尼爾森 (NLSN) 2015 Q2 法說會逐字稿

Good morning. My name is Ian, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the quarter two, 2015 Nielsen NV earnings conference call.

(Operator Instructions)

Thank you. Kate Vanek, SVP of Investor Relations, you may begin your conference.

Thanks so much, Ian. Good morning everybody. Thanks for joining us this morning to discuss Nielsen's second quarter 2015 performance. Joining me on today's call from Nielsen is Mitch Barns, CEO, and Jamere Jackson, CFO. A slide presentation that we'll use on the call is available under the events section of the IR portion of our website at Nielsen.com/investor.

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 views as of today, July 28, 2015.

Our actual results in future periods may differ materially from these currently expected because of a number offer risks and uncertainties. These risks and uncertainties which we believe are material are outlined in our 10-K and other [findings] in materials that you can also find on our website.

For Q&A as we've come to do the past two quarters, and will continue it here, we ask everyone limit themselves to one question only so that we can accommodate everybody in the queue. Feel free to join the queue again, and if time remains we will call on you. And as always, you know where to find us after the call ends if you have any need for any sort of follow-up. Now to start the call, I'd like to turn it over to our CEO, Mitch Barns.

Yes, thanks, Kate. Good morning, everyone. Thanks for joining us on the call today. We had a great quarter. We had an important accomplishment to cross both our watch and buy segments. Strong financial results in the quarter reflect the consistency of our business model, and once again the outstanding execution by our teams.

The results also reflect the persistent value of Nielsen's independent third-party measurement in a rapidly changing complex marketplace. It's core of what we do, and its value continues to grow as we create stronger, system level integration between our measurement services and the analytics that help drive improvement for our clients. Let's walk through a high level look at our second quarter results.

First, revenues, constant currency revenues increased 4.8% in the quarter. Watch revenues rose 4.7% driven by strength in audience measurement which was up more than 5%, and marketing effectiveness which grew more than 20%. Buy revenues grew 4.8% constant currency, fueled by client wins in every region of the world. Developed market revenue grew nearly 3%, and emerging markets grew more than 9%.

Next, adjusted EBITDA growth was north of 7% constant currency due to the accretive impact of our investments in measurement coverage as well as our continuous focus on productivity. Adjusted net income per share grew 14% constant currency to $0.66. Free cash flow was $154 million in the quarter, up 33%. Our progress on the working capital component was one of the key drivers here.

Our strong operating performance enables us to invest in future growth for our business and deliver value to our shareholders through dividends and stock buybacks. During the quarter, we continued to buy back our stock under our existing $1 billion share repurchase authorization which we're on track to fully execute by mid-2016. Acquisitions are another key part of our balanced approach to capital allocation, and we're extremely please with the our acquisition of eXelate which we closed in March.

eXelate is an incredibly powerful digital platform that links multiple data sets, proprietary data from our clients, Nielsen's industry standard data sets and other data sources to form one of the world's largest consumer databases. Truly an amazing capability designed for today's increasingly programmatic world and it enables dynamic management of marketing effectiveness with a level of precision and efficiency not previously available, appealing to our clients in both our watch and buy segments. Last point on this slide, we are reiterating our guidance for 2015.

Next I'll provide an update on our key strategic initiatives and comment on some of the specific highlights in the quarter. Let's begin with watch. We continue to make steady progress toward our goal to provide our clients with total audience measurement. It's clearly what the market needs, and it remains our number one priority.

As a reminder, total audience measurement is our framework for comprehensive measurement, following consumers wherever they go, and however they view across all screens, devices, and platforms. Nielsen's uniquely positioned to deliver this complete view. In television audience measurement, contract renewals remain rock solid, and we also continue to sign new entrants.

A growing number of our media clients are also now supplementing their C3 and C7 ratings with our reaction-based analytics of the sales lift of their television campaigns. These analytics are complementary to our ratings. Our ratings provide the reach metrics of age, gender, and geography, and serve as the underlying calibration and verification for the reaction based metrics to scale.

We continue to see strong interest from clients for measurement of video on-demand using our new signature-based method that we launched in March. We already have a wide range of clients using this new service including some studios who license content directly to subscription video on-demand providers. We're now measuring viewing of nearly a thousand shows covering nearly 3,000 episodes. So as you can see there's a lot of interest here, and this is rapidly emerged as an important component in our total audience measurement framework.

Next we'll talk about digital add ratings. We have five important updates here. First, we continue to see impressive growth with the number of campaigns measured tripling year-over-year. We're now measuring well over a billion impressions per day. Second, we continue to win new clients. I won't list them all, but two that I will mention are Anheuser Bush and Miller Coors. It might be a little early in the day to talk about beer but we're a global Company, and it's 5:00 somewhere.

Third, we're also seeing strong growth with existing clients, evidence that our measurement is becoming part of their ongoing business process. Fourth, we're expanding globally. By year-end, digital ad ratings will be available in 16 markets which together cover 95% of global digital advertising spending. Number five, our Google double-click partnership continues to progress well. Based on the strength of our work here in the US, we recently reached agreement with Google to expand our double-click integration internationally beginning with Australia, Brazil, Canada, and the UK as the first four markets. The lack of progress on digital ad ratings.

Next, turning to digital content ratings, we remain on track for the fall launch. The level of interest from clients has been incredible. Dozens of clients are actively participating in our client advisory board ahead of the launch, and eight of those clients are already implementing our measurement technology as part of the beta rollout. In April, we announced a deal with Roku. It's a groundbreaking deal for two reasons.

First, it's an important step forward in our coverage of over the top viewing using connected devices. Nielsen is the first measurement service offered on Roku's platform which covers more than 25% of the over the top market in terms of the devices sold. It's a very positive step forward both Nielsen and Roku.

Second, this deal is also groundbreaking because we're now using our digital ad ratings metric to measure ads dynamically served to a TV screen. This shows the strength of our measurement architecture and its ability to scale to measure any ad, digitally served, to any device.

In marketing effectiveness, we had another great quarter with revenues up more than 20%. Our momentum in this area continues to be strong as we integrate our watch and buy assets to drive better marketing ROI. As mentioned earlier this is another area where our eXelate acquisition is proving its value. The client interest is broad based.

We see strong demand from our media clients of course but we also have major engagements with clients like Wal-Mart, who's recently adopted our full suite of marketing effectiveness capabilities. We're also working with LinkedIn to develop a global brand effectiveness program for their advertisers, and let's not forget we're also leveraging these same capabilities with our audio clients. Because of the strong broad based growth in this area, we'll continue to invest and the role of eXelate's platform and capabilities will continue to grow here.

Let's now turn to the buy business. Revenues in developed markets were up nearly 3%. In the first quarter, we saw a modest pick up in discretionary spend and that held fairly steady in the second quarter. I'd like to highlight the stronger growth that we've seen with our small and mid-tier clients, particularly with our analytics products. We have a ton of opportunity with these clients who are performing relatively well as a group, and we continue to fine tune our service model for their particular needs.

Earlier I mentioned that we had client wins in every region of the world. I won't highlight all of them but one notable win I'd like to mention is Coty, the global beauty products company with a strong portfolio across fragrances, cosmetics, and skin and body care products. This is a great win for our US business, and we're excited to be working with them. In early July, Coty announced their intent to acquire 43 additional brands from Proctor and Gamble making this win even more important for us.

In emerging markets, our business grew over 9% with double-digit growth in Greater China, Latin America, Eastern Europe, Africa, and the Middle East. Our investments in coverage and analytics in these markets continue to drive consistent sustainable growth. Globally, buy margins were up for the fourth straight quarter on a constant currency basis. As we said before the investments we've made in these regions over the past several years are paying off, and the long term trajectory for buy margins will continue to be positive.

Changing topics, I'm going to recognize all of my Nielsen colleagues who participated in our fourth annual day of service. We call it Nielsen Global Impact Day. More than 22,000 Nielsen employees gave over 100,000 hours of service to 1,400 volunteer activities across 92 countries. This is just one example of how the people of Nielsen act on our belief that our Company needs to care for the markets and communities we rely on for our business.

Before I turn it over to Jamere, I want to touch on one more point, innovation. In our 92-year history, a key to our ongoing success has been our commitment to innovation, in all of its many forms. It might be our investments in R&D which among other things result in our strong patent portfolio. For instance, our digital ad ratings product already has eight patents granted with another 26 patents pending.

In other cases our innovation might involve partnering with other companies to do something more or better than we could do on our own. For example, we partner with Alibaba to leverage their ecommerce big data platform to help marketers create more successful new products in the highly competitive Chinese market. Earlier this month, I visited our operations in Israel, which markets itself these days as start-up nation. In Israel, Nielsen was the first multinational Company granted a government license for a technology incubator.

Located just outside of Tel Aviv, our incubator houses 12 start-ups, all at the cutting edge of innovation and analytic, mobile marketing, and consumer information, a very impressive group of entrepreneurs. We're learning from all of them. Israel is also where the R&D and technology teams for our eXelate business are based. They are an incredibly talented group who are creating the future for our every eXelate business as well as now contributing to technology innovation all across Nielsen's portfolio. Innovation and technology have been a big part of our past, and they will be an even bigger part of our future growth. I've seen it up close most recently in Israel but it happens all over the world for us at Nielsen. Over to you, Jamere.

Thank you, Mitch. Good morning, everyone. We had a great quarter with steady revenue growth, margin expansion, outstanding free cash flow, and solid execution by our teams around the world. Our business remains well positioned to deliver consistent growth through the cycles, and our strong balance sheet and free cash flow generation capability enable us to grow our business and return cash to shareholders in a meaningful way. We're very pleased with our progress and execution through the first half of the year.

First I'll hit the total Company results for the second quarter. Revenue was just under $1.6 billion, up 4.8% constant currency with solid growth across both watch and buy. I'll highlight again that this marks the 36th consecutive quarter of constant currency revenue growth reflecting our remarkable consistency through the cycles.

Adjusted EBITDA was $468 million up 7.3% constant currency, and adjusted EBITDA margins were 30% up 72 basis points on a constant currency basis, as we continue to deliver strong productivity and margin expansion in both our watch and buy segments. Adjusted net income was $246 million, up 10.3% constant currency, and diluted adjusted net income per share was $0.66, up 13.8% versus the prior year on a constant currency basis. Our earnings growth was fueled by solid top line growth, strong operating leverage, and our share repurchase plan which I'll remind you is to execute $1 billion of share repurchases by mid-2016.

Finally, free cash flow was $154 million in the quarter, up 33% versus prior year. Our teams are really focused on our cash flow performance, and this gives us tremendous flexibility to grow and return cash to our shareholders. Again, a strong quarter for the total business, solid execution through the first half of the year.

Next I'll move to the segments. First is our watch segment. Our watch segment had another great quarter. Revenue was $707 million, up 4.7% constant currency. Accelerating growth in audience measurement and marketing effectiveness more than offset a 220 basis point drag from non-core other watch products, which we walked you through in the first quarter.

Our growth initiatives performed well as audience measurement was up 5.1% and excluding audio was up 6.8%. Digital ad ratings continued its momentum as the number of campaigns more than tripled versus a year ago, reflecting strong demand from advertisers and agencies. The eXelate integration is progressing well and opening up some exciting growth opportunities with new and existing clients. Marketing effectiveness was up 21.7% behind strong demand for our reaction products like Nielsen Catalina Solutions and Nielsen Buyer Insights, and we remain confident in our watch 2015 revenue guidance of 4.5% to 6.5% on a constant currency basis.

Watch adjusted EBITDA was $314 million, up 6.1% on a constant currency basis. Watch margins expanded 56 basis points as we continue to drive productivity and operating leverage in the business. Our watch segment is strong and gaining momentum as we execute on our total audience strategy and deliver on our growth initiatives.

Turning to buy, our business had a great quarter with wins in every region around the world and strong margin expansion. Second quarter total buy revenue was $852 million, up 4.8% on a constant currency basis. Our business in the developed markets was $582 million, up 2.8% on a constant currency basis, and our business in the emerging markets was $270 million, up 9.3% on a constant currency basis. In the developed markets, we continue to invest, resulting in growth in our subscription based business.

Discretionary spending has remained steady, particularly in areas like advanced analytics and innovation. Emerging markets continue to remain strong. And in particular we saw double-digit growth in Greater China, Latin America, Eastern Europe, Africa, and the Middle East. Our continued commitment to investing in coverage gives us a strong tail wind, and the emerging markets are up nearly 10% through the first half of the year.

Buy EBITDA was $162 million, up 9.5% constant currency. Our adjusted EBITDA margins were up 81 basis points in quarter as we improve profitability and deliver margin expansion while we continue to invest in emerging markets. Overall, we had a great quarter in buy with solid revenue growth and strong margin expansion on a constant currency basis.

Moving now to foreign currency impacts, and I want to remind you we report revenue and EBITDA on a constant currency basis to reflect our operating performance. We generally don't take on transactional risk, so this slide focuses strictly on the translation impact for reporting purposes. In the quarter, foreign currency resulted in a 700 basis point drag on revenue and a 560 basis point drag on EBITDA, which were both in the ballpark of what we laid out on our first quarter call. If yesterday's spot rates held constant through 2015, then we expect a 640 basis point drag on revenue and a 560 basis point drag on EBITDA for the full year in 2015 which is also in the ballpark of our previous estimate.

Moving now to 2015 guidance, our 2015 guidance remains unchanged highlighted by adjusted net income per share of $2.60 to $2.66 per share, and free cash flow is $850 million to $900 million. We remain confident in our plan to execute and deliver. To wrap up we're very pleased with our execution in the second quarter and through the first half of the year where we delivered steady consistent revenue growth and margin expansion. We are delivering on our commitment to grow our business with investments in the key growth initiatives in both of our segments as well as coverage expansion in the emerging markets.

Our execution along with our plans to return over a billion in cash back to shareholders in 2015 in the form of dividends and buybacks gives us confidence that we will continue to drive long term shareholder value. With that, I'll turn it back to Kate.

Thanks so much, Jamere. Operator, we're ready for the first question.

Your first question comes from Brian Wieser with Pivotal Research.

Thanks for taking the question. I was wondering if you could talk about the impact that marketing effectiveness growth has on profitability, just given the other partners that are involved? I was wondering how the profile varies from the rest of the Watch segment. Similarly, do you expect that DCR once it launches will have different profitability at all?

First, marketing effectiveness as we mentioned second straight quarter of north of 20% growth, and it's adding value also to our core measurement products because it enhances or it brings to life just how important that core measurement is. Core measurement of ratings in this case or some of the Buy data from that side of our business under pins a lot of the analytics products that are playing so successfully with clients in our marketing effectiveness practice. A lot of that data already is in hand because it's our data, and some cases it's data that we do acquire from other parties. The fast growth here makes it very positive from a profitability perspective, Brian.

In terms of digital content ratings, we mentioned that we're on track. It's on track for the beta launch with the A clients that are already implementing the technology and on track with a more full scale launch in the fall. It will start to contribute to 2015 revenue, but it's not going to be a big factor this year. You're going to see it start to play a more important role next year.

The other thing I want to remind you about with respect to digital content ratings is our digital ad ratings product is out there by itself right now. Doing great by the way, but once digital content ratings is alongside it in the marketplace with these two metrics designed to be complementary to one another that competitive strength of our digital ad ratings product only gets better. Our already strong competitive position with digital ad ratings is only going to be enhanced by that, so yes, we're looking forward to it. We just can't wait. We feel we're in a great position with this one.

Your next question comes from Sara Gubins with BAML.

Hi, thanks. Good morning. Maybe just following up on that, recognizing that growth from the digital content ratings will be fairly small up front, could you just talk about the discussions that you're having with clients, and how they're thinking about whether or not they are starting to build it into their budgets yet? Any kind of indications that they are giving about how they might think about the spending over time and how you would expect it to flow through? Is it a new sales process, or are they already saying they will sign up for it?

Yes, thanks, Sara. It's first of all important to note that there's a wide range of clients out there. In some cases it's our big media conglomerate clients. In other cases, it's the digital first players, and in other cases we're talking about the agencies. There's quite a diversity of clients, and some of whom already employ a metric like digital content ratings for planning purposes, and others that aren't currently using the metric like that. Maybe they are using captive metrics or planning it some other way, so that diversity makes it difficult to give you one answer to your question. It really depends on what the clients history is, but be sure about it.

No matter how the clients worked with metrics like this in the past, we're ready to work with them. We have different business models already in place even with our digital ad ratings product. I think you'll see digital content rating generally fall in line with how those business relationships work. The other thing, I'll add to that is recall also that we have our legacy digital rankings products and we will begin to transition those clients from that product to digital content ratings and that process is already under way.

Your next question comes from Dan Salmon with BMO Capital Markets.

Hi, guys. Good morning. Mitch, could you maybe just spend a little time on Arbitron? It looks like it weighed down what was otherwise some really strong audience measurement growth? Thanks.

Yes, thanks. We are still thrilled with our acquisition of Arbitron. We call it Nielsen Audio now. It's on track for low-single digit growth which is exactly where we expected it to be this year. We continue to pursue of course the international opportunity that was present, but we always said that that's going to be slow to develop just given the way those contracts tend to rollover around the world. We continue to give focus too to the analytics opportunity. I mentioned that as part of our marketing effectiveness area, where our clients in that segment are leveraging the analytics products we have to drive the marketing ROI story around radio advertising, so also very positive.

Then digital streaming is the other area of opportunity here. We seen our audio clients respond actually very aggressively to incorporate our mobile measurement technology essentially the same technology we have for our video clients into their mobile apps, and in many respects, in fact, they've leaped ahead of our video clients in terms of incorporating that technology. We feel great about where that part is. The other piece though is to get the major industry players to agree on how we'll report listening of digital streaming. We've been working to build consensus on that, and what I'll say to you on that front is we are very close now, almost there. We expect to be able to push that one across the line in the very near future. Jamere, anything to add?

Yes, the linearity in this business isn't perfect. The timing of deliveries can be a little lumpy from quarter to quarter. A few hundred thousand dollars can swing a growth rate on a quarter, but we will deliver low-single digit rates of growth in audio as expected in 2015, and the back half of the year will be up around 3%. That's just based on timing and normal contract growth.

Your next question comes from Toni Kaplan with Morgan Stanley.

Hi, thanks. Developed markets was very strong again at about 3% growth. Can you talk about, you mentioned the advanced analytics and the subscription based products as driving that in the Q, so could you just give a little bit more color on those products? Thank you.

Yes, sure. Thanks, Toni. The key for us in developed markets is as I mentioned earlier the small and mid tier segment of clients we've always been strong with big global multinationals because of our global footprint, 106 markets around the world covering more than 90% of population. We're really the obvious choice for the big global firms. That small and mid tier client segment is still a great growth opportunity for us. We've been giving that more focus, and as I mentioned, fine tuning our service model to better fit their particular needs. In particular, yes, it's the analytics products that have led the front for us on that, so we feel great about the path we're on there, the trajectory we have with those important client segments.

We're generally performing a little bit better in the marketplace than some of their global counterparts. We see that being true not only here in the US but also in Europe and frankly that same dynamic applies even to the emerging markets where the local companies and the rising regional players are generally outperforming the global companies in terms of winning market share, being more nimble with their innovation, just moving more quickly. Very important segment of our client base.

Your next question comes from Andrew Steinerman with JPMorgan.

Hi. I wanted to jump into the other subsegment of Watch which drags constant currency Watch revenue by 220 basis points in the second, which was the same as the first. I've been thinking that might be somewhat less. I was wondering if the run-off of legacy net ratings was happening quicker than expected. What that on purpose, or a natural evolution? How should we think about this other subsegment's impact in the second half of the year?

Thank you for the question, Andrew. We expect the drag to be similar in the back half of the year. Recall we walked you through the pieces of this in the first quarter, so the drag of 2 points was about the same as the first quarter. The reshaping of the portfolio was progressing well, and while I won't comment on specific transactions, we feel confident that we'll be largely complete by the end of the year. We remain confident in our Watch guidance of 4.5% to 6.5% because the core of our business remains strong and the growth initiatives that we talked about in audience measurement and marketing effectiveness have great momentum.

Your next question comes from Bill Warmington with Wells Fargo.

Good morning, everyone. A question for you on eXelate, you've had the acquisition now for almost five months. I wanted to ask if the audience segmentation and real time analytics were as strong as you'd hoped, and then also when we can expect the division start to have meaningful financial contribution for you?

Thanks, Bill. Better than we expected is really the short answer to your question. We just couldn't be more pleased with the this acquisition of eXelate. So far, the business is tracking ahead of plan. The integration is going exceptionally well. The eXelate business itself performing well, but as I mentioned earlier, eXelate team also contributing to other parts of Nielsen's business.

Just to give you an example really. We recently won the you US measurement business on the Buy side of our business with a big global consumer package goods firm who had been working with our competitor here in the US. A key part of our proposal that caused them to switch their business to us was our digital capabilities, and in particular the digital capabilities that eXelate allows us to bring to the table. In fact, when I had a call with the CEO of this Company after they made their decision, he singled us out as really the driving factor for why they were really excited about switching their business to Nielsen, so it's a great story.

It's a story we've been building our Company around, telling for a long time. It's really starting to find traction in the marketplace, and eXelate's only added to the strength of that story. Again, we just couldn't be happier with how this is going, and I think you'll see eXelate continue to contribute outside of its historical confines all across our portfolio.

Your next question comes from Paul Ginocchio with Deutsche Bank.

Thanks. Mitch, going back to the earlier question about the small and mid tier in Buy versus more global CPGs, can you just talk about the difference in growth rates? Are the global CPGs growing? Thanks.

I think you're asking the difference in growth rates for global CPGs relative to the small mid tier clients. I'm not sure if you're referring to their growth rates or our growth rates with them, but in either case I think you're going to see a fairly similar picture. If you look around the world as I mentioned earlier, the small and mid tier companies, local giants as we sometimes refer to them in the emerging markets, they are winning market share from the global companies. Not in every case but just in general as a group, and largely because I think they've been more focused on top line growth on innovation in particular. They've just been willing to move faster and take more risks, and our business profile lines up very well against those clients because of the breadth of our portfolio.

When you're focusing more on growth initiatives, innovation, we're the world leader in those areas, and in particular our new product innovation. That plays well with that segment of the market, and then as that feeds into those products entering into the marketplace, the core measurement services that we have are incredibly important as they then want to make sure that their marketing effectiveness gets optimized. They want to improve their marketing mix. They want to drive increased decision behind those new product launches. Another thing that happens with the small and mid tier clients is they often don't have as much staff in-house, and so they can tend to be a little bit more reliant on Nielsen to help them through this process. As I mentioned, that's where we are continuing to work to fine tune our service model to make sure we're as well positioned as we possibly can be for that particular segment of the market.

Next question comes from David Bank with RBC Capital Markets.

Okay, thanks. I think if I triangulate a couple of data points here, you feel solidly like you're executing in the middle of your target range for Watch revenue, but you talked about the building of traction for a bunch of new products, OCR, DCR, clients, platforms, Nielsen Audio, international as well as the digital platform, and the timing issues of contracts and what impacts the growth of that business. You contrast that with the headwinds from NetRatings which you have a pretty clear path to comping themselves. If you triangulate this you really should be able to see a pretty clear path to consistent performance at the upper end of the range and probably a breakthrough beyond that into a step function up. Again if you look at all of the environment you're talking about, one would see that I think we're on the cusp of that step function up. Would you agree with that? Could you put any timing around it if you do? Thanks very much.

David, thanks for the question. First, I love your view of the future. Sounds great. On the other hand, it does assume that everything goes perfectly. That's exactly the way we plan, but we also plan for some things to change in the market which has been a history especially the recent history in digital and media, all across our Watch business. The pace of change right now is faster than anybody can recall in this industry's history, and so if everything stays in place right now, we're perfectly positioned. We love our competitive position, but things do continue to move around. That's why I think we're not going to give you the answer, the final answer to your question.

I like the way that scenario can unfold, and we have all the places we can see our clients need right now in place or in progress building towards this total audience framework, again, measuring that dealing across all of the screens, devices, and platforms, doing it in a way that's comparable across all those environments. They can put them altogether to give a comprehensive view of the consumer. We're in a great position as far as that critical need that our clients have.

David, just to follow on to that, as I said, we remain confident in our Watch guidance of 4.5% to 6.5% because the core of our business remains strong based on our progress with growth initiatives that we've talked about and that you talked about here on the call. If you look at the back half of the year, if you just look at audience measurement being 6%-plus, like I said audio will be up about 3%, and marketing effectiveness and other Watch does what it did in the first half of the year, then we are solidly in the middle of the guidance range that we gave which gives us a lot of confidence. The initiatives that you talked about have great momentum and what gives us confidence to hit the guidance range for the year.

Your next question comes from Jeff Meuler had with Robert W. Baird.

Yes, thank you. I was wondering if you can give an update on, from your perspective, are the industry conversations of creating a new currency metric for video advancing at all meaningfully? As part of those discussions, is there any meaningful discussion about potentially fragmenting to a multi-currency world, or is that not even being discussed? Thank you.

Thanks for the question. We are making progress on that front. First, it starts with our strategy, our focus on this total audience measurement framework, and we're making great progress. Our clients have given us very positive feedback on that strategy. It's exactly what they need, so the first thing we have to do is simply to execute on that strategy which we've been doing, whether it's on digital content ratings coming out to the market which is on track. Whether it's our video on-demand coverage which is grown rapidly over the last few months, over the top through our deal with Roku, the panel expansion of our television audience measurement panels. Lots of fronts where we simply need to continue to execute. By the end of this year, we feel we'll be in very good shape in terms of bringing that full total audience measurement framework to reality.

Then the second thing as you pointed out is fostering this conversation that is necessary for the industry to have around redefining the currency. What we've been doing on that front in last few months is meeting with as many of the senior leaders from the major media companies as possible. We have met with the vast majority of them already, and we will eventually get to all of them, to get their input and their thoughts on how the currency should be redefined. Don't forget the current definition of the currency C3 or C7 was put in place by the industry back in 2006, and consumers changed a lot since then. The need is for the definition of the currency to be broadened and incorporate more of the ways the consumers are watching television content across all these different environments today. We've been fostering that conversation and eventually the key opportunity is to bring these industry leaders together, having them sit around the same table at the same time, and drive toward consensus on this redefinition. That will be out in front of us as the year progresses.

We're already though seeing signs of encouragement here in the form of our contract renewals with our big media clients. What I mean here is those contract renewal discussions now are starting to shape themselves around this framework of total audience measurement. That's a sign to us that our clients already see where this one is going. They are already trying to prepare for the future in terms of the way their contracts are structured with this, and so for us that's a real positive sign of validation of their confidence in our strategy and our ability to execute and where they see the future of the industry going.

Your next question comes from Todd Juenger with Sanford Bernstein.

Hi, thanks. I'd like to talk on the theme of free cash flow and free cash flow conversion, if I might. Jamere, I know Mitch has talked about this as a big priority. In fact I think it's written in big bold letters on the white board across from his desk.

I do.

I know you called out some progress on that in the quarter, so some of the types of things I'd hope you comment on is, can you talk about some of the specific initiatives you're using to execute on the goal of improving free cash flow conversion? What lines ran the cash flow and balance sheet will we see that progress on? What does success look like and if I might just dangle this out there if you look at 2016, that $1 billion free cash flow target looks like an awfully tempting aspiration. I know you won't give us guidance like that, but maybe do you agree that that's a nice aspiration to shoot for? Thank you.

Certainly it's a nice aspiration to shoot for, Todd, and thank you for the question. Around free cash flow, we're just running the place with intensity, and you're going to see us execute on the things that Mitch has talked about around working capital. We are working with all of our teams around the world on really the blocking and tackling associated with that. Because it's an important driver for us as we look to grow our business and return cash to shareholders. A couple things that you're also starting to see from a free cash flow standpoint is that the restructuring rate has gone down as we've gotten through the lion's share of the productivity initiatives and transformation activities inside the Company. Running the place with intensity, being really focused on the key working capital metrics will pay huge dividends for us. We're going to put the capital to work.

I can't help myself, I have to weigh in on this one. We don't have inventory as you know, Todd, so this is largely about payables and receivables, and there's no silver bullet. We talk about it with our teams all the time. No silver bullet. This is good old grind it out, execution by our teams. Whenever comes down to that, I love the way the Nielsen teams respond. I know many of my Nielsen colleagues listen in over the phone, so I've just got to give them credit and thank them for their efforts on this front. I know it's important for our investors, and we'll continue the progress.

Your next question comes from Tim Nollen into with Macquarie.

Hi, it's Tim Nollen here. Thanks. Most of my questions have been taken care of, but I wanted to ask about media measurement progress, both inside and outside the US in terms of total audience. I certainly heard what you've said thus far, but ITV in the UK reported this morning. They said -- I know you're not the provider of measurement services in the UK, but they said they think it will be a good three years before they can get something like a total audience measurement system there. I just wonder if you have any comment on that or any other markets outside of the US, and if you could compare that with how progress is in the US. Thanks.

Our position in the US is unique in many respects, size being of course the most notable one. The consumer, the same thing's happening with the consumer almost every place in the world, and so there's the same need of media clients and agencies and advertisers also in all of these other markets around the world. It's one of the reasons why we've put such emphasis on our global expansion of digital ad ratings. As I mentioned by the end of this year, we'll be in 60 markets around the world. While there's more than 100 important markets around the world, the 60 markets we'll be in that actually represents 95% of global digital advertising spend. We've chosen those markets very carefully.

Those are the markets where the total audience measurement framework has the most importance to the way advertising dollars are spent in these parts of the world. We're incredibly well positioned there, but it will develop more slowly I think or on a schedule that will be more prolonged than what you're seeing develop here in the US. The role that we might play market to market might be a little bit different as well, in some cases collaborating with other players in the market. I'll give you an example of that. In Germany, the television audience measurement in Germany is provided by another company called GFK, and we're the digital provider. It's incumbent upon the two of us to work together in that market in order to meet the needs the market has. You'll see some of that unfold in certain markets around the world as well.

Next question comes from Andre Benjamin of Goldman Sachs.

Thanks, good morning. This is probably for Jamere. I was wondering if you could talk a little bit more detail with what you see with respect to the discretionary spend in the Buy segment. Should we be interpreting the comments around Q2 being steady as being flat versus the first quarter? Any color on how you're expecting the second half to play out, given the conversations you're having? Any particular products that are most in demand, or regions you would call out or any of that stuff?

Yes, as Mitch highlighted in his comments, we did see some moderate improvements in the first quarter. Actually, some of it started in the fourth quarter of last year, and it's remained steady through the first half of the year. Some of our key clients are starting to see an uptick in volume and pricing, and that points to a fairly positive outlook for the back half of the year. I would say steady being what we're focused on for the back half of the year and what we expect to deliver. I would say it's about in line with what we saw in the first quarter.

Your next question comes from Anj Singh with Credit Suisse.

Thanks for taking my question. Mitch, I'm hoping to dig in on some of your comments on digital ad ratings. Could you talk a bit about those and your expansion internationally? It seems you accelerated the pace of rollout a little bit. Could you touch on the drivers there? Are you seeing better uptake than you originally envisioned, or is it something else? Perhaps one for Jamere, how should we be thinking about ongoing investments in ad ratings in light of you soon being able to cover most of the important geographies?

First, for digital ad ratings, this is largely our plan all along that you see playing out. Probably the one piece of it very important piece by the way that jump the queue, and happened a little bit faster than what we might have thought a year ago is our rollout of digital ad ratings to China, obviously a very important market. The way they deliver the digital ad ratings product in most markets around the world obviously is leveraging our relationship with Facebook and their user registration database which of course doesn't serve the same purpose in China. The good news is there we made a partnership with Pendant, a huge digital player headquartered in that market, so their user registration database serves the same purpose that Facebook does otherwise in most of the other markets around the world. That allowed us to accelerate that particular component which obviously is a really big very important one. Otherwise, what you see playing out with digital ad ratings in terms of our global expansion is just our plan playing out.

There's an important component to it which I did mention earlier. I want to highlight again, and that is our global expansion through our partnership with Google on their double-click platform. We continue to work with Google in a very big and broad way. YouTube, lots of Google properties, the double-click integration here in the US has progressed very well, and as I mentioned earlier that's lead to the expansion of these other Markets. We're starting with the first four that I mentioned, Australia, Brazil, Canada, and the United Kingdom, with more to follow, but that's another piece that is really important part of our digital ad ratings expansion around the world. Jamere?

In terms of the investment profile, the platform is already built. It will be a very efficient rollout for us around the world both from a capital and from an operating expense standpoint. The platform's built. It's scaled very nicely, and so the margins associated with our rollout around the world will be accretive.

Your next question comes from Laura Martin with Needham.

Thanks for taking the question. This one is for you, Jamere. Your margin expansion was really nice in both segments, but especially in Buy. The 81 basis points was above your full year guidance. Could you just remind you us what the cost out initiatives are in the Buy segment that you guys are taking, and also the productivity focus that's helping the margins in the Watch segment? Could you just remind us of what those are?

Yes, so on the Buy side of the business, we've had four straight quarters of Buy margin expansion. The second quarter was up 81 basis points. The first half is up 64 basis points, and we're confident in our ability to deliver the margin expansion necessary in the back half of the year to get us to 50 to 70 basis points of margin expansion for the total Company. I would say there are two key drivers. One is the scale in the emerging markets is giving us a lift. Some of those early investments are starting the scale, and we're starting to see nice margin expansion associated with it.

Then the second one is really around running the place with intensity around cost and productivity. I give a lot of credit to John Lewis and the commercial teams and Brian West and the operations teams in terms of making sure that we've got a full plate of productivity initiatives that are continuing to drive margin expansion for us. Then on the Watch side of the business from a margin standpoint, we've had great margin expansion in our Watch business historically. It is a business where we get incremental pricing, and we get great leverage on that incremental pricing as we continue to deliver to our clients. Running the place with intensity around productivity, making sure that we get good leverage on price increases that we get is what we're doing inside the Company.

Laura, for us productivity is a continual process. We don't wait until we have a hole to fill or a problem to cover. I think they are trying to find cost savings. We're doing it every day on a continuous basis. In fact when our teams want to come to us to ask us for investment growth, we're always pointing it right back to them to say, first thing you do is you go find some money for growth through your own productivity efforts and start there. This is just a way the Company has built itself, and it's a continuous process for us.

Your next question comes from Bill Bird with FBR.

Good morning. In the US, what's a realistic timeframe to get to a redefinition of the TV currency? Then separately, how did your local ratings business perform in the quarter? Thank you.

Thanks for the question. On the redefining the currency, we seen this movie before back in 2006, when the current definition of the currency was put in place. C3, that process took about a year, and it involved a lot of back and fourth, a lot of debate, and ultimately reaching consensus. The way, if you were to graph it, is probably something that moves very slowly, very gradually, and then suddenly, it comes to consensus. My best guess is that's the way it's going to happen this time as well. What we've done to foster the progress on that front as I mentioned earlier is have these discussions, engaging all of the senior executives from as many of the big media companies as we can sit down with and working our way through that process. We're listening to all of them making sure it's right on their radar as well, and then ultimately driving everybody to come together around the same table to push to closure. Again, it will probably move gradually and then suddenly, like a lot of things happen in the world these days.

You saw audience measurement business was up 6.8% excluding audio and local was a key contributor to that.

Your next question comes from Doug Arthur with Huber Research.

Yes, thanks. Just switching back to Buy for a second, the 9.3% growth in emerging markets, obviously that's a lot faster than the big CPGs are growing. If you break that down, how much of it is additional territories covered, and how much of it is actually bringing on local clients? Is there anything at this point holding back the upside in the growth rate there? Thanks.

Thanks for the question, Doug. We say it all the time. We continue to be underpenetrated in these markets. We still have lots of development opportunity in these markets, and so we should have the ability to grow at a rate that isn't perfectly tied to what you see happening with GDP.

The second thing to your point, our client portfolio in these parts of the world is diverse. We work not only with the big global companies where you see the growth rates that they report, but also these faster growing local firms and rising regional players. Our business position with them is very strong. The key to that for us is the leadership for our business in these parts of the world, they generally are people who are from those parts of the world. It's a little different than what you'll find in a lot of the other companies, so our leader in China is from China. Our leader in Southeast Asia, she's from Southeast Asia. They understand how these markets work, how relationships play, and your business progress. We're incredibly well positioned and that's why we feel confident in our ability to continue the growth rate in the guidance range that we've quoted before for emerging markets, which is the 8% to 10% range.

Your next question comes from Tom Eagan with Telsey Advisory Group.

Great, thank you very much. Following on the discussion of a video currency, Mitch, last quarter in talking about this you mentioned the need for the data to start flowing, especially the mobile viewing data. Where are we today in that data flow, and are clients, do they seem to be content with the data itself? Thanks.

Yes, thanks. Mobile is another critical part of our total audience measurement framework. We're up to more than 120 different network and distributors now that we're working with our mobile measurement capability. That's up quite a bit from where we were a quarter ago, and data is starting to flow to a lot of those players. They're starting to see it. Let me first say, mobile continues to be very important, and it continues to grow rapidly, but as companies see more of this mobile viewing data I think one thing they realize is it's still relatively small. For instance in relation through video on-demand viewing, video on-demand is probably two to three times bigger in terms of time spent viewing video content than mobile, at least where we stand today. You see more emphasis, more focus being put on video on-demand right now because it's just a much bigger part of that viewing that's currently falling outside of the traditional TV environment.

Nonetheless, we're going to continue forward making progress with not only the mobile measurement portion of our total audience measurement framework, but every other important part of that framework and by the end of this year. Data will be flowing through as many parts of that as possible. We think we're going to have incredibly complete coverage, and again, measuring the consumer comparably across all these environments so they can be put together to give that complete and total view.

Your next question comes from Tracy Young with Evercore ISI.

Yes, one question on the tax rate. Should we just be using the tax rate that you had for Q2 for the remainder of the year? Then just a clarification on margins, should we assume as you improve the margins on the Buy side that, that is coming from the emerging markets? Thanks.

On the tax rate, you saw our guidance for the year was unchanged on the cash tax number, so I would use that as your building your model for the year. We're probably a little bit light in the front half, but we expect to be in that guidance range for the total year. Then in terms of margins for the year, again, we've had great progress through the first half of the year. We're up over 70 basis points, and we're pretty confident we're going to deliver that in the back half of the year based on all the things we have going.

Your next question comes from Manav Patnaik with Barclays.

Yes, good morning. Thanks for squeezing me in here. Correct me if I'm wrong, but I think earlier in the call for the first time, you mentioned being able to measure the dynamic ad measurements that you referred to. If you could just elaborate on that, and also just some color on your digital strategy in the context of now Hulu trying to move more to subscription versus ad supported? Do you see any trends there that could force you to change that strategy?

Thanks, Manav. Good to hear you on the call. What we mentioned earlier in terms of dynamic ad insertion, that had to do with our new partnership with Roku. We're already measuring obviously dynamically inserted ads across the digital landscape but here now we're able to measure it also on a TV screen. When an ad gets dynamically served to a TV screen that whose one of the groundbreaking components of this deal with Roku. Again, highlighting the strength of our measurement architecture being able to measure an ad that's digitally served to any device, any device, and that's what we think is so important.

On our digital strategy, and your point about what you see with Hulu now offering a subscription only model, the way I think about this funding model question for the industry, consumers love this great content that's out there. That content has to get paid for obviously, or else it doesn't get produced, and there's two main ways it gets paid for. One is the monthly cable bill, the subscriptions, and the other is the advertising that funds it. I think a lot of what you see in the industry right now with the growth of subscription video on-demand and Hulu now offering something in that area, [getting] bundles, all of this stuff is all downward pressure on the subscription side of the funding model in the ecosystem.

On the other hand, there's the advertising side of the funding model which I think has a very bright future ahead of it. The reason why I say that is there's more data coming to the marketplace. There's better technology than there's ever been before. Advertising is able to be delivered with more precision and more relevance than ever has been possible before. That's only going to drive up the value of advertising, and as the value of advertising increases, I think you're going to see more investment in advertising. It just makes sense. Money that would otherwise be spent somewhere else in the marketing budget, more of that money will find its way to advertising. If you look at that funding model over time, we think the future is bright for the advertising side of the funding model, but yes, right now the dynamics are for continued downward pressure on the other side of the funding model.

Operator, I think that concludes the Q&A portion of our call. With that, I will turn it back to Mitch for some closing comments.

Yes. Thanks again, everybody, for joining the call, and just a few closing comments before we wrap up. We had a great quarter, solid financial performance. It was our 36th consecutive quarter of constant currency revenue growth, growing margins in both our Watch and Buy segments, and of course strong free cash flow growth. We had great execution on all parts of our strategy beginning with total audience measurement. It remains our number one priority. It's perfectly aligned with what the market needs. They need independent third-party measurement, bringing comparable currency grade ratings to both content and ads across all these screens and devices and platforms that consumers are going to these days.

It's innovation that's driving our progress on our total audience measurement framework, innovation on digital add ratings, digital content ratings, VOD, over the top, and even our TV measurement through our ratings enhancement plan, innovation there too. Our marketing effectiveness practice, another quarter of 20%-plus growth, and also another area where our eXelate acquisition is helping us to attract new clients, and we're just adding value to our Company. It was a strong quarter for our Buy business, client wins in every region of the world, and continued strong growth in emerging markets. Lastly capital allocation, we continue with this balanced approach. We remain focused on delivering incremental shareholder value. Thanks again for joining the call, and thanks for your interest in Nielsen.

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