Paramount Global

Good day, everyone, and welcome to the ViacomCBS first quarter 2020 earnings 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 first quarter 2020 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 earnings release, we have trending schedules containing supplemental information available on our website. Also on our website, we have a slide presentation for you 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 on our earnings release or on our website. Now I will turn the call over to Bob.

Good morning, and thank you for joining us. Before we begin, I want to acknowledge the extraordinary time we're in. Our thoughts are with all who are affected worldwide, and especially those who have lost loved ones. To the heroes on the front line of first response in healthcare, and to all the essential workers, we owe you a debt of thanks. I also want to thank ViacomCBS employees around the world for their adaptive creativity and continued focus on serving our audiences, commercial partners, and shareholders amid these unprecedented times. Let me now dive into our first quarter earnings call. Today, there are three headlines. First, ViacomCBS delivered a solid quarter, with clear operating momentum and sequential improvement on key financial metrics. Second, we're proactively managing through the COVID-19 crisis, supporting our employees and communities while strengthening our financial flexibility, reducing costs, and ensuring business continuity. And third, we remain consistently focused on value creation and are acting swiftly to execute against cost and revenue opportunities that will create both immediate and lasting benefits I'll start with Q1 2020, our first full quarter as a combined company. One where we made significant progress unlocking the value of our must watch content across multiple platforms, globally and at scale. We integrated our commercial teams to provide partners the strength of our combined asset base. We made progress capturing the run rate merger related cost synergies we committed to. And we saw strong momentum in streaming, momentum we will build on. Examples of our progress include key operating wins, among them the continued strength of our domestic media networks, which held the highest share of TV viewing in all key audience demos. This leadership starts with broadcast. CBS will finish the season as America's most-watched network for the 12th straight year. CBS was number one in all key day parts in the quarter, with five of the six top comedies the top two dramas, the number one news program, and the number one late night show, plus five of the top six freshman series. In sports, the 2019 season of the NFL on CBS delivered its largest audience in three years. We also maintained our leadership as the number one rated cable portfolio in total day, owning nearly half of the top 30 original series in the key 18 to 34 demographic, and nine of the top 10 kids series thanks to Nickelodeon. Of note, Comedy Central marked its 12th straight quarter of year-over-year share growth, driven by the number one late-night talk show with millennials. And Showtime scored the top two scripted shows on premium cable, including the number one comedy and the number one drama. Internationally, we continue to build on a global footprint that includes 192 million broadcast homes, the largest in the world. Our broadcast cornerstones, Network 10 in Australia and Telefe in Argentina, have each produced strong year-over-year share gains. This was also our strongest streaming quarter ever, a milestone that was on track even before the COVID-19 crisis, putting us well on our way to meet the subscriber and user targets we laid out last quarter. Pluto TV continues to lead the US in free streaming TV, As the platform delivered its best quarter ever, Pluto domestic monthly active users grew 55% year over year to more than 24 million as of quarter end, with even stronger gains in total consumption. On top of that, our domestic pay streaming offerings also grew robustly, with subscribers totaling 13.5 million at the end of the quarter, an increase of 50% year over year, driven by original HIT programming from CBS All Access and Showtime OTT. Both services broke their own records for signups, streams, and time watched in the quarter. Overall, this growth in both pay and free drove a strong increase in domestic streaming and digital revenue in the quarter, which was up more than 50% versus a year ago. And the appeal of our streaming and digital offerings has been made even more clear over the last six weeks. where we've seen a strong acceleration in momentum across both free and pay as audiences follow stay-at-home guidelines. We also demonstrated the strength of the ViacomCBS portfolio by striking new agreements with our partners in the quarter and in the week since. For example, CBS reached a deal with the NFL to broadcast one additional wildcard game in 2021 as part of the NFL's playoff expansion. with a live stream on CBS All Access and a separately produced telecast on Nickelodeon tailored for a younger audience. This is a perfect example of how our partners are using our combined asset base to grow the footprint and reach a diverse audience. We've also made important strides in domestic distribution, where we've struck significant carriage agreements. Earlier this year, we announced that Comcast would become the first MVPD to launch CBS All Access. I'm pleased to share that we actually began rolling out on their Xfinity platform today. And in March, we reached multi-year CBS renewals with two of our largest affiliates, Nexstar and Meredith. In April, we closed our first true combined company affiliate deal with Verizon. This despite the fact that Viacom and CBS deals were not coterminous going in. This agreement marks a truly comprehensive, multi-platform partnership spanning pay TV, connected TV, and mobile. And it will drive a tremendous expansion of Pluto's distribution footprint. And today, we're announcing a new deal with YouTube TV. This deal not only renews CBS and Showtime early, but will shortly bring Viacom's cable networks to the high-growth YouTube TV platform. To state the obvious, this fills in a key white space for our cable networks distribution and is a clear proof point for the Viacom-CBS combination. Meanwhile, in film, Paramount scored a bonafide hit with Sonic the Hedgehog. which means we have a new franchise to build on. Worldwide, the film earned more than $300 million at the box office and was made available for digital on demand March 31st, setting Paramount's record for first day digital sales and became the studio's all-time record holder in less than three weeks. The title has now sold nearly 2 million EFT units worldwide and is also exceeding expectations on VOD. These operational highlights and more drove key financial wins in the quarter. Chris will cover our results in detail in a moment, but I do want to highlight a few items. On the revenue side, excluding the impact of the Super Bowl and the cancellation of the NCAA tournament, advertising grew 2% year over year. Affiliate revenue also increased year over year. and we improved the rate of change in domestic cable networks affiliate revenue by 270 basis points sequentially. In addition, ViacomCBS delivered sequential improvement across all key earnings and cash flow related metrics, including operating income, adjusted EBITDA, reported and adjusted diluted earnings per share, and adjusted free cash flow, which is back to a material positive of almost half a billion dollars. Again, indicating the progress we made in our first full quarter and demonstrating our commitment to strengthening our financial position and creating shareholder value. Just as the quarter was ending, we were, of course, faced with the COVID-19 crisis. I want to spend a few minutes sharing with you how we are proactively managing through this. As COVID spread to the U.S., we quickly moved to ensure we had the financial flexibility and balance sheet strength to weather a sustained crisis. To that end, we issued $2.5 billion of bonds in April. Add in our strong cash flow in the quarter and our undrawn committed $3.5 billion revolver, and it means we are in excellent shape from a liquidity perspective. We have also taken a series of significant cost reduction measures to mitigate COVID-related revenue impacts for the year. At the same time, we ramped up our focus on business continuity, including significantly adjusting operations around the three most affected areas, production, ad sales, and film. Like most media companies, we have seen an almost total shutdown in production, but we are managing through employing alternate virtual models in some cases, and leveraging current and library product from across the company and others. Because of this, we continue to have captivating content on-air, and there will be substantial near-term cash flow savings. As we look to the balance of the year on the production side, we expect little impact to our on-air product, particularly given the stability of our schedules, assuming we can get back in production albeit with modifications, by mid-summer. In ad sales, we've seen advertisers in significantly affected categories temporarily pull back spend, but we are working closely with our clients to mitigate the impact. At this point, we know there will be a significant impact on ad sales in Q2, but based on what we're seeing today, we believe there will be an improvement in advertising in the third and fourth quarters assuming businesses begin to reopen at scale. In terms of the upfront, we expect it to be later and longer than normal, but we're ready whenever our clients are and deals will get done. In fact, this week we invited more than 5,000 agency and marketing executives to our virtual presentation on May 18th and 19th. Regarding film, we have shifted our slate later into 20 and 21 to preserve its value. We also sold The Lovebirds to Netflix, where we saw an attractive monetization opportunity in the early COVID environment. And while our film business will, of course, be dependent on theaters reopening in major markets, from a cash perspective, the delay in revenues is substantially offset by the COVID-driven production shutdown. Finally, I want to highlight the support we are providing for our employees, audiences, and communities amidst this pandemic. A key priority is the health and well-being of our employees and their families. In March, we moved the vast majority of our employee base to work from home, something that has worked incredibly well, with very limited exceptions for critical operations and facility staff who continue to work onsite under strict safety protocols. We've also committed $100 million for relief for non-staff employees and freelancers whose livelihoods have been especially affected by the pause in our production. And I'm proud of how ViacomCBS has come together to deploy our platforms for COVID-19 consumer education and relief from our enormously successful PSA campaigns like Hashtag Alone Together to the specials we've aired to help raise money for the cause. All of this to say, I'm enormously grateful to all our employees for their initiative, creativity, and courage at this time in adapting and thriving under the toughest of circumstances to ensure we can continue to entertain and inform audiences everywhere. It goes without saying that we are all looking forward to getting on the other side of this crisis, But through it all, we are focused on creating value by executing our strategy and looking to continued cost and revenue opportunities that will create both immediate and lasting benefit. This starts with what we see as an even larger cost opportunity for the company. In addition to one-time COVID-related cost reductions I mentioned earlier, we remain on track with our committed annualized run rate synergy target of $750 million over the next three years. In fact, we now see a greater opportunity to create sustained financial benefits on top of the $750 million, informed by how we've had to rethink our operations over the past six weeks. We have proven we can do more with less and can operate without being physically co-located. As a result, we are now exploring opportunities to further consolidate facilities, migrate more activities to lower cost locations, and increased sharing of capabilities, all to further leverage our scale. Beyond cost, we are unlocking revenue opportunities across the combined company. In distribution, we've only scratched the surface of what ViacomCBS can do on an integrated basis to unlock additional opportunities with both traditional and new distributors. On the advertising front, the combination of our number one linear position and our high-growth advanced ad solutions, all delivered through an efficient single point of customer contact, means we are extremely well positioned for the rebound associated with a return to business. Importantly, we overwhelmingly serve national advertisers, a segment that should rebound first. In sports, we will benefit from the enormous pent-up viewer demand, starting with the return of golf as the PGA Tour plans to resume its schedule in June. And at Paramount, we will be ready with a set of amazing films, including A Quiet Place Part II, SpongeBob Sponge on the Run, and Top Gun Maverick, that will be big hits once they're released. Finally, there's no question the crisis has proven the power of streaming, and we are moving quickly to seize this significant revenue opportunity. We know fundamental consumer needs around quality, convenience, and cost are driving changes in how they consume content. And we're focused on addressing all three needs. Building off our momentum in user, subscriber, and consumption growth across our platforms, we will capitalize on our positions across free and pay, adding substantial content assets and user experience enhancements supported by marketing to serve consumers with a robust, differentiated suite of linked streaming offerings. We will continue to build on Pluto TV's number one position in free streaming. Pluto TV is a great platform for consumers who want a free, high-quality TV experience, whether on a smart TV or a mobile device. In March, we rolled out Pluto's most significant product upgrade ever. delivering new features and design changes that further enhance the platform's ease of use. And with the continued addition of new content partners, it offers consumers a superior experience relative to the other free services in or entering the marketplace. And we are expanding Pluto's reach both in the U.S. and internationally, including through important deals with not only Verizon, but also with Xbox and Roku. Pluto now has a growing presence in the UK, Germany, Austria, and Switzerland, as well as in Latin America, where Pluto's April launch brought over 12,000 hours of content to 17 countries. And over the next 12 months, we expect to roll out Pluto in Brazil, Spain, France, and Italy. The Pluto TV platform is powerful, and the world is quickly embracing it. But you shouldn't just think of it as a standalone service. It is also key to our integrated streaming strategy, where it will serve as an important complement to and funnel for our pay services. In June, we will introduce click-through ad units on Pluto, embedded in relevant content to allow users to subscribe to CBS All Access. As time goes on, this integration will continue to evolve as we create an owned and operated streaming ecosystem with a massive free point of entry combined with upsell pay options. And speaking of pay, we are accelerating our plans for an expanded subscription service, building off our CBS All Access platform with major changes coming this summer as we track towards the rebrand and relaunch of a transformed product. We believe audiences want their entertainment on demand and their news, sports, and events live. And through our expanded offering, we will be the service that gives them what they want, how they want it, all in one place, and at a great value. This will be a compelling foundational service for some consumers, and a differentiated complement to what some other consumers already have. On the entertainment side, we start with what All Access has today. CBS network programming, a very deep CBS on-demand library, and an expanding slate of originals. Add to that content from Nickelodeon, Comedy Central, Smithsonian, MTV, BET, and Paramount. This starts with over 100 Paramount films launched this week on the platform, as well as thousands of additional hours across TV and film arriving in coming months. And we will build on this incredible base of content, a catalog multiple times larger than many of the new SVOD entrants, by expanding our original slate across the portfolio. This will bring first window content from each of our brands to this platform. Our biggest franchises will be key to this strategy, as will our broad programming strength across genres, from animation to sci-fi, comedy, reality, kids, crime procedurals, and more. Add to that national and local news from over 200 CBS affiliates. available both live and on demand, and a critical mass of live sports, including CBS Network-delivered NFL, NCAA, PGA, and more, plus exclusive streaming rights to major properties like women's soccer and UEFA. And we're doing all of this in a targeted, capital-efficient way. First, we are working from an already-developed tech platform in CBS All Access. We are not building from scratch. Second, almost every dollar we invest in linear content across the company will benefit the service with varying windows. Third, our original strategy is designed to leverage our massive library of IP, fueling growth through a consistent and growing cadence of tentpole series. Our experience makes clear that we can acquire new customers in a disciplined and economically efficient way while reducing churn and driving customer retention with a deep volume of entertainment, news, and sports. Fourth, our distribution strategy benefits from existing, growing relationships. Across our pay and free products, we already have distribution deals with the likes of Comcast, AT&T, and Verizon, as well as with Amazon, Roku, and other tech players. and we're in ongoing discussions with a broad range of partners to expand our streaming footprint in the coming months. And fifth and finally, we will leverage our ability to cross-promote at scale, where we will benefit from our number one TV share in every demo, as well as our strong digital reach, enabling ViacomCBS to promote to and draw customers into our offering in an impactful and cost-effective way. And going back to where I started, The promotional platform includes Pluto TV, a fast-growth, broad-reach gateway to the ViacomCBS streaming world. In addition to our domestic strategy, I should add that internationally, we will launch a broad pay streaming product in multiple markets over the next 12 months. This service will harness the full power of the ViacomCBS portfolio, creating a meaningful brand presence in streaming video in key markets around the world. So in sum, we are full speed ahead on streaming, seeing strong demand for our services today, with a strategy to achieve accelerated growth domestically and internationally in the months and years to come. For all those reasons and more, we're extremely excited about the future of ViacomCBS. We are unlocking the very substantial value of this extraordinary company, and the best is yet to come. With that, I'll turn it over to Chris.