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Edited Transcript of NLSN earnings conference call or presentation 30-Apr-20 12:00pm GMT

Q1 2020 Nielsen Holdings PLC Earnings Call

New York Jun 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Nielsen Holdings PLC earnings conference call or presentation Thursday, April 30, 2020 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David L. Rawlinson

Nielsen Holdings plc - CEO of Global Connect Business & Non-Executive Director

* David W. Kenny

Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director

* Linda K. Zukauckas

Nielsen Holdings plc - CFO

* Sara Rebecca Gubins

Nielsen Holdings plc - SVP of IR

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Conference Call Participants

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* Andrew Charles Steinerman

JP Morgan Chase & Co, Research Division - MD

* Ashish Sabadra

Deutsche Bank AG, Research Division - Research Analyst

* Daniel Salmon

BMO Capital Markets Equity Research - Analyst

* Jeffrey P. Meuler

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Keen Fai Tong

Goldman Sachs Group Inc., Research Division - Research Analyst

* Manav Shiv Patnaik

Barclays Bank PLC, Research Division - Director & Lead Research Analyst

* Matthew Corey Thornton

SunTrust Robinson Humphrey, Inc., Research Division - VP

* Timothy Wilson Nollen

Macquarie Research - Senior Media Analyst

* Todd Michael Juenger

Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst

* Toni Michele Kaplan

Morgan Stanley, Research Division - Senior Analyst

* William Arthur Warmington

Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 Nielsen Holdings Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your host today, Ms. Sara Gubins, SVP, Investor Relations and Treasury.

Thank you. Ma'am, please go ahead.

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Sara Rebecca Gubins, Nielsen Holdings plc - SVP of IR [2]

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Thank you, Laura, and good morning, everyone. Thank you for joining us to discuss Nielsen's first quarter 2020 financial performance. I'm joined by our CEO, David Kenny; and our CFO, Linda Zukauckas.

A slide presentation that we'll use on this call is available under the Events section of our Investor Relations website. Before we begin, I'd like to remind all of you that our remarks and responses to your questions today may contain forward-looking statements, including those about Nielsen's outlook and prospects that are based on Nielsen's current expectations.

Our actual results in future periods may differ materially from those currently expected because of a number of risks and uncertainties, including those identified in the Risk Factors section of our most recent annual report on Form 10-K and in subsequent reports filed with the SEC, which are available on our website. We assume no obligation to update any forward-looking statements, except as required by law.

On today's call, we will also refer to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measures are available in the earnings press release, which is available at the Investor Relations section of our website at nielsen.com. (Operator Instructions)

And now to start the call, I'd like to turn it over to our CEO, David Kenny.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [3]

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Thank you, Sara, and thank you all for joining the call this morning. During the past few weeks, the COVID-19 pandemic has forced most people, businesses and governments to focus solely on what is absolutely essential.

And our clients, media companies, food and health care products and their retailers are very high on the essential list. Our clients have been essential for all of us during this challenging time, and they have all remained open and fully operational. They've been also using essential Nielsen information and analysis to manage their businesses during unprecedented change and disruption.

I want to start today's call by thanking our clients and partners for everything they are doing to support our country and our world. I especially want to thank every one of my Nielsen colleagues for quickly finding new ways to understand changing consumer behavior through devising new ways of operating globally while working remotely and for accelerating new processes and efficiencies, most of which were planned over the next 3 years, but many of which got implemented in the past 2 months.

I am proud that we delivered Q1 results as planned even with the pandemic ramping up in March. And I'm also proud to share with you our plans for adapting to the new pandemic and post pandemic environment.

So let me run through what I would like to cover on the call today. First, I'll address Nielsen's response to COVID-19 and our preparation under a range of scenarios post pandemic. I'll also cover the planned separation of Nielsen Global Media from Nielsen Global Connect and how each of our 2 essential businesses is positioned during this time.

Linda will then review our first quarter results and our updated outlook for 2020. Linda and I will be joined in the Q&A section by David Rawlinson who has demonstrated tremendous leadership as the CEO of Connect during a very dynamic first 3 months in his role. David had a big impact on the organization in a short period of time, and he and I will continue to work closely together as we move towards the separation.

We are all joining the call from our homes, as you probably are, so please be patient with any technical issues.

Let's start with COVID-19. Our top priority, like most companies, is the safety and wellness of our global workforce, their families and our clients. So we reinvented the important work of our most critical field and call center-based employees in over 70 markets to be done remotely. And these colleagues have been especially helpful in transitioning to new ways of working that puts their safety first. We also enabled approximately 95% of our office-based employees to work from home within a matter of days.

And finally, we are giving back to our communities. We're working with various nonprofits, academic institutions and government entities that are leveraging our retail measurement data to help forecast food supply or our Media data to help deliver important information to citizens.

Our second priority is quality and innovation for both continuity and our resilience. We are focused on ensuring continuity of critical business processes, including maintaining the integrity of our data by using new remote and digital methods that we have been developing on our road map. I'm very pleased with our ability to consistently deliver high-quality information during these times.

Our pace of innovation has accelerated out of necessity. And we do plan to leverage many of our learnings to permanently change the way we operate in a post-pandemic world.

Our third priority is profitability and liquidity. We are well-capitalized with financial flexibility under a range of economic recovery scenarios. And we are closely managing cost and cash flow. Our new CFO comes with decades of experience in financial services, and she has helped us strengthen our stress testing across Nielsen's operations and balance sheet.

As I said, our business held up well in the first quarter, with constant currency revenue growth of 1.5% or 0.5% organic growth. Media grew 3% organic constant currency while Connect revenue declined 2% organic constant currency. The pacing in Connect was robust in January and February with some moderation in March as the COVID pressures ramped up. We expect to see the greatest impact from COVID-19 in the second quarter in both Media and Connect, and we are lowering our 2020 guidance to reflect our revised expectations.

We have already begun to see -- or to take aggressive cost actions to protect profitability and cash flow, which contributed to our margins already. We are taking out at least $200 million in temporary costs, and these will flex off if top line pressures intensify beyond current expectations. COVID-19 is driving us to find ways to become more efficient and focused, and these learnings will drive permanent cost actions.

The resilience of our business model allows us to continue to invest in our key strategic initiatives. These are critical for our clients in a rapidly changing environment, and they will help us drive improved top line growth over time.

Finally, we continue to make progress on the separation of Nielsen Global Media and Nielsen Global Connect as we position Connect as a stand-alone company. We plan to file the initial Form 10 registration statement in early May. We have stood up 2 organizations, and we are sorting the legal entities and processes to fully operate as 2 companies.

We are, however, seeing greater uncertainty around timing stemming from shutdowns and government agencies around the world that are integral to the separation process. Given this, based on what we know today, the separation will likely close in the first quarter of 2021. We are doing everything we can to complete the separation as soon as possible.

Turning to Slide 5. In Media, news and entertainment have become even more important as consumers stay at home and engagement levels reach new highs. For example, U.S. TV viewing is up 27% from preshutdown levels. When behavior changes, Nielsen data is the best way to understand the total audience and thus reinforces the critical nature of our measurement and analytics.

Our teams have risen to the occasion in ways no one could have imagined as we have had to change the way we operate and go to market. We have a strong Media business model, which includes segment revenue that is 80% contracted. Our business is resilient, but it is not unaffected. So I want to be clear about the impact from a revenue perspective and the actions we've taken to adapt.

Within Audience Measurement, 85% of the total revenue is contracted. National TV, local TV and audio contracts tend to be multiyear in nature and are not typically tied to ad spend. We successfully ensured continuity and quality of our ratings while moving our panel reps from the field to working by phone and via digital channels, and some are making contactless home visits from their cars. We have had great success with these solutions. The panel health is strong both in the U.S. and worldwide.

In Audience Measurement, sports measurement has been the most directly impacted as a vast majority of events have been postponed or canceled. We do expect those to return as sports returns. In Plan/Optimize, about 60% of revenues are contracted with mostly annual contracts. Contracted revenue is more stable, although demand from Gracenote metadata for automobile audio systems will depend on automobile production, which is currently paused.

The noncontracted revenue in Plan/Optimize tends to be short cycle, service-heavy and easier to defer when clients' budgets come under pressure. The first quarter held up well, but we are seeing clients defer some projects in the second quarter. Our teams are working closely with our clients to ensure they are leveraging Nielsen during this challenging time. We have developed a sales playbook which includes incremental incentives for our teams that enable us to sell better to client verticals that haven't significantly cut their ad budgets yet.

As we look ahead, we see these revenue dislocations as temporary. We are moving forward with key investments that are foundational to our growth over time. Continuing to build on our streaming and digital solutions remains the top priority. We're continuing to invest in attribution solutions within Plan/Optimize as clients want to understand the value of their marketing spend in a recessionary environment. And we're focused on driving adoption of measurement and analytics, globally leveraging a unified platform.

Turning to Connect on Slide 6. Our clients, they are consumer packaged goods manufacturers and retailers, supermarkets and pharmacies. These are essential businesses that have remained open globally. Consumer behavior, however, is evolving rapidly, which highlights the needs for our total consumer measurement and retailer analytics. Nielsen, as an example, is the leading global e-commerce measurement provider in over 30 markets, and we are well positioned to capture consumer behavior as it changes and serve evolving client needs.

We have very strong relationships with modern trade retailers where sales information flow has been continuous and reliable through digital channels. The Nielsen Connect cloud platform enables access and collaboration anytime, anywhere. We've seen the usage of the new platform double since the end of 2019 as we bring more clients online and more clients work from home. And we have stable data production and delivery through our superhubs.

COVID-19 has driven Connect to accelerate the pace of change to respond to a host of new challenges, and I'm incredibly proud of what the teams are accomplishing. We're using new data collection methods for measurement in traditional trade markets and leveraging new solutions to support short-cycle revenue projects. This has accelerated our ongoing transformation as we seek further operational efficiency and drive greater automation. We have a strong Connect business model, which includes segment revenue that is 60% contracted.

Let me provide more clarity on the impact of COVID-19, along with the specific actions we've taken to adapt in Connect. First of all, Connect is a global business operating in roughly 100 markets around the world, and all of them are affected. In Measure, there has been virtually no disruption in electronic point-of-sale data that we get from our 6,300 retail partners around the world, mostly in developed markets. We expect to see a greater impact over time in emerging markets, which represent about 40% of Connect revenue, where data acquisition is partially done in the field.

We're responding with innovative redesigning of our data collection methods, leveraging early investments in our digital data collection platform, and conducting audits over the phone. And we've been able to remain active in all of our markets around the world.

Predict/Activate in Connect is roughly 30% contracted. Much of the short-cycle work relies on field work or other in-person engagements. We've adapted, in many cases, with new methodologies. But in certain instances, we've simply been unable to complete that work. Predict/Activate tends to be more dependent on discretionary spend so we're unlikely to see a quick rebound until economies begin to recover. That said, we are seeing a clear need from Connect clients for more data in this uncertain environment.

In e-commerce, as an example, we've developed a weekly COVID-19 tracker in response to client demand. And as markets slowly reopen, clients are looking to understand the new normal and what it means for their business. Already, we've started discussions on how we can help them.

Looking at the longer term. Connect has a strong foundation, unique global reach and scale. We've made good progress on key initiatives that have strengthened our competitive position, such as the Nielsen Connect platform, retailer initiatives and coverage enhancements. We remain focused on driving further operational cost efficiencies through automation and platform convergence. And our current challenges have highlighted this imperative is the right one.

Connect has a strong new leader in David Rawlinson who's driving continued execution of our transformation. We feel confident in our path forward, and we continue to make good progress toward positioning Connect for success as a stand-alone public company.

Let's turn to Slide 7. The COVID-19 pandemic has certainly heightened uncertainty. We have developed a plan to ensure we're prepared across a range of potential scenarios. The left side of this page assumes an economic recovery beginning in the third quarter. We see a faster return to sustainable operations, custom insight work resuming quickly in emerging markets and client spend beginning to pick up. Faster revenue growth and cost reductions already underway will drive structurally higher margins, and we'd expect to see an improvement in cash collections.

The center column assumes a recovery that doesn't really begin until the fourth quarter. We see a modest recovery in the ad market while adjusting to a consumer recession. Field work would resume in Connect markets, and Media activity would pick up in key industries, such as sporting events, automobile production and content analytics. This scenario would warrant continued cost actions in order to drive higher adjusted EBITDA and free cash flow and to reduce our capital expenditures.

On the right-hand side of the page, we've given consideration to a prolonged recession extending into 2021. This would lead to greater revenue headwinds and even greater pressure on our clients' businesses. Resuming field operations could be pushed out until the end of the year. And this scenario would warrant more aggressive structural cost and portfolio actions, along with deferring or canceling less strategic projects.

Our intent is to manage the business to mitigate the impact of lower revenue on adjusted EBITDA and cash flow in any of these environments. Most importantly, we have sufficient liquidity, and we expect to remain within our debt covenants across the full range of scenarios.

Nielsen has survived for nearly 100 years in spite of numerous global issues and challenges. Today, we remain as critical as ever to our clients who also remain essential the world. We are well positioned and prepared to drive strong performance regardless of the future scenario.

Before I turn it over to Linda, I want to note a separate announcement out today. We will be adding Jon Miller, who brings a strong media and digital background, to the Nielsen Board. Jon is the fourth new board member we've added over the last several months as we enhance the depth of our board. We are also forming a finance committee to help oversee the successful separation of Connect and our go-forward plans for Media. This is something we've wanted to do for some time, and with a larger board, we now have the capacity. I'm personally excited by this opportunity to drive even greater focus and attention. And we're continuing to work collaboratively with Elliott Management, one of our largest shareholders, to help realize the tremendous value creation opportunity that exists here in Nielsen.

I appreciate the support and engagement of all of our shareholders, and I look forward to speaking with many of you as we progress through this journey.

So with that, I'll turn it over to Linda to review the first quarter financials and our outlook for the rest of 2020. Linda?

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Linda K. Zukauckas, Nielsen Holdings plc - CFO [4]

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Thank you, David, and good morning, everyone. Before I turn to the financials, I want to reiterate David's comments that we are well-prepared across a range of scenarios.

I'll start with Slide 9 to review our first quarter results. I'm very pleased with our results. They reflect focused execution across the organization.

I want to thank all of our Nielsen colleagues around the world for your dedication and hard work during this extremely unprecedented time.

On a constant currency basis, revenue grew 1.5% or 0.5% on an organic constant currency basis. On a reported basis, revenues declined 0.3%, which includes an FX impact of 180 basis points. We estimate that COVID-19 had a 160 basis point drag on our revenue growth in the first quarter.

Adjusted EBITDA was $395 million, down 4.8% year-over-year on a reported basis or down 2.9% on a constant currency basis. Adjusted EBITDA margins in the quarter were 25.3%, down 116 basis points on a constant currency basis, reflecting an elevated level of investments in Media and pressures in Connect from COVID-19. Adjusted EPS was $0.29 compared to $0.35 in the first quarter of 2019 due to lower adjusted EBITDA and higher depreciation and amortization, offset in part by lower taxes.

Our tax expense of $11 million was unusual due to discrete items, including the CARES Act, which will lower our cash taxes. For 2019 and 2020, the CARES Act allows us to take a higher interest expense deduction, but this had a knock-on impact on 2019 foreign tax credit benefits, which had to be reversed in the current quarter. We excluded the 2019 TARIFF Act accounting impact from adjusted EPS.

Free cash flow of negative $117 million was generally in line with our expectations and up from negative $165 million in Q1 '19. Key drivers for the improvement include working capital improvements and lower CapEx, offset in part by higher cash taxes.

During the quarter, we saw solid cash collections in Media, but COVID-19 resulted in slower collections in Connect as the quarter progressed. This slower momentum had extended into April with some incremental pressure in Media in industries affected by COVID-19 pandemic. We're, of course, monitoring cash collections closely.

Turning to Slide 10. I'll discuss each segment, starting with Media on the left. Revenue and adjusted EBITDA came in slightly better than we expected, and we saw minimal impact from COVID-19. Revenue was $842 million, up 2.6% year-over-year on a constant currency basis. Organic constant currency grew 2.9%. Audience Measurement revenue grew 2.2% constant currency. As expected, we saw pressure in local, offset by national; growth in audio, which was timing driven; and continued underlying strength in digital. Plan/Optimize revenue grew 3.7% constant currency or 5.2% on an organic basis, which excludes the impact of the Music divestiture in the fourth quarter of 2019.

We saw strength in targeting solutions for consumer packaged goods clients and continued mid-single-digit growth in Gracenote, our metadata and discovery platform. Media's adjusted EBITDA was $343 million, down 0.9% constant currency, resulting in margins of 40.7%, down 140 basis points in constant currency. As planned, our margins were impacted by investments in key growth drivers.

And shifting to Connect on the right side of the page. Revenue was $717 million, up 0.3% on a constant currency basis. Organic revenue declined 2.2% on a constant currency basis, which adjusts for the impact of Precima, the loyalty analytics provider we acquired in January 2020. As you might recall from our earnings call in late February, at the time, we anticipated about a 50 basis point impact for the full year from COVID-19. And just a week later, the virus was rapidly spreading around the world. We estimate COVID-19 had a 3% impact on Connect's revenue or about $20 million in Q1, mostly in China and other markets in Asia and some smaller impacts in Latin America and Europe.

Measure revenue declined 2.3% constant currency primarily driven by the impact of COVID-19 on retail measurement services in traditional trade channels.

Predict/Activate revenue grew 7.3% constant currency driven by the Precima acquisition, which performed better than we expected. On an organic constant currency basis, revenue declined 2.1%. We saw pressure in in-store analytics and custom insights work that is conducted face-to-face.

From a geographic perspective, developed markets revenue, which represents 60% of Connect's revenue, grew 1.6% constant currency driven by the Precima acquisition while emerging markets revenue decreased 2% driven by the impact of COVID-19.

Connect's adjusted EBITDA was $63 million, down 12.5% on a constant currency basis. Adjusted EBITDA margins were 8.8%, down 128 basis points constant currency. As we discussed on our February call, we did expect Connect margins to be down year-over-year as we lap some client losses. That said, pressure from COVID-19 was greater than expected, but relatively contained. So overall, solid performance despite disruption and volatility from COVID-19.

Now I'd like to provide some broader context on our strong financial position and cost-savings actions. Turning to Slide 12. Our subscription model contributes to a stable revenue stream, and a substantial portion of our revenue is under long-term contract. However, we did see slowing momentum in our short-cycle businesses in Connect as the first quarter progressed. And in April, we are seeing greater revenue headwinds in both Media and Connect. We responded quickly in the quarter, putting in place actions to preserve EBITDA. And we are already executing on plans that will result in cost reductions of at least $200 million in 2020.

Our early actions are mostly temporary measures and include the likes of hiring freezes, voluntary compensation reductions across top executives, furloughs and curtailing travel and entertainment, all of which we will look to scale up in a prolonged downturn. Beyond these temporary measures, we are also developing specific actions which will result in permanent cost reduction in the balance of the year with sustained savings in future years.

On the February call, I said that we were evaluating strategies to mitigate incremental costs related to the separation of the Global Connect business from Global Media while we also rationalize structures so that they are appropriately scaled for each business. This includes acceleration of platform consolidation and further automation, optimizing our global footprint and ensuring our resource allocation aligns with high-margin essential services. Some of this work has been underway. And we are now even more focused on taking aggressive action in the current environment, all premised on sustaining margin expansion and increased cash generation.

Moving to cash flow. We are taking decisive actions to maximize our cash flow. In the past 60 days, we worked to reduce our 2020 capital expenditures by at least $40 million and are eliminating nonessential operating expenses. As I previously noted, we are monitoring cash collections extremely closely and are focused on working capital management.

We remain focused on achieving our 50% EBITDA to free cash flow conversion target over time. The majority of our cash separation costs will occur close to the time of the separation late this year and in early 2021. Our 2020 expectation for this amount is now $275 million to $300 million versus our prior expectation of $350 million to $400 million as more costs will be incurred in 2021 with our later timing.

Turning to liquidity. We are confident in our liquidity and financial profile. At the end of Q1, we had $359 million of cash on the balance sheet and approximately $700 million in capacity available on our $850 million revolving credit facility. We drew down $135 million on the revolver in the first quarter for ordinary course working capital purposes, which is roughly half of the $263 million we drew in the prior year quarter. We are closely monitoring debt markets and expect to refinance our $800 million bonds well ahead of the October 2020 maturity date. We are confident in our ability to access the market, but we also have flexibility and liquidity to pursue other alternatives should we find the credit markets to be unstable.

Our achieved debt covenant is 5.5x net debt to last 12 months adjusted EBITDA measured at the end of each quarter. We ended Q1 with a leverage ratio of 4.4x. We expect to remain within our debt covenants across the range of scenarios that we have evaluated.

Turning to Slide 13. I'd like to provide some commentary on Q2, which is important in understanding our updated guidance. As I mentioned earlier, we experienced some slowing momentum at the end of Q1. At this point, we expect Q2 to see the largest impact from COVID-19, with revenue declines in the mid- to high-single digits on a constant currency basis.

In Media, we expect mid-single-digit revenue declines in Q2, with Audience Measurement down in the low single digits due to pressure in sports and ad hoc revenue. Plan/Optimize will be down in the high single digits driven by auto, sports and short-cycle revenue. In Connect, we expect revenue down in the high single digits, with Measure down in the high single digits due to pressure in traditional trade channels, and Predict/Activate down in the low double digit due to pressure in ad hoc products.

We expect Q2 adjusted EBITDA margins to be down approximately 200 basis points, with some pressure in Media and significantly more in Connect, reflecting the aggressive cost actions we are taking. We expect sequential strengthening of free cash flow and are currently forecasting a range of $80 million to $90 million for the second quarter. Our second half free cash flow is always stronger than the first half from a seasonal perspective.

Now turning to Slide 14. We are updating our 2020 guidance to incorporate the expected impact of COVID-19 on revenues and the cost actions we are taking in response. As you all know, the uncertainty around COVID-19 has made forecasting challenging. However, we are -- we have a high level of recurring revenue, and we've already spoken about the significant cost actions we are taking. We are, therefore, updating our guidance based on our expectation of a recovery beginning in the second half, with the top end of our range reflecting a recovery beginning in the third quarter and the lower end of the range reflecting a recovery beginning in the fourth quarter.

As David mentioned earlier, some of this recovery is simply having Connect build auditors and researchers back in the field in traditional trade channel following effective protocols we used when we reopened China and South Korea. We also assume resumption of auto production for Gracenote, increased demand for Plan and Optimize services as marketers and publishers find smarter ways to operate in a recession and a new normal for televised sports. We have widened some of our guidance ranges to reflect a broader range of outcomes than normal. These forecasts would not hold up if the COVID-19 situation evolves into a prolonged recession spanning into 2021, although in that situation, we would plan even more significant cost actions.

On a total company basis, we expect constant currency revenue declines of negative 1 -- of negative 4% to negative 1%. This continues to include approximately 80 basis points of net benefit from acquisitions and divestitures completed in the last 12 months. For Global Media, we expect constant currency revenue decline of approximately negative 3% to negative 1%. The divestiture of our Music business in December 2019 is incorporated into this estimate, and it lowers the constant currency growth rate by 70 basis points.

For Connect, we expect constant currency revenue declines of approximately negative 5% to negative 2%. Recall that this includes 250 basis points of growth related to net acquisition activity largely related to the Precima acquisition.

Given the heightened uncertainty, we are not providing supplemental guidance on the revenue buckets within Media and Connect. But we expect greater pressure in Media's Plan/Optimize businesses and Connect's Predict/Activate businesses than in the measurement space given the more ad hoc nature of our analytical offering and discretionary spending patterns in the current environment.

The guidance range for adjusted EBITDA margin is 28.5% to 29.5%, which is up from our previous forecast and reflects our aggressive cost actions. Recent currency movements suggest about a 200 basis point greater negative headwind to revenue and EBITDA than previously forecast, which is reflected in our updated adjusted EBITDA guidance range of $1.79 billion to $1.86 billion -- $1.79 billion to $1.86 billion. Absent this year-to-date FX drag, our updated guidance for 2020 EBITDA would be relatively unchanged from our initial range as our aggressive cost actions offset the lighter revenue.

Adjusted EPS is now expected to be in the range of $1.43 to $1.58, lower than our previous range of $1.67 to $1.80. This is driven in part by lower EBITDA, but primarily by a higher tax rate. As I mentioned, the CARES Act lowers our cash taxes, but has a negative impact on our book taxes. And a number of our tax costs don't vary up or down with pretax profit and can have an upsized impact on the tax rate.

In light of the CARES Act, our current read is that we expect a tax rate of approximately 37% to 39% for the balance of the year, excluding any discrete items. As usual, we've provided additional underlying assumptions in the appendix.

We expect free cash flow to be in the range of $460 million to $530 million, which reflects lower revenue and adjusted EBITDA, higher restructuring costs and slower collections than our original guidance, partially offset by lower CapEx and lower cash taxes. As I mentioned last quarter, adjusted EBITDA, adjusted EPS and free cash flow guidance ranges do not include the impact of onetime separation-related costs or the less material incremental costs of beginning to operate as 2 separate publicly traded companies. It's worth noting that these cash costs were under $5 million in the first quarter.

And with that, I'll turn the call back over to Sara for Q&A.

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Sara Rebecca Gubins, Nielsen Holdings plc - SVP of IR [5]

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Thank you, Linda. Laura, we're ready to open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Andrew Steinerman of JPMorgan.

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Andrew Charles Steinerman, JP Morgan Chase & Co, Research Division - MD [2]

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It's Andrew. Linda, my question is about some of those permanent cost actions. Well, obviously, it's timely to take cost actions. And you definitely talked about the temporary items. So I'm talking about really more of the permanent cost actions in the same breath. The company says they continue to invest in strategic initiatives. And so my question is, how does the company have so much opportunity to take cost actions and not affect revenues?

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Linda K. Zukauckas, Nielsen Holdings plc - CFO [3]

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So it's a good question, Andrew. Thanks for asking it. I would describe it in a couple of different ways. We're really taking a very focused look at the areas that we think it makes sense to really think differently about our structural cost base and even our end-to-end business operations. And so we -- as I mentioned, we're doing platform consolidations on a more accelerated pace than we have -- than previously planned. We're also doing a higher degree of automation and really looking at the global footprint and making sure that our resource allocation is as it should be based on the margins of the specific projects.

I would say that also we're being very diligent and disciplined as we think about opportunities to take out the permanent cost saves. And Andrew, our real focus is on margin expansion and cash generation. And we really think that those have to be our top priorities for both the Media side and the Connect side and especially for Connect as they prepare to be a stand-alone public company.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [4]

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Andrew, this is David Kenny. If I could add-on just a bit. Having been with you now for over a year, you'll recall throughout last year and into Q1, we had a number of investments to create superhubs in Connect to simplify spans and layers to -- and on the Media side to move to new meters, which could be managed more remotely and also to automate some of these processes. Our original plan for this year was to do things in parallel. That's part of why there was some elevated CapEx that we were working our way out of. Honestly, we made the decision shortly after we talked last, so early March, to just move to the new system immediately. I think we took more risk that way, but it paid off. And part of it is because we had to because we had to do things remotely. I think David Rawlinson, who just started at the beginning of February, but had sat on the board, knew what needed to happen. And we just decided this is a moment where we can make these moves.

So in many ways, the sort of model that we were setting up for the medium term for '21 and '22, we're just moving into '20 in the way we operate. And actually, a lot of it's already happened. So I'm -- you never want to be glib. This is a terrible crisis, but we've used it for some really long overdue change management and simplification in both Connect and Media.

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Operator [5]

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Our next question is from Toni Kaplan of Morgan Stanley.

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Toni Michele Kaplan, Morgan Stanley, Research Division - Senior Analyst [6]

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David, you mentioned that COVID-19 is accelerating shifts in consumer behavior in Media and in consumer purchase behavior in Connect. Just I guess if you could expand on some of the long-term changes that emerged out of this and how you feel you're positioned for those changes. And I think part of that is accelerating shifts towards e-commerce. And just, I guess, in e-commerce specifically, like how do you view your position now versus historically? And I assume the same is for streaming, too. So any color on the permanent changes there and your position.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [7]

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Yes. Well, thank you, Toni. Luckily, they're not unpredicted changes. But just as we've moved things forward 2 years, in some cases, I think that the consumer did as well. So clearly, we published the data. We've seen huge spikes in streaming consumption as people are home. And the good news is we're measuring that and measuring that well. And I think the streaming platforms see that we add real value to help them understand their market share and help them understand market share on a programming basis as well in ad basis. So it helps with the (inaudible) players.

So I'm pleased we got out there. I would say the shift to accelerate the way we manage the panel means that we're using new meters that can be shipped and mailed and set up. Those meters all have streaming, and it's been able to hold up, not just in the U.S. but worldwide. So I don't think anybody is going to be able to give the total view of the consumer the way we have. I would remind people where Nielsen data really matters was navigating from broadcast to cable, cable to DVR, DVR to on-demand and streaming. And so this is the point everybody is looking at the data far more frequently to understand it. But I think we've got very good tools on the measurement side.

And on the -- so on Activate side, I'd say this does give us more data to mix with sales data into their attribution models. And certainly, some of the early work I'm seeing is a greater focus on attribution. And I totally believe that's going to scale in the back part of this year. Even with an undoubted consumer recession, I think advertisers need to be more efficient.

I'm going to let David Rawlinson talk about e-commerce because that is -- it affects both businesses, but it's then a big project of his, and part of why we hired him was his e-commerce experience before he came here. So David?

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David L. Rawlinson, Nielsen Holdings plc - CEO of Global Connect Business & Non-Executive Director [8]

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Yes. That's great, David. Thank you for the question. I would say we're finding new ways to work with clients in this environment. We've seen that clients want data faster. We've developed a new COVID-19 tracker to be able to give them more information real-time. We have the opportunity to work with clients and discover and help them navigate the new normal. Presumably, there will be permanent shifts in consumer behavior resulting from COVID-19, and so we'll have the data and analytics to help clients adapt to emerging trends. One trend we have started to see is that older consumers who have not been in the past huge adopters of e-commerce are starting to find it more convenient. We think there are some trends like that, that may stick over time. We'll have to be there to help our clients navigate those trends. We have e-commerce solutions now in over 30 markets globally that are live and helping clients as we speak.

And so our clients are going through a very fast-evolving change. One of the things we've learned in this moment is that we have to be more agile and give them more information more quickly to navigate that change. And we think the pace of the change makes the insight that Nielsen can provide even more critical.

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Operator [9]

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Our next question comes from Todd Juenger of Bernstein.

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Todd Michael Juenger, Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst [10]

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I want to talk a little bit about that scenario that Linda sort of pushed out of the guidance regarding the idea of a recession that might last through 2021. And my thought is, historically, I think the beliefs and even the evidence has been that Nielsen's business model and even its revenue model has been rather impervious to the macro cycles. I think in a great financial crisis, Nielsen was private, but I think the data that came out from the IPO said its revenue kept growing sort of at the same rate. And so it sounds from Linda's comments like if we have a recession here, you're suggesting that may not be true this time around. Or I just want to explore how that -- how those 2 things comport, because historically, this resiliency during a recession has been one of the key sort of virtues of your business model. Has anything changed around the recessionary impact on your revenue and ability to keep growing with your clients?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [11]

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Yes. So listen, thank you, Todd, for the question. And to be clear, the core businesses are very resilient. And there are long-term contracts, and they're pretty core-to-core industries. So nothing has changed in fundamental Audience Measurement, fundamental attribution, fundamental retail market share at Nielsen.

I would say what is different this time, and quite honestly, we want to be prepared for all scenarios because we want to really make sure that we don't get caught flat-footed in any way. I think what's changed on the Media side is just in the 20% that's not long term contracted. Of course, that's a little bigger than it might have been in the past. That's been growing. So that's a little bit of a shift. On the Gracenote side, you need to manufacture automobiles. And on the sports side, you need to be able to have sports events to measure them. So in a couple of areas, there is disruption. And I think those industries are looking to come back. We're working with them. But those industries have to be in business to make it work. But by and large, there is that resiliency.

On the Connect side, of course, the fastest growing part of that business has been emerging markets. In some cases, those markets are going to take a little more rework to be able to sustain the data over time without having field. So we're looking at it operationally. I think this is not as much a direct correlation with the economy, but there are some fundamental end user and operational constraints we have to consider here if this goes for a long period.

And of course, this could be a recession like no other. So we do want to be prepared if discretionary spending continues to be constrained. David, do you want to add anything more from the Connect side?

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David L. Rawlinson, Nielsen Holdings plc - CEO of Global Connect Business & Non-Executive Director [12]

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No. David, I think you covered it. This cycles through the business a little bit differently than the last recession, especially the impact of lockdowns in traditional trade countries. And so I think -- and Connect has also been growing more quickly in the emerging markets, which leaves us a bit more exposed to the impact there over time.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [13]

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Great. Listen, I think, as I noted, Linda just brings such experience on stress-testing, looking at the worst cases, making sure we're ready and that liquidity is protected.

So Linda, you may want to talk about sort of that side of this planning.

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Linda K. Zukauckas, Nielsen Holdings plc - CFO [14]

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Sure. And the first thing I would say, David, is that think over the past year, the company put a lot of terrific processes in place to really aggressively manage working capital, which is super important whenever you're going into these types of situations. I will just reiterate what David Rawlinson said is this is very much of a global situation, whereas, some of our crisis of the past have been more domestic or more U.S. versus international. And so the fact that the company made such good progress this past year, working capital management serves us well. Because as I mentioned earlier, we're very closely monitoring our cash collections. And we're doing a lot to plan for these various scenarios on -- across a range of potential outcomes and with a real focus on liquidity.

If we end up, Todd, in that more protracted, prolonged situation where we don't really start seeing recovery until 2021, we're still very comfortable with what we've been able to model across the range. If we need to flex up our cost actions to preserve cash and profit, that is what we'll do. And importantly, across the range of scenarios that David walked us through, we have confidence in our liquidity. And we want to set both businesses up to operate well independently. And we just really think that now is the time to be focused on that. It's prudent to do it anyway, but even more prudent to do it in this uncertain environment.

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Operator [15]

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Our next question is from Manav Patnaik of Barclays.

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Manav Shiv Patnaik, Barclays Bank PLC, Research Division - Director & Lead Research Analyst [16]

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Just sort of follow-up on that question. It sounds like most of your hit that you've modeled for this year comes from your noncontracted revenues. But there does to be seems some variability in the contracted revenues as well. So I was just wondering if you could talk a little bit about the difference between contracted versus true subscription and where the different kind of pluses and minuses there could be.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [17]

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Yes. Thanks, Manav. I appreciate that. To be clear, the contracted areas do have less risk, and those are mostly multiyear contracts. They're being honored. They're essential to operating our clients' businesses. So there are a little components of things that are in Audience Measurement as an example that are noncontracted, but in reality, all the -- almost all of the adjustments are in the noncontracted side. What we do want to make sure is that we continue to maintain quality because we have KPIs to live up to. But so far, we've been handling that quite well.

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Operator [18]

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Next question is George Tong of Goldman Sachs.

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Keen Fai Tong, Goldman Sachs Group Inc., Research Division - Research Analyst [19]

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You discussed initiatives around permanent cost saves, such as platform consolidation and improving automation while also working to fund innovation in the business. Can you ballpark how much of your $200 million in cost saves could be permanent in nature in each of the Media and Connect segments in your base case scenario? And perhaps talk about how much you're going to continue to invest in innovation in each of the segments.

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Linda K. Zukauckas, Nielsen Holdings plc - CFO [20]

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Yes. So I can...

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [21]

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Sure. Linda, tracks that very closely.

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Linda K. Zukauckas, Nielsen Holdings plc - CFO [22]

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Yes. Yes. So the $200 million cost takeout is mostly the temporary cost saves. And then over and above that, we'll be looking at more permanent cost saves. David gave a little bit of color earlier about some of the areas that we consider to be important. And we will still continue investing from a CapEx perspective in our more strategic initiatives. And I referenced that already. What we've sized up is a CapEx reduction of $40 million. But that still gives us ample capacity to continue doing the more strategic investing, which are so critical to top line revenue growth. And we definitely intend on continuing those initiatives.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [23]

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What I'd also add is if I could just take CapEx as an example, the model had us investing CapEx in new platforms while also -- there's a certain amount of maintenance CapEx, if you will, to sustain the old ones. I think what this is proving to us out of necessity is we can shift to the new platforms faster. And then that creates permanent reduction as we begin to shut down and sunset older platforms. And that's happening on both the Connect side and the Media side. I would also say we're learning a lot about how to be more efficient in the way we operate. We're really attacking the spans and layers of the organization quite effectively.

And then thirdly, as we move to more digital data collection in both Connect and Media, that certainly is a lower cost way of operating than some of the stuff that was done manually in the field. So this is by necessity, I think, forcing ways of working that we absolutely plan to bake into permanent cost reduction going forward.

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Operator [24]

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Our next question is from Anish (sic) [Ashish] Sabadra of Deutsche Bank.

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Ashish Sabadra, Deutsche Bank AG, Research Division - Research Analyst [25]

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So my question was more about the short-cycle revenues both in Connect and the Media segment. And question there was how are your conversations evolving with your customers? We've seen a lot of companies push out the discretionary spend to out years just because of the revenue weakness that they are seeing. So I was just wondering the visibility that you have for the short cycle coming back, at least improving in the back half of the year?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [26]

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Good. Look, I'm going to let David go first because it's bigger on the Connect side, and he also has the experience of China and Korea, where things are already operating a little more post pandemic, so he can share what's happening. You can't totally extract from those markets to others, but I think David's got a good view on this. And then I'll come back on the Media side.

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David L. Rawlinson, Nielsen Holdings plc - CEO of Global Connect Business & Non-Executive Director [27]

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Yes. Thank you, David. And that's right, we saw -- our China business, of course, was the first impacted by the lockdowns and the effect of COVID-19. So we have some experience seeing that business largely go through the cycle. They're now back at near full capacity. And we've seen demand in volume return in that business relatively quickly as we've gotten back up and running. And the forecast that you've seen, we have modeled in significant cuts in discretionary spend for our guidance in 2020. But we do expect some of that spend to come back as we're back in markets and as clients continue to get more comfortable in the new environment. We've seen clients defer some projects, but we've also seen increased demand as clients need help understanding emerging trends.

And so we're both looking at what's happening on a country-by-country basis on a client-by-client basis. But we also were leaning on the experience we've gained from China to understand what the demand curve will look like as we come out the other side and start to resume business operations that look a little more normal. So we -- do we think there'll be some impact? There's certainly some pressure on discretionary spend. We're fortunate in our end markets. This business is decked against supermarkets and pharmacies and other end markets that have proven critical and have weathered the storm a bit better than some other end markets. And so we've been fortunate in that. And we think we'll continue to see demand even for ad hoc clients. And we think that'll pick up as the situation improves.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [28]

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Yes. On the Media side, I don't think it's true that all of the short cycle is discretionary. But some of the short cycle is event-driven, like specific analysis centered around sports events. So if you don't have an Olympics, you're not going to do that work. If you're delaying baseball games and basketball games, it's not going to happen. But nobody in the sports business believes it's just going to stay dark. They are finding new solutions. And quite honestly, that's going to take more analysis, not less, to understand sort of new behavior and a new way of having competitive sports. But it's an important part of the world's pastime, and I don't think sports is going to go completely away forever. Similarly, you need our production to have (inaudible) and analytics done.

Other things that are ad-driven, right? So the ad hoc work that's centered around lift and attribution, certainly, I think there was a pause on that as people are reconsidering their ad campaigns. I think we're all -- we're in very close contact with our clients. I would say we don't have clients who believe they're just going to live without advertising. We don't have clients who believe they don't need to create demand in a new normal, whatever that is. So they're rethinking those. But as those come back, you really need Nielsen analytics to understand and be really precise. And I think it's focused on advertising efficiency. The focus on attribution is only going to increase as people need to get smarter and more prudent on the client side.

So I'm spending most of my days with our clients right now. I've seen all their dogs and kids on Zoom. And I would tell you that I think that folks need this analysis as they figure out their plans in the next phase.

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Operator [29]

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Our next question is from Jeff Meuler of Baird.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [30]

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There was a reference to kind of maintaining panel health. And then I think there is a Nano meter deployment comment. I guess my question is just what are you seeing in terms of, I guess, like refresh rate and panel maintenance? Meaning, if this drags on for an extended period of time or it's hard for your technicians to get inside panelist houses, does it get to a point where there's a risk where panel health meaningfully deteriorates? Or just are you effectively combating that with the Nano meter deployment? And then I guess related to that, how do you expect this situation and what you're learning through it to permanently change your media research methodologies?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [31]

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Yes. Well, first of all, I do want to remind people that our methodology is hybrid and does combine big data from a number of sources, which we continue to get corrected by panel. So there's a lot of data to maintain quality beyond just the panel. But the panel is an important asset, and we do manage its health. I would say the quality metrics are actually improving in this period. And so -- and that's largely because -- and I'm so grateful to them because of panelist behavior.

In the Audio business where panelists wear their meters, we're actually finding an increased number doing that. As we look at engagement, as we look at people checking and using the remotes and the different technologies, it's actually improving. For many people, they're at home more. Media is more important to them, so it's top of mind. I would say we've also learned how to stay in touch with our panelists digitally. And for many of them, this is an important purpose in this period.

So right now, it's great. And there have been a few cases where something's happened to a meter and we've had to walk a panelist through restarting it remotely versus going into their home. And I've been touched by just how much our panelists are willing to help us make that happen. So the quality remains. I do have to be clear. People will go back to work. The world will change, and people may not have quite the time they do now, so we are leveraging this at the moment.

So that's where we are on maintaining it. And as I said, the other kind of innovation I was really proud of in the field was contactless tuning. So in some places, you've got a sort of tuning meters. And our field technicians have figured out how to do this from their car with permission from the panelist to be on the Wi-Fi from the driveway and have made it all work without anybody seeing each other. So it's been quite creative in making that happen.

To be clear, all of that will continue long term and the meters will upgrade. So as you know, we had a big investment to switch to the latest meter, which is the Nano meter. In places like Italy where it's deployed, it's been awesome to maintain quality. And we are absolutely seeing that we can recruit a panelist digitally, mail them meters, get validation that all their devices are connected and they're up and going totally by self-start, because it's a pretty easy thing to do, not any more difficult than plugging in a device that connects by HDMI cable.

So I think this will help us a lot. I think we're just going to go faster on this. And yes, this will change our economics. It'll be easier to sort of build bigger panels. It will be easier to maintain them as much more of it can be done digitally and remotely. So in effect, having digital twins to all the meters is a real game-changer for Nielsen. And it was our plan. We're just going much faster now.

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Operator [32]

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Our next question is from Bill Warmington of Wells Fargo.

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [33]

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So a clarification and a question. On the clarification, the upper end of guidance is for the recovery beginning in the third quarter, the bull case, if you will. And the low end of guidance is the recovery beginning in the fourth quarter, the base case. And the bear case, the 2021 recovery, that's not in the guidance as it is. And then the question is how are things going with the large CPG clients and their spending on the Connect products?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [34]

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Good. So Linda will take the first part, and David will take -- David Rawlinson will take the second part. Good question.

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Linda K. Zukauckas, Nielsen Holdings plc - CFO [35]

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Okay. Sure. So Bill, you got it right. The guidance ranges are mostly reflecting that range of a Q3 versus a Q4 recovery. The ranges are premised on recovery in the second half of the year. And as we stated, should we be into the protracted scenario, then we would take further cost actions, but those are not reflected in the guidance ranges we gave you this morning.

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David L. Rawlinson, Nielsen Holdings plc - CEO of Global Connect Business & Non-Executive Director [36]

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Yes. And for the large CPG clients, I would say we've seen strength. We've seen strength in contracted spend. We've also seen faster migration or continued migration to the Connect platform. We're seeing some CPG clients are doing better than others, and so we're helping them navigate this moment. There's some pressure in the discretionary spend with those clients. But on the whole, those clients have held up very well. What we've seen is that our business is essential to those clients. And they continue to call on us because they need us in this moment, and they realize that we're critical to their operations. And so I've been pleased by how that has held up.

We do have to be in the field, able to deliver for those clients under the contracts. That's where we found some difficulty and having to innovate to continue to get the data we need to feed our solutions to them. That risk is in the guidance that we've provided already. And so that's the effect of the lockdowns in our ability to deliver. But today, we're still live in every one of our 100 markets. It's impacted some of the services we're able to provide, but we're still up and supporting clients in every market. And we've seen that clients have appreciated that, considered us essential and have continued being a strong area, especially in CPG for us.

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Operator [37]

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Our next question comes from Tim Nollen of Macquarie.

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Timothy Wilson Nollen, Macquarie Research - Senior Media Analyst [38]

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Certainly recognizing your business is more resilient than an ad-supported business like an agency or a TV network. I'd still like to just make sure I understand one more time on the downturn, particularly on the Connect side in measurement. A few prior questions, I think, have been trying to get at this. But just to make sure, that would normally be a low single-digit growth business, it was in the last several quarters. CPG and retail have been pretty strong sectors, obviously, with the demand for products, and those companies have done quite well. Just to make sure why the Connect measurement business was down 2.3%. Was it really the difficulty in collecting data in emerging markets? Or was there anything else that was pressuring that in the most recent quarter and the coming quarters? Because I would have thought that would have been more resilient?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [39]

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David, why don't you take that, the Connect question?

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David L. Rawlinson, Nielsen Holdings plc - CEO of Global Connect Business & Non-Executive Director [40]

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Yes. Sure. So that's right. I think the business is definitely more resilient than ad agencies. I would say a couple of things about the measurement impact. So about 20% of our measurement is ad hoc. So there is some ad hoc in our measurement revenue. That's largely where we've seen the pressure. And then the second part of it is we do have to be able to deliver all of the services against our contracts in traditional trade markets where we aren't able to put feet on the street and to go in stores and do other types of data collection. There are some services under the measurement portfolio that we're not able to provide as lockdowns continue. We think as those lockdowns open back up, on the measurement side, we will be able to get back to normal relatively quickly. That's what we've seen coming out of our China market. But it really is those 2 places that have impacted the measurement side. It is the ad hoc component of measurement, which is, again, about 20% of measurement. And then it's in traditional trade markets where the lockdowns have prevented us for being able to do all of the data collection the way we normally have and has caused us to pull back on some of the less essential services for our clients.

But the final thing I would say is in those traditional trade markets, we've been able to be more resilient than I would have suspected in terms of continuing to keep the most critical data flowing for our clients. And we've been able to continue to innovate to find new methods of data collection. And that has been what has kept us live with at least some critical services in every single one of our markets.

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Operator [41]

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Our next question is from Dan Salmon of BMO.

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Daniel Salmon, BMO Capital Markets Equity Research - Analyst [42]

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I have 2 questions for David or maybe for Linda. First, we can see certainly the guidance on EBITDA and free cash flow in the deck. But I was hoping you could spend a little bit more time talking about free cash flow conversion. What are some of the things you're focused on most importantly to keep that at a high level?

And then just secondly, maybe just a broader question on liquidity. Are you comfortable at these levels? Do you feel that more actions need to be taken? Would just love an update on those things, please.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [43]

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Good. Let me start, and I'll let Linda finish. Listen, we have this goal of getting a 50% free cash flow conversion. That does -- you start with higher margins. And I think this really deliberate bottom-up view we're taking on the total cost structure and on products and simplification of the organization, as I said, is just coming faster and that's getting us closer to that path, which is why margins are improving. And that should continue to stick as we scale. So that's part one. And then part two, of course, is measuring the CapEx. Again, Linda talked we've already taken out a lot of CapEx mostly on the maintenance side. So to be clear, we're still very much investing in our future vision, but I think simplification also allows us to just be really thoughtful about not spending CapEx on maintenance.

And then as Linda just said, our processes on managing working capital continue to improve. And all of that continues to make progress every quarter towards our long-term conversion. And we haven't moved from our midterm goals. We're absolutely moving towards them, and I think moving towards them faster because of necessity. I'll let Linda finish that and then talk about liquidity.

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Linda K. Zukauckas, Nielsen Holdings plc - CFO [44]

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Yes. So I think you summarized that well, David, from a free cash flow and a cash conversion perspective. I'll just reiterate the importance of revenue and EBITDA growth. And that is some of what we've been focused on as we've looked at these various scenarios.

And then certainly, over time, once we get past this year, we should start to see restructuring come down. And then overall, we'll have improved working capital, which we're managing even more closely each and every day. Over time, I think you'll also see CapEx coming down as a percent of revenue as we improve our focus and efficiency of those CapEx expenditures. As I mentioned, we did bring it down $40 million already in the actions that we've taken. And we're continuing to just really stay focused on that.

From a liquidity perspective, one of the important things that I will point out, and it goes back to one of the questions that we got earlier about the range of scenarios that we've been looking at, even in the protracted recovery scenario, we feel good about our liquidity. We have modeled that out. And we feel good about the debt covenant ratios.

And I will just point out that those ratios are measured on a last 12-month EBITDA basis. And so every quarter, you get a new turn of a quarter into that measurement. But it is important, and we've modeled that out, and we're very comfortable with it.

And so I think what remains to be seen is exactly which of the scenarios are we going to be dealing with. But overall, from a liquidity perspective, we're comfortable. And then stepping back more broadly, we clearly think we are on a path to meet that 50% medium-term target that we have out there for cash conversion.

I'll just remind you that, that target was based on getting the 50% for the holdco, so both Media and Connect. But we are still very much committed to that. And we are looking at the quality of cash generation at both the Media and Connect levels. And then we're just very focused on delivering consistent free cash flow and maintaining that liquidity over time.

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Operator [45]

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Your next question comes from Matthew Thornton of SunTrust.

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Matthew Corey Thornton, SunTrust Robinson Humphrey, Inc., Research Division - VP [46]

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Two-part question. I guess just coming back to the contracted revenue. Just wondering if you have any examples -- obviously, we're only 2 months in this or really less than that. But if you have any examples of some of the contracts that maybe have come up for renewal and kind of what those conversations looked like, what the kind of push/pull is, if you're willing to kind of onboard them again at whatever cost as long as we can get a multiyear resigned with price escalators, just any color there or how you think those conversations will play out this year.

And then secondarily, could you just walk us through -- because I think I missed a couple of these numbers. But again, just what the contracted percentage of revenue is across the 2 businesses and the 2 subsegments within each business.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Executive Director [47]

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Sure. So on the second part, Media is 80% contracted. In aggregate, it's 85% in Audience Measurement, and it's close to 60% in Plan/Optimize. On the Connect side, it's 60% all-in. And if I -- and I know the non -- or the Predict and Activate is 30%. I think the Audience Measurement is closer to 70%. So that's how those sit in. I would say on those revenues where they are contracted, they do tend to be multiyear contracts. And they do have escalators on the Media side, a little bit less on the Connect side. There have been some good renewals in Connect, and they've been normal. There are -- this is a lighter renewal year than the last couple in Media. But I'd say that the ongoing discussions are quite positive. And I would say we're still on bid and ask with full scopes of work and with the right escalators because I think our clients are counting on us to help them understand a very different media world going forward. And I think that there's a lot of confidence in our ability to measure streaming. There's a lot of confidence in our unique ability to measure the total audience. I think these innovations are going to be important. So I haven't found it to be adversarial.

And quite honestly, our clients are strong, well-capitalized businesses. They all intend to be here throughout this as well. And so it's -- it is very much with an eye to the next few years, not just to the current moment that we're approaching these renewals. So I'm not expecting a big change because of the environment. And we haven't seen that, as noted, in prior crises, although there's none quite like this.

So thank you. That's the last question. I want to thank you all for joining the call this morning. It's clearly an unprecedented time for you and for us. And we're going to continue to monitor developments closely and continue to share transparently.

I'd especially like to thank our employees for their tireless work and incredible innovation. Due to their collective efforts, we are in a strong position to navigate through this environment. We continue to partner closely with our clients, and together, we will move forward as the markets move to a new normal. Thank you.

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Operator [48]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.