Paramount Global

Good morning. My name is Nadia and I'll be the conference operator today. At this time, I would like to welcome everyone to the Paramount Global's Q1 2023 earnings conference call. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. In order to get as many of your questions as possible, we ask that you please limit yourselves to one question. At this time, I would now like to turn the call over to Kristen Southey, Paramount Global's EVP Investor Relations. Kristen, you may now begin your conference call.

Good morning, everyone. Thank you for taking the time to join us for our first quarter 2023 earnings call. Joining me for today's discussion are Bob Backish, our President and CEO, and Naveen Chopra, our CFO. Please note that in addition to our earnings release, we have trending schedules containing supplemental information available on our website. Before we start this morning, I want to 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. Some of today's financial remarks will focus on adjusted results. Reconciliations of these non-GAAP financial measures can be found in our earnings release or in our trending schedules, which contain supplemental information and in each case can be found in the investor relations section of our website. Now I will turn the call over to Bob.

Good morning, everyone. Thank you for joining us. Today, my remarks will cover Q1 highlights as well as some perspective on the balance of the year. But let me start with the big picture. The media landscape is evolving, and we are executing on our plan to transform Paramount with it. We're leveraging our traditional media base, both financially and operationally, to invest in, build, and scale a set of streaming networks for the 21st century. We're the robust content engine at the core, all in service of delivering long-term value to our shareholders. We're also navigating a challenging and uncertain macroeconomic environment, and you see the impact of that in our financials, as the combination of peak streaming investment intersects with cyclical ad softness. All of this makes us even more focused on making the necessary decisions to return the company to earnings growth and positive free cash flow in 2024. And to that end, we continue to hone our cost structure, align resources with growth areas, and divest non-core assets. Because at the fundamental level, our strategy is working and our momentum is strong. We are producing popular content, adding subscribers, increasing engagement, growing streaming revenues, and progressing towards key business objectives. As we do that, we see several things that encourage us. First, we are seeing signs of stabilization in the ad market. But perhaps more importantly, we're seeing the unquestionable and growing value of our content and platforms to both the consumer and business community as exemplified by growing usage as well as a broadening range of deals and partnerships. Paramount is transforming. We are confident in the company's execution, and shareholder value creation remains our top priority. With that, let's dive in. I'll begin with a look at our popular content, the foundation of Paramount, and the engine that's powered our company for decades. And today, that engine is stronger than ever. It's this content that underpins our D2C momentum, where revenue grew 39% year over year to an annual run rate of more than $6 billion. And this quarter, we reached two big global milestones for our flagship streaming services. Paramount Plus grew to 60 million total subscribers, adding 4.1 million subs, while Pluto TV hit 80 million monthly active users. Importantly, both are resonating globally, not just in the US. Paramount Plus saw a 65% year-over-year revenue increase, while total global viewing hours across Paramount Plus and Pluto TV increased over 50% year-over-year and over 20% sequentially. And viewers don't just subscribe to Paramount Plus or watch Pluto TV because of a single hit. They come for our broad, bold slate of content, the film franchises they crave, the news they rely on, and the TV series and sporting events they're obsessed with. In the quarter, we saw Paramount Plus subscriber growth driven by newly released originals like Tulsa King, Mayor of Kingstown, 1923, and Teen Wolf the Movie, as well as from theatrical movies like Top Gun Maverick, and sports like the NCAA and UEFA Champions League Soccer. And on Pluto, we see the engagement of our broad and deep libraries, led by the CBS brand, as well as great content we source from third parties. In Q1, the Paramount Plus with Showtime Bundle also benefited from strong Showtime content, including Your Honor and Yellow Jackets. Not only were they both top acquisition drivers in the quarter, the two shows also dominated consumption, driving nearly 30% of the hours streamed on Showtime. This thanks to their devoted, enthusiastic fan bases. We see this as an extremely good sign as Paramount Plus is about to transition to Paramount Plus with Showtime. Looking at the quarter more broadly, CBS programming strongly attracts viewers across linear and streaming. To illustrate the power of CBS, I'd note that CBS programming accounted for 281 billion minutes of viewing in the quarter. That's nearly 50% more than the closest broadcast competitor and nearly four times more than the combined total minutes spent watching original content on Amazon, Hulu, Disney+, and HBO Max. a testament to the power and scale of CBS content. I'd also note that CBS, with its powerful entertainment lineup, essential news offerings, and marquee sports, is on track to be the most-watched broadcast network for the 15th consecutive season. And in film, Paramount Pictures released the latest installment of the Scream franchise, Scream 6. which opened at number one in March and is now the highest grossing installment domestically in the franchise. This, to us, is yet another example of the power of our franchises and how that power keeps growing. And it's not just a theatrical story. It extends to streaming too, with Scream 6 debuting on Paramount Plus on April 25th to great results. More on its performance next quarter. Big picture, our franchises deliver consistently excellent content and drive high fan base engagement, advantages that you will see play out again and again as we look ahead. But it's not just content. It's how do we go to market and deploy that content, including in streaming. Since launch, our streaming strategy has been built on a dual revenue stream model, one that spans both subscription and advertising, and benefits from strong, innovative partnerships with iconic brands. To that end, we are very happy with our Walmart partnership, and we're thrilled it now includes Pluto TV. And in March, Paramount Plus launched on the subscription hub for Verizon Plus Play customers. This partnership is another step forward as we continue to introduce third-party partnerships to deliver ubiquitous distribution to consumers. And coming soon, Delta loyalty members on planes originating in the U.S. will have access to a special free trial of the Paramount Plus premium service. Members will have the opportunity to customize their in-flight entertainment experience via Paramount Plus on their personal mobile device with big, broad, and beloved hits across every genre. These powerful partnerships represent just one component of a multifaceted strategy. a strategy that has led to a streaming business with total revenue that's more than double what it was two years ago, and a subscriber base on Paramount Plus alone that has grown over three and a half times since launch. This business is, in fact, scaling at a rapid rate and one that benefits from a TAM that is much bigger than TV. Yes, this takes investment, and as we've described, 2023 represents our peak investment year. but there is no question that our investment is producing results, and as we scale, we are very much on a related path to streaming profitability. Advertising, the health of the market, and where we are in the cycle is a topic of industry conversation. As I mentioned earlier, there are signs of stabilization in the ad market. We like what we are seeing in many categories, and we like what we are seeing in the direct side of digital. And as the market continues to turn, ad growth will improve. As it does, we are confident that the strength of our multi-platform strategy puts us in a unique position to capitalize on it, something my recent conversations with agency and client leaders during our series of upfront events has me more convinced of than ever. We have the right strategy, assets, and team in place to succeed in the evolving landscape. For example, IQ, our integrated suite of streaming and creative ad solutions, helps brands place ads across all of our digital platforms with a combined reach of 90 million full-episode monthly unique viewers. This proprietary advertising product is built on our investments in Pluto and Paramount+, and it is a product whose reach has grown more than 50% in two years, whose ad tech and targeting capabilities are advancing at a rapid pace. That is only one example. And across our company, there's no question that our investments are creating compelling, sought-after products for consumers, advertisers, and distributors. But at the same time, we recognize how these investments, on top of the macroeconomic headwinds that have impacted the ad market, also impact earnings and our balance sheet in the short term. So, with creating shareholder value and financial flexibility as fundamental goals, we're deploying three key tactics, all of which Naveen will provide additional color on. First, we are implementing significant cost-saving measures across certain parts of our business. Second, we're assessing and executing on the value creation opportunities associated with the divestiture of non-core assets, like with respect to Simon & Schuster, where we have restarted the sale process. Finally, we are amending our dividend policy, This decision will further enhance our ability to deliver long-term value for our shareholders as we move towards streaming profitability. As we look ahead, we're producing popular content across genres and platforms. And while the writer's strike may cause some disruption, we are confident in our ability to manage through it given the many levers we have to pull. We will continue to deploy content across platforms in an efficient way. from theatrical movies that create revenue at the box office then move to Paramount+, to CBS Entertainment news and sports content, which drives massive reach and engagement in broadcast and in streaming, and more. This multi-platform approach starts with our strong upcoming theatrical film slate, including four franchises in just the next four months. The highly anticipated Transformers Rise of the Beast in June, the return of Tom Cruise in July in Mission Impossible Dead Reckoning Part 1, Seth Rogen's Teenage Mutant Ninja Turtles Mutant Mayhem in August, and Paw Patrol the Mighty Movie in September, all of which have incredible buzz, including coming out of last week's CinemaCon in Vegas. Paramount Plus is increasingly a destination for excellent streaming content. Sure, the films I just mentioned will make their way to Paramount Plus after a theatrical run, but there is much more than that to it. Fatal Attraction just debuted on the platform, and we're excited to release Taylor Sheridan's next show, Special Ops Lioness, starring Zoe Saldana with Morgan Freeman and Nicole Kidman in the summer. We will also shortly see the unscripted side of Sylvester Stallone in The Family Stallone. And in sports, the combination of CBS and Paramount Plus has a strong slate coming. including the UEFA Champions League Final and all of the PGA Tour's FedEx Playoff Cup events, followed by Big Ten football later in the year, accompanying the return of the NFL and SEC. Likewise, news will power engagement, both on CBS and Paramount+, including favorites like CBS Mornings, which has been consistently growing share. And from Nickelodeon Studios, we'll have all-new series and movies based on classic Knick properties. including Good Burger 2, Zoey 102, The Thundermans, and The Loud House, coming to Paramount Plus and Nickelodeon Linear. Finally, we are thrilled to begin to bring the integrated Paramount Plus with Showtime product to market this summer, a game-changing, multi-platform offering we are very excited about. This product will integrate Paramount Plus content with the Showtime slate, including highly successful series like The Chi, which will be returning for season six this summer, along with a collection of Showtime franchises as we look to the balance of the year and early 24. So once again, there's a lot here for the whole household, and that will drive subs and engagement as Paramount Plus rapidly becomes a cornerstone streaming service. Before I hand it off to Naveen, I want to close by underscoring what remains our top priority, generating long-term shareholder value. From our franchise-fueled content slate to our innovative partnerships to the powerful scale of our platforms, this is a company that knows its strengths, knows how to build on them, and one that is positioned to succeed, including as the macro environment continues to stabilize, which makes us excited about the path ahead. And with that, I'll hand it over to Naveen.