尼爾森 (NLSN) 2014 Q4 法說會逐字稿

Good morning, my name is Laurel, and I will be your conference Operator today. At this time, I would like to welcome everyone to the fourth-quarter 2014 Nielsen NV earnings conference call.

(Operator Instructions)

I will now turn the call over to Kate Vanek, Senior Vice President of Investor Relations at Nielsen. Please go ahead.

Good morning, everybody, and thanks so much for joining us today to discuss Nielsen's fourth-quarter and full-year 2014 performance. Joining me on today's call from Nielsen is Mitch Barns, CEO; and Jamere Jackson, CFO. A slide presentation that we will use on this call is available under the events section of our IR website at Nielsen.com/investors.

Before we begin our prepared remarks, I'd like to remind all of you that the following discussion contains forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include comments about Nielsen's outlook, expectations and prospects, and are based on Nielsen's view as of today, February 12, 2015. Our actual results in future periods may differ materially from those currently expected, because of a number of risks and uncertainties. The risks and uncertainties that we believe are material are outlined in Nielsen's 10-K, and other filings and materials that you can find, also on our website.

For today's call, Mitch will start with comments on our results for the quarter and the year and give some overview of some key highlights and a business update. Then Jamere will discuss financials for the quarter and the year, and will also provide updates on our full-year guidance.

We have a request here, during Q&A in order to get to everybody, we ask that everyone limits themselves to one question only. Feel free to rejoin the queue, and if time remains, we will allow you to have a follow-up at that time. Know that as always, the IR team is here to answer any questions after the call.

And now, to start the call, I would like to turn it over to our CEO, Mitch Barns.

Thanks, Kate. Good morning, everyone. Thanks for joining the call today.

2014 was a terrific year. Our steady consistent financial performance reflects solid execution by our teams against the commitments we laid out a year ago, including our commitment to delivering value for shareholders.

But it is not just our financial performance that made 2014 great. We're also stronger than we were a year ago thanks to the progress we've made on our key initiatives. Top to bottom, all across our Company there is a high level of energy and optimism about our future, and the opportunities ahead.

But before we talk about what's ahead, let's take a look at the full-year numbers for 2014. First we had solid revenue growth. On a constant currency basis, 2014 revenues grew 12.4%, excluding the Arbitron and Harris acquisitions, our core revenue growth was 4.5%, that's more 0.5 points better than in 2013. Core watch revenues increased by nearly 6%, including a 6.3% increase in audience measurement.

And our local television revenues grew at the highest rate we've seen in several years, up 4.5%. That's a fact that might be surprising to some of you. Core buy revenues were up approximately 4%, including a 9.5% increase in emerging markets.

Next, adjusted EBITDA was up 13.6% or 16.5% constant currency, reflecting the scalability of our business model. Adjusted net income per share grew 30% constant currency to $2.52. Free cash flow was a record $681 million, up 19% over the prior year.

Our powerful business model enables us to invest in key growth initiatives while also returning cash to our shareholders. In 2014, we returned over $800 million in cash to shareholders, and we have plans to deliver an additional $1.6 billion by mid 2016 through a growing dividend and our previously announced share repurchase program.

Acquisitions are another part of our balanced approach to capital allocation, and our team continue to prove themselves as highly effective integrators through their work on two big acquisitions in 2014, Arbitron and Harris Interactive. We delivered on our expected cost synergies, and we brought new capabilities and product enhancements to clients.

While our teams continue to be fully focused on execution and innovation for 2015, as a global Company, we are facing the same FX headwinds as our multinational peers, and I know that isn't a surprise to any of you. Jamere will cover how that will impact our guidance for 2015.

Let's turn to 2015. I will cover some of our fundamental strengths, and why we are bullish on the year ahead. First, audience measurement. Media fragmentation continues to accelerate, and consumers have more choice and more control than ever, and it shows in the growing diversity of how people consume media content.

Our response is to focus on the consumer. That's what we do. We follow consumers and measure them no matter how, where and when they watch.

It is exactly what the market needs. Independent third-party measurement, based on currency-grade ratings that are comparable across all screens, platforms and ad models, that roll up to two represent the total audience. You will see us continue to invest and innovate against that objective.

You will also see a step up our communication to the market. We'll simplify the language we use to describe our measurement system, making it easier for clients and our investors to see how all of the parts fit together to represent the total audience.

We will also continue to work with the market to update the rules regarding what viewing can be included in the currency ratings, in response to changing consumer viewing habits. This is important for the monetization of audiences, and the overall efficiency of the market.

So let's talk about where we are today, and what you can expect us to deliver in 2015. Today, there's no doubt in our minds that we are winning.

In linear television measurement, we have the world's highest-quality panel, the gold standard source of truth. Our panels remain essential, and they're key differentiator for us, even as our approach to measurement evolves, and it will.

As we said at our December Analyst Day, the future of measurement is not about choosing between panels and big data. Instead, it is about combining high-quality panels with highly granular big data sets that have the best of both worlds. This is the direction we are taking with our entire measurement portfolio, including audience measurement.

We also continue to add to our measurement coverage. A key area of focus for us right now is video-on-demand, both subscription-based and ad-supported models. Capturing these fast-growing slices of over the top viewing is a key next step in our effort to provide clients with the complete picture of the total audience in 2015.

We're also working to enhance our measurement system for local television markets, and our clients are responding well to our plan. Specifically, later this year, we will bring electronic measurement to 14 additional markets, and improve demographic measurement all 31 set meter markets.

We are also taking steps to improve the stability of the ratings. These are important steps forward, and it is worth noting that in 2014 we successfully renewed every major local television contract that was up for renewal. But having said that, it remains true that local will continue to be more challenging part of the market, and more fully focused on carrying out our product improvement plans for our clients.

In digital, we of course have OCR, which builds great momentum in 2014, and that's carried into early 2015. In the US, 19 out of the top 25 advertisers now endorse OCR.

Major publishers tell us that the RFPs they're receiving from advertisers are specifically requesting or even requiring OCR. But overall, we are seeing the same high renewal rates that we see in television, and importantly, pricing remains strong.

Our relationship with Google is proceeding well. Our integration with DoubleClick is complete, and a growing number of major clients are now engaging through the DoubleClick platform. For example, the media brands agencies within IPG. And of course, YouTube is offering OCR guarantees to advertisers for their media buys.

We are also making good progress on OCR's international expansion with Japan and China next up. In Japan, we formed a joint venture with INTAGE, and in the second quarter, we will launch OCR through that partnership. In China, we are partnering with [Pentent], a leading provider of comprehensive of Internet services in that market, and we are on track for an April launch in China.

On another front, we are progressing extremely well in our partnership with Adobe, working on the roll-out of digital content ratings. We expect a beta rollout in mid-2015 and full production mode later in the year. As you may recall, digital content ratings measure audiences for digital content, using the same measurement architecture as OCR, which measures ads.

Feedback from clients has been extremely positive. They see immense value in a single source of truth that brings together Adobe's analytics with Nielsen's ratings for digital content.

So that's a high-level overview of our positioning and plans for total audience measurement. We are creating a measurement system where all viewing can be consistently and comparably measured with independent, currency grade ratings for both content and ads. That's what total audience measurement is all about.

In our buy business, our global presence is unmatched, and our growth continues to be fueled by powerful long-term tailwinds, population growth, the rise of the middle class, and urbanization. We've been investing consistently behind these trends, and it is paying off, evidenced by both revenue growth and an improving margin trend.

In 2014, our emerging markets business grew 9.5%, and that's up from 7% in 2013. The growth is accelerating.

We continue to be underpenetrated in emerging markets, so we have plenty of runway for growth, with both the multinationals, as well as with the local and regional players. In developed markets, conditions are bit more challenging, but we continue to win clients and we've recently seen some improvement in discretionary spend.

For instance, in the fourth quarter in North America, we saw stronger client demand in our innovation practice. This part of our business has often been a leading indicator that clients are investing in growth.

Touching on e-commerce, the launch of our Ali Baba omnichannel measurement in China has seen a nice take-up rate from manufacturers, and we continue to make similar progress in several other markets around the world. With the rapidly growing role e-commerce, and the ongoing importance of retailers to all parts of our business, we recently made the decision to organize around retailers as a vertical to increase our focus and speed of development in this area. This is an important move for us, and we will have more to say as our plans unfold.

Finally turning to marketing effectiveness, formally called advertiser solutions, we continue to see strong growth with revenue up more than 13% in 2014. Chief Marketing Officers turn to Nielsen to help them measure and improve the ROI of their marketing spend, with the level of precision and actionability not previously available.

In short, we're helping clients trim waste from their marketing programs. Not just in our core verticals of consumer package goods and media, but also in the auto, financial, telecom, entertainment, and retail verticals.

I'll close my remarks by saying we are entering 2015 in a position of strength. The energy and optimism I see from my Nielsen colleagues around the world give me a great deal of confidence that we will continue to execute and deliver.

Jamere, over to you.

Thank you, Mitch. First, let me give a few more details on our 2014 performance, and how that stacked up relative to the guidance we gave in December. Revenue was $6.3 billion, up 12.4% constant currency, which is slightly above the 12% growth rate we gave. Excluding the impact of the Arbitron and Harris acquisitions, revenue grew 4.5% constant currency.

Adjusted EBITDA was $1.8 billion, up 16.5% constant currency, and adjusted EBITDA margins were 29.2%, up 101 basis point on a constant currency basis, as we executed on our productivity initiatives and successfully integrated the Arbitron business. Adjusted net income was $970 million, up 30.9% constant currency, and diluted adjusted net income per share was $2.52, in the middle of the $2.50 to $2.55 range we gave, and up 29.9% versus prior year on a constant currency basis.

Finally, we generated record free cash flow of $681 million, up 19% versus a year ago. It was a $15 million impact from FX, so we were actually closer to the $700 million guidance we gave, when you exclude the rate impact. Once again, we had good execution around the world, and we delivered consistent, steady revenue growth, margin expansion, and strong free cash flow results in 2014.

In addition, we returned over $800 million to shareholders as we increased the dividend by 25%, and executed approximately $500 million in share repurchases. Our business remains well-positioned to deliver consistent growth through the cycles, and our strong balance sheet and accelerating free cash flow enable us to grow our business, and return cash to shareholders in a meaningful way.

Moving to the fourth quarter, revenue was $1.6 billion, up 5.4% constant currency. Excluding the impact of the Arbitron and Harris acquisitions, revenue grew 4.4% constant currency.

Adjusted EBITDA was $524 million, up 6.9% constant currency, and adjusted EBITDA margins were 32.1%, up 48 basis points, as we delivered a very strong 119 basis point expansion in watch margins, and 21 basis points expansion in buy margins, both on a constant currency basis. Adjusted net income was $309 million, up 18.8% constant currency, and diluted adjusted net income per share was $0.81, up 19.1% versus prior year on a constant currency basis.

Finally, we generated $263 million in free cash flow, up 12.4% versus a year ago. As Mitch said, we finished the year on a strong note, and we have tremendous momentum heading into 2015.

Next, I'll move to segment revenue and give you a little color on the pieces. As I mentioned, revenue was up 5.4% for the quarter, and we saw strength in both watch and buy. This also marks the 34th consecutive quarter of revenue growth for our business, reflecting our remarkable consistency and resiliency through the cycles.

Now first, let me highlight that we are changing the way we present our buy segment in order to provide a better depiction of our buy business. As we illustrated when we broke down our 2015 guidance levers, we will be speaking about this segment in terms of developed markets and emerging markets, as opposed to a view on information versus insights.

Our mix of the business remains fairly constant at roughly 75% information, which tends to be recurring in nature and 25% insights, which tends to be more discretionary nature. As we've talked in the past, we are increasingly linking our information and insights offerings together, to help our clients both measure their performance, as well as improve their performance. Secondly, this presentation mirrors how we manage the business, and importantly, we will continue to provide color on the discretionary spend environment and the impact it has on our performance and growth rates.

With that, let me turn to the buy business. Total buy revenue was $908 million, up 6.4% in constant currency, and up 3.8% excluding the Harris acquisition. The buy business continues to operate in a two-speed world with developed markets revenue of $611 million, up 4.8%, which grew just under 1% excluding the Harris acquisition, while emerging markets continued to deliver broad-based growth with revenue of $297 million, up 10%.

In particular, we saw strong growth in greater China, Southeast Asia, Latin America and Africa, which were all up double digits. Our continued commitment to investing in coverage and analytics capability has delivered back-to-back quarters of double-digit growth in the emerging markets. For reference, and to close out 2014 and help you with your modeling, our information revenue was $648 million, up almost 1% and our insights revenue was $260 million, up 23.8% constant currency.

Excluding Harris, insights was up 12.9%. The insights growth ex-Harris was a result of a modest rebound in discretionary spending in areas like advanced analytics, segmentation and innovation, and as John Lewis spoke about at our Investor Day, we have added capabilities in the innovation space which we are very excited about.

Our watch business revenue was $725 million, up 4% constant currency, or 5.5% excluding Arbitron. We saw continued strength in audience measurement, which excluding audio, was up 6.5%. Our digital business, which is included in audience measurement, has great momentum, as revenues doubled, albeit on a small base.

Marketing effectiveness grew 17.5%, which is a reflection of increased penetration with both CPG and non-CPG clients. So again, another quarter of consistent steady revenue growth for Nielsen.

Moving to profitability, buy EBITDA was $202 million, up 7.4% constant currency. I'm happy to report that buy margins were up 21 basis points in the quarter and moving in the right direction, while we continue to invest in emerging markets. Margin expansion will continue to be a big focus area for our team as we support our clients, gain scale and drive efficiencies.

On the watch side, EBITDA was $329 million, up 6.8% constant currency. Watch margins were up 119 basis points as we continue to drive productivity and operating leverage in our audience measurement business.

Overall, profitability remains strong. Total Company margins were up 48 basis points on a constant currency basis, in line with our long term historical performance as we continue to invest in our key growth catalysts.

Next I will move to foreign currency. 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 third-party transactional risk, so this slide focuses strictly on the translation impact for reporting purposes.

Like many multinationals, we saw significant foreign currency impacts that resulted in a 400 basis point drag on revenue and a 380 basis points drag on EBITDA during the quarter. The drag was about 110 basis points greater on revenue, and about 80 basis points greater on EBITDA than what we laid out on our 3Q earnings call, which is about $0.01 a share impact on our adjusted net income.

Separately, we took a $29 million charge on 12/31 related to the revaluation impact from the Venezuelan bolivar to the SICAD 2 rates. If February spot rates held constant through 2015, then we expect a 390 basis points drag on revenue and a 300 basis points drag on EBITDA in 2015. This movement in rates represents a $0.12 a share impact versus our December Analyst Day guidance.

Next, I will move to the balance sheet and key metrics. On the top left are some of the key financial metrics, which were all pretty much in line with what we said previously.

On the bottom left is our net debt ratio, our gross debt is $6.9 billion with $273 million in cash to get to $6.6 billion of net debt, and a 3.59 times net ratio. On the capital table on the right, our debt ticked slightly higher since 3Q, as we executed on our capital allocation strategy, and our weighted average instant rate is down slightly at 3.79%.

Next I will flip to 2015 guidance. We are updating our 2015 guidance to reflect the impact of foreign exchange rates. As a result, we now see adjusted net income per share in the $2.68 to $2.74 range, which is $0.12 lower on the top and bottom end of the range. This is a combination of impact due to the stronger dollar and the Venezuela revaluation that I mentioned earlier.

Also, based on foreign exchange rates, we have updated our 2015 cash flow to a range of $850 million to $900 million. We also plan to hold leverage roughly where we ended 2014, in the 3.6 times area, and we are reaffirming all of the other metrics on the page.

So let me wrap up, we are pleased with our execution in 4Q and 2014, where we have delivered steady consistent revenue growth, margin expansion, and strong free cash flow. We are delivering on our commitment to grow our business with investments and acquisitions in key growth initiatives, and executing on these initiatives combined with our plans to return roughly $1.6 billion in cash back to shareholders over the next year and a half, gives us confidence we have the elements in place to continue to drive long-term shareholder value. And with that, I will turn it back to Kate.

We would love to start Q&A now, if you could turn to the first person in queue.

(Operator Instructions)

Sara Gubins, BofA Merrill Lynch.

Can you talk about over the long-term, margin expansion potential, and given all the investments that you are making, particularly on the watch side but also continued on the buy side, does that hamper margin expansion going forward?

Thanks, Sarah, for the question. Our business model has this scalable nature to it. So much of our revenues are subscription-based and long-term contracts, and we've consistently been able to expand margins across our entire business, both watch and buy, in the range of 40 to 60 basis points a year.

And that allows us more than enough flexibility to continue to invest back in our business, which we've done. Including those investments in emerging markets that we have been very consistent about now for several years, and you see that pay off as our emerging markets growth rate has accelerated from 7% in 2013 now to 9.5% in 2014. The second half of 2014 was even a little better than the first half, so we're able to do both. That's the beauty of our business model. Jamere, anything to add to that?

Yes. So as you saw on the quarter, we were up 21 basis point on a constant currency basis and our buy margins in the fourth quarter, after being flat in the third quarter. And so for the total year 2014 we were down 30 basis points, and if you recall, in 2013, we were down 66 basis points. So buy margins were definitely moving in the right direction. What we said is that some of the emerging market investments are starting to scale, and margins as result of that are starting to move in the right direction. As Mitch said, we're going to continue to invest in a disciplined way, we'll give you more color as the year goes on, but we're still committing total Company in that 50 to 70 basis points margin expansion for the year.

Anjaneya Singh, Credit Suisse.

You have been an early mover internationally, particularly in the emerging markets, and you're seeing really nice growth there. I'm wondering if you can speak to how the competitive landscape might be changing, and how that's trending outside of the US, especially in light of the recently announced alliance of some of your competitors?

Thanks for the question, Anj. First on the buy side of our business. It is one of the beauties of the buy side of our business is we are the one who is willing to go into many of these markets that are incredibly difficult to measure, where the retail environment is dominated by the traditional trade, and it takes an incredible amount of execution ability and discipline to measure these markets exactly what the consumer packaged goods companies need, and we've done a very good job of that, and we still have a lot more work to do, and a lot more runway for growth on that side of our business.

On the watch side of our business, we love our position. We have our audience measurement capabilities on the linear television side now, more than 30 markets around the world, which is a fantastic footprint. On the digital side, we've been making great progress in expanding OCR to new markets. We are already in eight of the most important markets outside the US, and then we have plans in 2015 to roll to an additional seven markets above and beyond those eight, five in Southeast Asia, plus Japan and China, which I mentioned in my remarks at the outset of the call.

So we love where we are, we love our plan, and we're going to execute against it, and we think in many respects, what you're seeing from competition is that they are playing catch-up. We already in a lot of these markets, the most important ones, with both measurement capabilities on the television and the digital side, and they see the need to -- you can't play in just one part of the market anymore. It is really about measuring the total audience. You've got to have the full set of assets and capabilities, and I think some of the other players have realized that they are missing important parts of the total picture.

David Bank, RBC Capital Markets.

I guess this one is really for Mitch. It seems to us that there's always an awful lot of chatter in the marketplace right now around competitors offering potential alternatives for measurement, suggesting that there should potentially be pricing pressure or share loss for you. And what's really remarkable about this quarter and the year that just finished, I think, is basically how little they seem to suggest any of this controversy is playing out in the marketplace.

How do you reconcile the noise with the consistency of the results? How -- it looks like the consistent 5% constant currency growth through the year, and it sounds like you're seeing more of the same. What is the noise versus what's really going on?

Thanks for the question, David. You are right, even our local business, as we mentioned, that very solid growth at 2014, a lot of noise in that part of the market, but really all across the board. I think the differences in a lot of the other players are looking at just a slice of the market. They're measuring the piece of it, and while that is interesting what the major players need is they need a complete picture. The total audience as we describe it.

So you have to have comparable metrics across each of these individual slices. You have to deliver those metrics at currency grade, and you have to be able to put them all together to represent the total picture. We are working against that objective. We have our plan laid out. We know it is perfectly aligned with where our clients go, because they told us as much, and we are executing against it.

Other players who might be looking at a particular piece of the market, that's not perfectly aligned with where the market knows it is going longer term. A second thing that I will mention here though is, sometimes there's a difference between what is about measurement, and what is about analytics. And in some cases, you will find other services that are out there, other data sets that will be available to clients, if they are using, not to measure their performance but to add additional diagnostic metrics, and additional characteristics about their audiences. In those instances, what you will find those things are very complementary to the core of our business, so that's one reason why you don't see that competitive impact on our financial performance.

Bill Warmington, Wells Fargo.

I had a question on the watch business, the constant currency reported growth of 4%, but then excluding Arbitron, the constant currency reported growth was 5.5%. So I just wanted to double check on what was going on with Arbitron, and whether I have those numbers right?

Yes, so on audio, it was 150 basis points drag on the overall growth rate. The revenue was down 1% in the quarter, which is only about $2 million, and it was mainly due to timing. Overall for the year, the business finished where we thought it would. So that was the only impact that you saw in the quarter, is a timing difference between the third and the fourth quarter.

Andrew Steinerman, JPMorgan.

Jamere, I wanted to ask you about Arbitron. I remembered it closed in December 2013, so that would be included in an organic number in the fourth quarter. And so my question also is, what would be a pure organic revenue growth, pure organic constant currency revenue growth in the fourth quarter if we included Arbitron but excluded some of the small acquisitions of 2014?

So what we said is our watch revenue, excluding audio, was about 5.5% in the quarter. The audio revenue was about 150 basis points drag, so if you included both, you would be at the number that we actually reported there.

150 basis points drag, at least in part due to the timing issue you mentioned before.

Exactly. On an ongoing basis, you would expect that our audience measurement business growing at 6%, we talked about marketing effectiveness growing at double-digits, a little bit of drag in the other watch business, so for the total year, our watch business ex audio was about 5.8% or almost 6%.

Phil Stiller, Citi.

This is Phil calling in for Ashwin. I wanted to follow-up on the organic growth rate, I guess from an overall perspective. You came in about 4.5% for the year and the quarter. You are guiding to 4% to 6%. Just wondering if you ended up coming in at the high end of the range for 2015, what do you think the drivers might be to get you to that 6% range?

We talked about it when we laid out our 2015 guidance, where we broke down the elements. And what we said there is that our watch business would grow somewhere in the neighborhood of 4.5% to 6.5%, and it is driven based on three factors.

One is the ongoing success with our total audience measurement business. As Mitch talked about, we are making great progress there. We have continued traction with our digital ratings, and the momentum that we are seeing in marketing effectiveness.

Those things going very, very well gets us to the 4.5% to 6.5% range there. On the buy side of the business, we said we have a two-speed world here. In the developed world we see 1.5% to 3.5%, and in emerging markets 8% to 10%, which get you somewhere in that 3.5% to 5.5% range on the buy side of the business.

The catalysts there will be continued progress with new client wins. Some moderate recovery in the global discretionary spend environment, which we have talked a little bit about here in the quarter. And then continuing progress with emerging markets, fueled by our local clients, which has been a great story for us this year. That gives you a little bit of the pieces on how we see next year, and again how these range drivers go will determine where we ultimately end up in the 4% to 6% range.

Dan Salmon, BMO Capital Markets.

I'm going to stick with the question around Arbitron, too, but not so much impact in the quarter or the year. But just maybe an update on the innovation there. I remember when the acquisition closed you talked a lot about taking some steps to integrate it with the marketing effectiveness products, eventually to roll out maybe some streaming products. Interested in an update there on where the product innovation is headed these days?

Yes, thanks, Dan. We are making great progress on that front. There are three components in particular that we talk a lot about internally. One of them is international expansion, which of course we have the global footprint and relationships and a lot of these key parts of the world, and we've made some progress there.

We, I think on the previous earnings call, mentioned Turkey as one of our new market expansions. We've been successful also in extending some of our radio audience measurements contracts in some other key markets, in particular in Southeast Asia, so we feel good about the progress we're making there. As we always said, that will be a slow one, because a lot of those are multi-year contracts and you have to wait for them to come available.

On marketing effectiveness, it's bringing together the listening data with the purchasing data. We've run a number of studies on that front, which we've shared with the market, and it has generated a tremendous amount of interest and excitement, because it has shown that there is very good return on investment in radio advertising for the right brand, done in the right way. We've seen a nice uptake in additional studies of leveraging our analytics capability in that area.

Finally on digital streaming, this is one that we've we made some good progress, in terms of aligning the industry, but we are not quite across the finish line yet. Just to say another word about that. We have the technical measurement capability. We already have that, that's not the issue. It leverages our OCR architecture, so we are able to measure digital streaming.

It is more about how it gets reported, and getting the different players in the marketplace to align and agree on how it will be reported in the marketplace. We made progress on that conversation with market over the last few months, but we are not quite all the way there yet, and so we have more work to do, and we are hopeful, optimistic that we will bring that one across the finish line sometime later this year.

Tim Nollen, Macquarie.

My question was actually exactly on what you were just saying, Mitch, which is about the steps to adoption of a broader rating system. At least two of your major TV companies when they reported said some very positive things about the progress that you have been making in incorporating digital measurement. I wonder if you could just maybe explain what the steps are left to do.

I guess the technology is there. You're getting your SDK embedded on some of the pay TV platforms. Is it really just about getting the industry to discuss what a new rating standard means, and if that's the case, you mentioned later this year, does that mean by maybe the upfront market in 2016, that we will be talking about a broader Nielsen rating standard? If you can walk us to the timeline there, and what finally really actually does get us over the hump?

Sure. There's a lot of activity here, it all fits under the banner of total audience framework. Which continues to serve us incredibly well. One of the pieces that we have on our product roadmap for 2015 is bringing enhanced video on demand measurement capability to the market.

I mentioned these in my prepared comments, but this is about better measurement of subscription and advertising supported video on demand, so the substitution part of that, of course, would include Netflix. So we have our product development plans on that. We will roll out those capabilities later this year, and we are well on track on that front.

There is then, on the mobile front, where clients have a number of steps they have to go through. One is to decide on their business model because they want to include mobile viewing in the currency TV ratings, so they want to measure and monetize it as digital viewing. So they have to make that decision. Then their engineers have to embed software code into their apps, and then they have to organize their business around it, and so that it takes the timeline to some degree on that front.

There is also the definition of the currency rating out there in the marketplace, and I mentioned that we are engaging with the market around looking at that definition, updating it, changing it, so that it captures more of the viewing that's happening, getting all the changes in consumer viewing habits that have unfolded in recent years. That's another really important step.

Finally, it is also about clients organizing their teams and their business models around this new way of thinking about the future in the media world. All of that then plays into the upfronts, and we've seen the upfronts evolve over the last few years, and you are going to see that evolution continue, and probably in a big way for this next set of upfronts that we will go into. I think more clients will be thinking about the total audience both digital and linear TV, as opposed to them being two separate and distinct worlds. More of them are going to approach that as one big picture, and look to monetize across these platforms, and we will have the framework in place for them to do that. With more of the pieces filled in, in that puzzle, of course by the fall of 2015.

Manav Patnaik, Barclays.

This is Ryan filling in for Manav. Just a question on the local television growth. I think it was better than some people expected. Just how does that compare to prior years, and I think you said that the market was still challenging, I think was the word you used. Is that just in terms of the local advertisers? Is that in terms of competition?

The local business grew the best rate we've seen in the past several years in 2014. There are a number of factors there. We had some new capabilities we brought to the market.

Our contract renewals were very solid, as I mentioned. It was also an election year, which was a little bit of a tailwind in 2014 that of course won't recur as early as 2015, come back in 2016 again, of course. But it was those three factors together that drove that solid 4.5% growth rate on our local television business in 2014. Our product improvement needs -- we've been very clear about those. Our clients have been very clear about their need to see us improve the product to keep up with the impact of media fragmentation that's occurred in the market.

The second thing that we know a lot of our local clients are looking for is help, as they seek to monetize viewing that's happening on digital and mobile platforms. And by the way, we are very well-positioned to help them on those fronts. It is an area that will probably create some new growth opportunities as we move through 2015 and beyond. So more work to do there, but bringing that electronic measurement to 14 new markets, better demographics to the 31 set meter markets and increased rating stability by increasing the sample sizes and bringing some very sophisticated statistical modeling to the picture, these are going to be some really important product improvements in 2015, and we like our position.

Todd Juenger, Sanford Bernstein.

Sticking on a longer term theme here, there are all sorts of theories about how advertising mix and spend by marketers will evolve in the States over time. But one theory that seems to be becoming increasingly popular is the scenario where television advertising revenue maybe slows down in its growth rate or maybe even starts to decline in an absolute sense. It would probably picked up in that scenario with some expected growth on the digital side. If that were the scenario that played out, what does that mean to Nielsen over the long-term, especially as you think of your mix of your products and your customers in terms of your revenue growth rate and impact on margins? Thanks.

Thanks for the question, Todd, it is a great one. What that will mean is that we made exactly the right move with respect to this total audience framework, because that framework is in fact designed to capture all that viewing, no matter where that consumer goes. Starts with the consumer, follows the consumer the matter where, how and when the consumer views the video content.

The idea about television versus a lot of these new areas where consumers can go, the attraction of the digital side of the world is precision. You can more precisely find a specific consumer that your brand really wants to focus on, and that precision is appealing, and it is important, and there's a lot of value in that precision. But here's the other thing, there's another side to this equation, which is reach. One of the things that the digital world doesn't yet deliver as well as the traditional television world is those big reach numbers.

Reach is still really important to brand marketers. There is a reach premium that gets paid in the television world, and I don't think that's ever going to change. I think that there will always be a reach premium, television will always been a good position to deliver that reach.

Digital will eventually figure out how to deliver big reach numbers too, but TV's got a big leg up on that front. So it will be that push and pull between the desired for precision, which digital delivers really well, and the need for reach. That's really what's going to dictate just how this one unfolds. Either way, our total audience framework positions us to capture it, to measure it, and help our clients monetize it.

Brian Wieser, Pivotal.

I just want to revisit the topic of the noise around the marketplace that's been going on. In particular this morning's news. And I guess I just want to get your current thoughts on the idea that it is not just your competitors, it is frequently your customers that are driving a lot of the noise. At the same time, they are not using your products any less, they continue to depend on them more than ever in many cases. Yet they're noisier than ever. I just want to hear your thoughts on why you think that noise is in the marketplace? Is it just an attempt to get better leverage in negotiations, or something else?

Thanks for the question, Brian. Certainly one of the issues here is one that we're very well aligned with our clients. It is what I mentioned about the definition of what gets included in the Nielsen ratings, and sometimes when our clients refer to Nielsen, they are referring to that rating, that traditional television rating, and they are frustrated with that, because it is not as broadly defined as they know it needs to be, given the changes in consumer viewing habits that have unfolded in recent years.

But they still use the single word Nielsen to refer to their frustration with that, and sometimes people like to hear that and get confused, they think they are talking about the Company. But we join them in that concern. We join them in the idea that definition needs to be reevaluated. It needs to be expanded to include more of the viewing that's happening out there. Much of the viewing, by the way, that we are already capturing and reporting to our clients.

But the more of that viewing think it is included in the currency TV rating, the more certainty they have about their business, and in many respects, the easier it is for them to monetize that viewing. So we understand why they want that to be re-looked and that's a big objective of ours to lead that conversation in the industry. It is not a decision we can make on our own unilaterally, it is one that the industry really has to come together on and decide and we can play a role in that, but we need everybody to come together, both sides of the table. That's a big one.

On the competitive side, I mentioned before about some of the announcements that you saw this morning. A lot of that is, I think, companies playing catch-up with where we already are, realizing you can't have just a piece of the puzzle. Also, the increasing interest that clients have in looking at these key markets around the world, and we like our digital position, our television audience measure position across the most important media markets around the world, and we're going to continue to expand that footprint, as I mentioned on the digital front, adding seven additional markets during the year. China is really big one, by the way, of course. The world's largest population of Internet users, world's most important growth market. We are allied with the best possible partner in that market in Tencent, so those are my thoughts, back to you, Brian, on your question.

Andre Benjamin, Goldman Sachs.

My question is also on the local TV market. I know we've talked in the past about bringing some of the set-top box data products that can run alongside your core Nielsen rating. I was wondering where you stand on the launch of some of those products, and just any update on where you stand on the timing, and whether or not the scale of those products in terms of the number of boxes measured or partnerships should be comparable to your competitors?

Yes, good one Andre, thanks for the question. We mentioned this concept of how we view the future of measurement before, and it is really very closely aligned with your question. The future of measurement for us is about taking our high-quality panels, which we have both on the watch and on the buy side of our business, and combining them with these big data sets. These highly granular big data sets that are increasingly available across different parts of the market.

That's the direction we see our entire measurement portfolio going. Not just local television, not just audience measurement, but across both watch and buy. We are already moving in that direction, in certain parts of our portfolio. For example, OCR, that's exactly the way OCR works.

It leverages our high-quality panel and a very big data set, known as the Facebook user registration database, as well as other data sets from Experian and others. Brings the strengths, the respective strengths of those two sources of information together, to have the best of both worlds. We are looking to bring that same idea that same concept to local television audience measurement and every other part of our measurement portfolio in our Company. That is the future of measurement.

Paul Ginocchio, Deutsche Bank.

A question for Jamere. With the additional FX headwinds have you -- and to keep margins expanding 50 to 70 basis points, have you had to be a little -- tighten up the belt on internal spend, or has there been no change in plans? Thanks.

First let me say that fundamentally, we run the business the same way that we always have, so nothing's changed there. We underwrite new business to include the appropriate pricing mechanisms, to protect us against hyperinflation or devaluation in certain markets. So in some cases that means either bigger price escalators or more frequent pricing changes.

So we haven't changed the way that we run the business. We are not going to constrain our growth. We are going to continue to invest in a disciplined way, and continue to run the plays that we've been running.

Jeff Meuler, Baird.

You are hard at work innovating on the audio side, digital audio, international, but if I'm hearing you right, some of that probably isn't a big 2015 revenue opportunity. So Jamere, questions for you, what are you assuming in your guidance in terms of audio growth, or what type of headwind to your organic growth audio is going to be?

So what we've said in total is that audience measurement is going to be in the 5% to 6% growth rate range. That includes audio, so if you think about where we've exited 2014, our watch business ex audio is growing in the 6% zip code. When you combine audio with that, that gets you with the 5% to 6% zip code, so audio is growing low single digits in the framework that we've given you.

Thank you.

Laura Martin, Needham.

I would be really interested in you talking about Europe, and what you are seeing in the various countries in Europe in terms of softness in those markets? More generally then just your products and whether do you think 2015 towards the end of the year, we'll see some robustness in Europe. You guys have such a unique seat. And then going back to this prior question, on the set-top box data.

I know your philosophy, you've articulated twice, is to integrate big data sets into the core product, but could you talk about are you buying set-top box data, and at the end of the day, do you have to buy all 26 million set-top box households that are now available for purchase? And should we expect to see that cost step up in your income statement, as you integrate more set-top box data into the big data attributes of these products?

Thanks, Laura. First on Europe, we are not expecting a big change in Europe, relative to what we've seen over the last couple of years. That's the way we've built into our plans, so if that picture does improve, that would be good news to us, but we are not expecting it. Our teams continue to work incredibly hard at executing the tough growth environment, they are finding some new pockets growth. They continue to operate with a very high level of discipline from cost perspective, which is exactly what you need in that market.

I was just in Europe a few weeks ago, spent time with our Nielsen teams in both Germany and France, and both of those markets in fact have some fairly good things going on, and they continue to innovate, and especially around the new issues that have risen to the top of the agenda for clients in that market. How to compete more effectively, and manage price more efficiently for example, is one. And also, how to be more efficient with the assortment of products that they bring to the shelf. So we have some fantastic capabilities in those areas, and we are elevating those capabilities to try to be right on top of the agenda of what's most important to our clients.

Turning to your set-top box question for a moment. We already have access to quite a bit of set-top box data, and we use it quite productively in our Nielsen Catalina Solutions business, which falls into our marketing effectiveness practice. That's been a very strong performing part of our business. It leverages the set-top box data and the analytical product that looks at what consumers view on television, and then looks at those same consumers to see what they purchased in the store, connecting watch and buy, answer that marketing ROI question that's high on the agenda of nearly every CMO at the big TVT companies we work with. So we are already well familiar with set-top box data, and we'll look to acquire more of it, of course, because it fits perfectly with our concept of what the future of measurement is all about.

Brian Wieser, Pivotal.

I want to ask another question around OCR and BCE and current market traction. I know you mentioned you have 19 of the 25 largest advertisers are using it, but I see a lot of those brands would have adopted OCR earlier, early on it's availability. I'm curious, big costs are going on all the time I was curious how you feel you are doing currently, how you monitor it, how your current market share trends are in terms of ongoing licensing to clients?

We feel great about it, Brian. Thanks for the question. It was 18 when we had our Analyst Day in December so we have moved up one notch to 19. We're going to continue to move up. We feel good, on that list that we don't have -- by the way have not -- not all of them have made up their mind yet, so it's not like we have 19 and somebody else has six, we of 19 and there's a few maybe in the other guys' camp and a few that are still working on it. So we are going to keep working very hard on this front.

One of the other things that we fill really good about is when you talk to the power users, in particular at the big agency holding companies, you talk to our users, the people who are really in the weeds in terms of understanding these products, understanding the underlying quality of them, the utility of them, power users, almost to a person, they prefer OCR. They understand the strength of OCR, the quality of it. We feel good about that.

That in the long-term will be a really good support of our continued progress in this particular part of the market. But ultimately again, this is an important component, OCR, and OCR is also a set of capabilities that inform a lot of other things, we do both in digital, it is part of the architecture for digital content ratings, it is a key part of our overall total audience framework. In the longer-term as you go out, and more in time, total audience is really what the game is going to be.

I would add to that Brian, the one thing that is a good sign for us and we saw this as we had our operating reviews with the teams, is that many of the original deals that you referred to were all pretty short term deals. The renewals have been incredibly strong, and so that is a very encouraging sign that Mitch talked about is the adoption and the renewals combined, so that we are doing very well in the marketplace today.

There are no further questions. I'll now turn the call back to the CEO, Mitch Barns, for closing remarks.

Thanks, Laura. Before we close what I would like to do is just briefly summarize, very briefly the key points we hope you all take away from the morning's call. I hope you find this to be helpful. Let me just walk through them. I will do it very quickly.

First, I want you to hear it again, our business has fundamental strength. We are seeing broad-based double-digit growth in emerging markets, continued double-digit growth in our marketing effectiveness practice. Our e-commerce development is progressing well, and it is proving a great fit for our product portfolio.

We are succeeding through strategic value added partnerships. It's a core part of our operating philosophy, to partner with other world-class firms, firms like Ali Baba, Adobe, Facebook, INTAGE, Tencent, and more. And you're going to see more to come.

We are positioned incredibly well to leverage big data. The future of measurement is about combining our high-quality panels with highly granular big data sets to get the best of both worlds, and we are uniquely positioned to do this. We are already doing it with OCR, and we are extending that concept to the rest of our portfolio. We are seeing continued strong growth in our audience measurement business, it is broad-based, it is led by OCR, but also with our local business, showing solid growth as we mentioned.

And speaking of OCR, strong momentum, 19 of the top 25 advertisers, the RFPs that the major digital publishers are receiving or requesting or even in some cases requiring it, and our international expansion led to seven new markets this year, including China. We are on track with our development of digital content ratings, via our Adobe relationship, and this one is going to be a game changer.

And our total audience framework, it is perfectly aligned with what the market needs. Independent third-party measurement, following consumers no matter how, when, or where they watch, bringing comparable currency grade ratings in both content and ads across all screens, platforms and ad models. That's what total audience measurement is about.

And even as we invest in growth, our strong business model enables us to return cash back to shareholders. It will be about a $1.6 billion in cash back to shareholders over the next year and a half.

And finally, we have a strong team. The team is full of energy, optimism, they're focused on executing and delivering it 2015. We are bullish on the year ahead. So with that, I will say thanks again for joining us this morning, and we look forward to talking with you soon.

Thanks, everybody and thanks for your help today. You know where to find us if you have questions.

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