Nielsen Holdings plc (NYSE: NLSN) today announced its first quarter 2017 results. For the first quarter, revenues increased 2.6% to $1,526 million, or 3.2% on a constant currency basis, compared to the first quarter of 2016. The company also announced that its Board of Directors approved an increase in the company’s quarterly dividend of 10% to $0.34 per share.
“Our first quarter results highlight the importance of our balanced portfolio. We saw continued strength in our Watch segment and in emerging markets, partially offset by a decline in the U.S. for our Buy segment,” said Mitch Barns, Chief Executive Officer of Nielsen.
Barns continued, “In our Watch segment, progress with our Total Audience Measurement system continued with the addition of out-of-home measurement and the commercial release of Total Content Ratings. In our Buy segment, despite the weak growth environment in the U.S., our productivity initiatives enable us to continue to invest in our measurement coverage and our Connected System, both of which are important to future growth. In addition, we are pleased to announce a 10% increase in our quarterly dividend as we continue to deliver on our ongoing commitment to enhance shareholder value over the long-term.”
Revenues within the Watch segment for the first quarter of 2017 increased 10.8%, or 11.1% on a constant currency basis, to $769 million. Excluding the acquisition of Gracenote, Watch revenues increased 5.9%, or 6.2% on a constant currency basis. Audience Measurement of Video and Text revenues increased 13.3% on a reported and constant currency basis. Excluding the acquisition of Gracenote, Audience Measurement of Video and Text revenues increased 6.1% on a reported and constant currency basis primarily due to our ongoing investments and continued client adoption of our Total Audience Measurement system. Audio revenues were flat for the quarter. Marketing Effectiveness revenues increased by 12.1%, or 14.0% on a constant currency basis, driven by our investments in our product portfolio. Other Watch revenues increased 11.4%, or 14.0% on a constant currency basis due to the timing of data sales during the first quarter of 2017.
Revenues within the Buy segment for the first quarter of 2017 decreased 4.5% to $757 million, or 3.7% on a constant currency basis. Buy revenues in developed markets decreased 8.5%, or 7.3% on a constant currency basis, due to continued softness in our U.S. market. Buy emerging markets revenues increased 9.9% on a reported and constant currency basis, as our global footprint, coverage expansion, and broad product offerings continue to position us well with both local and multinational clients. Revenues in Corporate Buy decreased by $16 million, or 45.7% on a reported and constant currency basis primarily due to the sale of our Claritas business in December 2016.
Net income for the first quarter of 2017 decreased 29.0%, or 29.7% on a constant currency basis, to $71 million, compared to the first quarter of 2016, due primarily to higher restructuring charges associated with our continued productivity initiatives, and a higher effective income tax rate due to the benefit of certain discrete items in the first quarter of 2016 that did not recur during the first quarter of 2017. Net income per share on a diluted basis was $0.20, compared to $0.27 for the first quarter of 2016.
Adjusted EBITDA for the first quarter of 2017 increased 5.0%, or 4.7% on a constant currency basis, to $422 million, compared to the first quarter of 2016. Adjusted EBITDA margins grew 62 basis points, or 38 basis points on a constant currency basis, to 27.7%, due to the benefit of our ongoing productivity initiatives and the operating leverage of the business.
As of March 31, 2017, Nielsen’s cash and cash equivalents were $451 million and gross debt was $8,416 million. Net debt (gross debt less cash and cash equivalents) was $7,965 million and our net debt leverage ratio was 4.07x at the end of the quarter. Net capital expenditures were $114 million for the first quarter of 2017, compared to $109 million for the first quarter of 2016. Cash taxes were $52 million for the first quarter of 2017, compared to $29 million for the first quarter of 2016.
Cash flow from operations decreased to $40 million for the first quarter of 2017 from $87 million in the first quarter of 2016. Free cash flow for the first quarter of 2017 was a use of $74 million, compared to a source of $14 million in the first quarter of 2016. Cash flow performance was driven by lower net income, discussed above, higher tax and interest payments and the timing of vendor and client payments.
The Board of Directors approved a 10% increase in the company’s quarterly cash dividend to $0.34 per share of common stock, commencing with the payment on June 16, 2017 to shareholders of record on June 2, 2017.
The company repurchased $42 million of shares of its common stock during the first quarter of 2017. The company has a total of $396 million remaining for repurchase under the existing share repurchase program.
2017 Full Year Guidance
The company is maintaining its full year guidance as highlighted below:
- Total revenue growth on a constant currency basis: 5.0% - 6.0%
- Adjusted EBITDA margin growth on a constant currency basis: Flat
- GAAP net income per share: $1.40 - $1.46
- Free cash flow: ~$900 million
Conference Call and Webcast
Nielsen will hold a conference call to discuss its first quarter 2017 results at 8:00 a.m. U.S. Eastern Time (ET) on April 25, 2017. The audio and slides for the call can be accessed live by webcast at http://nielsen.com/investors or by dialing +1-877-201-0168. Callers outside the U.S. can dial +1-647-788-4901. The passcode for the call is “3353948.” An audio replay and transcript will be available on the investor relations website after the call.
This news release includes information that could constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements include those set forth under “2017 Full Year Guidance” above as well as those that may be identified by words such as ‘will’, ‘intend’, ‘expect’, ‘anticipate’, ‘should’, ‘goal’, ‘look’, ‘could’, ‘shall’ and similar expressions. These statements are subject to risks and uncertainties, and actual results and events could differ materially from what presently is expected. Factors leading thereto may include without limitations general economic conditions, conditions in the markets Nielsen is engaged in, behavior of customers, suppliers and competitors, technological developments, as well as legal and regulatory rules affecting Nielsen’s business and specific risk factors discussed in other releases and public filings made by the company (including the company’s filings with the Securities and Exchange Commission). This list of factors is not intended to be exhaustive. Such forward-looking statements only speak as of the date of this press release, and we assume no obligation to update any written or oral forward-looking statement made by us or on our behalf as a result of new information, future events, or other factors.
Nielsen Holdings plc (NYSE: NLSN) is a global performance management
company that provides a comprehensive understanding of what consumers
watch and buy. Nielsen’s Watch segment provides media and advertising
clients with Total Audience measurement services across all devices
where content — video, audio and text — is consumed. The Buy segment
offers consumer packaged goods manufacturers and retailers the
industry’s only global view of retail performance measurement. By
integrating information from its Watch and Buy segments and other data
sources, Nielsen provides its clients with both world-class measurement
as well as analytics that help improve performance. Nielsen, an S&P 500
company, has operations in over 100 countries that cover more than 90
percent of the world’s population. For more information, visit www.nielsen.com.
From time to time, Nielsen may use its website and social media outlets as channels of distribution of material company information. Financial and other material information regarding the company is routinely posted and accessible on our website at http://www.nielsen.com/investors and our Twitter account at http://twitter.com/Nielsen.
Results of Operations—(Three Months Ended March 31, 2017 and 2016)
The following table sets forth, for the periods indicated, the amounts included in our condensed consolidated statements of operations:
Three Months Ended
(IN MILLIONS, EXCEPT SHARE AND PER SHARE
|Cost of revenues||661||641|
|Selling, general and administrative expenses||471||465|
|Depreciation and amortization(1)||155||147|
|Foreign currency exchange transaction losses, net||(2||)||(1||)|
|Income from continuing operations before income taxes||116||145|
|Provision for income taxes||(43||)||(44||)|
|Net income attributable to noncontrolling interests||2||1|
|Net income attributable to Nielsen stockholders||$||71||$||100|
|Net income per share of common stock, basic|
|Net income attributable to Nielsen stockholders||$||0.20||$||0.28|
|Net income per share of common stock, diluted|
|Net income attributable to Nielsen stockholders||$||0.20||$||0.27|
|Weighted-average shares of common stock outstanding, basic||357,399,749||361,580,670|
|Dilutive shares of common stock||1,655,219||3,620,469|
|Weighted-average shares of common stock outstanding, diluted||359,054,968||365,201,139|
(1)Depreciation and amortization associated with tangible and intangible assets acquired in business combinations were $54 million and $52 million, respectively, for the three months ended March 31, 2017 and 2016.
Certain Non-GAAP Measures
We use the non-GAAP financial measures discussed below to evaluate our results of operations, financial condition, liquidity and indebtedness. We believe that the presentation of these non-GAAP measures provides useful information to investors regarding financial and business trends related to our results of operations, cash flows and indebtedness and that when this non-GAAP financial information is viewed with our GAAP financial information, investors are provided with valuable supplemental information regarding our results of operations, thereby facilitating period-to-period comparisons of our business performance and is consistent with how management evaluates the company’s operating performance and liquidity. In addition, these non-GAAP measures address questions the Company routinely receives from analysts and investors and, in order to assure that all investors have access to similar data the Company has determined that it is appropriate to make this data available to all investors. None of the non-GAAP measures presented should be considered as an alternative to net income or loss, operating income or loss, cash flows from operating activities, total indebtedness or any other measures of operating performance and financial condition, liquidity or indebtedness derived in accordance with GAAP. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under GAAP. Our use of these terms may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.
Constant Currency Presentation
We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, thereby facilitating period-to-period comparisons of our business performance and is consistent with how management evaluates the company’s performance. We calculate constant currency percentages by converting our prior-period local currency financial results using the current period exchange rates and comparing these adjusted amounts to our current period reported results. No adjustment has been made to foreign currency exchange transaction gains or losses in the calculation of constant currency net income.
The below table presents a reconciliation from revenue on a reported basis to revenue on a constant currency basis for the three months ended March 31, 2017.
|(IN MILLIONS) (UNAUDITED)||Three|
2017 vs. 2016
2017 vs. 2016
|Revenues by segment|
|Audience Measurement (Video and Text)||$||535||$||472||13.3||%||$||472||13.3||%|
|Total Core Buy and Watch||$||1,458||$||1,408||3.6||%||$||1,400||4.1||%|
The below table presents a reconciliation of Net Income and Adjusted EBITDA on a reported basis to a constant currency basis for the three months ended March 31, 2017.
|(IN MILLIONS) (UNAUDITED)||Three|
2017 vs. 2016
2017 vs. 2016
We define Adjusted EBITDA as net income or loss from our consolidated statements of operations before interest income and expense, income taxes, depreciation and amortization, restructuring charges, stock-based compensation expense and other non-operating items from our consolidated statements of operations as well as certain other items that arise outside the ordinary course of our continuing operations specifically described below.
Restructuring charges: We exclude restructuring expenses, which primarily include employee severance, office consolidation and contract termination charges, from our Adjusted EBITDA to allow more accurate comparisons of the financial results to historical operations and forward-looking guidance. By excluding these expenses from our non-GAAP measures, management is better able to evaluate our ability to utilize our existing assets and estimate the long-term value these assets will generate for us. Furthermore, we believe that the adjustments of these items more closely correlate with the sustainability of our operating performance.
Stock-based compensation expense: We exclude the impact of costs relating to stock-based compensation. Due to the subjective assumptions and a variety of award types, we believe that the exclusion of stock-based compensation expense, which is typically non-cash, allows for more meaningful comparisons of operating results to peer companies. Stock-based compensation expense can vary significantly based on the timing, size and nature of awards granted.
Other non-operating expenses, net: We exclude foreign currency exchange transaction gains and losses primarily related to intercompany financing arrangements as well as other non-operating income and expense items, such as, gains and losses recorded on business combinations or dispositions, sales of investments and early redemption payments made in connection with debt refinancing. We believe that the adjustments of these items more closely correlate with the sustainability of our operating performance.
Other items: To measure operating performance, we exclude certain expenses and gains that arise outside the ordinary course of our continuing operations. Such costs primarily include legal settlements, acquisition related expenses, business optimization costs and other transaction costs. We believe the exclusion of such amounts allows management and the users of the financial statements to better understand our financial results.
Adjusted EBITDA is not a presentation made in accordance with GAAP, and our use of the term Adjusted EBITDA may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.
We use Adjusted EBITDA to measure our performance from period to period both at the consolidated level as well as within our operating segments, to evaluate and fund incentive compensation programs and to compare our results to those of our competitors. In addition to Adjusted EBITDA being a significant measure of performance for management purposes, we also believe that this presentation provides useful information to investors regarding financial and business trends related to our results of operations and that when non-GAAP financial information is viewed with GAAP financial information, investors are provided with a more meaningful understanding of our ongoing operating performance.
Adjusted EBITDA should not be considered as an alternative to net income or loss, operating income, cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance or cash flows as measures of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.
The below table presents reconciliations from net income to Adjusted EBITDA for the three months ended March 31, 2017 and 2016:
Three Months Ended
|Interest expense, net||89||78|
|Provision for income taxes||43||44|
|Depreciation and amortization||155||147|
|Other non-operating (income)/expense, net||4||2|
|Stock-based compensation expense||15||13|
(a) For the three months ended March 31, 2017 and 2016, other items primarily consist of transaction related costs and business optimization costs.
Free Cash Flow
We define free cash flow as net cash provided by operating activities, plus contributions to the Nielsen Foundation, less capital expenditures, net. We believe providing free cash flow information provides valuable supplemental liquidity information regarding the cash flow that may be available for discretionary use by us in areas such as the distributions of dividends, repurchase of common stock, voluntary repayment of debt obligations or to fund our strategic initiatives, including acquisitions, if any. However, free cash flow does not represent residual cash flows entirely available for discretionary purposes; for example, the repayment of principal amounts borrowed is not deducted from free cash flow. Key limitations of the free cash flow measure include the assumptions that we will be able to refinance our existing debt when it matures and meet other cash flow obligations from financing activities, such as principal payments on debt. Free cash flow is not a presentation made in accordance with GAAP. The following table presents reconciliation from net cash provided by operating activities to free cash flow:
|Three Months Ended|
|Net cash provided by operating activities||$||40||$||87|
|Plus: Non-recurring contribution to the Nielsen Foundation||—||36|
|Less: Capital expenditures, net||(114||)||(109||)|
|Free cash flow||$||(74||)||$||14|
Net Debt and Net Debt Leverage Ratio
The net debt leverage ratio is defined as net debt (gross debt less cash and cash equivalents) as of the balance sheet date divided by Adjusted EBITDA for the twelve months then ended. Net debt and the net debt leverage ratio are commonly used metrics to evaluate and compare leverage between companies and are not presentations made in accordance with GAAP. The calculation of net debt and the net debt leverage ratio as of March 31, 2017 is as follows:
|(IN MILLIONS) (Unaudited)|
|Gross debt as of March 31, 2017||$||8,416|
|Less: cash and cash equivalents as of March 31, 2017||(451)|
|Net debt as of March 31, 2017||$||7,965|
|Adjusted EBITDA for the year ended December 31, 2016||$||1,938|
|Less: Adjusted EBITDA for the three months ended March 31, 2016||$||(402||)|
|Add: Adjusted EBITDA for the three months ended March 31, 2017||$||422|
|Adjusted EBITDA for the twelve months ended March 31, 2017||$||1,958|
|Net debt leverage ratio as of March 31, 2017||4.07x|
2017 Guidance Non-GAAP Reconciliations
The below table presents the reconciliation from net income to Adjusted EBITDA for our 2017 guidance:
(IN MILLIONS) (Unaudited)
|Net income||$||500 - 525|
|Interest expense, net||365 - 375|
|Provision for income taxes||310 - 330|
|Depreciation and amortization||665 - 675|
|Restructuring charges||60 - 70|
|Stock-based compensation expense and other||100 - 105|
|Adjusted EBITDA||$||2,030 – 2,050|
The below table presents a reconciliation from revenue on a reported basis to revenue on a constant currency basis for our 2017 guidance:
|(IN MILLIONS) (Unaudited)|
The below table presents reconciliation from net cash provided by operating activities to free cash flow for our 2017 guidance:
|(IN MILLIONS) (Unaudited)|
|Net cash provided by operating activities||~$1,360|
|Less: Capital expenditures, net||~(460||)|
|Free cash flow||~$900|
Sara Gubins, +1-646-654-8153
Anne Taylor Adams, +1-646-654-5759