Corus Entertainment Inc.

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.

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?

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.