Corus Entertainment Inc.

Good morning. My name is Anita, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chorus Entertainment fourth quarter and year-end 2021 analyst and investor conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the star and then the number two. Thank you. As a reminder, this call is being recorded. I will now turn the call over to Mr. Doug Murphy, President and CEO of Chorus Entertainment. Mr. Murphy, you may begin your conference.

Thank you, Operator, and good morning, everyone. Welcome to Chorus Entertainment's fiscal 2021 fourth quarter and year-end earnings call. I'm Doug Murphy and joining me this morning is John Gosling, Executive Vice President and Chief Financial Officer. Before I read the cautionary statement, I'd like to remind everyone that we have slides to accompany today's call. You can find them on our website at www.coruscant.com under the investor relations section. Now let's move to the standard cautionary statement found on slide two. We note that forward-looking statements may be made during this call. Actual results could differ materially from forecast projections or conclusions in these statements. We would also like to remind those on our call today, in addition to disclosing results in accordance with IFRS, Corus also provides supplementary non-IFRS or non-GAAP measures as a method of evaluating the company's performance and to provide a better understanding of how management views the company's performance. Today, we will be referring to certain non-GAAP measures in our remarks. Additional information On these non-GAAP financial measures, the company's reported results and factors and assumptions related to forward-looking information can be found in CORA's fourth quarter 2021 report to shareholders and the 2020 annual report, which can be found on CDAR or in the investor relations section of our website. I'll start on slide three. We delivered strong results to close out the year with yet another quarter of consolidated top and bottom line growth powered by the disciplined execution of our strategic plan and the emerging economic recovery. As I said on our last call, everything is working. Our advanced advertising leadership in targeting and automation is once again evident in our impressive revenue growth. Our fall schedule on global is a clear winner. Stack TV's growth momentum and unique value proposition has resulted in a larger addressable market than we anticipated in our original business plan. More on that later. Demand for our original content from Nelvana and Chorus Studios is robust as we ramp up our production investment to deliver more seasons of new and returning hit shows that drive ratings at home and revenues around the world. Our increased financial flexibility is setting the stage for new ways to drive future revenue growth. Over to slide four. As we turn the page on fiscal 2021, I'm very pleased with our team's dedication and commitment, which is reflected in these excellent results. I will briefly review the headlines with you now and later turn it over to John to take you through the details. Our consolidated revenues were up 2% for the year at $1.543 billion, with everything growing, including advertising, subscriber, and our content business. We finished the year with consolidated segment profit of $525 million, which was up 4% over the prior year, and this in turn drove another impressive year of cash generation with free cash flow of $252 million, resulting in improved financial flexibility as we benefited from the ongoing deleveraging of our balance sheet to 2.76 times net debt to segment profit, as well as the diversification of our financing sources with our successful high-yield offering. At Corus, our capital allocation policy aims to create shareholder value by directing free cash flow towards advancing our strategic priorities strengthening our balance sheet and funding our dividend. As a reminder, at today's share price, Corus trades at a segment profit multiple of just over five times, at a free cash flow yield of over 20%, with an attractive dividend yield of over 4%, which is well supported by a dividend payout ratio of less than 20%. Over to slide five. Let's talk about our fall schedule, which is always an exciting time of the year for television. Chorus is a premier steward of some of the biggest and best U.S. channel brands. These powerful entertainment and lifestyle channels are favorites among Canadians. Our new prime time schedule has global better positions competitively than it has been in years. After a long hiatus, Mega Hit Survivor has returned to reclaim its spot as the number one program, while returning drama 9-1-1 lands in the number three spot. New series, NCIS Hawaii, FBI International, and the highly anticipated CSI Vegas are the top new shows of the season, with CSI Vegas on track to being the number one new show based on its continuing strong premiere. On specialty, Peacock original series Dan Brown's Lost Signal and their new star-studded series Dr. Death, inspired by the true story of Dr. Dunch, are the number one and number two scripted specialty series this season to date. Further, Dr. Death drove impressive results on Stack TV, with over two million minutes streamed in its first week, providing and proving that big is still big. Next up at bat is the highly anticipated two-hour concert event special, Adele, One Night Only, featuring an exclusive interview with Adele by Oprah. A prime example of how we can amplify great content across our portfolio, this special will be broadcast on global and available to stream live and on demand on Stack TV and the global TV app. Moving to slide six. Chorus is proud of our enviable roster of partnerships with the world's preeminent studios and content companies. Time and again, in this disruptive media and content marketplace, we have successfully managed to innovate with our partners to achieve mutually beneficial business outcomes that advance our collective strategies. Last Tuesday, Discovery Inc. announced the launch of Discovery Plus in Canada. Over the past many months, We have worked with Discovery, our joint venture channel partner of over 20 years, to discuss opportunities to support the growth of Discovery Inc.' 's business in Canada. Our collaboration was multifaceted as we addressed the launch of Discovery+, the long-term opportunities for our highly differentiated channels joint venture, which includes Canada's HDTV, Food Network, Cooking Channel, and DIY, our own Canada relationship, and new innovative growth opportunities to put more content in more places. Moving to slide seven. In addition to the progress we have made in growing our business in Canada, we have also been very successful in broadening and deepening our strategic content partnerships to pursue opportunities outside of our domestic market. Think of it as moving away from the old one-way content rental model from yesterday to a new two-way content partnership model for tomorrow. Let's stay with our strategic partnership with Discovery as an example. This past year, Discovery acquired 220 combined hours of hit lifestyle and factual reality chorus TV shows for use on their channels and digital platforms around the world. Red Knot, Nelvana's joint venture with Discovery Kids Latin America, greenlit two shows last year, Super Wish and Agent Binky, Pets of the Universe, while development began on a second season of the Dog and Pony show. These shows are broadcast on each partner's networks while also being sold around the world. Streaming platforms around the world are hungry for premium video content. witnessed Chorus Studios' successful sales of Big Timber to Netflix for worldwide distribution, and Rust Valley Restorers to Discovery in the U.S. Hulu is becoming yet another important buyer. Earlier this year, Nelvana secured the sale of The Hardy Boys to Hulu for the U.S. market. Further, we landed our largest distribution deal ever this past April, selling 200 episodes of premium Chorus Studios content to Hulu. And this year is off to a great start with Hulu, coming back for more. Today, we announced the pickup of four complete series, totaling 58 more episodes from Cora Studios, including Worst to First, Salvage Kings, Project Bakeover, and a pre-sale of new gold-hunting series, Dead Man's Curse. Now, Havana also just announced its sale of live-action series The Hardy Boys to Disney for distribution on Disney+, in international markets outside of the U.S. and Canada. This is a great feather in Nelvana's cap as we celebrate our 50th anniversary, an incredible milestone for a world-renowned animation studio. Last year, Nelvana garnered not one, but two Daytime Emmy nominations for The Hardy Boys, and with another Emmy nod, Esme and Roy, this is truly a testament to our success in building world-class franchise IP. Last week, Nelvana, along with our partners Spin Master and TMS Entertainment, announced the green light of season four, Bakugan Evolutions. Kids around the world are getting back to the playground and rediscovering the joy of play with the Toyota collectible brand. Our content teams have done a tremendous job in building up the business, which plays an important role in our growth narrative, delivering 13% growth last year. The year ahead looks to be no different. as we ramp up our investment in content. Nelvana has more than 30 projects in development and production, while Chorus Studios has 24 series in production, roughly half of which are additional seasons of existing hits. Chorus Studios is now recognized around the world as a go-to producer of unscripted content that drives audience engagement and revenues. Moving to slide nine, Stack TV just keeps getting better. Just last week, we unlocked an exciting new revenue stream from Stack TV. Chorus began dynamically inserting advertising during Stack TV video-on-demand content viewing. 60% of all viewing on Stack TV is on-demand, and up until now, we have not been able to monetize those audiences. Now we can. Chorus is the only Canadian broadcaster with DAI capabilities within Amazon Prime Video, which will provide a unique opportunity for advertisers to deliver targeted ads against premium long-form video content within the Amazon marketplace. Let's talk about the other side of that coin, if you will, in that the remaining 40% of all viewing on Stack TV comes from our live linear TV feeds. These audiences enjoy the timeless experience of lean-back TV viewing, brought to you by the streaming universe. That viewing is measured by Numeris and captured in our total TV audience delivery measurement. As I said off the top, everything is working. And with that, I will turn it over to John to discuss our Q4 and year-end results. John?

Thanks, Doug. Good morning, everyone. I will start on slide 10. This past year, we jumped on an opportunity to diversify our sources of financing, resulting in the successful issue of $500 million of 5% senior unsecured notes due in May of 2028, an offering which was very well oversubscribed. We followed this with the amendment and restatement of our bank credit agreement, extending the maturity date to May 31, 2025, and using the net proceeds from our notes to pay down bank debt. This was an important step on a road to increased financial flexibility. Our strict cost management and balanced capital allocation approach enabled us to use our strong free cash flow along with the net proceeds of the notes issue to repay approximately $651 million of bank debt in the year. At the same time, we invested in the business to drive future growth and return cash to shareholders at an attractive dividend yield. Our new leverage target of under 2.5 times net debt to segment profit introduced back in April is coming into view. We ended the year with leverage of 2.76 times, which is down significantly from 3.18 times at the end of fiscal 2020 and 2.82 times at the end of the third quarter. As Doug mentioned, achievement of this leverage target will open up new options. I'd also like to highlight that this morning we declared a dividend of $0.06 per Class B share payable in December of 2021. Moving on to slide 11 and a review of our fourth quarter and year-end consolidated results. Chorus closed the year with strong momentum, reporting consolidated revenue of $361 million for the quarter and $1.543 billion for the year, representing increases of 13% and 2% over the prior year periods, respectively. Consolidated segment profit of $103 million for the quarter and $525 million for the year benefited from our top-line growth and was up a significant 9% and 4%, respectively, versus the prior year. Estimated government wage subsidy has almost entirely went down representing approximately $1 million in the quarter compared to almost $18 million in Q4 last year. For the year, estimated wage subsidy and regulatory relief was approximately $22 million compared to approximately $35 million last year. Consolidated segment profit was negatively impacted by an increase of $2 million and $13 million in share-based compensation expense in the quarter and year respectively as a result of a stronger share price. We delivered a strong consolidated segment profit margin of 28% for the quarter and 34% for the year. That's down from 30% in the prior year quarter but up from 33% in the prior year. Net income attributable to shareholders for the quarter was $20 million or $0.10 per share basic and $173 million or $0.83 per share basic for the year. Our free cash flow of $35 million and $252 million for the three months and year ended August 31st, 2021, respectively, was down from $87 million and $296 million in the prior year quarter and year. And that was in line with our expectations. Now, just a reminder, the prior year quarter and year benefited from government relief measures, including the cash income tax installment holiday and lower programming rights payments due to COVID-19 related programming delays and cancellations. And that was somewhat offset by wage subsidy receipts this year. Specifically, Cash income taxes increased $31 million and $74 million in Q4 and for the year, respectively. All right, let's turn to our TV results for the fourth quarter in the year as detailed on slide 12. Overall, TV segment revenues were up 12% over the prior year quarter and 3% for the year. That was driven by a 21% increase in television advertising revenue for the quarter and 2% for the year. This is an excellent result reflecting solid execution of our strategic plan and ongoing advertising recovery throughout a year impacted by COVID-19 restrictions. The ability of our networks and sales teams to successfully balance rating supply with advertising demand to maximize the value of our inventory is also a key to our success. Importantly, our strong fall schedule and the emerging economic recovery is setting us up nicely as we kick off our new fiscal year. The positive impact of our streaming platforms now with more than 675,000 paying customers, has become increasingly evident, driving notable growth in subscriber revenue of 3% in the quarter and 1% for the year. Stack TV in particular is fueling this important recurring revenue as awareness and interest builds. The investments we are making to grow our content business are bearing fruit in a meaningful way as reflected in these results. We've yet again delivered strong gains in merchandising, distribution, and other revenues, up 9% for Q4 and an impressive 13% for the year compared to the prior year periods. In the quarter and year, the gains were primarily driven by increased licensing sales of Chorus Studios content, strong animation software licensing sales at Toon Boom, as well as growth at Nelvana. TV expenses in the fourth quarter increased by 13% over the prior year as program deliveries normalized compared to delayed deliveries in the prior year and the widespread pandemic-related production hiatus, while TV expenses for the year were consistent with last year. Our increased G&A expenses in the quarter primarily reflect reduced wage subsidy benefits of just over $1 million compared to $14 million in the prior year quarter, as well as increased variable compensation costs commensurate with the revenue improvement. Overall, TV segment profit increased 9% in the fourth quarter and 4% for the year compared to the prior period, as increased revenues outpaced expense normalization. TV segment profit margins of 33% for the fourth quarter were consistent with the prior year quarter, while up to 38% for the year compared to 36% last year. As we mentioned last quarter, we are embarking on a necessary path to return course to a more normalized programming cost structure. The CRTC recently denied the Canadian Association of Broadcasters' application for Canadian Programming Expenditure, or CPE, relief on spending that was not able to occur due to the production hiatus caused by the COVID-19 pandemic in 2020. The CRTC also provided an extended period for all licensed broadcasters in Canada to be compliant with their required CPE, with the new deadline being the end of August 2023. So we have two years to catch up, and our teams have been working hard to determine how we can best invest to supercharge our own more content aspirations. New platform revenue and optimized advertising revenue performance metrics introduced earlier this year to demonstrate the benefits of our revenue diversification strategy are shown on slide 13. We're gaining meaningful traction as our team perceives attractive growth opportunities in streaming, digital video advertising, and the automation of advanced advertising initiatives. New platform revenue, which includes incremental subscriber revenue from new streaming initiatives and advertising revenue from digital platforms, is expressed as a percentage of total advertising and subscriber revenue. New platform revenues were approximately 10% of TV advertising and subscriber revenues in the quarter, increasing materially by 46% year-over-year. New platform revenues up 8% for the year group, 62%, a tremendous result that clearly illustrates our progress as we build more connections with audiences and drive new sources of revenue. Of course, it's at the forefront of changing how TV is sold. Over the last five years, we've invested more than $50 million in transforming how we sell television, which has vastly improved our data insights and targeting capabilities and is driving these results. Optimized advertising revenue expressed as a percentage of TV advertising revenue demonstrates our progress on this transformation, including our revenues contributed from audience segment selling as well as from our Cinch automated buying platform. Optimized advertising revenues represented approximately 34% of total TV advertising revenue in the fourth quarter, and that's up from 21% in the prior year quarter. Optimized advertising revenues, 31% for the year, grew by 43%. as more and more advertisers realize the benefits of data-driven insights and targeting as an integral part of their campaigns. In absolute dollar terms, this represents more than $260 million of TV advertising revenue in 2021, and we expect this to grow. Now let's turn to radio results, as outlined on slide 14. It's great to see the rebound in radio segment revenues. We delivered a 32% increase for the quarter, with revenues down 6% for the year. The broad improvement across key advertising categories is very encouraging. We still have a ways to go as radio continues to be disproportionately impacted by pandemic-related restrictions on local businesses, but we are still outperforming the market in English Canada. Our rank position in several key markets remains strong, and we are well positioned as local businesses continue their road to recovery. Radio segment profit increased to $4.3 million in the quarter, driven by revenue improvements as we continue to navigate the challenging market conditions, well down to $14.2 million for the year. Segment profit margin increased significantly to 17% from 6% in the prior year quarter and was down slightly to 15% compared to 16% in the prior year. We continue to diligently manage costs as we progress through the recovery. So, to recap... Fiscal 2021 ended with very strong momentum. We are encouraged by the growth across all of our revenue streams this quarter. Our strong fall schedule positions us for a great start to our new fiscal year. We are taking meaningful steps to advance our strategic plan, furthering our leadership position in advertising innovation, expanding our streaming business with unique offerings like Stack TV, and leveraging our course advantage to create new international revenue opportunities. Our improved balance sheet provides us with the increased financial flexibility, enhancing our ability to create future value. And in sum, as evidenced by these strong results, we are moving in the right direction. With that, back to you, Doug.