Corus Entertainment Inc.

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.

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.

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.