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Edited Transcript of NLSN earnings conference call or presentation 27-Feb-20 1:00pm GMT

Q4 2019 Nielsen Holdings PLC Earnings Call

New York Mar 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Nielsen Holdings PLC earnings conference call or presentation Thursday, February 27, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David L. Rawlinson

Nielsen Holdings plc - CEO of Global Connect Business & Director

* David W. Kenny

Nielsen Holdings plc - CEO, Chief Diversity Officer & Director

* Linda K. Zukauckas

Nielsen Holdings plc - CFO

* Sara Rebecca Gubins

Nielsen Holdings plc - SVP of IR

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Conference Call Participants

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* Andrew Charles Steinerman

JP Morgan Chase & Co, Research Division - MD

* Ashish Sabadra

Deutsche Bank AG, Research Division - Research Analyst

* Daniel Salmon

BMO Capital Markets Equity Research - Analyst

* Jeffrey P. Meuler

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

* Manav Shiv Patnaik

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

* Matthew Corey Thornton

SunTrust Robinson Humphrey, Inc., Research Division - VP

* Richard Alan Kramer

Arete Research Services LLP - Senior Analyst

* 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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Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2019 Nielsen Holdings plc Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Sara Gubins, Senior Vice President, Treasury and Investor Relations. Thank you. Please go ahead.

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

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Thanks, Lisa, and good morning, everyone. Thank you for joining us to discuss Nielsen's Fourth Quarter and Full Year 2019 Financial Performance. I'm here with our CEO, David Kenny; and our CFO, Linda Zukauckas. A slide presentation that we'll use on this call is available under the Events section of our Investor Relations website.

Before we begin, I'd like to remind all of you that our remarks and responses to your questions today may contain forward-looking statements, including those about Nielsen's outlook and prospects that are based on Nielsen's current expectations. Our actual results in future periods may differ materially from those currently expected because of a number of risks and uncertainties, including those identified in the Risk Factors section of our most recent annual report on Form 10-K and in subsequent reports filed with the SEC, which are available on our website. We assume no obligation to update any forward-looking statements except as required by law.

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

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

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

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Thank you, Sara. Good morning and thank you all for joining the call.

I'll start with the key topics for today. First, I'll cover our 2019 accomplishments at a high level. And 1 of our 2 accomplishments was strengthening the management team. I'm especially happy to introduce you today to 2 key critical executives for Nielsen's next chapter, David Rawlinson and Linda Zukauckas. David is the leader of Nielsen Global Connect and will be its CEO following the separation. David sat on the Nielsen's Board of Directors since 2017 and brings a digital perspective, a strong international background and a track record of driving growth.

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David L. Rawlinson, Nielsen Holdings plc - CEO of Global Connect Business & Director [4]

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Good morning.

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

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Linda is the CFO of Nielsen, and she'll remain as CFO of Nielsen Global Media following the separation. Linda most recently served as the Deputy CFO at American Express.

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Linda K. Zukauckas, Nielsen Holdings plc - CFO [6]

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Good morning.

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

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Second, we're going to have an update on the planned separation of Nielsen Global Media and Nielsen Global Connect, then I'll turn the call over to Linda to review the fourth quarter and full year 2019 financial results as well as our 2020 guidance, which is consistent with the medium-term growth plan discussed in November. We are being prudent, and our guidance reflects the disciplined transaction -- transition path that we are on in Media and Connect. Following that, I'll update you on our key strategic initiative and how that shapes our path forward. David Rawlinson will also share some of his early thoughts on Connect.

On 2019. 2019 was a year of tremendous progress at Nielsen, and I'm extremely proud of the way our teams executed. We delivered solid results, achieving or beating the goals we set out for 2019. Full year constant currency revenue growth of 1.7% was ahead of our guidance with growth in both Media and in Connect. Importantly, Connect grew organically for the first time since 2016 and is strongly positioned now to continue that growth. Adjusted EBITDA and free cash flow were in line with our guidance. Adjusted EPS beat our original forecast, which we've provided a year ago last February. Our results reflect increased financial discipline and operational progress.

During 2019, we aligned our technology and operations within each segment, which drove greater end-to-end accountability and visibility, and we began shifting our culture to that of a product-driven technology organization. Specifically, we developed clear product road maps, prioritizing the products that our clients need most. The digitization of media through streaming and the digitization of retail through e-commerce create new opportunities for information services to help our clients in both businesses. We also made good progress toward modernizing our architecture and retiring legacy infrastructure at Media and Connect, each execute on their vision of operating on single global platforms. We also built a stronger and more accountable sales culture, which is needed to bring innovative new products to new and existing clients in both businesses. And finally, in November, we concluded our strategic review and announced the plan to separate Nielsen Global Media and Nielsen Global Connect.

So on that, I want to also update you on the planned separation. Our Board concluded that this is the best path forward to enhance strategic focus, growth and to drive long-term shareholder value. We're focused on the successful separation into 2 strong independent companies, and this work is progressing well. Since we were last with you when we reported Q3 results, we've added 3 new independent directors, growing our Nielsen Board to 12. And we'll be ready to stand up a Board for Connect as we move towards the separation. We have dedicated internal teams with external experts responsible for planning and supporting operational readiness of the new structures of each company.

Over the next few months, we will focus on several critical steps, including establishing public company capabilities and functions for Connect; separating our financial systems, our global facilities and our IT infrastructure, ensuring that each of our associates have an understanding of their role within each of the companies; and establishing the new legal entities and replicating benefit plans as applicable. We expect to complete the separation within 12 months of our initial announcement, subject to legal approvals and market and regulatory conditions.

With that, let me turn the call over to Linda to review the financials.

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Linda K. Zukauckas, Nielsen Holdings plc - CFO [8]

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Thank you, David, and good morning, everyone. I'm very pleased to be here, having joined the company earlier in the month.

The 2019 results are solid and reflect tremendous focus by Nielsen leadership and by our global colleagues. It's a particularly exciting time to join the company with so many opportunity ahead for the Media and Connect businesses.

I'll start with Slide 7 for our fourth quarter and full year 2019 results review. As you heard from David, the company achieved or exceeded 2019 guidance across all key measures. Revenue growth was better than expected at 2.7% in the fourth quarter and 1.7% for the full year, both on a constant currency basis. This growth includes Q4 organic revenue growth of 2.3% and full year organic revenue growth of 1.2%, both on a constant currency basis. Excluding the carryover effect of onetime items in prior periods, organic revenue grew 2.7% for the fourth quarter and 2% for the full year. Adjusted EBITDA for the fourth quarter was $492 million, up 1.4% constant currency. Adjusted EBITDA margins in the quarter were 29.1%, down 37 basis points on a constant currency basis reflecting an elevated level of investments in Media in Q4 '19. Full year adjusted EBITDA was $1.85 billion, up 1.4% constant currency resulting in adjusted EBITDA margins of 28.5% for the year, down 8 basis points on a constant currency basis but in line with expectations.

During 2019, margins benefited from productivity, offset by product and related technology investments as well as higher annual incentive compensation due to better performance in 2019 versus 2018. Adjusted EBITDA and adjusted EPS do not include the impact of a noncash pension charge of $170 million in the fourth quarter related to the settlement of 2 defined benefit pension plans outside of the U.S. This charge was not tax deductible.

Adjusted EPS for the fourth quarter was $0.41 compared to $0.51 in the fourth quarter of 2018 mostly due to higher depreciation, amortization and taxes on slightly higher EBITDA. Full year adjusted EPS was $1.80 compared to $1.83 in 2018 and in line with the most recent guidance range of $1.77 to $1.83. As compared to the prior year, the $1.80 adjusted EPS reflects slightly higher EBITDA and tax favorability, offset primarily by higher depreciation and amortization. And for the full year, performance was above the high end of the initial guidance range provided last February, which called for an EPS range of $1.63 to $1.77.

Our fourth quarter tax expense of $65 million was unusual due to discrete items. Adjusting for the discrete and the nondeductible pension settlement, our tax rate would have been 25% in the quarter. For the full year, the effective tax rate benefit of 39% reflects a number of discrete items, including the nondeductible impairment charge the company took in the third quarter, audit settlements and reserve releases as statutes expired and we closed open-tax shares. Excluding the impact of these items, the full year effective tax rate would have been approximately 30%.

For the full year, free cash flow was $547 million, up slightly from $542 million in 2018 and in line with the guidance range of $525 million to $575 million. Key drivers for 2019 compared to 2018 include the timing of annual incentive compensation payouts, which were lower in Q1 '19 on 2018 results, and lower retailer payments and lower restructuring partially offset by higher cash taxes and slightly higher interest payments. The fourth quarter and full year results reflect solid performance during a busy year for Nielsen. The teams at Media and Connect did a great job of executing.

Now let's review each segment. Turning to Slide 8, I'll first talk about the Media results on the left. Revenue for Q4 was $889 million, up 2.4% year-over-year on a constant currency basis. For the full year, revenue grew 2.6% constant currency, in line with the guidance range of 2% to 3%.

Audience Measurement revenue grew 1% constant currency in the fourth quarter and 3% constant currency for the full year, both in line with expectations. On a sequential quarter basis, there were several drivers of slower growth, including pressure in local, timing in audio and slower growth in national, while digital remains strong.

Plan/Optimize revenue grew 6% constant currency for the fourth quarter and 1.6% constant currency for the full year, which is in line with the 1% to 2% guidance range. In 2019, we saw mid-single-digit growth in Gracenote, our metadata and discovery platform, and steady growth in outcome-based solutions. Telecom pressure dragged Plan/Optimize by roughly 100 basis points in 2019.

During the quarter, Media's adjusted EBITDA was $377 million, down 2.6% constant currency resulting in adjusted EBITDA margins of 42.4%, down 200 basis points in constant currency. In Q4, we did accelerate investments in Media growth opportunities, which impacted the margin. For the full year, adjusted EBITDA was $1.48 billion, up 0.4% in constant currency. Adjusted EBITDA margins were 42.9%, down 94 basis points year-over-year. We're investing in Media growth drivers, offset in part by our continuous focus on productivity initiatives.

Now I'll discuss the Connect results on the right side of the page. Fourth quarter revenue was $802 million, up 3.1% on a constant currency basis. Connect showed progress throughout 2019, delivering 0.7% constant currency revenue growth for the full year. This was above guidance and marked a return to growth after 2 years of revenue decline.

Measure revenue grew 2.6% constant currency in the fourth quarter. As mentioned last quarter, Q4 revenue benefited from timing as some Q3 revenues shifted into Q4. For the full year, Measure revenue grew 1.4% constant currency on strength in retail measurement services. This was above the expectation of minus 1% to plus 1%.

Full year Predict/Activate revenue declined 0.9% constant currency. Revenue growth accelerated to 4.1% in the fourth quarter. In 2019, we saw strength in analytics and less drag from innovation and shorter-cycle consumer insights than in the prior year.

From a geographic perspective, developed markets grew 4.2% constant currency for the quarter and was up 0.8% for the year while emerging markets revenue grew 2.8% for the quarter and 2.3% for the year.

Connect Q4 adjusted EBITDA was $125 million, up 15.7% on a constant currency basis. Adjusted EBITDA margins were 15.6%, up 171 basis points constant currency. For the full year, adjusted EBITDA was $422 million, up 5% constant currency. Adjusted EBITDA margins were 13.8%, up 55 basis points year-over-year driven by productivity initiatives.

Now let's turn to the outlook and 2020 guidance on Slide 10. Today, we're providing guidance for Nielsen as a whole for 2020 while we work towards the separation of the Media and Connect businesses later in the year. On a total company basis, we expect constant currency revenue growth to be approximately 1.5% to 3% in relation to 1.7% growth in 2019. This does include approximately 80 basis points of net benefit from acquisitions and divestitures completed within the last 12 months. And I'll go into these in more detail when I review 2020 revenue guidance for the businesses.

The guidance range for the adjusted EBITDA margin is 27.7% to 28.5%, which suggests margins will be flat to down slightly versus 2019. So let me explain. As discussed on the Q3 earnings call, we are investing in Media growth drivers. Our investments are focused on strengthening our panels, driving digital and investments in Plan/Optimize. As a result, we expect Media margins to be down for 2020, but by less than the compression we saw in 2019.

For Connect, we expect continued underlying margin expansion driven by revenue growth and an ongoing focus on cost management. However, you'll recall the announcement last month of our acquisition of Precima, which is a leading provider of retail analytics. While Precima contributes favorably to revenue growth, it comes with negligible EBITDA margin in year 1, so we expect the overall Connect margins to be roughly flat for the year. Adjusted EPS is expected to be in the range of $1.67 to $1.80 compared to the $1.80 that we earned in 2019. This range reflects a higher level of recent investment in our platforms, which is driving higher depreciation and amortization expense. We expect free cash flow to be in the range of $530 million to $580 million, which, at the midpoint, is up slightly versus 2019. We're focused on continuing to improve our working capital management and we're investing in Media with higher capital expenditures.

I want to note that adjusted EBITDA, adjusted EPS and free cash flow guidance ranges do not include the impact of onetime separation-related costs or the incremental costs of beginning to operate as 2 separate publicly traded companies. We estimate cash costs of approximately $350 million to $400 million in 2020, and we don't plan to include these costs in adjusted EBITDA or adjusted EPS. The vast majority of these costs are onetime in nature related to execution of the separation David described earlier. The largest components of these onetime expenses are third-party adviser costs, tax friction and technology related to spin, such as standing up data centers and networks. In addition, we will incur costs to operate as 2 companies, the majority of which will be in the second half. We will work on strategies to mitigate incremental costs while we also rationalize structures so that they are appropriately scaled for each business. As you can imagine, these separation costs can vary from quarter-to-quarter, and we will provide more details on these costs as the year progresses. We have included additional assumptions related to this 2020 guidance in the Appendix.

Turning to Slide 11, I'll go into more specifics for Media and Connect. For Global Media, we expect constant currency revenue growth to be approximately 1% to 2% versus 2% -- versus 2.6% in 2019. The divestiture of our Music business in December 2019 is incorporated into this estimate and it lowers the constant currency growth by 70 basis points. Within Media, we expect Audience Measurement to grow 1.5% to 2.5% and Plan/Optimize to be flat to up 1%, which incorporates a 250 basis point negative impact from the Music divestiture.

For Connect, we expect constant currency revenue growth to be approximately 2.5% to 4.5%, which includes 250 basis points of growth related to net acquisition activity. Within Connect, we expect Measure revenue to be minus 1% to plus 1% and Predict/Activate to grow 1 -- 11% to 13%, which incorporates approximately 800 basis points of growth from net acquisitions, largely Precima. David will provide some additional commentary around the revenue guidance for 2020 in his remarks.

Let me talk a little bit about how we see the year playing out from a timing perspective. First, we've talked about investing in Media growth initiatives, and we will start to see the increasing benefits of these investments in the second half of 2020. Clients want new products to support streaming services as well as new outcomes measures. We're investing to provide these products to meet their needs, which will accelerate growth in the back half of the year. The accelerated revenue growth will drive EBITDA growth in the second half of the year.

Second, in Connect, we expect accelerated revenue growth in the second half versus the first half. In 2020, we'll see the impact of a few client losses in prior periods, which are most pronounced in Q1, and David will speak more about this later. These flow through to margins, and so we expect margin pressure in Connect in the first quarter with profit trends improving during the balance of the year. As discussed last quarter, in our medium-term framework, we are focused on realizing identified operational efficiencies and driving continued margin expansion at Connect over time. In addition, we've adjusted the low end of our guidance range to incorporate our current assessment of risks related to the coronavirus. Quarterly free cash flow should be consistent with historic patterns, which are heavily second half weighted. The first quarter 2020 free cash flow should show an improvement versus Q1 '19 driven by working capital improvements, offsetting a higher incentive compensation payout for 2019 compared to 2018.

In summary, 2020 is an important year as we redefine Nielsen as 2 separate companies. We've developed a very sound plan for this transition period, and we're making solid progress in separating the companies. We are investing to drive faster growth in Media over time, and we expect to sustain Connect's improved performance. I'm very excited to be part of the team driving Nielsen's next important stage.

And now I'll turn the call back over to David.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [9]

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Thanks, Linda.

Let me add some color starting with Nielsen Global Media. We have a significant opportunity to expand Nielsen's role in the media ecosystem so that buyers and sellers can transact on the basis of One Media Truth. To remind you, that truth covers measuring the audience, tracking content and making it easier to discover content by the audience and ensuring the outcomes for media investments. As media evolves, there are more players and an even greater need for common standards by audience, content and outcomes. Our digital transformation is our top priority, and we are investing where the market is headed to deliver solutions across both audience and outcomes. For example, Google continues to adopt Nielsen's Total Ad Ratings in their work with marketers to demonstrate the incremental reach of YouTube. We will also begin to use our national TV data in their planning suite to help advertisers guide cross-platform investments across YouTube and television. Nielsen's Digital Ad Ratings do service the currency measurement for platforms, such as Hulu and Roku, as you'll see in this year's upfront. And we're partnering with NBC Peacock to help further evolve their measurement in the rapidly changing ad-supported video-on-demand landscape.

On the content side, our roles spans measurement, metadata and discovery. As evidenced in our recent Total Audience Report, these capabilities increasingly work together to help drive key decisions for clients. And with the explosive growth in streaming, many of you are asking about the future of linear TV. Linear continues to be the dominant video advertising platform, offering advertisers mass reach and brand building. Linear remains an important part of our business, and our currency measurement is critical to clients. We renewed every national TV contract that came up last year with multiyear agreements and price escalators.

Addressable linear advertising is another future growth driver, and we're investing in a tech stacking that's delivering addressable ads at scale within linear broadcast. We recently launched a beta test of the new addressable platform with clients such as CBS, Discovery and NBCUniversal.

Finally, in local TV, we transformed our measurement offering in 2019, which played a key role in our new multiyear agreement with the Nexstar Media Group. This agreement covers all of Nexstar stations for the first time in 16 years. This is a clear validation of Nielsen's role in the local marketplace. Now on Plan/Optimize, we see real momentum in the value of our ROI measurement as clients are increasingly focused on outcome-based solutions. Our agency and advertiser clients use these solutions to manage and measure their cross-media investments. For example, Nielsen is partnering with The Trade Desk, which brings our TV viewing data into their platform to further enhance cross-media buying capabilities.

And in international, we renewed multiyear measurement contracts in both Australia and Italy and saw strong growth in digital measurement and strengthened our global product offerings across Plan/Optimize. So how does this all add up in 2020?

When we announced the outcome of our strategic review in November, we said we expected Media to grow at mid-single-digit revenue CAGR through 2023, including low single-digit growth through 2021 and then ramping to mid-single digits in 2022 and beyond. This would result in a growth profile that is in line with the media market and our information services peers. This expected ramp in growth is a result of the key investments we're making now in Audience Measurement, both streaming and linear. And our Plan/Optimize portfolio continues to scale on a global basis. And I'd say we're executing well on these initiatives. We have a deliberate and disciplined transformation path, and it highlights the importance of our investments in order to align where growth in media is coming from. That said, transitions are not linear and they take time. We will see our investments pay off as revenue growth accelerates later this year. And then over the medium term, we are confident that we are taking the right steps for long-term growth.

In Audience Measurement, we expect mid-single-digit declines in local in 2020 as pressure from previous renewals flows through revenue. Clients are seeing the value of our local transformation, and this business will -- should stabilize after 2020.

In national TV measurement, we expect low to mid-single-digit growth in 2020 and over the next couple of years. Our digital volume growth remains strong, and we believe independent third-party measurement will become even more important to digital and streaming platform over time. We continue to see double-digit growth in our digital ad ratings offering.

On the content side, measurement is extremely important, particularly with the growth in streaming. And we're also more closely linking measurement with metadata tagging and discovery to deliver greater value to our clients. We're investing to drive penetration of all of our content capabilities across the streaming platforms.

In Plan/Optimize, where we predict and measure the outcomes of advertising and content, we expect revenue growth to accelerate in 2020 after adjusting for the divestiture of our Music business in December 2019. This faster growth will be driven by actions we took in 2019 to improve our product and our go-to-market strategy. We have ample runway to further embed ourselves across advertisers, agencies and media owners to accelerate our Plan/Optimize growth.

And globally, we are focused on bringing the next generation of products to more markets in 2020. Our recent hire of Sean Cohan as the Chief Growth Officer and President of International underscores the role that international will play in our medium-term growth.

To sum up, Nielsen has an essential role across the media ecosystem, delivering One Media Truth across audiences, outcomes and content discovery. We are the only player that can provide currency-grade solutions across the spectrum with trust and confidence around the world. The actions we took in 2019 strengthened our position, and we are now deliberately investing in our key initiatives to accelerate our transformation and deliver greater value to clients and shareholders.

Let me turn to Connect. 2019 was also a year of steady progress in Connect as we executed on our transformation and strengthened our leadership position in the global CPG and retailer ecosystem. We returned to growth for the full year 2019 for the first time in 2 years and expanded our margins. We have increased confidence as we move towards separating Connect out as a stand-alone company with David Rawlinson as the Connect CEO.

Before I go further, David Rawlinson would like to share a few thoughts.

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David L. Rawlinson, Nielsen Holdings plc - CEO of Global Connect Business & Director [10]

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Thank you, David. It's an honor to be here today.

I'm thrilled to join this outstanding team as CEO of Connect at this pivotal time in the company's 97-year history. I joined Nielsen's Board in 2017 and have gotten to know Connect very well since then. I'm impressed with the strong franchise, global scale, technology platform and its people. Connect is the only business that can provide measurement data and analytics for millions of products across more than 100 countries. Its global role at the center of the consumer packaged goods and retailer ecosystem has never been more critical. With the Nielsen Connect platform now deployed, we have strong opportunities to grow in predictive analytics and omnichannel measurement. The business has stabilized. I have confidence that we have the right strategy in place to further drive improved revenue growth and profitability. I'm committed to delivering Connect's strategic growth plan, and I look forward to sharing our progress with you as we move forward towards separation.

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

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Thanks, David.

Our Connect accomplishments in 2019 were in part driven by our pivot to a product-driven technology company and fostering a robust sales culture, and I have confidence this will continue with David Rawlinson at the helm.

In Measurement, we exceeded our full 2019 guidance. Our U.S. business improved as product investments enabled us to successfully defend and win market share. We accelerated deployment of the Nielsen Connect platform, and we're live with key clients such as Coca-Cola and [Buyer Store], amongst others. The Nielsen Connect platform is an important driver of client wins and renewal discussions, including recently renewed global multiyear partnerships with Colgate, Kimberly-Clark and AB InBev. J&J, L'Oreal and Bacardi also recently renewed global partnerships. And we had a competitive takeaway with McCormick, winning their measurement business in Europe, the Middle East and Africa.

We're further building up coverage and adoption in factoring channels that are important to our clients, emerging markets, e-commerce, omnichannel and specialty retail. E-commerce is a global priority, and we are the only company that can truly provide an omnichannel view across both on and off-line. Broadly, we saw strong growth in client adoption and revenue, and we secured new data partnerships in countries such as Russia, Ukraine and Turkey, and we launched a new e-commerce measurement solution in India. In specialty channels, we recently entered into an exclusive long-term analytic relationship with Pet Supplies Plus.

Predict/Activate also came in ahead of our expectations in 2019 largely driven by strength in global analytics and a return to growth in innovation. We provide clients in every region of the world with data-driven insights to improve their performance, including Carlsberg in Denmark, Amazon and Tata Motors in India, Coca-Cola in Argentina, Mondelez in China. Innovation clients, such as McDonald's are turning to Nielsen for help in accelerating and improving their processes and success rates. Nielsen is the only company with this global scale.

And finally, we made significant progress in 2019 automating operations across 3 pillars: field selection, consolidation into super hubs and platform convergence.

Turning to Connect outlook for 2020. In November, we laid out our key initiatives, which include continuing to deploy the Nielsen Connect platform, deepening our coverage to measure the total consumer, strengthening retailer relationships and driving operational cost efficiencies through automation and platform convergence. We've been intensely focused on improving the trajectory of the U.S. business and driving improved operational performance across the business globally. We've begun to make progress, and it is showing up in our results. We said we expected a low single-digit organic revenue CAGR through 2023, and this is what we expect to deliver in 2020.

Let me add some color. For Measure, we expect revenue to be flat year-over-year at the midpoint of our guide. We are working through the impact of some 2018 competitive losses, largely in the U.S., and their roll off is impacting 2020. That said, we won all of our major client renewals in the United States in 2019. What really changed in 2019 is that clients are truly excited about our transformation with the Connect platform, and their multiyear renewals reflected this. We'll further broaden our deployment of the Nielsen Connect platform in the U.S. and begin to deploy internationally. In Predict/Activate, we expect to see accelerating growth driven by our investments in analytics and ongoing momentum and innovation as well as the Precima acquisition in January 2020. This important acquisition of an industry-leading SaaS-based retail analytics provider enables us to accelerate our retail product road map and positions us to win with retailers.

Before I close, I want to spend a moment on China, which is about 6% of Connect revenues or about 3% of total company revenue. As you know, China has been a big focus, and we've made progress in turning it around. We have a strong leader in place, and the team is driving expanded coverage, better execution and improving revenue trends. While we head into 2020 from an improved position in China, we are monitoring the coronavirus closely. On that, our main concern is the safety of our employees, and we've taken precautions to minimize their risks in impacted areas. Our initial focus was on China, but we're monitoring the situation very closely around the globe. We've incorporated known risks around the coronavirus into the guidance provided today. But of course, this is a fluid situation, and we'll keep you updated as there could be unknown risks from coronavirus affecting our clients and Nielsen.

To sum up on Connect, we have a strong foundation, unique global reach and scale. This business has consistently delivered in 2019. Our strategy is clear, and we have a strong team in place committed to executing on our goal. Connect is well positioned for success as a stand-alone company later this year.

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

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Sara Rebecca Gubins, Nielsen Holdings plc - SVP of IR [12]

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Great. Thanks, David. Lisa, can you open up the line for Q&A, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Andrew Steinerman from JPMorgan.

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

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David, you talked about One Media Truth with Nielsen Media, do you personally think there's a distinction between Media measurement data and Media planning platform/data? So with that in mind, do you think Nielsen is as well positioned in Plan/Optimize as it is in Audience Measurement?

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

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Thank you, Andrew. I do because what we're finding in Plan/Optimize is that it needs to connect back to the measurement. What we can uniquely do when helping folks plan is manage yield management across the total audience. And in the content space, which is a growing space, the metadata on one side and the content ratings on the other are increasingly becoming one service, and that's unique to Nielsen, to be able to actually understand where your content is going and to help strike new content deals. The distribution of content is going to have a lot of new innovation over the next couple of years.

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Operator [4]

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And our next question comes from the line of Bill Warmington from Wells Fargo.

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William Arthur Warmington, Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst [5]

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Congratulations and welcome to David and Linda. Would you -- for my question, would you please talk about what you're doing to stabilize the local media business? And also share your thoughts on why national will not be the next local?

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

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Yes. So I would say, in local, we did complete the local transformation. That has been a big investment. We finally got finished in 2019 to strengthen the panel and to strengthen the methodologies that made that happen. I was very excited to see Nexstar come back after 16 years. That really does cement our position in currency. And I would say, we're feeling very good about the renewals from here and we've got a strong base in local. So I feel quite good about where we are competitively on that.

On national, I would say, we're moving in front of it. But certainly, some of what you're seeing this year in terms of the heavy investment load is to make sure we can -- we get in front of this and make sure our panel moves as national becomes increasingly both linear and streaming for virtually all of our national customers.

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Operator [7]

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Our next question comes from the line of Toni Kaplan from Morgan Stanley.

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Toni Michele Kaplan, Morgan Stanley, Research Division - Senior Analyst [8]

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You mentioned coronavirus. And you -- in the 10-K, it talks about -- it's led to some curtailment of business activities, particularly in China. I guess could you talk about how much is included in the guidance as an impact from it? And just what activities are being curtailed? And I guess based on what you know today, what could be the impact outside of China as well?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [9]

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Yes. So listen, we've incorporated about 0.5 point of revenue on the Connect side from known risks in the Connect forecast. And what that largely represents is the work of Connect that requires you to be in the field. Certainly, anywhere in the world, if employees feel unsafe or we feel they're unsafe, we're encouraging them to work from home. Much of our work can be done that way, but some field operations can't be done. And of course, some client negotiations have to be done by video conference versus face-to-face. So that's where we are. And I feel like we've got a good handle on it. We're going to continue to monitor it depending on where else it expands, but we're certainly never going to have an employee out in the field in an unsafe position. It's less of an impact on media because most of media is actually measured remotely. So while there's some field operations, they're far less. That said, we're still encouraging people to watch their travel, and we're pretty flexible in letting people work from wherever they feel safe.

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Operator [10]

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Our next question comes from the line of Todd Juenger from Sanford Bernstein.

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Todd Michael Juenger, Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst [11]

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I'd like to go back, if you don't mind, to national media and just thinking about the investment in transformation and growth plan there. Is there anything you could point us to, David, as outsiders trying to follow this progression? Because it looks like the revenue as per your guidance is to come later next year and then in the out-years. Is there anything you can point to that we could look for in terms of operational milestones, client progress or sign-ups to give us confidence? And how that is progressing other than your continued reassurance in waiting for that revenue to show up later? That would be great.

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

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Yes. Listen, I think what you need to look for in national is how we're adding new services that help our national clients as they expand. So again, what I want to be clear on national is we did renew all of our major clients in 2019. And those renewals did include annual price escalators in line with historical levels.

That said, around that, there are other services where there are some shifts as clients move more to the additional services that help them launch their streaming businesses, whether they be DTC businesses, direct-to-consumer businesses, or whether they be partnerships with other platforms. And I would say, as we add in the streaming metrics in a broader way and as we add in the additional services, that's how we grow with those national clients in the way they grow.

I think because you're not only following us, you're following our clients, one of the markers you can look to is where are our clients growing and how is Nielsen helping them in those new areas. We will continue to launch products. And as we launch products, that will be the other thing you'll see to I think have more confidence that we're investing in the places that will pay off because we're helping our national clients grow.

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Operator [13]

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Our next question comes from the line of Jeff Meuler from Baird.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [14]

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I guess maybe a different variation of the structural media question. So just I guess the concern seems to be, hey, you're replacing this previous position of strength with a new one where you're generating revenue, but maybe there's less value add. So would love your perspective both on SVOD and I guess ad-supported digital video or video-on-demand. Just -- does Nielsen have the same value add as the world transitions to those forms of media delivery from the standpoint that if there's less ad-supported or if ad-supported is increasingly digital and more natively generating data instead of valuing Nielsen's proprietary data aggregation capability, does Nielsen just have a less valuable role and monetize less as you -- as the world transitions to those forms of digital media delivery?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [15]

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Yes. Listen, I think you're getting to a broad question about media audience measurement. So let me unpack it a little. To be clear, there still is a strong and growing linear measurement business and then there are new opportunities above it. So I don't want to be -- I don't want you to think we're replacing something, and we're building on top of it.

If I unpack it, what I would say is, on digital, we do continue to see double-digit growth in our ad ratings product. And as I mentioned, on Hulu, Roku, NBC Peacock, in the AVOD space, in the ad-sponsored space, we have a really important role to play on that side. On the SVOD side -- and then actually on both sides, then you get to the second question of content. And there, I would say, we have 2 really strong foundations, the Gracenote Foundation, which helps them with tagging their content and helping it be discoverable. And the measurement of that content, which I think is still pretty early in terms of the way those content deals with the platforms will be struck, but increasingly, the SVOD players and including folks like Netflix, are using Nielsen, quoting Nielsen publicly and using it to help establish the new marketplace and content. So I believe we have a really important role to play in both the ad space and the content space, and it is growing quite nicely.

What's offsetting that are the other components. So national, as I said, it's continuing to grow at a slower rate in 2019 as some of -- at a slower rate in 2020 relative to 2019 as we work through some renewals and people decontented in some things and are readding it in over the course of the year as they add in the new things they need.

Local does remain negative in 2020, but it will stabilize over time because we've made the right investments for those innovations. And for example, I'd say, the NBC Telemundo owned stations are innovating their local ad sales, and they're using the Nielsen tools as evidenced by the NBC Spot On launch. So as local innovates, they use it there as well. And then audio is flat to slightly up.

So you've got to break apart the components to see the full effect. But we are moving through this transition, and I do believe we have a really important role as SVOD and AVOD mature.

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Operator [16]

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Our next question comes from the line of Manav Patnaik from Barclays.

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Manav Shiv Patnaik, Barclays Bank PLC, Research Division - Director & Lead Research Analyst [17]

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I just had a quick question around how you guys think about pricing in your revenue model. You talked about some price escalators in some of the new contracts you had. In the past, there was always this element of strong pricing power at Nielsen. I was hoping you just give us an update there.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [18]

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Yes. Listen, I think we do have strong pricing power. We also are making sure that we continue to be a good return on investment to our clients. So I would say, where we've established the currency, we certainly, as I said, are renewing those contracts. They continue to have price escalators. I would say in the end markets that are a little more challenged, local TV, in particular, we are certainly pricing to make sure we sustain that. You're not going to have exactly the same pricing pressure in a declining segment. That's our innovations and our investments in things that help new services in local give us new ways to add on just as they do in national.

So in short, I would say we continue to enter price escalators on the floor as that market matures. But I think we're also getting good pricing on the new innovations as we establish new currency. To be really clear, that all adds up to the same road map that we gave you in November which is a medium-term view of mid-single-digit revenue growth in Media.

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Operator [19]

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Our next question comes from the line of Dan Salmon from BMO Capital Markets.

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Daniel Salmon, BMO Capital Markets Equity Research - Analyst [20]

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David, Google added to the continued pressure on third-party cookies of its January announcement about some changes that are coming in Chrome. Could you maybe just tell us a little bit more about businesses within Nielsen that might be impacted by that? I know a few of them have already been impacted by GDPR, but maybe just remind us what specific exposure is. But maybe more importantly, at a high level, how do you think major digital platform changes from companies like Google or Apple? In particular, how is that creating maybe new opportunities for Nielsen to help its clients? And maybe just a quick one, Linda, just at a high level.

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

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Yes.

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Daniel Salmon, BMO Capital Markets Equity Research - Analyst [22]

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Sorry, go ahead.

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

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No. Finish your question.

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Daniel Salmon, BMO Capital Markets Equity Research - Analyst [24]

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I'm -- just a quick one for Linda. It was just I'd love to hear just some high-level thoughts on your most important 2 or 3 priorities for the CFO role.

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

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Great. Listen, thanks for the questions. First of all, on the Google term policy update and what's happening across the system, our measurement has always been designed with consumer privacy in mind. So we're happy to see the changes. While this does impact how we measure some of the digital ecosystem, it isn't a surprise. And the industry, including Google, has a vested interest in Nielsen measurement and are really working with us to make sure our methodologies support their businesses in the new system. Throughout the digital ratings, we've got deep relationships with the publishers and platforms. That instrument enable our measurement and give us unique access to data and the ability to work within secure walled-garden environment. I do think there's an opportunity as the industry migrates away from cookies. We've got a really important pilot. And one of the investments is deduplication methods that don't rely on cookies, which are going to be more important and then being able to model those within secure privacy-engineered environment.

We're also investing in the evolution of the panels in order to have direct opt-in relationships with consumers globally. Panels are a very consumer-friendly, privacy-friendly way to inform precise noncoverage models and the visibility on how consumers are behaving. So I would say there is good opportunity here. I also think we need to continue to engineer it, which is why you see us investing right now to stay ahead of these changes.

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Linda K. Zukauckas, Nielsen Holdings plc - CFO [26]

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And I'll lean in here a little bit. Dan, thanks for the question. It's really a pleasure to be here. Early days, I'm in week 4, but I've been very impressed by the colleagues that I've met and the focus and discipline within the company. As far as what I have on my priority list as I see it right now, clearly, it's extremely important to execute on the separation. And that comes hand-in-hand with making sure that we remain focused on the business. We really got to deliver on this guidance that we put in front of you today.

As I think more about the function of finance, there are some terrific processes in place. And I think we just need to continue to drive rigor in the underlying analysis to really help position the business to achieve the guidance that we put out there today. And I think a lot of that was summed up nicely back in the Q3 call with the medium-term growth plan, and we just really need to be executing on that because that's really what's going to drive future value margin expansion as we think about the business on a go-forward basis.

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Operator [27]

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Our next question comes from the line of Ashish Sabadra from Deutsche Bank.

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Ashish Sabadra, Deutsche Bank AG, Research Division - Research Analyst [28]

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My question is more on the Connect side. Maybe you can just provide some more color on those client losses, but also the new wins. Any color on what led to those losses in 2018? But also the McCormick win and how do we think about the pipeline going forward for new potential win?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [29]

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Yes. Listen, of course, I wasn't here in 2018 but we learned a lot and I spoke to those clients. I would say, at that point in time, the Connect platform wasn't fully ready. I think they've found a different product solution. And I think some of the retailer integration wasn't as strong either. We focused on both in 2019. Again, all the renewals stayed with us in 2019. McCormick win back was fundamentally an addition to that. We've got some real advantages in a few categories, particularly e-commerce. And I would say, continue to build with retailers is making a big difference. I think that advantage continues to strengthen with the addition of Precima, which gives us even more strength into the retail segment so that we've got both sides working.

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Operator [30]

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Our next question comes from the line of Matthew Thornton from SunTrust.

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Matthew Corey Thornton, SunTrust Robinson Humphrey, Inc., Research Division - VP [31]

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Maybe one on Media and one on Connect, if I could. On the Media side, David, can you maybe just update us on what's changing it or what will change in the next couple of years here as you think about the data that you use in the syndicated product? Obviously, I think we all understand the panel side of things. But when we think about what's being incorporated in the syndicated product, Gracenote, set-top box data, smart TV data, national versus local, just any update on kind of where that could -- the data assets are going here.

And then on the Connect side, just maybe an update on just when you think about the connected platform, how penetrated are we? Maybe what inning are we in regionally? And where you are penetrated, what are you seeing? Is it better retention? Is it share gain or share recapture from competitors? Just any update on that side would be helpful as well.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [32]

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Sure. Thank you for the questions. On Media, we are starting already. But I would say, first of all, in Audience Measurements, we're already to a point that we have a lot of big data, which is then being corrected and improved by the panel. So this is not a panel-only answer anymore. The data science has really evolved here. And I think the partnerships we have with set-top box data, some of the things we're learning in the addressable [post,] all give us new data sets to help improve that.

I would say on the Content side, Gracenote, they're really important. It is the reference data for content, and that certainly helps with discovery. But as we've improved our ability to measure streaming content and know what people are actually watching, the Gracenote data has been important to add into that. And I would say, we are increasingly working with our partners who licensed the Gracenote data to also make sure we have data back that helps us improve content measurement, which helps both the buyers and sellers of content expands out.

And lastly, on outcomes, we're making a lot of progress and further rearchitecture of the media platform, which is really being built more in microservices, is the ability to sort of compose that with other services.

And for the earlier question about do we have the strength in Plan/Optimize that we had in Measurement. I would say, when Plan/Optimize connects to Measurement is where Nielsen has an advantage. So connecting all that third-party data, which we have access to and which our clients actually bring themselves into their own models, allows people to build better outcome inference model on top of the measurement so that the whole thing can work in a smarter way. New data is going to continue to come from places. The more the media systems are digitized, the more data comes out of that. And we're increasingly finding an easy way to ingest that and enhance our model.

Similarly on Connect, first of all, to be really clear, the Connect system has largely been penetrated in the United States. Today, we are beginning to deploy components internationally and get to one global platform. But we're in very early innings of Connect, which is why we see continued growth of that platform over time. It has certainly helped the retention when folks are looking at renewals, they're testing the new system and the road map against others and choosing to stay with us, which is great. I would also say it's becoming stickier. It's the only platform that's truly cloud-based and I think open with APIs connecting the services. Again, that makes it easy for people to connect their system to the other data services and the other analytics services that they are subscribing to so that they can build one system for managing their business. And that's really helping us in some fundamental ways. We saw firsthand, how easy it was to integrate Precima with Connect as a result of the new platform.

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Operator [33]

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Our next question comes from the line of Surinder Thind from Jefferies.

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Surinder Singh Thind, Jefferies LLC, Research Division - Equity Analyst [34]

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David, you spoke about a stronger sales culture. Can you provide some additional color on the changes you've made to the sales organization in terms of maybe discuss the size of the sales force, maybe turnover involuntarily versus voluntary? And then maybe if there's been any changes in that base versus variable compensation?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [35]

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Yes. So let me cover a couple of things, and I need to separate Media and Connect. So first of all, when you've got these strong subscription businesses, there's a lot of culture around client service. I think what we've really done is that make sure that in addition to that we're adding new targets for additional sales and building better account plans largely to understand where our clients are going and make sure that they know where we're relevant in their new services.

I would say, last year, we piloted with a few people at the top of the organization. We've gone down into the organization to actually have more of a commission-based -- we call it the retail growth plan to make sure people are actually incented to drive growth and that we're measuring that quite precisely. So that's helping.

I would say, as the job becomes a little more sales-oriented, there has been some turnover. Obviously, you got to make sure people can deliver their sales, and some people are choosing to opt out of that in a natural way. So -- and I think the culture continues to move.

In 2020, we have gotten smarter about a matrix between product specialists and clients to make sure that all products are as strongly represented as possible into the client accounts. So I do think that will help our clients better take advantage of the full portfolio of Nielsen.

Similarly, on the Connect side, there was some changes in incentives. I think that's part of why we delivered growth last year for the first time. I think there's also been just a lot of process improvements, cadence calls, making sure we're actually tracking things through the system and making sure we have a won't lose mentality. So I've been pleased by that shift on the Connect side as well. And I think David is going to push even harder on both clarity around products and revenue targets as well as overall plant revenue targets so that we're helping both our manufacturing and retail clients take full advantage of the full Nielsen portfolio.

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Operator [36]

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And our next question comes from the line of Richard Kramer from Arete Research.

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Richard Alan Kramer, Arete Research Services LLP - Senior Analyst [37]

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A few calls ago, I asked a question about in-app measurement and whether that was something Nielsen would need to put more effort into and indeed how you would get access to that maybe without potentially making acquisitions. How do you intend to address that mobile in-app space, especially as it increasingly affects TV screens?

And then maybe a quick question for Linda, for the new CFO. I mean we've now seen a third successive year where gross margins for the group have declined. I mean how do you think about reversing that slide from a gross margin perspective, given the very tough competitive pricing environment that you're facing with many adept competitors of both sides? And maybe could you pledge to give us a bit more visibility as we -- in the split between some of the functions that SG&A, R&D, et cetera, that we would tend to see with other tech companies?

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [38]

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Yes. And I'm going to come back on Linda's question too because I've been working a lot on gross margins all year and cash conversion. And I think those targets remain very much front and center for both of us. And we're a team here. So let me go to the first question quickly.

We do in-app measurement today. We certainly have the ability through ACR technology to understand. I think TV screen was being launched even as it gets us through an app. And I think if we -- we're investing to make that work on a broader base, we're investing to make an easier integration. But I think we're very good on the large screens. And increasingly, when it comes to media consumption, we're picking up on all screens with the technology we have. So this goes back to Gracenote and why we bought the ACR technology as a component of it, but we continue to do that today and I think have a good solid base there. Let me turn it over to Linda on margin.

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Linda K. Zukauckas, Nielsen Holdings plc - CFO [39]

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Yes. So on margins, we're really looking at the overall margin and considering all of the underlying drivers to that. Certainly, revenue growth is critical to us. And I think you heard the commitment certainly of David and you have my commitment as well that continuing to drive revenue growth is something that we're really going to focus on.

As a part of the separation, we will be looking at the structure of the 2 separate companies, Media and Connect, and making sure that those structures are scaled appropriately for those businesses on a go-forward basis. So it's something that both David and I will be looking at very closely.

And as we said, for 2020, it is an investment year in Media as was 2019. The level of investment this year will be slightly less than what it was last year. And we'll start to see the benefits of that in margin expansion later in the year. In Connect, the margins are going to be similar to what we saw last year with expansion, and sustaining that will be very, very important. But it's a combination of factors that really drive that overall margin. And I can assure you that both David and I are looking at it at the top from what's the overall result but importantly, what are the underlying drivers of that and looking to manage those for margin expansion.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [40]

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Yes. Just to add, philosophically, I'm really focused on the conversion of revenue to EBITDA and then the conversion of EBITDA to cash. And we've been doing a lot to make that happen. I know it doesn't always feel that way in this outlook for 2020 as we're working through those investments.

The investments we're making certainly drive products which helps with revenue growth, which we've covered. But some of the investments are also automating processes. And as we automate those processes, we realize that productivity gain, by having less costs and particularly less labor costs to deliver all those functions, we're going to continue to work on that.

I think what I am careful about now is not just having sort of discrete productivity numbers out there, but really committing to revenue, EBITDA, cash conversion because we want to make sure it sticks end-to-end on the total system. Ultimately, the only thing that really matters to the growth of the company is the cash flow that's generating from the business, and we want to make sure we pull that through. It's a real discipline here.

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Operator [41]

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We have no further questions at this time. I'll turn the call back to our CEO, David Kenny, for closing remarks.

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David W. Kenny, Nielsen Holdings plc - CEO, Chief Diversity Officer & Director [42]

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Thank you all for joining. I know we're a couple of minutes past the hour. I'm excited about this journey. I think the combination of some really committed colleagues, who've been here for many years and some new colleagues to help us with fresh ideas, are really moving things along quickly. We are very committed to completing this transformation, and we'll keep you posted over the course of the year on that and of course on the transformation. So we'll talk to you again at the end of the first quarter. Thank you.

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Operator [43]

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