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Edited Transcript of NLSN earnings conference call or presentation 31-Jul-19 12:00pm GMT

Q2 2019 Nielsen Holdings PLC Earnings Call

New York Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Nielsen Holdings PLC earnings conference call or presentation Wednesday, July 31, 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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* Ashish Sabadra

Deutsche Bank AG, Research Division - Research Analyst

* Daniel Salmon

BMO Capital Markets Equity Research - Analyst

* Judah Efram Sokel

JP Morgan Chase & Co, Research Division - Analyst

* Richard Alan Kramer

Arete Research Services LLP - Senior Analyst

* Ryan C. Leonard

Barclays Bank PLC, Research Division - Research Analyst

* Surinder Singh Thind

Jefferies LLC, Research Division - Equity Analyst

* 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

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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 Q2 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 second 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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Thank you, Sara. Thanks, everyone, for joining us. Let me start with some brief high-level comments. I'll then let Dave review the second quarter results and provide some color on our expectations for third quarter and the remainder of the year. And then I'll come back for a brief update on our strategy and progress in both media and connect, and then we'll take your questions.

Let me start with the strategic review. We expect to conclude the review by the time we report our third quarter and we look forward to sharing the outcome with you then, if not earlier. The Board and management are working as quickly as we can to conclude. In the meantime, in parallel, we continue to focus on driving improved results and we're going to use the time today to update you on our progress in driving those results.

So speaking of results, our second quarter results again came in better than planned which reflect improved operating discipline and Nielsen's ability to execute. We had positive constant currency revenue growth in both media and connect. With a solid first half behind us, we are on track to deliver our 2019 revenue, adjusted EBITDA and free cash flow guidance. We are increasing our adjusted EPS guidance range and Dave will run you through these details. At a higher level, let me emphasize that we have 2 strong franchises that are essential to the media, retail and FMCG economies. Each of these businesses has greater potential, and the actions that we're taking and our investments in growth position us well to achieve that potential.

We have made some important moves on our transformation to being a more product-driven technology company. (inaudible) First, we moved our core national television audience measurement processing to a modern cloud-based infrastructure working alongside Amazon Web Services. The ability to now more easily scale big datasets will drive flexibility and velocity for our product development, which enables us to deliver more and enhanced value to our clients.

Secondly, on the Nielsen Connect side, we are rolling out the Nielsen Connect platform which is transformative for our clients. We recently went live with a very large client as their system of record, and hundreds of clients are using key components of the platform. Our clients are excited about this, and our relationship with Microsoft Azure as our cloud partner is helping to be more essential through our clients in connect.

And third, we continue to solidify around cross-functional leadership teams that focus on product components creating the most value for our clients as we continue our transformation to be a product-centric company.

Let me now turn the call over to Dave to review the quarter, and then I'll come back with an update on each of our segments.

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

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Thanks, David. Let me start with Slide #5. I'm going to just take you through some of the highlights and what I think are some of the key takeaways. We're obviously pleased with the results for the second quarter which were slightly ahead of expectations. It's really a tribute to the organization. If you think about the dynamic nature of the environment that we're operating in, the fact that we're able to deliver these numbers, we feel very, very proud of.

Revenue grew 1.2% on a constant currency basis, reflecting growth in both media and connect in the quarter. Year-over-year margin rate improvement reflects better revenue but also significantly the results of our productivity programs that are clearly working.

Adjusted EPS was $0.53 in the quarter. It was driven in part by EBITDA performance but also helped by a lower effective tax rate in the quarter. I'm going to talk about that a little bit later when I talk about guidance for the quarter coming as well as for the full year.

Free cash flow of $118 million came in within our expected range. So as a result, we're reiterating our revenue, adjusted EBITDA, free cash flow guidance for 2019. And as David said, we're raising our adjusted EPS guidance. And again, I'll provide some more insights on that in a few minutes.

If you go to Slide #6, let's take a look at the second quarter highlights. Revenue of 1.2% growth for the quarter on constant currency. It compares to our expectation of flat to up slightly, so we're really pleased obviously with that performance. We saw improved trends in both media and connect in the second quarter, both growing year-over-year on a constant currency basis. Revenue increased 0.7% on an organic constant currency basis. And if you exclude the impact of onetime items in the year ago period, organic revenue grew 1.7%.

For the second quarter, adjusted EBITDA was $470 million. That's up 2% constant currency. And adjusted EBITDA margins were 28.9%, up 20 basis points on a constant currency basis. And again, this compares to our expectation of roughly flat margins in the second quarter. So obviously very, very pleased with that performance.

Now margins benefited from positive performance on productivity, partially offset by investments that we've made in our people and in our businesses. And we've referenced both of those, as you recall, in our original guide for the year. This is consistent with our first quarter performance and we believe will translate into full year benefit. And again, I'll talk more about that when we discuss full year guidance.

The second quarter tax rate of 15% was well below the prior 33% to 35% forecast for the full year, and it relates specifically to several discrete items in the quarter regarding both tax contingencies as well as settlement of a major tax audit. And if you exclude these items, our tax rate was 34% in the second quarter.

Adjusted EPS, $0.53, compares to $0.47 in the second quarter of '18, primarily again reflecting tax favorability, partially offset by higher depreciation and amortization year-over-year.

Cash flow of $118 million compared to $124 million last year, largely in line with our expectations. In the quarter, we had lower restructuring but we had some offset from working capital timing, primarily the timing of receipts versus the timing of payments in the quarter.

So overall, the second quarter results reflect, as David said, we think very, very good execution by the organization. And again, we want to thank our associates around the world for their focus, their hard work and their dedication during this period.

So now let's start with media on Slide #7, just go through highlights of each of the 2 segments. Revenue for media for the second quarter was $856 million. It was up 2% year-over-year on a constant currency basis. If you adjust for M&A and the impact of TV Brand Effect, media revenue would have been up 2.2% year-over-year. Audience Measurement was up 4.2% constant currency. We continue to see strength in National TV, double-digit growth in Digital, but as expected, local was down year-over-year and audio was down slightly year-over-year.

Plan/Optimize was down 3.3% constant currency. If you adjust for M&A and other items, it was down 2.6% compared to the second quarter last year. Significantly, the telecom business has been under pressure, and we also saw some pressure in Gracenote due to a tough comparison in the second quarter.

Media's adjusted EBITDA was $371 million, up 2.2% constant currency. And importantly, margins at 43.3% for media were up 7 basis points constant currency. So productivity more than offset some of the incremental investments that we're making in the segment.

Going to Slide 8, let's just briefly highlight connect performance. We saw strength in measure offset by some continued weakness in predict and activate. The connect revenue of $772 million was up 0.4% constant currency. The impact of M&A in the quarter for connect was minimal, but onetime items from a year ago were a drag on revenue of 90 basis points.

Revenue in measure was $546 million, up 1.7% constant currency. It reflects strong performance in our retail measurement services and also some improved trends that we saw in the quarter in China. And notably, our omnichannel and retailer initiatives are performing well.

Revenue in predict/activate was $226 million. It was down 2.6% constant currency but less of a decline than we saw in the first quarter. While we continue to see pressure in the short-cycle consumer insights and innovation business, the declines have lessened significantly and we expect that level of improved performance in the second half of the year.

Developed markets revenue was down 0.4% in connect, constant currency. We continue to see declines in the U.S. and stable trends in Western Europe. Emerging markets were up 2% in the second quarter. China improved, as I mentioned, in the second quarter again. So relatively easy comp last year. Now we expect China to continue to improve during the year helped by expanded coverage.

Connect adjusted EBITDA was $109 million, up 0.9% year-over-year. Adjusted EBITDA margins were 14.1%, up 8 basis points constant currency, driven again by productivity initiatives.

So let's go now to Slide 9, talk about the outlook for 2019. We're maintaining our guidance, as we've said, for revenue, adjusted EBITDA, free cash flow. And we're increasing our adjusted EPS guidance. This guidance includes total company constant currency revenue flat to up 1.5%. Media and connect are consistent with our previous guidance; I'm going to spend just a little bit more time on that in just a minute.

We continue to see expected adjusted EBITDA margins in the 28% to 29%, but based on the first half performance and our outlook for the second half, we expect to be at or above the midpoint of that range for the full year. So adjusted EBITDA margin will be driven by significant productivity, partly again offset by reinvestments that we're making in the businesses.

Adjusted earnings per share are expected to be in the range of $1.70 to $1.80. This compares to our previous range, you'll recall, of $1.63 to $1.77. So we've lowered our 2019 GAAP tax guidance to 28%-29% in light of the first half actuals, and also our expectations for second half GAAP tax rate in the range of 32% to 34%.

We've also lowered our forecast for interest expense given the current interest rate environment, but we've also increased our forecast for depreciation and amortization expense. This relates to timing of internally developed software initiatives, and details around these changes are in the appendix of our slides.

Lastly, we're going to continue to expect free cash flow to be in the range of $525 million to $575 million. At the midpoint, it will be roughly flat with 2018. And as we discussed, the key drivers are going to include, for 2019: Lower incentive comp, payouts, lower retail payments, offset in part by higher cash -- net cash interest and also cash taxes.

Turning now to Slide 10, the segment outlook for media. We continue to forecast 2% to 3% constant currency revenue growth. We expect Audience Measurement to be at the high end of the 2% to 3% revenue growth range. While plan/optimize, we now forecast to be at the low end of the 1% to 2% range. Telecom is a key pressure driver on the plan/optimize outlook.

In connect, we continue to forecast revenue to be minus 2% to flat, with measure coming in towards the high end of the minus 1% to plus 1% range, and predict/activate in the previously provided minus 4% to minus 2% range.

Finally, let's turn to Slide 11 and let me talk about what we anticipate for the third quarter, just give you a little bit of framework in terms of how to think about what we're seeing and what we expect. We expect revenue in the third quarter to be up slightly year-over-year in constant currency. It includes the year-over-year growth rate accelerating in the third quarter for media and assumes a slight decline for connect.

For the third quarter, we expect margins to be flat to down slightly year-over-year. We're seeing the benefit of productivity which provides support for investment in growth initiatives, such as digital and media, and the continued deployment of the connect platform in connect.

I'd also note that we continue to anticipate the conclusion of further tax audits in various countries in the second half. If this occurs, similar to the second quarter, it could have a meaningful impact and translate into an effective book tax rate below the 32% to 34% guide that I referenced for ETR for the second half of '19.

And finally, we expect third quarter free cash flow to be flat to up slightly on a year-over-year basis, and as we discussed with you, we've got a lot of focus on cash in the organization.

So in summary, we're obviously very pleased with the second quarter and first half results. We're confident in our plan and the full year outlook. We hopefully come across with a commitment to deliver on all fronts. We look forward to updating you on our continued progress.

And with that, I'd like to turn it back over to David for his further comments.

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

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All right. Thanks, Dave. I really appreciate everything [taking plan here]. Let me say, as I said before, that we have 2 strong franchises that are essential to the media and consumer packaged goods/retail economies. We are taking actions to position each of our businesses for improved performance as we move ahead. So let me focus on each segment.

I'll start with Nielsen Global Media. Our metrics and data are essential to creating trust in the media ecosystem, providing media owners and advertisers with a clear picture of exactly who consumes content and advertising, how many times, whether they engaged and how this translates into growth for their business. Since running Nielsen, I have spent a lot of my time with CEOs and media owners, digital-first companies, advertisers and agencies around the world. What I hear is that media is more fragmented than ever before and the need for a single source of truth is more critical today than ever. So I have increased conviction that the media industry needs one media truth across the entire value chain and that only Nielsen can do that.

Looking at the business highlights, let's start with Audience Measurement. We saw strength in both linear TV and digital video measurement. Digital was driven by growth with our advertiser and agency clients, reflecting the critical nature of independent third-party measurement and a further progress towards currency status across all platforms.

Demand is growing for audience-based buying, which is selling high-value targeted audiences in linear advertising as advertisers seek to maximize their return on investment. Nielsen is a leader in this space. Our advanced audience solution provides much-needed industry consistency and transparency on advanced TV segments. As one example, we recently signed Horizon Media as the first agency client for this solution, which unifies the planning, activation and measurement of audiences beyond age and gender.

We're also focused on bringing this same level of transparency to addressable television which uses dynamic ad insertion to target ads 1:1. We're leveraging our investment in the Gracenote ACR technology and in Sorenson Media to bring a scalable solution to market supporting the direction the market is headed.

Also, subscription video on demand is growing. You may have seen recent headlines about increasing competition as traditional media companies enter streaming. Our clients are increasingly using Nielsen's SVOD data to help maximize the value of their content. And here, for our proof point, I refer you back to Comcast's last earning call, where they referred to Nielsen data in discussing their decision to remove The Office from Netflix in order to stream it exclusively on their own platform.

And on Audio, we've also seen a lot of potential. Media is not only about what consumers watch, it's about what they listen to, and consumers are listening across multiple platforms. We recently launched our Podcast Listener Buying Power Service, which enables media sellers to better communicate their podcasting value proposition to advertisers. And in media -- or in Audio, we're also collaborating with iHeartMedia in efforts to advance our audio measurement and attribution and more deeply integrate audio into our cross-platform analytic initiatives.

Let me turn to the plan/optimize side of media. As Dave mentioned, we expect plan/optimize to come in at the lower end of the range, and I'm very focused on making sure we take all the right actions to improve both product and sales execution in order to realize the full value of our plan and optimize segment.

We have had some good client wins that demonstrate the ongoing need for solutions to help clients optimize their media spend in a complex marketplace. For example, we're doing innovative work across a broad range of clients, including Visa, Johnson & Johnson and a major consumer electronics company. We're working with partners to provide our clients with actionable intelligence across a broad range of verticals, and we're continuing to expand on this. Nielsen's relationship with J.D. Power in auto is a great example, along with our recently announced new strategic partnership with Quotient, a leading digital-first provider of retailer transaction data.

And lastly, we're working on driving operational excellence with our global go-to-market strategy for our ROI products, which would allow us to provide long-term strategy, including lift and attribution, asserting ourselves as one media truth across the value chain not only for measurement but for planning and optimizing that media. Altogether, these actions are aimed at providing greater value to our clients and improved performance for Nielsen.

At media, let me spend a minute on global, which is another source of growth for us. We're excited about our recent expansion in our work with YouTube. We expanded advertising measurement on YouTube's mobile app with Digital Ad Ratings into 26 additional markets, so we now have a total of 34. This is a major step forward for Nielsen and for the industry because it brings advertisers in these markets the comparability, coverage of transparency they need to maximize the impact of their digital media around the world. Facebook also mentioned Nielsen on their recent earnings call, citing our data to highlight the success of mobile-first video ads on their platform in the U.K., another proof of Nielsen's essential value.

To sum up on media, there's never been a more important time for one media truth. Clients are looking to transact in new and different ways, and we are enabling them to do this with trust and confidence. Audience Measurement, the foundation of the Nielsen business, remains solid across TV, audio and digital. In plan and optimize, we are focusing on improving the value we offer to clients, which should drive accelerated growth. And global remains a key opportunity as we bring more capabilities into the global market.

Let me now turn to Nielsen Global Connect. I've also been able to spend a lot of time recently with many of the world's largest retailers and fast-moving consumer goods companies. The common thread is that they are all focused on being more data-driven as the rise of e-commerce and product fragmentation impacts the market. Nielsen collects the most complete and robust data on consumer behavior, and we have the most advanced tools to make sense of that data through our Nielsen Connect platform.

Along with the deployment of Nielsen Connect, we are also investing in our go-to-market organization with clear accountability between delivery, service and sales. And we are seeing this is already positively impacting results as our organizational model matures. In the second quarter, we made progress on these key initiatives and drove positive revenue growth.

Let me talk about some of the business highlights. On the measure side of connect, we continue to strengthen our offerings on top of our unique position in the global marketplace. More than 70% of our connect revenues comes from non-U. S. markets. The U.S. turnaround continues to be a big focus, and we've significantly strengthened our U.S. market position compared to where we were at this time last year.

Our progress on the Nielsen Connect platform, retailer collaboration programs, coverage enhancements, including e-commerce, including omnichannel and the modernization of our operations in both developed and emerging markets is leading to productive renewal discussions and new customer acquisitions.

Let me provide an update on the retail side of this. In addition to our successful program which we continue to grow with Walmart and Sam's Club, earlier this year, we launched a vendor collaboration program with Meijer Inc., a regional supercenter chain, where we service the preferred partner. This month, we expanded that program to include a bundle of connect platform apps which enabled data to be accessed by more users and delivering increased speed to insights for Meijer and its partner. Our retailer programs are leading to strong growth also with long-tail manufacturer clients who find us easy to work with.

Coverage expansion is also a continued focus, and let me highlight 3 areas there. First, in e-commerce, Nielsen is the industry leader in the United States with the largest e-commerce panel, providing top manufacturer and retailer clients with the e-commerce measurements they need to run their businesses. And we're making big progress in a number of other markets on e-commerce, ranging from China to Turkey. Second, earlier this month, we launched our total U.S. pet retailer channel measurement, increasing our coverage in this important and growing space. And lastly, another big market, China, we're undertaking the largest coverage enhancement in Nielsen China's history to better capture the impact of rapid urbanization and shifting populations. And the reaction to these upcoming improvements has been positive from both our local and multinational clients working in China.

On the predict/activate side, our trajectory also improved in the second quarter, but as with plan/optimize, we do have the potential [to capture]. To enable this, we are focused on leveraging our measurement data and the Nielsen Connect platform to provide scaled analytics to clients, specifically around our suite of analytic services that help clients with distribution, assortment, pricing and trade promotion.

Retailers and CPG manufacturers across the globe are now utilizing these new scale services, and the feedback has been quite strong. This ranges from global manufacturers, such as Unilever and Johnson & Johnson, that are working with us across multiple European markets; local giants, such as Yili, the Chinese dairy manufacturer; and retailers, Carrefour and [Ocado] in Latin America and [Achen] in Russia.

In the United States, the use of the connect platform has increased significantly over the last quarter by our retail partners. Retailers that represent over 2/3 of the revenue in the U.S. CPG industry are now using Nielsen's machine learning merchandising applications to reset their assortments, get the right everyday prices and optimize their promotions. As we ramp up these scaled analytic services, we are also investing in our marketing and sales teams to drive momentum in this underpenetrated suite of services in both our developed and emerging markets.

Let me sum up on connect. Retailers and manufacturers are both looking increasingly for data-driven solutions to help them compete more effectively. Nielsen has the key initiatives in place to strengthen our competitive position and allow us to add more value to these clients. We are executing well and we have more we can do to accelerate growth.

Let me turn to the process side and talk about operations and productivity. This an equally important area of focus as it creates the ability to invest in key growth initiatives. As Dave mentioned, our productivity programs are working. In media, as I mentioned, migrating our core national television audience to the cloud was a key milestone in modernizing our infrastructure and driving productivity. And in connect, we are making good progress on the product tech rationalization with a focus on rightsizing our on-premise footprint. We're executing well on our field automation and we're also growing throughput in our 3 super hubs which are far more productive than the prior models.

Let me sum up. First of all, as I said at the beginning, we are working hard on the strategic review which we expect to conclude by the time we report our third quarter, if not before. I hope you'll understand that we don't have anything more to say about the review today. At the same time, our organization is rallying around the key initiatives we have in place to achieve greater potential in both media and connect. Our solid first half gives us confidence in our ability to deliver on our 2019 guidance, and we are making investments necessary to generate greater growth, profitability and shareholder value over the longer term. And I look forward to continuing to update you on our progress.

Let me now turn it back to Sara for Q&A.

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

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Thanks, David. Carol, can we open up the line for questions, please?

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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 Toni Kaplan from Morgan Stanley.

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Toni Michele Kaplan, Morgan Stanley, Research Division - Senior Analyst [2]

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What's led you to -- what's led to the increased confidence that you'll complete the review by the third quarter earnings? I know you could set sort of whatever deadline you want, but I guess what's made you determine that it's imminent? And relatedly, today, you seem to have talked about the 2 segments as 2 businesses a little bit more separately than you have in the past. So maybe I'm reading too much into it, but are you suggesting that you're finding in the review that the best way to unlock value is for the businesses to be separate?

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

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Yes. Listen, I'm not going to comment on a hypothetical split. And as I said on the call today, we do expect the review to be concluded by the time we report on the third quarter. There's really nothing more to say. The confidence is just because we've made good progress.

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Operator [4]

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Our next question comes from Andrew Steinerman from JPMorgan.

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Judah Efram Sokel, JP Morgan Chase & Co, Research Division - Analyst [5]

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This is Jude on for Andrew. We appreciate the additional color in terms of the timing for the strategic review. I wanted to ask a business strategy question that perhaps you've been able to reflect on through the review. We were wondering what you've learned about the business at this juncture through the review. In particular, what areas of the company have been most intriguing to other firms that you've been in talks with? And what areas have given them room for pause? And maybe how have these perspectives helped shape your business strategy going forward?

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

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Yes. Listen, I think the review has been helpful and so has been all the client input. I think it's given us a lot of confidence in the value of one media truth and the need to connect those dots and our role in the overall industry. And I think, certainly, anybody who's looking to do business sees just how essential we are, which has given us great confidence in the franchise.

And I would say on the connect side, I think there's also been a view that there are changes, e-commerce is growing and there's a need for a more complex data set, which Nielsen has. And I also believe some of our modernization has been important to understand how we can provide that productively and how we can connect with the other systems that retailers are using. So I'd say the market demand has been very positive. But I think anybody who's investing in the company, including all of you, should understand just how essential Nielsen is.

As we dig deeper, I think we've also learned a lot about our operations and how to improve our operations. And I think having a deep dive has certainly made us a stronger company operationally and organized more of our data in a consistently, easy-to-use manner by our operators.

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Operator [7]

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Our next question comes from George Tong from Goldman Sachs.

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Unidentified Analyst, [8]

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You have [Ryan] on for George. I just had a question around your margin target. I know back at your Investor Day in 2017, you had a longer-term target of approximately 35% driven by some of your cost savings and productivity improvements. But obviously, it's been a little bit lower than that in the recent quarters. So do you think that 35% is still an appropriate target? Or has that number changed as you're looking to reinvest to support growth?

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David John Anderson, Nielsen Holdings plc - CFO & COO [9]

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Yes. We really haven't established or reestablished long-term targets for the company, and certainly nothing that we -- as you know, we've communicated externally. The focus is, as David said, it's really on execution right now with a lot of priorities that are translating to the results that you see, and importantly, not only slightly ahead of our expectations, ahead of prior year in terms of EBITDA margin while supporting reinvestment in the business. But as I said in our guide for the full year outlook, we expect now to be at the mid- to the upper end of the guidance range that we had previously communicated, the 28% to 29% for 2019. So we're really focused on that and obviously very committed to delivering around that. So that's really, I think, the sum and substance of where we are.

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Operator [10]

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Our next question comes from Manav Patnaik from Barclays.

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Ryan C. Leonard, Barclays Bank PLC, Research Division - Research Analyst [11]

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Yes, this is Ryan on for Manav. Can you hear me?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [12]

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Yes, we can.

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Ryan C. Leonard, Barclays Bank PLC, Research Division - Research Analyst [13]

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This is Ryan on for Manav. Just a question on, obviously, we've seen a lot of issues around kind of privacy and some of the publishers themselves with how they treat data. Have you seen any opportunity in the past year or so, just regarding kind of your third-party nature? And any opportunities there, just given your expertise, especially on the privacy side?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [14]

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Yes. Certainly, I would say on the media side. As everybody has been dealing with privacy, it has, I think, caused all the players to add value in independent third-party measure, one that can be done without PII and that can be done with things like panels, which are very privacy-friendly and very opt-in. And I also think, as everybody needs to transact with each other, having a single truth, so that as a currency has become more important in more aspects of media. So certainly, I think privacy in the broader kind of legislative environment around that certainly does create more need for Nielsen and more need for independent third-party validation.

I would say on the connect side, we're also seeing that as folks get more personalized in their advertising, they want to have a better truth set of what's going on in market share. Our investments in coverage, our investments in e-commerce, our investments to look at this globally has certainly been more important to advertisers as they become more data-driven, and to reach others as they become more data-driven, on the connect side.

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Operator [15]

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Our next question comes from Dan Salmon from BMO Capital Markets.

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Daniel Salmon, BMO Capital Markets Equity Research - Analyst [16]

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Dave, I wanted to ask a little bit about Amazon. We know they're an important client already as they become a bigger player in media and advertising. But their core business is accounting for an increasing share of the type of commerce that's important to connect. However, they're not -- still not a partner in your methodology in quite the same way as, say, Walmart is. So I wanted to ask about your broader relationship with Amazon, both as a customer and a partner, how that's evolving?

And then, of course, the news in the quarter was the move to AWS. And would just love to hear more detail on that for your business, but also how that may affect the relationship of your trajectory with the -- trajectory of your relationship with Amazon.

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

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Well, listen, I think Amazon needs to speak for itself. We don't generally talk about specific partners in great detail, we let them do that. So what I would say is there is a very good relationship across Amazon. I think, as they -- as you say, as they're in categories we cover on the connect side, there is a good relationship around the world on that. As they make investments like Whole Foods, that also creates an opportunity. So we work well.

I think AWS is the media platform, it's 2 sides to Amazon. I would say there's -- it's not totally linked between the 2 sides. But I would say they are a good partner and we're working increasingly productively with them.

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Operator [18]

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Our next question comes from Tim Nollen from Macquarie.

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Timothy Wilson Nollen, Macquarie Research - Senior Media Analyst [19]

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I wanted to ask on the media side. It seems you're getting a bit more into some actual media buying. I think the acquisition of Sorenson perhaps gets you a bit more into that space. Your business traditionally has been third-party independent measurement. But now, correct me if I'm wrong, but you are getting a bit more into what's called the activation of that. I just wonder, do I have that right? Is this a strategic shift? Is this something that really enhances the business? And does it change your relationships with any of your traditional customers at all?

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

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Yes. I think you might be extending too far. We clearly believe that one media truth requires independent third-party measurement and for us to not be a principal actor in buying. Sorenson is a set of technologies which enables addressable TV buying and selling, and so we'll be enabling that and licensing that, but we're not going to have a principal position. I think the market's counting on us to be the scorekeeper and referee of media, not playing on the field.

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Operator [21]

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Our next question comes from Todd Juenger with Sanford Bernstein.

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Todd Michael Juenger, Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst [22]

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Can I maybe, Dave, explore a little bit with you on the tech stack side, stepping back a little bit. It seems to me that to achieve your vision of a, I think you say products-driven technology company, that the technical underpinnings are super important to achieve that. So I'd love to hear your thoughts on the technology you inherited and how that has been designed. And we saw obviously the move to AWS which you were just talking about. And how that compares to, if you could build it from scratch yourself, what it would look like to be ideal for what you want to do? Which brings me to the heart of the question, which is what will it cost you over time to get from where you are today to where you would like to or need to be? And how will you evaluate the ROI on that? Would love your thoughts.

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

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Yes. So listen, if you could start from today, technology has evolved a great deal. And you'd start with a collection of well-built microservices with interchangeable components living on public clouds, so it's scaled to the earth -- to the moon at no incremental cost. But we don't have the chance of starting from today. We have a legacy system, like all legacy companies. And I think conversely, our legacy is a great strength because our years of history, our knowledge of data, our establishing the currency are also important. So we have to manage a migration in that direction, and it's a migration that other legacy companies need to do. And quite honestly, to be talking about public cloud in 2019, it's a bit late, but we're getting there.

And I would -- what I would say I'm encouraged about the company has really rallied in the last 7 months to take a bunch of very good plans that existed and move and move quickly. And we've gotten partners who stepped up to help us to do that. So we are moving to exactly that kind of system, which is a single architecture across our media platform, and quite honestly, it's an architecture across connect, a single data lake, services that can be reused, which allow us to scale at a much faster rate.

So it can get there. I think there's plenty of history of companies that have migrated a legacy over. It just takes conviction and courage and quite honestly a fair amount of top-down management. I am very impressed by the tech team at Nielsen. I think that some of these investments were smartly made before I got here. And I've really enjoyed rolling up my sleeves with them and engaging on how we get there. And I think the whole company has rallied to do that. So I think we're in very good shape. We're actually a little ahead of where I would have hoped to have been 6 months into my tenure, but we have a ways to go.

In terms of cost, I think the good news about this migration is the technology has evolved far enough that you can do it without sort of some big increase in expense and then you push it out the other end. We don't have to redo everything. We're migrating things over time. I highlighted the movement of the core ratings because that's a big module, and it shows we can move. We can move the biggest and hardest things and make them work well in a modern architecture and still hit our numbers. So this has just been baked into the way we operate the business. We don't intend to come tell you we need a big restructuring or something to get there. We're just baking this into the way we design our products.

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David John Anderson, Nielsen Holdings plc - CFO & COO [24]

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And David, just maybe just add real quickly into that, and it's a really good point because it's consistent, I think, Todd, with what we've discussed today, which is productivity is so key. Generating gross productivity allows us to reinvest in terms of priority for growth initiatives, as well as David said, in terms of the technology -- or call it the technology transformation. So that's the road map that we've developed, that's the road map that we created, and we want to manage that intelligently and still deliver the kind of earnings at or above consistently. So that's what we're focused on doing.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [25]

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Yes. So the last thing I'd say is the thing I'm celebrating internally most would probably not mean anything to you, but we're celebrating when we sunset technology and turn it off. That's the way that you migrate without having cost. The challenge is both to try to maintain the old system and [then you] get duplications. So we are very focused and celebrating the retirement of old technology, and that's actually how I think you'll see us become modern much faster. And we're also hitting the margin targets.

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Operator [26]

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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 [27]

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So we saw connect positively turn, inflect the -- but -- sorry. Connect growth reflected positive in the quarter, which positive, which is good. But you talked about a slight decline in connect in the third quarter. Just wanted to better understand, is that just conservatism just given that you continue to see improvement in China? Anything in particular which will cause the growth to decline again in the third quarter?

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David John Anderson, Nielsen Holdings plc - CFO & COO [28]

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Yes. I don't think there's really anything that stands out there. I think overall at least, we're very, very pleased with how the business has performed, its demonstrated growth in the second quarter. We're really talking about, I think, just a little bit of variability on a quarter-over-quarter basis. Some of that has to do with a tougher comp in the third quarter of last year. So I wouldn't read too much into that, just make sure that you guys have an expectation in terms of how the compare is going to be, third quarter revenue for connect compared to prior year. So that's nothing that -- I wouldn't point out any single geography or any particular item related to that guide.

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Operator [29]

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Our next question comes from Surinder Thind from Jeffries.

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Surinder Singh Thind, Jefferies LLC, Research Division - Equity Analyst [30]

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When I kind of look at the midpoint of your guidance and I look across both segments, both media and connect, it seems like you're seeing stronger results in the measurement, which is the hard data and arguably the more discretionary offerings around planning are maybe seeing at the low end of that guidance. Any color you can provide here? Is there just a bit of a wait-and-see approach that you see perhaps from clients? Or any color would be helpful.

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

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Yes. So first of all, in the plan/optimize side of media, or predict/activate, there were a series of acquisitions made over time. I have not seen all the work done on integrating those into single platforms. That is what we're in the middle of. And that's a place where, quite honestly, we're a little behind where I would hope to be. But we're on it and we're making good progress. But you have to have the platform [installed] in order to sell them. So I would say we've got some product execution to integrate that. And then I would say on the go to market, it's a different muscle, sometimes different buyer.

So I would say it's largely execution on both product and go to market. We are all over that to make sure that we realize the potential there. It's a really important segment for our future, and I think delivering on our purpose about one media truth, delivering on our purpose around really helping to create markets in the consumer space, we have to do both sides. And we have the tools and we have the pieces, we just need to put them together into one solution, which is why that tech modernization is actually very tied to the performance in those segments.

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Operator [32]

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Our next question comes from Richard Kramer from Arete Research.

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Richard Alan Kramer, Arete Research Services LLP - Senior Analyst [33]

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Just a quick one. What more can you do to get access to in-app inventory and to understand better the audience that's within apps? It seems to be an area where you will see increasing amounts of time and audience shift, and I'm wondering what more tech, either through acquisitions or technology you could do to get access to that audience to rate it properly.

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

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Yes. Look, it's a great question. Thank you. Technically, we certainly are focused with panels on things like streaming meters so that we understand what streams. So when the app leads to video and the videos stream, we've got ways of knowing that. Certainly, some of the technologies, like ACR, help us as well. So we are -- we're certainly, I think, building core technology around that to make sure that whether it's in the home or out of home, that we're getting that metric. And I think they continue to get stronger, which is why earlier, when I mentioned companies who were mentioning us their earnings reports, those were all videos and apps that they were quoting. So I think we are certainly providing the best data on that and we continue to work to make that better.

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Operator [35]

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I'll now turn the call back to Mr. Kenny for closing remarks.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [36]

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Okay. Thank you. And thank you for the great questions. I appreciate it.

To sum up, we are working hard on the strategic review, which we expect to conclude by the time we report our third quarter, if not before. And I hope you'll understand that we don't have more to say about that today. What I would also say is that if I -- as I've spoken to our clients, both large and small, it's crystal clear that reliable data sets, key sources of truth are increasingly essential to great decision-making. They're not just key to driving growth for our clients, but they also help power a healthy media and consumer market around the world. In addition, we're working hard to align around the key initiatives that will enable our clients to make great decisions for their businesses long into the future.

I look forward to speaking to all of you soon about the outcome of our strategic review. And meanwhile, thank you for joining us and let's get back to execution. Thank you.

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Operator [37]

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