Nielsen Holdings plc
Q1 2017 Earnings Call Transcript

Published: 25 Apr 2017

[Sara Gubins:]

Hi, good morning, everyone. It’s Sara Gubins from Nielsen. We are having some technical difficulties, but we understand that you can hear us, so we are going to go ahead and get started. So I would like to thank all of you for joining us to discuss Nielsen’s first quarter financial performance. Joining me on today’s call is Mitch Barns, Chief Executive Officer and Jamere Jackson, Chief Financial Officer. A slide presentation that we will use on this call is available under the Events section of our Investor Relations website. Before we begin our prepared remarks, I would like to remind all of you that the following discussion contains forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include comments about Nielsen’s outlook, expectations and prospects and are based on Nielsen’s view as of today, April 25, 2017. We will be discussing non-GAAP measures during this call, for which we have provided reconciliations in the appendices of today’s presentation and will be posted on our website. Our actual results in future periods may differ materially from those currently expected because of a number of risks and uncertainties. The risks and uncertainties that we believe are material are outlined in Nielsen’s 10-K and other filings and materials, which you can find on our IR website or at www.sec.gov. For Q&A as always, we ask you to limit yourself to one question, only so that we can accommodate everyone. Feel free to join the queue again and if time remains, we will call on you. And now to start the call, I would like to turn it over to our CEO, Mitch Barns.

[Mitch Barns:]

Yes. Thanks, Sara. Good morning, everyone. Our first quarter results reflect the mix of significant progress and a continuation of challenges we have been discussing with you over the past couple of quarters. In our Watch segment, the challenging – the changing media landscape continues to be a source of opportunity and growth for Nielsen, tightening the importance of independent, comparable and de-duplicative measurement across platforms. We delivered this through our Total Audience Measurement System, which is live and in the market today. In our Buy segment, we continue to see a two-speed world. Emerging markets are producing solid growth. However in developed markets, particularly in the U.S., our clients are under pressure. Our measurement and analytics are as important as ever for our clients, but many of these clients are cutting cost and our business is not immune. We are executing on our own productivity actions, which help mitigate the revenue softness while also enabling us to invest in our key initiatives, including coverage enhancements and the connected system. Let’s take a quick look at the financials. First quarter total company revenue grew 3.2% on a constant currency basis. March has expanded 38 basis points as adjusted EBITDA grew 4.7% constant currency due to ongoing productivity initiatives and operating leverage offset in part by investments in our key growth initiatives. GAAP earnings per share were $0.20 compared to $0.27 in the prior year. Although free cash flow was a use of $74 million in the quarter, we remain on track to deliver our $900 million target for the full year. Today, we announced that our Board has approved the 10% increase in our quarterly dividend to $0.34 per share. We also continue to buyback shares and now have nearly $400 million remaining under our existing authorization. We remain committed to our balanced approach to capital allocation, investing in our growth initiatives, while also returning cash to our shareholders. Lastly, we are reiterating our guidance for 2017. Let’s take a look at the segments in more detail. First, Watch. There are four key messages that I want you to take away. Number one, growth continues to be solid. Number two, the flexibility of our Total Audience system is one of its key strengths. Number three, we are adding new capabilities and features. And number four, the key components of our Total Audience system continue to gain adoption by our clients. Let me take a few minutes to provide some more details for each of these. First, growth. In the quarter, revenues increased 11.1%, including a 13.3% increase in audience measurement of video and text. This was fueled by growing demand for the various components of our Total Audience Measurement System as well as our acquisition of Gracenote, which closed in February. Second is the flexibility of our Total Audience Measurement system. As you know, our Total Audience system provides independent comparable in de-duplicative measurement of audiences for both content and ads across all platforms and it does this while offering incredible flexibility for our clients. For instance, it supports both linear and dynamic ad models. It allows advertisers to buy audiences defined by traditional age and gender metrics as well as other characteristics, for example, heavy buyers of cereal or beer drinkers. This flexibility has always been a part of our Total Audience strategy and it was built into the design of the system. With the 2017 upfronts fast approaching, our clients are using our Total Audience system, both the currency C3 and C7 ratings and its other components as they prepare for and negotiate deals. These components aren’t just concepts. They are live in the market and being actively used by our clients. Only Nielsen can provide both the comprehensive and comparable measurement across all platforms and the flexibility to support the wide variety of business models that our clients are pursuing. This positions our Total Audience Measurement system incredibly well as the market continues to evolve. The third thing I want to update you on relates to some new capabilities we have been rolling out. Earlier this month, we launched out-of-home measurement for national TV clients with ESPN on board as the lead client. We have also expanded our ability to credit linear advertising on digital screens and that’s driving increased usage of our Digital in TV Ratings service by clients like ABC, Univision, Freeform and CBS. Audience is captured by both of these two new services are now included in the C3/C7 currency rating. And just last week, we announced that we are adopting the Gracenote ID as the standard content identifier in our Total Audience Measurement system. This will enable a more automated and efficient process for planning, buying and measurement across platforms. This is a great example of the synergies between our core business and Gracenote, which is off to a good start this year. Finally, I will touch on a few examples that illustrate the continued progress and growing adoption of Total Audience in the marketplace. Digital Ad Ratings continues to emerge as the industry standard for nonlinear digital advertising. We saw a 50% increase in campaigns measured in the first quarter. Earlier this month, Roku introduced audience guarantees based on age and gender using Digital Ad Ratings, putting Roku’s platform on the same playing field as traditional TV. New digital distribution platforms that stream live TV are a growing presence in the market. Examples are DirecTV Now, Sling TV, PlayStation View and YouTube TV and we are enabling all of these services to contribute their viewing to our national TV ratings. On March 1, we announced that we began the commercial release of Total Content Ratings and that enables subscribing media companies to use their data externally to capture actual incremental viewing. One example is CBS who is seeing double-digit increases in their audience after 7 days. Going into this upfront, CBS anticipates Total Content Ratings will be a valuable media planning tool for their clients and agencies, adding a new dimension of clarity about the true incremental viewing. Another example is Turner who is using our content ratings to show growth from video-on-demand after 35 days, especially from younger and more upscale viewers. For subscription video-on-demand, which is now accessed by 57% of U.S. households surpassing DVRs, we now measure more than 25,000 program episodes, up more than 3x compared to a year ago. And we are developing technology to further automate this process for our clients. In local television, we are on track with our plans to integrate data from set-top boxes into our local TV audience measurement later this year for initial client use. The result will be larger sample sizes and improved rating stability. We will also leverage our Portable People Meter panels, further boosting sample sizes and adding measurement of out-of-home viewing to the ratings. In recent months, we have closed multiyear contract renewals with some big local clients, including Fox, CBS and Entravision. In Audio, we are increasing our panel sizes, testing more cost-effective next-gen devices such as wearables and analyzing audio listening data from 100 million cars globally, another capability that comes to us through our Gracenote acquisition. These enhancements are good for clients and good for Nielsen. In marketing effectiveness, where Watch meets Buy, constant currency revenues grew 14%. One growth driver was the Nielsen Marketing Cloud, which supports planning, activation and measurement for addressable advertising. We recently expanded global agreements with Johnson & Johnson and Kimberly-Clark encompassing more than 100 brands worldwide. Marketing mix modeling is another key product in our marketing effectiveness portfolio. And last week, Google designated Nielsen as a preferred partner for marketing mix modeling providing us with advertising impression and spend data directly from Google. Before I turn to our Buy segment, let me touch on other topic that’s been in the press lately, Open AP. Open AP is a consortium between Fox, Turner and Viacom. It’s designed to facilitate audience-based buying on linear television. Some have asked us how Open AP relates to what Nielsen does. We support audience-based buying already, and we look forward to supporting it within Open AP. Our data will play a key role, helping to define and measure the audiences that ads will target using the platform. Open AP is an example of the types of new tools and analytics that are featured every year around this time as content owners look to differentiate their audiences in advance to the upfronts. Turning to Buy, segment revenues decreased 3.7% on a constant currency basis as 10% growth in emerging markets was offset by a 7% decline in developed markets driven by the U.S. To mitigate the U.S. decline short-term, we continue to take the necessary cost actions, which also enable us to keep investing in the future of our business. Let’s walk through the pieces. First, emerging markets, we continue to have a compelling story. Over the past several years, we have invested consistently in increased measurement coverage and granularity and those investments continued to payoff. Our global measurement footprint is unrivaled and this is a significant competitive advantage for us with the big multinationals. At the same time, our growth is even better with the local and regional players in the emerging markets. We have a lot of confidence in the emerging markets story in 2017 and beyond. In developed markets, we continue to see low single-digit growth outside the U.S., including Europe, but the U.S. remains challenging. At our Analyst Day in December, we talked about planning for a tougher environment in 2017 and that’s exactly what we are seeing. There are three ways this is playing out for us and for our U.S. clients. First, consumer purchasing continues to trend more towards local and specialty products, often at the expense of the bigger brands. This holds true not only in food categories, but also in personal and household care as well. Second, on the retail front, growth of discount retailers, e-commerce players and subscription models is creating competitive pressure for our clients. And third, our clients continue out zero-based budgeting putting downward pressure on their spending. Our conversations with clients continue to reinforce the mission-critical nature of our data and analytics, but our business is not immune to the pressures they are facing and this is reflected in our first quarter results and our outlook for the year. As we look forward, we remain confident in our strategy to manage through the tough environment while building a stronger business for the long-term. In the near-term, we are focused on driving productivity and adding to our measurement coverage in a fragmenting market. We’ll also continue to invest in our Connected System initiative, which is our top strategic priority. I will walk through each of these in more detail. First, productivity. We continue to drive productivity and efficiency in our operations. In fact, we begin every year with a long list of productivity initiatives and these help fund our growth investments. And when business conditions are tougher, we lean harder into our productivity efforts. As many of our clients go through their zero-based budgeting efforts, we are implementing similar cost discipline at Nielsen. We are doing this thoughtfully in order to protect the business initiatives that are key to our future. Next, coverage. Earlier this month, we launched our e-commerce measurement service in the U.S., capturing sales data for the top fast-moving consumer goods categories sold online. While clients are facing a slowdown of in-store sales in the U.S., adding e-commerce sales presents a slightly more positive picture with growth rates about a point better on average when e-commerce sales are included. We have also added to our brick-and-mortar coverage of specialty retailers and convenience channels and they continue to add to our coverage of health and wellness and fresh categories, including sales data from Whole Foods. As the retail market continues to evolve, we will follow the consumer as we always do. Lastly, the Connected System. This is our top strategic priority and it will ultimately drive more of our revenues to a subscription model and lead to a stronger, higher margin business. And that’s why we continue to invest aggressively in this system even through a difficult growth environment. As a reminder, the Connected System is an open platform-based – I am sorry, the Connected System is an open platform-based system that integrates Nielsen’s data and other data sources and then seamlessly connects measurement with the everyday analytics that our clients rely on to run their business. The system helps them answer three fundamental questions. First, what are the latest sales from our business? Second, why did they increase or decrease? And third, what should I do next to improve sales or profitability? The system also delivers on two important client needs

[Jamere Jackson:]

Thank you, Mitch. Overall, we continue to deliver positive growth and margin expansion due to the strength of our portfolio while our Buy business continues to operate in a challenging set of market conditions. Our teams are focused on execution, which means driving growth in Watch and the emerging markets in Buy, driving efficiency and productivity across our entire business and investing in key initiatives. Our results in the first quarter reflect these dynamics. First, let me give a few more details on our total company performance in the first quarter. On the left side of the page are our results on a U.S. GAAP basis, revenue was just over $1.5 billion, up 2.6% on a reported basis driven by solid growth in our Watch segment and the emerging markets in Buy partially offset by 60 basis points of currency headwind and continued softness in developed Buy markets. Net income was $71 million and net income per share was $0.20. Our net income per share results were driven by revenue growth, margin expansion and our share buyback program offset by higher restructuring charges related to our Buy segment and a higher booked tax rate due to the non-repeat of 1Q 2016 discrete tax items. Moving to the right side of the page, on a non-GAAP basis, total revenue was up 3.2% constant currency. Watch revenue grew 11.1% offset by a 3.7% decline in Buy revenue. Our core revenue grew 4.1% in constant currency in the first quarter and I will provide more color on the segments in just a few moments. Adjusted EBITDA was $422 million, up 4.7% in constant currency and adjusted EBITDA margins were 27.7%, up 38 basis points on a constant currency basis. In the quarter, we continue to drive productivity to fund investments and improve the profitability of our business. Finally, we had a free cash flow usage of $74 million. As a reminder, we typically deliver over 85% of our free cash flow in the back half of the year. We remain on track for our full year plan of approximately $900 million to fuel growth and return cash to our shareholders. As Mitch mentioned, the Board of Directors approved a quarterly dividend increase of nearly 10% to $0.34 a share. This reflects our continued commitment to drive long-term incremental shareholder value through our balanced capital allocation approach. As a reminder, we are committed to growing our dividend in line with earnings over the long-term, while also investing in our growth initiatives. Next I will move to the segments, starting with Watch. Our Watch segment, which is our largest by both revenue and EBITDA had another solid quarter. Revenue was $769 million, up 11.1% constant currency. Excluding Gracenote, Watch revenue grew 6.2% constant currency. Audience measurement of video and text was up 13.3% constant currency, helped by the Gracenote and Repucom acquisitions and continued momentum in our Total Audience initiatives. Excluding Gracenote, audience measurement of video and text grew 6.1% constant currency, led by strength in national TV and digital. We continue to see momentum in Digital Ad Ratings with a 50% lift in campaigns in the quarter and Digital Content Ratings also continues it streak of wins in some of our largest media clients. As expected, audio was flat in the quarter. Marketing effectiveness was up 14% constant currency on continued strength in the Nielsen Marketing Cloud and Nielsen Catalina Solutions as we continue to play an important role in helping advertisers and publishers measure the return on investment and media spend. Other Watch though small was up 14% due to the timing of some data sales and we still expect full year revenue for Other Watch to be roughly flat in 2017. Watch adjusted EBITDA was $323 million, up 8.8% constant currency. Watch margins were 42%, down 92 basis points. Excluding 150 basis points drag from unfavorable mix from Gracenote, Watch margins were up nearly 60 basis points driven by productivity improvements. Our Watch business is off to a good start and the investments we have made to add capabilities to the portfolio are driving solid revenue and EBITDA growth. Turning to Buy, we have talked extensively for the past few quarters about how we were planning for a tougher environment in developed markets and the ongoing strength in emerging markets. Our results certainly reflect those dynamics. First quarter total Buy revenue was $757 million, down 3.7% constant currency. Core Buy revenue was down 1.7% constant currency. Our revenue in the developed markets was $471 million, down 7.3% constant currency by continued weakness in the U.S., offset by low single-digit growth in the remaining developed markets. The U.S. where we have been incredibly successful in securing long-term agreements with global multinationals over the past 5 years represents nearly half of our developed market business. However, while we have maintained share, we continue to see significant downward spending pressure from this group and we are taking commercial and productivity actions to reflect these market realities. Our business in the emerging markets remains robust. Revenue was $267 million, up just under 10% constant currency. Our teams are expanding coverage, continuing to execute and delivering growth and growth was broad based across markets in Latin America, Southeast Asia, Eastern Europe and Greater China. Of particular note is the strong revenue performance of both multinationals and local clients in these markets as we continue to expand our coverage and service offerings. Our corporate Buy revenue was down just under 46% and our efforts to prune the Buy portfolio are well underway and we will continue to pursue actions on this front throughout 2017. Buy EBITDA was $108 million, down 6.1% constant currency in the first quarter. We continue to restructure and right size our Buy business in response to top line challenges in the developed markets. These efforts will drive productivity and help fund growth and coverage in new products across key parts of the portfolio. Moving to foreign currency impact, I want to remind you that we report revenue and EBITDA on a constant currency basis to reflect our operating performance. We generally don’t take on transactional risks, so this slide focuses strictly on the translation impact for reporting purposes. In the quarter, foreign currency resulted in a 60 basis points drag on revenue and a 30 basis points pickup on EBITDA. If yesterday’s spot rates held constant through 2017, then we expect a 40 basis points drag on revenue and a 10 basis points benefit on EBITDA for the full year. Moving to 2017 guidance, we are maintaining our full year guidance, highlighted by total company revenue growth of 5% to 6% constant currency, $1.40 to $1.46 GAAP EPS and approximately $900 million of free cash flow. There is no change to our original forecast for the total company. However, we expect watching the emerging markets to be larger contributors to our overall results compared to our original plan. So to wrap up, our Watch business has great momentum. We continue to see robust growth in emerging Buy markets and we continue to plan for a tougher environment and developed Buy markets. We are highly focusing on managing our costs and driving efficiency in the business. This also enables us to continue to invest in key initiatives. In addition, we are committed to an efficient and balanced capital structure that will enable us to grow and return cash to shareholders in 2017 in the form of dividends and buybacks. And with that, I will turn it back to Sara.

[Sara Gubins:]

Thanks. Carol, thank you. We are ready for the first question.

[Operator:]

Thank you. [Operator Instructions] Your first question comes from Andrew Steinerman from JPMorgan. Please go ahead.

[Andrew Steinerman:]

Hi Jamere, I just wanted to get to a pure organic constant currency number and if you can give it on a total company basis, Watch and Buy developed, that would be great?

[Jamere Jackson:]

Good. So from a revenue standpoint, we had about 2 points of revenue from Gracenote. That was a positive. Repucom was about 1 point and the segmentation in survey, dispositions that we didn’t buy represent a little bit over 1 point on the total company. To give you the pieces for Watch, Watch was about 4.5% on an organic basis and then our Buy business was about 1.7% on an organic basis, so that gives you the pieces for revenue for both Watch and for Buy on an organic basis.

[Operator:]

And our next question comes from Manav Patnaik from Barclays. Please go ahead.

[Manav Patnaik:]

Yes. Hi. Thank you. I just wanted to – I was just curious if you could address maybe some of the competitive dynamics in the marketplace, Oracle just bought Moat, IRI has been having a lot of PR at least out there and comScore has come back as well, so just curious if you guys are seeing any changes in the dynamics there, does that pressure you guys to maybe pick up in the M&A and so forth, just any comments that would be helpful?

[Dwight Barns:]

Hi, good morning Manav. Thanks for the question. I will address them, Watch and Buy respective order. First Moat, I think everybody has seen the announcement that Oracle intends to acquire Moat. Moat, one of the three players that we partner with to provide view ability metrics along with our Digital Ad Ratings metric to our clients in the marketplace. We worked with Integral Ad Science and DoubleVerify as well. We think that’s a real advantage in the marketplace to be able to partner with a range of different view ability providers, because clients have different preferences in this area. And so that’s why we partner with the three of them. We are already continuing to work with Moat even post their acquisition by Oracle and so yes, that’s how we view that. It’s – again, in this bucket of analytics and the core of our business being about measurement and then surrounding that measurement with the right analytics, some of which are ours, some of which come from other providers that we partner with and sometimes when we partner with them, we are also competing with them in other fronts and we are perfectly comfortable in that kind of an environment in the analytics portion of our portfolio with measurement at the core. So that’s the Watch side with respect to Moat. On the Buy side, look, that’s been a competitive environment for us in the U.S. market for several decades. And so really no change in that respect. What has changed more recently though is I think the overall environment which the market and our clients are operating in and there had been some moves with respect to how we work with retailers. So let me just go a little bit further on that, which I suspect is underlying your question on the Buy side of our business. One of the retailers in the market that some people have talked about is Kroger. And there have been some who have asked us, hey, I have heard that Kroger doesn’t provide its data to Nielsen anymore. Well, that’s just not the case. That’s a misunderstanding of what’s actually happening. So let me explain it. When we work with retailers, we typically get their data and we use it in two main ways. First is we represent the sales data from that particular retailer in a market share information that we provide to all of our clients all across the markets, that’s the biggest part of our business. And we continue to receive data from Kroger and it’s continued to be reflected in that market share information that we provide. The second way that we work with some retailers is that we can provide some retailer specific analytics to the manufacturing clients who are interested in receiving those and that’s where there was a change in our business with Kroger last year where they decided that although in the past, they worked with both Nielsen and our competitor, they decided to enter into an exclusive relationship with just our competitor and moving forward on that front. We have some of those same kind of exclusive relationships with other retailers, ourselves, including Whole Foods, but it’s generally not something that we pursue. When we enter into an exclusive agreement with the retailer for those retailer specific analytics, we do so typically at the insistence of the retailer. And the reason for that is because these exclusive arrangements, they generally just drive up costs for the overall marketplace. And in this environment in particular, that’s just the opposite of what the manufacturing clients are looking for and so that’s our view on the exclusive arrangements and a quick update for you Manav, on the competitive environment. Now before I wrap it up though, let me just say, we love our competitive position both on the Watch side and on the Buy side. On the Buy side look, we have the global footprint and nobody comes anywhere close to. We have our breadth the portfolio including our Watch assets that are increasingly differentiating for us in the marketplace. And on the Watch side, you all know the story in terms of our competitive position, the advantages and strengths we have there as well as I do. So yes, we welcome competition. It stimulates us. We like the game, but we also like where we stand on that front.

[Operator:]

Your next question comes from Toni Kaplan from Morgan Stanley. Please go ahead.

[Patrick Halfmann:]

Good morning everyone. This is Patrick in for Toni. Could you please give us a bit of color on how Buy Info Insights performed during the quarter? And then given the first quarter developed markets performance, I am wondering if you are still expecting constant currency growth to be down 1% to 1.5% in 2017 as outlined in the Investor Day?

[Jamere Jackson:]

Yes. So if you look at our Buy business, first quarter was actually our toughest comp from 2016, so the dynamics of the current environment were really felt beginning in the second, third and fourth quarters. If you look at developed Buy in particular, we were up almost 4% in the first quarter. And if you look at the second, third and fourth quarters, we were up – we were down 40 basis points. In the second quarter, we were flat in the third quarter and then up 40 basis points in the fourth quarter. We are certainly not expecting the environment to get any better, which means that our developed Buy business could actually be down low single-digits in 2017, but from a revenue and earnings standpoint, we feel good about the strength of the portfolio overall and the actions that we are taking. We expect Watch and emerging to be larger contributors to our overall results and as a result, we are maintaining the total company guidance for revenue and more importantly, EPS and what gives us this confidence and from an earnings standpoint as Mitch mentioned, we have a laser focus on costs with our productivity actions. We see robust growth in emerging markets. We see good momentum in Watch, behind Total Audience and we are investing in the key initiative. So these things gives us confidence even if developed Buy is low single-digits in 2017 and then as it relates to info and insights, as we have talked about overall, what we are seeing is that we are maintaining our share with our clients, but just spend overall is down and particularly in the U.S. where we are down significantly in the U.S. with the rest of the world being up low single-digits. And I think the other thing that gives us a lot of confidence about the position that we have with our clients is that this was the first quarter in a really long time where we actually saw our multinationals have a very strong performance for us in the form of revenue in the emerging markets where our multinational clients were actually up mid single-digits in the emerging markets. So it gives us a lot of confidence about the robust nature of what we are seeing in the emerging markets sort of going forward.

[Operator:]

Our next question comes from Jeff Meuler from Baird. Please go ahead.

[Jeff Meuler:]

Yes. Thank you. I think a follow-up on the on that last point, I guess how are – I am sure there is variance across the portfolio, but what’s typical for multinational clients in terms of how they are contracted across the Buy business, is it more difficult to have large global agreements or are the agreements typically struck in the local markets?

[Mitch Barns:]

Jeff, it varies. Let me start with that. It varies client-by-client, but what is sort of the been norm if you will, is we will have a global agreement, which is more about the structure of our relationship across countries around the world. And then the actual contract that we will enter into will happen on a country-by-country basis in terms of the pricing and the deliveries around the world. And yes, so that’s the typical way these things are done, governance at the global level, actual contracting with pricing and service delivery at the local country level.

[Jamere Jackson:]

I think the important thing there – I think the important thing there is, as we look at our client base and we listen to our clients in terms of where they see growth opportunities, the emerging markets represent a significant growth opportunity for our clients. And so you are seeing them continuing to invest in the emerging markets and even more so, because it is going to be a growth driver for the business, so while the U.S. businesses has been a little bit challenged, we have seen the activity in the emerging markets pickup and that’s a good sign for our emerging markets business as well.

[Operator:]

Our next question comes from Matthew Thornton from SunTrust. Please go ahead.

[Matthew Thornton:]

Yes. Good morning. Thanks for taking the question. Several part question if I could, I guess, first on TCR syndication, I apologize if I missed this, but can you give us a little update as to when you think that will be fully syndicated. Secondly DAR, I saw it accelerate, I think 50% growth in campaigns measurement, I think that’s up from 31%, just curious kind of what’s driving that incrementally. And then just third, moving over to marketing effectiveness, again it was up 14%, I think that guide for the year was 15% to 20%, but I think Repucom provides the tougher comp in the back half of the year, so just curious if that 15% to 20% is still the right number there? Thanks.

[Mitch Barns:]

Thanks, Matthew. Let’s take one at a time. First, TCR syndication, we began our commercial release of Total Content Ratings on March 1. That enabled clients to begin to use the data externally if they so choose. Just a reminder that for a lot of our clients, in fact a very big number of clients have been receiving the Total Content Ratings data all the way back to August of last year, but for their internal use and so they have been able to see the incremental viewing that Total Content Ratings represents beyond what’s captured in the C3/C7 currency metric and they have been able to use that to understand where to take their business, where their best opportunities are, the best way to represent their content for instance in the upfront. A smaller number so far have chosen to use the data externally and when they do so, what that means is then the agencies have access also to those same data points and that that will continue to evolve and we are encouraged by the progress that we have made so far. We will wait though until we are through this year’s upfronts process before we make a reassessment of where we go next with respect to syndicated reporting of Total Content Ratings to have an update for you probably on the next quarterly call on that particular point. Second one on Digital Ad Ratings, you are right, 50% growth in campaigns in the quarter versus slightly lower growth rate. What I think is happening there is Digital Ad Ratings just continues to emerge as the standard really especially for Digital video, but for Digital advertising in the non-linear world and our competitive strengths are really showing through in the marketplace right now and we just feel great about the progress that we are making. More and more often, Digital Ad Ratings is being used for guarantees, in other words, being used in a way that a currency metric is used, but in this case, on our non-linear advertising environment versus the linear advertising environment, which is where C3 and C7 are still the dominant currency. Lastly, on marketing effectiveness, why don’t I turn this one over to Jamere and have him comment on that one.

[Jamere Jackson:]

Yes. So marketing effectiveness grew 14% in the quarter and you are right, we did guide 15% to 20% annually. I will remind you that marketing effectiveness can be a little bit lumpy from quarter-to-quarter. But what we feel good about is really the strong demand that we are seeing from both advertisers and publishers for ROI solutions and datasets that really amplify the value of a publisher’s inventory. So in the first quarter, our Nielsen Marketing Cloud which is powered by then eXelate assets was up double digits. Our spend with CPG advertisers was up double digits, TV publishers was up, Nielsen Buyer Insights was up mid single-digits. So we feel good about the demand that’s coming from advertisers and publishers and as a result of that, the 15% to 20% annual guidance that we gave for the year still holds for us.

[Operator:]

Our next question comes from Andre Benjamin from Goldman Sachs. Please go ahead.

[Andre Benjamin:]

Thanks. Good morning. I just want to make sure I was properly understanding the Everyday Analytics View 1.0 that you put out in the context of the build-out that’s supposed to be fully rolled out by 2018, I guess broader [ph] understanding of kind of what’s out now versus how much incremental we should expect to be added and then how we should think about the financial impact of getting it out now versus waiting for a more full rollout later?

[Mitch Barns:]

Hey, good morning. Thanks Andre. With the connected system, the two parts to it are the data platform where the core measurement data resides and then the apps that drive the different analytics that our clients use to answer their business questions, helping them understand why the changes are happening in their business and then helping them understand what should they do next to drive better growth, better profitability in the next period that they are planning for. So, those apps come from two different sources. One source is Nielsen. We develop our own apps much like Apple develops some of its own apps for the iPhone. And then we also have an ecosystem. We call it our Connected Partner Program, where a range of third-party analytics providers are also developing apps that can run on our data platform as well. That Connected Partner Program continues to grow up from 18 last quarter to 25 this quarter and some of those connected partners are developing multiple apps and so you can imagine this ecosystem of apps steadily growing. And as it does, yes, it’s answering a growing range of the wide variety of questions our clients have on a regular basis for their business. In terms of what’s out now, well, I can’t lift them all just off the top of my head, but I did mention this Price Explorer app, which is really important right now in the marketplace given some of the trends that are occurring. And so that’s one reason why the early demand for that particular app, which helps our clients make and optimize sort of their everyday price decisions on their business. That’s really important right now given some of the retailer and hard discounter and private label trends that our clients are managing their way through in the marketplace. We also have apps that focus on helping our clients manage the productivity of their innovation programs. So in other words, it sends them alerts when new competitive launches are occurring in their particular categories and those apps as the next step will start to show them what their market share is in terms of all the new sales being driven by new product innovations, how much come from my business versus my competitors business and that will become I think a very important metric for our clients as they manage their business internally. I was speaking with the Senior Executive of on one of our clients recently and I was describing this innovation app to her and I said was that something you would be interested in? And she said, I would kill for that. And I quickly asked her well, would you pay for it? That’s the more important question. So that really leads then to your last question, Andre, which is what’s the financial impact? So far, in 2017, no, it’s not having a big financial impact on our business, still too early for that. We are in the very early days of making these apps available. You will start to see a more meaningful impact on our business though in 2018. And as we progressed through this year, we will have some more detail in terms of what you should expect on that front. Lastly, let me just wrap it all up by saying when you put all these things together, the data platform, the apps, let me just remind you what it’s all about for our clients, speed and efficiency, two new very basic fundamental, but incredibly important things in particular in the current environment to help our clients operate faster, to respond more quickly, to the changing environment and I have seen some of the recent comments from some of the CEOs in the fast moving consumer goods industry where several of them independently said they have never seen a pace of change like what the marketplace is going through right now. And then efficiency, helping improve efficiency both from the Nielsen side and from the client side in terms of how much manual intervention is required to take full advantage and extract full value from the measurement and analytics capabilities that we provide. So by delivering on speed and efficiency, that the connected system will ultimately leads to the stronger higher margin business that we really have our sights on here.

[Operator:]

Our next question comes from Dan Salmon from BMO Capital Markets. Please go ahead.

[Dan Salmon:]

Hey, good morning everyone. Mitch, maybe I will just follow-up on the question here of a bit of a higher level question on the idea of the platform versus Nielsen as the app maker. And as you noted a moment ago, Apple, a big platform also makes some of its own apps and I think every company that has a platform strategy has to walk through this question of where do you want to develop apps as well and potentially come into competition with other users of the platforms. So from the very highest sort of philosophical level, how does Nielsen approach that? Is any potential app in play? Do you look at the landscape and say, what are the areas that we really feel we need an app in areas in a sort of product by product basis? But at a high level, I’d love to hear how you think about sort of being a platform and also an app builder at the same time.

[Mitch Barns:]

I love your question, Dan. Historically, I’ve been in Nielsen long time I won’t give you the number, but trust me, it’s a long time. And when I first came into the company, we had a very different mindset than the one we do today. We had a mindset that was really very much about proprietary systems and we were successful with that approach. Over the years, world has evolved and so is our philosophy around this and we are very squarely in the camp now of open. That open makes the most sense and that we have taken that approach with this design of the Connected System with the platform and the apps and we feel like we are going to be providing more overall value and creating a bigger opportunity overall with an open approach meaning that sometimes, we will be both cooperating and competing with third-parties at the same time and we are very comfortable with that approach. In particular, in the analytics portion of our portfolio, by the way, that’s true in both the Watch and the Buy side of our business and that’s the way we approach it. There are a few – so our default setting. Here is the way I talk about it internally. I ask our teams your default setting mentally should be open. In other words, if the question is should we partner with this other firm who might be a competitor of ours also? The default answer is yes and you have to prove that the answer has to be no in order to change your mind. And so most of the time, we stay with that open mindset and open approach, but we are not stupid. We know that there are a few critical areas where the right answer is actually to protect our unique and highly differentiated position and so we don’t go open 100% across the board. It’s more about the default and sort of the general tendency, the general posture and distribution we bring to the market. And I think that has worked incredibly well for us both on the Watch and now early days still showing its promise and potential on the Buy side with our Connected Partner Program as well. The key thing really is by having this open approach and having an open ecosystem of third-parties who are developing apps what it’s all about is extracting the fullest amount of value from the measurement data that sits at the center of these systems. And that’s the center of our business, measurement. Analytics for us are good additional businesses, but the bigger value of analytics in our business model in both Watch and Buy is that it helps our clients realize the fullest expression of the value of our measurement data. And that’s what this approach is all about. That’s what informs this open philosophy. And that’s why we believe very strongly that this is the right approach for us to take.

[Operator:]

Our next question comes from Jason Bazinet from Citi. Please go ahead.

[Jason Bazinet:]

Yes. I just had a question on the Buy side on the Connected System again. As this begins to grow and become a bigger part of your business and in parallel, the number of apps is developed by third-parties. Am I right that the objective is to sort of essentially replace the everyday analytics slice of Buy or is it sort of beyond that? And then second, if the third-party app developer develops something for you, how does the commercial arrangement work? In other words, are you booking all of the revenue and then some of the costs will be a rev share with the app developer or will it be accounted for differently?

[Mitch Barns:]

Thanks, Jason. As the Connected System rolls out to a broader range of clients, yes, what you will see is a greater portion of our Buy revenues moving to a subscription model. Because there was the question asked earlier about Info Insights. One reason why we have moved away from that way of thinking about the business is it’s truly increasingly difficult to draw that line and with Connected System, part of the result of the Connected System is it will obliterate that line. You will have these measurement and analytics capabilities integrally linked inside of this system and buy the package really much more as a subscription versus the two different ways that clients have purchased our various services on the Buy side of our business historically. With respect to the third-party apps, the way this is working so far is a revenue share model and we are already in fact receiving small, not showing up in any significant way in our financials, but already receiving some revenues from the abscess there increasingly being used by growing number of our clients. Jamere, you have anything to add on that last point?

[Jamere Jackson:]

Yes. I think the important thing on the apps is two things. Number one is that the apps that we are building are a direct result of the feedback that we are getting from our clients. And so many of our clients are working with a number of third-party app providers today and by building an open platform, we are enabling them to be on that platform, so that we can help our clients do the work that they do faster and more efficiently. So that’s the first thing. The second thing is this is a model that we actually like because to the extent that a significant portion of that app development is happening sort of outside the four walls of Nielsen and it’s a less capital-intensive model for us. It should be a model for us that produces nice margin accretion to our Buy business. So, we like the model that we are currently building, but we will have some commercial flexibility depending on who the providers are and what the needs are from our clients.

[Operator:]

Our next question comes from Bill Warmington from Wells Fargo. Please go ahead.

[Bill Warmington:]

Good morning, everyone. I wanted to ask some additional color around development Buy business. Specifically, what should we expect for the growth rate there to be for the remainder of 2017 meaning that was Q1 the trough? Does it remain in the negative 7% range? What drives the improvement and what’s the timing of that likely to be?

[Jamere Jackson:]

Alright. Thanks Bill for the question. So, as I said some our first quarter is our toughest comp. If you look at the developed Buy business in the first quarter last year was up almost 4% and then the dynamics of the current environment, again, we really felt beginning in the second, third and fourth quarters where we were essentially flat over the back half of the year. So, our comps should get better just based on those dynamics alone. However, as I said before, we are not expecting the environment to get any better, which means that you could see developed Buy for the year be down low single-digits and we are confident in the revenue forecast that we have for the total company just based on watching emerging being larger contributors to our overall result. So, comps get better in the back half of the year. We see good momentum in the emerging markets, particularly because of the strength with both locals and those same multinational clients that quite frankly are driving the Buy business down in the U.S. are actually spending more in the emerging markets. So, we feel good about that. As a result of that, we are hanging in there with total company guidance for revenue, and more importantly, EPS. And what we will say is that listen, from a revenue standpoint, certainly, the revenue targets that we have are tough targets, but given the outlook that we have for the total portfolio, we believe that revenue target is something that is still achievable and something that we still have a path to and probably most importantly is that we are running the productivity play with intensity such that the things that we are doing on cost and productivity are going to protect the earnings forecast. So, that’s how I would frame how we are thinking about guidance for 2017.

[Mitch Barns:]

The only thing I will add, Bill, to your question, it was phrased in the context of developed Buy. So the thing I want to add is across developed Buy, it’s the U.S. is down, Canada is growing, Europe is growing across several markets in Europe and the Pacific grew in the first quarter, which is for us, Australia and New Zealand. So generally, developed Buy has done well. The U.S. is what’s down. And so our focus is on the U.S. And by the way, we love our team in the U.S. They are executing working incredibly hard and we are taking all the actions to realign our costs with where the revenue is right now.

[Operator:]

Our next question comes from Kip Paulson from Cantor Fitzgerald. Please go ahead.

[Kip Paulson:]

Hi, great. Thanks for taking my question. Sticking with the developed Buy business, could you remind us what percentage of developed Buy revenue is recurring or subscription in nature versus non-recurring today? And was there any negative impact from churn or pricing on the subscription or recurring side of things? Thanks.

[Jamere Jackson:]

Yes. So, we have talked about the recurring nature of our Buy business being somewhere in the 60% to 65% range on an annual basis. And if you look at the makeup of our client bases, again, we have that large global multinationals. We have done an outstanding job winning those businesses over the last 5 years or so. But as a group as I said, this group is actually under spending pressure. So, as we think about those clients renewing over time, the spend on some of those contracts is actually down and that’s what we are actually experiencing as we move through this environment. But again, what gives us confidence about that same group of clients is the fact that this client base is actually focused on where their growth opportunities are. And so you have seen us continue to innovate and expand our coverage in the U.S. with things like our e-commerce launch and you see us continue to expand our coverage in the areas where they are looking for significant growth opportunities, which is the emerging markets. So overall, while this group of clients is really focused on productivity and efficiency benefits, they are all looking for growth opportunities and we are building the portfolio and continuing to invest in a portfolio and continue to invest in coverage that will help them go after growth opportunities in the future.

[Operator:]

Our next question comes from Kevin McVeigh from Deutsche Bank. Please go ahead.

[Kevin McVeigh:]

Great, thanks for the update on the guidance. Jamere, could you give us a little context in terms of – pardon me, productivity actions versus investing for future growth, because I just want to make sure I understand the kind of the upside that offsets kind of unexpected on the developed Buy is more upside from Watch than emerging markets which I have always thought were lower margins. So, was your – just more upside from a margin perspective on the Watch side that offsets that? Is it Gracenote being a little bit stronger or is it pulling back some of the productivity against future investments that help you kind of achieve the margin trends despite the mix shift away from developed Buy, if you would?

[Jamere Jackson:]

Yes. So as I said, there are really three things that we are working on inside the company that gives us a lot of confidence about our profile for the year. The first is again, from an earnings standpoint, we have just a laser focus on cost and productivity actions. You have heard me talk about in the past, on any given year, we have anywhere from 3,000 to 4,000 productivity actions across the world in 100 plus markets that are focused on driving margin expansion inside the company and that margin expansion has always done two things for us. Number one is it’s given us the fuel, if you will, to generate margin expansion for the total company, but it’s also the fuel that helps us reinvest in our business in things like coverage and the Connected System. And so from that vantage point, it is no different. Given the environment that we are in the developed markets, you have seen us really look at restructuring to further right-size our business in Buy and achieve productivity, so that we protect the downside case in our earnings outlook. So I want to be really, really clear that we are taking the productivity actions not only to drive the earnings growth, but it also gives us the firepower, if you will, to continue to invest in our business and we are able to do that, because of the actions that we take year after year and the fact that in some instances given the market conditions we ramp those up a little bit this year.

[Operator:]

Our next question comes from Tom Eagan from Telsey Advisory Group. Please go ahead.

[Tom Eagan:]

Great, thanks. I want to drill down in the local TV business. Yesterday, at the NAB, Gordon Smith talked enthusiastically about the ATSC 3.0 rollout. So, I was hoping you could talk about what that rollout means for the local TV measurement not quite this year, but really in ‘18 and beyond essentially what your conversations have been like with Sinclair, Nexstar and Tribune? And then on the local TV, on the use of set-top boxes, if you could talk about where the cost of that is? Is the cost going to be in the OpEx or in free cash flow? Thanks.

[Mitch Barns:]

Thanks, Tom. In terms of ATSC 3.0, it’s still early days, but anything that will enrich the distribution, the content experience a local viewer, that’s always good for video consumption. It’s good for different business models. It will be another one of those examples of fragmentation and change that has generally been creator of opportunity and growth for our Watch part of the business. And that will be true in local as well, so still early days. Well, we are following that closely. And as it unfolds, we will have more to say in terms of how our analytics and measurement portfolio will support that and how it will evolve in order to accommodate it. With respect to set-top box data, yes, we are continuing to make a lot of progress on this front. We, as you know last year and early this year, announced the series of deals with DISH and Charter and AT&T, AT&T by the way includes both DirecTV and AT&T U-verse data and we are working hard to incorporate this set-top box data in our local TV ratings products. And the second half of this year, you will see us begin to provide the initial data to our clients that will reflect the set-top box data. Important to note though, we are not shifting away from our panels to the set-top box data. What we are doing, this is really important I think is we are putting both of these data sources together to create a better measurement product and otherwise would be possible, if you only used one or the other and this is really what differentiates Nielsen on this front. We have these high-quality panels and then we add to that in a hybrid fashion, the set-top box data use the best of both data sources for more rating stability and at the same time being as accurate and as representative of all parts of the viewing market as possible. So that’s what we will begin to rollout the data to our clients in the second half of this year and then into 2018. And so that will be a big plus for our local television business. And ultimately, it will find its way to our national TV ratings as well.

[Jamere Jackson:]

And then on the cost side of that, Tom, you are seeing part of the cost associated with that in OpEx and CapEx this year and that’s included in our guidance for earnings and free cash flow. But as we have said before, on the plus side of using set-top box data, this is actually going to enable us to gain both OpEx and CapEx efficiencies over time because what the set-top box data will enable us to do is it will enable us to reduce the size and the frequency of our panel expansions over time. And this will be accretive to us both in terms of our uses of free cash flow, but also the expense associated with expanding those panels and maintaining those panels over time.

[Operator:]

Our next question comes from Tim Nollen from Macquarie. Please go ahead.

[Tim Nollen:]

Thanks. I wanted to come back to developed Buy markets again please. Mitch, you mentioned that the U.S. is down all other markets seemed to be up. Why would that actually be when the companies we are talking about are big global multinationals? I can understand more spending in emerging markets, but I don’t quite understand why, for example, Canada and Europe would be up when the U.S. is down. And then separately you mentioned launching in an e-commerce service in the U.S. last month. Could you just give us a bit more color on what you are doing with e-commerce and how that ties in with the brick-and-mortar CPG data that you provided? Thanks.

[Mitch Barns:]

Yes, sure. Thanks, Tim. For the first question, there are some differences frankly in both our product portfolio and marketplace between the U.S. and the rest of the developed markets. In the U.S., we have traditionally had a broader product portfolio than we have had in the other developed markets and frankly in the other markets all across the world. And so that’s part of the difference in terms of what you see in our business results. The second is our client portfolio. Our U.S. business tends to be much more global FMCG company-dominant, whereas in other parts of the world, we are more balanced if I can say it that way between the big global players and the local and the regional players. That’s certainly true in emerging markets, but it’s also true across several of our other major developed markets in our business and those are some of the dynamics that explains some of the difference we are seeing in our U.S. business versus what we are seeing in the other developed markets. And one of the things just comparing the U.S. and Europe now in some respect, Europe already went through a lot of the challenges that the U.S. is facing, not exactly the same, but in some cases, there are some similarities there. And so that also would explain the difference in terms of what’s showing up right now in our business. To your second question about e-commerce, we have been working on developing our e-commerce measurement capability in the U.S. through 2016. Earlier this month here in April, we launched it for a broad availability to our clients and their response has been really enthusiastic. As you can imagine with e-commerce representing some important pockets of growth for some of the products in categories that we serve, people are really eager to see that data and to have it shown alongside the brick-and-mortar sales that we have been reporting to them for a long time. We have an approach with our e-commerce measurement capability where we are leveraging several different datasets to be able to represent the entire marketplace. About 90% of e-commerce sales represented in this measurement service. And so we feel really good about it as initial version of this product and we are going to continue to add granularity and capability as time goes on. So yes, those are the two points, I think, Tim.

[Operator:]

And unfortunately, we have no further time for questions today. So, I will turn the call back to Mr. Barns for concluding remarks.

[Mitch Barns:]

Yes, just a few final thoughts to wrap up. Just hitting the high points here. In Watch, solid growth in progress, we are really pleased with the progress we are making especially with our Total Audience Measurement system and in particular, with audience measurement of video and text. Gracenote, off to a great start. Growth is on track and as you have heard us talk about on this call, it’s assets are already contributing to other parts of the core Nielsen business. And we are looking forward to seeing that continue to develop over time. In our Buy business, continued strength in emerging markets with our balanced client portfolio there and we are driving productivity to help mitigate the tough growth environment that our business is experiencing right now in the U.S. Meanwhile, we continue to invest in coverage, e-commerce, specialty retailers, health and wellness and fresh categories and we are continuing to invest in and execute well on the development of our Connected System, which ultimately leads to a stronger and higher margin business for the Buy side of our company. So, thanks again everybody for joining us this morning and we look forward to talking with you in the days and weeks ahead.

[Operator:]

This concludes today’s conference. You may now disconnect.