Nielsen N.V. Ordinary Shares

Press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. Sarah Gubbins, you may begin your conference.

Good morning, everyone. Thank you for joining us to discuss Nielsen's third quarter 2021 financial performance. I'm joined by our CEO, David Kenney, and our CFO, Linda Zukakis. Our COO, Karthik Rao, will also be on for the Q&A portion of the call. 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 our business plans and 2021 guidance and the impact of COVID-19. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, October 28th, 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 defined in our disclosure filings and materials, such as our 10-K, 10-Q, and 8-K reports, 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. And now to start the call, I'd like to turn it over to our CEO, David Tenney.

Good morning. Thank you for joining our third quarter earnings call. Before we dive into our strong Q3 results, I want to start by taking a step back to provide context around what is happening in the media industry and why Nielsen is becoming even more relevant as viewing habits continue to accelerate towards streaming. The media industry is going through unprecedented change, only accelerated by the pandemic, with an audience that is watching programming whenever, wherever, and on whatever device she chooses. An industry built on linear TV programming supported by ads is evolving to an industry that is moving to streaming content supported by subscribers and ads. According to our September 2021 release of the Nielsen Gauge data, just over 50% of viewing took place over broadcast and cable, while streaming alone grew to 37% in the 18-54 demographic. This compares to 2016, when more than 75% of viewing was on broadcast or cable. The evolution of our solutions mirrors this massive shift, and this context is important to keep in mind as you read the news. It is evident that media measurement will be dramatically different five years from now, and we are leading the industry's evolution despite the recent headlines. As the media ecosystem and audience viewing becomes more fragmented, having a single, independent, cross-media measurement solution across streaming, broadcast, and cable is essential to the industry. Both the World Federation of Advertisers, which represents advertisers globally, and the U.S.-based Association of National Advertisers have put forth principles around measurement integrity and standards. Nielsen 1, which is focused on the future of measurement, aligns with these principles. We have laid out a clear timeline leading up to the Q4 2022 launch of Nielsen 1, and we are looking at opportunities to accelerate this. Nielsen alone is uniquely positioned to provide the industry with a currency-grade cross-platform measurement solution. Let me walk you through some facts about our unique market position. First, our approach to Nielsen One is big data validated by panel. Over time, we have built partnerships with a wide variety of industry participants that now give us visibility into hundreds of millions of big data inputs on TV for return path data and billions of impressions on connected TV, computers, and mobile devices that we combine with robust opt-in and audited panels to correct for biases and other limitations of big data. This uniquely allows us to provide person's level measurement that is representative of the entire US population. Measurement tools derived on big data alone cannot do this. Potential competitors who want to optimize TV may claim that they can use individual level information from other big data sources. Big data has flaws and biases. It lacks rich details about who the people are, or it under-represents diverse populations and certain age groups. Big data alone might work for targeting and optimization, but it does not work for currency-grade measurement. Second, advertisers want independent measurement, as evidenced in recent public statements by leading advertisers such as P&G and Anheuser-Busch. Walled gardens are complex, and they cannot provide the independent, holistic view of the market that Nielsen does. Stitching together data sources from multiple sources using different methodologies would only further add to the complexity. Nielsen is deeply embedded in the media ecosystem across buying platforms such as MediaOcean and with advertisers and publishers who want to transact on a common fact base. And finally, Nielsen is the trusted leader in the industry with a proven history of building alignment across the ecosystem of media buyers and sellers. I also want to specifically address our accreditation status for traditional broadcast television in the US with the Media Rating Council, or MRC. As discussed on previous calls, during the height of the COVID pandemic, we had limited in-home field work. As the pandemic continued, we made changes to adapt operations We disclosed those changes and the impact on estimates and have since addressed the outstanding maintenance-related issues. This was obviously a fluid and unprecedented time for all of us. We followed MRC protocols around logging changes, but we accept the constructive criticism that we could have better communicated changes and their impact to clients. As a result of all these factors, MRC members voted to suspend accreditation of our national and local TV services in August. We believe in accreditation and fully support the audit process. In fact, we continue to be the only service audited across our products. We are in continuous dialogue with the MRC, and we've also engaged an external firm to support our efforts toward remediating outstanding issues. It's a methodical process and a focused work plan, all of which are aligned with the MRC's feedback. Our panel recovery efforts are well underway, and we're already back to more than 40,000 homes. We are on track to reach 41,600 homes by Q1 of 2022, which is our target, and we will continue to expand beyond that. The Nielsen panel remains a key differentiator. I remind you that no other provider has a representative empirical person-level panel. We will have more to share in the coming months, but I can assure you that getting reaccredited as soon as possible is a top priority. I would add that today, Nielsen remains the de facto auditing currency. Across the board, broadcast, digital first, audio, agency, and advertiser clients continue to use our currency ratings every day to drive critical business as they did in this year's Media Upfront. We have not been perfect, but we believe in the integrity of our ratings and our high-quality panels that are foundational to measuring audiences. I am incredibly proud of the way our teams have executed over the past 18 months, demonstrating resilience and courage every day as we adapted to new ways of working during the global pandemic. And I want to thank you all for your dedication. You'll hear more from Linda in a few minutes, but I'd also like to touch on our third quarter financial results. We reported another strong quarter, building on our track record of execution and demonstrating continued progress on our strategic growth plan. Revenue grew 6.6% on an organic basis, including 4.4% growth in audience measurement and 12.5% growth in outcomes and content. Adjusted EBITDA grew 1.9% on a constant currency basis. Our margins remained strong at 43.3% in the third quarter. As expected, these were down year-over-year as some COVID temporary costs returned. Adjusted EVF of 45 cents increased from 42 cents in the prior year, and free cash flow year-to-date is $514 million, up from $383 million a year ago on a comparable basis. Following our strong performance year-to-date, we are raising our 2021 revenue and EPS guidance, and we are raising the low end of our ranges for adjusted EBITDA and free cash flow. Let's turn to business highlights. In audience measurement, we made good progress on product milestones ahead of the Q4 2022 launch of Nielsen One. Let me start with some recent examples using coverage, comparability, and resiliency as a framework. Starting with coverage, our objective is full coverage across all audio and video media, and we already have the broadest coverage in the industry. We have full coverage in national and local broadcast and audio, and a leading position in digital, which includes streaming services, across both ads and content. In digital ad rating, we have the ability to measure 75% of connected TV media spend and approximately 90% of total video digital spend across computer, mobile, and connected TV. We've expanded our coverage of streaming content, which we measure at both the platform and individual program level. Platform measurement is enabled by our streaming meter. Since launching in January 2021, we've tripled the sample size of streaming meter homes and are now at 18,000 homes. We've increased the number of platforms covered to 17 from 10 earlier this year, and we now cover around 85% of the entire streaming market. Our expanded sample size will allow us to track newly introduced services faster with greater stability. We're using big data validated by panels to enhance our coverage at the program level, which includes the recently completed integration on the LOCU platform. This adds to the program data collected through our household panels, and we've increased the number of programs measured by 30% year-to-date. And we are continually improving our methodology. We recently rolled out our new portable people meter wearables to better measure media consumption outside of the home. Next, comparability. The ultimate measure of comparability is being able to measure all content and ads in a common methodology, whether it's linear or streaming. This means making TV measurement more like digital. A clear proof point is our move to a common sample as we include broadband-only homes in the local panel in January 2022. This will enable the industry's transition to trading on impressions-based measurement and result in more complete, precise, and representative measurement. Media sellers and buyers such as Nexstar, Hearst, and Magna Global all voiced support of these initiatives. In national, we are incorporating big data into the measurement, which will be validated by our panels, and we're on track to share impact data with clients in January. The big data integration will enable addressable advertising, it'll increase stability, and support long-tail channel measurement in the currency ratings. As a first step, we've already shared initial evaluation data with the MRC and their TV committee. The final point is resiliency or consistency. I discussed earlier the importance of our panel in ensuring big data is validated and fully inclusive and representative. Having a robust opt-in panel is even more important to ensure that our measurement solutions are durable and can adapt to evolving changes in the technology and privacy landscape. Clients see the value in our enhanced and expanded audience measurement products, and it is driving strong performance. Growth in the U.S. was led by national media clients and digital first clients, and we saw particular strength in digital products from our national media client base. Streaming is becoming increasingly important to our clients, and the simplification of our streaming solutions makes these products more accessible. We've had key wins with both media sellers and buyers. Devo, a global video hosting service, recently expanded their agreement with an emphasis on our digital ad ratings connected TV capability, and Apple added streaming platform ratings in addition to their current usage of content and national TV ratings. On the buyer side, GroupM recently leveraged our platform ratings in a thought leadership piece for global marketers, And in fact, 14 top agencies are using Nielsen's content ratings. The shift to streaming is creating a greater need for cross-media measurement globally. Sweden is the latest example.