Corus Entertainment Inc.

Good morning, ladies and gentlemen. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chorus Entertainment Q3 2023 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 that time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star, then the number 2. As a reminder, this call is being recorded. I would now like to turn the call over to Mr. Doug Murphy, President and CEO of Chorus Entertainment. Mr. Murphy, you may begin, sir.

Thank you, Michelle, and good morning, everyone. Welcome to Coruscant Entertainment's fiscal 2023 third 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.coruscant.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'd like to remind those on the call today that in addition to disclosing results in accordance with IFRS course, also provide supplementary non-IFRS or non-GAAP measures as a method of evaluating the company's performance and to better provide an understanding of how management views the company's performance. Today, we'll 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 CORE's third quarter 2023 report to shareholders and the 2022 annual report which can be found on CDAR or in the investor relations dash financial reports section of our website. I will start on slide three. The advertising recession that began last summer remains, impacting our revenues and those of media companies the world over. In addition, our required spending on Canadian programming this year, based on both last year's higher regulated revenues, combined with the required catch-up pandemic Canadian programming expenditures as mandated by the CRTC, have put unacceptable pressure on our financial performance. To protect our margins, we are focused on driving efficiencies and productivity. A far-reaching enterprise-wide cost review remains in effect as we leave no stone unturned in an effort to reduce all costs to offset lower advertising revenues. Our meaningful progress in expense control is evident in Q3 and will continue to improve in Q4 as we streamline our operating model and asset base. We are undeterred, that said, in our pursuit of aggregating premium video content and audiences on linear and digital services while we expand our cross-platform monetization capabilities. Our smart, broadened investments in U.S. content acquisitions will generate growth opportunities in premium digital video as we also sustain our linear channel business. At our recent upfront, we revealed the premium content offering that will debut this fall and upcoming year on global, our specialty channels, and throughout our streaming portfolio. I'll speak more to this later in my remarks. This is a cyclical business, and while visibility remains limited, our purposeful focus is on positioning our company for the future and the inevitable economic recovery. I will focus my remarks this morning on the opportunities we see in premium video, both on our linear channels and on our growing portfolio of streaming platforms, and the monetization of those audiences with ever-improving and expanding go-to-market sales strategies and capabilities. Before diving in, let me briefly highlight the results for the quarter, which was another difficult one. Our consolidated revenue of $397 million was down 8% in the third quarter, resulting from lower television advertising and subscriber revenues, partially offset by growth in our content business. These revenue declines, when combined with higher amortization of program rights, resulted in lower total segment profit of $97 million for the quarter with free cash flow of $26 million. Over to slide four. And before I begin on video, I want to take a moment to address the Writers Guild of America's strike currently underway in the United States, which impacts broadcasters and streamers alike. While we remain hopeful for a timely resolution, We are scenario planning, working with our U.S. content supply partners and our own in-house studio production teams to address any potential impact over the coming months. Our industry faced a similar yet different situation at the start of the COVID-19 pandemic when production was on a prolonged hiatus. We have confidence in our teams and our partners with their deep collective experience in navigating these types of disruptions. Now let's talk about our premium video content offerings for the fall and the upcoming year. Our upfront this year marked a meaningful step forward in our evolution as an aggregator of premium video across our many leading linear channels and streaming platforms. Our premieres this year will drive 17 hours of simulcast on global. With powerhouse fan-favorite franchises such as NCIS and FBI, top comedies, Abbott Elementary, Ghosts, and last year, last fall's number one new show, So Help Me Todd, all will return. Buzzworthy new scripted drama is Matlock, starring Oscar Award winner Kathy Bates, and Elbeth, based on the character in The Good Wife played by Carrie Preston, will make their debut. We have built a very strong offering of winning unscripted content, which includes the 45th season of fan favorite and number one reality series, Survivor, coming to you from Fiji. I can see your voice with Ken Jeong returning with a third season. And season 25 of perennial favorite Big Brother, not to mention our Made in Canada version, Big Brother Canada. Our Canadian productions have not been affected by the writer's strike. On global, we have new original scripted series, Robin Hood, from acclaimed filmmaker-director X, debuting this fall. We have season three of award-winning thriller, Departure, starring Archer Pandavi, and season two of Family Law. We are stocked up with a deep library of specialty and foreign content through our exclusive deal with Peacock, produced and available across all platforms. Upcoming Peacock originals include TED, based on the blockbuster film franchise. We'll debut this new comedy with Seth MacFarlane reprising the voice role of Ted. Returning hit peacock drama franchise is Dr. Death and Bel-Air, and an exciting new drama titled Based on a True Story, starring the Big Bang series Kaley Kwoku. In seven short months, Pluto TV has quickly become a leader in the Canadian market. Pluto TV has broad appeal, with well-known series like comedy classics Cheers and Frasier, popular dramas Beverly Hills 90210 and Baywatch, and classic TV favorites Matlock and The Love Boat, plus older back seasons of crime franchise hits CSI and NCIS. Tens of thousands of hours of content Canadians haven't seen for decades are now available, and they're available for free. so viewers can stream now and pay never. In some ways, Pluto TV stands to benefit from a slowdown in the new content deliveries, as viewers explore the many past fan favorites given its enormous library of gold programming. Our research and insights team at Chorus has always been an important part of our test and learn culture, and has driven many sales and product innovations over the years. Today, I wanted to share our latest Eureka moment. Over to slide five. Recent research provides compelling evidence that our lifestyle and entertainment specialty channels are very well positioned to compete with sports. Contrary to the popular belief that you have to buy sports to get live audiences, live tuning across our specialty portfolio comprises almost 90% of total viewing. Whether it be The latest big dramas, stunning home rental projects, or delicious dinner ideas, audiences love the convenience of first window, lean back, as broadcast television. Consider news, which could be described as our sports, produced and widely distributed across many platforms, live, every day, in real time. At the Canadian Screen Awards this April, Global News topped the charts in the two biggest categories. Global National was recognized for the best national newscast, and Donna Friesen was recognized for the best national news anchor. Further, Global is the only broadcaster to provide Canadians with completely free, dedicated news fast channels nationally and across many regional markets, and its growth has been a standout in the industry. So in an effort to better monetize these live audiences, we explored the merits of sports-only advertising buys compared to sports plus lifestyle entertainment and news buys. Interestingly, we witnessed a compelling increase in reach with lower required ad frequency when a campaign is balanced across a wider array of specialty networks. Simply put, it delivers better marketing investment results for the advertiser, and this validates our conviction that entertainment, lifestyle, and news are critical parts of a smart advertising buy. Advertisers who narrowly focus on sports compete for attention in a cluttered environment, and they risk that their campaigns will not reach a significant portion of TV viewers that do not watch sports. To make this point, This past fall, sports made up 20% of total viewing, as did news and general interest content, also at 20%. The remaining 60% of viewing was to genres like scripted dramas, comedies, reality shows, and movies. Now, when you look at just specialty channels, we see that 59%, 59% of TV viewers do not watch specialty sports networks at all in an average week. We are taking these insights on the road to accent our upfront buys as we work to change the channel on these outdated myths and demonstrate the value proposition of our specialty portfolio at Chorus. Moving to slide six. I want to reiterate the confidence we have in the long-term resiliency of our premium video business model in Canada, given what has now become the go-forward strategy for our big U.S. studio content partners. Across North America, we are all contending with the advertising recession, while our U.S. partners are aggressively pursuing a disciplined path to profitability for their streaming platforms. In Canada, Chorus has a partner-led capital-light strategy to grow our streaming audiences and revenues. This four-corners model is clearly the smart path forward. The U.S. studio majors are investing more in content than in the pre-streaming era, more TV, more films, more franchise IP. They are optimizing their core linear channels business worldwide that generate significant revenue earnings and free cash flow. They are launching streaming platforms that are distinct but similar to their channels businesses, and they are embracing their international content business, licensing to partners such as Chorus and generating meaningful profits and cash flow. What results is an assured supply of content to sustain our linear channels business but to expand also our premium digital video platforms. Over to slide seven. An important part of this year's upfront narrative has been our effort to modernize television measurement and create a more level playing field with our digital competitors. Today, digital advertising is sold against the entire two-plus universe of viewers, whereas television remains stuck in the past, constrained to demographics like selling the adults 25 to 54 demo, which effectively excludes more than 70% of the total audience. This overlooks billions of valuable ad impressions that TV delivers, which is why Chorus is leading the charge to redirect marketing investments and advertising spend towards audience segments that offer more targeted ways for advertisers to reach their desired audience. In Q3, 53% or $111 million of advertising revenue was optimized, which is an important step towards breaking out of the legacy TV trading model. Moving to slide eight, our streaming portfolio offers premium long-form video that attracts compelling audiences at scale in a brand-safe and trusted environment, delivering incremental audiences that advertisers can't reach on TV alone. Our three fully ad-supported digital video platforms achieve great engagement, delivering more than 90% ad completion and benefit from the growth of connected televisions. With the recent launch of Pluto TV, alongside the global TV app, Stack TV, and our global news fast channels, we are delivering seven times more digital video ad impressions than just two short years ago. In Q3, 12% or $39 million of total TV advertising and subscriber revenue was attributable to new platform revenues. Stack TV is our flagship streaming product with 16 channels live and on demand. The appeal of lean back as broadcast television viewing is evident in the fact that more than half of viewing on Stack TV is on our live channel feeds. The live channel viewing is captured by Numeris and extends the reach of broadcast campaigns into the streaming universe while adding new subscribers and thus audiences to the pay TV ecosystem. Digital platforms also provide many new opportunities to innovate our go-to-market strategies and advertising solutions. By way of an example, the introduction of Dynamic Ad Insertion, or DAI, on Stack TV Video On Demand, VOD, has been wholeheartedly embraced by advertisers since its launch in 2021, and we expect to do $10 million in additional revenues this year. Our global TV app offers 11 live channels, plus a robust offering of on-demand choices for authenticated subscribers. For those that don't have authenticated subscriptions, the Global TV app has something for everyone, including seven-day access to broadcast premieres and a robust free section that includes the Global News Fast channels and a diverse sampling of free view content. Like Stack TV, live viewing on the channels on the Global TV app is measured by Numeris, and VOD is sold via DAI. Pluto TV has grown leaps and bounds since launch, now offering 140 channels, including 45 customized channels from Chorus. As Pluto TV's exclusive advertising representative, we are very encouraged by the growth we are seeing on this 100% free service. Since launching seven months ago, time spent per user has more than doubled, and total viewing hours have grown 74%. As the service continues to gain traction, it delivers massive scale for advertisers and provides incremental revenue opportunities for Chorus in the years ahead. Over to slide nine. Chorus continues to produce great Canadian content for our premium channels and for our audiences around the world with 25 new original series announced at our upfront. Our slate of original content entices viewers with scripted and unscripted series which showcase real-life experiences in engaging storylines and Canadian talent. This slate will also serve to shore up our schedule with new premieres during the writers' strike. From Cora Studios, our proven leader in Canadian lifestyle and unscripted content, we are debuting Brian's All In with HGTV Canada star Brian Baumler as he travels off the beaten path to help struggling entrepreneurs renovate their businesses. Scott's Vacation House Rules' Scott McGillivray is using his five rules to turn problem properties into profits. Fan favorite, Rock Solid Builds, kicks off Season 3, showcasing even more unique and challenging builds by Randy Sprathlin and his crew in Newfoundland. Hollywood icon Pamela Anderson returns for Season 2 of Pamela's Garden of Eden. Dead Man's Curse returns for Season 2 and Season 3, already greenlit, with more epic adventures as they search for gold in B.C. and Rust Valley Restorers for Season 5, offering classic car fanatics some fresh adventures from Mike, Avery, and Connor. Over at Nelvana, maintaining its position as a world-renowned international producer and distributor of children's animated and live-action content, this upcoming year we'll see eight new and returning series, and one notable highlight being the premiere of Millie Magnificent, inspired by the Canadian author-illustrator Ashley Spire's popular children's book, The Most Magnificent Thing, published by our own Kids Cam Press. From aircraft pictures based on the best-selling book series Popularity Papers, follows middle school besties Julie and Lydia on their quest to demystify one of life's greatest questions, what makes someone popular? And finally, from Waterside Studios, the highly anticipated new series Geek Girl, based on the best-selling novels by Holly Smale, is slated to premiere on YTV and Stack TV in Canada and worldwide on Netflix next year. With that, I will now turn it over to John to discuss our Q3 results.

Thanks, Doug, and good morning, everyone. I will start on slide 10 with a review of our consolidated results. The challenging advertising environment and lower subscriber revenue was partially offset by positive results from our content business contributing to consolidated revenue of $397 million for the quarter, and that represents an 8% decrease from the prior year. Consolidated segment profit was $97 million for the quarter, and that reflects lower advertising and subscriber revenue and increased programming costs, including $5 million of additional Canadian programming expenditures, partially offset by $15 million, or 11% of general and administrative cost saves identified as a result of our enterprise cost review. Consolidated segment profit margins were 24% for the quarter. Consolidated net loss attributable to shareholders for the quarter was $2.48 per share, and that includes Goodwill broadcast license, trademark and brand impairment charges totaling $590 million before tax in the television segment as a result of continued contraction in advertising, which has a notable impact, obviously, on our share price since the end of the last fiscal. We delivered free cash flow of $26 million in the quarter, which was relatively consistent with the prior year. Net debt to segment profit was 3.85 times at May 31st, 2023, and that compares to 3.59 times at the end of Q2 and 3.02 times at the end of the last fiscal year. And that obviously reflects the impact of lower segment profit. Now, let's turn to our TV results for the third quarter, and those are on slide 11. TV advertising revenue declined 12%, similar to the trends that we saw in our first quarter this year. Subscriber revenue was 5% lower compared to last year. When you normalize in both years, subscriber revenue would have been down by under 4%. Distribution, production, and other revenue grew 6% for the quarter, and that was driven mainly by content deliveries from Novana, partially offset by lower core studio revenue. And just as a reminder, we did close a multi-year content licensing deal with Hulu for a package of core studio titles in the third quarter of the prior year. Direct cost of sales was up 3% for the quarter, and that was a result of the 6% increase in the amortization of program rights driven by the ramp-up in Canadian spend, as well as investments in U.S. studio output deals in the current year, and that was offset by a $3 million decrease in other cost of sales due to lower production service work. Importantly, total general and administrative cost in TV declined 7% in the quarter, employee costs were down 6%, and other G&A expenses declined by 9%, driven by lower marketing costs and CRTC fees, and offset slightly by higher software and system license fees. Overall, TV segment profit was down in the third quarter, primarily a result of the contraction in advertising demand, reduced subscriber revenue, and higher amortization of program rights and film investments, partially offset by aggressive cost controls. TV segment profit margins were 26% in the current year quarter compared to 32% in the prior year. Next, let's turn to our radio results outlined on slide 12. Third quarter results reflect emerging revenue softness, particularly in the professional services, communications, entertainment, and retail categories. While local markets for both radio and television remained very resilient, it was not enough to offset the impact of ratings and the broader macroeconomic environment on national advertising. Radio segment revenue decreased $3 million for the quarter as a result of lower advertising sales, but that was partially offset by higher podcasting revenue. Radio segment profit was $1.6 million lower in the quarter, and that was due to the revenue decline, partially offset by our progress on cost reductions in the radio business. Two three-segment profit margins for radio were 16%. All right, over to slide 13. We exited the quarter with $56 million of cash and cash equivalents, and $197 million available to be drawn under our revolving credit facility. As a reminder, in the second quarter, we renegotiated the covenants under our bank credit facility to address the persistent headwinds in the current economic environment. These revised covenants provide additional flexibility under the credit facility, and at the end of the third quarter, we were in compliance with all covenants. This morning, we declared a quarterly dividend of $0.03 per Class B share payable on August 15, 2023, to shareholders of record on July 31st, 2023. This represents the first payment under our new quarterly dividend payment schedule of August, November, February and May. As Doug noted, we have and continue to take serious cost reduction measures which are starting to be reflected in our financial results. As we navigate this low visibility environment, these cost reductions combined with an unwavering focus to maximize our revenues and carefully manage our expenses and cash are not at the expense of our strategic plan and priorities. We continue to make the necessary investments in growth initiatives that will position Corus to benefit from the eventual recovery in market conditions while delivering our balance sheet and providing a compelling return to our shareholders. Back to you, Doug, on that.