Nielsen N.V. Ordinary Shares

Ladies and gentlemen, thank you for standing by and welcome to the 2020 Nielsen Holdings third quarter results call in to discuss the sale of Global Connect. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. We ask that you limit yourself to one question and re-queue for any additional questions. please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to Sarah Gibbons, Senior Vice President, Investor Relations and Treasury.

Good morning, everyone. Thank you for joining us to discuss Nielsen's announced sale of the Connect business and our third quarter 2020 financial performance. I'm joined by our CEO, David Kenney, our CFO, Linda Zoukakis, and the CEO of Connect, David Rawlinson. 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 relating to the proposed transaction, 2020 guidance, and the impact of COVID-19. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, November 2nd, and we are under no obligation to update. 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 factor section of our most recent annual report on Form 10-K, as amended, and in subsequent reports filed with the SEC, including our third quarter 10-Q that will be filed today, 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. For Q&A, as always, we ask you to limit yourself to one question so that we can accommodate everyone. Feel free to join the queue again, and if time remains, we will call on you. And now to start the call, I'd like to turn it over to our CEO, David Kenney.

Thank you for joining the call today. We have three main topics to cover. First, the sale of our Global Connect business to Advent International and Jim Peck. Second, our strong third quarter results and updates on our progress. And finally, our updated outlook for 2020, starting with the sale of Global Connect. Yesterday, we announced the sale of the Global Connect business to Advent International, a highly regarded private equity investor, and their partner, Jim Peck Ventures, for approximately $2.7 billion plus performance-based warrants tied to long-term performance. Before I get into the details of the transaction, I want to make a few comments about Nielsen Connect. Nielsen Connect is a leader in its industry. It has a strong global franchise and a 97-year-old history, providing measurement and analytics to the fast-moving consumer goods and retail industries. Our Connect team has done an incredible job driving its transformation, strengthening its competitive position, and improving its financial performance. I want to personally thank each and every colleague on the Global Connect team for their hard work and dedication, especially during this global pandemic. Advent's investment in Connect is great for Connect, its clients, and its people. This investment will allow Connect to operate as a privately held company and work with an experienced investor who is keen to invest in the business to accelerate its growth and help Connect achieve its long-term potential. I certainly look forward to seeing Connect's continued success. Now, let me turn to the details of the transaction, which was unanimously approved by Nielsen's Board of Directors. The sale price represents a multiple of approximately seven times Connect's trailing 12-month adjusted EBITDA on a standalone basis. We expect the transaction to close in the second quarter of 2021, subject to customary closing conditions and regulatory approvals, and a Nielsen shareholder vote. We expect the Global Connect segment to be reported as a discontinued operation starting in the first quarter of 2021. This transaction is a terrific outcome for Nielsen and our shareholders. The sale of the Global Connect business will deliver substantial value to shareholders with greater near-term certainty than would have been the case with a spin-off. The proceeds will be impacted by debt-like items, other adjustments, and taxes, and we plan to use the net proceeds of approximately $2 billion, primarily for debt paid out. This strengthens our Nielsen balance sheet and it reduces other liabilities on the balance sheet, such as pension obligations and equipment leases. It results in net leverage on a pro forma basis at year end 2020 of approximately four times. That compares to our expected leverage of roughly five times at the time of the spinoff had we gone down that path. we'll have greater financial flexibility to execute our growth strategy and expand our role in the global media marketplace. I look forward to sharing more about our outlook and strategy at a virtual investor day coming up on December 9th, and I hope you will all join us there. For today, we want to focus on the great progress we made in the third quarter and our outlook for the rest of the year, so let's now turn to the results. In the third quarter, we had strong performance with all key metrics in line or ahead of expectations. We are building a consistent track record of successful execution. Our revenues declined 3% in constant currency, which was in line with our expectations. What I would say is we have a strong and resilient business model with high client retention rates and 70% recurring revenue, providing visibility in a dynamic and COVID-influenced environment. Our adjusted EBITDA grew 6.1% year over year, which is the highest growth rate of that metric since the second quarter of 2016, with significant margin expansion higher than we expected. Free cash flow was also above our expectations. These results reflect decisive actions and discipline, which permanently changes the way Nielsen operates. We are prioritizing resource allocation to our faster growth opportunities, and we're zero basing our cost structure and our capital expenditures. We have made good progress on the optimization plan announced in July, and this is expediting our transformation to a more efficient, agile, platform-based organization. Notably, we exited several smaller international markets in the third quarter, and we continue to tightly manage headcount. Our teams have worked incredibly hard and adapted so well in what is still a challenging environment in order to deliver these results, and I'm truly appreciative of my colleagues' efforts. Following another strong quarter, we have refined our 2020 guidance We raised our target ranges for adjusted EBITDA, adjusted EBITDA margin, and free cash flow, and we tightened the adjusted EPS range. I'm confident in our ability to deliver on our 2020 goals. That said, we are monitoring the COVID pandemic very closely. It is, as you know, a fluid situation, especially for a global organization, and the health and safety of our employees continues to be our first priority. But we've also shown a proven ability to adapt and execute in a dynamic market, and we are well positioned across a range of scenarios. I'll now turn the call over to Linda to review the financials. and then I'll come back to review highlights and progress in both Media and Connect.