Nielsen Holdings N.V. Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.30.13 | About: Nielsen Holdings (NLSN)

Nielsen Holdings N.V. (NYSE:NLSN)

Q2 2013 Earnings Call

July 30, 2013 8:30 am ET

Executives

Kathryn H. White Vanek - Senior Vice President of Investor Relations

David L. Calhoun - Chief Executive Officer and Executive Director

Brian J. West - Chief Financial Officer

Analysts

Suzanne E. Stein - Morgan Stanley, Research Division

Matthew Chesler - Deutsche Bank AG, Research Division

David Bank - RBC Capital Markets, LLC, Research Division

Douglas M. Arthur - Evercore Partners Inc., Research Division

William G. Bird - Lazard Capital Markets LLC, Research Division

Brian T. Davis - BofA Merrill Lynch, Research Division

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Daniel Salmon - BMO Capital Markets U.S.

Tim Nollen - Macquarie Research

Brian W. Wieser - Pivotal Research Group LLC

Mark J. Zgutowicz - Northland Capital Markets, Research Division

Operator

Ladies and gentlemen, thank you for holding, and welcome to this conference call on second quarter 2013 results for Nielsen Holdings N.V. [Operator Instructions]

I will now turn the call over to the host, Kate Vanek, Senior Vice President of Investor Relations. Ms. Vanek, please proceed.

Kathryn H. White Vanek

Thanks, Amy, and good morning, everybody. Thanks so much for joining us today to discuss Nielsen's Second Quarter 2013 Financial Performance. Joining me on today's call from Nielsen is David Calhoun, Chief Executive Officer; and Brian West, Chief Financial Officer.

Before we begin our prepared remarks, I'd like to remind you all that the following discussion contains forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of '95. These forward-looking statements may include comments about Nielsen's outlook, expectations and prospects. These and other statements that relate to future financial results and events are based on Nielsen's view as of today, July 30, 2013. Our actual results in future periods may differ materially from those currently expected because of a number of risks and uncertainties. The risks and uncertainties that we believe are material are outlined in Nielsen's 2012 Form 10-K and other filings and materials that you can find on our Investor Relations website or at sec.gov. We encourage you to consult these documents for a more complete understanding of these risks and uncertainties.

We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by securities law. And a slide presentation that we'll use on this call is available under the Events section on our Investor Relations website at nielsen.com/investors. And lastly, we do use certain non-GAAP measures to evaluate the results of our operations. We believe these non-GAAP measures provide useful information to investors regarding financial and business trends when viewed in conjunction with our GAAP results of operations. Future definition and a reconciliation of these non-GAAP measures to our results under GAAP is available at the end of our press release. It is also in the Appendix of the webcast slide presentation we're using on today's call and on our IR website.

And so, for our agenda. For today's call, Dave will start with some comments on our results for the quarter and an overview of some key highlights. He will then provide a business update and then close with an update on our capital allocation plan. Then Brian will discuss financials for the quarter and will provide updates on our full year guidance. And then, we'll be happy to take your questions. [Operator Instructions]

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

David L. Calhoun

Yes. Hello. Good morning, everyone. I'm going to run through these highlights briefly, quickly so that we can get to our Q&A. We had a very solid second quarter performance. Our revenue grew 3% on a reported basis, 4% on a constant currency basis. Our Watch business grew on a constant currency basis, 5%; and our Buy business grew 3%, again, in constant currency. We had a 3% constant currency growth in Insights, and we've clearly seen the shift in momentum with respect to positive Vs going forward.

Adjusted EBITDA grew 6%, 6% on a constant currency basis, as well as reported. Adjusted net income grew 25%, 23% on a constant currency basis.

Our free cash flow generation of $106 million more than doubled versus the prior year. And as you know, our cash balance stands tall at almost $1.2 billion, largely as a result of the successful Expositions sale for $935 million.

Our management team remains in what we call a full investment mode, and we're focused on, I think, the things you are aware of, innovative solutions for advertisers and coverage expansion, particularly in the emerging markets around the world.

On the M&A front, our Arbitron regulatory process is ongoing. We remain confident our second -- our request for information has been fulfilled. The FTC is working in a very workmanlike process to get to their conclusions. And we believe, by the end of August, we'll have an indication of where things are.

Updating our capital allocation plan will come in the next couple of pages. We have a real focus on shareholder return, and we continue to get increasing visibility on the excess cash that we intend to return to shareowners.

Key milestones over the quarter. 58% of our share ownings now are in the hands of institutional equity owners; and Nielsen, as everyone knows, is now included in the S&P 500 Index.

We will update our guidance. Brian will take you through a chart, specifically for the Expositions disposition. Otherwise, the guidance remains intact. So we love the strategic positioning that will occur as a result of the 2 transactions that are 1 done and 1 in front of us, and we think it spells good things for future growth and profitability, ultimately shareholder value.

Page 6. With respect to key growth catalysts initiatives, again, as I mentioned, we continue to drive investment and growth in Africa, China, India; and we have begun to step up plans for Mexico, as we get more bullish on the -- on that [ph].

We are enhancing value to our clients, largely through our advertising solutions business. As you will recall, this is where our syndicated data in Watch meets the syndicated data in Buy. We create solutions that in effect -- in effect, answer the question, "What is my return on investment in advertising dollars?" This is, again, a very strong initiative for us, and it's growing at a very fast pace.

We continue to activate our Buy data; Global Track, which is a tool that large multinationals can use to, in effect, make global resource allocation decisions faster; Total Store Read, which is basically capturing all of that -- all of the data that exists in our big retail clients; Catalina, as we talked before; and Buyer Insights, which is the business we have with credit card data marrying our Watch data, largely for the benefit of retail clients.

We've continued to increase the reach of Online Ratings. We are moving from campaign to program ratings, which largely fulfills the needs of media clients and ad agency planners to help bridge the digital world.

We're developing Social TV ratings. We now have 50 clients for our SocialGuide product. And of course, our Twitter -- our Nielsen TV Twitter ratings will be introduced here in the fall upfronts.

We're expanding our core video measurement internationally. We've had some wins out there, and we continue to capture more audiences across more devices.

So all of these growth initiatives continue to be funded, and we feel good about the progress we're making in each case.

Page 7. Just, again, an update to our capital allocation plans. As I said before, as every quarter goes by, we get more and more visibility to the excess cash that our business continues to generate and sort of the forward momentum that we have increasingly more confidence in.

So with respect to updating our plans, first and foremost, we will continue to fully fund all of our organic growth programs, as well as our M&A, which, as many know, is largely built around tuck-in acquisitions.

We are on course to achieve our net debt to adjusted EBITDA ratio of 2.75x to 3x, ahead of our 2016 refinancing, and that continues to be an objective we mean to fulfill.

Third, we're committed to dividend growth. We will increase our quarterly cash dividend to $0.20, and we continue to have an intent to grow this with earnings over time.

We will also announce a share repurchase program, largely to mitigate dilution associated with the equity compensation programs that we introduced back in 2006. This is a $500 million share repurchase program, as we look forward to the implementation of that program over the next several years.

Again, the framework here -- our commitment is to return excess free cash flow to our shareholders and to continue to do it in a very deliberate fashion, as our confidence continues to grow.

With that, I will turn it over to Brian West.

Brian J. West

Thanks, Dave, and good morning, everyone. I'm on Page 9 of the webcast slides.

I'd first like to just describe the table in front of you. What we chose to do was take the key indicators of our business down the left-hand side, and the first column represents our results, including Expositions since the Expositions transaction closed so late in the quarter, as just a benchmark point. The middle column is what the Expos impact would be since now it's been eliminated and it's put into discontinued operations. So it's $43 million lower on the revenue line, $20 million lower on the adjusted EBITDA line, $17 million for ANI and then $0.04 per share. Then to get to a net total reported number, these are the total reported numbers that are in our filings, and that we will discuss going forward.

I will say that the Expos disc ops treatment is well covered in exhibits in both the press release, as well as the filing, in order to help everyone understand and update their models and to be as transparent as we possibly can. So it's all in there.

So moving on with the reported results. Second quarter revenue was $1.39 billion, that's up 4% in constant currency. Adjusted EBITDA was $396 million, that's up 6% in constant currency. And margins expanded a very healthy 67 basis points to 28.6%.

We did see the impact of foreign exchange rates in the quarter, and there was a 40 basis point drag on revenue and a 30 point basis drag on EBITDA.

Adjusted net income came in at $187 million, up a strong 23%, driven by the underlying operating performance, as well as the interest benefits from capital structure actions and our ongoing favorable tax attributes. Adjusted net income per share was $0.49.

And finally, we generated $106 million of free cash flow in the quarter, that's more than double last year, driven by the operations, working capital favorability and the interest benefit.

So in summary, solid top and bottom line growth, coupled with terrific free cash flow generation.

Moving on to Page 10. 2Q had another consecutive quarter of top line growth. Total Buy was $867 million, that's up 3% in constant currency. The Information services business was $652 million, also up 3% in constant currency, with gross -- growth across major regions with exception of Western Europe, which I'll get to in a moment. Insights was $215 million, returning to growth of 3% in constant currency. And as Dave mentioned, we're seeing good momentum across the board for Insights.

Developing markets were up 6%. And in some markets, we continue to see strong double-digit growth, driven by rapidly expanding local client revenue. So we still feel very optimistic about our developing market prospects. And finally, Watch revenue, $519 million, up 5%. Very solid results in the core U.S. measurement business, complemented by stronger performance in international measurement, digital and advertiser solutions, that last business which contributed strong double-digit growth in the quarter.

Let me just speak to Europe for a moment. Page 11 attempts to describe our Europe exposure. So the bar chart is the first half revenue in 2013 for the total company of $2.7 billion split on the bottom segment, which is Nielsen Rest of World, with exception of Western Europe, was at $2.2 billion; and then, Western Europe at about $0.5 billion, which is less than 20% of the total.

So in total, in the first half, the first V% column, that's the year-over-year growth, constant currency, company grew 4%. But there's really 2 things happening here. The Nielsen Rest of World, the bigger part, grew 5%; and Western Europe was down 1%. And that's primarily driven by the discretionary business of Insights.

And we also have the 3-year CAGR on there. The total business has done 5% CAGR. But again, Nielsen Rest of World, 6%; Europe is flat. So we just want to point this out to remind everyone that it's the fourth year of broad market headwinds, but it's a manageable exposure for us. We still grow. We've taken the necessary cost actions. We've also made the right readjustments with clients to get through this. We're delivering growth in certain countries, including U.K. and Italy. And we're winning business.

So we feel like we're well positioned on the actions we've taken, and we have a responsible outlook and that we don't expect this picture to get any better. And all things considered, we think we're weathering this one very well.

Moving on to Page 12, profitability. Adjusted EBITDA for the second quarter was $396 million, that's up 6% constant currency. Again, margins expanded by 67 basis points. Buy EBITDA was $171 million, up 2%, as we continue to make discretionary investments to fund long-term growth. Watch EBITDA was $233 million, up 9%, reflective of the scalability of the business model, as we grow services such as Ad Solutions that are very attractive margin rates. And overall, we continue to deliver on cost management and productivity programs as we fund long-term growth investments.

Page 13, a reminder on foreign exchange. The bar chart reflects our quarterly actual and projected impact from FX rates on the reported results. We do see the impact of fluctuation in rates as we translate for reporting purposes since over 50% of our revenues are outside the U.S. In 2Q, as I mentioned, a drag of 40 bps on the top and 30 bps on EBITDA. And if rates -- all rates stayed the same as of last Friday, the total year revenue drag projected would be 90 basis points for the year on revenue, and the EBITDA drag would be about 80 basis points. And this is a little bit worse than last time we updated, but we watch this closely. And I remind everyone that we report on a constant currency basis because that is the true reflection of our operating performance.

Moving on to cash and the balance sheet, Page 14. Free cash flow in the quarter was $106 million, double last year. And for the first half, we have generated $90 million of free cash flow, and that's up $130 million versus the first half of last year.

CapEx came in at $100 million. It's higher based on both some timing but also higher investment levels as we prepare for key commercial wins, 2 additional TV measurement markets as well as a big global multinational that came our way. So we're excited about fulfilling all that.

Cash tax is $37 million, driven by our favorable long-term tax attributes. And restructuring came in at $22 million on the cash line. The restructuring charge on the P&L for the second quarter was $8 million.

On the balance sheet, gross debt came at $6.25 billion. Cash, as Dave mentioned, healthy at $1.16 billion based on the Expos sale proceeds to get you to a net debt of just over $5 billion.

On the capital table, fairly quiet on the capital table this quarter. Net debt was down to 3.3x, in large part due to the Expos cash; and our weighted average interest rate was essentially flat at 4.5%.

We continue to focus on de-risking the debt profile. And as we stand here today, we have increased our fixed debt portion of our cap structure to 80% and we continue to closely manage the portfolio over time.

Finally, Page 15, on guidance. As Dave mentioned, we're going to update for Expos. But starting with the elements on the left-hand side, no change to revenue growth at 4% to 5%; no change to adjusted EBITDA margin growth of 40 to 60 bps; and no change to adjusted net income growth of 15% to 19%, all of that on a constant currency basis.

Deleveraging. We haven't changed it, but we'll have a better update post the Arbitron close.

CapEx. We took that up a bit, $10 million to $15 million, based on the commercial wins I mentioned.

Depreciation and amortization. That is $20 million lower based on Expositions, largely the acquisition D&A.

Net book interest is $15 million lower, $10 million related to Expos and $5 million based on better rates. And there's no changes to cash taxes or cash restructuring. And we updated our share count.

On the right-hand side, just a reminder that our previous net income per share, including Expos, was $2.13 to $2.19. We take out the annual impact of Expositions now that's it been disposed of and characterized in disc ops of $0.24 to get you to a net income per share at current rates of $1.89 to $1.95.

And I'll also remind you that the annualized accretion from the pending acquisition of Arbitron is $0.26. That's $0.13 that we always talked about when we close the deal, largely driven by cost synergies, as well as $0.13 benefit because we're raising less debt to do the transaction. Net-net, it's going to have an accretive annual impact once we close it, and we feel confident in the synergies that we have lined up for that transaction. So operational guidance is reiterated and the solely adjustment has been for Expos disposition.

With that, I will turn it back over to Kate.

Kathryn H. White Vanek

Thanks, Brian. And, Amy, we'd like to turn it to the first question now.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Suzi Stein at Morgan Stanley.

Suzanne E. Stein - Morgan Stanley, Research Division

To what extent could you be impacted by the recent merger activity in the ad space? Can you just comment on that, please?

David L. Calhoun

Suzi, it's a good question, and we're, of course, looking hard at it. I honestly -- it's hard to find any negative impacts for us. As you know, both of these are run as a sort of a collection of agencies. Largely, the work that they want to do and talk about with respect to data tends to complement the work that we do. And so, I view that as a positive. If they can plow more resources into data, that's a good thing for us, believe it or not. They will use more of our measurements within their planning tools, et cetera. So it's not really a bad outcome for us. I sort of have a view, I agree with all of the environmental statements that both of the leaders made with respect to why. I also understand the need for consolidation benefits. To the extent they reinvest that in things that we do, I view it as a positive. But I don't -- there's nothing with respect to our revenue profile or contractual stuff that is a negative in any way. So net-net, I view it as a plus.

Suzanne E. Stein - Morgan Stanley, Research Division

Okay. And then, can you just comment on the $500 million share repurchase? Will the timing of that be impacted at all by the timing of the closing of Arbitron, or do you view those as completely separate?

Brian J. West

Suzi, we view those as completely separate.

Operator

Next question comes from Matt Chesler with Deutsche Bank.

Matthew Chesler - Deutsche Bank AG, Research Division

Just continuing on the capital return. Can you talk a little bit about your philosophy around dividends versus buybacks? It does sound like the buyback is primarily to offset dilution. But I just wanted to get a better understanding of that because it had sounded in past conversations with you, Brian, that you guys have a peculiar view about that. I just want to be clear.

David L. Calhoun

Yes, Matt. You're precise -- you're exactly right -- haven't changed with respect to the philosophy I've been talking about since the first day. This is a company that should have a dividend model; it should have an aggressive dividend model. I've been leaning into that. And as I say, every step we take, every quarter we take with respect to visibility and the cash performance of the company, again, gives us more confidence. That's the lever I prefer to pull. The buyback for us is literally just a case of wanting to cover the dilutive effects of a share repurchase program that's still reasonably in its infancy. And so, in my view, that's the right thing to do. We got enough feedback from our respective shareowners that that's something they would like to see. But I have a clear preference, as you know, for dividend model over time.

Matthew Chesler - Deutsche Bank AG, Research Division

Okay, yes. And I would like to talk a little bit about the revenue momentum in the business. You reiterated your full year guidance. In terms of the moving parts, Watch is coming on strong, Insights is coming back to positive a quarter early, but Information services is a bit weak and decelerated more than expected. So it just -- with you guys doing 4.1% constant currency growth year-to-date and still looking for 4% to 5% for the full year, to us, that implies acceleration in the back half of the year despite the Walmart comp. So I'd like to understand a little bit more about some of those moving pieces and what instills your confidence in the outlook?

Brian J. West

So I think you described perfectly, Matt, the pieces. So we know that Walmart will sunset. We expect that. We know that Western Europe is not going to get any better. But to the ones you pointed out, Insights is going to have some momentum. We've got some very nice momentum in Watch driven by a variety of fronts, both advertiser solutions, international measurement wins, as well as our digital portfolio. So when you take all of those puts and takes together, we feel confident in the range.

Operator

Our next question comes from David Bank at RBC Capital Markets.

David Bank - RBC Capital Markets, LLC, Research Division

Can you talk a little bit -- in terms of advertiser solutions, can you talk philosophically why is that within the Watch segment of revenue as opposed to the Buy segment if it merges kind of the 2 products? And can you also talk about -- is this a handful of big clients all of a sudden, or is it more, sort of, broadly being adopted? Or what -- and what exactly is the impact in terms of incremental revenue from this 1 product because it seems to be a pretty big driver? I realize you're not going to tell me exactly. But can you give a little bit more color around it?

David L. Calhoun

Yes, yes. Thanks [indiscernible] someday, we will. Listen, you're right. So we debate this inside all the time, but the reason we tend to lean toward Watch is because, when we talk about advertisers and solving for advertisers, our clients, the big consumer product companies and automotive companies, et cetera, they have this embedded in the CMO's office, typically with sort of a Watch community. That's how they think about it. Whereas, our Buy side business tends to be associated with the brands and the research work they do around sort of consumers and brands. So it's really the way our clients talk about it. But all that said, as this continues to progress and as it continues to get bigger, there will be a day when we will have, in my view, a Watch/Buy segment. And as we get our arms around that and begin to develop it, that will become clearer and clearer to everybody. It's a horse for us. It continues to be a horse. It's a strategic advantage in what we do. And I know we need to put more color around it. But it's big, it's profitable and it continues to be the story between these 2 big segments.

Brian J. West

The other thing I want to add on that, David, is that it is 1 space where we get to expand to many different verticals, not just media or CPG, but advertisers across telco, retail, auto, financial services. There's lots of opportunities with lots of clients that we've never touched before, and that's driving the growth.

David L. Calhoun

And the short answer to the other question is it is, in fact, broad-based.

Operator

Our next question comes from Doug Arthur at Evercore.

Douglas M. Arthur - Evercore Partners Inc., Research Division

Just going back to the revenue momentum in the Buy segment. Developing markets looked like they accelerated in the quarter, but developed markets slowed down quite a bit. And now, obviously, you've highlighted Europe. Did you see a slowdown in any other major developed markets besides Europe? And then, I've got a follow-up on margins.

Brian J. West

It was -- Doug, it was Western Europe for sure, and developing held in nicely. It's in that 6% range. It's been there. And it's basically -- the developed is Western Europe.

Douglas M. Arthur - Evercore Partners Inc., Research Division

Okay. So probably not going to see a change there near term. And then, Brian, on margins, your Buy adjusted EBITDA margins were sort of flattish again. I mean, is this -- obviously, Western Europe, but is it also the investment program? And so, when might there be some relief on that on the margin side?

Brian J. West

Doug, this is driven by our investment appetite. As we look around the world and we look at markets that we want to go increase and expand coverage in, we get excited about more opportunities, not less, and that's driving the very deliberate focus on reinvestment. So Dave mentioned Mexico is the next one. So look, we hope there's never a day we stop investing. We know, over time, these markets perform beautifully once we get done investing in the local client's book of business billed. So we think this is a great situation for us, and we're going to keep investing.

David L. Calhoun

Yes. The only thing I would add to that -- a reminder, in the emerging markets, you always start with a Buy side investment. It really is that retail measurement, finding new distribution outlets for clients, et cetera. This is how it all starts. The Watch side of a business in the emerging markets doesn't develop until maybe decades later. So this is -- that's why the Buy side is the -- carries the burden of emerging market development.

Operator

The next question comes from William Bird at Lazard.

William G. Bird - Lazard Capital Markets LLC, Research Division

David, I was wondering if you could just comment again on Arbitron. You mentioned that you expect to have an indication of where things stand in late August. What happens in late August?

David L. Calhoun

Well, they have a period of time, a window that they're committed to by law to get back to us with respect to the second request for information that we now have submitted. So they -- the -- it is on them to come back to us. So all I can tell you is the process has been very workmanlike, and nothing has surfaced over the course of that process that's either surprising or different than anything we thought about going into it. So I get it. It's always longer than anybody would like, but I think the dialogue has actually been pretty healthy for everybody. So -- anyway, that's really it. It's -- the course is determined by law.

William G. Bird - Lazard Capital Markets LLC, Research Division

And can you talk about, just progress report on Online Campaign Ratings?

David L. Calhoun

Yes, I still, still feel very good about it, confident in it. I know there's a lot of, sort of, flak that gets thrown around in the marketplace about winning and losing and all that kind of stuff. But I will tell you, with respect to video, with respect to the performance attribute we solve for, which is the accountability around advertising campaigns, the notion that overnight reporting and guarantees are a paramount to that measurement and that industry taking off, I feel very confident that we're winning the day, and we continue to proceed forward. So -- anyway, I feel good about it. We continue to add campaigns. We continue to add clients, very much on course.

Operator

The next question comes from Sara Gubins at Bank of America Merrill Lynch.

Brian T. Davis - BofA Merrill Lynch, Research Division

This is Brian Davis in for Sara Gubins. I was wondering -- regarding the online segment, can you give us an update as to where you think you stand on video advertising versus display? Last quarter, you discussed making a lot of progress on the video front.

David L. Calhoun

Yes. Well, it's really a repeat of what I just said. I feel as though -- and not only feel but I believe, based on sort of wins and losses, that we are right where we need to be on video. And we have not yet launched, officially, the program ratings associated with that online tool. So we are in trial with all of the major media companies, certainly all the networks, basically building that program rating so that they can push it alongside of their TV rating. So my own view is that even without the program rating at this stage, we are winning the war on video ads. Program ratings will just help that because it gives the agencies a planning tool alongside of the campaign tool. So all things positive on video. I think, in display, it's still a crapshoot. That is of course -- in our view, it's a lesser value medium. It doesn't mean it's not important, it's just of lesser value. And so, it's going to take us longer to penetrate that end of it.

Brian T. Davis - BofA Merrill Lynch, Research Division

That's helpful. And just 1 follow-up. Regarding competitive dynamics online, can you just give us an update as to your progress there?

David L. Calhoun

Yes. Well, I think, again, I pretty much just summarized it. But I'll remind everybody that, in this space, captive metrics continue to rule the day. So these are publishers with their own metrics and their own tools. Basically, they get into the marketplace and, in effect, trying to sell their medium based on those captive metrics. Google, of course, does its thing. And then, you have these 2 independent metrics, which really is the comScore metric and the Nielsen metric. And so, net-net, as I've said now, probably 3 times, we believe we are winning, particularly in our intended areas of focus, and we're going to continue to march down this path. We have a terrific partner with Facebook and, we believe, a real leg up, and we're going to continue to build out the product because this product is far from complete. We've got a lot of things we can do and will do over the course of the next 12, 24 months.

Operator

The next question comes from Andrew Steinerman at JPMorgan.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Brian, could you talk a little bit more about free cash flow? Obviously, a strong quarter. Was there anything anomalous that made this quarter in particular a strong free cash flow quarter? And as you look for your operational guidance for the year, although you don't guide for free cash flow, should free cash flow generally track the EBITDA growth?

Brian J. West

So we're very confident with cash flow in the quarter. As I mentioned, it was a combination of the benefits that are right in front of all of us, which is the operating performance, the lower interest burden and then working capital improvements. So it all feels very good, and we focus on all of that all day long. And in terms of our free cash flow outlook, I think, as Dave mentioned, our decisions around capital allocation are really underwritten by our confidence in the cash flow generation of this company over time, both this year and going forward. So we feel very good, always expected it. And now we're happy that it is showing up in the results.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Right. And there's nothing particularly anomalous that you know about free cash flow in the second half of the year?

Brian J. West

No. Nope, nope.

Operator

The next question comes from Dan Salmon at BMO Capital Markets.

Daniel Salmon - BMO Capital Markets U.S.

I'll give you my 2 questions at once. First, can you comment upon how much C7 ratings may have been used during the upfronts? And second, just on the Social TV product, just maybe clarify a little bit with SocialGuide, how many of those 50 clients came with that company versus that have been added subsequently as you guys start to get in there and working on the product?

David L. Calhoun

So second question first. I don't know the answer, but I would go so far as to guess it's way over 50%. Maybe -- it might be 85%. I don't -- so -- because when we bought SocialGuide, it was very small with a few very discrete clients. So we have been signing them up very regularly. If you need a really precise answer, I'd encourage you to call Kate. But if they -- it's the large majority. On C7, I really don't know the answer to that question. As you know, we -- C7 is a metric that we have and is available. It's just a question of whether buyers and sellers ultimately want to use it. So far, they've leaned heavily in favor of C3. So I don't want to project any outcomes or anything, and I don't really know the answer to just how many people discretely used it this time around.

Operator

The next question comes from Tim Nollen at Macquarie.

Tim Nollen - Macquarie Research

You left, I think, a tantalizing hint when you mentioned that Ad Solutions was contributing to some of the margin expansion. Correct me if I didn't hear that correctly. But I wonder -- I know you've been reticent to give any guidance or indications of the size of both Ad Solutions and OCR and the growth, but I wonder if there's anything you can tell us about that or give us an idea when you could tell us because I think we all recognize they are enormous potential growth drivers for you. And then, secondly -- I'll ask my follow-up right now. Secondly, on Europe, I'm getting the sense from some of the ad companies that a lot of their advertiser clients are really thinking about shifting some of their resources permanently out of Europe, and that's not anything new. It's been going on for some time. But how is it that you are managing to win business there? Is it new products you're bringing in? Is it some new clients you're managing to win? How is it that you are able to keep Europe more or less flat?

David L. Calhoun

Yes. Thanks. I mean, this is just one of those classics, right, when -- just like in '08 and '09, when things are tough, stronger players usually emerge stronger. That's when share shifts occur in the process. Remember we have this big global map. We have lots of things to trade and bargain to work with our big global multinationals, so that we can help them with their European situation. And that's really what happens. So I think the strength of our global franchise, along with the strength of our Europe franchise, our ability to hang in tough during all these moments, that usually plays to some really good competitive dynamics that when you come out of it, you're advantaged. I don't think this is any different than what we have experienced historically, particularly in that '08-'09 time frame. And so, that's what I would say about Europe. And we've remained totally committed to Europe both in terms of investment and supporting our big clients. With respect to Ad Solutions -- I'll let Brian comment on sort of segment questions. But the margin rationale is pretty simple. It's a syndicated product plus a syndicated product, when you combine them, creating additional value for client. Ultimately, that means you get a pretty reasonable deal. That's why we have this great margin performance within that business. With respect to sizing and segment, I'll let Brian comment.

Brian J. West

Well, as we've said before, we hope to break it out in the not-so-distant future. But we remain committed to invest, and some of it is growing fast. It's a big deal to us, and stay tuned on more disclosure going forward. But we like what we've got, and we particularly like the growth rate.

Operator

Our next question comes from Brian Wieser at Pivotal Research.

Brian W. Wieser - Pivotal Research Group LLC

It's Brian Wieser, Pivotal Research here. I just want to ask a couple of bigger-picture questions. One of the sources of the data we use to assess the industry suggests that it's pretty tepid growth for marketing research in general, and you're growing faster than that. I'm curious a, do you generally agree with that state of the general industry? And therefore, that you've been gaining share of market or budgets? Or -- I'm curious to hear how you characterize that in general? And then, maybe relatedly, do you see an increased involvement of procurement teams in the process? And I'm talking now on the marketer side. Do you see an increased involvement of marketing procurement teams in working with you to design contracts that fit your relationships with them?

David L. Calhoun

Yes. Okay. So first, I'll answer the first question. So again, the term market research covers a lot of ground, mostly ground that we don't actually play in. So what distinguishes us from what would classically be referred to as a research company is they do mostly custom kinds of stuff, projects and so forth. That's really not what we do. We have 2 basically big marketing information services, subscription in nature, built around the notion of "How am I doing?" In the retail world, it's "What's my market share every week?" And in the Watch world, it's "What's my audience every day?" And so -- and those 2 things are way different than what most people would refer to as market research. And so, I would -- and so, like the market research industry, a lot of the Insight work that we do, which is a little closer to that mark of custom, has under -- in fact been under pressure. We do believe we're winning more than we're losing in that regard because of the strength of our company. But you wouldn't really characterize us as that. And in fact, most of the economics that you like really have nothing to do with what most people would call research. I think that explains what you might hear and discuss. On the subject of procurement, no, I mean, we're big enough in our clients' world. Remember, we do -- you measure our ongoing relationships with our clients in the tens and hundreds of millions of dollars. They are going to have procurement people at the table every step of the way, and they do. And I wouldn't suggest there's any change one way or the other. It just is what it is. We're big, and we continue to work with our clients.

Brian W. Wieser - Pivotal Research Group LLC

Great. And 1 other question. I'm curious to hear your current take on the state of interest among your clients with respect to set top data as part of the overall viewing measurement solutions?

David L. Calhoun

Honestly -- so, again, I'll talk with different constituencies here. Advertisers would never talk to us about set top data unless it had some really wonderful discrete understanding of consumer behavior within that particular set top box audience. We do some of that work, but not a lot. There are other people who do that kind of work, including the folks who own the data at the set top box level. So that's a little different. We don't really get a lot of set top box questions. And in the media world, that crowd -- all they really want to know is, "What's the best, the most robust measure of my broad audience, not necessarily my set top box-only audience?" And so, if we ever thought we'd have a more accurate measure as a result of set top box, we'd be in there doing it all the time. We don't ever get that. And we know that that's actually not something that set top box data will help us with. So in effect, set top box data is around. It is used mostly for unique understandings of a unique audience base that is just set top box. I think that's where most of the value is. It's not insubstantial. It's just that it serves a different purpose than what Nielsen actually does for most of its clients, and we view it as perfectly complementary. So it's just not a -- I know that people like to talk about it as sort of a threat, blah, blah, blah. But I don't -- we don't think about it that way. We view it as a complement, and we continue to march down that course.

Operator

Our next question comes from Mark Zgutowicz at Northland Capital Markets.

Mark J. Zgutowicz - Northland Capital Markets, Research Division

I just wanted to look at EBITDA margins a bit. So if you look at your, sort of, overall EBITDA margin, unadjusted, it's been flat to down the past 4 quarters. And I guess, the differential, if you look at adjusted versus your unadjusted, it's really the other income -- or, I'm sorry, the other items line, which has contributed about $20 million in the second -- or the first half of this year. So I'm just curious, if you look at that differential, when do you sort of see those 2 aligning themselves? And maybe more specifically, is there a contribution that we should expect from other items in the second half of the year, or is that -- should that sort of go away post the Expositions?

Brian J. West

Yes, sure. So let me take a shot at this one. So between EBITDA and adjusted EBITDA, actually, the level of adjustment has come way down over time, and we're happy about that -- to create that clarity. The real things that stick out there is going to be transaction costs associated with the Arbitron deal and then some restructuring. So it's fewer things. They're smaller -- there'll be a couple of things that will always be in there around foreign exchange and stock-based comp, which is taken out of EBITDA but put back for earnings because it is noncash. So we actually feel pretty good about the trend, and we feel good about calling out very discrete things that are in there. And over time, that noise has gotten less and less and will continue to do so.

David L. Calhoun

And the underlying rate, we have 2 things going for us in pretty big positive ways. One, we got a mix thing that goes on regularly that helps us. Ad Solutions now is 1 more additive feature to that game. But the Information versus Insights game works for us, as well as, now, the Ad Solutions space. And then, secondly, our productivity -- underlying productivity is very, very healthy. We continue to switch off old legacy IT systems because of the investments we made in our early years. As I've said on this call many times, that switch-off rate will continue to improve over time. And so -- and then, what we do is we reinvest a portion -- a good-sized portion of what we gain from those 2 things in the developing market growth, and that is our productivity play. That's how we think about it. That's how we measure it. That's how we operate. So -- and that will continue.

Mark J. Zgutowicz - Northland Capital Markets, Research Division

Okay. But does that -- I guess, just to, I mean, to get something a little more tangible there, does that mean that the EBITDA -- the unadjusted EBITDA margin should be better than flat to down going forward? Or is there something that's inherent in that growth we've seen in the last 4 quarters that should continue?

Brian J. West

Again, I think, when you work out all of the one-time smaller adjustments, you're going to get close to where those 2 get closer together. And where that heads over time is going to be continued margin expansion, but it's going to be margin expansion that's going to reflect the reinvestment that Dave mentioned. And we expect that our proposition, as always, is that it's going to grow. It's going to be how fast does it grow. And right now, we're very comfortable with all the reinvestments we make, growing at a pretty consistent rate. And I'd have you look back to see the last couple years and several quarters about what that looks like in our company.

Mark J. Zgutowicz - Northland Capital Markets, Research Division

Okay. Just 1 last quick one, if I could. The Insight pipeline implies what kind of second half growth? And if you could just specifically -- kind of looking at the last couple of years, we've seen -- in '11, you saw growth of about 3% in constant currency. Last year, it was down about 3%. So are you seeing something specifically in the second half that should tell you should see better than sort of cyclical-type growth in that segment?

Brian J. West

Well, it continues to be better. So this is our fourth quarter of sequential quarter-over-quarter growth in the Insights business. We see order books firming up. We see clients starting to reinvest, and we think that, that momentum will continue to the back half of the year.

Mark J. Zgutowicz - Northland Capital Markets, Research Division

So what type of growth does that imply, though? Does it imply better than sort of that...

Brian J. West

We don't specifically call out a number in that space, but it's going to be better for sure.

Mark J. Zgutowicz - Northland Capital Markets, Research Division

Better than what you saw in the first half? Or just...

Brian J. West

Like I said, the sequential momentum has been terrific. It's gotten better and better every quarter, and it will continue to do so, in our expectation, in the back half, and that's all baked into our forward guide.

Operator

This concludes the question-and-answer session. I would like to turn the conference back to Kate Vanek for closing remarks.

Kathryn H. White Vanek

Thank you so much. We are really looking forward to interacting with everybody on the call today at our upcoming conferences and other meetings.

Related to the recent SEC guidance, investors should be aware that we use multiple channels for information disclosure, including our website, nielsen.com/investors; Twitter; and our iPad app. You can follow Nielsen IR on Twitter, and don't forget to download the Nielsen iPad app from the App Store. Thanks so much. Please reach out to me and the team with any further questions that you have. Have a great day.

Operator

This concludes the Nielsen Holdings N.V. Second Quarter 2013 Call. A replay of this call will be available on the Nielsen Investor Relations website shortly. Thank you. You may now disconnect.

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Nielsen (NLSN): Q2 EPS of $0.49 in-line. Revenue of $1.39B misses by $0.05B. (PR)