Africa decreased $2.3 million, or 3.5%, and Asia-Pacific increased $10.3 million, or 2.4%.

The change in revenue period-over-period across our geographic markets for the six months ended June 30, 2023 was:

North America increased $97.1 million, or 2.5%, Latin America increased $11.0 million, or 7.5%, Europe decreased $19.4 million, or 1.0%, the Middle East and Africa increased $0.7 million, or 0.5%, and Asia-Pacific decreased $13.7 million, or 1.6%.

A summary of our consolidated results of operations for the three-month periods ended March 31, 2023 and 2022 is:

Three Months Ended March 31,

2023 2022 $ Change % Change

A summary of our consolidated results of operations period-over-period is:

Three Months Ended June 30,

Six Months Ended June 30,

2023 2022 $ Change % Change 2023 2022 $ Change % Change

Revenue $ 3,609.9 $ 3,567.2 $ 42.7 1.2 % $ 7,053.2 $ 6,977.5 $ 75.7 1.1 %

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Interest expense, net $ 27.4 $ 40.1 $ (12.7) (31.7) % $ 46.7 $ 82.9 $ (36.2) (43.7) %

Net Income - Omnicom Group Inc.

Omnicom Group Inc.

$ 366.3 $ 348.4 $ 17.9 5.1 % $ 593.8 $ 522.2 $ 71.6 13.7 %

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1) See Non-GAAP reconciliation for the calculation of EBITA on page 25 .

2) First quarter 2023 operating expenses include $119.2 million ($91.0 million after tax), related to real estate repositioning costs discussed below, which reduced diluted net income per share - Omnicom Group Inc.

3) First quarter 2022 operating expenses include $113.4 million ($118.2 million after tax), related to charges arising from the effects of the war in Ukraine, which reduced diluted net income per share - Omnicom Group Inc.

2) For the six months ended June 30, 2023, operating expenses included real estate operating lease impairment charges, severance, and other exit costs related to repositioning actions we took to reduce our real estate requirements, rebalance our workforce, and consolidate operations in certain markets.

In the second quarter of 2023, we recorded a gain on disposition of our research businesses in the Execution & Support discipline and incurred repositioning costs, primarily related to severance payments.

The impact to Operating Income for the three and six months ended June 30, 2023, was an increase of $6.5 million ($1.4 million after tax) and a reduction of $112.7 million ($89.6 million after tax), respectively.

The net aggregate effect of these items in the three and six months ended June 30, 2023 to diluted net income per share - Omnicom Group Inc.

was an increase of $0.01 and a decrease of $0.44, respectively (see Notes 9 and 10 to the unaudited consolidated financial statements).

3) For the six months ended June 30, 2022, operating expenses included $113.4 million charges recorded in the first quarter of 2022 as well as an additional net income tax charge of $4.8 million related to the disposition of our businesses in Russia, which reduced net income - Omnicom Group Inc.

by $118.2 million and diluted net income per share - Omnicom Group Inc.

by $0.56 (see Note 11 to the unaudited consolidated financial statements).

Omnicom is a strategic holding company providing advertising, marketing, and corporate communications services to many of the largest global companies.

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These platforms provide precision marketing and insights at scale across creative, media, and other disciplines.

We believe generative AI will have a significant effect on how we provide services to our clients and how we enhance the productivity of our people.

As with any new technology, we are working closely with our clients and technology partners to take advantage of the benefits while being mindful of its limitations and risks, and privacy concerns.

We are committed to responsible AI practices and collaboration to harness AI's potential while evaluating related challenges, such as ethical considerations, intellectual property protection, regulatory compliance, and data security.

While risks related to AI include these challenges and evolving regulations, public perception, and our ability to effectively adopt this new emerging technology, the rapidly developing nature of this technology makes it difficult to assess the impact in full at this time.

As a leading global advertising, marketing and corporate communications company, we operate in all major markets and have a large and diverse client base.

For the twelve months ended March 31, 2023, our largest client accounted for 2.7% of our revenue, and our 100 largest clients, which represent many of the world's major marketers, accounted for approximately 52.7% of our revenue.

Our clients operate in virtually every sector of the global economy with no one industry representing more than 17% of our revenue for the three months ended March 31, 2023.

For the twelve months ended June 30, 2023, our largest client accounted for 2.8% of our revenue and our 100 largest clients, which represent many of the world's major marketers, accounted for approximately 53.6% of our revenue.

Our clients operate in virtually every sector of the global economy with no one industry representing more than 17% of our revenue for the six months ended June 30, 2023.

Although our revenue is generally balanced between the United States and international markets, and we have a large and diverse client base, we are not immune to general economic downturns.

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Revenue is typically lower in the first and third quarters and higher in the second and fourth quarters, reflecting client spending patterns during the year and additional project work that usually occurs in the fourth quarter.

Certain global events targeted by major marketers for advertising expenditures, such as the FIFA World Cup and the Olympics, and certain national events, such as the U.S.

Certain global events targeted by major marketers for advertising expenditures, such as the FIFA

World Cup and the Olympics, and certain national events, such as the U.S.

election process, may affect our revenue period-over-period in certain businesses.

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CONSOLIDATED RESULTS OF OPERATIONS

The results of operations for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 were:

Three Months Ended March 31,

2023 2022 $ Change

The change in results of operations period-over-period were:

Three Months Ended June 30,

Six Months Ended June 30,

2023 2022 $ Change 2023 2022 $ Change

Revenue $ 3,609.9 $ 3,567.2 $ 42.7 $ 7,053.2 $ 6,977.5 $ 75.7

2 unchanged sentences

Occupancy and other costs 297.7 293.0 4.7 589.3 593.2 (3.9)

Real estate repositioning costs 1

Real estate and other repositioning costs 1,2

72.3 — 72.3 191.5 — 191.5

1 unchanged sentence

— — — — 113.4 (113.4)

Gain on disposition of subsidiary (78.8) — (78.8) (78.8) — (78.8)

Cost of services 2,909.0 2,859.0 50.0 5,862.7 5,764.4 98.3

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Interest Income 30.1 11.1 19.0 65.7 19.3 46.4

Income Before Income Taxes and Income (Loss) From Equity Method Investments 327.2 310.2 17.0

Income Before Income Taxes and Income From Equity Method Investments 523.3 501.5 21.8 850.5 811.7 38.8

Income Tax Expense 141.2 133.1 8.1 224.6 248.6 (24.0)

Income (Loss) From Equity Method Investments 0.1 (0.1) 0.2

Income From Equity Method Investments 1.1 1.6 (0.5) 1.2 1.5 (0.3)

Net Income 383.2 370.0 13.2 627.1 564.6 62.5

9 unchanged sentences

EBITA Margin % 15.8 % 15.8 % 13.3 % 13.4 %

1) First quarter 2023 operating expenses include $119.2 million ($91.0 million after tax), related to real estate repositioning costs discussed below, which reduced diluted net income per share - Omnicom Group Inc.

2) First quarter 2022 operating expenses include $113.4 million ($118.2 million after tax), related to the charge arising from the effects of the war in Ukraine, which reduced diluted net income per share - Omnicom Group Inc.

The components of revenue change for thethree months ended March 31, 2023 in the United States (“Domestic”) and the remainder of the world (“International”) were:

1) For the six months ended June 30, 2023, operating expenses included real estate operating lease impairment charges, severance, and other exit costs related to repositioning actions we took to reduce our real estate requirements, rebalance our workforce, and consolidate operations in certain markets.

In the second quarter of 2023, we recorded a gain on the disposition of our research businesses in the Execution & Support discipline and incurred repositioning costs, primarily related to severance payments.

The net aggregate effect of these items in the three and six months ended June 30, 2023 to diluted net income per share - Omnicom Group Inc.

was an increase of $0.01 and a decrease of $0.44, respectively (see Notes 9 and 10 to the unaudited consolidated financial statements).

2) For the six months ended June 30, 2022, operating expenses included $113.4 million charges recorded in the first quarter of 2022 as well as an additional net income tax charge of $4.8 million related to the disposition of our businesses in Russia, which reduced net income - Omnicom Group Inc.

by $118.2 million and diluted net income per share - Omnicom Group Inc.

by $0.56 (see Note 11 to the unaudited consolidated financial statements).

The components of revenue change period-over-period in the United States (“Domestic”) and the remainder of the world (“International”) were:

Total Domestic International

Three months ended March 31, 2022 $ 3,410.3 $ 1,724.6 $ 1,685.7

Three months ended June 30, 2022 $ 3,567.2 $ 1,842.8 $ 1,724.4

Components of revenue change:

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Organic growth 121.4 3.4 % 44.0 2.4 % 77.4 4.5 %

Three months ended March 31, 2023 $ 3,443.3 1.0 % $ 1,812.2 5.1 % $ 1,631.1 (3.2) %

Three months ended June 30, 2023 $ 3,609.9 1.2 % $ 1,850.6 0.4 % $ 1,759.3 2.0 %

Total Domestic International

Six months ended June 30, 2022 $ 6,977.5 $ 3,567.4 $ 3,410.1

Components of revenue change:

Foreign exchange rate impact (134.4) (1.9) % — — % (134.4) (3.9) %

Acquisition revenue, net of disposition revenue (90.0) (1.3) % (35.9) (1.0) % (54.1) (1.6) %

Organic growth 300.1 4.3 % 131.3 3.7 % 168.8 5.0 %

Six months ended June 30, 2023 $ 7,053.2 1.1 % $ 3,662.8 2.7 % $ 3,390.4 (0.6) %

The components and percentages are calculated as follows:

• Foreign exchange rate impact is calculated by translating the current period’s local currency revenue using the prior period average exchange rates to derive current period constant currency revenue (in this case $3,553.3 million for the Total column).

The foreign exchange impact is the difference between the current period revenue in U.S.

Dollars and the current period constant currency revenue ($3,443.3 million less $3,553.3 million for the Total column).

Dollars and the current period constant currency revenue ($3,609.9 million less $3,634.3 million and $7,053.2 million less $7,187.6 million for the Total column for the three and six months ended June 30, 2023, respectively).

• Acquisition revenue is calculated as if the acquisition occurred twelve months prior to the acquisition date by aggregating the comparable prior period revenue of acquisitions through the acquisition date.

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• Organic growth is calculated by subtracting the foreign exchange rate impact, and the acquisition revenue, net of disposition revenue components from total revenue growth.

• The percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component ($3,410.3 million for the Total column).

• The percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component ($3,567.2 million and $6,977.5 million for the Total column for the three and six months ended June 30, 2023, respectively).

Changes in the value of foreign currencies against the U.S.

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For the most part, because the revenue and expense of our foreign operations are both denominated in the same local currency, the economic impact on operating margin is minimized.

Assuming exchange rates at April 14, 2023 remain unchanged, we expect the impact of changes in foreign exchange rates to reduce revenue in the second quarter by approximately 0.5% and to be flat for the year.

Based on our acquisition and disposition activity through April 14, 2023 we expect that the net impact will reduce revenue by 1.0% for the second quarter of 2023 and 1.0% for the full year.

Assuming exchange rates at July 14, 2023 remain unchanged, we expect the impact of changes in foreign exchange rates to increase revenue in the third quarter by approximately 1.5% and to be flat for the year.

Based on our acquisition and disposition activity to date, we expect that the net impact will reduce revenue by 1.5% for the third quarter of 2023 and 1.5% for the full year.

Revenue by Discipline

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The change in revenue period-over-period and organic growth by discipline was:

Three Months Ended March 31,

Three Months Ended June 30,

2023 2022 2023 vs.

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Revenue $ 3,609.9 $ 3,567.2 $ 42.7 3.4 %

Effective January 1, 2023, we realigned the classification of certain services primarily within our Commerce & Brand Consulting, Execution & Support, and Experiential disciplines.

The change in revenue in the first quarter of 2023 compared to the first quarter of 2022 in our fundamental disciplines was:

Organic revenue increased across all our disciplines and was partially offset by the weakening of substantially all foreign currencies against the U.S.

Dollar, primarily the British Pound and the Euro, and by dispositions, primarily in the Execution & Support discipline in the first quarter of 2023 and in the Advertising & Media discipline, including the disposition of our businesses in Russia in the first quarter of 2022.

Six Months Ended June 30,

2023 2022 2023 vs.

Revenue $ % of

Revenue $ Change % Organic Growth

Advertising & Media $ 3,688.0 52.3 % $ 3,604.6 51.6 % $ 83.4 5.1 %

Precision Marketing 729.0 10.3 % 703.1 10.2 % 25.9 4.6 %

Commerce & Brand Consulting 420.1 6.0 % 418.4 6.0 % 1.7 2.8 %

Experiential 312.2 4.4 % 291.7 4.2 % 20.5 8.8 %

Execution & Support 467.1 6.6 % 549.2 7.8 % (82.1) (0.1) %

Public Relations 769.1 10.9 % 756.4 10.8 % 12.7 2.9 %

Healthcare 667.7 9.5 % 654.1 9.4 % 13.6 3.8 %

Revenue $ 7,053.2 $ 6,977.5 $ 75.7 4.3 %

Effective January 1, 2023, we realigned the classification of certain services primarily within our Commerce & Brand Consulting, Execution & Support, and Experiential disciplines and prior year amounts have been reclassified.

The period-over-period change in revenue for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 in our fundamental disciplines was:

Organic revenue increased across most of our disciplines and was partially offset by the negative effects of foreign exchange translation, primarily due to the weakening of the Australian Dollar, Canadian Dollar, and Renminbi against the U.S.

Dollar, which was partially offset by the strengthening of the Euro against the U.S.

Dispositions, primarily in the Execution & Support discipline in the first and second quarters of 2023, reduced our revenue compared to the prior year period.

The period-over-period change in revenue for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 in our fundamental disciplines was:

Organic revenue increased across fundamentally all our disciplines and was partially offset by the weakening of substantially all other foreign currencies against the U.S.

Dollar, primarily the British Pound, Australian Dollar, Canadian Dollar, Euro, and Yen against the U.S.

Dollar and by dispositions, primarily in the Execution & Support discipline in the first and second quarters of 2023 and in the Advertising & Media discipline, including the disposition of our businesses in Russia in the first quarter of 2022, which negatively impacted our revenue in the current period.

In the normal course of business, our agencies both gain and lose business from clients each year due to a variety of factors.

Under our client-centric approach, we seek to broaden our relationships with all of our clients.

Our largest client represented 2.7% and 3.3% of revenue for the twelve months ended March 31, 2023 and 2022, respectively.

Our ten largest and 100 largest clients represented 19.3% and 52.7% of revenue for the twelve months ended March 31, 2023, respectively, and 21.1% and 54.2% of revenue for the twelve months ended March 31, 2022, respectively.

Our largest client represented 2.8% and 2.9% of revenue for the twelve months ended June 30, 2023 and 2022, respectively.

Our ten largest and 100 largest clients represented 19.8% and 53.6% of revenue for the twelve months ended June 30, 2023, respectively, and 21.0% and 53.1% of revenue for the twelve months ended June 30, 2022, respectively.

Revenue by Geography

The change in revenue period-over-period and organic growth in our geographic markets was:

Three Months Ended March 31,

Three Months Ended June 30,

2023 2022 2023 vs.

7 unchanged sentences

Revenue $ 3,609.9 $ 3,567.2 $ 42.7 3.4 %

The change in revenue across our geographic markets was:

Six Months Ended June 30,

2023 2022 2023 vs.

Revenue $ % of

Revenue $ Change % Organic Growth

North America $ 3,905.6 55.3 % $ 3,808.5 54.6 % $ 97.1 3.9 %

Latin America 158.6 2.3 % 147.6 2.1 % 11.0 9.3 %

Europe 1,997.5 28.3 % 2,016.9 28.9 % (19.4) 4.1 %

Middle East and Africa 147.5 2.1 % 146.8 2.1 % 0.7 7.1 %

Asia-Pacific 844.0 12.0 % 857.7 12.3 % (13.7) 5.1 %

Revenue $ 7,053.2 $ 6,977.5 $ 75.7 4.3 %

The period-over-period change in revenue across our geographic markets for the three months ended June 30, 2023 was:

Organic revenue for the three months ended June 30, 2023 increased across most of our geographic markets.

The period-over-period change in revenue across our geographic markets for the six months ended June 30, 2023 was:

Organic revenue increased across all of our geographic markets.

In North America, increased organic revenue was driven primarily by strong performance in the United States across substantially all our disciplines, especially Advertising & Media, led by our media business, Precision Marketing, Public Relations, Healthcare, and Execution & Support, and was partially offset by the weakening of the Canadian Dollar against the U.S.

In Latin America, organic revenue increased in substantially all our disciplines, led by Advertising & Media, and in most countries, especially in Brazil, Chile and Mexico, was partially offset by the weakening of the Colombian Peso against the U.S.

In Europe, organic revenue increased in substantially all our major geographic markets and substantially all disciplines, especially Advertising & Media, led by our media business, Public Relations, Healthcare, Precision Marketing, and Experiential.

The organic revenue growth was offset by the weakening of most currencies in the region, especially the British Pound and the Euro, against the U.S.

Dollar, and the disposition of our businesses in Russia in the first quarter of 2022.

In the U.K., organic revenue growth of 5.9% was led by our Advertising & Media, Healthcare, Commerce & Brand Consulting, and Precision Marketing disciplines.

In Continental Europe, which includes the Euro Zone and the other European countries, organic growth of 5.4% was led by France, Italy, Spain, and Germany and in substantially all disciplines.

In the Middle East and Africa, organic revenue increased period-over-period in all disciplines, led by Advertising & Media and Experiential, and in most of our major markets in the region, and was partially offset by the weakening of certain currencies in the region against the U.S.

In Asia-Pacific, increased organic revenue was led by our Advertising & Media discipline and most major markets in the region, especially Australia, India, Korea and Japan, and was offset by the weakening of substantially all currencies in the region against the U.S.

Dollar, especially the Australian Dollar, Renminbi and Yen, as well as disposition activity in the first quarter of 2022.

Organic revenue for the six months ended June 30, 2023 increased across most of our geographic markets.

In North America for the three months ended June 30, 2023 compared to the prior year period, increased organic revenue was driven primarily by strong performance in the United States, especially in the Advertising & Media discipline, led by our media business, and our Precision Marketing and Healthcare disciplines, and was partially offset by a reduction in our Commerce & Brand Consulting, Experiential, and Execution & Support disciplines which faced difficult comparisons to the prior year.

The weakening of the Canadian Dollar against the U.S.

Dollar partially offset organic growth.

Dispositions in the Execution & Support discipline in the United States in the first and second quarters of 2023 also decreased revenue.

In North America for the six months ended June 30, 2023 compared to the prior year period, increased organic revenue was driven primarily by strong performance in the United States across substantially all of our disciplines and was partially offset by the weakening of the Canadian Dollar against the U.S.

Dollar and dispositions in our Execution & Support discipline in the first and second quarters of 2023.

In Latin America compared to the prior year periods, organic revenue for the three and six months ended June 30, 2023, increased in substantially all our disciplines, led by Advertising & Media, and in most countries, especially in Colombia, Chile, Mexico, and Argentina, and was partially offset by the weakening of the Colombian Peso and the Argentine Peso against the U.S.

In Europe compared to the prior year periods, organic revenue for the three and six months ended June 30, 2023 increased across most of our major geographic markets in the region and in substantially all disciplines, especially Advertising & Media, led by our media business, and Experiential.

The organic revenue growth for the three months ended June 30, 2023, combined with the strengthening of the Euro against the U.S.

Dollar in the period, which was partially offset by the weakening of the Turkish Lira, Swedish Krona, and British Pound, also contributed to the total revenue growth for the region.

For the six months ended June 30, 2023 the weakening of substantially all currencies as compared to the the prior year period offset organic growth.

organic revenue growth for the three and six months ended June 30, 2023 of 2.5% and 4.2%, respectively, was led by our Advertising & Media, Healthcare, and Commerce & Brand Consulting disciplines, partially offset by the weakening of the British Pound against the U.S..

In Continental Europe, which includes the Euro Zone and the other European countries, organic growth for the three and six months ended June 30, 2023 of 2.6% and 4.0%, respectively, was led by France, Italy, and Germany in substantially all disciplines.

In the Middle East and Africa compared to the prior year periods, organic revenue increased for the three and six months ended June 30, 2023, led by the Advertising & Media discipline and in most of our major markets in the region.

For the three and six months ended June 30, 2023, organic revenue was partially offset by the weakening of all currencies in the region against the U.S.

In Asia-Pacific compared to the prior year periods, organic revenue increased for the three and six months ended June 30, 2023, led by our Advertising & Media and Experiential disciplines and most major markets in the region, especially in China, India, Japan, and Malaysia.

The organic growth was partially offset by the weakening of substantially all currencies in the region against the U.S.

Dollar, especially the Australian Dollar, Renminbi, Yen, and New Zealand Dollar.

Revenue by Industry

Revenue by type of client industry sector was:

Three Months Ended March 31,

Revenue by type of client industry sector period-over-period was:

Three Months Ended June 30,

Six Months Ended June 30,

2023 2022 2023 2022

Pharmaceuticals and Healthcare 17 % 16 % 17 % 16 %

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Operating Expenses

Operating expenses for the three months ended March 31, 2023 and 2022 were:

Three Months Ended March 31,

The change in operating expenses period-over-period were:

Three Months Ended June 30,

2023 2022 2023 vs.

8 unchanged sentences

Occupancy and other costs 297.7 8.2 % 293.0 8.2 % 4.7 1.6 %

Real estate repositioning costs 119.2 3.5 % — — % 119.2

Real estate and other repositioning costs 72.3 2.0 % — — % 72.3

Gain on disposition of subsidiary (78.8) (2.2) % — — % (78.8)

Cost of services 2,909.0 2,859.0 50.0 1.7 %

Selling, general and administrative expenses 99.1 2.7 % 110.9 3.1 % (11.8) (10.6) %

Depreciation and amortization 51.1 1.4 % 55.7 1.6 % (4.6) (8.3) %

Total operating expenses 3,059.2 84.7 % 3,025.6 84.8 % 33.6 1.1 %

Operating Income $ 550.7 15.3 % $ 541.6 15.2 % $ 9.1 1.7 %

Six Months Ended June 30,

2023 2022 2023 vs.

Revenue $ % of

Revenue $ 7,053.2 $ 6,977.5 $ 75.7 1.1 %

Operating Expenses:

Salary and service costs:

Salary and related costs 3,550.0 50.3 % 3,595.4 51.5 % (45.4) (1.3) %

Third-party service costs 1,355.1 19.2 % 1,210.9 17.4 % 144.2 11.9 %

Third-party incidental costs 255.6 3.6 % 251.5 3.6 % 4.1 1.6 %

Total salary and service costs 5,160.7 73.2 % 5,057.8 72.5 % 102.9 2.0 %

Occupancy and other costs 589.3 8.4 % 593.2 8.5 % (3.9) (0.7) %

Real estate and other repositioning costs 191.5 2.7 % — — % 191.5

Charges arising from the effects of the war in Ukraine — — % 113.4 1.6 % (113.4)

Gain on disposition of subsidiary (78.8) (1.1) % — — % (78.8)

Cost of services 5,862.7 5,764.4 98.3 1.7 %

6 unchanged sentences

As a service business, salary and service costs make up the significant portion of our operating expenses and substantially all these costs comprise the essential components directly linked to the delivery of our services.

Salary and service costs include employee compensation and benefits, freelance labor, and third-party service costs, which include third-party supplier costs when we act as principal in providing services to our clients, and third-party incidental costs, which primarily consist of client-related travel and incidental out-of-pocket costs, which we bill back to the client directly at our cost and which we are required to include in revenue.

Salary and service costs include employee compensation and benefits, freelance labor, third-party service costs, and third-party incidental costs.

Third-party service costs include vendor costs when we act as principal in providing services to our clients, and third-party incidental costs, which primarily consist of client-related travel and incidental out-of-pocket costs, which we bill back to the client directly at our cost and which we are required to include in revenue.

Occupancy and other costs consist of the indirect costs related to the delivery of our services, including office rent and other occupancy costs, equipment rent, technology costs, general office expenses and other expenses.

Adverse and beneficial fluctuations in foreign currencies from period to period impact our results of operations and financial position when we translate our financial

statements from local foreign currencies to the U.S.

However, substantially all of our foreign operations transact business in their local currency mitigating the impact of changes in foreign currency exchange rates on our operating margin percentage.

Operating expenses for the three months ended March 31, 2023 increased slightly to $3,096.8 million from $3,057.3 million period-over-period.

The weakening of most foreign currencies, especially the British Pound and Euro, against the U.S.

Dollar reduced operating expenses period-over-period and was in line with the percentage impact from changes in foreign currencies on revenue.

Adverse and beneficial fluctuations in foreign currencies from period to period impact our results of operations and financial position when we translate our financial statements from local foreign currencies to the U.S.

However, substantially all of

our foreign operations transact business in their local currency, mitigating the impact of changes in foreign currency exchange rates on our operating margin percentage.

Operating expenses for the three and six months ended June 30, 2023 increased slightly to $3,059.2 million from $3,025.6 million and to $6,156.0 million from $6,082.9 million, respectively, period-over-period.

Included in operating expenses for the three-month period ended June 30, 2023 is a reduction from the gain on disposition of subsidiary in our Execution & Support discipline of $78.8 million and an increase related to repositioning costs of $72.3 million incurred in the period, consisting primarily of severance payments.

Included in operating expense for the six-month period ended June 30, 2023 is the net impact of the gain on disposition of subsidiary in our Execution & Support discipline of $78.8 million and repositioning costs of related to real estate and other exit charges and severance of $191.5 million incurred in the period (see Notes 9 and 10 to the unaudited financial statements).

The reduction in our operating expense period-over-period from foreign currency translation was in line with the percentage impact from changes in foreign currencies on revenue for the three and six month periods ended June 30, 2023.

Operating Expenses - Salary and Service Costs

Salary and service costs, which tend to fluctuate with changes in revenue, are comprised of salary and related costs, third-party service costs, and third-party incidental costs.

Salary and related costs include employee compensation and benefits costs and freelance labor.

Third-party service costs include third-party supplier costs when we act as principal in providing services to our clients.

Third-party incidental costs primarily consist of client-related travel and incidental out-of-pocket costs that we bill back to the client directly at our cost and which we are required to include in revenue.

Salary and service costs increased $51.1 million, or 2.1%, to $2,542.9 million.

Salary and related costs decreased $16.6 million, or 0.9%, to $1,778.0 million.

While headcount increased as a result of organic growth, the increase was offset by the effects of foreign currency translation.

Third-party service costs increased $57.5 million, or 9.9%, to $639.3 million, and third-party incidental costs increased $10.2 million, or 8.8%, to $125.6 million, primarily due to an increase in organic revenue.

Salary and service costs for the three and six months ended June 30, 2023 compared to the prior year period increased $51.8 million, or 2.0%, to $2,617.8 million and increased $102.9 million, or 2.0%, to $5,160.7 million, respectively.

Salary and related costs for the three and six months ended June 30, 2023 decreased $28.8 million, or 1.6%, to $1,772.0 million and $45.4 million, or 1.3%, to $3,550.0 million, respectively.

While headcount increased for the three and six months ended June 30, 2023 as a result of organic growth, the increase was offset by the dispositions of our research businesses in our Execution & Support discipline in the first and second quarters of 2023 compared to the prior year period.

The effects of foreign currency translation also decreased salaries and related expenses year over year in the six-month period.

Third-party service costs for the three and six months ended June 30, 2023 increased $86.8 million, or 13.8%, to $715.8 million and increased $144.2 million, or 11.9%, to $1,355.1 million, and was less impacted by the effects of our dispositions and foreign currency translation.

Third-party incidental costs for the three and six months ended June 30, 2023 decreased slightly by $6.2 million, or 4.6%, to $130.0 million and increased $4.1 million, or 1.6%, to $255.6 million, respectively.

Operating Expenses - Occupancy and Other Costs

Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, decreased slightly by $8.6 million.

Excluding the impact from changes in foreign currencies, occupancy and other costs were flat period-over-period.

In connection with the transition to a flexible working environment, a hybrid model which allows for partial remote work, we took certain actions to reduce and reposition our office lease portfolio.

In the three months ended March 31, 2023, we recorded a pretax charge of $119.2 million ($91.0 million after-tax), which included an $80.4 million non-cash impairment charge for the operating lease right-of-use, or ROU, assets, $20.0 million for the write-off of the net book value of leasehold improvements at the affected locations, and $18.8 million of other lease obligations that will be paid in less than one year.

Substantially all of the operating lease payments related to the ROU assets will be paid out over three years.

Occupancy and other costs for the three and six months ended June 30, 2023, which are less directly linked to changes in revenue than salary and service costs, increased by $4.7 million and decreased by $3.9 million, respectively.

Increased occupancy costs were substantially offset by lower rent expense in the periods.

In connection with the transition to a flexible working environment, a hybrid model which allows for partial remote work, we took certain actions in the first quarter of 2023 to reduce and reposition our office lease portfolio and recorded a charge of $119.2 million, which included an $80.4 million non-cash impairment charge for the operating lease right-of-use, or ROU, assets, $20.0 million for the write-off of the net book value of leasehold improvements at the affected locations, and $18.8 million of other lease obligations that will be paid in less than one year.

Substantially all of the operating lease payments related to the ROU assets will be paid out over three years (see Note 9 to the unaudited consolidated financial statements).

Operating Expenses - Selling, General & Administrative Expenses

SG&A expenses primarily consist of third-party marketing costs, professional fees and compensation and benefits and occupancy and other costs of our corporate and executive offices, including group-wide finance and accounting, treasury, legal and governance, human resource oversight and similar costs.

Excluding the impact from changes in foreign currencies, SG&A expenses remained flat period-over-period.

Excluding the impact from changes in foreign currencies, SG&A expenses remained decreased for the three and six months ended June 30, 2023 by $11.8 million and $19.3 million, respectively, period-over-period.

Operating Income

Operating income decreased $6.5 million to $346.5 million, and operating margin decreased to 10.1% from 10.4% compared to the prior year period.

EBITA decreased $6.6 million to $365.8 million and EBITA margin decreased to 10.6% from 10.9%, period-over-period.

The effect of the real estate repositioning cost (see Note 9 to the unaudited consolidated financial statements) reduced operating income and EBITA by $119.2 million, and decreased operating margin by 3.4% and EBITA margin by 3.5%.

Operating income and EBITA in the first quarter of 2022 include a reduction of $113.4 million related to the war in Ukraine (see Note 10 to the unaudited consolidated financial statements) and decreased both operating margin and EBITA margin by 3.3%.

Operating income for the three months ended June 30, 2023 compared to 2022, increased $9.1 million to $550.7 million, and operating margin increased to 15.3% from 15.2%.

EBITA increased by $7.6 million to $570.0 million, and EBITA margin was unchanged at 15.8%, period-over-period.

The net effect of the second quarter of 2023 repositioning costs and the gain on disposition of subsidiaries related to our research businesses in the Execution & Support discipline (see Notes 9 and 10 and to the unaudited consolidated financial statements) increased both operating income and EBITA by $6.5 million, and increased both operating margin and EBITA margin by 0.2%.

Operating income for the six months ended June 2023 compared to 2022, increased $2.6 million to $897.2 million, and operating margin decreased to 12.7% from 12.8%.

EBITA increased $1.0 million to $935.8 million, and EBITA margin decreased to 13.3% from 13.4%, period-over-period.

The six months year-to-date effect of the real estate and other repositioning cost and the gain on disposition of subsidiaries (see Notes 9 and 10 to the unaudited consolidated financial statements) reduced both operating income and EBITA by $112.7 million, and reduced both operating margin and EBITA margin by 1.6%.

Operating income and

EBITA in the six months ended June 30, 2022 included a reduction of $113.4 million related to the war in Ukraine (see Note 11 to the unaudited consolidated financial statements), which decreased both operating margin and EBITA margin by 1.6%.

Net Interest Expense

Net interest expense in the first quarter of 2023 decreased $23.5 million period-over-period to $19.3 million.

Interest expense on debt in the quarter increased slightly by $3.2 million period-over-period to $50.2 million.

Interest income in the first quarter of 2023 increased $27.4 million period-over-period to $35.6 million, primarily as a result of higher interest rates on cash balances and short-term investments.

Our effective tax rate for the three months ended March 31, 2023 decreased period-over-period to 25.5% from 37.2%.

The decrease for the three months ended March 31, 2023 primarily reflects the favorable impact of $10.0 million related to previously unrecognized tax benefits, partially offset by $6.0 million related to a lower tax benefit in certain jurisdictions for the real estate repositioning costs in the quarter and the increase in the U.K.

statutory tax rate.

The effective tax rate for the three months ended March 31, 2022 was negatively impacted by the non-deductibility of the $113.4 million charges recorded in the first quarter of 2022, arising from the effects of the war in Ukraine, as well as an additional increase in income tax expense of $4.8 million related to the disposition of our businesses in Russia.

Net interest expense in the three months ended June 30, 2023 decreased $12.7 million period-over-period to $27.4 million.

Interest expense on debt in the quarter increased by $4.6 million period-over-period to $51.8 million.

Interest income in the second quarter of 2023 increased $19.0 million period-over-period to $30.1 million, primarily as a result of higher interest rates on cash balances and short-term investments.

Net interest expense in the six months ended June 30, 2023 decreased $36.2 million period-over-period to $46.7 million.

Interest expense on debt in the first six months increased by $7.8 million period-over-period to $102.0 million.

Interest income in the first six months of 2023 increased $46.4 million period-over-period to $65.7 million, primarily as a result of higher interest rates on cash balances and short-term investments.

Our effective tax rate for the three months ended June 30, 2023 increased slightly period-over-period to 27.0% from 26.5%, primarily due to a higher tax rate on the gain on disposition of subsidiaries and a lower benefit of the repositioning costs incurred in the period.

Our effective tax rate for the six months ended June 30, 2023 decreased period-over-period to 26.4% from 30.6%.

The six months ended June 30, 2023 includes an increase of $10.7 million in income tax expense related to a lower tax benefit in certain jurisdictions for the real estate and other repositioning costs and an increase in the U.K.

statutory tax rate, partially offset by $10.0 million of previously unrecognized tax benefits.

The higher effective tax rate for the six months ended June 30, 2022 was predominantly due to the non-deductibility of the $113.4 million charges recorded in the first quarter of 2022, arising from the effects of the war in Ukraine, as well as an additional increase in income tax expense of $4.8 million related to the disposition of our businesses in Russia.

On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law.

The IRA levies a 1% excise tax on net stock repurchases after December 31, 2022.

The excise tax is included in treasury stock on our balance sheet and was immaterial.

The excise tax is recorded as part of the cost of acquiring treasury stock and is not material.

Additionally, the IRA imposes a 15% corporate alternative minimum tax, or CAMT, for tax years beginning after December 31, 2022.

The CAMT is not expected to have a material impact on our results of operations or financial position.

Various foreign jurisdictions are in the process of enacting legislation to adopt a minimum tax described in the Global Anti-Base Erosion, GloBE or Pillar Two, tax model rules issued by the Organization for Economic Co-operation and Development.

Various foreign jurisdictions are in the process of enacting legislation to adopt a minimum tax described in the Global Anti-Base Erosion, GloBE or Pillar Two, model rules issued by the Organization for Economic Cooperation and Development.

A minimum effective tax of 15% would apply to multinational companies with consolidated revenue above €750 million.

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Net income - Omnicom Group Inc.

in the three months ended March 31, 2023 increased $53.7 million to $227.5 million from $173.8 million in the three months ended March 31, 2022.

in the three months ended June 30, 2023 increased $17.9 million to $366.3 million from $348.4 million.

The period-over-period increase is due to the factors described above.

Diluted net income per share - Omnicom Group Inc.

increased to $1.11 in the three months ended March 31, 2023, from $0.83 in the three months ended March 31, 2022, due to the factors described above, and by the impact of the reduction in our weighted average common shares outstanding resulting from the repurchases of our common stock during the quarter, net of shares issued for stock option exercises and the employee stock purchase plan.

For the three months ended March 31, 2023, the impact of the real estate repositioning costs reduced net income - Omnicom Group Inc.

increased to $1.82 in the three months ended June 30, 2023, from $1.68 in the three months ended June 30, 2022, due to the factors described above and the impact of the reduction in our weighted average common shares outstanding resulting from the repurchases of our common stock during the quarter, net of shares issued for stock option exercises and the employee stock purchase plan.

For the three months ended June 30, 2023, the net impact of the real estate and other repositioning costs and gain on disposition of subsidiaries increased net income - Omnicom Group Inc.

by $1.4 million and diluted net income per share - Omnicom Group Inc.

For the three months ended March 31, 2022, the impact of the after-tax charges arising from the effects of the war in Ukraine reduced net income - Omnicom Group Inc.

Net income - Omnicom Group Inc.

in the six months ended June 30, 2023 increased $71.6 million to $593.8 million from $522.2 million.

The period-over-period increase is due to the factors described above.

Diluted net income per share - Omnicom Group Inc.

increased to $2.92 in the six months ended June 30, 2023, from $2.51 in the six months ended June 30, 2022, due to the factors described above and the impact of the reduction in our weighted average common shares outstanding resulting from the repurchases of our common stock during the first half of the year, net of shares issued for stock option exercises and the employee stock purchase plan.

For the six months ended June 30, 2023, the net impact of the real estate repositioning costs and gain on disposition of subsidiaries reduced net income - Omnicom Group Inc.

by $89.6 million and diluted net income per share - Omnicom Group Inc.

For the six months ended June 30, 2022, the impact of the after-tax charges arising from the effects

of the war in Ukraine reduced net income - Omnicom Group Inc.

by $118.2 million and diluted net income per share - Omnicom Group Inc.

NON-GAAP FINANCIAL MEASURES

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to EBITA and EBITA Margin:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

2023 2022 2023 2022

Net Income - Omnicom Group Inc.

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Net Income 383.2 370.0 627.1 564.6

Income (Loss) From Equity Method Investments 0.1 (0.1)

Income From Equity Method Investments 1.1 1.6 1.2 1.5

Income Tax Expense 141.2 133.1 224.6 248.6

Income Before Income Taxes and Income (Loss) From Equity Method Investments 327.2 310.2

Income Before Income Taxes and Income From Equity Method Investments 523.3 501.5 850.5 811.7

Interest Expense 57.5 51.2 112.4 102.2

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Primary sources of our short-term liquidity are our operating cash flow, cash and cash equivalents and short-term investments.

Additional liquidity sources include our $2.5 billion multi-currency revolving credit facility, or Credit Facility, with a termination date of February 14, 2025, the ability to issue up to $2 billion of U.S.

Additional liquidity sources include our $2.5 billion multi-currency revolving credit facility, or Credit Facility, the ability to issue up to $2 billion of U.S.

Dollar denominated commercial paper and issue up to the equivalent of $500 million in British Pounds or Euro under a Euro commercial paper program, and access to the capital markets.

In June 2023, the Credit Facility was amended to, among other things, extend the termination date of the Credit Facility to June 2, 2028 and transition the benchmark rate for U.S.

Dollar denominated loans from LIBOR to the Secured Overnight Financing Rate, or SOFR.

Certain of our international subsidiaries have uncommitted credit lines that are guaranteed by Omnicom aggregating $585.5 million.

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Cash and cash equivalents decreased $1.5 billion from December 31, 2022.

During the first quarter of 2023, we used $522.1 million of cash in operating activities, which included the use for operating capital of $951.0 million, primarily related to our typical working capital requirement during the period.

Discretionary spending for the first quarter of 2023 was $495.1 million as compared to $822.3 million for the prior year period.

Discretionary spending for the first quarter of 2023 is comprised of capital expenditures of $23.1 million, dividends paid to common shareholders of $142.3 million, dividends paid to shareholders of noncontrolling interests of $12.5 million, repurchases of our common stock, net of proceeds from stock option exercises and related tax benefits and common stock sold to our employee stock purchase plan of $278.8 million, and payment of contingent purchase price obligations and acquisition of additional shares of noncontrolling interests of $38.4 million.

During the first six months 2023, we used $784.6 million of cash in operating activities, which included the use for operating capital of $1,664.8 million, primarily related to our typical working capital requirement during the period.

Discretionary spending for the first six months of 2023 was $917.8 million as compared to $1.1 billion for the prior year period.

Discretionary spending for the first six months of 2023 is comprised of capital expenditures of $40.0 million, dividends paid to common shareholders of $285.1 million, dividends paid to shareholders of noncontrolling interests of $32.0 million, repurchases of our common stock, net of proceeds from stock option exercises and

related tax benefits and common stock sold to our employee stock purchase plan of $505.6 million, and payment of contingent purchase price obligations and acquisition of additional shares of noncontrolling interests of $55.1 million.

Discretionary spending was partially offset by the proceeds from disposition of subsidiary, net of other investing activities, of $178.7 million.

The impact of foreign exchange rate changes increased cash and cash equivalents by $1.3 million.

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In countries where we do not conduct treasury operations, all cash and cash equivalents are held by counterparties that meet specific minimum credit standards.

At March 31, 2023, our foreign subsidiaries held approximately $1.6 billion of our total cash and cash equivalents of $3.3 billion.

At June 30, 2023, our foreign subsidiaries held approximately $1.4 billion of our total cash and cash equivalents of $2.7 billion.

Substantially all of the cash is available to us, net of any foreign withholding taxes payable upon repatriation to the United States.

At March 31, 2023, our net debt position, which we define as total debt, including short-term debt, less cash and cash equivalents and short-term investments increased $1.0 billion to $2.3 billion from December 31, 2022.

The increase in net debt primarily resulted from the use of cash of $522.1 million for operating activities, which included the use for operating capital of $951.0 million, primarily related to our typical working capital requirement during the period, and discretionary spending of $495.1 million, partially offset by an increase in cash and cash equivalents of $18.4 million from the changes in foreign exchange rates.

The components of net debt were:

March 31, 2023 December 31, 2022 March 31, 2022

At June 30, 2023, our net debt position, which we define as total debt, including short-term debt, less cash and cash equivalents and short-term investments, increased $1.6 billion to $2.8 billion from December 31, 2022.

The increase in net debt primarily resulted from the use of cash of $784.6 million for operating activities, which included the use for operating capital of $1,664.8 million, primarily related to our typical working capital requirement during the period, discretionary spending of $917.8 million, as discussed above, and the net effect of foreign exchange rate changes on cash and cash equivalents and our foreign currency denominated debt of $33.4 million, and was partially offset by the proceeds from disposition of subsidiary in the second quarter of 2023, net of other investing activities of $178.7 million.

Components of net debt:

June 30, 2023 December 31, 2022 June 30, 2022

Short-term debt $ 20.5 $ 16.9 $ 12.3

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Omnicom and its wholly owned finance subsidiary, Omnicom Capital Inc., or OCI, are co-obligors under our 3.65% Senior Notes due 2024 and 3.60% Senior Notes due 2026.

These notes are a joint and several liability of Omnicom and OCI, and Omnicom unconditionally guarantees OCI’s obligations with respect to the notes.

These notes are a joint and several liability of Omnicom and OCI, and

Omnicom unconditionally guarantees OCI’s obligations with respect to the notes.

OCI provides funding for our operations by incurring debt and lending the proceeds to our operating subsidiaries.

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The Credit Facility contains a financial covenant that requires us to maintain a Leverage Ratio of consolidated indebtedness to consolidated EBITDA (earnings before interest, taxes, depreciation, amortization and non-cash charges) of no more than 3.5 times for the most recently ended 12-month period.

At March 31, 2023, we were in compliance with this covenant as our Leverage Ratio was 2.4 times.

At June 30, 2023, we were in compliance with this covenant as our Leverage Ratio was 2.4 times.

The Credit Facility does not limit our ability to declare or pay dividends or repurchase our common stock.

Borrowings under the Credit Facility may use LIBOR as the benchmark interest rate.

The LIBOR benchmark rate is expected to be phased out by June 2023.

We do not expect that the discontinuation of the LIBOR rate will have a material impact on our liquidity or results of operations.

At March 31, 2023, our long-term and short-term debt was rated BBB+ and A2 by S&P and Baa1 and P2 by Moody's.

At June 30, 2023, our long-term and short-term debt was rated BBB+ and A2 by S&P and Baa1 and P2 by Moody's.

Our access to the commercial paper market and the cost of these borrowings are affected by market conditions and our credit ratings.

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We have the ability to fund our day-to-day liquidity, including working capital, by issuing commercial paper or borrowing under the Credit Facility.

During the first quarter of 2023 and 2022, there were no issuances of commercial paper or borrowings under the Credit Facility.

We can resume issuing commercial paper to fund our day-to-day liquidity when needed.

Beginning in 2022 through the first quarter of 2023, we did not issue commercial paper, or borrow under the Credit Facility.

In the second quarter of 2023, we issued commercial paper.

The maximum amount of commercial paper outstanding was $200 million, the average amount outstanding was $18.8 million, the average days outstanding was 1.7 days, and the weighted average interest rate was 5.22%.

At June 30, 2023, there were no outstanding borrowings under the Credit Facility, and no outstanding commercial paper.

We can issue commercial paper to fund our day-to-day liquidity when needed.

However, disruptions in the credit markets may lead to periods of illiquidity in the commercial paper market and higher credit spreads.

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We provide advertising, marketing and corporate communications services to several thousand clients that operate in nearly every sector of the global economy, and we grant credit to qualified clients in the normal course of business.

Due to the diversified nature of our client base, we do not believe that we are exposed to a concentration of credit risk as our largest client represented 2.7% and 3.3% of revenue for the twelve months ended March 31, 2023 and 2022, respectively.

Due to the diversified nature of our client base, we do not believe that we are exposed to a concentration of credit risk as our largest client represented

2.8% of revenue for the twelve months ended June 30, 2023.

However, during periods of economic downturn, the credit profiles of our clients could change.

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For a more complete understanding of our accounting estimates and policies, the unaudited consolidated financial statements and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, readers are encouraged to consider this information together with our discussion of our critical accounting policies under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report on Form 10-K.

Acquisitions and Goodwill

We have made and expect to continue to make selective acquisitions.

The evaluation of potential acquisitions is based on various factors, including specialized know-how, reputation, geographic coverage, competitive position and service offerings of the target businesses, as well as our experience and judgment.

Our acquisition strategy is focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of our various strategic business platforms and agency brands through the expansion of their geographic reach or their service capabilities to better serve our clients.

Additional key factors we consider include the competitive position and specialized know-how of the acquisition targets.

Accordingly, as is typical in most service businesses, a substantial portion of the assets we acquire are intangible assets primarily consisting of the know-how of the personnel, which is treated as part of goodwill and is not required to be valued separately under U.S.

For each acquisition, we undertake a detailed review to identify other intangible assets that are required to be valued separately.

A significant portion of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, as well as trade names.

In valuing these identified intangible assets, we typically use an income approach and consider comparable market participant measurements.

To better align with our internal financial processes, in 2023, the date of our annual impairment test was changed from June 30 to May 1.

We will continue to evaluate goodwill for impairment at least annually at May 1 each year and whenever events or circumstances indicate the carrying value may not be recoverable.

Under FASB ASC Topic 350, Intangibles - Goodwill and Other , we have the option of either assessing qualitative factors to determine whether it is more-likely-than-not that the carrying value of our reporting units exceeds their respective fair value (Step 0) or proceeding directly to the quantitative goodwill impairment test.

While there were no trigger events that required us to perform a quantitative test, we performed the annual quantitative impairment test and compared the fair value of each of our reporting units to its respective carrying value, including goodwill.

We identified our regional reporting units as components of our operating segments, which are our six global agency networks.

The regional reporting units of each agency network are responsible for the agencies in their region.

They report to the segment managers and facilitate the administrative and logistical requirements of our key client matrix organization structure for delivering services to clients in their regions.

We have concluded that for each of our operating segments, their regional reporting units have similar economic characteristics and should be aggregated for purposes of testing goodwill for impairment at the operating segment level.

Our conclusion was based on a detailed analysis of the aggregation criteria set forth in FASB ASC Topic 280, Segment Reporting , and in FASB ASC Topic 350.

Consistent with our fundamental business strategy, the agencies within our regional reporting units serve similar clients in similar industries, and in many cases the same clients.

In addition, the agencies within our regional reporting units have similar economic characteristics, and the employees share similar skill sets.

The main economic components of each agency are employee compensation and related costs and direct service costs and occupancy and other costs, which include rent and occupancy costs, technology costs that are generally limited to personal computers, servers and off-the-shelf software and other overhead expenses.

Finally, the expected benefits of our acquisitions are typically shared by multiple agencies in various regions as they work together to integrate the acquired agency into our virtual client network strategy.

Goodwill Impairment Review - Estimates and Assumptions

We use the following valuation methodologies to determine the fair value of our reporting units:

(1) the income approach, which utilizes discounted expected future cash flows, (2) comparative market participant multiples for EBITDA (earnings before interest, taxes, depreciation and amortization) and (3) when available, consideration of recent and similar acquisition transactions.

In applying the income approach, we use estimates to derive the discounted expected cash flows (“DCF”) for each reporting unit that serves as the basis of our valuation.

These estimates and assumptions include revenue growth and operating margin, EBITDA, tax rates, capital expenditures, weighted average cost of capital and related discount rates and expected long-term cash flow growth rates.

All of these estimates and assumptions are affected by conditions specific to our businesses, economic conditions related to the industry we operate in, as well as conditions in the global economy.

The assumptions that have the most significant effect on our valuations derived using a DCF methodology are:

(1) the expected long-term growth rate of our reporting units' cash flows and (2) the weighted average cost of capital (“WACC”) for each reporting unit.

The long-term growth rate and WACC assumptions used in our evaluations:

May 1, 2023 June 30, 2022

Long-Term Growth Rate 3.5% 3.5%

WACC 11% - 11.4% 11.1% - 12%

Long -term growth rate represents our estimate of the long-term growth rate for our industry and the geographic markets we operate in.

For the past ten years, the average historical revenue growth rate of our reporting units and the Average Nominal GDP, or NGDP, growth of the countries comprising the major markets that account for substantially all of our revenue was approximately 3.5% and 4.4% , respectively.

We considered this history when determining the long-term growth rates used in our annual impairment test at May 1, 2023, and included in the 10-year history is the full year 2020 that reflected the negative impact of the COVID-19 pandemic on the global economy and our revenue.

We believe marketing expenditures over the long term have a high correlation to NGDP.

Based on our past performance, we also believe that our growth rate can exceed NGDP growth in the short-term, notwithstanding the current inflationary environment, in the markets we operate in, which are similar across our reporting units.

Accordingly, for our annual test as of May 1, 2023, we used an estimated long-term growth rate of 3.5%.

When performing the annual impairment test as of May 1, 2023 and estimating the future cash flows of our reporting units, we considered the current macroeconomic environment, as well as industry and market specific conditions in 2023.

In the first half of 2023, our organic revenue increase was 4.3%, which excluded our net disposition activity and the impact from changes in foreign exchange rates.

The WACC is comprised of:

(1) a risk-free rate of return, (2) a business risk index ascribed to us and to companies in our industry comparable to our reporting units based on a market derived variable that measures the volatility of the share price of equity securities relative to the volatility of the overall equity market, (3) an equity risk premium that is based on the rate of return on equity of publicly traded companies with business characteristics comparable to our reporting units, and (4) a current after-tax market rate of return on debt of companies with business characteristics similar to our reporting units, each weighted by the relative market value percentages of our equity and debt.

Our six reporting units vary in size with respect to revenue and the amount of debt allocated to them.

These differences drive variations in fair value among our reporting units.

In addition, these differences as well as differences in book value, including goodwill, cause variations in the amount by which fair value exceeds book value among the reporting units.

The goodwill balances and debt vary by reporting unit primarily because our three legacy agency networks were acquired at the formation of Omnicom and were accounted for as a pooling of interests that did not result in any additional debt or goodwill being recorded.

The remaining three agency networks were built through a combination of internal growth and acquisitions that were accounted for using the acquisition method and as a result, they have a relatively higher amount of goodwill and debt.

Finally, the allocation of goodwill when components are transferred between reporting units is based on relative fair value at the time of transfer.

Goodwill Impairment Review - Conclusion

Based on the results of our impairment test, we concluded that our goodwill at May 1, 2023 was not impaired, because the fair value of each of our reporting units was in excess of its respective net book value.

For our reporting units with negative book value, we concluded that the fair value of their total assets was in excess of book value.

The minimum decline in fair value that one of our reporting units would need to experience in order to fail the goodwill impairment test was approximately 53%.

Notwithstanding our belief that the assumptions we used for WACC and long-term growth rate in our impairment testing were reasonable, we performed a sensitivity analysis for each reporting unit.

The results of this sensitivity analysis on our impairment test as of May 1, 2023 revealed that if the WACC increased by 1% and/or the long-term growth rate decreased by 1%, the fair value of each of our reporting units would continue to be in excess of its respective net book value and would pass the impairment test.

We will continue to perform our impairment test at May 1 each year unless events or circumstances trigger the need for an interim impairment test.

The estimates used in our goodwill impairment test do not constitute forecasts or projections of future results of operations, but rather are estimates and assumptions based on historical results and assessments of macroeconomic factors affecting our reporting units as of the valuation date.

We believe that our estimates and assumptions are reasonable, but

they are subject to change from period to period.

Actual results of operations and other factors will likely differ from the estimates used in our discounted cash flow valuation, and it is possible that differences could be significant.

A change in the estimates we use could result in a decline in the estimated fair value of one or more of our reporting units from the amounts derived as of our latest valuation and could cause us to fail our goodwill impairment test if the estimated fair value for the reporting unit is less than the carrying value of the net assets of the reporting unit, including its goodwill.

A large decline in estimated fair value of a reporting unit could result in a non-cash impairment charge and may have an adverse effect on our results of operations and financial condition.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis