NIELSEN HOLDINGS PLC Introduction
The following discussion and analysis supplements management's discussion and
analysis of
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.
Background and Executive Summary
We are a leading global data, measurement, and analytics company that provides a holistic and objective understanding of the media industry. With offerings spanning audience measurement, audience outcomes and content, we offer our clients and partners simple solutions to complex questions and optimizes the value of their investments and growth strategies. We are the only company that can offer de-duplicated cross-media audience measurement. Audience is Everything™ to us and our clients, and we are committed to ensuring that every voice counts. We offer measurement and analytics services in nearly 60 countries.
We believe that important measures of our results of operations include revenue, operating income/(loss) and Adjusted EBITDA (defined below). Our long-term financial objectives include consistent revenue growth and expanding operating margins. Accordingly, we are focused on geographic market and service offering expansion to drive revenue growth and improve operating efficiencies, including effective resource utilization, information technology leverage and overhead cost management.
Our business strategy is built upon a model that has traditionally yielded consistent revenue performance. Typically, before the start of each year, more than 80% of our annual revenue has been committed under contracts, which provides us with a greater degree of stability for our revenue and allows us to more effectively manage our profitability and cash flows. We continue to look for growth opportunities through global expansion, specifically within emerging markets, as well as through the cross-platform expansion of our analytical services and measurement services.
Sale of our Global Connect Business
On
The gain on the sale of our Global Connect business is preliminary and is pending the final closing adjustments. Since this amount has been determined based on preliminary estimates and prior to the final closing adjustments, the final gain on the sale transaction may differ materially from the preliminary amount presented herein. Any change from the preliminary amount currently presented would be reflected as a revision in a future quarterly period.
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The results of operations of the Global Connect segment have been classified as discontinued operations for all periods presented. As such, the results of the Global Connect segment have been excluded from both continuing operations and segment results for all periods presented. Subsequent to the closing of the Connect Transaction, the Company no longer consolidated the financial results of the Global Connect segment. Our continuing business operates as a single operating unit and a single reportable segment.
Achieving our business objectives requires us to manage a number of key risk areas. Our growth objective of geographic market and service expansion requires us to maintain the consistency and integrity of our information and underlying processes on a global scale, and to invest effectively our capital in technology and infrastructure to keep pace with our clients' demands and our competitors. Core to managing these key risk areas is our commitment to data privacy and security as it drives our ability to deliver quality insights for our clients in line with evolving regulatory requirements and governing standards across all the geographies and industries in which we operate. Our operating footprint across nearly 60 countries requires disciplined global and local resource management of internal and third-party providers to ensure success. In addition, our high level of indebtedness requires active management of our debt profile, with a focus on underlying maturities, interest rate risk, liquidity and operating cash flows.
COVID-19
We have taken a variety of measures, as described in Part I-Item 1A-Risk Factors and Part II-Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report on Form 10-K, which had a significant impact on our operations and performance of fiscal year 2020 and continue to have a significant impact on our operations and performance in fiscal year 2021. Please also refer to those Items for further discussion regarding the potential future impacts of COVID-19 and related economic conditions on us.
Critical Accounting Policies
Our accounting policies are set forth in Note 1 to Consolidated Financial Statements contained in the Company's 2020 Annual Report on Form 10-K. We include herein certain updates to those policies.
The estimates of fair value of a reporting unit are determined using a combination of valuation techniques, primarily by an income approach using a discounted cash flow analysis and supplemented by a market-based approach.
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A discounted cash flow analysis requires the use of various assumptions, including expectations of future cash flows, growth rates, discount rates and tax rates in developing the present value of future cash flow projections. Many of the factors used in assessing fair value are outside of the control of management, and these assumptions and estimates can change in future periods. Changes in assumptions or estimates could materially affect the determination of the fair value of a reporting unit, and therefore could affect the amount of potential impairment. The following assumptions are significant to our discounted cash flow analysis:
• Business projections - expected future cash flows and growth rates are
based on assumptions about the level of business activity in the
marketplace as well as applicable cost levels that drive our budget and
business plans. Actual results of operations, cash flows and other factors
will likely differ from the estimates used in our valuation, and it is
possible that differences and changes could be material. A deterioration in
profitability, adverse market conditions and a slower or weaker economic
recovery than currently estimated by management could have a significant
impact on the estimated fair value of our reporting unit and could result
in an impairment charge in the future. Should such events or circumstances
arise, management would evaluate other options available at that time that,
if executed, could result in future profitability.
• Long-term growth rates - the assumed long-term growth rate representing the
expected rate at which a reporting unit's earnings stream, beyond that of
the budget and business plan period, is projected to grow. These rates are
used to calculate the terminal value, or value at the end of the future
earnings stream, of our reporting unit, and are added to the cash flows
projected for the budget and business plan period. The long-term growth
rate for our reporting unit is influenced by general market conditions as
well as factors specific to the reporting unit such as the maturity of the
underlying services.
• Discount rates - the reporting unit's combined future cash flows are
discounted at a rate that is consistent with a weighted-average cost of
capital that is likely to be used by market participants. The
weighted-average cost of capital is our estimate of the overall after-tax
rate of return required by equity and debt holders of a business
enterprise. The discount rate for our reporting unit is influenced by
general market conditions as well as factors specific to the reporting
unit.
We believe that the estimates and assumptions we made are reasonable, but they are susceptible to change from period to period.
We also use a market-based approach in estimating the fair value of our reporting unit. The market-based approach utilizes available market comparisons such as indicative industry multiples that are applied to current year revenue and earnings, next year's revenue and earnings as well as recent comparable transactions.
To validate the reasonableness of the reporting unit fair value, we reconcile the aggregate fair value of our reporting unit to our enterprise market capitalization. Enterprise market capitalization includes, among other factors, the market value of our common stock and the appropriate redemption values of our debt. We perform sensitivity analyses on our assumptions, primarily around both long-term growth rate and discount rate assumptions. Our sensitivity analyses include several combinations of reasonably possible scenarios with regard to these assumptions, including a one percent movement in both our long-term growth rate and discount rate assumptions. When applying these sensitivity analyses, we noted that the fair value was greater than the carrying value for our reporting unit. While management believes that these sensitivity analyses provide a reasonable basis on which to evaluate the recovery of our goodwill, other facts or circumstances may arise that could impact the impairment assessment and therefore these analyses should not be used as a sole predictor of impairment.
There were no indicators of impairment related to goodwill during the first
quarter end
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Other indefinite-lived intangible assets are each tested for impairment on an annual basis and whenever events or circumstances indicate that the carrying amount of such asset may not be recoverable. Pursuant to the Connect Transaction, we granted Advent a license to brand its products and services with the Nielsen name and other trademarks for 20 years following the closing of the Connect Transaction. There was an indefinite-lived trade name historically recognized within the Connect segment. However, as this indefinite-lived trade name will be retained by us as part of the Connect Transaction, the trade name is included within continuing operations. During the first quarter of 2021, we concluded that there was a triggering event for an interim impairment assessment as a result of the change in unit of account of the indefinite-lived intangibles as a result of the sale of Global Connect. The impairment test for other indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of trade names and trademarks are determined using a "relief from royalty" discounted cash flow valuation methodology. Significant assumptions inherent in this methodology include estimates of royalty rates and discount rates. Discount rate assumptions are based on an assessment of the risk inherent in the respective intangible assets. The discount rates we used in our evaluation was 10.1%. Assumptions about royalty rates are based on the rates at which comparable trade names and trademarks are being licensed in the marketplace. As a result of the interim assessment, we concluded that the estimated fair values exceeded their carrying values. As such there was no impairment. We will continue to closely evaluate and report on any indicators of future impairments.
Discontinued Operations
We consider assets to be held for sale when management, having the authority through shareholder approval, commits to a formal plan to actively market the assets for sale at a price reasonable in relation to fair value, the asset is available for immediate sale in its present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, the sale of the asset is expected to be completed within one year and it is unlikely that significant changes will be made to the plan. Upon designation as held for sale, we record the carrying value of the assets at the lower of its carrying value or its estimated fair value, less costs to sell. In accordance with GAAP, assets held for sale are not depreciated or amortized.
If the disposal of the component of an entity (or group of components) represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results, it meets the criteria for discontinued operations. The results of discontinued operations, as well as any gain or loss on the disposal transaction, are presented separately, net of tax, from the results of continuing operations for all periods presented. The expenses included in the results of discontinued operations are the direct operating expenses incurred by the discontinued segment that may be reasonably segregated from the costs of the ongoing operations of the Company. Certain corporate costs directly attributable to the discontinued operations and transaction costs directly related to the sale are also presented within net income/(loss) from discontinued operations, net of income taxes. The assets and liabilities have been accounted for as assets held for sale in our condensed consolidated balance sheets through the date of the sale. The operating results related to these lines of business have been included in discontinued operations in our condensed consolidated statements of operations. The condensed consolidated statement of cash flows presents combined cash flows from continuing operations with cash flows from discontinued operations within each cash flow statement category. See Note 15 - Discontinued Operations for further detail.
Factors Affecting Our Financial Results
Acquisitions and Investments in Affiliates
Acquisitions
For the three months ended
For the three months ended
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Foreign Currency
Our financial results are reported in
Three Months Ended
March 31,
2021 2020
U.S. Dollar 84 % 85 %
Euro 5 % 4 %
Other Currencies 11 % 11 %
Total 100 % 100 %
Fluctuations in the value of foreign currencies relative to the
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 financial measure, excludes the impact of year-over-year 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. This calculation may differ from similarly-titled measures used by others and, accordingly, the constant currency presentation is not meant to be a substitution for recorded amounts presented in conformity with GAAP nor should such amounts be considered in isolation.
Accounts Receivable
We extend non-interest bearing trade credit to our customers in the ordinary
course of business. To minimize credit risk, ongoing credit evaluations of
clients' financial condition are performed. Effective
The uncertainty regarding the length of impacts related to the COVID-19 pandemic and speed of recovery may impact our level of reserves in future periods. We continue to monitor assess the impacts related to our different clients and will base our reasonable forecasts on the latest information available.
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During the three months ended
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