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spk09: Good morning, good afternoon, and evening. My name is Jake, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chorus Entertainment Q1 2022 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 pound key. Thank you. As a reminder, today's call is being recorded. And now I would like to turn the call over to Mr. Doug Murphy, President and CEO of Chorus Entertainment. Mr. Murphy, you may begin your conference.
spk03: Thank you, Jake. Good morning, everyone. Welcome to Chorus Entertainment's fiscal 2022 first quarter 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.corusant.com under the investor relation events and presentation 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 first quarter 2022 report to the shareholders and the 2021 annual report, which can be found on CDAR or in the investor relations financial report section of our website. Good morning, everyone, and Happy New Year. I will start on slide three and offer some perspective on the strong start we are seeing to fiscal 2022. On our last call, we declared that we are full stream ahead as our team makes meaningful progress towards the disciplined execution of our strategic plan and its priorities. Let me spotlight our progress off the top. Television revenue was up an impressive 11% from last year, surpassing pre-pandemic levels in Q1 of fiscal 2020 and clearly benefiting from the one-two punch of global's winning fall schedule and robust advertiser demand. Subscriber revenue gains this quarter again highlight the resiliency of our business model as we re-aggregate our channel's business on streaming platforms. Global schedule has been the strongest we've delivered since acquiring the network. Our performance this fall landed the top spot as the number one conventional network in core prime time. This momentum continues as we enter our winter-spring season with the tailwinds from a full schedule of returning hits and original new shows. The revenue performance metrics, new platform revenue, and optimized advertising revenue which we introduced this time last year for you to measure our progress, are trending impressively up and to the right. More on that later. Our production slate and content development pipeline has been supercharged as we strive to further diversify our revenues in the pursuit of content licensing opportunities globally. We have modified our capital allocation strategy with the addition of a normal course issuer bid to opportunistically repurchase our undervalued Class B shares whilst we fund our attractive dividend. Moving to slide four. We have kicked off our new fiscal year on the right track, delivering double-digit revenue growth and impressive solid free cash flow in our first quarter with the following results. consolidated revenues of $464 million, consolidated segment profit of $177 million, free cash flow of $80 million, and bank debt repayments of $49 million in the quarter, which reduced our leverage to 2.66 times net debt to segment profit, further improving our financial flexibility. John will take you through our detailed segment results later in the call. Over to slide five. Our powerful portfolio of entertainment and lifestyle channels are favorites among Canadians. Fall 2021 marked a return to normal, relatively speaking, as we rolled out a full slate of highly anticipated shows. On global, this translated into more than double the weekly original programming hours when compared to last year. The results are impressive. For the first time in almost 20 years, Global ascended to the top as the number one conventional network in core prime time. The top three programs in Canada were on Global, with reigning number one reality show survivor, now in its 41st season, 911, and newcomer, CSI Vegas. Additionally, four of Global's new shows, CSI Vegas, NCIS Hawaii, FBI International, and Ghosts, landed in the top 20. This momentum continues as we debut another strong schedule of highly entertaining series in the winter spring. New series Good Sam, Women of the Movement, and Abbott Elementary have joined returning fan favorites FBI International, NCIS Hawaii, and Ghost, and further bolstered by franchise hits NCIS, NCIS Los Angeles, FBI, FBI Most Wanted, and The Equalizer. Moving to slide six. On our specialty channels, Hallmark's Countdown to Christmas event came early this year, with W Network ranked as the number one station among females 25 to 54. For the winter-spring, exciting new and returning series include highly anticipated Peacock originals such as Bel-Air, which is a reboot of the classic Prince of Bel-Air, and action comedy MacGruber on Showcase, as well as a sixth season of the hit series Outlander on W Network. Our own content drives massive audiences on our networks. Chorus Studio Originals comprise 10 of the top 20 shows on HGTV Canada this fall. We will soon mark the return of Chorus Studio's globally renowned Island of Brian back for an incredible fourth season as we benefit from our strategy to build multiple seasons of proven franchise hits. Another new Chorus Studios original is rising to the top. On the cusp of a record-setting freshman season, Rock Solid Builds returns on HGTV Canada with a second season of impressive builds and Newfoundland charm. This series became the number one new Canadian show on a specialty when it first launched in the spring of 2021. Over to slide seven. When the CRTC mandated channel unbundling in 2015, it was widely proffered that it would be the demise of the TV channel's business. We differed then, and our contention that the channel's business is here to stay in new and reimagined ways remains. This picture tells a thousand words and clearly illuminates that since our acquisition of Shaw Media full-year subscriber revenue has remained resilient. While we have seen modest erosion in the traditional subscription system, our innovative strategies seeking to put more content in more places has delivered recurring subscriber revenue of almost $500 million, a third of our revenue base year after year after year. If you want a recurring subscription revenue model, Chorus has it to the tune of $500 million a year annually. The re-aggregation of the channel's business on streaming platforms is providing us with more new opportunities to grow this recurring revenue. Stack TV is a game changer, and its success is evident to all. In Canada, our traditional BDU partners are approaching us to explore Stack TV as a potential standalone streaming offering. We are delighted to share with you today that we are gearing up to launch STAG TV on Rogers Ignite TV and SmartStream platforms. This will mark the first time that STAG TV will be offered as a standalone streaming channels bundle through a traditional distribution partner in Canada. The first of what we hope to be many STAG TV expansion opportunities. Stack TV's momentum is undeniable. In Q1, we achieved a new milestone of more than 725,000 paying subscribers to our Stack TV, NIC+, and other streaming platforms as we pursue our target of 1 million paying subscribers. Full stream ahead. Moving to slide eight. We are supercharging our investments in development and production to take advantage of the unyielding global demand for hit content. Let me cite two quick examples. Nelvana has teamed up with globally renowned children's television writer, producer, and creator Keith Chapman to develop and produce a new original preschool series, Bella's Brobots. Known for his compelling storytelling and the creation of some of the most beloved characters for kids, including Bob the Builder and Paw Patrol, we are excited to collaborate on this exciting new property with Keith. Importantly, good progress has been made as we diligently work to bring more diverse voices to the screen, both in front of and behind the camera. Nelvana has teamed up on just such a project with the Kids and Family Programming Division of Emmy Award-winning Time Studios to develop the new original preschool series, Layla's Island. This marks the first development partnership between the two internationally renowned companies and the first preschool content deal four-time studios. Over at Cora Studios, we have 24 series in production, 12 of which are subsequent seasons, further building franchise IP. We've produced four seasons of Island of Brian and three seasons of Scott's Vacation House Rules with new seasons released later this year. The proven success of both Brian Baumler and Scott McGillivray got us thinking. Let's see what we can do when they team up for the first time together in one show, in the newly greenlit Chorus Studios Original Renovation Resort. Our Chorus Studio content is in high demand globally, and this morning we announced additional sales of more than 250 hours of Chorus Studios content in the international marketplace. We have increased our episode counts of the popular quarter studio series Gut Job and Rust Valley Restorers, further building these franchises. With that, I will now turn it over to John to discuss our Q1 results. John?
spk06: Great. Thanks, Doug, and good morning, everyone. I'll be starting on slide nine. As Doug mentioned earlier, we delivered a very strong start to the year. Our consolidated revenue of $464 million for the quarter was up 10% over the prior year, and consolidated segment profit was effectively flat to the prior year. Consolidated segment profit margins were 38% for the quarter. Consolidated net income attributable to shareholders for the quarter was $76 million, or 37 cents per share, and that's basically flat with the prior year. Free cash flow of $80 million was ahead of the $60 million in the prior year quarter, and it includes proceeds from a venture investment of $43 million in the current quarter. Now let's turn to our TV results for the first quarter as detailed on slide 10. Overall, TV segment revenues of $435 million for the quarter were up a significant 11% over the prior year, reflecting a return to normal programming schedules compared to the prior year, and in particular, the outstanding performance of our fall schedule on global, as I mentioned, and robust uptake of SAT TVs. Importantly, our TV revenues surpassed pre-pandemic levels They were up 1% over the first quarter of fiscal 2020. This is an incredible accomplishment, reflecting the disciplined execution of our strategic plan. In Q1, we delivered a 16% increase in TV advertising revenue over the prior year. This not only reflects the strength of our fall schedule, but growth in digital advertising and the sustained uptake of our advanced advertising offerings. Subscriber revenue was up an impressive 3% in the quarter compared to the prior year, and that was driven by increased demand for our streaming services. The subscriber gains on Stack TV in particular reflect the ongoing strength of our channels business and the widespread appeal of our unique live linear feed and on-demand approach to our streaming offerings. Merchandising, distribution, and other revenue was consistent with the prior year. Direct cost of sales was up 25%, and that reflects a normalized programming schedule compared to the prior year. which of course is impacted by pandemic-related programming delays. Our G&A expenses were up 14% from the prior year quarter. As a reminder, last year we had $3 million of federal wage subsidy in Q1. In the current year quarter, G&A reflects higher commission costs as a result of the increased revenue, inflationary wage increases, and enhanced benefits designed to support the ongoing health and well-being of our team. We also incurred more spending on marketing to support our streaming platforms. We continue to tightly manage discretionary spending as a partial offset to these costs. Overall, TD segment profit was consistent in the first quarter compared to last year. TD segment profit margins were 41% in the current year quarter. In terms of Q2, Omicron has obviously limited visibility into certain recovery trends with many local businesses, travel providers, and entertainment venues once again operating under restrictions. Just some observations. This is the Winter Olympics quarter, and that will have an impact on viewing on our channels in February, as we always see. And that's even with the lack of NHL players and our counter-programming strategies that are in place as partial offsets. Last year, we had an exceptionally strong December as advertisers hurried to deploy unspent marketing budgets for calendar 2020. We did not see the same effect this year as timing of the fall schedule normalized. Notwithstanding these headwinds, we remain committed to consolidated revenue growth in Q2. albeit more modest than Q1, given Omicron. On the cost side, last year we benefited from approximately $12 million in COVID-related government assistance in Q2, which will not recur this year. Programming costs are expected to grow in the high single digits to low double digits percentage-wise. This is resulting from a return to normal deliveries from our U.S. content partners and a required catch-up CP investment per the recent CRTC decision. We are advancing our plan to deploy these required investments to accelerate our own content aspirations and related sales into the international marketplace. Our expectation is that free cash flow in fiscal 2022 will be lower than 2021, primarily due to the CPE catch-up requirement for production spending that was not able to occur during the production hiatus in 2020. As well, we've made investments in program rights to deploy more content across more platforms, including to support our growth ambitions for Stack TV. At this time last year, we rolled out a new set of revenue performance metrics to enable you to measure and hold us accountable to the execution of our revenue diversification strategy, and that's highlighted on slide 11. Our focus on the pursuit of attractive growth opportunities in streaming and digital advertising as we put more content in more places and advanced advertising initiatives as we transform the way we sell television has resulted once again in significant growth in both metrics. New platform revenue includes incremental subscriber revenue from streaming initiatives and advertising revenue from digital platforms. The platform revenue was 9% or $36 million of TV advertising and subscriber revenues in the quarter, and that was up 41% or $10 million from last year. These excellent results reflect the disciplined execution of our strategic plan as we create a range of opportunities to connect with audiences in new ways, driving additional future-focused sources of revenue. Optimized advertising revenue was up significantly in Q1 as well, now 37% or $104 million in total television advertising revenue, and this represents an increase of 65% or $41 million from the prior year quarter, once again reflecting our leadership in the transformation of how television advertising is sold. Included in this metric are revenues contributed from audience segment selling as well as from our Cinch automated buying platform, which is gaining significant traction. Next, we'll turn to our radio results as outlined on slide 12. Radio segment revenues were up 3% compared to the first quarter last year. We remain encouraged by the improvement across certain key advertising categories. Radio segment profit decreased to $5.7 million in the quarter, primarily as a result of the return of sports programming costs, as well as federal wage subsidy and CRTC fee relief in the prior year quarter. Radio segment profit margin was 20% in the quarter. Now, over to slide 13, our notable free cash flow of $80 million in Q1 has contributed to yet another quarter of progress towards our leverage target. Net debt to segment profit improved to 2.66 times at November 30th, 2021, and that's down from 2.76 times at August 31st, 2021. Our goal is to drive our net debt to segment profit below 2.5 times, creating additional financial flexibility. We're investing in the business to support the advancement of our strategic plan paying an attractive dividend, and as announced this morning, we have received approval from the TSX to commence a normal course issuer bid program on January 17th. At the end of the first quarter, our last 12 months free cash flow yield was 26%, with a current dividend yield of 4.8% and dividend payout ratio of less than 20%. We feel strongly that the market price for course shares does not reflect the value we are creating through the execution of our strategic plan and priorities. As Doug mentioned earlier, we have modified our capital allocation policy with the introduction of an NCIB as we see our shares as an attractive investment of our free cash flow at this time. This morning, we also issued a press release declaring our March 22 quarterly dividend of six-tenths per share for Class B shareholders, once again providing a very attractive dividend yield. With that, I will turn it back to you, Doug.
spk03: Thank you, John. Finally, over to slide 14. We have many reasons to be optimistic about the year ahead and beyond. We have been steadfast in our commitment to emerge from the pandemic on a stronger strategic and financial footing. And once again, this is evident in our results as we continue to advance our strategic plan and priorities. We are ensuring the long-term resiliency of the channel's business through the continuous growth of Stag TV on Amazon Prime Video, and we will soon expand Stack TV onto other streaming platforms. In support of this strategy, we have successfully secured the requisite rights from our U.S. content partners, many of whom have their own direct-to-consumer products in our market, as we pursue these audiences with our unique offering of an on-demand and live linear feed streaming product. So in conclusion, allow me to summarize. Global schedule has momentum, and these tailwinds will ensure we are competitive in the winter-spring season. Stack TV is full stream ahead in pursuit of our 1 million paying subscribers target, as evidenced by the pending expansion onto Rogers Ignite TV and Rogers SmartStream platforms, and of course, the continuous growth on Amazon Prime Video. We remain Canada's broadcast leader in advanced data-driven advertising as we unlock new revenue opportunities with traditional digital and streaming audiences by broadening our dynamic ad insertion capabilities across more platforms and scaling Cinch, our automated self-service product for advertising buyers. Our own content studio business is leveraging the core's advantage as we invest to grow our production slate to drive audiences on our networks while we diversify our revenues internationally through content licensing sales. Our smart capital allocation strategy has delivered these results through innovative organic investment and the continuous deleveraging of our balance sheet. In fact, during the last 12 months, we have deleveraged our balance sheet by a half turn. A few other stats as we wrap today. Our dividend yield is 4.8%. Our dividend payout ratio is less than 20%. Our enterprise value to EBITDA trading multiples 4.7 times, significantly lower than our U.S. comparables. And finally, as of the end of Q1, our last 12 months free cash flow yield is 26%. Accordingly, we have modified our smart capital allocation strategy with the announcement of the normal course issuer bids. Clearly, at these levels, repurchasing our shares is a compelling financial opportunity for Chorus. I want to thank our innovative and resilient team at Chorus for their tireless effort, dedication, and focus as we execute our strategic plan and priorities. Our Chorus values are an integral part of how we operate our company and have really shown through during this pandemic. We are very proud to once again be recognized with the 2021 award from Waterstone Human Capital as one of Canada's most admired corporate cultures. Our Q1 results demonstrate our core values in action, the strong momentum towards our commitment to achieve revenue goes year over year over year. Thank you and over to you operator.
spk09: Thank you. Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. Keep in mind, if you are using your speakerphone, make sure the mute is released so that signals can reach our equipment. Once again, star 1 for questions. And we will begin with Adam Schein, National Bank Financial.
spk05: Thanks a lot. Good morning and happy new year to both of you. Doug, just starting with the buyback. I mean, the last buyback you had running until the end of November, the stock obviously had a pretty meaningful pullback post the Q4 reporting, just from a timing perspective. And you opted not to step into the market at that time. So now you've revised you know, sort of the capital allocation strategy. Can you talk about, you know, any particular trigger in terms of, you know, greater confidence perhaps in the year ahead, greater comfort in terms of how you're going to manage through the CanCon catch-up, or were you simply just waiting for that last buyback to run its course to sort of rethink the strategy?
spk03: Thanks, Adam. Happy New Year to you as well. I think the last NCIB obviously was occurring during the pandemic. We availed ourselves of the wage subsidy as well during that time. There was very much a lot of uncertainty in the outlook, clearly. And so we prudently decided to not purchase shares, even though we had turned on the NCIB. At this time, given the confidence we have in the company, the momentum we have on our strategic plan, and the undervalued nature of our shares, we do intend to purchase stock.
spk05: Okay. And so the idea of getting sub 2.5 times is no longer part of the equation per se, right?
spk03: I wouldn't say that. It's still our leverage target. I think we have a lot more financial flexibility now than we did a year ago. As I said, we've delevered Robert Hechtman, A full half turn and we're delivering on our commitment for revenue growth, so I think it's the amount of tools available to us on the capital allocations of toolbox and I think it's pretty much broader than it was. Robert Hechtman, When we believe this is one that we can execute on.
spk05: And then, you know, if I turn to Stack TV, obviously interesting to see the Rogers, you know, kick in, you know, beyond the Amazon Prime. Any particular difference in sort of metrics, revenue splits with, you know, the new partner or anything else related to any differentiation from what you had previously with Amazon?
spk03: You know, we're not going to get into the details of our new arrangement with Rogers other than to say that, you know, by and large, the economics are similar. to our existing relationship. And I think it's a very important piece of information for everybody on the call today because, as we've discussed many, many times, oftentimes I think people get stuck in this mindset that it's an either-or situation between direct-to-consumer streaming versus the channels business, and it's frankly not true. Um, you know, when you look at the current situation in Canada, three quarters of Canadians have a channel bundle subscription. If you add stack TV on Amazon, uh, as a percentage that goes up to about 80%, four out of five Canadians are enjoying the chorus channels experience. And now we're seeing the traditional distributors saying, you know, let's, you know, let, let's put more product on my internet only subscribers and we'll build a stack TV app. So it just speaks to the fact that, uh, it's a compelling product, which is unique in the world. I'll remind everybody. And that the uptake is really impressive. And I think it's just a real strong signal that the channel's business is here to stay. It's resilient with an extremely long tail. And that was why we took the time on the call today to remind everyone about the subscription revenue and the recurring nature of that $500 million a year. And that's going to continue to stay that way given the expansion of Stack TV.
spk05: And just one more for you, Doug. Obviously, you alluded to the fact, as did John, in regards to the dynamic around Omicron restrictions impacting your Q2. But are you seeing any signs of a turnaround in automotive yet, whether it's an easing of supply chains that you kind of hear about a little bit out there in the headlines, or is this something that we might need to wait for deeper into the H2?
spk03: I think we're going to have to wait for a while for automotive for sure. We were seeing some nice momentum on entertainment, theatrical in particular. That, of course, has hit the brakes, at least in Ontario for the moment. But that was showing some pretty heady growth year over year, financial services, communication, retail, packaged goods. Those are the categories that were giving us some of the more significant growth. Omicron, we think, is a passing situation, let's hope. But it's not surprising that it's caused us to, you know, to moderate to some degree our outlook for Q2. All that said, you know, and you've heard the statistics, there's a whole bunch of money sitting in the bank accounts that Canadians, you know, the brands want to get back on television to market their wares because there's going to be, you know, there's a revenge spending return to reality, normalcy, whatever you want to call it. So, you know, I think it's a bit of a spring to coil. We just need to get through this, hopefully, what will be this next Omicron phase and get back to the new next normal.
spk05: Super. I'll leave it at that. Thanks a lot.
spk03: Thanks, Adam.
spk09: We'll now move to a question from Aravinda Galapathy with Kennecore Genuity.
spk08: Good morning. Thanks for taking my questions, and Happy New Year. I wanted to flush out the programming cost to start with. I appreciate, John, your comments. The high single-digit to low double-digit growth in programming cost, was that what you alluded to, Q2, or the full year? And maybe you can just talk to sort of the shape of the programming cost and sort of how the cash would hit. Just kind of remind us of your expectations there.
spk06: Yeah. Thanks, Armando. Very, very good question. The comment was specific to Q2, but it actually applies to the remaining quarters of the year. So Q1 was clearly an anomaly, and we had been signaling that for some time, just given the volume of new shows was back to normal basically on global. So, yeah, that's a comment for the balance of the year as well as Q2. But in terms of underneath that what's happening, I'd say – depending on the quarter, at least half of that is the Canadian catch up. So even, you know, even in Q1, the quantum of the Canadian change year over year was quite a bit more significant than we would normally see. And we expect that to continue as we've got to catch up on this, you know, approximately $50 million from 20. So that's definitely part of that increase. And then, you know, there's obviously, as Doug mentioned, we're investing more for more platforms on some of the program supplies. And that's pretty much very, very important and very helpful. So in terms of cash, you will have noted the cash was up a little bit in Q1. I think it's fair to say, you know, given my comments around free cash flow for the full year, cash is going to be up more for the rest of the year. It feels like we're running a little bit behind coming out of Q1. So that's going to be a little bit of pressure for sure. And the other thing to remember is, especially on Canadian, we're only on Canadian cash, we spend the money really before we amortize it. It's just the way the production cycle works. And, you know, our involvement is that, you know, it's the primary broadcaster. So that's going to, you know, have a timing effect where we see the cash flowing out the door before we see the amortization hit the P&L. And that's, that's just the nature of the beast. So hence my comments on, you know, 2022 free cashflow.
spk08: Okay. Okay. That's, that's very helpful. And then switching over back to sort of Stack TV, I guess, for Doug, I know you had kind of talked about or indicated that you're starting dynamic ad insertion, anything on that front? And then connected to Stack TV as well, is there anything you can tell us about sort of churn? I know that for SWAT platforms, churn can swing from anything as low as 45% for Netflix, I guess, and as high as 20% for some of the newer players. What does that look like for a stack, just to kind of give us a sense of the stickiness?
spk03: Just on dynamic ad insertions first, and I'll pass it to Don for the turn question. So yes, we're live now on Stack TV on demand. We have the ability to monetize inventory on that viewing, which I'll remind the group is roughly half of all viewing is on demand on Stack TV. And that business is obviously it's going to scale up here, but it's going to contribute at full run rate. It'll be in the millions of dollars, probably not double digits, but close. And that will be a nice incremental piece of advertising inventory that we've not been able to have before. And it's, again, another example of us finding more ways to create new inventory through new impressions, right? In addition to what we're doing on Stag TV, we're also experimenting with our global TV app with more content available for advertising video on demand, AVOD opportunities, and that's building new inventory and new revenues as well. So we're continuing to pursue audiences where they are by availing them with our great content. John, you want to take the turn question?
spk06: Sure. And I'll give you, Aravinda, a bit more of a fulsome answer, not because I'm trying to skirt your question out. I'll say a couple things. So if you look at the net ad trajectory, what we've been seeing the last few quarters, so we were doing 100, then we were 75 last quarter, now we're 50. But I can assure you that's not because of churn. So what's happening is, as you'll be well aware of from your telecom experience, Besides the base is just creating more absolute numbers of customers that are disconnecting. The good news is we actually are seeing increases in gross ads and we're actually seeing a decrease in the churn rate. So we look, so I'll get to your question now. So we look at the churn rate as there's a gross churn rate and then there's a churn rate that's net of win back, which is actually quite a bit lower. And I'd say that range you quoted of 5% for Netflix or 20% for some of the new streamers, we'd be towards the lower end of that range for sure.
spk08: Okay, great. Thank you. That's very helpful. And last question, you know, on the M&A front, I know that, Doug, you're looking at certain options, particularly, you know, maybe some tech leaning, ad tech type names. I mean, valuations are getting a lot more reasonable now than maybe a year ago. So just wanted to get a sense of where you are in that process. Anything that you can comment on that front? Thanks.
spk03: I will just comment that, as I said earlier to Adam, you know, as our financial flexibility improves, we're able to access more of the tools in the capital allocation toolbox. And so, as such, you know, we are continuing to observe and look at the marketplace in certain segments that are of interest to us and that are on strategy. Um, I think valuations are still pretty rich out there at the moment. So I'd like to see them come in a little bit more before we do anything, but we're, you know, we are, we are, we have a team now that's actively looking at things, but nothing, nothing that I can speak to more specifically than that.
spk01: Thank you. I'll pass the line. Thank you. We'll now hear from Drew McReynolds with RBC.
spk07: Yeah. Thanks very much. Good morning. And, uh, Happy New Year, Doug and John. A bunch of my questions have actually been answered, but a couple others. First, just on the recent Omicron kind of wave, has there been any kind of disruption that you kind of sense to any of the kind of production, you know, business out there on the TV side?
spk03: Good question. And the quick answer is no, not that we've noticed. Nothing material. Not like a year ago. I don't think I know. Many producers now have adopted COVID protocols in all of their activities. So a year ago, it was a whole new thing. Now it's become regular business as usual, unfortunately. So God willing, there'll be no acceleration of this beyond where we are or expect to be by the end of the month. And so productions are still in full swing.
spk07: Super. One follow-up on the Stack TV and the Rogers distribution. So that's fantastic to see. Just from your perspective, are you somewhat indifferent as to... you know, the economics between a stack TV and getting these channels, you know, traditionally through the linear package via Rogers. And to the extent you can, can you, you know, just what do you expect to happen here in terms of subscribers? Like what kind of, you know, bigger pockets of the addressable market are you kind of going after? Is there, you know, any kind of stuff you can share from, from that perspective?
spk03: I'd say the approach for us really, Drew, is to follow the consumer. As we all know, a lot of Canadians like to consume their channels through a traditional set-top-box relationship, and so we're already there. But we want to provide our winning channels and content to consumers that perhaps want to acquire that content on a different platform. just being sure that we are following the audiences wherever they are. That's really at the heart of the Stack TV strategy, whether or not it's within the set-top box environment or on a streaming app delivered by whatever distributor would like to partner with us. So that's really kind of the approach we're taking. And a household is a household, quite honestly, from our perspective. We want those audiences. We note that You know, the population in Canada is growing every year through immigration to the tune of 400,000 new Canadians. That's a bit of a tailwind as well. Housing starts. Millennials are having children. They're picking up subscriptions either through the set-top box or through apps. And we want to be there. So that's kind of our approach is just to make sure we're providing our product to all Canadians in whichever way they want to consume it.
spk06: And Drew, on your yield question, Sorry, Drew, on your yield question, I think we've been pretty forthcoming that the yield on this kind of a product is better than the traditional system. Even on a per-channel or a per-sub basis, it's better for us.
spk07: Okay, super. Thank you, John. Two last ones from me. First, just following up on the TV side, presumably no change to the merchandising distribution and other revenue outlook for fiscal 2022. You know, we saw a kind of flat quarter year over year, but presumably that's all timing and you're still comfortable with this business growing quite nicely through the fiscal year.
spk03: Yeah, absolutely. We had a big year last year, as you know, as we had some tougher comps and the team's aware of that, which is why we're putting the pedal down on our investment and development and production and expanding the slate and supercharging is the word I use. So That's still a real growth opportunity for us. And as I mentioned, we're having some real wins out there. The content is highly contested internationally. Witness our press release this morning on the Core Studios sale. And that continues to be, I think, a real opportunity for us. So we're going to make those organic investments to continue to pursue that opportunity.
spk07: Super. And then last one, I know not a big part of course, but on the radio side, you're clearly still chopping. I think everyone's eyes wide open to the headwind still facing radio art. Are you a little surprised it's been as kind of weaker choppy? Did you see anything under the hood that concerns you otherwise on just the radio business in general? Is it really just, you know, waiting to, get things back to normal, and particularly some of the ad categories like auto back to normal. Is it just that simple? And I know, obviously, choppy radio is not just chorus. It's certainly happening at Bell Media and others as well. But just love to get your thoughts there.
spk03: Yeah, I mean, choppy is the right word, Drew. I mean, it's choppy in terms of time spent listening, where they're spending it listening. There's less drive time. Although that was coming back in certain markets where, you know, they're returning to work in some manner. People are buying more cars if they can get them. You know, the sort of viewership or listenership at home has gone up a lot. But the aggregate of that time spent listening is still on balance below pre-pandemic levels. And then you've got the supply side. Then you've got the demand side, which is, you know, really a function of two things. National And national, I think, is generally pretty good. It tracks with the overall industry, i.e. television advertising. But that's really more of a notice to how the station performance and rankers in the major markets are. We're holding our own in the big markets. We've had some slippage out west, but for the most part, we're doing okay there. And then the local advertising demand is really still, I think, the most affected by the COVID pandemic. both business scarring, i.e., businesses are not coming back. And we've actually seen, interestingly, a lot of new accounts. There's beginning to be a bit of a rebirth of entrepreneurialism in certain local markets. And so we're seeing some new advertisers coming back to our local businesses, both radio and television. But still, until the pandemic is really in the rearview mirror, I would suspect radio is going to lag significantly.
spk01: Thank you. Thanks very much. Thank you, Drew.
spk09: Ladies and gentlemen, if you find your question has been answered, you can remove yourself from the queue by pressing the pound key. We'll now move to Vince Valentini with TD Securities.
spk02: Thanks very much. Let's stay on that radio theme for a second, Doug. The industry, I think, clearly needs some help, and the U.S. is way ahead of us in terms of scale and consolidation. Is there any update on the CRTC review of radio and when companies might be able to own four or more stations in a market as opposed to two?
spk03: I agree with you, by the way, that we need to catch up as an industry, and the heavy touch of the regulator is the first that's got to change. We understand that some decision on the radio policy review will likely occur in the spring. That's all we know. So, you know, there seems to be a bit of a holding pattern right now. I think what's happening, and this may segue into another related question, maybe I'll anticipate that, is I think what's happening is any official business of the commission has kind of been subsumed by the pending reintroduction of the Broadcasting Act bill, which we would hope to see, as noted by the Prime Minister in the speech from the throne in his first 100 days that he would bring back the modernization of the Broadcasting Act. So if you look at the calendar and you count that backwards, we're looking at something by kind of the first week of February. So net net, I think there'll be a bunch of activity out of the commission once the version 2.0 Bill C-10 is put on the table. But at the moment, we know no more than we knew the last time we spoke.
spk02: Excellent. Thanks. Second is on stack. I just want to make sure we're clear here. The deal with Rogers has nothing to do with Amazon Prime. They don't get a cut of revenues. This stack is your brand, and you can redistribute it through whoever you want?
spk01: That's correct.
spk02: And you've been spending money advertising and marketing stack, but Clarify, you don't have your own sort of billing and subscriber management system, so at this point you rely on a third-party distributor, whether it's Prime or Rogers or another cable company maybe?
spk03: That's correct.
spk02: Is that somewhere you could go in the future as well, especially as the contractor deal with Amazon comes up closer to renewal and maybe to get some negotiating leverage? with them? Is it possible that you could make those investments, or is it just too daunting a capex for a company like yours?
spk03: Yeah, Stack TV is sort of its own creature. What makes it a compelling product is that you're able to have the best of binge viewing, which is what the direct-to-consumer Netflixes of the world have taught us, but also you get the traditional lean-back television experience, and that That combination is proving to be extremely appealing to Canadians, not surprisingly. There's fatigue on streaming as you dig through what you want to watch on demand. It's nice to be served up a linear feed, which is curated with a point of view of winning content. The direct-to-consumer conversation, obviously, is one that we are looking at, we have been looking at, we've looked at time and time again, and we'll keep looking at it, but it would be a separate lane than is the StackDV strategy.
spk02: Okay. And just to clarify on the churn figures there, John, for stack, I assume, I don't know if you can measure it or have the data, but I assume when you see churn on stack, some of that may be people saying, hey, you know what, I'd rather go back to the bigger bundle on Rogers or Bell or whatever my TV provider is. So some of it you're somewhat agnostic to the churn. You're still getting the eyeballs and the subscription revenue just through back to the linear platform. Is that fair to say?
spk06: look, I'd be guessing like you are. I mean, we have no way to connect those dots, but I mean, certainly some of them come, you know, the other direction. So I guess it's fair to assume that they might go back that way, but we don't really have a way to measure that. Okay.
spk02: And sorry, a couple others, just while I maybe later in the line here for this call that I haven't heard answered yet is you, you've given some veiled sort of outlook for advertising and, in the second quarter, and you mentioned December, John, specifically, but if I look at Q2 in total last year, TV ad revenues were down 7% year over year. It's not like it was a big up quarter, even if December was better than that 7% total. Are you signaling that you may not grow in the second quarter of this year, or are you just saying people shouldn't expect mid-teens growth again, or or maybe even double-digit growth again?
spk06: Yeah, it's the latter for sure.
spk02: Okay. So some sort of positive growth, and possibly even as high as 10%, depending on how bookings come in, is fair?
spk06: I think that number is probably a bit high, given where we're at right now.
spk02: Excellent. And my last question is back on programming costs. I'm a bit confused. Confused and surprised, I guess. We went back several years before the Shaw Media deal. I've never seen amortization of program rights this high and never seen the gap between payment and amortization this high. Was there not some sort of huge skew in timing where you were playing catch-up on amortization in the first quarter that could help? future quarters and especially when i think of the olympics that which usually means you don't have as much new content to pay for i'm just struggling with how how you get such a high increase in q1 but still expect potentially double digit growth in q2 q3 and and q4 is this pulling forward a lot of stuff from both last year and and from 2023 um
spk06: Okay, well, there's a lot of moving pieces in it. So if I look at, I don't have all the data in front of me back to 2016, but if I look at 2022, so this quarter we just reported to 2020, so the increase there is about $9 million. That's all Canadian, right? We call it foreign, but the Hollywood stuff, US stuff is basically flat. So Again, it's back to we are catching up from 2020 when we had that $50 million shortfall. In terms of the cash versus the AMORT, that's a completely separate thing. There's just timing that goes on, how we get invoiced, when we get invoiced. Q1 is partially about what happened in Q4 as well, because if we have more money going out the door in Q4, that means there's going to be less in Q1. That's Part of my overall comment about the free cash flow for the entire year is going to be lower because we do think there's more cash in total in 22. And how that's going to fall by quarter exactly, that's tough to get an exact read on, but it's definitely going to pick up in Q2 and beyond. I don't know if that answers your question.
spk02: Yeah, it does, but it actually led me to one more follow-up, and then I will promise I will shut up. This accelerated investment in CPE... As you say, the cash would come in usually before the amortization, given the nature of you being the prime broadcaster. Does that mean that there could be some lag benefit in terms of your content merchandising revenue line in 2023? You're investing in more shows now than you have to because of the CRTC rules, but some of those you'll be able to keep the rights to and be able to monetize in international markets in subsequent periods?
spk03: Yeah, I'm going to jump in. That's absolutely correct. So think of it this way. I mean, you know, we can debate the logic of the CRTC's decision to make us make up $50 million of spending. You know, you've heard my haircut analogy, right? If I can't get a haircut for 12 months, I'm not going to get a haircut every week for 12 weeks. But that's what the commission seems to think is reasonable. I'll leave it at that. As regards the beneficial impact, of course, think of it this way. Cask is out the door. Then we amortize. Then we get global revenue. And not only global revenue, we also, I mean, international revenue, but also we're able to use it to drive our audiences. I mean, half, you know, our core studio's content now drives basically half of all of our audiences on HGTV Canada, the most valuable audiences in Prime. So we're, you know, that business is not only an international sales opportunity, which is supercharged by this, you know, this investment we're making that we have to catch up, but it also is shoring up the appeal. of our domestic linear channels. So it's very strategically important to us. It's just going to put some pressure on cash and AMWRT in the next 12 to 24 months.
spk01: Excellent. Thanks, guys. Thanks, guys.
spk09: Next question will come from David McFadgen with Cormark Securities.
spk04: Oh, hi. Great. Yeah, most of my questions have been answered. Maybe I'll just follow on Stock TV. Is it safe to assume that the pricing for SAC TV will be similar to that on Amazon?
spk01: I would say generally, yes.
spk03: But the details really, you know, we're still kind of in the sort of development phase of all that, David.
spk04: Okay. And you mentioned that the economics are similar, so would it be – safe to assume that the revenue split with Rogers and you on SAC TV would be similar to that between you and Amazon?
spk03: I would say basically, yes. Again, we don't get into the details on a partner-to-partner basis, but the economics by and large are similar.
spk04: Okay. And then just on the merchandising distribution, you talked about a fairly large content sale, 250 hours. Was that recognized in Q1 or will that be recognized in Q2?
spk06: Yeah, that's a future quarter, David, as those get delivered.
spk04: Okay, okay. Okay, that's it for me. Thanks. Okay, David, thank you.
spk06: Thanks.
spk09: And as a reminder, Star 1, if you do have a question, we'll now hear from Jeff Fan with Scotiabank.
spk10: Thank you, and good morning, everyone. Most of my questions have been answered, so a few clarifications first. For the CPE for this year, I think the total number, anyways, is about 50 million. Can you just break down what's coming in this year versus 23?
spk06: Sure. I think a good assumption at this point, Jeff, is 50-50. You know, that could be subject to delays, which we're not really seeing at this point, but that's kind of our going assumption is that half this year and half next year. Okay, great.
spk10: In terms of revenue growth, I think you guys have talked about before about consolidated revenue growth for the full year. I think that the market is really focused on the second half, given you start to lap a lot of the COVID recovery over the last year or so. Can you talk a little bit about the second half revenue growth? What kind of visibility you have to achieve that full year?
spk03: Well, I know the second half is not Q2, but obviously Q2 is a bit of a dump ball right now, as we discussed, given Omicron. I guess what I can say about the second half is just on the supply side, you know, our Q3 is another big quarter for us after Q1. It's the second largest. And we have, you know, this momentum we have on our schedule is important to note. And we have got, you know, a very, very strong schedule in Q3. So to the extent to which the economy continues to recover, when you compare our programming lineup, both the sheer volume of episodes compared to last year, and you look at the caliber of the content, you know, the brand spinoffs, the winning new shows, you know, I think we're going to be in a very strong position. to monetize advertiser demand to the extent to which the economy is now coming out of, you know, the pandemic in full force. And then we have and will continue to benefit from a relative share shift within the broadcasting competitive set in Canada. That's about all the call I think I can give you on the back half.
spk10: Okay. No, that's fair. Clarification on free cash flow for John. the lower free cash flow in 22 versus 21, does that include the $40 million that you're getting from the venture fund that you received this quarter?
spk01: Yes, it does.
spk10: Okay. And finally, just on capital allocation, can you be a bit more specific about your leverage target for the end of the year? Just because you know, with the new buyback announcement and your comments on buyback, I just want to make sure I understand, you know, what your target is at the end of the year, just so that we can help gauge what your activities may look like for the buyback.
spk06: Yeah, so I guess just leaving the buyback aside for a minute, the target at the end of the year is something that we really stay away from because I think we learned back in 2018 that that um that was not a good place to go it just it just creates reverse guidance which we you know clearly um aren't giving annual guidance so i think we stay away from that obviously you know our plan is to continue to have it go lower um and that would be kind of the shape of where we think the curve goes through the end of the year but i don't think i'll say more much more than that you know in terms of the size of the buyback you know and doug kind of um answered this with Adam, but in terms of sort of the buyback approach. But, you know, I think we have to keep in mind it's always going to be subject to the market conditions, right? And that includes, you know, where our shares are trading, where volume is, and as well, you know, where our cash position is at any particular point in time. So I think there's always got to be that caveat on it is, you know, the buyback is going to be opportunistic is probably the best way to describe it. All right.
spk03: I might add also, and if I could add, Jeff, because, you know, Obviously, we're making investments to grow revenue. Our growth narrative is all around consolidated revenue growth year over year coming out of the pandemic. And that's a function of investments in advertising, advanced advertising and data. It's a function of growing our studio slates, a function of Stack TV. Those rights require additional investments. From a capital allocation perspective, there is no shortage of internal investment opportunities in the pursuit of revenue growth. We have a very disciplined approach to how we evaluate those decisions. The encouraging outcome of all the work we've been doing on shoring up the balance sheet is that now we have more financial flexibility to pursue different approaches on capital allocation, including the NCIB. The leverage target remains one. John and I, I think we've demonstrated pretty consistently that we're prudent stewards of capital, and two and a half or below is our target. But we're also within striking distance, and so if there's an attractive opportunity, which is good for the shareholders, that's not about deleveraging, we'll pursue that as well.
spk10: Great. Thank you.
spk01: Thank you.
spk09: And looks like that's all the time we have for questions. I'll turn the call back over to your host for any additional or closing remarks.
spk03: Thank you, Jake, and thank you, everybody, for your interest and questions. We're always available to speak, and I think we'll be speaking to basically all of you today. So we appreciate your time. Have a great Thursday, and stay well, be safe. Thank you.
spk09: With that, ladies and gentlemen, this does conclude your conference for today. Thank you for your participation, and you may now disconnect.
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