NLSN
#Thank you, Mitch
Overall, our business continues to deliver growth and margin expansion in a challenging environment
In our Buy segment, revenue remains weak as a result of challenging fast-moving consumer goods environment in the U.S
However, we continue to drive growth across the rest of the business in both Watch and Buy while also delivering margin expansion
This is indicative of the strength of the portfolio and the resiliency of this business
Let me give a few more details on our total company performance in the second quarter
On the left side of the page are our results on a U.S
GAAP basis
Revenue was just over $1.64 billion, up 3% on a reported basis, driven by solid growth in our Watch segment and the emerging markets in Buy, partially offset by 110 basis points of currency headwind and continued softness in our U.S
Buy market
Net income was $131 million, and net income per share was $0.37. Our net income per share results were driven by revenue growth, margin expansion and lower restructuring charges
Moving to the right side of the page
On a non-GAAP basis, total revenue was up 4.1% constant currency
The net of acquisitions and dispositions contributed approximately two points to our revenue growth
Our core revenue, which we define as total revenue less noncore or nonstrategic assets, grew 7.6% constant currency in the quarter and just under 4% excluding the Gracenote acquisition
I’ll provide more color on the segments in just a few moments
Adjusted EBITDA was $512 million, up 4.9% constant currency, and adjusted EBITDA margins were 31.1%, up 25 basis points on a constant-currency basis
As I’ve mentioned in the past, we are running the productivity play with intensity and delivering cost efficiencies which help us expand margins and fund growth initiatives like electronic measurement in diary markets, expanding coverage in Buy and funding the Connected System
Free cash flow was $162 million, which was a record second quarter and was up 65.3% versus a year ago
We remain on track for our full year plan of approximately $900 million to fuel growth and return cash to our shareholders
Next, I’ll move to the segments, starting with Watch
And the key takeaway is that our Watch segment continues to perform well and is delivering solid revenue and EBITDA growth
Revenue was $821 million, up 10.9% constant currency
Excluding Gracenote, Watch revenue grew 3.5% constant currency
Audience Measurement of Video and Text was up 16% and excluding Gracenote grew 4.7% constant currency, led by strength in total Audience Measurement
In addition to strength in national TV, we continue to see momentum in Digital Ad Ratings and Digital Content Ratings
Digital Ad Ratings campaigns grew 33% in the quarter, and we now have over 400 advertisers using the product, including all of the top 25 in the U.S
Digital Content Ratings also continue to see strong momentum as we increased penetration among top digital publishers, including Facebook
As expected, Audio was flat in the quarter
Marketing effectiveness was up 18.6% constant currency as we leverage our Watch and Buy assets to help advertisers and publishers measure the return on investment and media spend
Other Watch was down 17.2% due to exiting part of the telecom product offerings in the U.S
and the exit of our legacy net ratings product in the U.S
, which is being replaced by Digital Content Ratings
We also exited a content testing asset in the quarter as we continue to execute on our plan to prune noncore assets from the portfolio
Watch adjusted EBITDA was $357 million, up 8.2% constant currency
Watch margins were 43.5%, down 1.1 points
Excluding 145 basis points drag from Gracenote, Watch margins were up more than 30 basis points constant currency, driven by productivity improvements
Our Watch business continues to perform well and is delivering solid revenue and EBITDA growth
Turning to Buy
The key takeaway here is that revenue declines and margins were slightly better than 1Q as we navigate a tough U.S
market
The rest of the developed markets remain resilient, and we see ongoing strength in emerging markets
Second quarter total Buy revenue was $823 million, down 2% constant currency
Core Buy revenue was up 2.7% constant currency
Our revenue in the developed markets was $510 million, down 1.2% constant currency behind continued weakness in the U.S
, partially offset by mid-single-digit growth in the remaining developed markets
business, which is just under half of the developed market revenue, improved sequentially
Now, let me provide some additional color on what we’re seeing in the U.S
We continue to benefit from strong long term contract renewals with our largest clients
However, as we have discussed, some of these clients are seeing challenging market conditions and cycling through significant cost cuts
And as a result, they make near term decisions about some of our products and services as they lower overall spend
We know that our measurement and analytics are critical and that, over time, clients must invest in the data they need to run their businesses
And in the second quarter, we saw this dynamic play out to some extent as clients spent a bit more behind some of their data and analytics needs
Our business in the emerging markets remains robust
Revenue was $296 million, up 10% constant currency
The bets we have made to expand coverage and services are delivering broad based growth with both multinationals and locals
Once again, we saw strong growth in Latin America, Southeast Asia, Eastern Europe and Greater China
In addition, margins in our emerging markets are expanding as we gain scale in key markets
Our Corporate Buy revenue was down 69%, reflecting our pruning of noncore Buy assets
Buy EBITDA was $163 million, down 1.8% constant currency in the second quarter
Our disciplined cost and commercial actions, along with improving operating leverage in the emerging markets, drove a slight increase in EBITDA margins despite a decline in total revenue
Moving to foreign currency impact
I want to remind you that we report revenue and EBITDA on a constant-currency basis to reflect our operating performance
We generally don’t take on transactional risk so this slide focuses strictly on the translation impact for reporting purposes
In the quarter, foreign currency resulted in a 110 basis points drag on revenue and a 40 basis points drag on EBITDA
If yesterday’s spot rates hold constant through 2017, then we expect a 40 basis points benefit on revenue and a 70 basis points benefit on EBITDA for the full year
Moving to 2017 guidance, we are maintaining our full year EPS guidance of $1.40 to $1.46 and free cash flow guidance of approximately $900 million
We are raising our adjusted EBITDA margin outlook to plus 20 basis points, a constant currency expansion as a result of our cost out actions
We’re lowering our total revenue guidance to approximately 4% to reflect our first half results, our outlook in developed Buy and some updated timing on noncore product exits
This includes approximately 6% core revenue growth and approximately 3% core revenue growth excluding Gracenote
There are no changes to our expectations for other financial metrics provided on the right hand side of the page
And as we look at 2017 revenue growth, a few dynamics are playing out: one, our Watch business remains solid; two, we continue to see robust growth in the emerging markets; and three, we continue to plan for a tough U.S
market
We now expect developed Buy revenue to be down 3% to 5% on a constant currency basis for 2017. In the U.S
, we expect the second half to continue to improve versus the first half, though not enough to land us at our prior guidance
We are not forecasting an improvement in the market environment for the back half of 2017. However, a review of our revenue pipeline for 2018, which includes renewals and new business, suggests an improvement in our business in 2018. This, along with an improving market environment, suggests a return to flat revenue in developed Buy for the full year for 2018 versus 2017. And lastly, we remain committed to our balanced capital structure that is funding growth while enabling us to return cash to shareholders in the form of a growing dividend and share buybacks
And with that, I’ll turn it back to Mitch to provide more color on the quarter
Thank you, <UNK>
We’re still working through our operating plan for 2018. However, as I said in my opening comments, our current revenue pipeline, which includes renewals and new business wins, suggests that developed Buy should be flat for 2018. I’d point more to the back half of 2018 than the front half
We’ll obviously share more details when we give the 2018 outlook later in the year
But from our clients’ perspective, we know that our data and analytics are critical to help them understand their performance and business drivers
And while they’ve had to make some tough cost tradeoffs, quite frankly, ultimately, they’ll need to invest in those data and analytics to help them grow their business
And what we see, as we look into 2018, are a few dynamics
One is we’re continuing to win with both retailers and manufacturers
We’re renewing 100% of our long-term contracts with our large global manufacturers
Those contracts are staggered so even the ones that renewed with a lower base spending have price escalators through the contracts, and we’re comping against a pretty tough 2017 environment
The last thing I’ll add is that our Connected System has actually given us incremental capabilities to sell in during renewals, and this has a pretty positive impact on the value of those agreements
On developed Buy, I’d look at the first half for trending purposes, and in the first half, our U.S
business is down double digits
The back half comps get a little easier, but as I said, we’re not forecasting a change in the environment
So the guidance framework that we gave of down 3% to 5% for developed Buy represents relatively easier comps in the U.S
in the back half and tougher comps in Western Europe, which, quite frankly, was up high single digits in the back half of 2016.
It’s in line with the framework
It grew roughly 5% in the first half ex Gracenote
So if you look at the trends for the first half, we’re right on the framework
I’d say a couple of things
One is national and digital are both solid in terms of what we’re seeing in the marketplace
Where there’s been some pressure is local
But quite frankly, there, we’re excited about the prospects that we have in local with the new initiatives that we’re going to roll out, the expansion of electronic measurement in the diary markets, the integration of set-top box data and the panel expansion benefits to our clients
So, we feel good about the framework overall
And again, if you’re looking at the first half, we’re in line with that framework
As I mentioned in my opening comments, we had about 2 points of inorganic revenue in the quarter
Approximately 4 points were added from Gracenote and Repucom
That was offset by approximately 2 points from exits of segmentation and telecom and some of the research assets
In Watch, we had approximately 9 points added from Gracenote and Repucom, offset by approximately 1 point drag from the Other Watch assets exits and telecom
And in Buy, we had approximately 4 points of drag from the exit of the assets and segmentation in customer research
So that should give you the pieces of organic
You have a little bit of timing there, obviously
If I look at Marketing Effectiveness, for example, organically, we grew close to double digits in the first half
We’re going to see strong demand and higher growth in the second half from our key products, and so we feel good about the 15% to 20% range for the year
If I look at Audience Measurement of Video and Text, as I said, it’s in line with our framework if you look at roughly 5% in the first half
I feel good about national and digital
Local is where the pressure is, and we talked about the initiatives there
And then if I look at the corporate bucket, we have a few things rolling through there
One is we actually sunset the digital rankings product in the quarter
We have also exited some assets in content testing
So overall, I feel good about the guidance framework
Let me just sort of walk through that, just to give you the pieces
So if I look at ---+ let me just start with Buy
If I look at our Buy business, we’re going to be down roughly 2.5% to 3% on a constant-currency basis for the year
That suggests that developed is down minus 3% to minus 5%; emerging, plus 8% to 10%; and then, corporate bucket is down 60%
And if I moved to Watch, no change to the framework there, up 11% to 13% in total for Watch
We see audio as being flat; Audience Measurement of Video and Text, up 14% to 16%; Marketing Effectiveness, up 15% to 20%; and then the Other Watch bucket, down 10%
So that gives you the framework that we have for the total company
Again, you always have a little bit of timing and lumpiness quarter-over-quarter, but we feel pretty good about the framework that we have from a guidance standpoint
Yes
So if I look at developed Buy, let me take it in a couple of pieces
I’ll talk about the U.S
, and then I’ll talk about Europe
I look at the first half, again for trending purposes, in the first half, the U.S
business was down double digits
The comps do get a little easier in the back half of the year, but we’re not forecasting a change in the environment
So that guidance framework of being down 3% to 5% actually represents slightly easier comps in the U.S
in the back half
But the comps actually for Western Europe are a tough ---+ are a little bit tougher because in the back half of 2016, Western Europe was up mid-single digits
And what I’ll say about Western Europe is that we continue to be pleased with the recovery that we see in Western Europe that, again, began in the back half of 2016. So while the second half comps are a little tougher, I would say that the environment there is as good as it’s been in 3 or 4 years in those markets
So again, that framework that we suggest says U.S
is a little bit better against a different set of comps, and Western Europe has a tougher set of comps in the back half of the year and net-net, you’re about where you are in the first half of the year for our Buy business
Sure
So I’ll hit a couple of things, and I’ll ask Mitch to chime in on the remaining pieces of it
As I said, there are really three things, Dan, that sort of drive our outlook
One is what we are seeing in terms of wins with both retailers and manufacturers in this environment that we’re operating in
That’s been pretty important for us to continue to go after new business, and our teams are doing a pretty good job from a business development standpoint based on what we see in our early read
The second thing I would say is that we’re continuing to renew all of our long term contracts with our global manufacturers
And while we’ve had some of those contracts that renewed at a lower base, obviously, those contracts are staggered, and even the ones that renewed at a lower base have price escalators that move through the contracts as you go forward
And then the third piece, as I said, is sort of comping against a tough 2017 environment
We expect to see some improvement there based on our most recent discussions with our clients
And as I think about sort of the impact of the Connected System, I would say two things
One is that we do expect some revenue from the Connected System, some of which will be incremental, specifically revenue from the Connected Partner Program
But really, the second dimension is the one where we see the Connected System is actually giving us incremental things for our commercial teams to go sell and do renewals, and that’s actually given us a positive impact on some of those agreements
Our primary focus next year is going to be on conversions
And we expect that to ramp through the back half of the year, but the incremental revenue and the promise that we see from the Connected Partner Program is actually a positive as we look into 2018.
Yes
So if I look at the U.S
business down mid-teens in the first quarter, second quarter, it was down again high singles, and then we saw sort of mid-singles across the rest of the developed world
So those are sort of the pieces that are there
And again, environment is still tough in the U.S
, and we feel pretty good about the recovery that we’re seeing, particularly in Western Europe, that really began in the back half of last year
And I can’t reiterate enough how pleased we are with that recovery and the fact, that, that environment is as good as it’s been in the last three or four years
Yes, just, so from a guidance standpoint, you’re right, the key pressure from a core standpoint is actually in developed, where we’re now guiding being down minus 3% to minus 5%
That is the key driver to what you see in the core revenue number coming down
From a Gracenote standpoint, no change in terms of our expectations there
The business is off to a great start
The integration is on track
The teams are excited about some of the commercial opportunities that Mitch mentioned
So no change to our Gracenote outlook there
The business is off to a really good start
I would say the margin profile is similar
But what I would say on Buy, as you’re thinking about margin profile, is really more around our cost actions, and the cost actions that we took there were really aimed at rightsizing our business for the current market realities
We took restructuring charges over the past three quarters to fund these actions
These actions were in addition to our normal productivity plays, and they’re helping us mute the impact of a softer revenue environment
And quite frankly, the other thing is none of these actions impact our ability to invest in our key initiatives
So as you’re thinking about margin profile, just know that we’ve got a number of cost actions that began in the back half of last year that are going to roll all the way through 2017, and that is the reason why we raised the EBITDA margin guidance and the big contributor to us maintaining our EPS guidance for the year
Yes
Western Europe is probably 35% to 40% of the developed market business
Yes, just a little bit under 50% this quarter
