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Edited Transcript of NLSN earnings conference call or presentation 30-Apr-19 12:00pm GMT

Q1 2019 Nielsen Holdings PLC Earnings Call

New York May 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Nielsen Holdings PLC earnings conference call or presentation Tuesday, April 30, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David John Anderson

Nielsen Holdings plc - CFO & COO

* David W. Kenny

Nielsen Holdings plc - CEO, Chief Diversity Officer & Director

* 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

* 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

* Surinder Singh Thind

Jefferies LLC, Research Division - Equity 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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Good morning. My name is Carol, and I will be your operator today.

At this time, I would like to welcome everyone to the Q1 2019 Nielsen Holdings Earnings Conference Call. (Operator Instructions)

At this time, I would like to turn the call over to Sara Gubins, Senior Vice President, Investor Relations.

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

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Thanks, Carol, and good morning, everyone. Thank you for joining us to discuss Nielsen's first quarter financial performance. I'm here with our CEO, David Kenny and our CFO, Dave Anderson. 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 & Director [3]

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Good morning. Thank you, Sara. Let me tell at a brief high-level comment and then turn it over to Dave who can review first quarter results, provide some color on our expectations for the second quarter and the remainder of 2019. Then I'll come back and give you an update on our strategy and progress, particularly around our products in both Nielsen Media and Nielsen Connect.

But first of all, let me start with the strategic review, which is taking a lot of my time and most of the senior management's time. This is an ongoing and active process, and as we've said before, it could lead to 1 of 3 potential outcomes; we could continue to operate as a public independent company, we could separate the Global Connect segment from the Global Media segment or we could sell the entire company.

We have made significant progress over the last 8 weeks since our last video. I want to assure you that the Board and the management are working as quickly as we can to complete the strategic review in as timely a manner as possible.

That said, in parallel, we're also focusing on improving our operations. I am pleased with our first quarter results, which did come in better than our expectations. This means we're on track to deliver on our 2019 guidance, which is an important step in building our credibility. At the same time, I have to say that I'm dissatisfied with Nielsen's growth rate relative to our potential. We have a critical role in the industry we serve, we have unparalleled assets, we have strong client relationships, industry-leading talent and a global footprint. That creates the foundation for a stronger product and better growth over time.

Let me now turn the call back to Dave to review the quarter and then I'll return at the end with an update on the tangible steps we're taking to accelerate our velocity. Dave?

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David John Anderson, Nielsen Holdings plc - CFO & COO [4]

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Thanks, David, and good morning, everyone, and thank you for participating in this morning's call. I'm going to walk you through -- starting with Slide #5, I'm going to walk you briefly through the key topics that I'd like to cover this morning and some of the key takeaways.

First, as David said, we're obviously pleased with the results for Nielsen for the first quarter. Both revenue and adjusted EBITDA were ahead of our expectations. The year-over-year margin rate improvement is a product of both better revenue as well as our productivity initiatives. And adjusted EPS for the quarter was $0.35 despite a higher effective tax rate compared to the same period last year. And free cash flow came in within our expected range and represented an improvement on a year-over-year basis. I'll talk more about that in a little bit.

Overall, the results reflect the commitment of our business leaders and our associates worldwide. Our hats off to them and our appreciation to them, and also, the increase in operational and financial rigor that we're seeing across the organization. And as we've said before, we're focused on delivering all fronts.

And finally, as David mentioned, we're reiterating our guidance for 2019. I'm going to provide you some more color on our expectations for the second quarter as well as the second half after I briefly go through the results for the quarter.

So with that, let's go to Slide 6 and take a look at the highlights. The company revenue increased 0.4% for the first quarter on a constant currency basis. This compares to our expectations of roughly flat. We saw some additional strength in both media and connect in the first quarter. Revenue decreased 0.2% on an organic basis, constant currency, but if you exclude the impact of onetime items in the year-ago quarter, organic revenue actually grew 1.1%.

For the first quarter, adjusted EBITDA was $415 million, up 0.5% constant currency. Adjusted EBITDA margins were 26.6%, up 2 basis points on a constant currency basis, and again, ahead of expectations. Margins reflect the positive performance on productivity, partially offset by investments that we're making in both our people and in our businesses.

The first quarter tax rate of 41% was well above the 33% to 35% forecast for the full year. It's a fairly simple explanation. We had several discrete items in the quarter related to tax contingencies and audit. I'm going to talk about tax a little bit more as I talk about the outlook for the rest of the year.

Adjusted EPS was $0.35, that compared to $0.40 in the first quarter of 2018. And as we explained when we provided the original guide for the full year, this difference is expected driven by higher depreciation and amortization, higher effective tax rate and also lower EBITDA. The effective tax rate in the quarter was 36% -- 41%, in the first quarter of 2018 was 36%. So the 41% rate in 2019 impacted the quarter by about $0.01.

Free cash flow was a use of $165 million in the quarter compared to a use of $245 million in the first quarter of 2018. And relative to last year, free cash flow benefited from lower retail payments and also lower incentive payouts.

Overall, looking at the first quarter, while it's still early in the year, these results certainly strengthen our confidence in the 2019 outlook.

We're going to now -- I'd like to just spend a couple of minutes going through each of the segments, and as you know, we've organized to now managing fully around the 2 segments, Media and Connect. The segment categories are based around our core measurement platforms in both Media and Connect with plan/optimize and predict/activate designed to build on measurement and also to add value to our clients by enhancing their decision-making.

So let's start with Media on Slide #7. Revenue for the first quarter was $826 million, up 1.3% year-over-year on a constant currency basis. If we adjust for M&A and also the impact of the prior year TV brand effect, media revenue would have been up 1.4% year-over-year. Audience measurement was up 2.2% constant currency. This reflected underlying strength in national TV, double-digit growth in digital, but as expected, local TV was (technical difficulty) up slightly year-over-year.

For Plan and optimize within Media, it was down 0.9% constant currency, but again, if you adjust for M&A and other items, plan/optimize was about flat year-over-year. We saw solid growth in Gracenote in ROI and also in attribution capabilities. These were offset by a drag in our telecommunications practice related to timing of a contract.

Media's adjusted EBITDA was $347 million, up 0.6% constant currency. Adjusted EBITDA margins were 42%, down 32 basis points constant currency. The decline was mostly driven by investments in strategic investments and partially offset by productivity.

In Connect, on Slide 8, the first quarter revenue, which you can see, was $737 million, down 0.7% constant currency. The impact from M&A was negligible in the quarter. The onetime items from a year ago were a drag to revenue growth by 150 basis points.

Revenue in measure was $539 million, up 1.7% constant currency, reflecting strong performance in our core retail measurement service and also improved U.S. trends.

Revenue in predict and activate was $198 million, down 6.6% constant currency. The most important factor influencing predict and activate revenue was the continued pressure in our innovation and our customer insights businesses.

Developed markets revenue was down 0.8% constant currency. Just FYI, while revenue declined in the U.S., we saw an improvement in the rate of decline in the U.S. in the first quarter and we also saw continued stability in Europe.

Emerging markets revenue was down 0.7% in the first quarter. Regarding China, we had soft performance in the quarter, partly as a result of a tough comp against the first quarter of last year, but we expect improvement during the course of the year.

Connect adjusted EBITDA was $79 million, flat year-over-year in constant currency. And adjusted EBITDA margins for the segment were 10.7%, up 7 basis points constant currency as revenue declines were offset by productivity initiatives.

Let's go now look at the outlook for 2019. You can see here summary takeaway and not to go through any of the details here, this slide is consistent with what we've covered with you before. And so it's probably good just to go through then the key metrics, which you can reference on Slide 9. This includes total company constant currency revenue to be approximately flat to 1.5%, an improved trajectory from 2018. We continue to expect adjusted EBITDA margin of 28% to 29% or roughly flat year-over-year at the midpoint. Adjusted EBITDA margin will be driven by significant productivity, partially offset by reinvestment in the business. Adjusted earnings per share are expected to be in the range of $1.63 to $1.77, reflecting higher depreciation and amortization expense compared to 2018 as well as higher interest expense. Lastly, we continue to expect free cash flow to be in the range of $525 million to $575 million, and at the midpoint, it'd be roughly flat with 2018.

And as we discussed last quarter, key drivers include lower incentive compensation payouts in 2019 and also, lower retailer payments offset in part by higher cash interests and cash taxes.

Now we will provide a commentary on additional inputs to our key 2019 financial metrics in the appendix of the slide.

Turning to Slide 10, I won't spend time on this, but here, we've laid out the revenue outlook by segment for 2019. This is consistent with what we've shared with you last quarter.

So with that, let's go to Slide 11. Let me talk about what we anticipate in terms of the timing of the outlook for the remainder of 2019. We expect second quarter revenue to be flat to up slightly year-over-year in constant currency. Again, we continue to expect the second half to be stronger than the first half. In revenue, we had some onetime items in the first half of 2018 that make for a more difficult comparison in the first half of 2019.

For the second quarter, we expect margins to be roughly flat year-over-year. We'll also see the benefit of the productivity initiatives that will be paced through quarters 2 through 4, which will provide support for reinvestment as well as growth initiatives.

I'd also note that we anticipate the conclusion of tax audits in various countries during the second and third quarters. If this occurs, it would translate to an effective book tax rate below our 33% to 35% guidance, but we'll continue to provide you with a normalized tax rate, which we anticipate to continue to be in the range of the original 33% to 35% for 2019.

And finally, we expect second quarter free cash flow to be slightly down to flat. As we discussed with you, we have an aggressive improvement plan underway for cash flow with a lot of organizational focus around it.

In summary, we're confident in our plan. We have a strong commitment to deliver on all fronts and we look forward to updating you on our continued progress.

And with that, I'm going to turn it back to David for some of his comments on the company and our outlook.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [5]

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Thank you, Dave. As I said before, I'm pleased with our progress, but I also believe we have the opportunity to improve our growth trajectory over time. Toward that end, we're working hard to transform Nielsen into a truly product-driven, technology-enabled organization.

I would also say that our first quarter gave us increased confidence in our 2019 guidance as well as some early validation of our product direction. So today, what I want to do is give you some specific examples of how our product is being received in the market.

Let me start with Nielsen Global Media. Our mission here is to be the one media truth across the entire media ecosystem, which creates metrics that monetize for our clients. And then we leverage those metrics to provide the tools our clients need to plan and optimize their media spend or their media offerings.

First, let me talk about market adoption of audience measurement and how Nielsen continues to broaden our measurement across both linear and digital video to give a total audience view. This is being demanded by and it's paying off with our clients. As I said, let me give some specific examples.

One, we continue to work closely with NBCU on the evolution and industry adoption of CFlight, which is underpinned by Nielsen currency data. This offers an advanced way to buy and sell advertising across platforms. We're working to expand the CFlight concept across the industry with Viacom also planning to use the same metrics during their 2019 upfront negotiations.

We're also continuing to work on advancements in local TV measurements and we're testing and validating additional data. This is great news for our local clients and we are getting positive feedback from them on our progress.

Towards that end, we also announced a long-term agreement with Univision for national and local TV ratings measurement, which included for the first time, some of our newer total audience measurement solution, such as out-of-home and subscription video on-demand. I would also say that media is becoming increasingly digital and that means that we have the opportunity to deliver innovative new solutions that help clients monetize their digital audiences.

Again, let me give you some specific examples. We're working with all the major players around connected TV. This includes Hulu, Roku, NBCUniversal and many others. On the new front, YouTube is offering Nielsen-based audience delivery guarantees, which enable advertisers to better use YouTube TV to fill in the gaps of their traditional TV campaigns.

And lastly, we continue to measure Netflix. That data shows that 72% of the minutes spent on Netflix are on non-original programming or reruns. This is a critical input to our media clients that are now investing in their own streaming services, which we also measure through our total audience framework.

In media, we also have a terrific global opportunity. And over the first quarter, I had a chance to visit some of our international markets and heard that firsthand. Our mission is to be the one media truth worldwide. Today, international or non-U. S. is approximately 15% of Nielsen Global Media revenues. That said, we are already in more than 50 markets around the world and we're reallocating key talent and resources to our commercial efforts and product efforts outside the United States, which leverage our global presence and continue to consolidate platforms and create globally syndicated solutions to drive efficiency and growth.

We had a really notable achievement in the last few weeks in Mexico. There, our television audience measurement was accredited by the Media Rating Council. This is the first and only service outside the U.S. to receive the MRC's accreditation. This provides the media industry in Mexico with an additional level of confidence. They leverage Nielsen measurements to account for television audiences and transact in a reliable and effective way.

Let me now talk about the plan and optimize part of Nielsen Global Media. Remember that many of these capabilities are part of our overall digital portfolio, which provide the market with extensive offerings to help manage the demand of the complex digital landscape, and we have a tremendous opportunity to drive growth. Our digital business will be a mix of plan/optimize and measurement.

Again, let me give you some specific examples. One, we're working with a large brand marketer to bring together Nielsen's digital attribution capability with Nielsen's cloud-based identity platform. This enables the marketer to better target addressable consumers, and importantly, close the loop on sales, which creates transparency and accountability for the return on investment for each of their ad dollars. This client's CMO is incredibly proud of their approach to people-based marketing and the quantifiable benefits and we're getting really positive feedback from them about how the Nielsen platform works.

In another example, one of the large agency holding companies just expanded their use of Nielsen's planning tools to help them enhance their overall ad buys with a much deeper understanding of the unduplicated reach of the digital audience, which leads to a more efficient media plan.

And finally, we also just renewed the Nielsen audio contract with Entercom. This includes several new plan and optimize services, which help the Entercom sales teams demonstrate the value of radio advertising to their advertisers. This is part of our continued investment to make the audio platform deliver both measurement and analytic benefits for our clients.

To sum up on Nielsen Global Media, we continue to see market validation of our total audience measurement offerings. We also have the opportunity to drive accelerated growth outside of the United States and accelerated growth in the plan and optimize services. We are focused on the product road map that will bring more solutions to clients to help accelerate growth both for our clients and for Nielsen.

Let me turn now to Nielsen Global Connect, where we connect retailers and manufacturers within the fast-moving consumer goods ecosystem. Here, we have a clear opportunity to strengthen our competitive position, restore our revenue growth and improve profit. And the U.S. turnaround that Dave talked about is a big part of that story.

Again, I'm pleased with our progress in Q1, but I'm again not at all happy with our growth status. We're making progress on the Nielsen Connect platform and its ability to drive growth. It's a key differentiator in terms of what that platform can do.

We have another large deployment of the end-to-end system, which is driving faster decision-making and we're also working well with 400 and growing clients who are already using components of the system. We have a strong pipeline of committed end-to-end client deployments for Nielsen Connect in the U.S. and they span a broad range of FMCG manufacturers and retailers.

Again, let me give you some specific examples in the Connect segment. First of all, in measurement, which is the bedrock of our Connect business, we saw relative global strength in the first quarter with both retailers and manufacturers. Let me talk about the retailers, which remain a key focus and we are driving increased collaboration between the retailers and the manufacturers.

Some examples. In the United States, our Walmart and Sam's collaboration program continue to open this up to work with a whole new roster of small and mid-tier clients. We have more than 900 clients signed up for those collaboration programs and more than 75% of those are new to Nielsen.

China is also a big focus. We do expect China's trajectory to improve during the year as we launch our retail measurement coverage enhancement. In China, we also have a renewed agreement with JD.com, which gives us more access to content and expand our codeveloped analytic suites to include online price and promotion services.

In Europe, we expanded our relationship with Aldi, most recently adding Italy and Netherlands to the roster and we just inked a multi-year loyalty analytics deal in Thailand with Big C, which is a major retailer in Southeast Asia.

On the manufacturer side of Nielsen Global Connect, we also had some recent client renewals that provide market validation for our product road map. For example, we renewed (inaudible) a global skincare brand and this was underpinned largely by their confidence in the direction of the Nielsen Connect platform.

We also renewed our global multi-year contract with Johnson & Johnson Consumer. I should also note here in New York, all week, we've got our data science team and their data science team doing a hackathon so that together with J&J, we can uncover new insights for their business and it's just an example of the way we're working more closely and more technically with our clients.

Our ability to offer both measurement and analytics in all the major markets around the world remains a key differentiator.

Let me go to the predict and activate side. My comments here will largely echo what I said about plan and optimize. This should be a real growth driver over time. We have an opportunity to leverage our measurement data to drive faster growth as we move from point solutions to a modern machine learning-based analytics platform aligned on a single open architecture. We're driving greater analytic solutions to optimize decision-making in several key areas, including category management, assortment, supply chain and promotion and we're seeing good demands for these services from our clients.

Towards that end, we recently signed 2 global assortment and space optimization deals with Mars and a global tobacco giant and our price and promotion analytics are helping to drive additional traffic at Smart & Final, a regional value retailer and at Precinct, a regional discount retailer, who're also making notable progress on strengthening the assortment helped by our analytics partnership with them. Our work with Freds is also helping them to collaborate more closely with their vendors through a focused data strategy.

So let me sum up on Nielsen Global Connect, we have strengthened our value proposition for both the retailer and the manufacturer. We're getting positive reactions to our road map and to the early functionality of the connect platform. We're continuing to grow our global relationships and we're also adding more local relationships. Our U.S. business, which is about 30% of total connect, is stabilizing.

Moving beyond our client operations, let me talk about the way we look internally on productivity. We did commit to 370 basis points of gross productivity in 2019 to free up investment capital, so this is largely going to be offset by investments in the growth initiatives. We're on track to deliver this gross productivity.

Again, let me give you some tangible examples from Q1. We made a huge acceleration in our journey to align on a single cloud-based architecture in both Media and Connect. And on the Connect side, our 3 super hubs are now fully operational delivering data to 25 major countries with over 500,000 unique deliverable shipped.

We're also driving a lot of efficiency and quality through the automation of our field data collection. Over 65 markets are now live with our digital data collection platform and our quality control towers, which represents a significant acceleration from the original time line. These are live in over 10 markets with the added benefit of machine learning and image recognition deploying our e-collection methodology.

So let me close and get to your questions. Across the board, our Nielsen teams are working hard to execute our growth strategy and deliver on our 2019 plan. These efforts are in parallel to a lot of hard work also being done on the strategic review. No matter the outcome of the strategic review, we are taking the right steps to best position your company for the long term and maximize value for our shareholders. I look forward to updating you on our progress.

Let me know turn it back to Sara to manage Q&A. Sara?

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Sara Rebecca Gubins, Nielsen Holdings plc - SVP of IR [6]

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Thanks, David. Carol, we're ready to open the line up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question this morning comes from Andrew Steinerman from JPMorgan.

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

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When discussing Slide 8, which is Nielsen Connect, you cited continued CPG end market pressures but the U.S. improving. So I want to get a sense of 2 things. One, quantitatively, how did Nielsen Connect U.S. revenues do in the first quarter, when you say improving? And when you said improving, did you mean the end market U.S. CPG is improving or did you mean Nielsen Connect U.S. revenues were improving?

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David John Anderson, Nielsen Holdings plc - CFO & COO [3]

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Thank you. So specifically, what I meant is that Nielsen revenues are improving. So we had -- as I think I may have mentioned, we had decline. I may have mentioned as total developed, but the decline in the U.S. was less than we experienced last year. We're obviously very, very pleased with that performance. We're also very pleased with the performance that we had in our measurement business there, which is a bright spot for us. And as we guided at the beginning of the year, we expect that we'll see for total developed, in Connect, we'll see continued relatively good performance over the rest of this year and the team is executing very well on that. So very pleased by what we did in the U.S., very pleased by the focus that we have and a number of the accounts that we're seeing where we're seeing very positive response to offering both on the measurement side, but also increasingly on the predict and activate side.

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Operator [4]

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Our next question comes from Jeff Meuler from Baird.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [5]

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In terms of the win or the progress on the full end-to-end connect system, I guess it sounds like you have signed clients there, there is more in the pipeline, but could you just give us some more detail, how many clients are live on the end-to-end system today? Roughly what was the size of the pipeline, just any targets, any road maps there? And then, how long does it typically take to do the implementation for a end-to-end client on the connect system?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [6]

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Yes. So as I told you before, we've got 100, close to 400 that are using at least one component as they migrate to the end-to-end system. We've only got a couple that are using the full end-to-end system. We've got dozens in the pipeline to roll out this year. I would say that we're making progress on the inside. It can take a couple of months to get it up and running. And I would say, it really comes down to how much the clients are willing to use a standard connect report versus customizing to what they've done before. And it just takes a little bit of management to make sure people use the system as designed as opposed to retrofitting it back to where they were before. So every time we do this, we're making progress. We're working with folks on getting ready for their installations this year. We're making a lot of progress in the adoption of the standard system.

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David John Anderson, Nielsen Holdings plc - CFO & COO [7]

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But I think one thing maybe to add and I think you may have referenced it in your summary comments, but feedback from those that are really increasing the penetration and usage of Nielsen Connect has been very positive. We've got some tremendous testimonials from our clients with respect to the adoption of the system. So -- and in addition to what we're seeing and what David said in terms of the numbers, there is also the qualitative side of this, which has been very positive.

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Operator [8]

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Our next question comes from Toni Kaplan from Morgan Stanley.

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Toni Michele Kaplan, Morgan Stanley, Research Division - Senior Analyst [9]

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I was hoping you could talk about the pricing environment in both segments really, but specifically, also within media for national as well as for local?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [10]

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Yes, I think that there certainly are changes going on in the -- and I think all the media owners focused on their costs, of course we're having price discussions. I mentioned a couple of renewals, which were right where we expected them to be. So in the end, these are closings in the right place. I would say that the discussions turning to value and also making sure that we're adjusting the mix of services so that they're using more of the digital and analytic services in their renewals, which reflects the strategies of our clients. And I think on the connect side, again, of course, we're always going to have negotiations, but I think as we have increased the value in being able to show how we make our clients more efficient and more effective, it's becoming I think relatively more straightforward to get those deals closed.

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Operator [11]

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Our next question comes from Manav Patnaik from Barclays.

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Manav Shiv Patnaik, Barclays Bank PLC, Research Division - Director & Lead Research Analyst [12]

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I just wanted to get your latest on the GDPR impact the business had seen, where you see the, I guess, remaining impact today and how we should think of that going forward?

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

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Yes. So listen, on GDPR, certainly, there was some float on there and we retooled our capabilities to be fully compliant. We're very respectful and encouraged by privacy. So I think we got through those product changes. And we're seeing what we expected, which is an improvement in the pipeline for our attribution products. I think clients are going to continue to test that and make sure that privacy works for them as well, which we're happy with. I would also say GDPR is just a first aspect of privacy. We're also watching closely things like the California Consumer Privacy Act, which will become effective in January 2020 and other things happening in the U.S. and several other things happening around the world there. I think we're getting in front of this. We're understanding not only the regulation, but the way to be compliant with it to make sure we continue to become a gold standard in the way privacy is managed and we do think it will continue to affect our business and in a way that can actually be quite positive and differentiated for Nielsen's approach over time.

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David John Anderson, Nielsen Holdings plc - CFO & COO [14]

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David, I might just add very quickly, as I think, most folks are clearly aware that we built in, in our guidance some continued pressures related to privacy in terms of media plan and optimize. So that's reflected in the numbers that we've provided to you. And this is -- as David said, this is something that's going to be with us for a while. We've made tremendous, we think, responses and positive adjustments that it's going to be something that's going to be with us. So that's part of the reason we've got plan/optimize as it is in terms of our guide for the full year for Media.

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Operator [15]

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Our next question comes from Todd Juenger from Sanford Bernstein.

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Todd Michael Juenger, Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst [16]

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David, if I could, I'd love to return a bit to the discussion which you sort of started on the mix shift and increasing role of digital within the media business. If I could, I'd love to take that a step further and get a chance to get your thoughts, especially given all the places you've been in your career. A concern that many people have about what the long-term implications are of the increased mix shift toward digital and away from linear consumption in advertising. And there is a concern that investors have that maybe Nielsen gets monetized less in the digital side proportionate to the size of that market in linear. I don't know if you agree with that concern or what you think. I'd love to hear your thoughts on how we should think about the impact of that mix shift over time.

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

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Well, thank you, Todd. And of course, my decision to join Nielsen at the end of last year was because I believe Nielsen has exactly the right portfolio to grow as our clients move into digital. There are a lot more needs in digital. And a lot of work was done before I got here and we're picking up the pace in the past few months since I arrived. It's somewhat different.

So first of all, measurement continues to be important and I would say we've got a growing demand for independent holistic measurement. I think having the platform to create their own homework is of concern to the advertisers and they're being more vocal about it. So when we've got measurement assets like digital ad ratings, digital content ratings, subscription VOD content ratings, et cetera, these all help us serve the measurement side in a really important way. But I would also say that, that data is increasingly feeding the analytics platform and we should continue to also see growth in planning and optimization with tools like Digital Brand Effect, we've got with Gracenote, with the ACR, what we do with multi-touch attribution, et cetera. So we're seeing an increased growth on the analytics side from digital. When we look at digital, I do look at both the analytic side and the measurement side and I would tell you it's becoming a meaningful and growing part of the portfolio. This is a transition, but it's a transition our clients are going through, it's a transition the market is going through. And I do believe only Nielsen can do this. I think our installed base, what we already do with our panels gives us -- and our role in currency gives us a chance to and actually have responsibility to lead the industry. So it's a transition, but I think it's a good healthy transition that opens more doors for us over time, in terms of growth.

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Operator [18]

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Our next question comes from Matthew Thornton from SunTrust.

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Matthew Corey Thornton, SunTrust Robinson Humphrey, Inc., Research Division - VP [19]

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Maybe the first one, and I apologize if I missed this. Can you talk a little bit about local and rolling in some of the big census level data sets that guys you have, when we might see that and whether you'd expect that to kind of to turn the tide there? And then just secondly, you talked a little bit about China, kind of -- the headwind kind of reversing course here in the back half of the year. Can you just put a little meat on that just to understand again what gives you confidence in that turn, that would be helpful?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [20]

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So first of all, on local, as I said in my remarks, we're adding more data sets, both proprietary Nielsen data sets and acquired data sets and we're testing on improving those. So we're beginning to share the results not yet in a currency way. This is an industry move. We're working closely with the MRC. We do want to retain quality standards and independent accreditation on that. So we're working through that process. Certainly, in this year, we expect to make real progress and evolve what we're doing in local. I would also say as we're showing that to clients, they are signing on. So in the recent months, we've renewed a number of big local clients, including Raycom, Cox, Hearst and as I said, Univision and I would say that the pipeline is real strong. There is a lot of energy around where we're going in local and I do believe we're cracking the code there.

In terms of China, and I spent some time in there and planning to go there in a few weeks, again that's more of a connect business. And I would say, it's going to improve because we're expanding coverage, that we're measuring more places, both geographically and we've made real strides in e-commerce, which help revenue grow there. One of those opportunities, as I said, was the renewal with JD.com and that renewal gives us access now to much more timely data, allows us to move to weekly reporting and also launch analytic services, including an online to off-line price and promotion model. So I feel like we've got the right partners, I feel like we've got the right clients and a lot of the product opportunities (inaudible) made a lot of progress. And just judging from the number of clients JD is getting setting up and the pipeline there, I think the local team is executing quite well.

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Operator [21]

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Our next question comes from George Tong from Goldman Sachs.

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Keen Fai Tong, Goldman Sachs Group Inc., Research Division - Research Analyst [22]

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In your Connect business, your revenue declines are continuing to moderate, can you just elaborate on the overall health of the CPG end markets, both in developed and emerging markets? And what you would say the top 1 or 2 initiatives are internally to drive a return to positive overall constant currency growth here?

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

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Yes. So first of all, listen, I think it hasn't changed in the end markets, but I think both the retailers and the manufacturers continue to focus on value for consumer. And so that means that they're watching pricing and they're watching their offering, but they are making progress. I think in terms of our connect, what we are also seeing is a number of smaller players emerging, what you might call the long tail. And I would say there these sort of long tail sort of small and mid-sized clients are the ones that are growing the fastest. In fact, they grew 65% in the U.S. alone during the first quarter.

Secondly, in terms of the fact that they're focused on value means that they need to be more precise, so that's where we're seeing more focus on analytics. And our analytics business within existing clients did grow 55% off a small base in Q1. And then lastly, I would say, the end markets are also integrating and collaborating much more. So as retailers are collaborating with their manufacturers, there is a need for them to do that in a common way with a common set of data, and again, the Nielsen data is the only data that can really do that at scale. So we're seeing real growth there as well. So those are the operational things that are driving, as Dave said, the sort of improved performance in the U.S. and the growth around the world. I would say that should pick up as the connected system grows as well.

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Operator [24]

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Our next question comes from Bill Warmington from Wells Fargo.

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [25]

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So at the November 2017 Investor Day, the previous management team laid out a plan for $500 million in cost savings, about $400 million from automation and consolidation and another $100 million from SG&A. Now that you've both spent some time at the company, how are you feeling about the potential for cost savings at the business? Is $500 million still a reasonable goal? And if it's a reasonable goal, is it likely to be reinvested or does it have a chance to fall to the bottom line?

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David John Anderson, Nielsen Holdings plc - CFO & COO [26]

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So, Bill, let me start, just give you some perspective there, add a little bit to David's comments on productivity. First of all, as I mentioned in the first quarter results, we're very pleased about the fall through, if you will, of some of the favorability we had relative to our expectations on revenue to EBITDA and EBITDA margin and that reflects the focus on productivity and the delivery of productivity that we have. The second thing is that we really haven't provided an update to that prior -- the prior number from prior leadership. But I will tell you we're really confident based on what we've seen, what we're doing that we've got a real strong line of sight to deliver what we shared with you in our original 2019 guide in the walk -- in the EBITDA walk that we provided to you in terms of the gross productivity that we can deliver this year of that. Strong line of sight and actual in line programs that are going to deliver against those numbers. I think relative to the broader longer-term kind of potential, it's something that we look forward to updating you on at the right time. But right now, our real focus is just on executing and delivering against these 2019 numbers.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [27]

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Let me just add, to remind you, that's 370 basis points of gross productivity and we're very confident in that and are executing. What I would say is the best productivity is always going to come from improving the top line. I will not hesitate to invest in growth opportunities. At the same time, if we invest, we're going to invest with clear business cases and with accountability for that growth. So I would say it's not automatically just being reinvested. We're creating the opportunities to invest, but we're being pretty rigorous about really understanding what those investments are, whether they be client coverage or product, making sure that we (inaudible) as we do that. So I think that it will be far more transparent as opposed to just a sort of loose deal on reinvestment. And I'm really happy with the productivity that's giving us the chance to look at some of these, I think, really terrific opportunities to improve our growth rate.

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Operator [28]

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Our next question comes from Ashish Sabadra from Deutsche Bank.

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Ashish Sabadra, Deutsche Bank AG, Research Division - Research Analyst [29]

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So my question was about retiring -- retirement of legacy systems. David, if you can provide any feedback or if you have received any client pushback on retiring the legacy systems? And then you also talked about acceleration in the journey to single cloud-based architecture. Now that you've been there for a few months, do you have a feel for how long does the transition take in terms of timing?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [30]

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Yes. So on the last part, I would say I'm not yet ready to give you a final data on it, but with my prior experience and certainly, the folks who are helping us, you've got a couple of years to get a full transition completed. So we're certainly working on that. I'd like to make it a little sooner, certainly working on velocity, but some of these things just take cycles and internally some recoding to be able to work in the right way. And we want to do it right, not just task.

Secondly, on the retirement of legacy systems, I think we're working really hard for clients to understand the benefit of having Nielsen on a single architecture and the benefit of doing things in a more common and therefore, scalable way. One of those benefits is on the connect side that you can bring in other partners. So there is over 60 partners that have now signed up to be part of the connected system, which gives our clients a lot of opportunity beyond just the services from Nielsen to use that data. And similarly in media, as our clients get more robust and as they become digital first, being able to bring all those tools in is one of the benefits from this change. And lastly, I'd say in some of the legacy systems, clients just are thrilled to see us move to more modern systems and the benefit is immediate. The things that are at the front line that affect the way they operate, we have to work with them on that transition and we're doing that aggressively now.

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Operator [31]

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Our next question comes from Surinder Thind from Jefferies.

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Surinder Singh Thind, Jefferies LLC, Research Division - Equity Analyst [32]

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David, I just wanted to touch base on one of the first comments that you made to start the call. I think you indicated that you are pleased with the 1Q results but dissatisfied with the growth rate. Can you provide some additional color on the growth rate comment, maybe perhaps what you see is the long-term potential of the business or what might be a number that you guys are thinking about or that you would be satisfied with?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [33]

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So all I'm going to say is that the number is faster than right now, but I think if you get to specifics, that is part of the work we're doing with in the strategic review, actually it's helping us to sort out really where are the opportunities and what does the growth look like as we get more focused on fewer, bigger, bolder initiatives versus a lot of small ones. What I would say is we also look at the market growth rate in our end markets and we should at least be growing at those rates in order to maintain our relevance. So we're making sure that we are deeply embedded in the way metrics are monetized and we're deeply embedded in the analytics that help people get more efficient. So I think we're certainly looking at it from a market share and market growth perspective as well as organically what we believe our products can deliver. And at the right time, we'll come back with a specific number, that's certainly part of the strategic review process to get that right.

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Operator [34]

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(Operator Instructions) And I'll turn our call back to Sara Gubins for closing remarks.

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Sara Rebecca Gubins, Nielsen Holdings plc - SVP of IR [35]

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Great. Thank you, Carol, and thank you all for joining us on today's call. As always, we're available today and the days to come to address the follow-up questions. Thank you.

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Operator [36]

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This does conclude today's conference and you may now disconnect.