尼爾森 (NLSN) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Second Quarter 2020 Nielsen Holdings Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to Sara Gubins, Senior Vice President, Investor Relations and Treasury.

Good morning, everyone. Thank you for joining us to discuss Nielsen's Second Quarter 2020 Financial Performance. I'm joined by our CEO, David Kenny; our CFO, Linda Zukauckas; and the CEO of Connect, David Rawlinson. A slide presentation that we'll use on this call is available under the Events section of our Investor Relations website.

Before we begin, I'd like to remind all of you that our remarks and responses to your questions today may contain forward-looking statements, including those about Nielsen's outlook and prospects that are based on Nielsen's current expectations. Our actual results in future periods may differ materially from those currently expected because of a number of risks and uncertainties, including those identified in the Risk Factors section of our most recent annual report on Form 10-K and in subsequent reports filed with the SEC, which are available on our website. We assume no obligation to update any forward-looking statements, except as required by law.

On today's call, we will also refer to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measures are available in the earnings press release, which is available at the Investor Relations section of our website at nielsen.com. (Operator Instructions)

And now to start the call, I'd like to turn it over to our CEO, David Kenny.

Thank you, Sara, and thank you all for joining the call this morning. I want to start with some comments on diversity and inclusion. This has always been important to Nielsen and to me personally. It's a key reason I took on the Chief Diversity Officer role shortly after I joined Nielsen, and I know it is equally important to David Rawlinson.

Recent events have made it even clearer that we can and should be doing more to fight racism and social injustice with action. At Nielsen, we stand for counting everyone, ensuring that all voices are not just counted but are heard. We are committed to ensuring that all of our employees have the full opportunity to succeed and are treated with the dignity and respect that they deserve. This will be an ongoing effort, and we will continually strive to do better.

Let me give a couple of tangible examples of our robust efforts. Last week, we launched a workshop educating all of our associates on how to address micro aggression in the workplace. And externally, we are providing assistance to small black-owned businesses that need help due to the pandemic and/or social injustice. Our Board is holding me, David Rawlinson and our teams accountable for expanding representation at every level of the organization and enriching every part of Nielsen Global Media and Nielsen Global Connect through diverse voices.

Let me now address 5 key points that I want you to take away from today's call. First, we delivered a solid second quarter in an unprecedented period due to COVID-19. We are building a track record of consistent execution. Second, our Media and Connect businesses remain essential to our clients in the Media, consumer packaged goods and retail industries, and those industries remain essential to society. Third, through our optimization plan, we have accelerated long-term plans to drive permanent cost reductions that will enable us to increase margins, profits and cash flow over time and invest in growth initiatives. Fourth, we are refining and narrowing our guidance for 2020. And fifth, we are on track for the spin of Connect in the first quarter of 2021.

I'll elaborate on these points, and Linda will follow with our financial results and 2020 guidance. I'll then come back to discuss Media, and David Rawlinson will review Connect.

Our Q2 results reflect solid execution. Q2 revenue declined 5.9% constant currency, which was in line with our expectations. Adjusted EBITDA margins were down far less than we expected, and free cash flow grew year-over-year. This reflects our rapid response to COVID-19 and significant discipline around operating costs and capital expenditures. We accelerated the pace of innovation out of necessity to ensure business continuity and consistency in our world-class measurement and analytics offerings and are leveraging our learnings to permanently change the way we operate. I'm seeing ambition, risk taking, teamwork and courage across my Nielsen colleagues as we adapt to new ways of working, and I want to tell you how proud I am of our team.

Second, the industries we serve, media and consumer packaged goods are essential to society, and the current environment is reinforcing the essential nature of Nielsen Media and Connect's measurement and analytics to our clients. Clients want to better understand changes in consumer behavior, like streaming in Media or e-commerce in Connect, given the rapidly evolving landscapes, and we're developing new analytics solutions to help them drive business decisions. We have high recurring revenue with approximately 70% contracted revenue, which have provided greater visibility during these uncertain times.

Third, we have begun implementing a broad-based and transformative optimization plan to drive a $250 million annual permanent run rate benefit before investments. We are prioritizing resource allocation to faster growth opportunities, and we're zero-basing our cost structure and our capital expenditures. This includes exiting select noncore underperforming businesses and smaller international markets and reducing our workforce in Media and Connect. These actions expedite our transformation to a more efficient, agile, platform-based organization.

These were not easy decisions. But the transformation reflects a fundamental change in the way we work that will enable us to continue to invest in key growth initiatives while simultaneously driving higher profits and cash generation. We've taken a big step forward in our transformation, but we are not done. We will continue to focus on bringing the right products to market to address our clients' evolving needs and doing so in a scalable and syndicated way.

Fourth, we are refining our 2020 guidance, including increasing our adjusted EPS range, raising our margin target and raising the low end of our free cash flow forecast. We've proven our ability to adapt in the most dynamic of environments, and we will continue to do so as necessary. We are well positioned for a range of scenarios as the global pandemic continues and the economy follows. I'm confident that our teams will continue to execute on our 2020 goals.

We are also currently engaged in strategic planning for 2021 and beyond in both businesses with a continued commitment to better serving clients' evolving needs, accelerating revenue growth and driving profit and cash flow generation.

Finally, we are on track for the separation of Nielsen Global Media and Nielsen Global Connect in the first quarter of 2021. We filed the initial Form 10 registration statement in early May, which was a big milestone. David Rawlinson has established a strong leadership team at Nielsen Connect, and we are making progress every week towards full operational separation. We have 2 strong businesses, and both are well positioned for their futures as stand-alone companies. We will provide more detail on our future outlook and strategy at Media and Connect Investor Days later this year.

With that, I'll turn it over to Linda.

Thank you, David, and good morning, everyone. I'll start with Slide 6 to review our Q2 results. As you heard from David, our results reflect strong execution, and I want to thank our colleagues for their commitment and focus during a period where we continue to adjust to new operating norms. There were several high points in the quarter, including free cash flow, which grew year-over-year, and better margin performance than we expected despite revenue losses associated with COVID-19.

Overall, Q2 results were in line or better than our outlook. As expected, COVID-19 had a significant drag on both Media and Connect revenue. Overall revenue declined 8.1%, which includes an FX impact of 220 basis points. Constant currency revenue declined 5.9% or 7% organic, in line with our expectations.

Adjusted EBITDA was better than expected, down only 51 basis points constant currency, driven by significant cost management. Our Q2 revenue was down $132 million year-over-year, while adjusted EBITDA was down only $44 million. This illustrates our disciplined cost focus.

Adjusted EPS was $0.41 compared to $0.53 in the second quarter of 2019 due to lower adjusted EBITDA and higher depreciation and amortization, offset in part by lower taxes. Our GAAP results include an $84 million pretax restructuring charge related to the optimization plan announced in July and a $45 million pretax noncash impairment charge related to the exit of several smaller businesses and international markets. These charges resulted in a Q2 pretax net loss, which gave rise to a $38 million net tax benefit for the quarter.

Free cash flow of $154 million was well above our expectations and was up considerably from $118 million in the prior year period. These results exclude $24 million of separation-related cash payments in the quarter. Free cash flow beat our forecast with adjusted EBITDA above our expectations, favorable working capital trends and lower cash restructuring driven by timing.

Key drivers of the year-over-year improvement include lower cash taxes due to the CARES Act and working capital improvement, partially offset by lower EBITDA. Cash collections were solid. And although collection delays did not materialize in Q2, we continue to monitor the risks.

Turning to Slide 7. I'll review the segment results, starting with Media on the left. Q2 revenue was $811 million, down 4.6% constant currency or 4.3% organic, generally in line with our expectations. Audience Measurement revenue declined 2.4% constant currency. As expected, we saw COVID-19-driven pressure in sports and ad hoc products and ongoing pressure in local television. Plan/Optimize revenue declined 10.3% constant currency with organic revenue slightly stronger, down 9.3% which adjust for the Q4 '19 divestiture of our music business.

As expected, COVID-19 impacted sports, Gracenote, auto and short-cycle revenue. The telecom business remains under pressure and had a 200 basis point negative impact on Plan/Optimize revenue.

Media's adjusted EBITDA was $346 million, down 6.5% constant currency. Margins of 42.7% were down 87 basis points in constant currency. Media margins were impacted by revenue pressure from COVID-19 and investments in growth initiatives, partially mitigated by the temporary cost actions we put in place late in the first quarter.

Shifting to Connect on the right side of the page. Q2 revenue was $685 million, down 7.4% constant currency with organic revenue down 10.2%, which adjusts for the impact of Precima, the loyalty analytics provider we acquired in January 2020. This 10.2% decline includes declines of 7.2% for developed markets and 15.5% for emerging markets. Developed markets are approximately 60% of total Connect revenue.

Measure revenue declined 5% constant currency, driven by the impact of COVID-19 on retail measurement services and traditional trade channels. Predict/Activate revenue declined 13.2% constant currency with organic revenue down 22.7%, which adjust for the Precima acquisition. We continue to see COVID-19 pressure in custom insights and innovation where work that is conducted face-to-face and in-store services are impacted. Connect's adjusted EBITDA was $91 million, down 9.9% constant currency. Adjusted EBITDA margins were 13.3%, down only 37 basis points constant currency and significantly better than our expectation driven by Connect's aggressive cost actions. Overall, this quarter demonstrated solid performance despite disruption and volatility from COVID-19.

Turning now to Slide 9, I'd like to provide some context around our cost-savings actions and our continued financial strength. When it became clear that COVID-19 was going to have an impact on the global economy and on our revenue, we took aggressive temporary cost actions to mitigate the impact, driving $200 million of temporary cost savings in 2020. Examples include hiring freezes, voluntary compensation reductions for senior executives and the Board and furloughs. As COVID-19 revenue pressure subsides and we return to growth, these costs will begin to ramp back up.

More importantly, on July 7, we announced broad-based optimization plan, which will drive permanent and sustained cost savings in the second half of 2020 and beyond. This accelerates our business transformation and will help drive margin expansion, increase cash generation and provide increased flexibility to invest in growth initiatives. The optimization plan includes workforce optimization, further leveraging technology in automation and exiting certain smaller underperforming businesses in international markets.

The plan includes a global reduction in force of approximately 3,500 employees and is expected to drive approximately $250 million of annual run rate savings. This estimate includes permanent cost savings from our business transformation efforts and the expense base associated with the exits, net of revenue, which is mostly related to the exits.

The expenses and the revenue from the exits are essentially an offset since these are very low-margin businesses. So the $250 million really comes from our actions to drive sustained cost takeout. This net number is a potential benefit to EBITDA before any reinvestment in growth initiatives. The plan is designed for full year benefit in 2021 and beyond, and about half of the savings are coming in 2020. The total savings are split roughly evenly across Media and Connect.

As mentioned, the optimization plan includes some business and international market exits, all of which had negligible margin. For perspective, these businesses and markets were a drag of about 20 basis points on 2019 revenue growth and about 40 basis points on 2019 margins. We are also lowering our 2020 CapEx forecast by $10 million to incorporate the exit. We expect the exit to be complete by early 2021 and to have a 50 basis point impact on revenue in 2020, an additional 150 basis point impact in 2021.

The revenue loss from the impact is more heavily weighted towards Media, but the 2020 impact is roughly evenly split across Media and Connect, given the timing of the exits. We will break the exits out of organic revenue growth when they are complete so that you can understand the underlying growth trends.

We now estimate $150 million to $170 million in restructuring expense in 2020, including the $84 million second quarter charge. Restructuring in the second half of the year will be more modest at $55 million to $75 million, mostly in the third quarter. The optimization plan improves our financial strength, increases operating discipline and gives us flexibility to incrementally invest in higher-margin essential services. We will aggressively monitor our restructuring to ensure that associated cost savings are achieved and sustained. Over time, we expect a level of ongoing quarterly restructuring to moderate significantly.

We continue to have robust liquidity and a strong financial profile across a range of scenarios. In June, we refinanced $1 billion of debt, pushing out maturities and fully retiring our October 2020 bonds. The debt markets were receptive, and we upsized the refinancing by 25% to also reduce 2020 maturities. We were pleased with the execution which reinforced our solid position with debt holders.

Turning to Slide 10, I'll discuss our 2020 outlook. We are refining our 2020 guidance, which continues to anticipate a second half recovery from the COVID-19 pandemic. We expect constant currency revenue declines of 4% to 2%. We lowered the top end of this range to incorporate the roughly 50 basis point impact associated with the exit, which were not previously in the guidance. The revenue forecast also includes approximately 100 basis points of net benefit from acquisitions and divestitures completed within the last 12 months.

For Media, we expect a constant currency revenue decline of 3% to 2%. This now incorporates exit, which fall into both Audience Measurement and Plan/Optimize. The music divestiture in December 2019 is also incorporated into this estimate and lowers the constant currency revenue growth rate by 50 basis points.

For Connect, we expect a constant currency revenue decline of 4% to 2%. The underlying outlook is a bit better than our previous forecast, offset in part by the inclusion of exit. This range includes 280 basis points of growth related to net acquisition activity, largely related to the January 2020 Precima acquisition.

The guidance range for adjusted EBITDA margin is 29% to 30%, up slightly from our previous forecast to reflect the margin benefit from the exit and solid performance in the second quarter. We are also raising the low end of adjusted EBITDA guidance, which is now $1.8 billion to $1.86 billion. We forecasted adjusted EPS of $1.50 to $1.62 which reflects Q2 results, $30 million in higher depreciation and amortization, driven mostly by the timing of capabilities coming into market and the acceleration of depreciation and amortization related to certain exits and $5 million in lower interest expense given the favorable interest rate environment. These and other underlying assumptions are included in the Appendix.

Despite higher restructuring costs in 2020, we are narrowing growing our free cash flow range, raising the low end of the range by $20 million for a revised range of $480 million to $530 million. As a reminder, adjusted EBITDA, adjusted EPS and free cash flow guidance ranges do not include the impact of onetime separation related costs or any incremental cost beginning to operate as 2 separate publicly traded company. We remain diligent in managing separation-related expenditures. These cash costs are $25 million year-to-date, and will increase as we approach separation.

Now I'll discuss how we see the second half of the year playing out. We continue to incorporate a gradual recovery from the COVID-19 pandemic, and we have now incorporated the planned exits into our forecast. This impacts revenue but not EBITDA.

In Media, we expect COVID-19 revenue declines to improve compared to the second quarter with exits partially offsetting this improvement. In Connect, we expect improving trends versus the second quarter as markets open and demand improves, especially in the shorter-cycle businesses. Our optimization plan will begin to have a meaningful impact in the third quarter and an even more significant impact on the fourth. And we forecast margin expansion in the second half both Media and Connect. Our full year guidance for free cash flow suggests that the second half will be down year-over-year primarily driven by higher restructuring versus the second half of 2019.

To wrap up, we are confident in the full year plan. We continue to closely monitor the impact of the pandemic and the last several months have reinforced our ability to adapt in the face of uncertainty and to take rapid and decisive action to manage the business.

We look forward to updating you on our continued progress as we go forward. I'll now turn the call back to David Kenny for a business update on the Media segment.

Thanks, Linda. Let me turn to Slide 12. Nielsen Global Media has an essential role in the rapidly changing Global Media ecosystem. And we have a significant opportunity to expand our role, enabling buyers and sellers to continue to continue to transact with confidence as the landscape evolves by measuring audiences, tracking and making content easier to discover and measuring and predicting outcomes for Media investments. We have a strong Media business model including revenue that is 80% contracted.

I want to start with our tech and data platform, which is foundational to executing our growth our strategy, increasing our velocity and driving capital efficiency. As the media landscape growth increasingly complex, we are simplifying our technology structure, moving to a single Media platform, which enables us to scale services globally on 1 back end across all measurement and outcomes.

We are making great progress in this journey including in the second quarter. We've built a media data lake, bringing all of our media data together in a single repository. This allows us to operate with speed and scale, leveraging our data assets across products and services in a consistent and privacy-centric manner. As an example of the impact, we've recently completed the integration of digital ad ratings for connected TV which was built entirely on our new platform and substantially reduce time, cost and complexity.

In Audience Measurement, combining our television and digital data assets onto a single platform will enable us to provide holistic cross-media measurement across all premium video more efficiently. This is becoming increasingly important to both publishers and advertisers.

Last month, we announced our next-gen methodology for our flagship digital measurement products, which will allow us to continue to instill confidence, deliver comparability and expand coverage in a cookie-less future. Owning our tech stack, back-end infrastructure and data sources enables us to move more swiftly to launch new products while allowing for continuity of measurement and flexibility to adapt to ongoing changes in technology and the privacy landscape.

Our panels remain a key competitive advantage, providing the most robust understanding of audience and consumer behavior in a privacy-compliant way. We have maintained the quality of our TV panels in the U.S. and internationally during the pandemic, finding innovative solutions to remotely manage our panels and deliver currency ratings. We are leveraging our learnings over the past 3 to 4 months to begin self-install trials of Nano and streaming meters. The self-installs will enable us to increase our streaming panel by nearly tenfold by the end of this year. We are also pulling forward efforts to automate panel operations and drive sustainable cost improvement.

During the quarter, the MRC continued accreditation of Nielsen's local TV services, including the enhancements from our local transformation initiative and continued accreditation of our national TV service. Nielsen remains the only company accredited for both national and local TV rating services. Our gold standard TV ratings are the foundation for comparable and deduplicated cross-media measurement. As we look to add additional viewing such as streaming and connected TVs into the currency, we are working closely with the industry to build alignment between media buyers and sellers.

International remains core to our Media growth strategy. We recently won a 5-year cross-media measurement contract in Denmark, which was a competitive takeaway for both streaming and linear viewing.

Turning to Plan/Optimize, we did see a greater impact from COVID-19. We had strong sales execution, working closely with clients to ensure that they're leveraging Nielsen's data analytics. We're focused on delivering high-margin, scalable solutions that can be built on our platform to drive accelerated growth. This focus helped drive the difficult decision to exit some businesses that are not core to our mission.

We're also expanding our global reach in Plan/Optimize. For example, Gracenote recently expanded their agreement with Google as their preferred partner of TV and movie metadata. This is a global deal with Google, licensing our portfolio of video products for use across 22 countries.

To sum up, Nielsen's ability to understand media behaviors is unparalleled. We are well positioned to expand our role in the global media marketplace. Our investments will enable us to better serve our clients and drive faster growth and profitability for our shareholders overtime.

With that, I'll turn the call over to David Rawlinson.

Thank you, David, and good morning, everyone. I've been CEO of Nielsen Global Connect for about 6 months, and we have already restructured to a leaner, more product-focused organization with a newly named leadership team that is energized about defining the future of consumer measurement. We are making rapid progress towards becoming a stand-alone company with a new ambition and a direct path to better financial performance.

In the second quarter, we faced significant COVID-19-driven operational and in-market hurdles, and this made the business perform substantially below what I would expect under normal circumstances. As we look ahead, we are more confident about the third quarter as compared to the second quarter. And further, as a result of the transformation we have executed, when combined with the stickiness and resiliency of the business model, we should see significantly improved trends on the other side COVID-19.

Despite constant currency revenue declines of just over 7% in the second quarter, our EBITDA margin was down only 37 basis points, and we expect margin expansion on a year-over-year basis beginning in the third quarter. This performance is partly attributable to our transformation, which we expect to drive margin expansion in the coming months and meaningful and permanent EBITDA improvement over the next 18 months.

As Linda noted, approximately half of the $250 million in annualized net benefit to EBITDA comes from Connect. For a business that generated $420 million of segment profit in 2019, this is meaningful. The majority of these permanent cost actions are executed or well on their way to completion. We have reset the cost structure of the business.

As we approach separation, we look forward to sharing more about our growth path. Ultimately, connect will be successful as we build world-class measurement solutions and scalable analytics offerings for our customers that will allow us to grow with them. We have streamlined our organization to increase agility and drive focus on growth areas, including e-commerce, analytics, growing in new customer and market segments and strengthening our core retail measurement service.

This vision will be carried out by a new executive team with diverse, international and deep industry experience. We are thrilled that Chandler Bigelow has joined this team as CFO. He brings close to 3 decades of proven success at public and private companies. Most recently, he was CFO of Tribune Media Company, where he helped manage the spinoff of Tribune's newspaper publishing business. His expertise has already been incredibly helpful as we move Connect to being a stand-alone company.

Now I'll cover second quarter business highlights. As the impact of COVID-19 was felt globally, we acted rapidly to deliver on the continuity of our measurement and analytics. We're using new data collection methods in traditional trade markets and leveraging new solutions to support short-cycle revenue projects. In Measure, we're focused on key initiatives like the Nielsen Connect platform, coverage enhancements and retailer initiatives. The breadth and depth of our market coverage as well as our investments in modernizing our technology and service teams were key drivers of our recently renewed global partnership with Mondelez.

We continue to deploy the Nielsen Connect platform across manufacturers and retailers, and they're seeing clients increasingly lean into our cloud-based platform. We have seen unique weekly users double since December 2019.

E-commerce is critical to our clients as well. We have seen strong demand from clients all over the world for greater e-commerce insights as they seek to understand the new normal driven by COVID-19, and we are better organized to meet this demand.

Turning to Predict/Activate. Today, this business is skewed toward ad hoc and in-person work, which has been challenged in the pandemic. We've recently moved the majority of our face-to-face survey and innovation businesses online, enabling us to continue to deliver services to clients in spite of the pandemic and positioning us for scalable growth in the future.

Our analytics solutions remain a bright spot in the second quarter with solid growth. We have also been pleased with the acquisition of Precima, which strengthens our retail product road map and is driving productive discussions with global retailers around loyalty programs, personalization, customer-centric merchandising solutions and supplier collaboration.

We are also pleased that OXXO Mexico, the second-largest retailer in Mexico, has chosen Nielsen to be its loyalty provider. As we scale our capabilities and markets open up, we see a strong growth trajectory for Predict/Activate.

For nearly a century, Nielsen Global Connect has led this industry with integrity, earning our reputation as the best source of truth for consumer packaged goods manufacturers and retailers. Despite navigating the challenges of COVID-19, we are now pivoting to build on that heritage with a strong new team, a leaner and more agile organization and determined focus on growth by building great products and solutions that help our clients excel. We are confident in our path forward as a stand-alone company, and we are well positioned for improved, long-term financial performance.

With that, I'll turn the call back to Sara for Q&A.

Thanks, David. Operator, can you open up the line?

(Operator Instructions) Our first question comes from Toni Kaplan from Morgan Stanley.

I was hoping you could give some additional color on the progression of the businesses throughout the quarter. If you could just give us a sense of maybe the trough versus where you ended up in the 2 segments, that would be helpful. And related, do things have to improve significantly from June or July levels in order to hit the guidance or just improve from sort of the 2Q average level?

Thank you for the question, Toni. To get into depth, I think I'll answer for Media, and I'll let David Rawlinson answer for Connect because we're both in those businesses day-to-day.

On the Media side, I would say, a quarter ago, when we were talking, there was some uncertainty in the media space. And I think that stabilized. I wouldn't say it's rebounded, but I think there is more confidence and clarity as to the ad market. Sports, which was down for part of the quarter, is starting to come back. So things are strengthening.

So I would say at this point, going into the second half of the year, we've got a high degree of confidence in the guidance we've given. And I would also say again, things got a little stronger throughout the quarter, so we're starting from a stronger base. And we've got good confidence in the guidance we've given. David, do you want to talk about Connect?

Yes. Thank you, David. I would echo what you'd said. I'd say we have increased levels of confidence in the third quarter. In Connect, we've had some COVID impacts on both the supply and demand side. What we are seeing is as markets are opening, we're able to get back in the markets. Western Europe is a good example of where we're operating more normally now. We see some momentum in China. And then where markets are reopening, we are seeing demand improving, and we are also seeing improvements in short-cycle revenue. Much of that revenue is reflected in Predict/Activate. We've also made some operational changes that's different. We've moved the majority of our in-person, customized and survey businesses online now, which help to deal with the current pandemic.

Final thing I'd just note is on the -- on our end markets, so grocery, retailers, consumer staples, those continue to look solid with many doing relatively well, and on-premises which has been, I think, more impacted by the pandemic. We're starting to feel a little bit better about that as well. So we feel more confident in the third quarter emerging from the second.

Toni, one last thing. I just want to make sure you know the impact of the exits. So we did make some decision on some smaller businesses to exit, which will affect top line as those unwind. I don't think they are impacting EBITDA and cash flow much because these were businesses that when you added in the CapEx were not particularly impactful for the bottom line. But you do need to accommodate the exits that you're modeling.

Our next question comes from Judah Sokel from JPMorgan.

We like that the company has continued -- we like that the company has been investing during this time using the savings from cost initiatives to mitigate the COVID-19 impact. Some of those moves definitely seem borne out of necessity like the self-installed meters, moving the survey business online and Connect. But obviously, the company has also been investing for the longer term, unrelated to the pandemic. So I was hoping you could tell us more specifically about the Media product innovation plans, especially around streaming metrics, and when those will be syndicated.

Yes. So we continue to make good progress on streaming, as you said. And part of the advantage of the self-serve meters is those new Nano meters also connect to streaming meters. So as I said, we're investing to get a tenfold increase in the streaming meter. That was one of the big investments we flagged at the beginning of the year, and we have protected it. Obviously, when we look at what's happening with our clients, streaming continues to scale, and we need to be able to measure both the content and the advertising for the stream that is AVOD. So that continues to happen, and we continue to put those metrics out.

In terms of syndicating them into currency, we're having those discussions with the market right now. We need the buyers and the sellers to agree on that. But we're certainly going to push and work closely with the market to make sure that we're getting to a point that we've got cross-media currency across streaming and broadcast signals. We think it's inevitable. That's the way the market goes.

Our next question comes from Dan Salmon from BMO Capital.

David, you announced a new digital methodology recently, which isn't a surprise, I guess, considering some of the changes that's going on with cookies and mobile IDs lately. So I guess I had a 2-part question. Just first, high level, how is Nielsen set up to play in a world where Apple and Google are making changes to their browsers and operating systems and essentially sort of rewiring the way the ad-supported Internet works?

And then second, a bit more specifically, in the digital ecosystem, we hear a lot about ID solutions to address these out. I'm pretty sure that Nielsen broadly plays an identity solutions. But do you think the company needs to be sort of competing more directly, more explicitly for the type of business that companies like LiveRamp are building? Or is that something that ultimately may be is a bit more open source as like the Trade Desk seems to be leading along the IAB guidelines. We'd love to hear about that, too.

Yes. So there's a number of points in your question. But back to the investment, that's the other place we've been investing is in the Nielsen audience ID because it is important that we have an ID platform run by Nielsen, specifically for the media industry, to make sure that we can deduplicate and scale. And we've been on this for a while. The reason the changes are being made that you described are because of privacy. And I think we want to make sure that we are resilient and fully compliant with privacy and heavy privacy-proved solution. And that is part of the reason we announced some further changes to the methodology last quarter.

Our model is now decentralized. It uses our own independent proprietary backbone, but it also makes it easy for us to accommodate a lot of other frameworks from our clients and to work with open-source solutions like the Trade Desk. So that we've got the best answer for the specific purpose of the media industry. And we believe we've got that now in place. And for the majority of the industry, we've got the ability to also work behind their firewalls in a way that we can reconcile without sharing personal information, which helps us with a number of players. And so for other players that don't have that capability, our ID platform continues to prove quite resilient and accurate to make sure that we're measuring everybody and everybody consistently.

And in terms of your other question, I don't see us competing directly in a stand-alone ID in the way you mentioned LiveRamp does. I think ID is important for purpose, which is why we're working on the open-source side, and we're going to make sure we've got an answer that is decentralized and using as many sources as possible for the specific purpose of media measurement.

Our next question comes from Ryan Leonard from Barclays.

Yes. If I can kind of step back and think about what happened in the quarter, I mean, a lot of people were at home ordering food and consuming media, which presumably would kind of be a benefit to your end markets. And so I was wondering if you could just kind of talk about how we think about the end markets in relation to the revenue and the pieces of your business. And I guess specifically, the Olympics being canceled, I would have thought that, that would have a bigger impact on your business. So just curious if there's anything to call out on that.

And then if I could sneak in on the Connect piece, is there a risk that if people are -- if your clients are putting off some of the more ad hoc project, they don't come back once things normalize as we've kind of seen with euro-based budgeting and that kind of impact?

Yes. So let me take the first part of that, and then I'll have David talk specifically about the ad hoc and Connect. So in terms of the end markets in Media, of course, there's been an impact. I mean our revenue is not what we originally hoped. I don't like having any decline in revenue. So much of our business and media is contracted, and those contracts continue to be honored, and those contracts continue to be quite important to the way our clients operate even during this pandemic. So I feel very good about our stability.

But there has been projects like efforts around the Olympics and some of the other sports efforts, which obviously, were deferred until we're back in sports. And Olympics deferred until Tokyo actually host those games. So these things will come back as the market comes back. Auto factories are also on hiatus, and that impacted some of Gracenote, as we said before. So -- and the end market is soft because the economy is soft. And so some of the ad hoc work about advertising has obviously put off as well.

So I feel like what we're going to see in the end markets, we've seen. I would say the end markets are very resilient companies. They're all working on 2 strategies. And we're helping them. As they rebuild, we'll rebuild. So I'm quite optimistic about us getting back to growth as things stabilize and as the economy improves. When exactly that happens, I don't know.

And on the Connect side, I'm going to let David talk a little bit about both the end markets and the ad hoc work.

Yes. That's great. Thank you, David. I commented a bit on the end markets. I think we've continued to see some dispersion and results in our end markets, but most of our end markets are performing very well. During the pandemic, we have core end markets that have proven to be essential. And then on the ad hoc work, I would say a lot of that work is essential to our clients as well, especially if it addresses understanding a much more dynamic market, often shifting because of changing consumer patterns and e-commerce. I'd say what we've seen is that where we can get back into the field and we get field operations up and running again, we see demand for our ad hoc services recovering. And so we don't view it as a permanent loss. We view most of this revenue disruption as temporary. And part of the reason we view it as temporary is because of the insights that come from that work is still core to doing things like understanding share shift and making decisions around pricing and promotion, introducing and innovating around new questions.

Where we have seen shifts that we think are permanent, either in terms of markets or in terms of products that we don't think are as suited to the new world, we have done some limited rationalizations. And obviously, that's been a part of our transformation.

The last thing I'd say is we are moving to a more syndicated model. The Connect platform allows us to scale a lot of our analytics and will increasingly allow us to do some of the work that was previously ad hoc on top of the platform. And so over time, that will help us as well.

Our next question comes from George Tong from Goldman Sachs.

David, you talked about some of your Media investments, such as creating a single media tech platform, building a data lake and automating panels. You also touched on streaming meters. But can you talk a little bit more about your product investment initiatives that can drive specifically an improvement in your longer-term revenue growth outlook?

Well, certainly. And those investments are a part of it. I think a lot of the reengineering in the common platform here does improve the resiliency of measurement and make sure that we maintain a currency across everything that is consumed on all platforms. As opposed to the prior approach, which we had a lot of silos that we added up. But it's a very different approach to be able to do that. Yes, that's more cost effective, but it also is much more agile to launch additional analytics on top of it because I think all of our clients are finding more and more ways to manage so many different ad platforms, manage so many different content distribution approaches. And I think our revenue grows as our clients' revenue grows and as they adopt the new platform, number one.

I think secondly, those open us up to more markets and more customers. So we've added additional customers in the digital ecosystem as the market comes together. And I think as we scale, we'll be able to do that on the measurement side. I've also got a lot of hope -- I should say a lot of confidence in the added services on the content side.

Gracenote is a very good platform with the metadata. But I would say as the content distribution ecosystem also becomes more robust, there's many more ways to get your content out to the audience. We're providing more and more services, and we'll continue to invest to provide more services to content distribution. And then both content and Audience Measurement have analytics on top. And I would say that the new platform allows us to do our analytics in a much more syndicated way versus being so dependent on humans doing analysis, and I think that's only going to help us scale both the top and the bottom line.

Our next question comes from Ashish Sabadra from Deutsche Bank.

So a 2-part question on Connect, if I can, one was on the Connect platform. Thanks for providing some color around the user adoption. I was just wondering if you can also talk about the conversation with other retailers on adopting that platform. So that's one.

And then second one, we saw a bigger impact in the emerging market. And I believe a lot of it is because of the manual processes. David, you talked about automation. I was wondering if you can talk about automation, particularly in the emerging market, if the infrastructure allows that or can you enable that in the emerging markets.

David Rawlinson, I think that's for you.

Yes, it is, I think. Thank you for the question. In terms of the Connect platform, we've seen very strong reaction from our core clients, and we're increasingly getting -- making progress with relatively large deployments across manufacturers and retailers. And we're bringing, increasing substantially, the number of large clients who are on the platform. The platform, the Connect platform has been a key differentiator, driving renewal discussions even in the current environment. And we have a very strong pipeline of active and committed end-to-end deployments in the U.S. As I mentioned in my opening comments, we've seen unique weekly users double since December 2019. So that gives you some sense of the momentum that we have in the platform.

The other thing that's really helping with retailers is Precima. With their loyalty solution, we've seen that's opened up a series of very new conversations with retailers who, I think, see a lot of value and the richness of that solution and that experience for them. And so that's accelerated our conversations around our retailer solutions and our retail relationships. All of this has been helped in some ways by how dynamic the market is and how things like Precima and the Connect platform can give people to Insights more quickly so that they understand what's going on in the world around them. And so we feel good about the level of momentum we have on the platform and in the retailer ecosystem.

I think your second question was around emerging markets. I've been impressed by the level of innovation that's gone on, especially around data collection in emerging markets. Our alternative data collection methods have done much better than and held together better than we expected when we first put them in as well as doing a lot more online data collection in some of our more customized businesses. We show the ability to adapt in this current environment. We're obviously monitoring developments related to the pandemic very closely. But I would say, so far, we've been able to largely produce most of our products. We haven't gone dark in any of the roughly 100 markets we serve, although there have been service disruption due to specific problems in specific markets.

The alternative methodologies, which have included everything from self-audits by store managers to downloading data on terminals that are collected, those methodologies are enhancements. But they're also accelerations of plans we had to make our traditional trade measurement more automated. And we are now looking at every possible opportunity to radically accelerate the automation of our traditional trade measurement. So we think this will help us be better in the future. And we think it's given us the right level of concentration on making sure we digitize and automate that experience. It's a really core data set for our customers. And so we need to be able to continue to provide it in all circumstances.

Our next question comes from Tim Nollen from Macquarie.

Question for you, David Kenny. I wanted to follow up on the position of Nielsen in the TV measurement universe. You've always had this very, very central role in basically guiding decisions on TV ad sales. And now there's been so much change with so many different data sources and so many different ways of watching TV, especially on connected devices. So I was just wondering, you have Gracenote, which is one of the premier ACR methodology. And the question is how competitive is that with other methodologies out there? And how important is it to TV buyers and sellers to have a unified cross-measurement system as opposed to just picking on bits and pieces and using Gracenote versus using something else and using Nielsen linear ratings and so forth? How important is it really? First of all, how important is Gracenote to the ecosystem and how important is it to tie everything together?

Thank you, Tim. Let me answer the questions in reverse order. I think it's very important to tie things together, and it's more important now than ever. Because if you put yourself in the shoes of a seller or you're writing total revenue for a media company, you need to practice yield management. You need -- for every part of their inventory, you've got to make sure you get the best price. And quite honestly, I would say, on the buyer side, they need some way to add it all up. At the end of the day, the buyers are trying to manage reach, frequency and outcome, and being able to look at the total is the only way to figure that out. To just do it in a fragmented way, you end up with a challenged managing price and yield. As the seller, you end up with a complexity the other way. And I would say to get to refrequency and outcomes, deduplication is essential. And you can only do that with a single source that's pulling that together, which is why, honestly, since I got here, we've been putting so much investment into making sure that we can measure everything and measured off the same platform, which has taken some rework of Nielsen. But we've done a lot of that work, and we accelerated a lot in the last quarter.

Gracenote is an important component of that. The ACR technology is really well developed. It is the gold standard, which is why companies like Google is using in 22 countries. It's a gold standard across all professional content, and it continues to build. So, a, it helps with the experience, it helps people find their content. But it also helps with the measurement because it's another way to not only know what platform people are on, but exactly what they're watching and engaging with. And as both streaming and -- as streaming becomes more competitive, it's going to be more important to be able to program and know what people are watching on all platforms. So again, I think that this gives us growth on the content distribution side in addition to the ad market.

Our next question comes from Richard Kramer from Arete Research.

David, Nielsen historically had escalation clauses in its Audience Measurement contracts, which would allow it to annual price rises. And we couldn't help notice in the language of some of the renewals you've announced so far this year that you're including a rising number of products and deals, for example, local, Scarborough, Ad Intel graphic, et cetera. Given the pressures on your Media customers, are you still able to get annual escalation clauses in deals? And are you now needing to bundle more in the deals to secure them?

And then maybe a quick housekeeping one for Linda. We couldn't help notice that, certainly, you've controlled or -- limited working capital this quarter. How much of your free cash flow growth assumption comes from working -- better working capital management between now and the end of the year?

So Linda, why don't you answer the second question first? It's been a lot of questions for David and I. And I'll come back on the escalators.

Okay. Yes, on free cash flow growth, I would -- what I would say, Richard, is that most of our view on the outlook is largely just an updated view on what we thought would be more pressure on cash collections in the second quarter, and that really did not materialize. Now this is a very unique pandemic that we're in. And I think the pressure on our portfolio of customers ranging from large investment-grade clients to smaller SME-type businesses, I think it's too early to call victory on it. But we really feel good about what we saw play out in the second quarter. And to kind of use Toni's analogy from earlier in the questioning, we -- second quarter was what we're calling a trough right now. And we do expect gradual recovery in the second half. And that's really the way that modeled our scenarios that we went through last quarter that we shared with everyone. And we're still calling it that second half recovery. But free cash flow is definitely a bright spot for us in the quarter. And we feel more confident about the guidance range, which definitely enabled us to narrow that range, and it's really across all different levers. But feeling good about it going into the third quarter here.

Yes. And on the first question, yes, I mean, I think we want to continue to add value to our clients over time. So when we sign these long-term agreements, there is price that increases over time, which is related to increased value. And I would say as we're working with clients on that value, there are other -- there are services that they used to achieve that. So I don't think there's any bundling here, but we are, I think, trying to be clear what all the services are that our clients are using and how those continue to be relevant individually and collectively, in aggregate. And then we've continued to make progress this past quarter in some contracts that we're renewing going forward. And I would say our contract terms are similar to what we've seen in the past. The needs are certainly changing. And I think our product road map is very aligned with what our clients anticipate their future needs to be.

I think that was just the last question.

It is. I'll turn it back to you, Mr. Kenny for closing remarks.

Thank you very much, and thank you all for joining the call this morning. Listen, I just want to once again thank my colleagues at Nielsen for the hard work and perseverance that has enabled us to deliver a strong quarter in an unprecedented and challenging environment.

The environment does remain uncertain. I know we have a strong, resilient business model, and we have financial flexibility that position us well. We've thrived for over 100 years in spite of numerous global issues and changes. And today, both Connect and Media remain as critical as ever to our clients, and I believe we are well positioned and prepared to continue to drive continued strong performance. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you once more for participating. You may now disconnect.