Walt Disney Company (The)

Good day and welcome to the Walt Disney Company's first quarter 2024 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Alexia Kojani, Executive Vice President, Investor Relations. Please go ahead.

Good afternoon. It's my pleasure to welcome everybody to the Walt Disney Company's first quarter 2024 earnings call. Our press release was issued about 25 minutes ago and is available on our website, at www.disney.com forward slash investors. Today's call is being webcast and a replay and transcript as well as the first quarter earnings presentation will all be made available on our website after the call. Joining me for today's call are Bob Iger, Disney's Chief Executive Officer, and Hugh Johnston, Senior Executive Vice President and Chief Financial Officer. Following comments from Bob and Hugh, we'll be happy to take some of your questions. So with that, let me turn the call over to Bob to get started.

Thanks, Alexia, and good afternoon, everyone. Just one year ago, we outlined an ambitious plan to return to a period of sustained growth and shareholder value creation. And our strong performance this past quarter demonstrates we have turned the corner and entered a new era. As previously noted, we're focused on transitioning ESPN into the preeminent digital sports platform building streaming into a profitable growth business, reinvigorating our film studios, and turbocharging growth in our parks and experiences. Before we dive deeper into our results, let me start by making a number of significant announcements that represent important and exciting steps forward. First, we announced yesterday the full suite of ESPN's channels will now be available direct to consumer as part of a new joint venture with Fox and Warner Brothers Discovery to create a new streaming sports service launching this fall. This brings together content from all of these companies' combined assets, including all the major professional sports leagues and college sports. And in the fall of 2025, we'll be offering ESPN as a standalone streaming option with innovative digital features, creating a one-stop sports destination unlike anything available in the marketplace today. ESPN is also adding a sports icon to its lineup, with coach Nick Saban joining the network as an on-air commentator later this year. We're excited to share that in November, we will release a feature-length animated sequel to Moana, which joins a very robust lineup of upcoming theatrical releases. We're also thrilled to share that we're entering into an exciting relationship with Epic Games acquiring a small equity stake, and launching a groundbreaking new games and entertainment universe that brings together Disney's beloved brands and franchises with a hugely popular Fortnite. And I'm pleased to share that Disney's board has declared an additional dividend and will be embarking on a $3 billion stock buyback program in fiscal 24. Oh, and one more thing. Next month, Disney Plus will become the exclusive streaming home of Taylor Swift's historic concert film, Taylor Swift, The Era's Tour, Taylor's version. I'll be sharing more with you about these announcements momentarily, but what's clear is that the important transformation we undertook last year is bearing fruit. And looking at our results this quarter, we can say with confidence our strategy is working. In Q1, segment operating income increased by 27%, and adjusted earnings per share rose 23% compared to prior year. We've improved our entertainment streaming operating income by a remarkable 86% year over year, and remain poised to reach profitability in our combined streaming business by the end of fiscal 24, and build on our momentum to deliver significant sustained profit margins in the future. Disney's Experiences business generated all time records in revenue, operating income, and operating margin. And we are on track to meet or exceed $7.5 billion in cost savings as we continue to look for further efficiency opportunities across the company. Diving deeper into our announcements, let's first talk about ESPN, which continues to deliver meaningfully for the company and will be a key value driver in the future. ESPN's domestic sports business continues to grow, and even amid a challenging linear landscape, ESPN increased its overall audience in calendar year 2023, and it continues to break records in ratings. Ultimately, our mission is to make ESPN into the preeminent digital sports brand, reaching as many sports fans as possible and giving them even more ways to access the programming they love in whatever way best suits their needs. One way will be through the new streaming sports service coming this fall that we announced yesterday in conjunction with Fox and Warner Brothers Discovery. This service will bring together our collective portfolios of sports channels and direct-to-consumer services on a non-exclusive basis, providing consumers with more of the sports they want in a single place. It's important for us to serve the needs of consumers looking for a seamless way access an aggregated collection of sports centric content including capturing fans moving away from the full cable and satellite bundle and it's an attractive business proposition for ESPN allowing us to command per unit economics in line with established market rates for our sports content just like we do with any streaming or linear service where we offer our programming Another exciting option available to sports fans will come in the fall of 2025 when we make the full suite of ESPN's channels available as a standalone and highly interactive digital destination. Not only will consumers be able to stream their favorite live games and studio programming, they'll also have access to engaging digital integrations like ESPN Bet and Fantasy Sports, e-commerce features, and a deep array of sports stats all of which we know will be incredibly compelling to younger sports fans in particular. It will also have very robust personalization features. ESPN has long prioritized its desire and ability to serve sports fans wherever they are, and these steps will strengthen ESPN's ability to deliver on that promise. And as you know, we've also engaged in productive conversations with potential content and marketing partners for ESPN. We've made progress towards securing deals, and we expect to have more to share with you in the near future. We're excited to offer a more unified streaming experience, which we expect will deliver strong benefits in terms of higher engagement, lower churn, and greater advertising potential. When we launch our standalone ESPN service, we'll also make it available on Disney Plus for bundle subscribers, just as we've done for Hulu. We've already seen an incredible response to the beta launch of Hulu on Disney+, which has far exceeded every metric, and we are looking forward to the full launch next month. This is all part of the ambitious streaming strategy we've been building, from our acquisition of 21st Century Fox that expanded our vast content library and strong pool of creative talent, to the launch of Disney+, as the home to a century of content, to securing full control of Hulu, and expanding our streaming offerings to reach greater audiences, to our significant investments in technology, and now taking significant steps toward ESPN's streaming future. Disney also has a great advertising story to tell, with unparalleled scale and very strong advertising technology, and our ad-supported Disney Plus offering is off to a great start. We successfully expanded outside the US, with launches in EMEA and Canada, and grew to over 1,000 global advertisers in the first quarter. That's a tenfold increase from launch. More than anything, the success of our streaming services is a testament to the amazing content we create. With six of the top ten most streamed movies across all streaming platforms in the U.S. in 2023, our best-in-class storytelling continues to entertain millions of people. We received 27 Golden Globe nominations and won top prizes for FX's The Bear and Searchlight's Poor Things. At this year's Primetime Emmy Awards, we took home 37 wins, more than any other entertainment company, and we lead the industry with 20 nominations heading into the Oscars, which will air on March 10th on ABC. We're also proud of our recent Disney-branded programming successes. Percy Jackson and the Olympians, which premiered on both Disney Plus and Hulu in December, has become a bona fide hit. Books from the series return to the number one slot on the New York Times bestseller list following the debut of the Disney Plus series. And I'm thrilled to share that we just picked up a second season. And the hit children's animated series, Bluey, which is exclusive to the Disney Channel and Disney Plus in the United States, was recently the number one most streamed show across any streaming platform. Looking ahead, we have an exciting slate of originals coming to Disney+, including Agatha from Marvel Studios, Skeleton Crew and the Acolyte from Lucasfilm, Win or Lose from Pixar, and much more. Additionally, later this month, Hulu will launch FX's highly anticipated saga Shogun in the U.S., And in March, all seasons of Grey's Anatomy, our number one stream titled Globally, will join our extensive library of titles on Hulu. When the show returns next month for its 20th season, Hulu will be the only place to see the current and all previous seasons of this truly iconic series. And speaking of icons, over the past year, we've all witnessed the creative genius and sheer power of a true cultural phenomenon, Taylor Swift. When her blockbuster concert film debuts on Disney Plus on March 15th, it will feature the concert in its entirety, including the song Cardigan and four additional acoustic songs, which were not in the theatrical or digital purchase release of the film. We know audiences are going to absolutely love the chance to relive the electrifying Taylor Swift Heirs Tour, Taylor's version, whenever they want on Disney+. Turning to our film studios, we have an incredibly robust slate of new releases as we continue revitalizing our creativity. Just consider the lineup of titles we will release through the end of 2026. This year, we have Kingdom of the Planet of the Apes, Inside Out 2, Deadpool 3, Alien Romulus, and Mufasa, the Lion King. As I mentioned at the top of the call, this November we'll release a feature-length animated sequel to Moana. This was originally developed as a series, but we were impressed with what we saw and we knew it deserved a theatrical release. The original Moana film from 2016 recently crossed one billion hours streamed on Disney+, and was the most streamed movie of 2023 on any platform in the U.S. Along with a live-action version of the original film that's currently in development, Moana remains an incredibly popular franchise, and we can't wait to give you more of Moana and Maui when Moana 2 comes to theaters this November. Looking to our 2025 theatrical slate, we're excited to bring audiences Captain America, Brave New World, Fantastic Four, Pixar's Elio, Zootopia 2, and Avatar 3. And we're already looking forward to 2026 and beyond with Frozen 3, the first Toy Story movie since 2019, and a new Star Wars movie that brings The Mandalorian and Grogu to the big screen for the very first time. These films will not only reach global audiences in theaters, but as we've consistently demonstrated, they will become important anchors on our global streaming platforms, driving subscriptions and engagement while also continuing to fuel growth in our experiences business. After all, one of the things that truly sets Disney apart is our unique ability to turn top quality IP into top quality experiences, leading to significant growth. That was certainly true this quarter. Every one of our parks was profitable in Q1, giving us an incredibly solid foundation to build upon as we invest significantly to turbocharge growth in this business. We've had a tremendous response from guests visiting our newly opened World of Frozen at Hong Kong Disneyland, as well as our first ever Zootopia Land at Shanghai Disney Resort. And as I've said before, we also have so many untapped stories just waiting to be brought to life in our parks across the globe as we continue to invest in this extraordinary business. But it's not just our parks where we're creating new opportunities for consumers to engage with the characters and franchises they love. Our new relationship with Epic Games will create a transformational games and entertainment universe that integrates Disney's world-class storytelling into Epic's cultural phenomenon, Fortnite, enabling consumers to play, watch, create, and shop for both digital and physical goods. This marks Disney's biggest entry ever into the world of video games and offers significant opportunities for growth and expansion. The new immersive universe will allow fans to unleash their own creativity and experience the Disney stories and worlds that they love in groundbreaking new ways. Younger audiences in particular are huge consumers of video games. In fact, among millennials, Gen Z, and Gen Alpha, a significant amount of time spent on screen-based platforms is playing video games. This new universe from Disney and Epic provides us with a tremendous opportunity to not only meet more consumers where they are, but to allow more audiences to cultivate a bond with Disney's iconic brands and franchises, including Marvel, Star Wars, and much more. Looking at the renewed strength of our businesses this quarter, from sports to entertainment to experiences, the stage is now set for significant growth and success. In that regard, we see ample opportunity to increase shareholder returns as our earnings and free cash flow continue to grow. Our current position of strength and confidence in our path ahead already led us to pay a dividend to our shareholders last month. And I'm pleased to share that the Board declared that our next semiannual dividend to be paid in July will be 50% higher versus the last dividend paid in January. The board has also authorized the company to begin repurchasing shares for the first time since fiscal 2018 and we plan to start by targeting $3 billion this fiscal year. As we continue to invest in our growth businesses and maintain our strong balance sheet, we also expect to prioritize dividend payments and share repurchases in the coming years. I'm proud of our company's remarkable achievements and I'm grateful to a deep bench of seasoned executives who are helping guide Disney into the future. And that includes Hugh Johnston, our new CFO, who has already proven to be an outstanding addition to the team. We feel very fortunate to have Hugh with us. And now to take you through more of our results this quarter, I'll turn things over to Hugh.