Nielsen Holdings plc
Q3 2017 Earnings Call Transcript

Published: 25 Oct 2017

[Operator:]

Good morning. My name is Carol and I will be your conference operator today. At this time I would like to welcome everyone to the Q3, 2017 Nielsen Holdings Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions] At this time I would like to turn the call over to Sara Gubins, Senior Vice President-Investor Relations.

[Sara Gubins:]

Thanks Carol. Good morning everyone. Thank you for joining us to discuss Nielsen’s third 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, October 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 sec.gov. For Q&A, as always we ask that you limit yourself to one question, so that we can accommodate everyone. Please feel free to join the queue again and if time remains, we will call on you. And now to start the call, I’d like to turn it over to our CEO, Mitch Barns.

[Mitch Barns:]

Yeah, thanks Sara. Good morning everyone. Thanks for joining us on the call. In the quarter we continue to execute on our strategy to provide uniquely better measurement and analytics products to drive growth and efficiency for our clients and for Nielsen. We made significant progress even while facing rapidly changing environments in both Watch and Buy. For more than 90 years we’ve leveraged changes and means for progress by innovating the services we provide and adapting to the changing environments in which we operate. This is both our legacy and our future. Our ongoing commitment to innovation will drive growth and efficiency in the years to come. I’ll now turn it over to Jamere to review the financials and then I’ll come back to provide an update on some of our key initiatives and a look into our future. Jamere.

[Jamere Jackson:]

Thank you, Mitch. Once again our results reflect revenue growth and margin expansion in the challenging environment. In our Buy segment revenue remains soft as a result of the challenging, fast moving consumer goods environment in the U.S. However, growth and margins continue to improve in the emerging markets. In Watch we’re driving revenue and EBITDA growth behind our total Audience Measurement and Marketing Effectiveness initiatives. Resiliency remains a key attribute of our overall portfolio. Let me give a few more details on our total company performance in the third 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 4.5% on a reported basis, driven by solid growth in our Watch segment and the emerging markets and Buy, partially offset by softness in our U.S. Buy market. In addition, foreign currency rates added 90 basis points to our revenue growth in the quarter. Net income was $146 million, up 12.3%, and net income per share was $0.41 up 13.9%. 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 3.6% constant currency. The net of acquisitions and dispositions contributed approximately 2 points to our revenue growth. Our core revenue which we define as total revenue less non-core or non-strategic assets grew 5.7% constant currency in the quarter. I will provide more color on the segments in just a few moments. Adjusted EBITDA was $522 million, up 4% constant currency and adjusted EBITDA margins were 31.8%, up 12 basis points on a constant currency basis. Our margins were driven by favorable mix and cost savings efforts that are driving efficiency and finding growth in both Watch and Buy. Free cash flow was $425 million, which was a record third quarter and was up 20.4% 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. The Watch segment continues to deliver solid revenue and EBITDA growth. Revenue was $838 million up 9.7% constant currency and net of acquisitions and dispositions contributed approximately 7 points to our Watch revenue growth. Audience Measurement of Video and Text was up 16.5% on a constant currency basis. Excluding Gracenote, it grew 4.6% constant currency, led by strength in National TV and Digital. Digital Ad Ratings campaigns grew 44% 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, Digital and TV ratings and out-of-home measurement were also positive contributors to our third quarter growth. Audio was down 7.3% constant currency in the quarter due to the timing of ratings deliveries, which skews quarterly growth rates from time-to-time. This dynamic represented about 130 basis points drag on Watch growth in the quarter and about a 60 basis points drag on the total company. Importantly, we expect audio to be roughly flat for 2017, consistent with the framework I gave for the year. Marketing Effectiveness was up 15.6% constant currency as we continue to leverage Watch and Buy assets to help advertisers and content publishers measure the return on investment in media spend and execute Audience Based Buy. Other Watch was down 19.2% constant currency due to the previously announced exits, a part of the telecom product offerings, content testing assets and our legacy net ratings product in the U.S. Watch adjusted EBITDA was $390 million up 7.7% constant currency. Watch margins were 46.5% down 84 basis points in constant currency. Excluding 138 basis points drag from Gracenote, Watch margins were up 54 basis points constant currency. Our Watch business continues to perform well and is delivering solid revenue and EBITDA growth. Turning to Buy, the key takeaway is that year-to-date Buy revenue trends are in line with the framework we gave in 2Q, with continued strength in the emerging markets offset by a soft U.S. market. Third quarter total Buy revenue was $803 million, down 2.1% constant currency. Core Buy revenue was roughly flat on a constant currency basis. Previously announced dispositions were a 2 point drag to our Buy revenue growth. Our revenue in the developed markets was $491 million, down 5.4% constant currency behind continued softness in the U.S. and a tough comparison in Europe. The Developed Buy results year-to-date are in line with the full year framework we gave in the second quarter. Let me provide some additional color on the U.S. Sequentially the revenue declines are improving although the environment remains tough. As we have discussed, some of our clients are cycling through their own significant cost cuts and lowering overall spend. We expect this trend to continue for the next few quarters, however we also know that our measurement and analytics are critical and that over time clients must invest in the day-to-day need to drive growth and run their businesses. In addition, we are investing in coverage initiatives that will present growth opportunities for us in 2018 and beyond. We look forward to sharing more details at our Investor Day in a couple of weeks. Our business in the emerging markets is exceptionally strong. Revenue was $297 million, up 10.8% constant currency. We are adding coverage and scale to drive broad based growth and margin expansion in all of our key markets. Our corporate Buy revenue was down 54.5% constant currency, reflecting pruning of noncore Buy assets that we have previously flagged. Buy EBITDA was $145 million, down 5.2% constant currency in the third quarter. We are investing in growth and efficiency initiatives across our businesses that will help us expand coverage and drive significant margin upside in Buy by 2020. 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 90 basis points increase in revenue and an 80 basis point gain on EBITDA. If yesterday’s spot rates held constant through 2017, then we expect a 40 basis point benefit on revenue and an 80 basis points benefit on EBITDA for the full year. Moving to 2017 guidance, we are maintaining our full-year guidance highlighted by EPS of $1.40 to $1.46 per share and free cash flow of approximately $900 million. On the right hand side we have updated our restructuring expense to approximately $85 million and D&A to approximately $650 million. Lastly, we remain committed to our balanced capital structure that is funding growth while enabling us to return cash to shareholders in the form of a growing dividend and share buybacks. With that, I’ll turn it back to Mitch to provide more color on the quarter.

[Mitch Barns:]

Thanks Jamere. I’ll now provide some updates on our key initiatives and let’s start with Watch. The rapidly evolving media landscape continues to be a source of opportunity and growth for Nielsen as it heightens the importance of independent, comparable and de-duplicated measurement across all platforms, and we are uniquely positioned to deliver this to the market. Last quarter I highlighted three points that underscore the endurance of our strong position in measurement and our ability to drive new growth opportunities. During the third quarter we further strengthened our position as the leading measurement company across the media ecosystem. Let’s hit those three points again. First, the investments we’ve made in Total Audience Measurement positioned us incredibly well for the future. Second, we made great progress in driving penetration of our digital offerings and we see significant growth opportunities ahead. Third, we’re investing and this comes in all forms, new partnerships, acquisitions and new products, all driving incremental growth opportunities. Let me address you to these in more detail. First, Total Audience Measurement; our system that provides independent, comparable, and de-duplicated measurement of both ads and content across all platforms. We see a lot of momentum here. Total Audience is the foundation for the future of our Watch business, providing measurement capability, scale and flexibility. The flexibility that we built into the system allows us to evolve along with the market, providing our clients with the most complete view of their audience for all types of viewing now and in the future. Our measurement of out-of-home viewing is a great example of being able to provide our clients with a more complete view of their audience. Since our April launch we’ve seen tremendous demand for this important component of Total Audience. CBS and ABC are the latest of a longer list of 23 networks, leagues and agencies to sign on. Last month ESPN began offering a live total audience metric, which reflects traditional TV, as well as viewing via streaming devices and out-of-home and their advertisers are now transacting on those metrics. With all the talk about cord cutting lately, I want to highlight two types of viewing that are growing, partly as a consequence of cord cutting, both are captured by our Total Audience Measurement system. The first is viewing via so called skinny bundles like Sling TV, DIRECTV NOW, PlayStation Vue, YouTube TV, Hulu Live and others. We’re capturing live viewing with our digital and TV ratings metric, with eligible viewing added to the C3/C7 ratings. We’re the only accredited measurement provider doing this at both the national and local levels. The second type of viewing that’s growing is viewing over the air using an antenna. Yeah, I know its old school, but this group of viewers is growing again. They are more multicultural and they are trending younger lately. In some local TV markets, over-the-air homes account for up to 65% of the stations audience for local news and sports. These viewers aren’t represented in set-top-box data, but our measurement, thanks to our panels, captures these viewers well and always has. Also in Local TV we’ve been investing in our plan to bring robust personal level electronic measurement to all of the 210 U.S. local markets. Our efforts are progressing well and we’ll start to produce parallel data later this year. Last week we announced the release of our new syndicated subscription video-on-demand measurement service. This is a significant enhancement to our previous solution which we launched roughly three years ago. We can now independently provide subscribing clients with data that shows how their programs are performing relative to other programs on Netflix. This is a big step forward. A number of major television networks and production studios have already signed up. On total content ratings, nearly every major media brand is receiving and using live certified data from Nielsen. This is in part fueled by our Digital Content Ratings data that dozens of clients rely on every day. As we said before, in today’s world, measurement is a team sport and we’re working closely with our clients to help them as they use the data, whether it’s internally or externally. We’ve also been working closely with our clients to evolve the currency beyond the C3/C7 definition. The consensus is narrowing and we’re confident that we’ll emerge as the currency for both Linier TV and Digital; in other words for all premium video. This has been a long journey, but there is no question that we’re moving forward. The second key point is around the progress we’re making on increasing our penetration of digital measurement. We’re relentlessly focused on expanding the range of use cases, adding flexibility and improving the user interface of our tools. Digital Ad Ratings has become the industry standard for major publishers, particularly on mobile. All of the top advertisers are using Digital Ad Ratings and we uniquely to measure PC and mobile exposure on YouTube, Snap, Pintrest, Twitter and Facebook. Also Digital Ad Ratings continue to grow internationally. We’ll be in at least 32 countries by the end of this year. For Digital Content Ratings, on last quarter’s call I mentioned that we are enabled for secondary crediting of distributed video content on Facebook. In August we added Hulu and YouTube. We are the only provider with comprehensive measurement coverage of distributed content across all three of these platforms and this has led to some key competitive wins. Since our launch of Digital Content Ratings last fall, our progress has been accelerating. Distributed video content on digital platforms is a growing trend because it offers incredible scale to digital media owners and they want measurement to capture the total audience for their content across all of these platforms. Digital Content Ratings does that, in fact it measures all types of video content on these platforms; long-form TV content, short clips and digital originals. The result for us is a growing client list, including Group Nine, a leading digital player for Millennial audiences. Moving to my third point, we continue to invest in new growth opportunities. Last quarter we talked about our leadership position in Audience Based Buying beginning with Nielsen Catalina Solutions and Nielsen Buyer Insights and we’re continuing to build on this. We recently announced a partnership with Clypd, a leading sales side platform for television advertising whose 60 broadcast and cable network clients represent close to half of TV’s annual $74 billion ad spend. The partnership enables advertisers, agencies and publishers to transact using consistently defined audience segments on linier television. Advertisers can select the audience segments using a variety of behavioral attributes and then push those targets to networks for activation and guarantees. It’s a great addition to the lineup of solutions we’re supporting in the broader area of audience based buying. We’re incredibly well positioned here. We’re leveraging our acquisition of Gracenote to bring new capabilities to linier TV ads in partnership with two leading interactive TV advertising providers Connekt and Ensequence. Using Gracenote’s patented, Automatic Content Recognition or ACR technology, marketers can present special offers or custom promotions tied to their brands, driving deeper consumer engagement. For example, an automaker can enhance existing TV spots by adding interactive content such as local dealership address or a promotional discount. With our ACR technology embedded in 25 million Smart TVs, this has broad reach. In marketing effectiveness where our Watch meets Buy, our growth in the quarter was driven by the Nielsen marketing cloud, which enables Audience Based Buying in the digital world. As Audience Based Buying of advertising grows, outcome based metrics are key to measuring the value of the audience delivered. Our recent acquisition of Visual IQ strengthens our already powerful capabilities in this area. By combining our marketing mix modeling outputs with Visual IQs attribution and ROI metrics, we help marketers to optimize across channels. Visual IQ’s highly automated platform also allows us to take in and process large datasets more efficiently. To sum up the overall picture for our Watch business, it’s been a great year so far. We have a lot of momentum. Clients are embracing the solutions we brought to the market across both linier and digital and as the market continues to evolve; our Total Audience System is there to measure all of it. Turning to Buy, our business in emerging markets continues to be robust, driven by our balanced portfolio of local and multinational clients, along with our investments in coverage and granularity. Revenues were up nearly 11% in the quarter led by strength in Latin America, Eastern Europe, Southeast Asia and Greater China. In developed markets the operating environment in the U.S. remains challenged, as our large fast moving consumer goods clients are faced with price and volume pressure in their own businesses. They are carefully managing their spending across all functions and our results continue to reflect these near term pressures. At the same time, we’re continuing to invest for the long term, adapting and evolving to strengthen our leadership position for the future. We are focused on three key efforts; first, efficiency. Driving automation and leveraging technology to enable a more scalable growth for our business. We’re taking a number of actions to permanently reduce our cost base, enabling us to expand margins while also investing in our key growth initiatives. Across Buy and Watch we are focused on shrinking our operational footprint, reducing manual processes and increasing efficiency. All of these actions are designed to drive a stronger, higher margin business and ultimately to create value for our shareholders. Second, we’re increasing our presence in faster growing channels. As the retail landscape evolves, coverage expansion is critical to both manufacturers and retailers. We continue to build out our ecommerce measurement capabilities globally and we’re now covering this channel in 16 countries. In the U.S. we launched our hybrid e-commerce solution earlier this year and are focused on growing the number of retailers that share e-commerce data directly. We’re also expanding our reach into the fast growing value channel. Building on our expertise and strength with dollar stores, we make good progress with other major players in the value channel such as ALDI, one of the fastest growing retailers in the U.S. They recently selected Nielsen as their preferred data and analytics provider, covering nearly 1,700 stores in 35 states. And third, the connected system. Our 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 is designed to drive speed and efficiency for our clients, which is exactly what they need. We are making good progress on the roll out of the end-to-end connected system and we’re on track to expand to 25 retailer and manufacturer clients by the end of this year and we’ll increase that to 100 clients by the end of 2018. There is no shortage of demand from clients to be on that list. Clients are excited because when they see the connected system they understand why it is uniquely better than anything else out there. We are already seeing the positive impact of the Connected System in our renewal discussions for 2018, as well as with some competitive wins. Similar to Total Audience Measurement this will be a multiyear transformation as a business with some clients wanting the end-to-end system right away and others leveraging specific components to address their particular business needs. We have great momentum in our Connected Partner program which we launched 12 months ago. In that time the number of partners has growing to 36. We are also growing our portfolio of everyday analytics apps. Next up for launch is media budget explorer, a media optimization tool for brand mangers. We’ll continue to build out these always-on analytics capabilities across a variety of other areas, including assortment and innovation. Demand for our apps has been strong. In total we now have 152 clients using at least one component of the Connected System, up from 106 that we reported on the second quarter call. To sum-up on Buy, emerging markets continue to be a growth engine and Developed Buy, the landscape in the U.S. remains challenging near term, but we are investing for the long term. We are making good progress on expanding our measurement coverage and on the development of the Connected System and its components. Before I wrap up I want to thank our teams for their tireless efforts in the phase of natural disasters around the global over these past few months. The safety of our employees is always our first priority; however, our teams also did a tremendous job executing on our contingency plans to minimize disruption for our clients. At our investor day on November 9, we’ll provide our outlook for 2018, along with more color on our plants to invest in innovation to drive growth and efficiency over the next several years. We look forward to seeing many of you there in person. With that, I’ll turn it back to Sara.

[Sara Gubins:]

Thanks Mitch. If you haven’t registered for our Investor Day and you’d like to attend, please contact the Investor Relations team. This year we’ll be hosting the Investor Day at our Tampa, Florida operations facility and the event will also be webcast. So with that let’s turn to Q&A. Carol, can you open up the line.

[Operator:]

Absolutely. [Operator Instructions]. Our first question today comes from Todd Juenger with Sanford Bernstein. Please go ahead.

[Todd Juenger:]

Hi, good morning everybody. Listen I know there is an Investor Day in two weeks, so I’m going to ask this anyway realizing I’m sure we’ll get a lot more. But on the cost and the restructuring element of that, it looks like it was a pretty light quarter on restructuring, but then you took up your guidance for restructuring for the year, implying there is something bigger coming in Q4 and many be beyond. I wonder if you could talk a little more about what specifically is driving that. I assume it’s in the Buy segment, but maybe not. Whatever you can tell us about that and how that rolls forward would be appreciated. If I could tack-on one super quick mini follow-up; Jamere I think last quarter you said the Buy segments developed revenue would flat in 2018. I just wanted to confirm that you still see it that way. Thanks.

[Mitch Barns:]

Thanks Todd. First on restructuring, we do expect to step-up in the fourth quarter. Its primarily around rightsizing for some of the market realities that we’re seeing, particularly in our Buy business. And the second piece of that is preparing for our 2018 productivity and efficiency initiatives and we’ll talk a little bit more about those as you suggest in our Analyst Day in a couple of weeks. On Developed Buy, again we’ll share more details when we give our 2018 outlook in a couple of weeks. We do still expect the Developed Buy business to be down less in 2018 and in 2017 and as I said in my opening comments, we see the revenue declines in the U.S. improving sequentially although the environment remains challenging and we expect these dynamics to continue over the next few quarters. What give us confidence that the trends will improve are the following and I actually talked about these last quarter. One is, we have new wins with both retailers and manufacturers. The second things is we are renewing 100% of our long term contracts with our large global manufacturers and the third thing is our Connected System is actually giving us incremental capabilities that we are selling in during these renewals and that has a positive impact on the value of the agreement. So these three dynamics alone will drive improving trends in 2018. But how much better 2018 trends will be over 2017 is really based on you know what I’ll call the fourth and final factor, which is client spending and candidly the environment is still tough. Clients are marking tough cost trade-offs and I expect it to continue for the next few quarters. We still believe ultimately they will need to invest more in the data and analytics that helped them grow their business and it’s a question of the pace and timing that that spend.

[Operator:]

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

[Toni Kaplan:]

Hey, good morning. The gross rate in Developed Buy has been fluctuating quite a bit this year. So last quarter it seemed like it was getting a little bit better even though you did lower the full year guide. Would you expect to be closer to the bottom end of the 3% to 5% range and like basically if you could just give us a little bit of color on what drivers sort of these sort of large-ish deltas between quarters. I know comps is part of it and I know you just mentioned a couple of things in the last answer, but is it project revenue? Like how should we think about it just in terms of what specifically drives these deltas? Thanks.

[Jamere Jackson:]

Yeah, thanks Toni. So year-to-date our Developed Buy revenue is down 4.6% and that’s actually in line with the full year framework I gave last quarter. As we have been saying all along, we know that our measurement and analytics are critical and that over time clients must invest in the date they need to run their business. In the second quarter we saw this dynamic play out as clients actually spent a bit more behind some of their data and analytics needs, and this spending can be a little lumpy from time-to-time and in 3Q we actually saw a bit less spending. The second thing I’ll say is that the U.S. improved sequentially after being down double digits in the first half and as I said in the second quarter, we expected a better second half and it played out that way in 3Q as the U.S. was actually down mid-singles in the third quarter. You know in Western Europe we said that we’d have tougher comps in the second half, but the environment is as good as we’ve seen it in three or four years. Western Europe actually grew high singles in the third quarter of 2016 which we did not expect to repeat. But on an underlying basis the demand is still pretty strong there. And then as it relates to the framework that we gave, you know we gave a framework of down 3% to 5% in 2017. Year-to-date we are down 4.6% as I said and with only quarter left in the year, I would expect this to be at the lower end of the year just given those results and the environment that we see for our FMCG clients.

[Mitch Barns:]

Yeah, what I’ll add to this Toni, this is Mitch. On the quarter-to-quarter fluctuations, if we look at the longer term, one thing I mentioned last quarter is in our conversations with our clients CEOs, they are recognizing broadly that the cost cutting, zero based budgeting activities are going to take them only so far and that they are going to have to start to invest in growth in their business, whether that’s for new products or whether on their existing brands. So far we’ve seen some of them start to act on that intention, but it remains to be seen just how fast this will develop through the end of this year and into 2018. It’s something we are watching very closely.

[Operator:]

Our next question comes from Anj Singh from Credit Suisse. Please go ahead.

[Anj Singh:]

Hi, good morning. Thanks for talking my question. Just wanted to ask regarding your recent commercial release, SVOD, Content Ratings. It seems there is some chatter on the accuracy of the data and some pushback on that. So I was wondering if can share some thoughts and color on what the general reception and feedback has been amongst your initial set of subscribers and as you try to sign on additional subscribers. Just any color there would be helpful? Thanks.

[Mitch Barns:]

Yeah, thanks Anj. The initial market place reaction has been tremendous. Lots of excitement, lots of interest in this and so we are very pleased with the start that we are off too. I have seen some of that commentary about maybe the data is not perfect. These are comments made by people who probably don’t have the data and so I have to take that in context. One thing I have seen is, hey, wait a minute, initially this doesn’t cover mobile viewing, which is true, we’ll add that later. But what may be surprising to some people is almost 90% of the viewing, even on Netflix takes place on the TV glass and mobile viewing, it’s there and its meaningful, but its relatively small and certainly smaller than most people think. So we are very pleased about the initial reaction and interest. I think we’ve had a product out there already for three years, but this new product is different and better and that it will offer a syndicated view of the market. In other words, subscribing clients will be able to see how their program compares to other programs from other studios, from other providers. That will be the new thing. And the second new thing about this new service is that we are now able to measure the audience for these programs independently. We are no longer relying on our clients to give us the audio track for the program as our previously product required. So we are really off to the races now, and again, very pleased with the initial reaction.

[Operator:]

Your next question comes from Andrew Steinerman from JPMorgan. Please go ahead.

[Andrew Steinerman:]

Hi, two questions. One, is Aldi a new data contributor and two, my usual question. I want to know the organic revenue growth for Buy, Watch and overall?

[Jamere Jackson:]

Okay, thanks Andrew. Let me hit the organic revenue again. As I mentioned in my opening comments, we had about 2 points of organic revenue in the quarter. So on a total Nielson basis, our organic revenue was up 1.5%. I also remind you again that we had about a 60 basis points drag from Audio timing in the third quarter that impacted that number. And Watch, our organic revenue is about 3%. Again we had about eight points added from Gracenote, offset by approximately a point from some of the other Watch assets. And then in Buy our organic revenue was flat and again that’s 2 points a drag from the exit of assets and segmentation and customer research.

[Mitch Barns:]

To your other question, this is Mitch Andrew, and your question about Aldi, initially our work with them will focus on analytics and that will be important for how they run their business and also how they engage with their suppliers and we’ll build from there. So we are really excited. They are obviously a fast growing retailer in a hot space, in the U.S. market place right and we are really looking forward to building on this relationship with Aldi in the U.S.

[Operator:]

Our next question comes from Manav Patnaik from Barclays. Please go ahead.

[Manav Patnaik:]

Thank you, guys. My question is more on the Watch business. So you talked about out-of-home release, SBOD [ph] all the components of total audience over the last 12 months that are all sort of I think incremental contracts that you can assign with the clients. But then organic growth in the Watch business is still being you know 3% I guess this quarter and so forth. So what I’m trying to understand is, are we early in the contribution of these products to your revenue growth or I think in the past you said you know lot of these initiatives probably just keep you in that 4% range. But just wanted to know what the latest thoughts and how we should think about the trajectory of Watch around those items?

[Mitch Barns:]

I’ll let Jamere add some color to this, but I think the last thing you said Manav is really the right way to think about this is generally with these new capabilities that we are bringing to the market. In other words, we have these broad engagements with our big clients. They want us first and foremost to measure the total audience across all screens and platforms and a lot of these new capabilities are about continuing our ability to do exactly that. And in doing that, what we also do is maintain our ability to continue to drive the mid-single digit growth that you have seen in this business over the last several years, so that’s the way to think about it. In some cases they are incremental in the short term, but what they are really more about is preserving our ability to continue the kind of growth that you have seen over the last several years in this part of our businesses.

[Jamere Jackson:]

And just a couple of things I’ll add to that. One is, if I point to sort of the audience measurement in video and text, if you look at our growth there in the quarter its up close to 5%, that’s in line with our framework. I’ll say that our national and digital businesses remain solid and you know we also some improvement in our local business in the quarter as well. The numbers in Watch organically overall again being up about 3% actually had about 130 basis points drag from audio as I alluded to, so we’ll be up a little bit over 4% without that impact. I think what you can expect from our Watch business is we’ve said many times is, it’s sort of a consistent steady growth. The initiatives that we have added to the portfolio have made this a growth to your business than it has been historically and we are pretty pleased with the execution by our teams and the adoption of those products in the market place.

[Operator:]

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

[Tim Nollen:]

Hi, thanks. I’d like to pick up again on the underlying spending issue where the CPGs are. I understand your comments Jamere, especially about the sector remaining weak. It seems like it is, you said a little bit better in the U.S. in the quarter, but maybe a tough comp in Europe, and it’s still kind of tough there. I guess my question is two-fold; one, is there still further deterioration possible in CPG sector spending or is it kind of flat line now and not good, but not getting worse, and that might be good enough. And relatedly, what about the retail sector; obviously a core sector on your Buy side. Heading towards year end, a lot of this comes in with a lot of pressure, cyclical structure, etcetera. Do we need to worry about retail sector underline spending with you?

[Mitch Barns:]

Yeah, so a couple of things. One, as we’ve said the environment is still tough. I mean clients are still making some really tough cost trade-offs and we expect that environment to continue for the next few quarters. Again, we ultimately believe that there will be more investment in data and analytics that help clients grow their business and it’s a question really of the pace and timing of that. You’ve seen the read through is not only from our results, but across really the entire supply chain feeding into the FMCG environment. From a retailer standpoint, obviously the retailer environment has gotten more competitive. We’ve seen those dynamics play out in terms of the M&A activity that’s happening in the industry. We’ve also seen those dynamics play out in terms of the hard discounter into the U.S. so that environment is a little bit tougher as well. In terms of the impact on our spending, our retailer spending with us, we haven’t seen that yet. Most of the pressure has actually been on the manufacturing side at this point.

[Jamere Jackson:]

I think I would add to that is our business internally is stabilizing and even as the market continues to be challenging. Fundamentals of our business are improving. We’ve been given a lot more focus to retailers in response to really what you have pointed to and what we are focused on is all the things that we can’t control, so that we can manage through some of the impacts of the things that we can’t control and I’m really pleased with the trajectory of our business in the developed markets and especially the U.S. business.

[Operator:]

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

[Jeff Meuler:]

Yeah, thank you. A question on Local TV. You are calling out National TV and Digital as driving the growth in audience measurement. So I guess first, there have been some press reports or comments on the Sinclair and for a while now they continue. Last quarter you characterized I think as an ongoing client negotiation. Are you still characterizing it that way? And then the second bigger question is, I guess how are the improvements resonating with clients in terms of the set-top box and I mean your call about your ability to measure over the air where there is some share shift going, more electronic measure. Just are they resonating well with clients and obviously they are somewhat related. Thank you.

[Mitch Barns:]

Yeah, thanks for the question. With regard to your first part of your question, related to Sinclair I’m going to say the same thing I said last quarter and that we are not going to comment on that and that’s it’s a part of an ongoing active contract negotiation. With regard to our local business and the improvements we are making in the measurement product, we are on track with that program. It’s a great program. What we are aiming to do is bring electronic measurement to all of the 210 markets in the U.S. for local television by the middle of 2018. We are incorporating set-top box data all across that measurement, that measurement system and its also going to bolster not only our measurement, but also our analytics offerings to our clients in that part of the market. In terms of how our clients are reacting, its resonating extraordinarily well. We are going to start to share parallel data with them later in this year. They will start to see how the new data compares to the data from the existing product that will gain comfort and then the product will start to prepare the – we’ll start to prepare to flip over to that product in the middle part of next year. It’s already having a positive impact. In fact on our contract renewals we mentioned some on previous calls like CBS and FOX Local and Entravision and again, we are really pleased by the market place reaction. It’s a big set of changes, very complicated, but it’s going to really bolster that part of our portfolio in a very important way.

[Operator:]

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

[Bill Warmington:]

Good morning, everyone. So a question for you on the Connected System. You mentioned 36 partners and 25 clients by the end of 2017. I just want to make sure I understood the difference between those two metrics and how they are tracking verses exceptions, but then also ask about how you think about the revenue contribution from Connected Systems in 2018 and 2019?

[Mitch Barns:]

I’ll take the first part, Jamere you can take the second. We are right on track Bill, with regard to the development of Connected System, right where we thought we would be at this time. When we refer to the 25 clients that we’ll be engaged with by the end of the year, that includes the five charter clients and then we are adding to that and that will be exciting really to start to have the system in hands and more clients learn their way through it and it will start to play a role in their business as they reorient themselves around it. As we said those, there’s a process, big change management process, especially on the side of our clients, so it’s not like we flip the switch and they switch over right away. It takes them a little bit of time. The 36 that we mentioned refers to the number of partners who are part of our Connected Partner Program and these connected partners are providing apps that run on our platform. They tap into the data and address recurring business questions that our clients have. So by opening up our data to this ecosystem of third party application providers, it really increases the underlying value of the data that we’re providing to the marketplace. So it’s that open approach that we’ve been taking, not only here, but in other parts of our business and we’re really pleased with the response, the interest of companies to be part of that Connected Partner Program and I’ll tell you, our clients absolutely love it, absolutely. So yeah, again we feel great. We’re on track right where we thought we would be and excited for the next couple of quarters ahead to see the development continue. Jamere.

[Jamere Jackson:]

Yeah, so we do expect some revenue from the connected system. Some of which will be incremental, specifically the revenue from the connected partner program. The second dimension as I mentioned earlier is that the connected system has actually given us some incremental capabilities to sell in during renewals and this is actually having a positive impact on those agreements. We are starting to see some new client wins that are based on the capabilities of the connected system and we’ll have some announcements to that affect in the future. But as Mitch said, our primary focus really is on conversions and we expect that ramp to be in the back half of next year and we are getting very good client feedback and the teams are executing well.

[Operator:]

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

[Matthew Thornton:]

Hey, good morning guys. Thanks for taking the questions. A couple of modeling questions if I could. I guess first, would you be willing to quantify the contribution to watch from digital first clients, either as a percentage of total watch revenue or any sizing you might be able to provide there. You know is it larger than local TV or something along those lines. And then secondly, would you be willing to quantify what Visual IQ could contribute in the fourth quarter and then relatedly, you guys talked about more pruning in the Watch other portfolio that was down a little more than expected in the quarter. With Visual IQ coming in and maybe the other stuff coming down a little bit should we expect marketing effectiveness I guess to probably move towards the higher end of the range and the other piece to maybe move below that prior guide of down 10%? Any color around those housekeeping items would be helpful. Thanks guys.

[Jamere Jackson:]

Yeah, so a couple of things. On marketing effectiveness, you know we saw our marketing effectiveness assets this quarter deliver 15.6% growth, that was all organic, so no acquisitions are relevant in that numbers and that’s really driven by the progress that we’re seeing with Nielsen Catalina Solutions, the Marketing Cloud, Repucom, they were all up double digits. So we do see strong demand and higher growth in the second half on those products and we feel good about the 15% to 20% range. In terms of Visual IQ, this is an acquisition that we’re actually really excited about the capabilities of Visual IQ, because it is falling right in the suite space of an area that has very high demand from our clients around marketing mix modeling and multi touch attribution. The revenue contribution won’t be significant. This really is a Buy versus Build situation for us where we actually get to market faster with a much better product. It will actually cannibalize some of the revenue in our existing business in the near term, but longer term it will be accretive to growth. And then in terms of digital, while we don’t break out necessarily our digital revenue, we feel pretty good about a few things. Number one, the progress that we are making with Digital Content Ratings and Digital Ad Ratings and digital TV ratings are all products and progress that is accretive to the growth rate in the Watch business. So to the earlier question around whether or not we are seeing incremental growth in the business, those things are actually contributing to the growth of the business and its why we’ve been you know sort of marching along at a pretty steady growth rate in our Watch business over the last couple of years. And then on your last point on other Watch, we’ll be on track for the prior framework of down 10% for the year in 2017.

[Mitch Barns:]

Two quick things I’d like to add to that. I understand why you’d want to know the specific contribution from digital products to digital first clients. What I also want to highlight is our digital products are important to almost all of our Watch revenues. Just the way our clients think about what we’re doing, what they need us to do, there is no way we accomplish what they need us to do without the digital products in our portfolio and so it really has an impact all across our revenue base. Visual IQ, one thing to add there, we are going to leverage obviously their capabilities in the digital world, but another real big benefit of them is their automated platform. It will drive unbelievable speed and efficiency. Let me give you an example. Right now we do marketing mix modeling for our clients. We’re the largest marketing mix modeling provider in the world. All the top 10 companies in the U.S. for instance use our marketing mix modeling services, but it is a labor intensive process and it takes just usually several months to deliver a project to a client using Visual IQs platform. We’ll take a process that takes a couple of months to update models and we’ll be able to do that in a couple of hours. We’ll be able to deliver refreshed metrics almost on a daily basis if our clients would like us to do that. So we’re talking about a huge step change here and this will be one to watch. I would encourage you to watch. We’ll have more to say about it at our Investor Day on November 9.

[Operator:]

Our next question comes from Brian Wieser from Pivotal Research. Please go ahead.

[Brian Wieser:]

Alright, thanks for taking the question. I was wondering if you know you guys seen that one of your main competitors CEOs just now is probably leaving. In January their CFO just left recently. I am wondering to what degree, especially in the audience measurement space that you feel that the weakness if you will on part of your competitors, is it providing more ground to build more trends with your clients faster than whatever else had been the case or do you think that their completive intensity hasn’t changed at all and this is just – your actually performing well despite a strong competitor. And maybe just quickly relatedly, I was wondering if you could just comment on the results in the Audio business this quarter.

[Mitch Barns:]

I’ll take the first part and Jamere you get the second. I don’t think our performance is that closely correlated to anything happening at a competitor. Really it’s much more about our ability to execute on our strategy to deliver to our clients what they need, to continue to shape and grow their businesses given the changes that are happening in the marketplace. So again, I think it really highlights the incredible execution of our Watch teams bringing all of these different products to the marketplace and having them exist independently, but also work together in this interoperable system that is total audience measurement. On the accounts for a CEO leaving, look he is a good man and I hope he stays involved in the industry. He has been a real positive factor in the industry for a number of years, so we wish him well.

[Jamere Jackson:]

Yeah, on the Audio timing, you know we saw the results in the quarter being down roughly 7%. It was all timing. So as you’ve seen us report from time-to-time, the timing of the deliveries of an Audio will impact our growth rates. So last year in the third quarter we had more of the deliveries in the third quarter versus the fourth quarter this year. It’s a little bit more balanced so you saw that skew the rates. That should balance out between the 3Q and 4Q results. On an underlying basis, we expect the Audio business to be you know roughly flat for the year, which is in line with the framework that we gave.

[Operator:]

Our next question comes from Tim Mchugh from William Blair & Co. Please go ahead.

[Tim Mchugh:]

I wonder if you could talk a little bit more about the Buy margins I guess. Is it just a function of investing and at the same time I guess negative leverage or is there any sign I guess of underlying kind of pricing pressure or I guess ability to monetize the product as you face pressure from the clients or any other issues I guess impacting the margins that we should think about there?

[Mitch Barns:]

Great, so on the margins in Buy, you know the developed margins are obviously under pressure due to the fact that we got a softer revenue environment and you know we’ve actually been taking cost actions there that are aimed at right sizing our business for those market realities. I think importantly none of these actions actually impact our ability to invest in our key initiatives. In the emerging markets margins are actually improving as we’re gaining scale and there’s still more work to be done here. And then the final point is we’re continuing to invest in coverage and the connected systems. So we see those dynamics sort of playing through the Buy margin results through the first three quarters of the year.

[Operator:]

Your next question comes from [inaudible] from Jefferies. Please go ahead.

[Unidentified Analyst:]

Good morning gentlemen. I actually just to clarify some earlier comments around the developed markets Buy business. Last quarter I left with the impression that your expectations for growth in 2018 were to be relatively flat and so on this call I heard that maybe you’re looking at trends to continue to improve year-over-year. There seems to be a delta in my mind for that give that the developed markets is down roughly about 4.5% year-to-date, so between 0% to 4.5%. Any additional color on that?

[Mitch Barns:]

Yeah, so again as I said, we’ll share more details when we give our 2018 outlook in a couple of weeks. We do expect Developed Buy to down less in 2018 and 2017 and as I said in my opening comments, the U.S. is actually improving; fundamentals are improving, although the environment there remains challenging. Again there are three things that we feel very good about heading into next year, it’s our wins with retailers and manufacturers. As we go through our operating plans we are looking at our contract renewals with our large global manufacturers. We are renewing all of those at 100%. I think the environment there is getting better. The Connected System has given us incremental capabilities to sell in. We’ll see some incremental revenue from the Connected Partner program. So those three things are the dynamics that will help us drive improving trends in 2018. And the final factor as I said is what happens in the client environment, and it’s still tough and clients are making cost trade-offs. We expect that to continue for the next few quarters and it’s a question of the pace and timing of that spending set back.

[Jamere Jackson:]

I mentioned earlier to the question from Toni, that client CEOs are clear, that they know they need to invest in growth in their business but only some of them have actually started to take action of that yet and so that’s really going to be the wildcard.

[Operator:]

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

[Kevin McVeigh:]

Great, thanks. Can you just tighten up for us the approximately 4% growth in ’17 and just where does that come? Like what’s going to be Watch, what’s going to be Buy. Like is there a way to just tighten that range a little bit and then as we think about ’18, is there a way to little longer term -- can we still kind of think about mid-single digit type organic growth in the business or just any thoughts on that given what are the puts and takes?

[Jamere Jackson:]

Yeah, so we gave a framework last quarter on this and I’ll just reiterate that. We said our total Buy business is down 2.5% to 3%. On a year-to-date basis we are at about 2.6% down. Developed Buy we said is going to be down minus-3 to minus-5 year-to-date. As I said we are at about 4.6% and given that we have one quarter left in the year. We don’t expect improvement in the fourth quarter. Emerging markets 8% to 10%. You know we’ve been trending towards the high end year-to-date, just a little over 10% and then corporate is down 60 year-to-date, we’re down 54.5. So that gives you the pieces for the Buy business being down 2.5% to 3%. On the Watch business we said up 11% to 13% year-to-date. We’re at 10.6%. Audio is going to be flat. We had a 130 basis points headwind in the third quarter that won’t repeat on the Watch side of our business. Audience measurement in Video and Text, 14% to 16% marketing effect is 15% to 20% and other Watch as I said down 10%. So that just give you the framework for how we see the guidance shaping up and we said new change to our overall guidance. We’ll give guidance on 2018 in our Investor Day in a couple of weeks, and we’ll unpack all the details at that time.

[Operator:]

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

[Tom Eagan:]

Great, thank you. Just Mitch I had a question on your latest thoughts and some of the new media measurement developments. Like for example, the rollout of OpenAP. Do you think that will gain traction with advertisers and other TV network groups? And then secondly your thoughts on the new store concept and how that compares with what you do with Visual IQ. Thanks.

[Mitch Barns:]

Yeah, thanks Tom. OpenAP is one of a number of things that is happening in the market place to enable audience base buying. That enables advertisers to select specific audience that they want to target and then direct their spend against those audiences and they can activate on those audiences and in some cases the systems also enable them to have guarantees offered to deliver those audiences. So OpenAP is one of several systems that are being stood up in order to support this interest that’s growing in the market place. It’s so early with respect to OpenAP and so there is not a whole lot to say about that yet. We are looking forward to being involved in it as it does expand, but we are also supporting some other approaches to this. We already have our Nielsen Catalina Solutions and Nielsen Buyer Insights capabilities that also support audience based buying. We also announced this partnership with Clypd that does something somewhat similar to what OpenAP is designed to do. So I think you are going to see more of these and the beauty for us at Nielson is we are going to be able to support them all and its going to create incremental growth opportunity for us. We are really very well positioned to support audience based buying, because we not only have the data to do it, but importantly we have the universe estimates. The reason why that’s important is, it’s one thing to be able to say you know here is how you can go reach specific kinds of consumers. It’s another thing to say just how big is that group of consumers in the real world and it’s that second thing in particular that we are uniquely positioned to do. When people start putting money against these audience segments, that second question is going to be really important. So again, we are in a good spot as far as how this is going to develop. With regard to [inaudible] that’s about attribution in the marketplace and this is really what we do and our marketing effect in this business on an everyday basis, connecting the exposure of an add to the subsequent sale of a brand in the market place. This is the oldest question in advertising frankly. You’ve heard the old saying, I know half of my advertising is a wasted, I just don’t know which half. Well in today’s world we actually know which half, because we have the data and the technology to pinpoint it and that’s what our marketing effect in this business is all about; is helping people driver more precession, more efficiently in their advertising spend to drive up the ROI and one of the best ways to do it is through attribution modeling. And that’s exactly what Visual IQ does in the digital world, and that’s why I said by combining what they do in the digital world with attribution, with what we do mostly in the linier TV world with our marketing mixed modeling capabilities, we really have a world beating combination of capability there. And then to do it on their automated platform allows us to do with incredible speed and efficiency and so as the desire for attribution continues to grow in the market and it definitely well, we are going to be in a really good spot to capture that growth opportunity.

[Operator:]

Our next question is from Doug Arthur from Huber Research. Please go ahead.

[Doug Arthur:]

Follow up on local TV measurement. I know it’s not a big part of the Watch business and I know obviously there’s some contact issues out there right now. Is it fair to say that when you get the rollout of all your initiatives in the second half of ’18 that you expect it to be an area of growth again or is it a growth area right now, thanks.

[Mitch Barns:]

Well it did grow a bit this quarter. In the third quarter it’s up a little bit more than a percent. So it’s not a lot, but it is some growth and we like growth anywhere we can get it. And yeah, as this new product capability rolls out to the market place, it’s going to bring more stability to the ratings, more granularity to the data as well. What that will probably do is open up additional analytics capabilities for us to support our clients who are either selling advertising or buying advertising in the market place and that’s probably where more of the incremental contribution will come into play. As far as this turning into a big growth contributor, long term we are going to be tied to the growth of advertising spending in this particular part of the market and that’s been a tough story over the last couple of years and probably will continue to be a low growth environment from a total advertising spend over the next few years.

[Operator:]

There is no further time for questions today. I’ll turn the call back over to Mr. Barns for closing remarks.

[Mitch Barns:]

Yeah, thanks very much. Just to sum-up, in Watch solid growth with audience measurement of Video and Text. We are driving towards being the currency for all premium video content with linier TV and digital. Marketing effectiveness continues to see solid double digit growth and really the continued ramp of total audience measurements and all the products that we are bringing to the market like Out-of-Home, subscription video on-demand measurement, digital and TV ratings, all these are supporting the continued growth of this part of our business. In Buy, emerging markets is really the key growth driver, up almost 11% in the quarter and its leveraging our leadership position in all of the faster growing emerging markets. We are progressing on track with our development at the Connected System, including our in-house Apps and the Connected Partner program. We have a 152 clients now using at least one part of the connected system; that’s triple what we reported in the first quarter of this year. We continue to invest in coverage in our Buy business with value retailers, specialty outlets and of course ecommerce. Our Gracenote acquisition is performing well and its having a great first year as part of Nielson. Across Watch and Buy, we are investing and innovating to drive efficiency in growth, and the way we look at it, it’s a goldmine of opportunity. Automation and consolidation or operations will driver efficiency and enable more scalable growth from our strategy to provide uniquely better products that provides value for our clients and our shareholders. So thanks once again for joining us on the call this morning, and we look forward to sharing more with you at our Investor Day on November 9.

[Operator:]

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