Revenue

We provide advertising, marketing and corporate communications services on a global basis to a broad range of clients. Our principal source of revenue is derived from fees for services on a rate per hour basis or per project basis. We also earn revenue from commissions and placement of advertising primarily related to our strategic media planning and buying businesses. Revenue is recorded net of sales, use and value added taxes. Our customer contracts are usually short term, typically for one year or less, and may be canceled on 90 days’ notice.

Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We measure revenue based on the consideration specified in the client arrangement, and revenue is recognized when the performance obligations are satisfied. A performance obligation is a promise in a contract to transfer a distinct service to the customer. If the services are not distinct or a series of services are substantially the same, they should be combined as a single performance obligation. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit of the performance obligation. Clients typically receive the benefit of our services as they are performed. Substantially all our client contracts provide that we are compensated for services performed to date.

For short-term contracts, generally less than 90 days, we do not consider the underlying services as separate or distinct performance obligations because our services are highly interrelated, occur in close proximity, and the integration of the various components of a marketing message is essential to our services. As described below, in certain long-term client contracts, generally up to one year, the performance obligation is a stand-ready obligation where we may combine similar performance obligations into a single performance obligation. When not structured as a stand-ready obligation, we consider our services distinct performance obligations and allocate the fee to each separate service based on their stand-alone selling price.

Substantially all our revenue is recognized over time, as the services are performed. For fixed fee contracts with either a single performance obligation, or multiple performance obligations, revenue is recognized over time using input measures that correspond to the effort expended, including direct labor and materials and third-party costs to satisfy the performance obligation, which often coincide with the right to invoice the customer. For certain retainer contracts, we have a stand-ready obligation to perform services on an ongoing basis over the life of the contract, typically for periods up to one year. The scope of these arrangements is broad and generally there are no significant gaps in performing the services. In these instances, we recognize revenue using a time-based measure resulting in a straight-line revenue recognition. From time to time, there may be changes in the client service requirements during the term of the contract and the changes could be significant. These changes are typically negotiated as new contracts covering the additional requirements and the associated costs, as well as additional fees for the incremental work to be performed.

For certain other contracts where our performance obligations are satisfied in phases, we recognize revenue over time using certain output measures based on the measurement of the value transferred to the customer, including milestones achieved. Revenue for commissions on purchased media is recognized at a point in time, typically when the media is run.

In substantially all our businesses, we incur third-party-costs on behalf of clients, including direct costs and incidental, or out-of-pocket, costs. Direct costs incurred in connection with the creation and delivery of advertising or marketing communication services include, among others: purchased media, studio production services, specialized talent, including artists and other freelance labor, event marketing supplies, materials and services, promotional items, market research and third-party data, and other related expenditures. Out-of-pocket costs include, among others: transportation, hotel, meals, and telecommunication charges. These costs are included in revenue since we control the goods or services prior to delivery to the client.

However, the inclusion of direct costs in revenue depends on whether we act as a principal or as an agent in the client arrangement. In the majority of our businesses, we act as an agent and arrange, at the client's direction, for third-parties to perform certain services. In these cases, we do not control the goods or services prior to the transfer to the client. As a result, revenue is recorded net of these costs, equal to the amount retained for our fee or commission.

In certain arrangements, we typically act as principal when contracting for third-party services on behalf of our clients in our events, field marketing and certain specialty marketing businesses within our CRM disciplines, as well as certain media buying efforts. We act as principal when we are responsible for directing and integrating third-party vendors to fulfill our performance obligation at the agreed upon fee, and thus take pricing risk under the terms of the client contract. In these circumstances we control the specified goods or services, including out-of-pocket costs, prior to the transfer to the client. Therefore, we record revenue at the gross amount billed including these costs.

Some of our client arrangements include variable consideration provisions, which include performance incentives, tiered commission structures and vendor rebates in certain markets outside of the United States. Variable consideration is estimated and included in total consideration at contract inception based on either the expected value method or the most likely outcome method. These estimates are based on historical award experience, anticipated performance and other factors known at the time. Performance incentives are typically recognized in revenue over time. In some cases, primarily related to variable fee structures in our media businesses, the amount of variable consideration is considered to be constrained and is not recognized in revenue until the point in time it is determined that a significant reversal of revenue will not occur. Variable consideration for our media businesses, including commission revenue, is recognized when it is probable that the media will be run, including when it is not subject to cancellation by the client. In addition, when we receive rebates or credits from vendors for transactions entered into on behalf of clients, they are remitted to the clients in accordance with contractual requirements or retained by us based on the terms of the client contract or local law. Amounts passed on to clients are recorded as a liability and amounts retained by us are recorded as revenue when earned, which is typically when the media is run.

Nature of our services

We provide an extensive range of advertising, marketing and corporate communications services through various client-centric networks that are organized to meet specific client objectives. Our branded networks and agencies operate in all major markets and provide services in the following fundamental disciplines: advertising, customer relationship management, or CRM, public relations, and healthcare. Advertising includes creative content development, as well as strategic media planning and buying and data analytics. CRM is grouped into two separate categories: CRM Consumer Experience, which includes Omnicom’s Precision Marketing Group and digital/direct agencies, as well as our branding, shopper marketing and experiential marketing agencies; and CRM Execution & Support, which includes field marketing, sales support, merchandising and point of sale, as well as other specialized marketing and custom communications services. Public relations services include corporate communications, crisis management, public affairs, media and media relations services and content marketing. Healthcare includes advertising and media services to global healthcare clients. At the core of all our services is the ability to create or develop a client’s marketing or corporate communications message into content that can be delivered to a target audience across different communications mediums. Our client-centric business model requires that multiple agencies within Omnicom collaborate in formal and informal virtual client networks utilizing our key client matrix organization structure. This collaboration allows us to cut across our internal organizational structures to execute our clients’ marketing requirements in a consistent and comprehensive manner. In addition to collaborating through our client service models, our agencies and networks collaborate across technology platforms. Annalect, our data and analytics platform, serves as the strategic foundation for all of our agencies and networks to share when developing client service strategies across our virtual networks. Omni, our people-based precision marketing and insights platform, identifies and defines personalized consumer experiences at scale across creative, media and CRM, as well as other practice areas.

Revenue by discipline for the three and six months ended June 30, 2018 and 2017 was (in millions):



	Three Months Ended June 30,						Six Months Ended June 30,
	2018		2018 Excluding Impact of Adoption of ASC 606		2017		2018		2018 Excluding Impact of Adoption of ASC 606		2017
Advertising	$	2,067.6	$	2,073.8	$	2,027.2	$	3,968.9	$	3,982.7	$	3,956.2
CRM Consumer Experience	660.0		704.1		654.7		1,294.9		1,372.3		1,268.3
CRM Execution & Support	498.7		497.2		517.3		1,007.2		1,007.1		1,006.6
Public Relations	362.7		362.9		350.3		709.1		709.3		685.4
Healthcare	270.6		270.6		240.6		509.1		509.2		461.1
	$	3,859.6	$	3,908.6	$	3,790.1	$	7,489.2	$	7,580.6	$	7,377.6

Economic factors affecting our revenue

Global economic conditions have a direct impact on our revenue. Adverse economic conditions pose a risk that our clients may reduce, postpone or cancel spending for our services, which would impact our revenue.

Revenue in our principal geographic markets for the three and six months ended June 30, 2018 and 2017 was (in millions):



	Three Months Ended June 30,						Six Months Ended June 30,
	2018		2018 Excluding Impact of Adoption of ASC 606		2017		2018		2018 Excluding Impact of Adoption of ASC 606		2017
Americas:
North America	$	2,097.4	$	2,144.6	$	2,175.6	$	4,083.1	$	4,167.3	$	4,314.9
Latin America	115.1		115.2		121.2		223.5		223.3		227.8
EMEA:
Europe	1,142.6		1,145.2		1,012.5		2,212.7		2,220.8		1,900.2
Middle East and Africa	70.2		70.2		75.5		143.6		143.6		154.4
Asia Pacific	434.3		433.4		405.3		826.3		825.6		780.3
	$	3,859.6	$	3,908.6	$	3,790.1	$	7,489.2	$	7,580.6	$	7,377.6

The Americas comprises North America, which includes the United States, Canada and Puerto Rico, and Latin America, which includes South America and Mexico. EMEA comprises Europe, the Middle East and Africa. Asia Pacific comprises Australia, China, India, Japan, Korea, New Zealand, Singapore and other Asian countries. The reduction in revenue in 2018 for North America primarily reflects the sale of our specialty print media business in the second quarter of 2017.

Contract assets and liabilities

Contract assets (work in process) and contract liabilities (customer advances) at June 30, 2018, December 31, 2017 and June 30, 2017 were (in millions):



	June 30, 2018		December 31, 2017		June 30, 2017
Contract assets (Work in process):
Unbilled fees and costs	$	709.2	$	546.3	$	752.7
Media, production and other costs	644.3		564.3		648.9
	$	1,353.5	$	1,110.6	$	1,401.6

Contract liabilities (Customer advances)	$	1,147.1	$	1,266.7	$	1,141.1

Contract assets consist of accrued costs incurred on behalf of customers, including media and production costs, and fees and other third-party costs that have not yet been billed. Media and production costs are billed during the production process in accordance with the terms of the client contract. Unbilled fees and costs are in the process of being billed to clients, typically within the next 30 days or in accordance with the terms of the client contract. The contract liability represents advance billings to customers in accordance with the terms of the client contracts, primarily for the reimbursement of third-party costs that are generally incurred in the near term. There were no impairment losses to the contract assets recorded in 2018.