Good afternoon, and welcome to the Omnicom Q3 2022 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. To participate, please press one then zero. If you need assistance during the call, please press star then zero. As a reminder, this conference call is being recorded. At this time, I'd like to introduce you to your host for today's conference, Senior Vice President of Investor Relations, Gregory Lundberg. Please go ahead.
Good afternoon. Thank you for joining our Q3 2022 earnings call. With me today are John Wren, Chairman and Chief Executive Officer, and Phil Angelastro, Executive Vice President and Chief Financial Officer. On our website, omnicomgroup.com, we've posted a press release along with the presentation covering the information we'll review today, as well as a webcast of this call. An archived version will be available when today's call concludes. Before we start, I would like to remind everyone to read the forward-looking statements and non-GAAP financial and other information that we have included at the end of our investor presentation. Certain of the statements made today may constitute forward-looking statements, and these statements are our present expectations. Relevant factors that could cause actual results to differ materially are listed in our earnings materials and in our SEC filings, including our 2021 Form 10-K.
During the course of today's call, we will also discuss certain non-GAAP measures. You can find the reconciliation of these to the nearest comparable GAAP measures in the presentation materials. We will begin the call with an overview of our business from John. Phil will review our financial results for the quarter, and after our prepared remarks, we'll open up the line for your questions. I'll now hand the call over to John.
Thank you, Greg. Good afternoon, everybody, and thank you for joining us today for our Q3 results. I'm pleased to report that in the Q3, we continued the very strong performance we've had throughout 2022. We exceeded our expectations with organic growth of 7.5%, which was broad-based across our agencies, disciplines, regions, and client sectors. Year-to-date organic growth is 10.3%. Operating profit margin for the quarter was 15.9%, 10 basis points higher than our comparable margin in 2021. Earnings per share for the quarter was $1.77, up 7.3% versus 2021. The negative currency impact on EPS of the strong U.S. dollar was approximately 5%. On a constant currency basis, EPS would have increased approximately 12.3%.
Our cash flow, liquidity, and balance sheet remain very strong and continue to support our primary uses of cash, dividends, acquisitions, and share repurchases. Phil will cover our financial results in more detail during his remarks. On last quarter's call, we mentioned several first-of-a-kind e-commerce collaborations with Amazon, Instacart, Kroger, and Walmart. This quarter, we expanded and enhanced our e-commerce capabilities by announcing Transact, a dedicated practice focused on connected commerce consulting and e-retail execution services. Transact will capitalize on the unique partnerships we've entered into and will focus on driving sales for clients and growing market share on e-retail platforms. Transact adds to our best-in-class e-commerce services in digital transformation and Martech consulting, CRM and precision marketing, media, campaign activation, and creative content. We also continue to invest in our iconic agency brands. A recent example was TBWA Worldwide, which recently acquired innovation agency dotdotdash.
Dotdotdash builds future-forward brand experiences at the intersection of culture and technology, a valuable addition for the total brand experience company like TBWA. We will continue investing to enhance our capabilities in high-growth areas, including CRM and precision marketing, digital transformation, performance media, and e-commerce. Our investments in these areas to date have been very effective and are reflected in third-party validations. A few weeks ago, we were named leader in Forrester's Wave assessment for global marketing services. We received the highest scores possible in five criteria. Creative content and services, media management services, integration services, global client teams, and innovation roadmap. Our performance highlights our ability to deliver creative and strategic solutions to our clients through integrated multidisciplinary teams. One way we do this is through our Global Client Leaders group, which has led the industry in developing innovative service solutions for our largest clients.
Since 2014, our GCL group has been led by Peter Sherman. After a successful 25-year tenure at Omnicom, Peter has made the decision to become a full-time undergraduate professor, teaching marketing and communications at a top-ranked university. I want to thank Peter for his countless contributions at Omnicom and wish him the best of luck. We're expanding on the foundation Peter helped build to further enhance the services we deliver to our largest clients and to pursue new business opportunities aggressively. As a first step towards that goal, we announced the appointment of Andrea Lennon to the new role of Chief Client Officer. Andrea has a strong track record in marketing transformation at Critical Mass, Omnicom's digital experience design agency, where she spent seven years working in Asia, Europe, and the United States prior to being named president two years ago.
Andrea will focus on transformative marketing solutions and capabilities that drive business results for our global enterprise clients. In partnership with the GCL team, she will accelerate solutions that draw on the group's best talent, integrating Omnicom's leading capabilities in data, creative, media communications, and technology. We will be sharing more updates on our client solutions strategy and new business team in the coming weeks. We are fortunate to be making these changes from a position of strength. We were recently recognized by the Effies with one of the industry's most prestigious honors. Identifying ideas that work, the 2021 Global Effie Effectiveness Index named Omnicom the most effective marketing communications company in the world. Four of our agency networks, BBDO, DDB, OMD, and TBWA, placed in the top six of the most effective agency network category. In addition, OMD was named the most effective media agency network.
These notable rankings demonstrate our standout talent. I want to congratulate all of our agencies and people on executing the most effective and creative work in the industry for the benefit of our clients. Overall, we're very pleased with our quarterly and year-to-date financial results, as well as our progress on our key strategic initiatives. Based on our strong performance this quarter and for the first nine months of the year, we are increasing our prior organic growth forecast f`rom 6.5%-7% to 8%-8.5% for the full year 2022. We also continue to anticipate delivering the same strong operating margin of 15.4% for the full year of 2022 that we achieved in 2021.
While we're confident in our forecast, we retain a healthy level of caution due to macro factors, including the ongoing war in Ukraine, the continuing disruption of global supply chains, the economic risk posed by rising interest rates here in the United States, and higher inflation around the world. In light of these risks, we are actively taking actions to mitigate the potential negative effects of these macro factors on our business. I'm confident we are well equipped to handle any economic downturn and have the leadership teams in place to minimize the impact on our top and bottom lines. I will now turn the call over to Phil for a closer look at our financial results. Phil?
Thanks, John. As you just heard from John, our Q3 results were solid, reflecting growth across all our disciplines. While the rate of growth as expected is below our H1 results, we feel very good about the competitive position of our company, leading us to raise our guidance for full year 2022 organic growth, and we have a positive outlook for 2023 and beyond. Further down the income statement, our cost management has resulted in strong operating performance and operating profit margins, and our disciplined approach to capital allocation and investment has led to both improved service offerings and increased shareholder returns through dividends and buybacks, all while maintaining an excellent credit and liquidity position. Let's go into the financial details of the quarter, beginning on slide three. Reported total revenue in the Q3 was flat year over year at $3.4 billion.
Organic growth was 7.5% for the quarter. However, as I'm sure you're aware, the U.S. dollar has strengthened significantly, and almost half of our revenue is outside the U.S.. In dollar terms for the Q3, this drove the largest negative quarterly impact from foreign currency translation so far this year, a $216.6 million or 6.3% reduction of revenue. With most of our expenses incurred in the local markets where our revenue is earned, foreign currency translation impacted our profits as well. Reported operating profit for the Q3 increased around 1%, while on a constant currency basis, it increased 6%. Below the line, higher interest income helped lower our net interest expense, and we benefited a bit from the translation impact of our euro and British pound-denominated debt.
Overall, our net income rose 2.5% on a reported basis. Combined with a 4% reduction in shares year-over-year, diluted EPS rose 7.3% after a negative 5% headwind from foreign currency translation. On a year-to-date basis, it's helpful to turn to slide 4, where we show adjustments to make the current and prior year-to-date periods more comparable. None of these adjustments are new this quarter. They were discussed earlier this year and last year. For the year-to-date 2022 period, operating expenses and income taxes were impacted by charges in the Q1 arising from the effects of the war in Ukraine. For the year-to-date 2021 period, operating expenses benefited from a gain on sale of a subsidiary, and both interest expense and income tax expense reflect the impact from the early extinguishment of debt.
Similar to the quarterly results we just discussed, the strength in the dollar this year also impacted our year-to-date results. Foreign currency translation reduced revenues by 4.5%. Operating profit on a non-GAAP adjusted basis was up 1.9% and on a constant currency basis was up 6.1%. For a more detailed look at our results, let's now turn to slide 5 and begin with an analysis of the changes in our revenue. As discussed, the quarterly impact from foreign currency translation was -6.3%. The impact of acquisition and disposition revenue was -1%, primarily reflecting the disposition of our businesses in Russia during the Q1. Organic growth was 7.5% for the quarter and 10.3% year-to-date.
Looking forward, if FX rates stay where they were as of October 12, we estimate that the impact of foreign exchange rates will reduce our revenue by approximately 6.5% in the Q4. Based on deals completed to date, we expect the impact from net acquisitions and dispositions will result in a reduction of our revenue of approximately 1.4% in the Q4, primarily resulting from the disposition of our businesses in Russia. Turning to slide six, for the quarter, we once again showed growth across all of our disciplines, with double-digit growth in three of them. Advertising and media, our largest category, posted 6% organic growth in the quarter, led by strong media results. Precision marketing continued its strong performance with 16% organic growth as clients turned to us for digital transformation, digital customer experience, and data and analytics services.
Commerce and brand consulting was again up 11% organically on the strength of our branding and design agencies. Experiential organic growth slowed to 2% as we continued to experience declines in China. As expected, growth in this discipline will remain choppy. Execution and support, which we also expected would grow slower in the H2, had organic growth of 4%. Public relations grew a strong 13% organically, reflecting client demand across many industries and geographies. Lastly, healthcare delivered solid organic growth of 5%. Turning to slide seven for organic growth rates by region, it's clear that growth was solid overall, but varied widely by region, and as expected, each region grew a bit less than they did in the Q2.
Both in the U.S. and internationally, in Q3, organic growth was primarily driven by revenue growth in advertising and media, precision marketing, commerce and consulting, and public relations. Organic growth in the U.S. was strong at 7.6%, and outside the U.S., the organic increase in revenue was led by the U.K. at 11.5% and Europe at 6%. Looking at revenue by industry sector on slide eight, relative to the Q3 of 2022, the broad distribution of our clients remained very stable. Let's now turn to slide nine and look at our operating expenses for the quarter. For your reference, a slide in the appendix also presents this on a constant currency basis. Our total expenses, exclusive of depreciation and amortization, were flat at $2.8 billion, down 10 basis points as a percentage of revenue.
Salary-related service costs were fairly constant at 50.8% of revenue compared to 50.4% last year. The slight increase was due primarily to the increase in organic revenue, an increase in headcount, and a return to more normal business conditions. Third-party service costs were flat at 21% of revenue. Occupancy and other costs were also flat at 8.2% of revenue. They decreased due to lower rent and other occupancy costs, partially offset by an increase in office expense and other costs resulting from the return of our workforce to the office. SG&A expenses were down year over year as a percentage of revenue due primarily to decreases in professional fees and third-party marketing costs.
Turning to slide 10, our Q3 operating profit was $546 million, a 1% increase from last year, net of a reduction of 5.2% due to the impact of foreign currency translation. Our operating profit margin of 15.9% on total revenue was 10 basis points above last year's result. Please turn now to slide 11 for our cash flow performance. We define free cash flow as net cash provided by operating activities, excluding changes in working capital, which are generally positive for us on an annual basis. Free cash flow for the first nine months of 2022 was $1.23 billion compared to $1.25 billion for the first nine months of last year.
A small reduction year-over-year. However, as a reminder, we note that $48 million of the charges we recorded in the Q1 of 2022 for the effects of the war in Ukraine were cash related. Regarding our uses of cash, we used $438 million of cash to pay dividends to common shareholders and another $63 million for dividends to non-controlling interest shareholders. Our capital expenditures of $66 million were at normal levels. Acquisition spend, net of dispositions and other items was $330 million. Lastly, our net stock repurchases during the Q3 were $486 million. We continue to expect total repurchases for the year at our historical annual range of around $500 million-$600 million. Slide 12 is an overview of our credit, liquidity, and debt maturities.
During the quarter, the impact of foreign exchange rates on our euro and sterling denominated debt caused the book value of our outstanding debt to decrease to $5.5 billion from $5.7 billion as of December 31, 2021. There were no changes in outstanding balances during the quarter. Our $2.5 billion revolving credit facility, which backstops our $2 billion U.S. commercial paper program, remains undrawn. Our cash and equivalents were $3.3 billion, flat with our balance at June 30, 2022, reflecting an increase in net free cash flow during the quarter, which was offset by the negative impact of foreign currency translation. Turning to slide 13. Our operating capital discipline consistently drives above average returns on both invested capital and equity.
For the 12 months ended September 30, 2022, we generated a solid return on invested capital of 25% and a strong return on equity of 43%. We're confident that the outlook for our business growth and our prudent process for capital allocation will lead to increasing returns as they have historically. Operator, please open the lines up for questions and answers. Thank you.
As a reminder, if you would like to ask a question, please press one then zero on your telephone keypad. You may withdraw your question at any time by pressing the one zero command. If you're using a speakerphone, please pick up the handset before pressing the numbers. Our first question comes from the line of Steven Cahall with Wells Fargo. Please go ahead.
Yeah, thanks. John, maybe one for you and then one for Phil. Rather than asking, for you to prognosticate on organic growth, which I know is hard, maybe to ask it a different way, how are you thinking about the cost base and being proactive, in a pretty volatile revenue environment? I think when we last spoke, you mentioned that there maybe could be some real estate opportunities, or some opportunities in things like hiring and incentive comp. I'm just thinking about when you look at the environment right now, is it a time to be very proactive? Or based on the good growth that you put up in the Q3, do you actually feel like things are pretty stable and that proactive cost management, is more something you can think about in the future?
Thanks for the question. We are internally acting as if the markets are gonna be extremely difficult. Increasing our productivity in a couple of different areas is extremely important, and we're in the process of taking action and having very detailed conversations on a couple of fronts. One is real estate. We have real estate which leases expire throughout 2023 and 2024. With a new approach towards flexible working hours, we believe we're gonna be able to reduce our real estate footprint globally. That's in process. We'll see what the market does as additional opportunities may come up, where we'll be able to take advantage of, you know, lower prices in other markets where the leases maybe are a little longer. That's number one
In terms of people and payroll, we're taking a serious look at our processes at a very granular level through each of our subsidiaries. Looking to offshore where it's appropriate. There's a big push on automation in terms of some of the things that we can do from an automated basis that in the past we couldn't. All of these, we've recently met with all of our management teams together where we frankly discussed all these things, and they're part of our weekly agendas in terms of the progress that we're making. As we get into profit planning for next year, we'll be setting targets and expectations for each of those companies.
Great. Then Phil, kind of a similar flavor to the same question. You know, this year growth is strong and operating margins are guided to kind of flat year-over-year. Does the same logic hold that if growth slows down, operating margins stay pretty consistent? Or if we do get into a tougher growth environment, do you expect there to be some downward pressure on operating margins? Thank you.
Sure. You know, I think if the environment is challenging, it certainly.
A challenge that we're gonna meet face on or head on. The flexible cost structure that we have, which includes still, as of now, some open positions, you know, we're gonna take advantage of that. I think maybe the most instructive thing you could do is take a look at our performance prior to and subsequent to prior recessions or business disruptions like COVID. You get the sense that we've been through this before, not just the people on the call, but the people that are managing the company all around the world. We've got, you know, the experience managing through these types of disruptions or uncertainties.
We're gonna be aggressive about it, and act accordingly to make the adjustments we need to make as quickly as we can make them to right-size businesses to, you know, the revenue outlook for that business. That being said, you know, we don't know, you know, what 2023 is gonna hold at this point, but we're certainly preparing for it to be ready to manage through any disruptions that might occur.
Great. Thank you.
The next question comes from the line of Jason Bazinet with Citi. Please go ahead.
I just have a quick question. If you guys deliver on your guidance this year and organic growth slows to, like, three or something next year, I think it would be the best three-year stacked organic growth rate that you guys have put up since 2006 or maybe 2007. A long time ago. I guess in very simple terms, can you just help us understand what has made your business so much better? I'll offer up a couple hypotheticals that you can react to. One would be, you know, disposition of your slower-growing businesses. Another would be inflation. Another would be sort of the privacy changes that were put in by Apple that might all provide tailwinds.
Any sort of color to help us understand why your business is doing so much better than it's done in a very, very long time. Thanks.
Yeah. Sure. You know, our portfolio today isn't comparable really to what our portfolio was 3.5, three years ago. You know, the instances you referred to, 2019, 2020 was the end of a 5-year period in which we were disposing things that contributed to our profit, but didn't necessarily contribute to our growth. We were able, in good times, to find buyers who were interested in those companies, and we offloaded them. Similarly, we made investments in areas where we believed that growth would be consistent in good times and in bad. You know, you can see that reflected in our precision marketing assets. You can see that in the changes that were made in our public relations category, and also the expansion of services in the health area.
As well as our more traditional areas, we cleaned up low-growth geographies and/or what we felt were product lines. It's a process which has served us well. It will continue to serve us well, I believe, as we face more challenging times, if they come. We're planning that more challenging times aren't. We're facing more challenging times because of inflation and some of the macro factors that are out there in the marketplace. We're also very comfortable, I'd say, in the upgrades we've made to our management and our leadership throughout the world over the same period of time. Everybody on the team is aware of those many, many steps that we have to go through in order to be successful, you know, period.
Can I just ask one follow-up?
Sure.
A lot of those things that you cited were very Omnicom specific, but we're seeing broad-based strengths across all of your competitors too. It seems like there's an industry overlay on top of the things that Omnicom's done. Is that wrong?
No, no, I don't think it's wrong. I think that the marketplace complexity has increased, which makes not only Omnicom, but our competitors important. I think the great resignation, which had an impact on some of our businesses, we were able to manage through, also had an impact on how our clients face that complexity. I don't have the evidence to back this up, but I believe it to be true, is in the last two recessions, it's been pretty evident that companies that continued to market through those recessions prospered and came out of them more quickly than ones that just focused on cutting costs. You know, indiscriminately. It's a combination of factors. Technology is different, you know. There's a revolution going on. We're moving to electric cars.
We're moving to more efficient, ways of doing business. All those things, means that you want your brand known and supported by the marketplace and known as being progressive, in addressing issues which are gonna face businesses, recession, and in good times.
Very helpful. Thank you.
The next question comes from the line of David Karnovsky with JP Morgan. Please go ahead.
Oh, hi. Thanks for taking the question. John, just wondering if you could speak a little bit to what you're hearing from clients right now in terms of how you're kind of balancing perceived or real macro risks against, you know, kind of the need to invest in brands and performance. With regards to year-end project work, you know, any early view into how this potentially looks. Phil, I'm wondering if you could say kind of what you've assumed within your guidance out of that sort of $200 million-$250 million you've historically flagged.
Sure. I mean, I think every intelligent company is seeing that globally, these macro factors, you know, are a mixture for further confusion in a complex environment at one level. At another level, there's new areas that are coming on stream that didn't exist before. If you look at media, you look at all the providers that are out there that have decided to go to ad an advertising model to the products that they're offering. You see our automotive manufacturers promoting their progress that they're making with the car of the future being a communication device driven by, you know, electric power as opposed to gasoline power. There's many difficult things that are out there.
There's enough fundamental changes that are going on in the marketplace that have kept marketers keen and very interested in making certain, once again, that their brands are recognized and differentiated, so that when consumers make choices, that their brands are seriously considered.
On the year-end project front, you know, I'd say we're in a similar situation that we've been in, you know, in every October for quite some time. We don't have a lot of visibility yet into how much year-end project work our agencies are gonna capture. Typically, they're after, you know, a number which is in the neighborhood of $200 million-$250 million of potential project spend. You know, some years we get it all. Some years, you know, very rarely, I would say, we don't get much, if any of it. You know, I would say we don't expect to get it all this year.
You know, as we've gone through the process of looking at the Q4 with our companies, agency by agency, bottoms up, there's a number of companies that have an expectation based on their past history of what they could capture. They've made an estimate, you know, probably a conservative estimate. As we look out into the Q4, we've kind of considered that, in our guidance. we do expect they'll be successful. we don't expect we'll get it all this year. we're pretty optimistic, or the one thing we know is that, you know, people are gonna be out there, working on getting it because their incentives are aligned, with ours and, you know, it'll drive incremental, profit and incremental bonus, for them as well.
Maybe if I could just squeeze in one more. John, PR has continued to perform really strongly. I think it's like 6 quarters at this point, and it didn't really drop even that much during the pandemic. Just wondering if you could kind of speak to some of the factors that have just kind of driven the strength in that business.
You know, there's no alchemy. We did change leadership. In recent conversation with some of my other management, I'm extremely proud of the leadership that we have of that group. It's craft-driven and craft-led now. I know that in the past, when it was run or managed by people who didn't have such a deep understanding of the craft, the performance was different. The gentleman and team that leads it now is very proactive, very hands-on, very close to its clients and its people, and I think that's paying huge dividends. It's hard to measure, but it's easy to see. I think the product is also much closer and much more important in the consumer journey and probably more relevant in terms of brand awareness as well as the actual completion of a sale.
You know, influencers didn't exist in 2016. They exist today. PR takes a, you know, a leading position in things like that. I don't have the precise answer, but I do know that we have the right people, I think doing the right things and adjusting our product appropriately for the current circumstances that we're operating in.
Thank you.
The next question comes from the line of Michael Nathanson with MoffettNathanson. Please go ahead.
Thanks. John, question for you and one for Phil. I think John, there's a thesis emerging that the complexity of digital beyond Facebook and Google is really driving demand for your digital media business across everyone's business at this point. Could you talk a bit about what you've seen, if you want to isolate on a media buying front, planning front, just on digital and just the addition of retail media, TikTok, Apple, Amazon, Netflix to come? What do you see in terms of like the growth rates boiling it down to there? Then Phil, if there's a concern with the model is just rising inflation on salary and services. Can you talk a bit about what you're seeing kind of on a point to point level on inflation and how that could be managed, wage inflation in the next 12-14 months?
Sure. I mean, in terms of digital has taken over the majority portion of how we speak to various groups of consumers. There's been an ever-increasing number of providers of interesting digital sites, information, which have their own following, which are Omni product and some of our early concerns and involvement in how we refine and identify potential customers in a privacy compliant manner has put us in a position where we've been very agile and been able to react to changes as they happen. I was gonna say market by market, but in the United States, even state by state. You know, the retail media is a relatively new entry into the marketplace. You know, during COVID, it had an explosion.
You know, people in your business measure that the way you measure it because I guess you do it comparably. When you think about it, there's been a lot more platforms out there, right? You have Amazon, you have Walmart, you have Kroger, you have Target, you have, I'm missing some others, I'm sure. We've entered into serious partnership arrangements with all these folks so as to be able to assist the consumer and consult with our clients about which platform at which moment or which product is the appropriate platform to be used. We've been able to incorporate that into our Omni product and make it available to our practitioners who are consulting with clients on a day-to-day basis on the best way to achieve their KPIs.
On the inflation or managing inflation in the context of our business, you know, it's a combination of things. Certainly, it's a reality of what everybody is dealing with today, ourselves and our agencies along with our clients. Frankly, you know, we're as we've said before, we continue to look for efficiencies in the cost structure. It's a flexible cost structure. We've been pursuing opportunities for offshoring, outsourcing, automation, as John mentioned earlier. You know, we've got a number of open positions and access to a flexible workforce that we could fill those positions if we need to with contractors and a flexible workforce, rather than with permanent people in some cases.
We're also having discussions with our clients on an ongoing basis, and those discussions continue. The results vary. Some of them result in increase in our rate card, changes in the scope of work, incremental work, et cetera. There's no one silver bullet to deal with inflation in our cost base. It's a combination of things that really we need to do at the detailed agency by agency level. We're certainly driving, you know, a number of initiatives to make sure that we take advantage of whatever opportunities we have to find efficiencies. New ways of working coming out of COVID is certainly helpful in that respect.
Thanks, guys.
Thank you.
The next question comes from the line of Ben Swinburne with Morgan Stanley. Please go ahead.
Thanks. Good afternoon. Just keeping with this theme of trying to think about the strong results you need to deliver and the macro we're all worrying about. Could you talk to us a little bit, John, about the performance of the company this year thus far in the U.K. and the Euro markets, where arguably the macro maybe is the most concerning, and yet you're doing double-digit growth. Is there anything you would add to the comments you've made already on this call about sort of what's driving that performance? I had a quick follow-up for Phil.
Sure. Well, you know, I just got back. Last week, I spent the week in Europe. I was in Germany, I was in Italy, I was in Warsaw, a few other places, and interfacing with quite a number of our leaders. We're very fortunate, and it shifts market by market a little bit. You take the U.K., for instance. Our healthcare businesses were outstanding this particular quarter. Our precision marketing business has been outstanding consistently throughout Europe, on systems work as well as, you know, lower funnel type of work. We are a needed consultancy and needed skill set by many of our clients for them to obtain and achieve their objectives. Plus, I'm very happy with, again, and you said, referencing my prior comments, I have to go back to them.
The portfolio that we have of assets throughout the world, but especially in Europe, we've taken a lot of actions over the last several years, finishing up a lot of those actions, thankfully, right before COVID. Probably equivalent of spending every day in the gym, we've toned up the assets that we had and have added a lot of people with a lot of very specific but appropriately specific skills.
Got it.
Uh-
Do you think there's some share gain in there, too, sounds like?
Yeah. Yeah, I mean, I think yes, share gain is certainly part of it. I think these assets have allowed us to expand the budgets that we were probably more limited in terms of the things that we could properly service for clients. I think the addition of many of these assets that we've made in the last several years, especially in precision marketing and some of the more refined nuances of healthcare, just to name two, have allowed us to enjoy or compete for budgets that prior to this and, you know, in the old pre-COVID days, weren't necessarily available to us. Our marketplace has expanded.
Right. Then, Phil, I guess technically this is two. I wanted to just again come back to the implied Q4 in your guidance that I think would be, I don't know, something like 3% or 3.5% organic. You already talked about the project work. Anything else you'd call out that would suggest that growth would step down that much from Q3 to Q4? Then anything on the buyback? The buyback was a little lower this quarter than last quarter. Is that just, you know, sort of being a little more conservative given everything we're reading and, you know, seeing out there? Or anything you want to say about capital allocation as we look forward, given the strong balance sheet and cash flow?
Sure. Well, I'll take capital allocation first. As far as the buyback, I think, you know, what you've seen so far through the first three quarters of 2022 is probably relatively consistent with our pre-COVID approach. We tend to be in the market a little more in the H1 of the year. The H2 of the year, the Q3 and the Q4, we typically aren't in the market as much. That trend, I think, is consistent in 2022. We've said we intend to buy probably between $500 and $600. We're close to the bottom of that range. We expect to, you know, still have some activity in the Q4.
We haven't made a decision on how much yet, but we're gonna stick to that $500-$600 for the year. As far as capital allocation overall, I think you should expect us to continue to be consistent with our approach. We'll continue to pay a, you know, attractive dividend. We're gonna seek to do M&A to the extent it meets our strategic goals and our financial requirements, most probably small tuck-in acquisitions that have worked very successfully for us over the years. Then we'll use the balance of our free cash to buy shares. You can count on seeing consistency from that perspective. Lastly, to go back to your other question, I think the numbers, the range is.
Would lead you to somewhere between 2% and 3.5%.
Yeah
Growth in the Q4, which we're certainly comfortable with. You know, I think there is an expectation, given the lockdowns in China and some other general uncertainty that our experiential business will probably, you know, take a step back in Q4. It's a choppier business. It's a great business for us. It's performing well. The people managing the business or businesses have been doing a great job, but we expect it'll take a step back in the Q4. Some of our execution and support businesses may do the same, but we expect good performance, good growth out of the rest of the portfolio, which has had a great year so far, and we're hoping will finish strong in the Q4 as well.
Yeah. The only thing I would add, I think implicit in the numbers that you can look at, the overall project work that we always refer to is still out there. We've spent the last several weeks going company by company, looking for people who had more certainty about the projects that would be coming through, and there's still some portion of that as we continue to make inquiries and weeks go by, we'll you know get more and more clarity.
Thanks, guys.
Thank you.
The next question comes from Craig Huber with Huber Research Partners. Please go ahead.
Great. Thank you. My first question, I mean, given these, what I think are very strong results here in the quarter and year to date, and then you compare that to the macro headwinds out there that we all know about, can you maybe just talk about the tone of the conversations you're having with your major European and U.S. clients here to help account for the fact that your numbers are seemingly so much stronger than what the macro environment is shaping up as?
Well, yeah, I think at the risk of repeating myself, you know, I think all the factors that we've talked about throughout the call are at play. There are new retail marketplaces that didn't exist in the past. We offer incredibly new services which, especially in precision marketing and those consultancy-type activities, have made budgets which prior to this weren't available to us. We've been able to successfully compete and get our share of those projects. Oftentimes, those projects are multi-quarter-type projects in terms of from start, you know, which is design of them to execution and delivery of them. You know, just the healthier shape of the portfolio.
You know, I think as Phil mentioned, some of our execution businesses, I think, are ramped up and ready to respond to the demand that's out there. There's been you know, it's been a bit choppy, because of things like the China shutdowns or different interruptions which have happened from time to time. We have several of the best assets in the marketplace, and as I look forward, I see a loosening of that. You know, we have Olympics that'll be coming up. We have FIFA World Cups that are coming up. We have a lot of different activities that we prosper from. And so it's a combination. It's I wish it was as simple as six things I could just rattle off and satisfy your question.
I think it's a combination of all of these things that have made us more important to clients who are forced, you know. As these become new opportunities to us, it increases the complexity that a CMO or a CIO or a CEO has to go through in order to reach their customers and achieve their objectives, and we are an excellent provider of assisting them in simplifying that complexity and bringing the best-in-class services, you know, and making them available to them.
Certainly from a macro perspective as well, in terms of the first nine months of the year, you know, the consumers continue to spend, clients have continued to spend. You know, I think we're talking about, you know, what happens if and when the environment changes. Hard to gauge how much it's gonna change by, but the environment certainly has been, you know, a positive in the context of the types of services that we provide.
Yeah, maybe like unlike some of the other abrupt recessions which have happened in the past, this one's been a little bit slower rolling. We've all been anticipating it, especially as central banks raise interest rates and create different macro issues and God knows what's gonna happen in the war in Ukraine. People have worked through and have been working through their supply chain issues. We've been able to adapt as all of that, and we'll continue to adapt as that continues.
That's very helpful. My follow-up question, if I could. With the very high inflation rates out there, do you feel that that's helping your organic revenue growth here, that you're able to pass on higher costs here in a material way, much more so than in the past?
That's certainly not wholesale across the board. We have been able to get improved pricing on some clients, but it's certainly not an assumption that we make because that same inflation cost, you know, causes inconveniences for our clients. At the end of the day, we're partners. The ones that prosper, we prosper. The ones that suffer, we suffer with because we have long-term relationships with. We're trying wherever it's sensible to get paid fairly for the services we provide. You know, our clients are very much aware of the fact that we all face similar problems. We do it on a level best, client by client, to address ourselves and adjust appropriately, whether it's scope of work, whether it's better rate card. You know, the list goes on.
Great. Thanks a lot.
At this time, we have no one else in the queue. We'll turn the call back over to management. Please go ahead.
Okay. Listen, I'd like to thank all of you for joining us today to discuss our very strong Q3 results. We look forward to seeing many of you over the coming weeks and months in conferences and in calls. Thanks again.
That does conclude our conference for today. Thank you for your participation and for using AT&T conferencing service. You may now disconnect.