Nielsen Holdings plc
Q2 2017 Earnings Call Transcript

Published: 29 Jul 2017

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Q2 2017 Nielsen Holdings plc Earnings Conference Call. [Operator Instructions] After the speakers’ remarks, there’ll be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Ms. Sara Gubins, Senior Vice President, Investor Relations. Please go ahead.

[Sara Gubins:]

Thanks, Dan. Good morning, everyone, and thank you for joining us to discuss Nielsen’s second 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’ll use on this call is available under the Events section of our Investor Relations website. Before we begin our prepared remarks, I’d 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, July 27, 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 sec.gov. [Operator Instructions] And now to start the call, I’d like to turn it over to our CEO, Mitch Barns.

[Mitch Barns:]

Thanks, Sara. Good morning, everyone. I’d like to start today with some comments on the ongoing change in our business and the markets we serve. We see change as a source of opportunity even if it comes with challenges. In fact, all throughout our history, we captured new growth opportunities by responding to market changes with resolve and innovation. Faced with an unprecedented pace of change in both Watch and Buy, we’re following that same tradition today. Leveraging change is a means for progress by innovating the services we provide to our clients and driving value for our shareholders. Our mission is to provide a clear and complete understanding of consumers and markets. That has not changed. But the way we do it is changing rapidly and in exciting ways, and that will continue in the years ahead. With that said, Jamere will now review the financials, which include an update to our revenue guidance for 2017. I’ll then come back with some specific business highlights and a look into our future. Jamere?

[Jamere Jackson:]

Thank you, Mitch. Overall, our business continues to deliver growth and margin expansion in a challenging environment. In our Buy segment, revenue remains weak as a result of challenging fast-moving consumer goods environment in the U.S. However, we continue to drive growth across the rest of the business in both Watch and Buy while also delivering margin expansion. This is indicative of the strength of the portfolio and the resiliency of this business. Let me give a few more details on our total company performance in the second quarter. On the left side of the page are our results on a U.S. GAAP basis. Revenue was just over $1.64 billion, up 3% on a reported basis, driven by solid growth in our Watch segment and the emerging markets in Buy, partially offset by 110 basis points of currency headwind and continued softness in our U.S. Buy market. Net income was $131 million, and net income per share was $0.37. Our net income per share results were driven by revenue growth, margin expansion and lower restructuring charges. Moving to the right side of the page. On a non-GAAP basis, total revenue was up 4.1% constant currency. The net of acquisitions and dispositions contributed approximately two points to our revenue growth. Our core revenue, which we define as total revenue less noncore or nonstrategic assets, grew 7.6% constant currency in the quarter and just under 4% excluding the Gracenote acquisition. I’ll provide more color on the segments in just a few moments. Adjusted EBITDA was $512 million, up 4.9% constant currency, and adjusted EBITDA margins were 31.1%, up 25 basis points on a constant-currency basis. As I’ve mentioned in the past, we are running the productivity play with intensity and delivering cost efficiencies which help us expand margins and fund growth initiatives like electronic measurement in diary markets, expanding coverage in Buy and funding the Connected System. Free cash flow was $162 million, which was a record second quarter and was up 65.3% versus a year ago. We remain on track for our full year plan of approximately $900 million to fuel growth and return cash to our shareholders. Next, I’ll move to the segments, starting with Watch. And the key takeaway is that our Watch segment continues to perform well and is delivering solid revenue and EBITDA growth. Revenue was $821 million, up 10.9% constant currency. Excluding Gracenote, Watch revenue grew 3.5% constant currency. Audience Measurement of Video and Text was up 16% and excluding Gracenote grew 4.7% constant currency, led by strength in total Audience Measurement. In addition to strength in national TV, we continue to see momentum in Digital Ad Ratings and Digital Content Ratings. Digital Ad Ratings campaigns grew 33% in the quarter, and we now have over 400 advertisers using the product, including all of the top 25 in the U.S. Digital Content Ratings also continue to see strong momentum as we increased penetration among top digital publishers, including Facebook. As expected, Audio was flat in the quarter. Marketing effectiveness was up 18.6% constant currency as we leverage our Watch and Buy assets to help advertisers and publishers measure the return on investment and media spend. Other Watch was down 17.2% due to exiting part of the telecom product offerings in the U.S. and the exit of our legacy net ratings product in the U.S., which is being replaced by Digital Content Ratings. We also exited a content testing asset in the quarter as we continue to execute on our plan to prune noncore assets from the portfolio. Watch adjusted EBITDA was $357 million, up 8.2% constant currency. Watch margins were 43.5%, down 1.1 points. Excluding 145 basis points drag from Gracenote, Watch margins were up more than 30 basis points constant currency, driven by productivity improvements. Our Watch business continues to perform well and is delivering solid revenue and EBITDA growth. Turning to Buy. The key takeaway here is that revenue declines and margins were slightly better than 1Q as we navigate a tough U.S. market. The rest of the developed markets remain resilient, and we see ongoing strength in emerging markets. Second quarter total Buy revenue was $823 million, down 2% constant currency. Core Buy revenue was up 2.7% constant currency. Our revenue in the developed markets was $510 million, down 1.2% constant currency behind continued weakness in the U.S., partially offset by mid-single-digit growth in the remaining developed markets. The U.S. business, which is just under half of the developed market revenue, improved sequentially. Now, let me provide some additional color on what we’re seeing in the U.S. We continue to benefit from strong long term contract renewals with our largest clients. However, as we have discussed, some of these clients are seeing challenging market conditions and cycling through significant cost cuts. And as a result, they make near term decisions about some of our products and services as they lower overall spend. We know that our measurement and analytics are critical and that, over time, clients must invest in the data they need to run their businesses. And in the second quarter, we saw this dynamic play out to some extent as clients spent a bit more behind some of their data and analytics needs. Our business in the emerging markets remains robust. Revenue was $296 million, up 10% constant currency. The bets we have made to expand coverage and services are delivering broad based growth with both multinationals and locals. Once again, we saw strong growth in Latin America, Southeast Asia, Eastern Europe and Greater China. In addition, margins in our emerging markets are expanding as we gain scale in key markets. Our Corporate Buy revenue was down 69%, reflecting our pruning of noncore Buy assets. Buy EBITDA was $163 million, down 1.8% constant currency in the second quarter. Our disciplined cost and commercial actions, along with improving operating leverage in the emerging markets, drove a slight increase in EBITDA margins despite a decline in total revenue. 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 risk so this slide focuses strictly on the translation impact for reporting purposes. In the quarter, foreign currency resulted in a 110 basis points drag on revenue and a 40 basis points drag on EBITDA. If yesterday’s spot rates hold constant through 2017, then we expect a 40 basis points benefit on revenue and a 70 basis points benefit on EBITDA for the full year. Moving to 2017 guidance, we are maintaining our full year EPS guidance of $1.40 to $1.46 and free cash flow guidance of approximately $900 million. We are raising our adjusted EBITDA margin outlook to plus 20 basis points, a constant currency expansion as a result of our cost out actions. We’re lowering our total revenue guidance to approximately 4% to reflect our first half results, our outlook in developed Buy and some updated timing on noncore product exits. This includes approximately 6% core revenue growth and approximately 3% core revenue growth excluding Gracenote. There are no changes to our expectations for other financial metrics provided on the right hand side of the page. And as we look at 2017 revenue growth, a few dynamics are playing out

[Mitch Barns:]

Yes. Thanks, Jamere. Well, as you can see, we executed well in a challenging market, and I’d first like to thank our teams for the rigorous cost discipline they demonstrated in the quarter. It enabled us to expand margins while continuing to invest in our key growth initiatives. Let’s look at the segments. First, Watch. Throughout our history, we’ve adapted to and benefited from media fragmentation and advances in technology. We’ve seen this over the years as cable came along and then satellite, later followed by time-shifted viewing and digital and mobile and subscription video-on-demand. In response to all these, we innovated and introduced new offerings, and so today, we measure all of those viewing options. We are the currency measurement standard, and we fuel our clients’ trading across all screens and platforms in this fragmented market. This is due to successful execution of Total Audience Measurement. Through all of those changes, one thing that’s held true is this

[Sara Gubins:]

Thanks, Mitch. Dan, we’re now ready to take our first question.

[Operator:]

[Operator Instructions] Your first question comes from the line of Toni Kaplan with Morgan Stanley. Please go ahead.

[Toni Kaplan:]

For developed Buy, what gives you the confidence in being able to forecast the business to be flat in 2018? And basically, it sounds like for ‘17, you’re lowering the revenue guidance because Buy will continue to be challenging in the back half of the year. Are you seeing worsening trends in the business from here? Or is it just that the business will continue to be challenging for longer than you previously expected? And is basically the delta in terms of being flat next year the easier comps? Or is it the connected buy system being rolled out? Or what gives you the confidence that ‘18 will be flat?

[Jamere Jackson:]

Thank you, Toni. We’re still working through our operating plan for 2018. However, as I said in my opening comments, our current revenue pipeline, which includes renewals and new business wins, suggests that developed Buy should be flat for 2018. I’d point more to the back half of 2018 than the front half. We’ll obviously share more details when we give the 2018 outlook later in the year. But from our clients’ perspective, we know that our data and analytics are critical to help them understand their performance and business drivers. And while they’ve had to make some tough cost tradeoffs, quite frankly, ultimately, they’ll need to invest in those data and analytics to help them grow their business. And what we see, as we look into 2018, are a few dynamics. One is we’re continuing to win with both retailers and manufacturers. We’re renewing 100% of our long-term contracts with our large global manufacturers. Those contracts are staggered so even the ones that renewed with a lower base spending have price escalators through the contracts, and we’re comping against a pretty tough 2017 environment. The last thing I’ll add is that our Connected System has actually given us incremental capabilities to sell in during renewals, and this has a pretty positive impact on the value of those agreements. On developed Buy, I’d look at the first half for trending purposes, and in the first half, our U.S. business is down double digits. The back half comps get a little easier, but as I said, we’re not forecasting a change in the environment. So the guidance framework that we gave of down 3% to 5% for developed Buy represents relatively easier comps in the U.S. in the back half and tougher comps in Western Europe, which, quite frankly, was up high single digits in the back half of 2016.

[Mitch Barns:]

One thing I’ll add, Toni, is in my conversations with a number of our client CEOs over the past couple of months, there’s a growing recognition among our clients that the zero-based budgeting activities, the cost-cutting activities are going to get them only so far. And they’re all now focused on, "Hey, we got to get the top line moving," and they’re working to figure that out. But as they do, and I’m confident that they will, we expect some of that benefit also to flow into the results that we’re going to see in our business in 2018.

[Operator:]

Your next question comes from the line of Todd Juenger with Sanford Bernstein. Please go ahead.

[Todd Juenger:]

I’ll follow the rules and keep it to one. Maybe a fairly simple question. I’d just love to hear a little more about what’s going on in the core video/text business at Watch. If you take out Gracenote, I think in Q1, your year-over-year growth rate was something like 6.1%. In Q2, it seemed to slow down a bit, like 4.7%, I think, for the press release. So I’m just wondering, is there anything significant about that? Is that just some lumpiness? And even if that, could you just talk a little bit about what’s going on there? And should we be paying attention to that? Or is that just noise?

[Jamere Jackson:]

Thanks, Todd. It’s in line with the framework. It grew roughly 5% in the first half ex Gracenote. So if you look at the trends for the first half, we’re right on the framework. I’d say a couple of things. One is national and digital are both solid in terms of what we’re seeing in the marketplace. Where there’s been some pressure is local. But quite frankly, there, we’re excited about the prospects that we have in local with the new initiatives that we’re going to roll out, the expansion of electronic measurement in the diary markets, the integration of set-top box data and the panel expansion benefits to our clients. So, we feel good about the framework overall. And again, if you’re looking at the first half, we’re in line with that framework.

[Operator:]

Your next question comes from the line of Andrew Steinerman with JP Morgan. Please go ahead.

[Andrew Steinerman:]

Jamere, I just want the organic constant-currency revenue growth for the overall company and the two divisions.

[Jamere Jackson:]

As I mentioned in my opening comments, we had about 2 points of inorganic revenue in the quarter. Approximately 4 points were added from Gracenote and Repucom. That was offset by approximately 2 points from exits of segmentation and telecom and some of the research assets. In Watch, we had approximately 9 points added from Gracenote and Repucom, offset by approximately 1 point drag from the Other Watch assets exits and telecom. And in Buy, we had approximately 4 points of drag from the exit of the assets and segmentation in customer research. So that should give you the pieces of organic.

[Operator:]

Your next question comes from the line of Manav Patnaik with Barclays. Please go ahead.

[Manav Patnaik:]

Just on the Watch side again. I mean it sounds like you have a lot of good commentary in terms of updates and innovation and so forth, but I think the organic growth this quarter was up 3.5% on the Watch, I believe. So is that just timing, seasonality? Like what’s the disconnect? And maybe if we look a little forward, like do you expect all these new products and innovation to help accelerate that growth? Or is it just to maintain your sort of contract status?

[Jamere Jackson:]

Yes. You have a little bit of timing there, obviously. If I look at Marketing Effectiveness, for example, organically, we grew close to double digits in the first half. We’re going to see strong demand and higher growth in the second half from our key products, and so we feel good about the 15% to 20% range for the year. If I look at Audience Measurement of Video and Text, as I said, it’s in line with our framework if you look at roughly 5% in the first half. I feel good about national and digital. Local is where the pressure is, and we talked about the initiatives there. And then if I look at the corporate bucket, we have a few things rolling through there. One is we actually sunset the digital rankings product in the quarter. We have also exited some assets in content testing. So overall, I feel good about the guidance framework. Let me just sort of walk through that, just to give you the pieces. So if I look at -- let me just start with Buy. If I look at our Buy business, we’re going to be down roughly 2.5% to 3% on a constant-currency basis for the year. That suggests that developed is down minus 3% to minus 5%; emerging, plus 8% to 10%; and then, corporate bucket is down 60%. And if I moved to Watch, no change to the framework there, up 11% to 13% in total for Watch. We see audio as being flat; Audience Measurement of Video and Text, up 14% to 16%; Marketing Effectiveness, up 15% to 20%; and then the Other Watch bucket, down 10%. So that gives you the framework that we have for the total company. Again, you always have a little bit of timing and lumpiness quarter-over-quarter, but we feel pretty good about the framework that we have from a guidance standpoint.

[Operator:]

Your next question comes from the line of Anj Singh with Credit Suisse. Please go ahead.

[Anj Singh:]

I just wanted to get some more thoughts on the back half assumptions for developed Buy. It seems like despite the easier comps that you have for the back half of ‘17, the growth outlook is worse than what 2Q had, so perhaps some thoughts on what changed during the quarter for you to provide guidance lower. Was it more on the transactional discretionary parts of the business? Or is it just broad-based pressure in general? Any thoughts there?

[Jamere Jackson:]

Yes. So if I look at developed Buy, let me take it in a couple of pieces. I’ll talk about the U.S., and then I’ll talk about Europe. I look at the first half, again for trending purposes, in the first half, the U.S. business was down double digits. The comps do get a little easier in the back half of the year, but we’re not forecasting a change in the environment. So that guidance framework of being down 3% to 5% actually represents slightly easier comps in the U.S. in the back half. But the comps actually for Western Europe are a tough -- are a little bit tougher because in the back half of 2016, Western Europe was up mid-single digits. And what I’ll say about Western Europe is that we continue to be pleased with the recovery that we see in Western Europe that, again, began in the back half of 2016. So while the second half comps are a little tougher, I would say that the environment there is as good as it’s been in 3 or 4 years in those markets. So again, that framework that we suggest says U.S. is a little bit better against a different set of comps, and Western Europe has a tougher set of comps in the back half of the year and net-net, you’re about where you are in the first half of the year for our Buy business.

[Operator:]

Your next question comes from the line of Brian Wieser with Pivotal Research. Please go ahead.

[Brian Wieser:]

I’m curious how you think your Buy-related products are doing in terms of market share versus competitors. Are there some subproduct categories where you think you’re up versus others where you’re down? Or are the trends that you’ve been talking about really broad-based?

[Mitch Barns:]

Thanks, Brian. Good to hear your voice. The trends are pretty constant, I would say. The -- what you see rolling through our business is more a reflection of the marketplace environment than it is anything to do with market share. Probably one positive thing to point to, though, with regard to market share is what we’re starting to see flow through our Connected System, in particular the apps from the Connected Partners. What I mean is we’re starting to see these 106 clients who are now using some component of the Connected System, one of these apps, we’re seeing a lot of this being new business to us. In other words, clients are using these apps in cases where they weren’t buying our analytics products before. Part of it is the -- sort of the price point and the value but also the speed and the usefulness that these apps bring to their business. So that’s probably an area where I’d point to some gains in market share, but that’s not really at the center of the business and the biggest part of the revenue. The bigger issue that we’re battling against in the developed Buy markets right now really is the environment more than it is the competitive environment.

[Operator:]

Your next question comes from the line of the Kip Paulson with Cantor Fitzgerald. Please go ahead.

[Kip Paulson:]

For the Watch business, can you expand on the new datasets you’ve added, which the release mentions? And how is Nielsen positioned with mobile panel specifically in terms of geographies, panel sizes, et cetera?

[Mitch Barns:]

Yes. Thanks for the question. New datasets, a couple of examples here, some of which are already a part of the products that we’re rolling out and some are more part of the future. Set-top box data is the best example on the Watch side of the business. We’ve used it for our analytics products historically, and now what we’re doing is expanding the role that it plays in our business by bringing the set-top box data into our audience measurement products. And importantly, we’re doing this not by getting rid of our panels. What we’re doing is we’re combining our panels, which still have incredible strengths, unique strengths in the marketplace. We’re combining those with the set top box data, putting those two datasets together and leveraging the strengths of each of them to do -- to provide a measurement product that will be better than anybody else can provide. So that’s the best use of it there. The second area where we’re drawing in new datasets is as you look at our Gracenote business. As we mentioned, they have their automatic content recognition technology, and that enables them to do a lot of powerful things for the client base that they work on. But it also opens up smart TV data for our business, which we’ve always known is out there but we haven’t really had an efficient way to tap into. So that’s another new dataset that will really be powerful for our Watch business, both from a video audience measurement perspective. We also see opportunity there with respect to audio. So those are two examples. With respect to mobile panels in different parts of the world, what we’re really focused on, as far as digital measurement as we expand our footprint around the world, is rolling out the Digital Ad Ratings metric. And while that has a panel component, it is not a panel reliant measurement approach. It leverages big data, and then it, in many markets, leverages a small panel that’s used for projection and calibration because big data always has skews and issues that need to be corrected. So that’s what we’re focused on in terms of the use of panels in many of these markets, but it’s much more of a big data approach, led by our Digital Ad Ratings metric and then typically followed by Digital Content Ratings and a more full version of our Total Audience Measurement system as we expand to additional markets around the world. And if I have the number right, Digital Ad Ratings is now in around 25 markets around the world, and those markets account for about 85% or -- 85% of global digital advertising spend.

[Operator:]

Your next question comes from the line of Dan Salmon with BMO Capital Markets. Please go ahead.

[Dan Salmon:]

Maybe, Jamere, could we return to the viewpoint, early guidance, whatever we want to call it, about more of a flat view for Buy in 2018? And just add a little bit of color around the components of that. What I’m trying to get at is, how much discretionary spend are you thinking in that number? And it’s a question not just about mix but also how the business is evolving as you move to the Connected System and just understand what underlies that view a bit more.

[Jamere Jackson:]

Sure. So I’ll hit a couple of things, and I’ll ask Mitch to chime in on the remaining pieces of it. As I said, there are really three things, Dan, that sort of drive our outlook. One is what we are seeing in terms of wins with both retailers and manufacturers in this environment that we’re operating in. That’s been pretty important for us to continue to go after new business, and our teams are doing a pretty good job from a business development standpoint based on what we see in our early read. The second thing I would say is that we’re continuing to renew all of our long term contracts with our global manufacturers. And while we’ve had some of those contracts that renewed at a lower base, obviously, those contracts are staggered, and even the ones that renewed at a lower base have price escalators that move through the contracts as you go forward. And then the third piece, as I said, is sort of comping against a tough 2017 environment. We expect to see some improvement there based on our most recent discussions with our clients. And as I think about sort of the impact of the Connected System, I would say two things. One is that we do expect some revenue from the Connected System, some of which will be incremental, specifically revenue from the Connected Partner Program. But really, the second dimension is the one where we see the Connected System is actually giving us incremental things for our commercial teams to go sell and do renewals, and that’s actually given us a positive impact on some of those agreements. Our primary focus next year is going to be on conversions. And we expect that to ramp through the back half of the year, but the incremental revenue and the promise that we see from the Connected Partner Program is actually a positive as we look into 2018.

[Mitch Barns:]

Yes. I just want to emphasize the point Jamere made about Connected System being part of the story that our commercial teams are talking about with our clients even right now as we’re renewing current contract renewals that’ll, of course, begin to roll through our financials next year. The fact is it is part of the story and that clients are responding in such an overwhelmingly positive manner to it. That’s already having a positive impact in our business even separate from the fact the issue of whether or not a client will engage with Connected System immediately in 2018 on an end-to-end basis or not. It’s more about how they view the idea of signing up for a multiyear contract with Nielsen being their partner and then having an understanding of what’s in our product pipeline. And when they see what’s in our product pipeline, they like it, and so that’s already been helping us as we approach these contract renewals and new client wins.

[Operator:]

Your next question comes from the line of Bill Warmington with Wells Fargo. Please go ahead.

[Bill Warmington:]

So I just wanted to ask a follow-up on the Buy developed side. Last quarter, you’d mentioned that the non-U.S. developed grew low single digits and the U.S., was down mid-teens. There was improvement sequentially. I just wanted to ask if we could get the growth rates for each of those pieces. I know, Jamere, you mentioned double digits, but I’m looking for a little more granularity there.

[Jamere Jackson:]

Yes. So if I look at the U.S. business down mid-teens in the first quarter, second quarter, it was down again high singles, and then we saw sort of mid-singles across the rest of the developed world. So those are sort of the pieces that are there. And again, environment is still tough in the U.S., and we feel pretty good about the recovery that we’re seeing, particularly in Western Europe, that really began in the back half of last year. And I can’t reiterate enough how pleased we are with that recovery and the fact, that, that environment is as good as it’s been in the last three or four years.

[Mitch Barns:]

One thing our teams in Western Europe have done well over the past couple of years in particular is their focus on retailers. Some of our wins in Europe have been with important retailers. We’ve taken that playbook, brought it to the U.S., even brought people from our European business to our U.S. business and we’re starting to run that play now, too, and we’re going to make progress on that front. And that’s really important given the role that retailers are playing in the overall fast-moving consumer goods ecosystem these days, which only grows in importance.

[Operator:]

Your next question comes from the line of Matthew Thornton with SunTrust. Please go ahead.

[Matthew Thornton:]

Just to clarify, for the ‘17 guidance on the core organic constant-currency growth, I think the only delta from prior guidance to current guidance is developed Buy. So I want to make sure that’s correct, number one. On Gracenote, it looks like, if I did the math right, it looks like the implied number is actually down a little bit. Just maybe if you could provide any color around that. And then just finally, a lot of announcements and momentum around digital. I’m wondering if there’s any way to tease apart or if you’d be willing to provide what digital-first clients are these days as a percentage of Watch revenue. Any color there would be great.

[Jamere Jackson:]

Yes, just, so from a guidance standpoint, you’re right, the key pressure from a core standpoint is actually in developed, where we’re now guiding being down minus 3% to minus 5%. That is the key driver to what you see in the core revenue number coming down. From a Gracenote standpoint, no change in terms of our expectations there. The business is off to a great start. The integration is on track. The teams are excited about some of the commercial opportunities that Mitch mentioned. So no change to our Gracenote outlook there. The business is off to a really good start.

[Operator:]

Your next question comes from the line of Kevin McVeigh with Deutsche Bank. Please go ahead.

[Kevin McVeigh:]

I wonder -- can you give us a sense, the margins in the developed Buy -- or is the Western European business similar to the U.S.? Or how do we think about the margin profile just as we model out the back half of the year?

[Jamere Jackson:]

I would say the margin profile is similar. But what I would say on Buy, as you’re thinking about margin profile, is really more around our cost actions, and the cost actions that we took there were really aimed at rightsizing our business for the current market realities. We took restructuring charges over the past three quarters to fund these actions. These actions were in addition to our normal productivity plays, and they’re helping us mute the impact of a softer revenue environment. And quite frankly, the other thing is none of these actions impact our ability to invest in our key initiatives. So as you’re thinking about margin profile, just know that we’ve got a number of cost actions that began in the back half of last year that are going to roll all the way through 2017, and that is the reason why we raised the EBITDA margin guidance and the big contributor to us maintaining our EPS guidance for the year.

[Operator:]

Your next question comes from the line of Tom Eagan with Telsey Advisory Group. Please go ahead.

[Tom Eagan:]

I was looking for your comments on the local TV station customers. Sinclair indicated their intention to move exclusively over the comScore. So I guess, how have those conversations gone? And also, what are the other TV station groups saying? And what contracts are renewed in 2018?

[Mitch Barns:]

Yes, on your question though, look, I’m sorry, I’m not going to comment on a topic that is part of an active contract negotiation with an important client. But here’s what I can say. I can say that the improvements that we’re making in our local audience measurement product are being very well received by our client base. As a reminder, we are bringing electronic measurement now to all of the local markets as opposed to just the first 70 where it is right now. We’re incorporating set-top box data for more granularity and stability in the ratings. We’re bringing new analytics offerings which help people advertise with more precision, drive more value for that advertising inventory. And yes, across our client base, these moves are resonating very well, and you see it reflected in the contract renewals we’ve had already this year with CBS local, with Fox local, with Entravision. One thing I will say about Sinclair, we just recently expanded our relationship with the Tennis Channel, and the Tennis Channel is owned by Sinclair.

[Operator:]

And your next question comes from the line of Doug Arthur with Huber Research. Please go ahead.

[Doug Arthur:]

Jamere, just on -- you talked quite a bit about the strength in Western Europe in the Buy developed markets. Can you just sort of update us on what percent of developed market revenues Western Europe represents right now?

[Jamere Jackson:]

Yes. Western Europe is probably 35% to 40% of the developed market business.

[Doug Arthur:]

So U.S. is still 50ish?

[Jamere Jackson:]

Yes, just a little bit under 50% this quarter.

[Operator:]

And we have no further questions in the queue at this time. I would now like to turn the call back over to Mitch Barns for closing remarks.

[Mitch Barns:]

Thank you. Yes, just a few closing comments to sum up. In Watch, we’re seeing solid growth with Audience Measurement of Video and Text. And as we’ve highlighted, we see multiple areas of opportunity across our business, and we’re going to continue to respond to the changes in the market with innovation in order to capture that growth. Our Buy emerging business continues to show strength, up 10% in the quarter. Our Buy developed business, we’re focused on productivity, and we’re continuing to expand coverage, especially with the value retailers, the specialty outlets. And of course, we’ll stay focused on continuing to develop our e-commerce measurement capabilities. Most important priority for us though in our Buy developed business is the execution on our development of the Connected System, and that includes our in-house apps and the Connected Partner Program. All of these things that we’re doing in our business are all anchored to the objective of driving value, value for our clients and value for our shareholders. And so with that, let me just say thank you once again for joining us on the call this morning, and we look forward to talking with many of you more -- many more of you in the days and weeks ahead.

[Operator:]

Thank you, everyone, for attending today. This will conclude today’s conference call, and you may now disconnect.