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 in the client arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct service to the customer. 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.

Substantially all our revenue is recognized over time, as the services are performed. For fixed fee projects with a single performance obligation, 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 coincides with the right to invoice the customer. For certain retainer contracts, where we are paid a fixed fee for standing ready to provide a series of distinct performance obligations that are substantially the same, we recognize revenue using a time-based measure resulting in a straight- line revenue recognition. 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 media purchases 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. The inclusion of these costs in our 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 for third-parties to perform certain services. As a result, revenue is recorded net of these costs, equal to the amount retained for our fee or commission. In certain arrangements, we act as principal and we contract directly with third-party suppliers to satisfy our performance obligations. In these circumstances we control the specified goods or services prior to the transfer to our clients, and 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 is recognized in revenue 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.

Revenue by discipline for the three months ended March 31, 2018 and 2017 was (in millions):



	2018		2018 Excluding Impact of Adoption of ASC 606		2017
Advertising	$	1,901.3	$	1,908.9	$	1,929.0
CRM Consumer Experience	634.9		668.2		613.5
CRM Execution & Support	508.6		510.1		489.3
Public Relations	346.3		346.4		335.1
Healthcare	238.5		238.5		220.5
	$	3,629.6	$	3,672.1	$	3,587.4

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 months ended March 31, 2018 and 2017 was (in millions):



	2018		2018 Excluding Impact of Adoption of ASC 606		2017
Americas:
North America	$	1,985.7	$	2,022.8	$	2,139.3
Latin America	108.4		108.1		106.6
EMEA:
Europe	1,070.1		1,075.7		887.6
Middle East and Africa	73.4		73.4		78.9
Asia Pacific	392.0		392.1		375.0
	$	3,629.6	$	3,672.1	$	3,587.4

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 March 31, 2018, December 31, 2017 and March 31, 2017 were (in millions):



	March 31, 2018		December 31, 2017		March 31, 2017
Contract asset (Work in process):
Unbilled fees and costs	$	782.9	$	546.3	$	757.6
Media, production and other costs	595.1		564.3		592.1
	$	1,378.0	$	1,110.6	$	1,349.7

Contract liability (Customer advances)	$	1,214.3	$	1,266.7	$	1,176.6

Work in process consists 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, and 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. Changes in the contract asset and liability balances during the three months ended March 31, 2018 and 2017 and December 31, 2017 were not materially impacted by write-offs, impairment losses or any other factors.