Paramount Global

Good day, everyone, and welcome to the ViacomCBS second 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 second 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. We also 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 in our earnings release or on our website. With that, I will turn the call over to Bob.

Good morning, everyone, and thank you for joining us today. I'm pleased to report that ViacomCBS' second quarter delivered a continuation of, and in many respects an acceleration of, the three key themes we outlined on our Q1 call. First, despite headwinds from COVID-19, ViacomCBS delivered another solid quarter with sequential improvement in key earnings and cash flow metrics and clear operational momentum. Second, we continue to proactively manage through the pandemic, taking significant steps to strengthen our business, preserve the value of our assets, increase our financial flexibility, and further reduce costs. And third, we continue to focus on and deliver on value creation. unlocking the power of ViacomCBS, and specifically our synergistic combination of studios, networks, and streaming. In the quarter, we continued to integrate the company and increased our projections for cost savings, both in-year and overall. We made significant progress in distribution, and we rapidly accelerated our streaming business. Here, we achieved record users and revenue in free and pay, all while simultaneously making material progress towards the relaunch of our diversified super service. So there's a lot to talk about. Let me start with an overview of the financials and some key operating highlights from the quarter. Financially, ViacomCBS posted the combined company's second consecutive quarter of sequential improvement in operating income, adjusted OIBDA, adjusted diluted earnings per share, and adjusted free cash flow. This on both an absolute dollar and rate of change basis. While advertising revenue declined 27% in the quarter, overwhelmingly due to COVID, we continue to expect Q2 to be the bottom in terms of year-over-year decline. To that end, we've seen sequential improvement month-over-month since April. June was strong, and we're encouraged by what we're seeing so far in Q3. We believe this reflects not only economic optimism for a gradual recovery, but also the power of our portfolio and the significant value we bring to advertisers. Affiliate revenue grew 2% in the quarter, with growth in pricing, retrans, reverse comp, and streaming revenues more than offsetting pay TV subscriber declines. We anticipate this momentum to continue in the second half of the year. In addition, We increased domestic streaming and digital video revenue, which includes streaming subscription and digital video advertising revenue, by 25%, reflecting record user growth in our streaming products, including 52% growth in subscription revenue. Moving to earnings. Cost-cutting initiatives and proactive task management helped offset COVID and timing-related revenue impacts. Here, the company reported 8% adjusted orbiter growth in the quarter, and generated $892 million of adjusted free cash flow, bringing year-to-date adjusted free cash flow to nearly $1.4 billion, up 19% year on year. Keep in mind that the second quarter free cash flow includes a significant working capital benefit from COVID-related programming shifts and production delays. As film and TV production builds in the second half, we do anticipate some reversal of the working capital benefit. Operationally, the enduring strength of our brands and IP is enabling us to successfully navigate this landscape. During the quarter, our domestic media networks held the highest share of TV viewing in all key audience demos. In broadcast, CBS finished the season as America's most watched network for the 12th straight year. CBS was number one in all key day parts for the third season, with the most watched drama and most watched news program in prime, the top five comedies, and the number one late night show, plus seven of the top eight new series. We also maintained our leadership as the number one cable portfolio and share of TV viewing across all key demos, with more top 30 cable networks than any other media family. Nickelodeon was number one with kids two to 11 for the 20th consecutive quarter, and owned all of the top ten original series. MTV had its best second quarter ratings performance in two years, and Comedy Central marked its 13th straight quarter of year-over-year share growth. And Showtime had the top show on premium cable for two consecutive quarters, and the top three premium scripted series so far this year. Internationally, we continue to build on a global footprint that includes 190 million broadcast homes, the biggest in the world, and 2.7 billion cumulative TV homes. Our international linear share of viewing across countries increased 11% year over year. And I'm very proud to announce that for the first time in June, Tubular Labs ranked ViacomCBS the number one media entertainment company in social. Not only does this reinforce our popularity and the relevance of our brands and IP in the digital space, but our huge social platform is also an important marketing tool, particularly as we gear up for the relaunch of our streaming super service. And speaking of streaming, we have continued our momentum in user, subscriber, and consumption growth across our streaming platforms as we increasingly lean into this opportunity. In free, Pluto TV's domestic MAUs grew 61% to 26.5 million, and we remain confident that Pluto will achieve its 30 million domestic MAU target by year-end. And Pluto TV is also ramping up outside the U.S., something I'll come back to shortly. And in pay, we ended the quarter with 16.2 million subscribers, up 74% year-on-year, reaching our year-end goal six months ahead of planned. Here, CBS All Access had a great quarter, and you'll hear more about where that product is going in a minute, and Showtime OTT had its best quarter ever in subscriber growth. And in the last six months alone, Showtime OTT has grown more than the previous two and a half years combined. As we rapidly grow and evolve our streaming business, we're now increasing our domestic pay streaming subscriber guidance to 18 million by year end. This growth in addition to the revenue growth I mentioned earlier, supports our conviction in the growth potential of our streaming offering, and we're just getting started. The combined strength of our networks and streaming offerings also enabled us to make important strides in domestic distribution, where we struck significant carriage agreements. In April, we signed a truly comprehensive, multi-platform partnership with Verizon, spanning pay TV, connected TV, and mobile. One particularly exciting component of this deal is the significant expansion of Pluto TV footprint that it enables, one which is rolling out on Verizon Wireless as we speak. Then in May, we announced a new deal with YouTube TV. This deal renewed CBS and Showtime early and importantly brought Viacom's cable networks to the fast-growing service. Viacom's brands went live on YouTube in late June and we're thrilled to now provide MTV, Nickelodeon, Comedy Central, BET, and more to its customers. More recently, in July, we announced a multi-year renewal with Dish and Sling TV. This was our third cross-company renewal, further demonstrating the power of our brands and content. And we continue to benefit from strong reverse comp, recently signing agreements with Sinclair and Cox, in addition to Nextar and Meredith earlier in the year. This deal-making and more is reflective of the fact that ViacomCBS is a cornerstone content provider to a broad range of distributors. The combination here is powerful, and I'm happy to say we expect sequential improvement in year-over-year growth rates for domestic cable networks and total company affiliate revenue in Q3 and Q4. Now, Turning from performance in the quarter to the second theme, how we've been managing through COVID. Here, there are a couple points worth mentioning. First, we continue to fortify our balance sheet, enabling us to navigate the pandemic from a position of continued financial strength. During the quarter, we issued two debt transactions totaling $4.5 billion and used the proceeds to pay down $2.8 billion of upcoming maturities including a $340 million redemption that's settled in July. As a result, we don't have any maturities due until 2022. And we also have access to a committed and undrawn $3.5 billion revolver. Simultaneously, we have taken action to preserve and maximize the value of our assets, particularly in the film space. This starts with moving marquee film releases to 2021, when we believe the theatrical market will be stronger. In addition, we decided to take the SpongeBob movie, Sponge on the Run, and deploy this asset as part of our rebrand and relaunch of CBS All Access early in 2021, when it will also have a short PVOD window leading into it. Paramount continues to be an incredible asset for the company. And while there weren't any new titles released in the quarter, We were able to capitalize on the strength and breadth of the studio's massive library of product, as well as from our recently established joint venture with Miramax. And we remain excited about our film slate and look forward to opening fantastic films as the market stabilizes. Broadly speaking, everyone knows that COVID has presented material production challenges. But despite that, through alternate models, ViacomCBS continues to present consumers with fresh content in news, late night, and selected unscripted areas. And in the quarter, we also resumed sports production with PGA Golf on CBS. It goes without saying that there is tremendous pent-up demand for live sports. Ratings for the Charles Schwab Challenge, the Traveler's Championship, and the Rocket Mortgage Classic have all been very strong. In fact, since returning to live golf, CBS Sports' overall viewership is up 25% from comparable events last year. And building on that, we're excited to have Bellator and Showtime Boxing back on air, along with UEFA Soccer premiering on CBS and CBS All Access this week. And we look forward to the return of football in the fall, including last week's announcement that the SEC has confirmed its in-conference game schedule and we continue to be optimistic about the NFL, too, given all the work they're doing. With respect to entertainment product, we have already started to resume production activity, albeit on a smaller scale. Our priority is to restart our production safely and in compliance with local health and safety standards. There are, of course, a lot of moving parts to manage with returning to production. and we've been collaborating with our industry partners on industry-wide recommendations. We're using a phased approach based on geography, show format, in-studio versus location-based productions, along with other considerations. But against this backdrop, things are ramping up. As examples, Tyler Perry just wrapped production on the new season of SISPAS for BET. We're in production and close to completing Yellowstone in Utah and are about to start filming season four in Wyoming. And we recently started shooting a live action show for Nickelodeon in Canada. Add to that, we have a series of unscripted productions underway, including Big Brother, which debuted this week, and we're excited about Love Island, which will be broadcasting seven days a week once it debuts in late summer. Looking forward, we have a pipeline of productions moving towards starting, and we're optimistic that volume will grow, ensuring we have fresh product on air in the fall. And third, through it all, we continue to be focused on value creation. Value creation starts with delivering on the material cost savings opportunity associated with the integration of Viacom and CBS. Here, we continue to make quick progress. In fact, we are increasing our expected 2020 merger related cost synergies from $250 million to $300 million. And we expect to achieve annualized run rate cost synergies of $800 million up from our prior $750 million by the end of 2022. And of course, we continue to look for additional opportunity. including based on how we've had to rethink our operations since March. While it's premature to put a number on this, the experience sets the stage for further transformation and cost savings. But the combination of ViacomCBS is not only about value creation through cost savings. It's even more about value creation through revenue generation. I already spoke about the very material progress we've made on the distribution side. and how that will lead to further sequential improvement in affiliate revenue this year. Here, the merger thesis is clearly coming to life. Streaming is another area where the power of the ViacomCBS combination is beginning to come to life. And this is critical, since streaming is probably the most material value creation opportunity in media today. Building off our momentum in user, subscriber, and consumption growth across our streaming platforms, we will capitalize on our positions across free and pay. This includes adding substantial content assets and user experience enhancements, broadening distribution, and leaning into marketing to serve consumers with a robust, differentiated suite of linked streaming offerings. In short, by providing consumers with the broadest video experience spanning news, sports, entertainment, local and live across free and pay, we will be a global leader in freemium streaming. Let me unpack that a bit. In free, we continue to build on Pluto TV's position as the number one free streaming TV service in the United States. During the quarter, Pluto saw strong growth and numerous product enhancements. This starts with content, where we continue to add more and more high-quality IP to our market-leading service. In fact, Pluto now has over 100,000 hours of compelling content available on it. As part of that, we debuted nightly South Park airings on Comedy Central Pluto TV, we launched Next Generation channels, and we plan to debut more than 40 other CBS shows, including Survivor, Amazing Race, JAG, America's Top Model, MacGyver, and more. And of course, we continue to add a broad range of compelling third-party content in both entertainment and sports, including renewals with the NFL and Major League Soccer. We also ramped up Pluto TV's distribution across multiple devices and services. I mentioned Verizon's first-of-its-kind deal earlier, but we also had major distribution expansions with TiVo and LG, which, on a combined basis, will shortly bring the Pluto TV service to well over 80 million new devices, setting the stage for the next leg of material growth. And this growth is not just about Pluto. It will also benefit our pay streaming strategy as we progressively build a linked ecosystem of free and pay DTTC services that will fulfill fundamental consumer needs around quality, convenience, and cost Here, Pluto will serve as an important complement to and funnel for our pay services. In pay, we've progressed materially in the past few months, including being firmly on track with our CBS All Access transformation. On our last call, I said we'd preview a transformed service this summer. Last week, we did just that, adding the company's flagship brand, Nickelodeon, BET, Comedy Central, MTV, Smithsonian, and 3,500 episodes from their libraries, bringing CBS's all-accesses offering to more than 20,000 episodes. This, in addition to the 150-plus Paramount movies we added roughly two months ago. Apart from its vast library, the new service will continue to have compelling live offerings spanning CBS local affiliates, tentpole events, and a critical mass of live sports, from golf to football to basketball, plus exclusive streaming rights for major sports properties, including some of the world's biggest and most popular soccer leagues, adding a massive volume of compelling live sports content at just the right time. And as we get into 2021, expect to see a significant expansion of first-run originals, including originals from all the brands. This will be a truly differentiated streaming product, and we are very excited about the opportunity. And I want to reiterate that we're doing all this in a targeted, capital-efficient way. We already have developed and scaled technology in the form of CBS All Access. We have a robust slate of exclusive originals from which we continue to build. Almost every dollar we invest in linear content across the company will benefit the service with varying windows. We have established distribution points across all major platforms and high user engagement. And we're not starting from zero. Existing customers will benefit from the expanded library, service enhancements, and product development further reducing churn and driving greater value. Outside the U.S., we also see a tremendous runway for growth in both free and pay streaming. And we're moving quickly. Pluto entered selected markets in Europe last year, and in April entered into 17 Spanish-speaking Latin American markets. In fact, on a global basis, Pluto TV now has 33 million MAUs. Looking ahead, our goal is to expand our channel lineup in Latin America to reach more than 70 channels by the end of the year and to continue expanding our content offering in Germany, Switzerland, Austria, and the U.K. We'll also add more distribution platforms to accelerate the expansion, and our geographic expansion will continue, with plans underway to launch new local versions of Pluto TV in a number of additional priority markets. including Brazil and Spain this year, and France and Italy in 2021. Importantly, these are all markets where ViacomCBS has strong local operations, including a large pipeline of local language content in place and ready to go. The Pluto TV platform is powerful, and the world is quickly embracing it. And in pay terms, We're targeting early 21 for the launch of our international streaming service, a supersized offering of truly compelling content with first-run originals and library from all ViacomCBS brands, including Showtime. We will focus next year's initial rollout on a set of high-value territories where we see an opportunity to become a market leader. These territories include Australia, Latin America, and the Nordics. Our streaming strategy is working and it's really just getting going. And as you can see, it's about value creation on a global scale for the short and long term. And I look forward to updating you as we pass key milestones in the coming quarters. Now, before I turn it over, I want to thank Chris for her relentless hard work and dedication to CBS and now ViacomCBS. Over the past 23 years, She's been a critical financial operator. And over the past year, she's played an integral role in helping combine and integrate ViacomCBS. On a personal level, I'm so grateful for her dedication, contributions, and I really look forward to watching her future endeavors. From all of management and from the ViacomCBS board, thank you, Chris. With that, I'll hand it over to provide additional financial detail on the quarter.