Paramount Global

Good day, everyone, and welcome to the ViacomCBS conference call. Today's call is being recorded. At this time, I'd like to turn the call over to Executive Vice President of Investor Relations, Mr. Anthony DiClemente. Please go ahead, sir.

Good morning, everyone. Thank you for taking the time to join us for our fourth quarter and full year 2019 earnings call. Joining me for today's discussion are Bob Backish, our President and CEO, and Chris Spade, our CFO. Please note that in addition to our press release, We have training schedules containing supplemental information available on our website. We also have an accompanying slide presentation that you can use in order to follow along with our remarks. I want to refer you to the second slide in the presentation and remind you that certain statements made on this call are forward-looking statements that involve risks and uncertainties. These risks and uncertainties are discussed in more detail in our filings with the SEC. Today's remarks will focus on adjusted results. Reconciliations for non-GAAP financial information discussed on this call can be found in our earnings release or on our website. Now I will turn the call over to Bob.

Good morning, and thank you for joining us for the first ViacomCBS earnings call. It's been less than three months since we completed our merger, and I'm pleased to say we're making significant progress integrating and transforming ViacomCBS as we move quickly to unlock the full power of this now unified company. This includes organizationally, where we've built a best-in-class management team and consolidated structure. Operationally, as we've started executing as a combined entity in a meaningful way, including through Salesforce consolidation, more streamlined groupings of networks, as well as integration of digital assets and capabilities. And financially, where cost synergies are already being realized and our target is being increased significantly. from $500 million to $750 million in annualized run rate cost savings. Importantly, this progress is not reflected in Q4, which, given the timing of our close, is a transitional one and overwhelmingly reflects two separate companies executing on separate strategies. Chris will cover our Q4 and full year results in detail, but let me highlight a few things. First, there are, as you'd expect, a significant set of merger-related items that were a headwind for expenses and cash flow. Second, at the operating level, from a revenue perspective, certain lines reflect the impact of challenges that will be mitigated in the combined company. Affiliate is an example here, while others, such as ad sales, provide insights into the potential of the company to perform more strongly as we extend capabilities across the portfolio. Lastly, Our operating results reflect the impact of legacy content investment decisions at some business units. As I will explain in a few minutes, here we are evolving our strategy to significantly improve content ROI and free cash flow. I'd now like to discuss our strategic vision and priorities for ViacomCBS and what we're going to deliver in 2020, a year where we anticipate delivering revenue growth in the mid-single digits, adjusted EBITDA of $5.8 to $6.1 billion, and free cash flow, excluding integration costs to achieve, of $1.8 to $2 billion for 2020, with an additional $500 million in free cash flow benefit in 2021. Let's start at the top. ViacomCBS is one of the largest content producers and providers in the world, and that is an incredibly exciting and valuable place to be at a time when both consumer and commercial demand for premium content is only growing. We have an unrivaled ability to create value through the media ecosystem and to serve the largest addressable audience globally. We do this by operating our own platforms and by supplying others. Taken together, we believe ViacomCBS can be the most important content partner in the industry. Why? Because first and foremost, we have and make an incredible volume of content. Through our globe-spanning production capabilities, depth of IP ownership and talent relationships, and underpinned by our library of more than 140,000 television episodes and 3,600 film titles. All continually refreshed and grown by our over $13 billion annual cash content investment. In fact, we make content across every genre and format. including news, sports, and entertainment, both scripted and unscripted. And our television reach extends across 4.7 billion cumulative homes in over 180 countries. And we don't just make content. We make hits, as evidenced by our number one positions across broadcast and cable viewing in all key audience demographics. And our number two ranking in tubular social media video views in the media and entertainment categories. another clear indicator of the power and appeal of our IP. We also have the ability and flexibility to monetize all this content in a variety of models across both owned and third-party platforms, which we believe is a distinct and important competitive advantage. And by serving the largest addressable audience across every segment and platform, we're aggressively creating new opportunities to bring our brands and IP to more audiences expand franchises, and grow revenue streams. Now, let's talk more specifically about our three priorities for 2020. First, maximize the power of our content. Second, unlock more value from our biggest revenue lines. And third, accelerate our momentum in streaming. First, content. Our content strategy isn't about spending more. It's about better aligning the combined company's spending with growth potential. and maximizing the value of our content, IP, and franchises across our now larger asset base. That means putting the full power of the company behind our biggest priorities. This includes the massive promotional platform that we can exploit for our own benefit. Our leadership on and off linear TV, including the largest broadcast footprint in the world and more than 1.5 billion social fans and followers, provides an incredible opportunity to maximize the impact of our biggest priorities, from franchises to football, a platform we look forward to deploying, including in support of Super Bowl 55, taking place next February. But it's more than promotional impact. It also includes focusing on global cross-company franchise management to get the most out of our powerful IP across our brands and platforms. Take Star Trek as an example. a globally enduring franchise that we will make even bigger. On the heels of Picard on CBS All Access, which broke our records for total streams and subscriber sign-ups, we're now taking the Star Trek franchise and extending it across the house. Building on Discovery and Picard, we now have two additional series in production at All Access and Nickelodeon and two more series in development, plus a series of Picard novels being rolled out at Simon & Schuster and a highly anticipated new Star Trek feature at Paramount. Very importantly, we're also maximizing the power of our content by applying more rigor to managing our content mix, investment, and returns. In fact, we see this as a significant opportunity to improve some of the cash softness you saw in Q4 and full year 2019. In 2020, that means prioritizing content investment in streaming and studio productions. both of which are growth areas. At the same time, our linear TV content spend levels remain consistent with last year, and effectiveness will increase as we shift the mix within networks and increase cross-company utilization to improve ROI. To demonstrate this strategy at work, I'd like to focus on Showtime, a powerful and important brand with culture-defining hits, but a business that consumed significant working capital in 2019. Make no mistake, high-end scripted programming and hits like Billions, Shameless, and Homeland will continue to be a key pillar of the brand. But by shifting some of the content mix, including through new uses of ViacomCVS brands, we can attract subscribers in a more cost-effective way. Take VH1's RuPaul's Drag Race, for example. With a large and loyal following, we believe this franchise will be additive to Showtime's subscriber dynamic, which is why we will air a special new season of RuPaul's Drag Race All-Stars on Showtime on a first window basis. We're also confident this move will further include the already strong ROI of this franchise. And we see an even bigger opportunity to grow Showtime's subs by making better use of its Plex channels, some of which are currently underutilized. To that end, we will be rebranding and relaunching Showcase as Show BET this summer, featuring African-American scripted series from Showtime and BET, as well as popular movies and specials. We see this as a compelling value creation play that will allow us to benefit from the growing demand for premium African-American content across platforms. This brings me to our second strategic priority for 2020. unlocking more value from our biggest revenue lines. With the expanded ViacomCBS asset base, we see a significant opportunity to drive growth of our own platforms, benefiting affiliate and ad revenue. This larger asset base, combined with the licensing pullback of some of our competitors, also sets the stage for growth in our content licensing and studio production businesses. Take distribution. ViacomCBS, with leading broadcast and entertainment brands and strength in live, local news and sports, is a must-have for any distributor. And by working with partners to deepen and extend our relationships through advanced advertising, broadband products, and more, we can continue to grow share, a strategy that will drive growth in the face of macro trends within the industry. In fact, we've already seen the benefit of a combined portfolio of with the recent renewal of our carriage agreement with Comcast, which, by the way, brings CBS All Access to set-top boxes for the first time. And it's not just TV. With a diverse and growing theatrical slate from Paramount, we are critical to theaters and the broader film distribution ecosystem, too. Q4 may have been soft for Paramount, but it came after eight consecutive quarters of year-over-year improvements. And just look at the huge opening of our current film, Sonic, which did approximately $70 million last weekend in the U.S. and Canada alone and became the biggest opening ever for a video game adaptation. And we couldn't be more excited for Q2's upcoming and highly anticipated titles, including A Quiet Place Part II, Top Gun Maverick, and the next SpongeBob movie, Sponge on the Run. So ViacomCBS is a must-have partner for all types of distributors, no question. We're also a must-buy for advertisers. Our leadership in U.S. reach across linear and digital combined is clear. Our advanced advertising capabilities continue to scale. They are in high demand, and we're a key driver of our domestic cable network's ad growth in Q4 and 2019. Among other things, this sets us up for a strong upfront. especially as we apply Viacom's advanced ad business across CBS's massive audience reach, and as we continue to expand our premium digital video inventory, which is already amongst the largest in the industry. In content licensing, too, ViacomCBS is a critical partner. I mentioned before the extensive library of IP we now have, and importantly, with a single content licensing sales force now in place, we can extract incremental benefit through the packaging of film and television, tailoring offerings to better meet client needs, helping take share, while simultaneously being able to support our owned and operated platforms in both linear and streaming. In content licensing, we're also focused on continuing to unlock the value of our quickly scaling third-party studio production business. While there are some working capital headwinds in this business in 2020, This is a fundamentally profitable business that we expect to deliver $1.3 billion in revenue for the year with double-digit margins and virtually no risk. It also allows key franchises to reach more consumers and serves as a component of a multifaceted franchise development and growth strategy. And since most of this business is essentially a rental model versus a sale, it also enables us to grow our content and IP library for the long term in an economically efficient way, which means we're also building asset value. Put it all together and you'll begin to see why we believe ViacomCVS can become the most important content partner in the media ecosystem. Finally, our third strategic priority for 2020 is to accelerate our momentum in streaming. Let me explain how we're approaching the opportunities in the space. Very importantly, it starts with building on the unique and strong foundation we already have in streaming. In ad-supported, we have the leading free streaming TV service in Pluto TV, with over 22 million monthly active users in the US, up 75% year-over-year, and we expect to exit 2020 with approximately 30 million MAUs domestically. In pay, our subscription offerings account for more than 11 million domestic subscribers, up 50% year on year, and we expect this to grow to approximately 16 million subscribers as we exit 2020. The growth we've achieved so far is overwhelmingly in the U.S., but we're making early strides to expand internationally. Pluto is already in the U.K., Germany, Austria, and Switzerland. and it's launching in Latin America next month. On the pay side, all access is available in Canada and Australia, and our Paramount Plus and Naaman products are also live in numerous territories. But our streaming foundation is not just usage. It's also financial. In 2019, our domestic streaming and digital video business, which includes subscription revenue and digital video advertising, had approximately $1.6 billion in revenue. We see this as a key metric for ViacomCBS and anticipate it growing between 35% and 40% this year with relatively modest incremental operating expenses. Of course, the opportunity is much, much larger. And in pursuing that opportunity, ViacomCBS will take a differentiated approach that builds on our running start, plays to our strength, and fulfills unmet audience and partner needs. Our going forward approach to streaming is rooted in the belief that the streaming world will evolve similarly to the linear world. That means it will have free, broad pay, and premium pay segments. And just like in the linear world, we'll have streaming product for each. By having robust offerings in each segment, we will also have the ability to migrate consumers across them through promotion and bundling, which creates advantages in subscriber acquisition, retention, and lifetime value. Our free offering is Pluto TV, and our premium pay offering is Showtime OTT. To complete our portfolio, we will take CBS All Access and expand it to be a robust and compelling offering to serve the broad pay streaming segment. This offer will reaffirm and expand the value of entertainment, news, and sports content through on-demand and live experiences for audiences around the world. built on the foundation of CBS All Access, including the technology, content, and subscriber base, adding substantial content assets in film and television, plus the power of world-renowned brands to create, in effect, a combined house of brands product. More specifically, we will add significant content from Nickelodeon, Comedy Central, MTV, BET, and Smithsonian, in addition to popular films from the Paramount Library. And we will do this at scale. to the tune of approximately 30,000 episodes of TV and up to 1,000 movies. This differentiated offering will provide the powerful combination of live linear via over 200 local CBS stations, plus on-demand content spanning news, sports, films, drama, reality, kids, and more, with a global platform and infrastructure from which to market and scale it. Importantly, know that we have designed this offering to be compatible with the evolving distribution landscape. We see it as a value-creating opportunity to further broaden our partnerships with traditional distributors, akin to our recent Comcast relationship expansion to CBS All Access. And we also see it as a robust offering for distributors in the broader OTT space, including mobile. Obviously, we'll be sharing much more information in the month ahead, but we're already hard at work across tech, content, branding, marketing, and more to bring this evolved product to life. And we will soft launch the product later this year. As we execute on each of our priorities for 2020, maximizing the power of our content, unlocking new value from our biggest revenue lines, and accelerating our momentum in streaming, we are positioning ViacomCBS to deliver significant shareholder value. At the same time, We're making non-operating moves to unlock meaningful value. These include the divestiture of non-core assets, like the sale of BlackRock, which we are in the market with as we speak, in addition to other opportunities we're currently evaluating. The proceeds of these transactions will be used to deliver our balance sheet, IBAC stock, and further strengthen the financial position of the company. With that, I'll turn it over to Chris to report on our fourth quarter and full year results and to provide detailed 2020 guidance.