Nielsen Q4 2021 Earnings Call Transcript

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Provided by Quartr
February 28, 2022

There are 14 speakers on the call.

Operator

Good morning, and welcome to the Q4 2021 Nelson Holdings Plc Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. Sarah Gubitz, Senior Vice President of Investor Relations and Treasury, please go ahead.

Speaker 1

Good morning, everyone. Thank you for joining us to discuss Nielsen's 4th quarter and full year 2021 financial performance. I'm joined by our CEO, David Kenny and our CFO, Linda Zukauskas. Our COO, Kartik Rao, will also be on the Q and A portion of the call. A Your questions today may contain forward looking statements, including those related to our business plans and 2022 guidance.

Speaker 1

Forward looking statements inherently involve risks and uncertainties and only reflect our view as of today, February 28, Because of a number of risks and uncertainties, including those identified in our disclosure filings and materials such as our 10 ks, 10 Q and 8 ks 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 nilsen.com. And now to start the call, I'd like to turn it over to our CEO, David Kenny.

Speaker 2

Good morning, and thank you for joining the call today. I'd like to start by saying that we are deeply concerned about the evolving situation in the Ukraine. We are focused on the safety of our 107 Employees and their families there, we've mobilized a team to help them navigate through this challenging time. Turning now to 2021 results, I am extremely proud of everyone in the Nielsen organization. Our teams executed and delivered strong results in 2021 despite facing some unanticipated challenges.

Speaker 2

We successfully sold Nielsen Global Connect. We hit significant product milestones. We exceeded All of our original key 2021 guidance metrics, revenue, adjusted EBITDA margins and free cash flow. The clearest measure of our success is our ability to deliver mid single digit organic revenue growth over time. In 2021, we delivered organic revenue growth of 4.9% and we continue to expect mid single digit organic revenue growth In 2022 and beyond, the drivers of our revenue growth give us confidence that we are delivering the diversification and innovation needed To accelerate growth over the next few years, growth in the digital products is far outpacing the average in measurement And Greystone is growing in the high single digits, both reflecting our opportunities as consumers shift to streaming.

Speaker 2

The 6 largest U. S. Media companies, some of our most vocal critics, in aggregate grew faster in 2021 than in the prior few years as they added Nielsen's digital solutions. And growth outside the United States accelerated to 7% And will remain strong driven by adoption of Nielsen's digital solutions. This morning, We announced that our Board approved a $1,000,000,000 share repurchase authorization.

Speaker 2

This reflects the Board's confidence In both our short and long term growth and the view that our shares represent an attractive investment opportunity, Our significantly improved balance sheet provides us with the flexibility to return more capital to shareholders, While continuing to invest in organic growth initiatives and pursue strategic tuck in M and A if and when it makes sense. We recognize there's been a lot of noise recently, largely focused on our measurement of the declining U. S. Linear TV audience. I want to separate the noise from reality.

Speaker 2

I'll frame my remarks around 5 key points. I'll then touch on impact and content before Linda reviews the financial results and 2022 guidance. First, Nielsen 1, Our cross media measurement solution uniquely aligns with the needs of advertisers and their agencies, And they will ultimately choose the currency for ad spending. 2nd, media companies need to be Digital or streaming first to keep pace with audience behavior. Our relevance with leading digital first players is growing And we are adding increased value to traditional TV clients as they shift to streaming.

Speaker 2

3rd, we are uniquely committed to measuring people, not just machines. 4th, we are making the right investments That's in data, methods and quality. And 5th, we're executing on We hit all of our 2021 milestones. We're on track to deliver the full solution later this year and begin driving industry adoption. I'll now expand on each of these points.

Speaker 2

1st, advertisers and their agencies will ultimately choose And they want a solution that is trusted, independent And complete. Advertisers want to reach the people who buy their products at a frequency that builds brand image and this means More streaming for most advertisers. Therefore, they want a solution that brings streaming and linear together. The World Federation of Advertisers laid out a set of requirements, which were further adapted by the Association of National Advertisers in the United States. The approach is clear about big data, direct integration, interoperability with targeting and attribution solutions And empirical validation with panel data.

Speaker 2

Nielsen 1 uniquely aligns with all It's also worth noting that the ANA is explicitly not trying to create a new currency. Importantly, advertisers and their agencies want to transact on one foundational currency that reflects In one number, as close to 100% of the media and 100% of the people watching it. This is Nielsen One, which will leverage all of the many points where we are embedded in media planning and buying systems. 2nd, the media industry has shifted to Digital First, and Nielsen's business is aligned with this. Our relevance is growing with both Digital First clients as well as traditional TV clients who are shifting towards streaming.

Speaker 2

I would remind you that every major change to expand media measurement has been met with resistance and headline. This dates back to adding cable to broadcast in the 1990s and the addition of delayed viewing on a DVR in 2,006. The latest move, the current move to reconcile streaming and linear is perhaps the biggest change In the history of media, friction can be expected and we are seeing it. Our gauge data shows that streaming reached an all time high in January, now accounting for 38% of viewing Within the 18 to 54 age demographic, leading streaming first platforms recognize the value of having a common metric for As linear TV and digital converge and no other third party measurement is as valued as Nielsen across The digital ecosystem. Google recently cited measurement as a key to their success in connected TV.

Speaker 2

This year, Google is hosting YouTube Brandcast, their advertising showcase during the week of the upfront, which historically has been a TV centric week. Google is using Nielsen data to demonstrate the strength and relevance of their platform. Also ahead of this year's upfront, Roku announced that they're adding Nielsen's digital ad ratings Most of our top Digital First clients now also buy our TV data. A recent example As our clients adjust their business models from linear to streaming. But privately, the conversations we have with clients and their Contracts with us show that our business with them is much more productive than the normally suggests.

Speaker 2

We grew revenue with national media clients In the double digits in the 4th quarter and high single digits for the full year. 2021 revenue growth Was driven by strong pricing, strong uptake of our digital solutions and cross selling of our 3 essential solutions. And in fact, our growth accelerated from what we saw pre pandemic in 2019. We expect continued solid growth with these Going forward, it's worth noting that Nielsen renewed 100% of our top 10 contracts over the last 3 years, 100%. Internationally, accelerated growth is driven in part By the adoption of our digital offerings, we are expanding digital and cross media in key markets around the world, including Mexico, Australia, Poland, Thailand, Denmark and Hong Kong.

Speaker 2

3rd, We are uniquely committed to measuring people in a way that is scaled and representative. We measure people, not just devices, because people and not machines are who watches video. Nielsen is the only company with a high quality probability sample for measuring video And the only company that can back up our measurement with large scale empirical evidence. Our big data sets are validated By the behaviors of over 100,000 people in our panel, which uniquely allows us to provide persons level measurement that is representative of all audiences that is validated and audited. Unvalidated machine data Often produces inflated audience estimates.

Speaker 2

While machines expand, the population is not And neither is time. It's still 24 hours a day. So we uniquely measure the share of total time Across total people. Machines cannot tell you who is watching. There are serious deficiencies in Models that are not tested with empirical evidence.

Speaker 2

Some in the industry aggregate machines into households and then use household averages Some use panels as small as 100 households, which is clearly in data, methods and quality to remain the best measure of how all people consume all media. And we do this at a scale and Specificity greater than anyone else. We're integrating set top box and ACR data from roughly 30,000,000 Into our national TV measurement. Set top box data provides valuable insight into consumption via cable and satellite That said, nearly half of all households no longer have a set top box. We expect So we're focused on Connected TV data, which we believe will be more resilient over time.

Speaker 2

During 2021, we doubled the number of connected TV partners, which enable us to measure 75% of CTV Media spend. Our coverage includes Hulu, Amazon, Roku, YouTube, VIZIO Watch Free and Samsung TV Plus. When we include PCs and mobile devices, we cover 87% of total video digital spend. We covered 19 of the top streaming platforms, which together represent approximately 90% of streaming usage. We also have more data scientists than the next 5 players combined In the audience measurement space, this is 500 experts leading continued innovation.

Speaker 2

In fact, Nielsen is the clear innovation leader in media measurement. In 2021, we were issued over 230 U. S. Patents, keeping pace with prior year. We also released significant contributions to over a dozen major open source projects in the cloud computing and analytics spaces.

Speaker 2

And finally, we are executing As planned, as committed on Nielsen One, we are uniquely positioned to lead the industry into the next generation of audience measurement. Let me review our road map that we shared at Investor Day in 2020 and highlight what we accomplished in 2021. Walking across the top, we completed the transformation of our digital methodology. We rolled out our ID resolution system, including our cookie less approach. Toward that end, we entered into a global strategic partnership with The Trade Desk, which scales our identity system globally and we became a preferred measurement partner of The Trade Desk.

Speaker 2

This morning, we also announced an agreement to integrate Experian Marketing Data Assets into our identity system in the United States. We're integrating always on measurement into Roku's ad buying platform, As I mentioned before, and we're focused on always on measurement with other digital platforms. We enhanced our metering technology And expanded our partnership with Extreme Reach to enable sub minute reporting for greater comparability across linear and digital. And we announced our plan for individual commercial metrics in November. Going across the bottom, We have streaming meters installed in nearly half of our panel homes.

Speaker 2

We're adding them into new panel homes We completed our rebuild of direct first party integrations with the 2 leading digital ad giants. And just last week, we released impact data for the inclusion of big data into national TV measurement. In alignment with client feedback, we'll launch Big Data as a standalone service in September in parallel with the existing currency. Clients who are ready to transact on new, more robust metrics will be able to do so this fall. We're adding addressable measurement, which is still fairly small.

Speaker 2

We're working with addressable providers to help them scale and drive adoption. In January, we moved to impression based buying in local In conjunction with the inclusion of broadband only homes into measurement, this is an important step in moving local to the same Nielsen One measurement as digital and national. Altogether, we accelerated our roadmap And launched Nielsen 1 Alpha, the first iteration of Nielsen 1 Ads in January ahead of schedule. Alpha is specific to ad campaigns and gives clients an initial look at the user interface as well as Audience deduplication across all screens, adding in CTV for the first time in addition to linear TV, Computer and Mobile. Alpha engages the trailblazing advertisers, agencies and media sellers Who are shaping the cross media marketplace.

Speaker 2

Elfa includes companies like Kimberly Clark, Disney and Magnum. In fact, Every major agency holding company is now engaged with Alpha. We have received positive feedback on Alpha. Clients like the utility and the interface of Nielsen One. They've also given us suggestions.

Speaker 2

Given the growing role of first party data in our agency We are prioritizing the measurement of audiences beyond agent gender, including first party audiences in 2022. Our early discussions with advertisers also highlighted the importance of tying reach and frequency to outcomes and attribution. Accordingly, we are accelerating opportunities to integrate data from our suite of impact marketing solution Into Nielsen One later this year. The foundation for Nielsen One is squarely in place. By the end of this year, we'll share impact data for Nielsen 1, which will provide the industry with a 2 year parallel period before we fully transition to cross media metrics by the fall 2024 season.

Speaker 2

I'd like to point out that Nielsen 1 is more than a new currency for ad buying. After Nielsen One adds, we will launch Nielsen One content that will provide studios, distributors and streaming platforms unprecedented insight into cross screen consumption and will launch Nielsen One Planning, which will empower agency and in house media buyers To effectively forecast and plan cross media native campaigns. Behind this, Nielsen has always Good for gold standard quality. We've taken significant steps to improve quality control, to meet the MRC accreditation standards And drive sustained quality improvement. We identified with the MRC success criteria required for reaccreditation, And we expect to complete all necessary action items by midyear, after which we expect the MRC members to vote On accreditation, we have reached our goal of 41,000 homes in the panel in 2021 And we'll reach our target of 41,600 by the end of this quarter.

Speaker 2

Only Nielsen has a scaled representative empirical person level panel. And beyond panel quality, we are also focused on the highest standards For data quality control, tech resilience and client communications. Let me turn to outcomes, which we rebranded as Impact Marketing Solutions. Our portfolio spans pre flight, advertising intelligence and cross platform media planning, In flight, audience activation and post flight, advertising effectiveness measurement. Let me cite a few examples of how we are expanding to include all media, all major markets and all major advertisers.

Speaker 2

We launched campaign measurement in 40 new markets. We strengthened our capabilities in automotive through a new partnership with Pol. We broadened our advertising intelligence offering to include paid social media ad spend. We expanded our upper funnel brand impact solutions With digital publishers like Spotify, TikTok, Twitter and others, we expanded coverage in our planning and optimization solution to include streaming data from connected TV. And as a point of external validation, Forrester's Q1 Recent Marketing Measurement and Optimization Solutions WAVE report said that Nielsen This report is widely used by advertisers when they evaluate vendors and is further validation The Gracenote ID is the UPC code for video, sports and music content.

Speaker 2

Gracenote is the market leader in entertainment metadata worldwide. The Gracenote Content Identifiers or Gracenote IDs are widely deployed throughout the media ecosystem, enabling cross platform linkage and universal search across video content. Content spend continues to grow rapidly, and we have new opportunities to help distributors better manage their catalogs To connect with and grow their audiences. We are leveraging audience measurement data and Greystone Metadata together With the continued build out of our analytics offerings, this includes the recent launch of Audience Predict, which enables Data driven decision making around content acquisition and distribution. In 2022, We're focused on further growing Gracenote's geographic footprint.

Speaker 2

We're focused on expanding the usage of the Gracenote ID And launching new products to help distributors analyze, benchmark and derive insights from their catalog. To sum up, Nielsen delivered strong results in 2021. Nielsen has an unmatched position delivering value to clients across our 3 essential solutions. We are digital first and global first. That strategy aligns with the evolving media landscape.

Speaker 2

We are on track to deliver Nielsen 1 later this year, and we do remain positioned best positioned to lead the industry forward with cross media measurement. With that, I'll turn the call over to Linda to review the financials.

Speaker 3

Thank you, David, and good morning, everyone. I'm pleased to share the 4th quarter and full year results today, which reflects strong performance. Before I review the results, let me spend a moment on some of our key accomplishments in 2021. First, We completed the sale of our Connect business in March and reclassified it to discontinued operations effective as of Q1 'twenty one. As a reminder, my remarks today focus on our results as that the Connect sale took place at the beginning of 2020, which helps with the year over year comparison.

Speaker 3

2nd, we paid down $2,700,000,000 in debt or almost 1 third of our debt and pushed out maturities by refinancing $1,250,000,000 of debt. We ended the year at 3.5 2 times net debt leverage, our 2nd consecutive quarter near the high end of our medium term target. It's been 8 years since our leverage has been this low. Our delevering was facilitated by Connect sale proceeds and operating cash flow. And 3rd, we met or exceeded our 2021 guidance across all key metrics.

Speaker 3

Turning to the financial results, I'll start with Slide 8, which summarizes our revenue performance. Revenue was $894,000,000 in the 4th quarter and $3,500,000,000 for the year. On an organic constant currency basis, Revenue grew 4.7% in Q4 and 4.9% for the year, exceeding our guidance. Organic revenue adjusts for exits related to the 2020 optimization plan, the April sale to Roku of our advanced video advertising business and the July acquisition of TVTY. As we guided, these had a 150 basis point impact On constant currency revenue growth.

Speaker 3

For the year, organic revenue grew 4.4% in the U. S. And 7% in International Markets. Measurement revenue of $647,000,000 in Q4 was up 5.2 percent organic. For the year, measurement revenue of 2,545,000,000 was up 4% organic.

Speaker 3

For both Q4 and the full year, national and digital measurement products were areas of strength. And from a client perspective, in 2021, we grew in the high single digits with national media clients And had double digit growth from Digital First clients. Local posted its 3rd quarter of modest positive growth, But coupled with a weak Q1 was roughly flat for the year. Impacting content Q4 revenue of $247,000,000 grew 3.4 percent organic. Full year revenue of $955,000,000 grew 7.5 percent organic.

Speaker 3

For 2021, impact Organic revenue grew 7.3% and content grew 7.8%, in line with our expectations of mid to high single digit organic growth for impact and content over the medium term. We saw improving trends in short cycle revenue And strong growth in our sports business. In the Q4, impact revenue grew in the high single digit organic, while Content revenue declined. For certain Gracenote clients, contract size and structures can vary, Resulting in revenue recognized over time in some situations and at a point in time in others creating some unevenness in any given quarter. This played out in the 4th quarter.

Speaker 3

It's not something that we've called out before, but it was more pronounced in the 4th Quarter, so we wanted to provide a bit more context. We continue to expect strong growth from content in 2022 and beyond. The right side of the page shows revenue for the past 5 quarters as well as constant currency And organic revenue growth rate. As noted on the Q3 earnings call, Q4 faced a tougher comparison As COVID pressure began to subside in Q4 'twenty. Turning to Slide 9, which shows our performance in relation to our guidance And quarterly performance for adjusted EBITDA and margins.

Speaker 3

Adjusted EBITDA was $1,491,000,000 for the year, was $351,000,000 down 7.4% constant currency. Full year margins were 42.6%, Up 79 basis points on a constant currency basis and at the high end of the guidance range. This includes 4th quarter margins of 39.3 percent, down 4 35 basis points in constant currency, is in line with our expectations. We discussed this throughout the year, but I'll remind you of the factors that contributed to year over year margin expansion in the first half of the year And compression in the second half of the year. First, because our cost base is relatively fixed, revenue growth drives operating leverage.

Speaker 3

2nd, the $100,000,000 in temporary COVID related cost cut in 2020 began to return in the 2nd quarter, But they've not yet reached the levels we expect over time and should continue to trend up in 2022, largely due to hiring, merit increases and travel and entertainment. 3rd, we began to implement our restructuring or Optimization Plan in Q3 'twenty. As a result, we saw a significant year over year benefit And first half margins then started to lap the benefit in the second half. And finally, we invested in Key growth initiatives during the year. 4th quarter adjusted EPS was $0.46 compared to $0.32 In Q4 'twenty, reflecting a lower tax rate, offset in part by lower EBITDA and higher depreciation and amortization.

Speaker 3

2021 adjusted EPS was $1.81 compared to $1.45 in 20.20 above the guidance range. This reflects Higher adjusted EBITDA and lower depreciation and amortization, interest expense and tax expense versus 2020 on a comparable basis. The 2021 effective tax rate was nominal, mostly due to discrete items. We had a Q4 benefit of 143,000,000 Related primarily to the utilization of foreign tax credits, benefits associated with closing audits Which completely offset taxes on Q4 adjusted net income at a full year rate of 23.5%, which did benefit from lower state taxes. Turning to free cash flow.

Speaker 3

We generated $647,000,000 in 2021, up from $586,000,000 in 2020 and at the high end of our guidance range. These results $185,000,000 of 2021 separation related cash payments. Key drivers of 2021 Free cash flow growth includes higher EBITDA and lower interest expense, partially offset by higher cash taxes. 2021 was a very strong year as evidenced by these results. We continue to operate with greater discipline and to build on our track record of Now let's turn to the outlook and 2022 guidance on Slide 11.

Speaker 3

Our guidance represents an important building block As we progress towards our medium term framework, we expect organic revenue growth of 4% to 5% in line with our medium term And mid to high single digit growth in Impact and Content. As a reminder, measurement includes our local and audio products, Which we expect to be up only slightly in 2022. We expect constant currency revenue to grow 3.5% to 4.5% As the 2021 business exits and acquisitions have a 50 basis point impact. From a timing perspective, We expect revenue growth to be faster in the second half with Q1 revenue growth below the full year guidance range. This is largely due to the benefits from growth initiatives building throughout the year.

Speaker 3

The quarterly unevenness I described for content will also play out in Q1 of this year with a challenging comparison. For the year, we expect High single digit growth in content. We expect adjusted EBITDA margins to be flat to up 30 basis points for a range of 42.6% to 42.9%. And for margins, from a timing perspective, we expect compression in the first half of the year And expansion in the second half with 1st quarter margin contraction of a similar magnitude To the Q4 'twenty one contraction. There are a couple of dynamics in play here.

Speaker 3

First is the continued return of costs That have been temporarily reduced due to COVID. This is most pronounced in the first half. And second is near term investments in growth initiatives and in the panel, which had a more meaningful year over year impact in the first half of the year. And third, Faster revenue growth in the second half will support margin expansion. We continue to expect to reach our medium term margin target of 43.5 percent in 2023 with margin expansion accelerating on revenue growth and moderating investments.

Speaker 3

Adjusted EPS is expected to be in the range of $1.81 to $1.91 compared to 1 $0.81 in 2021. This reflects adjusted EBITDA growth and related underlying guidance assumptions, which are in the appendix and include an effective tax rate of 23% to 25% compared to 23.5 percent in 2021 before discrete items. Net interest expense of $270,000,000 to $280,000,000 versus $272,000,000 in 2021 And net debt leverage in our 3x to 3.5x target range where we have been for the past couple of quarters. We expect free cash flow to be in the range of $650,000,000 to $700,000,000 compared to $647,000,000 in 2021. This reflects higher EBITDA, offset in part by increased CapEx due to investments in Nielsen One and the panel And higher cash taxes due to higher taxable income and fewer available tax credits.

Speaker 3

As we look beyond 2022 And think about our medium term free cash flow target. There are a few variables that are putting some pressure on our target of over $800,000,000 in free cash flow and 50% conversion for 2023. On the one hand, We expect faster EBITDA growth to drive higher 2023 free cash flow. On the other hand, there is cash taxes, which I mentioned as impacting our 2022 free cash flow forecast. It's been almost a year since we closed on the Connect sale, And we now have a better feel for our tax profile and taxable income mix.

Speaker 3

We also have fewer available tax credits than in the past And certain tax reform provisions will start to take effect in 2022 and also in 2023. All of this has us paying higher cash taxes. Next is CapEx. We are focused on driving efficiency in our CapEx And OpEx, and we expect CapEx as a percent of revenue to come down over time. In the near term, however, We see opportunities to accelerate CapEx to advance our roadmap and to improve and modernize our panel.

Speaker 3

These won't represent a permanent step up in CapEx, but are likely to push out reaching its 7.5% target for CapEx But would also result in higher free cash flow per share with the lower share count. As David mentioned, Our Board has approved a share repurchase authorization. We see significant value in our shares. The impact of share repurchases will vary based on Timing and pace and the guidance we're providing today does not factor in any impact from the repurchases. In closing, I'm very proud of Nielsen's employees and our results in 2021.

Speaker 3

We remain confident in our path forward And our ability to drive growth and increase shareholder value. And now back to Sarah for Q and A.

Speaker 1

Thanks, Linda. With that, let's turn to Q and Operator, can you open up the line, please?

Operator

Thank you. Your first question comes from Andrew Steinerman from JPMorgan. Please go ahead.

Speaker 4

Hi. I just wanted to know if when you look at Slide number 5, if you feel the roadmap Is really within your own control or do you feel like this is what you're laying out and really the gating factor Will be the timing when buyers and sellers agree. And then also when you look at The Alpha product that you showed them already, does this include both the smart TV data And the set top box data or just a subset of those 2 big data partners?

Speaker 5

Thank you, Andrew. I appreciate the question. First of all, the roadmap we laid out is absolutely within our control. Those are the modules we're delivering. We're delivering those on time and people are using them.

Speaker 5

I would say there is a factor of adoption, which is why last year was laying a foundation. This year is much more about engagement As folks transition, of course, folks continue to use Nielsen currency today, but we are making more modules available so that The smart buyers and sellers can move forward more quickly. So I would say what we have to watch is the on the other end, When can we actually shut down the legacy systems and only have 1? And we will work with the industry on that. I don't think we're going to Have the industry in a position it can't operate.

Speaker 5

I would say most of the buyers are quite eager to move on. They've all been clear. They want to see this done. Some of them are speaking directly to the MRC to make sure it gets accredited. Some of the sellers aren't ready.

Speaker 5

And so we'll work with them. But quite honestly, I think the buyers are going to demand it sooner versus later. The second line in alpha, of course, we're showing The data which includes smart TV data and set top box data. And we are going to move forward to actually having that in the market I'd like to provide this call for everybody outside of Alpha because there's been such a demand for the robustness that comes with including that in measurement.

Speaker 6

Okay. Thank you.

Operator

Your next question comes from Dan Salmon from BMO Capital Markets. Please go ahead.

Speaker 6

Okay, great. Good morning, everyone. David, I had two questions to follow-up on A couple of your prepared remarks. The first was, once again, you said pretty clearly that you think that both brands and agencies The buy side have a strong preference for a single currency. And yet, we do see tests of alternative Currency is gaining some traction on the buy side.

Speaker 6

We hear you can see comments from that group at industry conferences estimating Percentages of the upfront that might be transacted on alternative currencies. So can you help us Close that gap on what you're seeing versus some of the green shoots of activity that suggests that alternative currencies are being tested by

Speaker 2

the buy side. And then

Speaker 6

the second one was your comments on the feedback that you're getting from that group about wanting to Better measure and better integrate first party data. Would love to hear just a little bit more about that and whether that's a potential area where M and A could help accelerate based on that feedback.

Speaker 5

Good. Thank you, Dan, for both questions. I'm going to take the first and I'm going to let Karthik Handle the second because he's got a lot of very recent data and also can update you what we're doing with first party data. So, first of all, there have always been secondary guarantees. I think it's been useful for brands and agencies To look beyond basic region frequency, for things beyond that, one safe price on a core currency, that hasn't changed.

Speaker 5

And I think Implementation is useful. We learned from it. So I think you just have to listen very carefully to What folks are saying, but of course people are going to experiment. That said, when I really talk to investment And the heads of agencies and most of the big advertisers, here's what they start with. They start with There's a lot of enthusiasm about Connected TV.

Speaker 5

There's a lot of enthusiasm about technology. Boy, these guys have spent a lot of money On new content for the streaming platform, here's what hasn't changed. There are still 320,000,000 Americans that's only growing 4 0.4 percent a year, that's getting older, it's getting more diverse. Secondly, here's what hasn't changed. There's only 24 hours a day.

Speaker 5

People need to sleep. People need to work. It seems that media consumption is kind of tapped out around 10 hours or Plus or minus per day. Therefore, our fiduciary responsibility to our clients is to make sure we invest to maximize that. If we have metrics that can't reconcile back to a fixed population and a fixed time, there's a risk of double counting, there's a risk Not getting full value and quite honestly, I think there is a frustration with paying more for less in some of the traditional linear Which the agencies have been clear about.

Speaker 5

So they're looking for that leverage. And so that's why I believe they're still going to want that Single base case of what's going on in the market. That doesn't mean that they won't add secondary guarantees that they I won't look to think that I value beyond it, but to fly blind without one validated audited Data science rigorous approach, I think is dangerous when you get to big scale 1,000,000,000 of dollars investment. So this is why I think the idea of multiple currencies, while people might like competition and I think we've always got to learn, I'm not seeing that folks really think they can fulfill their fiduciary responsibility with pick your own measurement. So That's why I had that conclusion and I totally believe that's going to play out in this and every other upfront from here.

Speaker 5

Let me go to the second question on first party data, Kartik.

Speaker 7

Yes, Dan, thanks for that. First, we have been Advanced audiences, 1st party audiences for clients even today. What we're really talking about is The amazing feedback we got around how do we light that up within Alpha, which ultimately is Nielsen One Ads. And so we are prioritizing that so that agencies and other players with first party data can view audience measurement not only against The total population, but also against the audiences that matter to a brand or a buy. So we are incorporating that into the roadmap For later this year, and we're very excited.

Speaker 7

It also signifies the kinds of conversations we're having and the feedback we've been getting on Alpha And all of the use cases that we want ultimately to power through Nielsen One. So it signifies a big opportunity for us and we will obviously Look at M and A as a continued way for us to increase our capability, and we'll comment more on that whenever we're ready. But we're super excited with the feedback On Nielsen 1 Alpha and how it's going to evolve even in 2022.

Speaker 6

Okay, great. And so just to be clear, David, you would expect 100% To the upfront to include Nielsen data in some form or another?

Speaker 5

I would, but that doesn't mean that there won't be secondary guarantees. $100,000,000 Will somebody try something? I'm not going to say that there can't be some minor exception. I don't I don't see anything widespread. I think it's going to be really hard to go back to your client with something that's not audited.

Speaker 5

And we are the most inspected, most audited service out there. And I think to value price, people are going to need to total to 100% of audience time and nobody can do that but Nielsen.

Speaker 6

Great. Thank you both. Very helpful.

Operator

Your next question comes from Doug Archer from Huber Research. Please go ahead.

Speaker 8

Yes, thanks. I just wanted to shift the focus for a second to impact Content, I guess, this is now called. I mean, what Linda, you called out the timing on contract renewals and Anton, you did have a fairly easy comp. I guess the relevant question is, do you longer term is a 6% to 10% Organic growth range for both of those impacted in content, is that still in the ballpark?

Speaker 3

Yes, I can take that one, Doug. Thanks for the question. So, you are right about the comps. And if we look at 2021, Impact grew 7.3%, content grew 7.8%. But Q4, if you look at Q4, the impact in content organic revenue growth was down.

Speaker 3

It was 3.4%. But it's a little bit of tale of 2 cities. The impact revenue grew in the high single digits and content declined. And it's really what I talked about in my prepared remarks. For some of our Gracenote clients, the structure The contract, both size and structure can vary and that just presents some unevenness and we saw that in the Q4 and we will See that also in the Q1.

Speaker 3

At this point in time, we're not really calling it beyond that. So I I think the overall characterization that you described is right. We do continue to expect mid to high single digit Organic revenue growth for Impact and Content on a go forward basis.

Speaker 8

Okay. Thank you very much.

Operator

Your next question comes from Ashish Sabadra from RBC Capital Markets. Please go ahead.

Speaker 9

Thanks for taking my question. Maybe just a quick question on the EBITDA and your confidence of Getting 250 basis point of margin expansion by fiscal year 'twenty three, despite some of the headwinds we are seeing in fiscal year 'twenty two. Wondering if you could comment on that one. Thanks.

Speaker 3

Yes. So, we do still feel confident about the overall Medium term target that you're referencing, which we put out there at Investor Day. And it really stems first From growth from an overall EBITDA perspective and that's important and You see it in the guidance that we gave today that we're still feeling good about revenue growth. We are investing in the business and nothing has really changed there. But those investments we do think are smart investments and they will drive revenue growth.

Speaker 3

We're also expanding The panel and those investments will start to moderate over time. And then we are driving other We're replatforming our ERP within the company right now, which covers all the financials, all of our people globally. We're also taking a fresh look at real estate. The world has changed a lot. We have the pleasure of being in the office today, but It's the first time we have done earnings in our headquarter offices since April of 2020.

Speaker 3

So it's the world has changed quite a lot and that has us looking at our overall real estate portfolio. But stepping back from it all, we do feel good about the 43.5 Percent margins in 2023 and in line with what we put out there at Investor Day.

Speaker 9

That's very helpful color Linda. And then, on the new growth trajectory, You talked about the content headwind potentially in the Q1. But I was just wondering, are there anything else that we need to be cognizant of, Which is weighing on the revenue growth in the Q1, but potentially driving an improvement through the rest of the year? Thanks.

Speaker 3

Yes. So I think it's probably just important to focus on the full year guide that we gave. And then I gave you a little bit of first half, 2nd half color, but beyond that there's really nothing other than the what I referenced in Q1. Aside from that, I think In line with the 4% to 5% guide that I gave.

Speaker 9

Thanks, Linda. Thank you.

Operator

Your next question comes from Matthew Thornton from Trus Securities. Please go ahead.

Speaker 10

Hey, good morning, everyone. Maybe two questions, if I could. The second one is more of a housekeeping question. First, I guess, can you remind us a little

Speaker 5

or maybe Talk a little

Speaker 10

bit about as we think about exiting 'twenty one and into 'twenty two, how we should think about any type of impact you're seeing from supply chain disruption? Obviously, there's been some disruption, Whether it's the auto vertical CPG, consumer electronics, a few others, I'm curious if that's impacted any of your short cycle business. And similarly, as we get to the back half Maybe you could remind us how political kind of plays into that short cycle business as well. So that's the first question. And secondly, Housekeeping.

Speaker 10

Linda, should we think about any separation related costs still kind of carrying over into 2022? Or is that kind of all behind us now?

Speaker 7

Thanks, Matthew. I'll just hit on the supply chain. I think there's Two components to that. 1 is the internal, which is just us being able to manage the headwinds from supply chain, particularly in our meter space in 2021. So we had an amazing team that we pulled together that managed through the entire year, ordering it in advance so that we could meet all of our Meter and panel plans and general hardware needs.

Speaker 7

So it's an area we're going to continue to keep a very close eye on. Obviously, Ordering in advance is a huge component of the strategy, but there's other things like changing vendors, reengineering meters and stuff like that. From a top line perspective, there's been no particularly noteworthy impact in any of the short cycle revenues. It's an area we continue to watch, but as you saw the year play out in 2021, it was fairly consistent to how we So nothing material there. Second one, Linda, you want to add?

Speaker 3

Yes, I got the second one. You're right. That's Most of what you'll end up seeing Matthew as far as separation related costs is $185,000,000 that I broke out this year. You won't see us breaking out separation related costs going forward because they're just they're going to be virtually non existent.

Speaker 10

All right. That's helpful. And then I guess just coming back to the point on political, can you remind us, does that tend to have a little bit of lift on the short cycle business as we get into the back half of this year? Or is that, again, more of

Speaker 7

No, I mean, this is baked into typically our revenue flow, Matthew. Every year there's different kinds of events, whether it's Voting, political, they're basically nothing noteworthy there. That's separate from what's been called out, Belinda, on the guidance.

Speaker 10

Great. Thanks, everyone.

Speaker 5

Thank you.

Operator

And your next question comes from George Tong from Goldman Sachs. Please go ahead.

Speaker 11

Hi, thanks. Good morning. You mentioned you'll complete all MRC actions by the middle of this year. Can you elaborate on what And also discuss how your accreditation process for digital ratings is progressing?

Speaker 7

Yes. Thanks, George. I'll begin with digital. It is a complete audit of all components of the digital product. As you know, we rebuilt it from scratch.

Speaker 7

And so it's mobile, it's desktop, it's Adding, it's auditing all the components, viewability, the CTV enhancements, identity. So it's pretty comprehensive. We expect the 1st set of comprehensive audits for digital to be In March, which is obviously in this week and the rest of the month. So we feel really good about the progress on that front. As regards to television measurement, as we've laid out very transparently, we started publishing our tracking against all of the Accreditation items required.

Speaker 7

And look, this isn't just about accreditation. It's about raising the bar on quality more broadly. So we've got a series of They are beyond what would be called accreditation criteria. So our expectation is we get all of these Projects, not just the execution, but even the audits done by mid year, and we're tracking really well to that and publishing to the industry where we stand On a fairly frequent basis. So we feel really good about how we have executed going into Q4 as well as beginning of 2022.

Speaker 5

George, your question leads to a second point around upfront, which was asked earlier. I do want to clarify something because you're right to go to the digital ratings. I think the thing that we're going to see different in the upfront this year is the digital players showing up. Google is out there, which is the biggest streaming platform that's ad sponsored. They're out there with a blog post very clearly citing Nielsen ratings And continue to go forward with those.

Speaker 5

I mentioned on the call Roku being always on with the ratings. I think it's really important when people are looking at the industry, they realize the industry is digital First and so is Nielsen. And as we approach all of this, it is the belief that will it credit the thesis because I think We need to resource and trust and confidence and I really respect the MRC process. Then right behind that will be cross media. But this upfront is going to be for the first time, I think, an upfront with a lot of commitments to the streaming side also.

Speaker 5

And those are all going forward with Nielsen.

Speaker 11

Got it. That's helpful. Do you expect organic revenue growth to be back half weighted in 2022 despite Easier comps in the first half of the year. Can you elaborate specifically on expectations for growth in the audience measurement business, including puts and takes that might impact growth in the first half?

Speaker 3

Yes. So I can take that one, George. I think as we think Audience Measurement, we are consistent with the way that we've signaled that in the past And that for audience measurement that we pretty much see it as mid Single digit is the way that we're thinking of it, low to mid depending on any particular A mix of renewals that play out, but you heard David talk about the strength of our renewals 100% have renewed. So we feel good about the overall low to mid in line with what we put out there at Investor Day. As far as the timing is concerned, we are investing in the business as I previously mentioned.

Speaker 3

And the initiatives, as is oftentimes the case, How is investing in the first half and then we see the benefit play out in the latter half of the year and that's Fairly consistent with the way you've seen the business play out over the past few years and that's what you see in the numbers for this year. So nothing really beyond that to call

Speaker 11

Got it. Very helpful. Thank you.

Operator

Your next question comes from Toni Kaplan from Morgan Stanley. Please go ahead. Thanks so much. Can you

Speaker 12

talk about what you're seeing with regard to labor inflation and how much of an impact Included in the EBITDA guidance and related if you could talk about any changes or initiatives you've taken with regard to Recruiting and retaining employees as hiring has been a little bit more challenging in the current environment? Thank you.

Speaker 5

Certainly. Listen, we have an extraordinary team. As I said on the call, we've got more data scientists than the next 5 contenders combined. They're in hot demand And we make sure that we reward them. We've got an incredibly strong tech team, really great product leaders and of course, good commercial leaders.

Speaker 5

We have to work to stay competitive. We are watching kind of people's competitive offers and what's going on in the market generally and are investing And the value proposition for our people, and that is reflected in the targets we gave, which is maybe some constraint on Margin Expansion. But I think we've got a great proposition and people really do like working here and are coming in. I think of course, it's not all about. There's also real investments in training.

Speaker 5

There's real investments in collaboration. People come here because they want to learn the future. I think people are very excited about the convergence of digital and linear, which no one else It's tackling like we are and excited to learn that, because I think it's really going to help their careers, hopefully at Nielsen for a long time and Even when they go elsewhere, our alumni do quite well and are in hot demand. So those are all the things we're focused on. I would say it's job 1.

Speaker 5

We do have something we call smart work, which is the way we work. We've given people a lot of flexibility To balance work from home with the office as the office is reopened, that's also I think been very well received. The burden of course is on our managers to make sure that we're including everybody whether we see them in the office or we work with them remotely during the week. And so there's a lot of work helping our managers manage and take advantage of the flexibility that tech has enabled our people.

Speaker 12

Great. I wanted to also ask about international. You talked about the 7% growth in 2021. Can Can you just talk about where you're seeing the most traction there, whether it be by country or which types of solutions are getting the most uptake and International? Thanks.

Speaker 3

Yes. I would say, Tony, for International, it's a really good Story in that it's diversified and distributed. So there's really nothing in particular that is driving In a more pronounced way than others. There's in any given quarter, there could be some strings, but It's in all regions. It's in all markets.

Speaker 3

And so nothing that really rises to the level to strike out From as being a real standout, but the better story is the diversification that we have across all of international. What I also want

Speaker 5

to add because this confirms the thesis we laid out at Investor Day in the fall of or I guess it was December 2020, It's happening that around the world, basically the agencies and the advertisers are demanding cross media. And I cited some examples, but in Mexico where they've got just put in the stream measurement lab panel, which we've done, which is helping to build stream measurement. Australia has a big project called VOS. So Alzheimer's really stepped up to make sure they deliver cost media, which they I chose Nielsen as the only company that could do it in a place like Thailand, again, working with Adtev across Both the buyers and the sellers to get them to cross media. So there's a huge demand for this and the digital capabilities of Nielsen really are on Parallel, it is the most valued digital currency out there.

Speaker 5

So even in places where there are other traditional Jix and measurement companies, They all need us on the digital side. So that's really helping embed the audience measurement part of Nielsen internationally and it's a Big part of why we're growing faster in international than we have in the year. And we expect that to continue.

Speaker 12

Perfect. Thanks.

Operator

Your next question comes from Jeff Meuler from Baird. Please go ahead.

Speaker 13

Yes, thank you. I was hoping you could comment on, I guess, Buyback execution plans or consideration, it's such a big headline figure and I understand the guidance assumption of not Including it, but just given the percentage of market cap and a year and a half of free cash flow, like what are you Planning in terms of timeline for executing it or how aggressive you'd be or is it dependent upon M and A pipeline Conversion, anything like that? Thank you.

Speaker 3

Yes. Hey, Jeff. It's Linda. I'll take that one. So there are a lot of variables and we haven't provided any specific timeline.

Speaker 3

But stepping back, the great news is that we were able to make so much progress this past year with regard to our leverage, Where we do now have the flexibility to evaluate trade offs, investing in the business, considering tuck in M and A Or executing on share repurchases, all of those while continuing the dividend. And so we're not going to signal exactly When we're going to be in the market and there are always some limitations on the amount of trading you can do in a buyback program anyway. But suffice it to say that we think the shares are at very attractive levels, currently and we are, as you point out going to continue to generate significant capital flexibility over time. So it just has us very well positioned and we couldn't be more pleased that To know that the Board sees the long term value in the company and did the authorization. So, we will circle back in due But at this point in time, no specific timeframe.

Speaker 13

Perfect. And then I guess this ties to your views on intrinsic versus Market price and probably the way the market's assessing the terminal value, you gave us a lot of good points, David, on separating noise from reality, both And the financial markers. Just I guess a question on contract duration or length as you Renew through the Nielsen One rollout, I know you've always had long term contracts, but Are they lengthening as clients embrace Nielsen 1? Is there any sort of pause as they're going through the Nielsen 1 adoption process? Just Any update on contract length?

Speaker 5

Well, first of all, I'd remind you in the script, I said 100% of our top 10 clients Renewed in the last few years and they all renewed with similar escalators and timeframes as we've had historically, so no changes. What I also pointed out is that Last year, our national clients and some of them have been pretty vocal about us, but at the same time, they all grew with us Faster than they were growing pre pandemic because they are also moving to digital and they need Nielsen. So I would say very much on track in the same types of contracts. And certainly what when people have an audience measurement contract with us, we would We write them so that it can roll to the Nielsen One method as those methods come out. It shouldn't be incremental for Nielsen One.

Speaker 5

It's just a better way to measure the audience to measure them all on one methodology. In terms of length, what I also pointed out is that we've got a number Digital players who signed up with us, those contracts tend to be a little longer. Those companies are quite confident in their futures, the Digital First player. Yes, I would say that marginally is exceeding the average length. And I believe As all media companies settle into this new streaming first world and they realize the value Nielsen provides and To really help those agencies meet their fiduciary responsibility, we'll be able to have longer discussions.

Speaker 5

So it hasn't gotten shorter, I would certainly like it to be longer going forward.

Speaker 13

Got it. Thank you.

Operator

And your next question comes from Jason Bazinet from Citi. Please go ahead.

Speaker 8

I just had a quick question on free Cash conversion, I think in your prepared remarks, you said hitting that 50% of EBITDA converting to free cash in 2023 would be difficult Cash taxes were higher and CapEx would be higher, but the CapEx step up was sort of temporary. I guess it sort of implies that the cash taxes, the higher cash taxes will be Permanent. Is there any way you could sort of frame what you think a reasonable free cash conversion will be longer term for the firm?

Speaker 3

What I would say, Jason, is we haven't even hit the 1 year mark of having closed on the sale of the Connect business. And the profit mix of the Connect business versus the media portion of the business is very Connect having been a much more global business and media being largely domestic, but with really nice growth outside of the U. S. So, in short, it's complicated. And certainly during the course of 2021, there are a lot of dynamics in play with Selling Connect and the tax treatment associated with that and how that impacted our ability to utilize tax credits during the course of the year.

Speaker 3

And so we are not giving a rate at this point in time. The good news is, EBITDA is higher And that translates into higher cash taxes, but it really is based on where our profitability is in

Speaker 10

various jurisdictions and in the U. S.

Speaker 3

And various And in the U. S. In various states and all of that factors into what will impact our cash taxes. Our goal is still to get to the 50% cash conversion over time and share repurchases may bear some relevance to that because The interest expense would that to the extent it impacts the pacing of us continuing to delever Would impact interest expense, not huge amounts, but nevertheless cash interest. And so there are a handful of dynamics that are in play.

Speaker 3

But At this point in time, not in a position to really be able to give a cash rate, which is a unique concept anyway. We're comfortable though with The way that we've guided the effective tax rate in the 23% to 25% range and I'll remind you that if you remove the noise out of The current year, our effective tax rate would have been 23.5%. So, just an important data point and we'll continue to be transparent on cash

Operator

Today, I will turn the call back over to David Kenny for closing remarks.

Speaker 5

Listen, I want to thank you all for joining the call this morning. Every day we all get up here to power a better media future for all people. We are not distracted from that mission and we're very confident in the path ahead. We're very excited and proud of the progress we've made and know we've got a lot more to do. So we look forward to updating you again in April.

Operator

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

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Earnings Conference Call
Nielsen Q4 2021
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