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spk10: the arrival of additional participants and should be starting shortly. Thank you for your patience and please continue to hold. Good morning. My name is Sergey and I'll be your conference operator today. At this time, I would like to welcome everyone to Chorus Entertainment second quarter 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 star 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.
spk06: Thank you, Operator, and good morning, everyone. Welcome to Chorus Entertainment's fiscal 2022 second 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.corosant.com under the investor relations events and presentations 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, of course, also provide 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 Corus's second quarter 2022 report to 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. I will now start on slide three. I am pleased that we delivered consolidated revenue growth in the second quarter, albeit modest, as we encountered the impact of the Omicron variant on the economy and advertising investment accordingly. These results once again demonstrate the disciplined implementation of our strategic plan. Our team is delivering revenue diversity, building a portfolio of highly complementary businesses that continue to increase the resiliency of our business model. Above and beneath the surface, there is lots we are excited about. Let me take a moment to unpack the sum of the parts. We are transforming how we sell television by providing improved targeting and automation. In Q2, we saw significant gains in audience segment selling as users increasingly adopt linear optimization strategies and leverage the efficiency of our automated cinch platform in their advertising buys. We are innovating as we seek to put more content in more places, increasing audience impressions across streaming platforms and driving impressive revenue growth. Witness the subscriber revenue success we are having with a headline growth number of 7% in the quarter. Our content business is growing meaningfully, and we anticipate strong revenue gains in the back half of our fiscal year. We have just recently secured landmark sales for our original content in the international market as evidenced by our strategic output deal with Hulu. Importantly, we significantly improved our capital structure and financial flexibility with the issuance of an additional $250 million of senior unsecured notes and the extension of our bank credit facility for five years. Moving to slide four. In our second quarter, we delivered modest growth in consolidated revenue. The Omicron variant and related restrictions impacted the momentum of certain advertising categories. In this context, we delivered the following results. Consolidated revenues of $362 million. Consolidated segment profit of $87 million and free cash flow of $88 million. The Canadian economy appears to be slowly recovering from the pandemic, but visibility in the advertising business remains limited. That said, we are starting to see signs of economic activity firming up, commensurate with the lifting of pandemic-related restrictions in recent weeks and with the arrival of spring. Over to slide five. Advertising is the biggest business in our portfolio, and course is in the lead position as we transform how television is sold. Once again, this is evident in our results. Our two new revenue performance metrics introduced six quarters ago to track our progress are trending impressively up and to the right. In fact, our second quarter represents the high watermark since we began sharing these metrics with you. Indeed, there are many green shoots springing up all over our portfolio as advertisers increasingly embrace our suite of ad tech offerings across our video, digital, and audio platforms. I've spoken in the past about Canada's unique market structure and the industry-wide collaboration that meaningfully benefits our audiences and advertisers alike. Here at Chorus, agencies and advertisers are increasingly optimizing their buys and integrating audience segment selling using the common industry standards and or their own custom segments for their campaigns. Cinch has hit its stride and is scaling impressively, enabling advertisers to leverage the self-service automation platform to achieve better targeting. In Q2, optimized advertising revenue reached our highest result to date at 42% of total advertising revenue. This incredible growth of 49% over last year demonstrates that we are providing a compelling alternative as we transform how we sell television. Digital advertising is another bright spot in our portfolio, bolstered by investments in video streaming platforms. Our launch of two new initiatives in recent years, Stack TV and the Global TV app, leveraged the additional content rights we have secured to increase value for subscribers while at the same time creating new audience impressions as we drive digital advertising and subscriber revenue growth. More views means more inventory that we can monetize through direct and programmatic selling as well as dynamic ad insertion within video on-demand viewing. New platform revenue, which captures digital advertising and subscriber revenue growth, represented an all-time high of over 10% of our total television advertising and subscriber revenue, which is an increase of 38% over the prior year quarter. John will provide more details on this later in today's call. Moving to slide six, to discuss our resilient recurring annual subscriber revenue. The standout portfolio highlight for Q2 is the 7% growth in subscriber revenue. This is a record result, representing the highest quarter of subscriber revenue growth since we acquired Shaw Media in 2016. A key contributor to our resiliency is the tremendous appeal of Stack TV. In February, we achieved a major milestone in our journey to re-aggregate our channel's business onto streaming platforms with the launch of Stack TV on Rogers Ignite TV and Ignite SmartStream. This represents the first time that Stack TV is available to streaming subscribers through a traditional distribution partner in Canada. And as I mentioned on our last call, this is a game-changer. We are broadening our content offering on Stack TV with a growing multi-season assortment of top franchises and new exclusive content. The recent addition of the Lifetime channel is a good example of how we can provide even more value in pursuit of our goal of 1 million paying Stack TV subscribers. Our Stack TV and Nick Plus subscriber count is closing in on 750,000 paying subs this and contributing to the expected growth to more than $500 million of annual recurring subscriber revenue at Chorus this fiscal year. On to slide seven. Chorus remains Canada's favorite home of leading entertainment and lifestyle programming with great content available to our audiences across our traditional networks, Stack TV, and other streaming platforms such as the global TV app. Our spring schedule on Global is anchored by the return of fall's number one series, Survivor, now in its 42nd season, season 10 of locally produced perennial fan favorite, Big Brother Canada, and the return of this fall's number two show, 9-1-1. Our specialty networks feature a compelling spring lineup and popular chorus studio series, including the return of Canada's number one specialty series, Islander Brian, now in its fourth season, Season 2 of Chorus Studios' mega-hit Rock Solid Builds, returning earlier this year as the number one show on HGTV. Season 3 of Scott's Vacation House Rules and his new spin-off, Scott's Own Vacation House. Wall of Bakers, a new spin-off competition series from Wall of Chefs, and the premiere of renovation series Gut Job. Canadian fans love the characters and the storytelling that come from our Chorus Lifestyle originals. Cora Studio shows are huge drivers for some of our largest specialty networks, comprising nine of our top 20 shows on HGTV so far this spring. Many of Cora Studio's top-ranked originals are also performing well on Stag TV, proving to be key audience engagement drivers. Over to slide eight. We are always looking to optimize our portfolio of channels. Our most recent example is the Canadian launch of Magnolia Network. a rebrand of our DIY channel concurrent with the launch of this new channel in the U.S. Magnolia Network's exclusive content across food, home, and design pairs perfectly with Chorus' suite of lifestyle programming, further enhancing our leadership in factual reality content. Chorus exclusively debuted Magnolia Network on March 28, 2022, becoming the first broadcaster outside of the U.S. to launch the channel. Moving to slide nine, Our content portfolio delivered strong double-digit growth in fiscal 2021, and we expect to return to these trends in the second half of this fiscal year and beyond. Core Studios is one of the businesses within our portfolio of businesses that is driving significant content revenue growth. This week, we announced our largest strategic output deal ever between Core Studios and Hulu. Building on Core Studios' previously announced sale of 200 episodes last year, this new multi-year agreement sees Hulu acquire more than 400 episodes of our lifestyle, renovation, unscripted, and crime content, including rock-solid builds, wall of chefs, Big Food Bucket List, and the U.S. pre-sale of Pamela's Garden of Eden, starring iconic Pamela Anderson. Importantly, this output deal sets the table for future revenue growth with a first-look right to acquire shows Chorus Studios will produce in the years ahead. At Nelvana, we are investing in development in our co-production frameworks and in the expansion of our production slate. We are thrilled with all of our co-production frameworks, but I wanted to take just a moment to highlight Arnel Vanna at Discovery Kids' joint venture, Red Knot. In a few short years, we have created three animated series, which we broadcast in Canada and Latin America, and have sold them around the world. Two seasons of Red Knot's Dog and Pony are now delivered, and the newest show, Super Wish, as well as season three of popular 3D animated series Agent Binky, Pets of the Universe, are now in production. And finally, in February, we announced the acquisition of a majority interest in aircraft pitchers. We expect this to create new revenue opportunities in the international marketplace, supporting our growth ambitions and adding diversity in content genres to our slate. With that, I will now turn it over to John to discuss the Q2 results.
spk05: Great. Thanks, Doug. Good morning, everyone. I'm starting on slide 10. Over the past year, we have purposefully taken steps to retool and strengthen our capital structure. At the end of the second quarter last year, the weighted average maturity on our debt was just over two and a half years. We saw an attractive window to introduce long-term fixed-rate debt into our mix last May, and that resulted in the issue of $500 million of 5% senior unsecured notes due 2028. We also extended our bank credit facility at that time. At the end of Q2 this year, we successfully completed a subsequent issue of Canadian dollar $250 million of 6% senior unsecured notes due 2030 and another extension of the bank facility to March 2027. The weighted average maturity on our debt has improved significantly to six years, providing us with a 60-month runway to our first maturity date in 2027. We are pleased that investors recognize the significant long-term value course it's creating, as evidenced by this most recent note issue. We have a solid foundation as we make smart investments in our business to drive the advancement of our strategic plan and priorities. This quarter, we delivered significant free cash flow of $88 million. Net debt to segment profit tipped up slightly to 2.70 times at February 28, 2022, up from 2.66 times at the end of Q1. Our goal to drive net debt to segment profit below 2.5 times remains in focus as we pay down debt to create additional financial flexibility. In fact, we've paid down almost $700 million of total debt since the changes to our capital allocation policy took effect in September of 2018. In January, we commenced a normal course issuer bid for up to 5% of our public float, as we see this as an attractive investment of our free cash flow. So far, we have repurchased nearly 1.8 million shares, with 1.25 million of those repurchased in Q2. We also issued a press release this morning declaring our June 2022 quarterly dividend of $0.06 per share for Class B shareholders, once again providing a very compelling dividend yield of 5.1%. We are investing in the business, delivering, and providing attractive returns to shareholders. Now over to slide 11. On our Q1 call, we outlined our expectations of modest consolidated revenue growth for the second quarter. We are pleased to have delivered consolidated revenue of $362 million in Q2, and that's up 1% over the prior year quarter in this very challenging environment. Consolidated segment profit was $87 million for the quarter, and as a reminder, in the prior year quarter, we benefited from approximately $12 million in wage subsidy and regulatory fee relief that did not recur this year. Consolidated segment profit margins were 24% for the quarter, and consolidated net income attributable to shareholders for the quarter was $16 million, or $0.08 per share. Now let's turn to our TV results for the second quarter. on slide number 12. Overall, TV segment revenues of $340 million for the quarter were consistent with the prior year, reflecting the significant year-over-year uptake of our streaming services, but offset by a challenging advertising market and a timing-related revenue decline in our content business. TV advertising revenue was relatively consistent, with a slight decline being a result of the reintroduction of temporary pandemic-related restrictions, ongoing supply chain issues, and the impact of tentpole sporting events, airs, on competitor networks. As we mentioned on our last call, we had an exceptionally strong December in 2020, as advertisers hurried to deploy unspent marketing budgets for calendar 2020 following a delayed fall schedule that year. Over the last month, we have seen the easing of pandemic-related restrictions across the country, and we are experiencing better momentum in advertising sales moving into Q3. Subscriber revenue is up an impressive 7% in the quarter compared to the prior year, and that was driven mainly by increased demand for Stack TV and NIC+, as well as retroactive adjustments from BDU distribution agreement renewals. We are seeing clear benefits from the re-aggregation of our channels business on streaming platforms as subscribers discover the appeal of our innovative live and on-demand approach. Merchandising distribution and other revenue of $22 million was lower compared to QG last year, mainly due to $7 million in sales to two large streaming services in the prior year. We expect a significant improvement in this revenue line in our second half, as Doug outlined earlier. Direct cost of sales was up 8%. On our last call, we highlighted that programming costs were expected to grow in the high single digits to low double-digit percentage range in the second quarter, and this is mainly a result of a return to normal deliveries from our U.S. content partners and a required catch-up CPE investment, according to the CRTC decision last summer. We're advancing our plan to deploy these required investments in Canadian programming to accelerate our own content aspirations and related sales into the international marketplace. Our G&A expenses were up 20% from the prior year quarter, and as a reminder, in Q2 last year in TV, we recorded $4 million in federal wage subsidy and $7 million in regulatory fee relief. In addition, in the current year quarter, G&A mainly reflects higher marketing costs to support the growth of SAC TV and trademark fees. Overall, TV segment profit was down 22% in the second quarter, primarily resulting from the federal wage subsidy and relief on regulatory fees in Q2 last year and the impact of a normalized programming schedule. TV segment profit margins were 27% in the current year quarter compared to 35% a year ago. Now, as detailed in slide 13 and outlined by Doug earlier, we are once again delivering significant growth in our new performance metrics. This quarter, we advanced our growth initiatives in streaming and digital video advertising as we put more content in more places and continue to gain traction on advanced advertising initiatives as we transform the way we sell television. New platform revenue includes incremental subscriber revenue from streaming initiatives and advertising revenue from digital video platforms. New platform revenue is over 10% or $33 million. total TV advertising and subscriber revenues in the second quarter, and that's up 38% or $9 million from last year. These excellent results reflect the disciplined execution of our strategic plan as we deploy our expanded content rights in new places and connect with audiences in new ways to drive additional sources of revenue. Optimized advertising revenue was up significantly in Q2, representing 42% or $77 million of total advertising revenue. This is an increase of 49% or $25 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 Cinch, which is gaining significant traction. Let's turn to our radio results now, as outlined on slide 14. Radio segment revenues were up 8% compared to the second quarter last year, reflecting improvement across certain key advertising categories as the economy reopens. but offset by ongoing supply chain issues for others. We're encouraged by these trends heading into our seasonally stronger spring period. Radio segment profit decreased to $.1 million in the quarter, primarily as a result of the return of sports programming costs in the current year and the non-recurring federal wage subsidy and CRTC fee relief in the prior year quarter. And with that, I will turn it back to Deb. Thank you, John.
spk06: Finally, over to slide 15. On today's call, we have purposely wanted to spotlight the very complementary and synergistic portfolio of businesses at Corus that serve to improve the resiliency of our operating model with growing diverse sources of revenue. We have described how some of these parts are working in concert and will continue to do so to deliver consolidated revenue growth in the years ahead. This portfolio of businesses is playing an important role in advancing our strategic plan and priorities to transform how television is sold, to put more content in more places, and to grow our studio content business internationally. Six quarters ago, we introduced our new revenue metrics to hold us accountable to this growth narrative, both of which are now at all-time highs, demonstrating the successful execution of our strategic plan. Our leadership and optimized advertising positions chorus for the future as it differentiates us in the industry and enables us to provide our advertisers leading targeting and automation to improve the returns on their marketing investments. Stack TV launched less than three years ago is an outstanding example of our team's strategic agility and is poised to enhance value for our subscribers with more content as we pursue the re-aggregation of the channel's business on our streaming platforms. We expect our content business to return to a stronger growth trend in the coming quarters, as evidenced by recent content licensing sales and strategic output deals. Production is in full swing at all our major studios south of the border, and we're looking forward to unveiling our content lineup for the new broadcast year during our June upfront. And finally, our strengthened capital structure provides improved financial flexibility to pursue our strategic plan and its priorities. I would like to take a moment to thank our talented team at Corus for all their efforts and contributions during the COVID-19 pandemic as we advance our strategic plan and priorities. We said that we would emerge from the pandemic on a stronger strategic and financial footing, and we have done just that. We look forward to updating you on our progress in the quarters ahead. Thank you, and back to you, Operator.
spk10: Thank you. Ladies and gentlemen, as a reminder to ask a question, please signal by pressing star one on your telephone keypad. Our first question comes from David McPhagen from Cormac Securities. Please go ahead.
spk07: Oh yeah. Hi. A couple of questions. Maybe you could just comment on how the TV ad market or your TV ad revenues trending so far in Q3 given, you know, it's like we're heading back somewhat back to normal. And then secondly, can you quantify what the retroactive subscriber payments were in the quarter? Thanks.
spk06: Thanks, David. I'll take the first one. We definitely saw cooling in Q2 as evidenced by the numbers we just shared with you. But in the last three weeks, I would say, I think it's concurrent with warmer weather as Canadians try to get outside and also lifting other restrictions. We have seen some firming. The big categories that are kind of leading the way in this firming are retail, financial services, entertainment, and communication. But we still haven't seen the recovery of some of the categories that have been relatively dormant now for extended periods of time, including automotive and health and beauty, makeup, et cetera. Sales remains down pretty significantly. I would also add direct-to-consumer. There was a bit of a flurry of travel as people wanted to get away for their March break, but there's a lot of business on the direct-to-consumer e-commerce platforms that transact accommodations, travel, travel packages, airfare, that we're still waiting to come back and pull for.
spk05: So there's a little color on the categories, David. David, on your subscriber revenue question, the normalized number, the 7% reported, If we take out the adjustments for the retro payments, and there was a little bit actually last year too, the growth is 4%.
spk11: Thank you, too.
spk07: Okay. And then just on the odds, if I can just question a little bit. When you say firming up, does that mean that it's growing or it's still down maybe just less? Yes.
spk06: I would say it's looking like it's beginning to kind of grow. We definitely are optimistic that we should continue to have a bit of a momentum shift. But, you know, this pandemic has given us a whole bunch of head fakes, hasn't it? So we're just being, I think, appropriately measured in our comments.
spk07: Okay. And then I noticed that you added lifetime to the Stack TV bundle. Does that result in incremental revenue for you, given you now have additional channel there?
spk06: It's helpful basically in the whole mechanics of churn management and acquisition. We have a whole bunch of work we're doing right now on new iterations of our offering on stack, both in terms of content and channels. So I think you can expect to see more interesting plays in the coming quarters. Stack TV is a real focus for our company, as we've discussed now for a number of quarters. And the addition of Lifetime, I think, is but one example of more to come in terms of how we're going to improve the value proposition of that service.
spk02: Okay. All right. Okay, thanks. Thank you.
spk10: Adam Schein, National Bank Financial. Please go ahead.
spk01: Thanks a lot. Good morning. Maybe one for you, Doug. Just on the Rogers stack deal, it's been, I guess, now a couple of months. Can you talk about specific traction there? I know you don't necessarily want to talk too much about a specific contract, but to the extent that you're sending any traction in that new distribution outlet.
spk06: Yeah, I would just say it's very, very early, Adam. And at this point in time, I would characterize it as sort of a soft launch. There is more pressing priorities at Rogers at the moment. So our teams are working together to kind of spin up sort of more of a campaign in the coming quarters, and that's going to be a priority of ours. But I think at the moment, we're just in the soft launch phase.
spk01: Okay, fair enough. And any particular comment on pricing? I mean, it's held – notwithstanding occasional appropriate promotion activity. And I know there's some nuances in terms of how the Rogers pricing is, you know, subject to, you know, an Ignite TV customer. But anything to add on pricing front?
spk06: No, not really. You know, we think that Stack provides a compelling value as an entertainment lifestyle programming bundle. both with live viewing and full in-season stacks for binge viewing, and that is part of the compelling proposition that has resulted in such an impressive new business for us.
spk01: Okay. And maybe just for you, John, just in terms of the cash flow, free cash flow was particularly strong in the Q2, measured up pretty well against last year. Obviously, you do have the evolving programming spend, and I think you noted the fact that you might make some moves in the H2, whether it's catch-up or just coping with you know, the catch-up can-con dynamic. Can you speak at all to any particular trends and or, you know, perhaps the opportunity where, once again, as per last year, you might actually end up spending a little bit less than otherwise expected?
spk05: Yeah, it's a good point. You know, I think you've hit it, actually. If you look at our year-to-date even on programming, so, you know, if you compare what the amortization has been through segment profit versus what the cash has been. There's quite a difference there with the cash running quite a bit lower. That's not normal in any year, and certainly given that we've got the CP catch-up coming at us, I think that that's going to put a fair bit of pressure in the back half on the programming cash. So at the very least, I would expect us to catch up where Amort and cash would typically be pretty close to the same. and then even a little bit more perhaps as Canadian production starts to really roll out, really starting now. So it's definitely timing-related, and I think we've seen a good benefit so far in the first half, but that's not going to continue in the second half.
spk02: Okay. I appreciate that. Thank you. Vince Valentini, TD Securities.
spk10: Please go ahead.
spk08: Thanks very much. Let me start with the composition of stack that you've been talking about a bit. You've added Magnolia on the linear side. Despite Discovery Plus being offered in Canada, you seem to have access to a lot of their shows on your other channels on Stack. I'm just wondering technically if the Magnolia deal, are you allowed to add it to Stack in the future if you decide that's a good addition?
spk06: I'll just say, Vince, without getting into the specifics of our individual channel deals that Our Discovery deal is multifaceted, multi-year, and pretty comprehensive in terms of our ability and flexibility to take the content and put it on various platforms. Discovery Plus is obviously their direct-to-consumer product in this market, but we have access to the vast majority of their content on the platforms that we choose to exploit it on. And we will consider how and what to add to Stack TV in the coming quarters based upon the rights we've secured. So I'll just kind of leave it at that and not talk to the specific channel itself.
spk08: Fair enough. Turning to your own content, $7 million in Q2 last year to, I think, Netflix and Hulu combined. It seems like you've doubled what you're selling to Hulu, but I'm not sure. Does that just mean that you're not selling stuff to Netflix and all the rights are going to Hulu instead, so doubling really means you maybe just replicate that $7 million as opposed to increasing it, and that $7, I guess, shows up in Q3 instead of Q2 last year?
spk05: Yeah, they're actually two very different things. The Netflix sale related to kids' content that was part of the Nick deal, so that's a completely different... animal and different timing. The Hulu sale, I think that's more comparable. It's a multi-year deal and that means shows are getting delivered over multiple periods. We will definitely see uptick in Q3 and Q4 this year and also into next year, spread out through all the quarters next year. I wouldn't say it's a direct replacement and not all in Q3, but certainly it makes the back half very strong for us on that line.
spk08: And do you have – you're down 12%, obviously, year-to-date on merchandising distribution and other. Do you think you can get back to your normal target range of sort of at least high single-digit growth for the full year, or are you just saying you can get to that for the second half, but for the full year it's still going to come out closer to flat?
spk05: I think for the full year that's definitely still in the cards.
spk08: High single-digit for the full year is still in the cards. Or double. Or double. Okay.
spk06: Yeah.
spk08: That's great.
spk06: Yeah, I think the Core Studios deal, I think, is one of the concepts of today's call was to discuss it with the portfolio of businesses. And the Core Studios business is part of the portfolio of studio businesses that we have. That's a real big sale, you know, basically a recognition that the lifestyle and factual reality programming that we're producing has got a lot of appeal in international markets, not just here in Canada. As I mentioned, it does drive significant audiences in our networks. But it also really is a strategic output deal. So, you know, we've talked to you guys before about the value in building multiple seasons and creating franchise IPs. And when you have a big partner in a big market that is basically going to be on the bid for series or producing going forward, I think that's a good setup for continued growth at Core Studios.
spk10: Excellent.
spk08: And I just want to make sure I clear that when you give those expectations. You're not including any potential windfall in that from merchandising sales from Bakugan yet. I think that's still going to develop over time. You wouldn't be assuming a double digit for the full year because of a big windfall in the next six months?
spk06: No, no. I mean, it would be great if it happened, but that's not part of our conversation. We're talking specifically about Core Studios.
spk08: My last question is on the improvements in the capital structure and balance sheet and relating that to dividends. So you've now, as you said, you've got a 60-month runway. You've turned out your debt. It seems to be a much stronger debt. foundation plus debt leverage is just on an absolute basis lower than where it had been a year or two ago. That combined with a 20% to at most 25% payout ratio on free cash flow for your dividend, given the balance sheet stability and terming out, is this something at the board level you may start to think about inching up the dividend even by a small amount as we head into fiscal 23?
spk06: I think our priority, I don't think, our priority is to invest to grow the company. So, and there's no shortage of ideas that, you know, our teams are bringing forward for discussion in terms of internal cap allocation investment, you know, opportunities. So that remains sort of job one, you know, and we will be, you know, we are and will continue to discuss with the board, what uses of cash flow are optimal once we have exhausted our internal investment ideas. But at the moment, there's a long list of compelling opportunities that we're working on. So the dividend at 5.1% is compelling by any measure. You're right, it is well supported by a very low payout ratio accordingly. And so I think, you know, at the moment, as John mentioned, we are active repurchasing shares, which we think is a smart investment. But the priority remains in investing to get to consolidated revenue growth as we've committed in our growth narrative.
spk02: Thank you. Thank you.
spk10: Arvinda Galapathy from Canaccord Genesee. Please go ahead.
spk03: Good morning. Thanks for taking my questions. I'll actually start where you left off there, Doug, with respect to the NCIB. I mean, you've kept a fairly decent rate of buybacks, $1.6 million thus far. You still have sort of, I guess, almost $8 million more to go. Is it your intention, assuming the share price doesn't move dramatically, to sort of go all the way up to that $9.7 million? Or is that sort of just the general allocation that you're thinking about?
spk05: I mean, obviously, that's the limit, as you point out. We could go back and ask for more, I guess. At this point, we're on a pretty steady program. Of course, that can be changed at any time, as long as we're on blackouts. So I wouldn't probably tell you that we're absolutely going to buy the whole thing. It does depend on what the share price is going to be. It depends on what our cash situation is as well. I think for now, probably stay tuned is the best way to think of it. But, yes, we are active, and you can see or you will see from our March filing and what I said in the prepared remarks that we continue to buy at a pretty steady pace.
spk03: Awesome. Thank you. And then I had a question on TV off-packs. I mean, even if you kind of back out or adjust for some of these items, the non-recurring items, there's a little bit of inflation. I guess on one hand, you're investing in your streaming assets and then your ad tech. On the other hand, obviously, there would be cost reductions. How should we think of the G&A portion of inflation? Because, I mean, depending on the ad environment, obviously, it still has a significant impact on your profitability and margins.
spk05: No, absolutely. So there are a certain level of revenue-based costs that, you know, very much attach directly to you know, to that G&A line, you know, for sure the biggest parts are what you mentioned. So the loss of wage subsidy, and that's going to be actually a little bit higher next quarter. That's about $4 million next quarter. CRTC fee relief next quarter is about $1 million. So there's going to be that pressure, and then it tails off pretty dramatically in Q4. I guess the other couple of categories that we're seeing that are driving it, one is we're and we've mentioned this the last couple of calls, we are spending more on marketing, particularly aimed at new shows, and that also couples in stack. So that we think is important to keep the momentum going there. We've got some inflationary pressure for sure on the salary and benefit line. I think probably everybody in the economy is seeing that right now. And then there's other small things. So we're managing carefully. We don't mind variable costs when revenue is going in the right direction, but there's definitely pressure there, as you know, and we're certainly on it.
spk03: Okay, great. And my last question, I guess, John, again, you gave us a good indication as to that sort of the ratio between the program amort and the spend. There's still a fair bit of movement on the general working capital. excluding that, should we still anticipate a fairly notable outflow from working capital as you think of the four-year number?
spk05: Well, it really depends, Aravinda, on how we end the year in terms of revenue growth. So I think in a growth back half, to me that says we're going to be investing in working capital. And, of course, very seasonal. But Q4 is a pretty good ending point for the year in terms of, you know, getting as much, you know, working capital converted to cash as we possibly can. You know, for the whole year, I think, you know, based on that and the outlook for the back half, I think there's some investment in working capital full year. I don't think it's huge. Like, it's not $50 or $100 million, anything like that. The big swing, just going back to it, the big swing you mentioned is the programming line for sure.
spk00: Okay, excellent.
spk02: Thank you.
spk10: Drew McReynolds, RBC Capital Markets. Please go ahead.
spk04: Thanks very much. Just shifting the radio here, certainly across the rest of the industry, seeing a little bit of an uptick here in recovery. You mentioned a little bit of that in your opening remarks. Just wondering if you, Doug or John, can just drill down into that. In terms of radio profitability, has there really been any change from your perspective versus pre-COVID levels? And then I have a couple others.
spk06: Hi, Drew. Doug, I'll take the first part of that, and John can take the second. Yes, radio is certainly showing strong green shoots, as I referred to in my comments. It's bouncing back nicely from obviously a pretty dire low mark. There's some good category growth we're seeing from prior year. Retail and entertainment, again, seem to be strong on a local basis. Automotive is not. Again, that's not surprising. Restaurants have been still a little lagging because of various stages of restrictions, certainly in Q2. They look to be firming up now going forward. People want to get out again, and in most markets there's no longer any restrictions. So I would expect that to be an improving category. Government is very strong. You know, services, financial services in particular and telecommunications have been strong. So I would say it's still a bit of a mixed bag and not dissimilar to the category trends we're seeing in television, to be honest with you.
spk05: Yeah, I'd say kind of margin levels and... Obviously, it's flow-through of revenue, even probably more so in radio. As we get the revenue levels back up to a more normalized place, I don't know that we get back to pre-pandemic levels immediately, but that will certainly help. Again, similar to TV, wage subsidies, CRTC fees are a big swing factor this quarter, and there's some sports programming costs, but you know, as the revenue starts to really kick in, I think we'll start to see that margin line grow.
spk04: Okay, got it. And then two other, I guess, bigger picture. One, just on the M&A environment. So, you know, obviously saw a little bit of a tuck in there in February with aircraft. Just wondering, you know, the environment overall, whether it's the equity markets or broader environments, pretty choppy relative to kind of six, 12, 18 months ago. Just wondering if you're seeing any new opportunities emerge on the M&A side. And then second question, just on the CRTC decision on the Roger Shaw transaction, just treating Chorus as an independent, no longer affiliated with Shaw, I guess is my interpretation of all of that. Any obvious implications for Chorus from your perspective? Thank you.
spk06: Okay. Good. Happy to field that one. So the first one was M&A. So we're still very much of the view that the best use of our capital, as I said earlier, absent internal investment is buying back our own stock. The multiples that we see on M&A targets still appear to us to be extremely inflated. We look at cash as the real sort of definition of the value of any company. And And I just don't see the valuation described to certainly publicly traded companies that may be strategically of interest. They just don't pencil from a valuation perspective. So the answer quickly would be no in M&A at this time. Aircraft was a very smart tuck-in. It accelerated our strategic priorities and plans. It was an acqui-hire of a couple of really bright producers who were infamous both in Canada and the States, and it gives us an immediate slate of of development to invest in to really ramp our content licensing ambitions internationally. That was a great tuck-in, and to the extent to which we can identify other tuck-ins like that, that certainly would be something that we'll be talking to our board about in terms of longer-range capital allocation strategies. But there's nothing big on the horizon. We remain really focused on investing in the organic growth profile, funding the dividend, deleveraging to the net debt-to-segment profit target of 2.5 times. and buying shares back at this price where we think that's a great investment. As far as the Shaw-Rogers and the filings in the news and such, we were very pleased to see the new Bill C-18, which is the Online News Act, introduced this week. We welcome that. We're pleased that the government moved it forward. We were aware that they were doing some studies on the Australian model. and it really recognizes the value of news content, all news content. So it was nice to see the broadcasting community included in that bill. Yes, as you note, from a definitional perspective, we will be an independent upon the closure of the Roger Shaw deal, and we will work with the government to better understand implications for us there. So in the meantime, our news... Global News still is the number one viewed online news service in Canada. The growth we're seeing on a revenue basis is impressive. The team continues to do innovative things. We've got 14 fast channels now providing global news based on all of our 14 markets where we produce news. Our news teams are covering the tragedy we're seeing in Europe at the moment. So news is and remains, in our opinion, one of the most important things that regulated broadcasters deliver Canadians in Canada. I'm pleased to see the federal government recognizing that the mis- and disinformation out there is hurtful, and that Canadian licensed broadcasters have an important role in society.
spk02: Thank you very much.
spk10: Thank you. As a reminder, to ask a question, please signal by pressing star 1. Jeff Phan, Scotiabank. Please go ahead.
spk09: Thank you. Good morning. Just a couple of follow-ups and then a bigger picture question. A quick follow-up on the Hulu deal. Was this an exclusive deal with Hulu? And then on the revenue growth, consolidated revenue growth that, Doug, you mentioned, I know you said multi-year. Are you still comfortable about getting that consolidated revenue growth in the second half, given the Hulu deal you just signed? And then the final question is just on S Plots, the discussion around them shifting their business model from subscription or adding advertising potentially to it. You know, I guess my question is, how do you think that impacts Canada potentially? If S Plots starts to go into the advertising route to try to compensate for all the content spent that continues to rise, is that going to become a threat for Chorus and your ability to get at that advertising revenue pie, especially with some of the initiatives that you're doing with Cinch, et cetera? Thanks.
spk06: Okay, there's a lot in there, Jeff. Nice to hear from you. So let me sort of break it down. Number one, The strategic output deal with Hulu is not exclusive in the market. It's exclusive to the titles as part of the deal, I would say. So we have opportunities to sell other potential titles, but they do have a first look on the future slate. I would say I'd answer that question that way. The big picture question, and I think it's very notable, and I'll take some time just to kind of comment. The question about S-WOD looking at advertising as a way to fund it, I think it really validates Cora's position over the last number of years that the S-WOD business straight up is a very tough business to pencil. I mean, S-WOD is basically pay TV all over again. We used to be in that business, you know, back, you know, with... with the movie network, Movie Central, so I can't remember now. And that was a tough business, and it's still a tough business. It just happens to be on streaming platforms. So the fact that they're looking at letting advertising, to me, is not surprising whatsoever and quite honestly was expected. And it just comes back to what's old is new again. Basically, we have the same television model. you know, with commercially supported services and or pay TV now just delivered on a streaming platform, uh, as opposed to through over the air signals or the set top box, uh, news flash, we're doing that with stack TV too. So from my perspective, we're just competing for audiences and we're competing, uh, to create inventory and to, and provide better advertising solutions to, um, our clients and agencies alike. Uh, and to me, it's just another example of the sort of, um, the dynamic space that we're in. But I don't see it as any major ground change. We're already growing our digital business significantly. We're creatively, innovatively putting more content in more places. We know that there's a massive demand out there for premium video, AVOD-supported content, and that's where we're growing our global TV app. And we'll continue to pursue opportunities in that space.
spk09: Thanks, Doug. And the second half, revenue growth, consolidated revenue growth?
spk06: Oh, yeah. No, no, listen, that's our commitment. You know, our whole growth narrative is to deliver consolidated revenue growth year over year over year as the pandemic recedes, hopefully soon. And, you know, and that's where we talked about the portfolio of businesses and how it's the sum of the parts. And I'm super pleased with the contributions we're seeing from all of our businesses. And it just shows you when we have a You know, an Omicron quarter that put a little bit of a headwind against our television advertising business and our radio local advertising business, we can offset that with impressive growth with, you know, our subscriber revenues, with Stack TV, with Chorus Studios, with our digital, you know, video advertising business. So, you know, that's, I think, an important takeaway is just the fact that the operating model is becoming more and more resilient as we diversify our sources of revenues.
spk02: Thank you. Thank you.
spk10: Thank you all, and if there are no further questions in the queue, I'd like to hand the call back over to Doug Murphy for any additional or closing remarks. Over to you, Mr. Murphy.
spk06: Thank you very much, Operator, and thank you very much to everyone who joined us today. As ever, John and I are always available for follow-up conversations and questions should you have any. In the meantime, have a wonderful weekend. Enjoy what hopefully will be some lovely spring weather soon, and stay safe and be well. Talk to you soon. Thank you.
spk10: Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.
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