Corus Entertainment Inc.

Good morning. My name is Lara, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chorus Entertainment Q1 2024 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, then the number 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. Good morning, everyone, and happy new year. Welcome to Chorus Entertainment's fiscal 2024 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.coruscant.com under the investor relations dash 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 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'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 Cora's first quarter 2024 report to shareholders and the 2023 annual report, which can be found on CDAR plus or in the investor relations dash financial reports section of our website. I will start on slide three. It won't surprise anyone on today's call when I say we are excited to put 2023 behind us. The new year brings us the highly anticipated return of our full slate of hit scripted programming, and the long-awaited normalization of our regulatory spending obligations. The disciplined implementation of our strategic plan remains our priority. We are focused on executing two distinct but interconnected strategies. Video First is our audience strategy to position the company for the future as we move beyond being a television broadcaster towards becoming an aggregator of premium video content across all platforms, linear, streaming, and digital, while we concurrently build our cross-platform monetization capabilities. Fit for the Future furthers our efforts to capture operating efficiencies as we streamline our operating model and rationalize our asset base. We have implemented waves of cost reductions and cuts, including workforce restructuring, delivering significant operational efficiencies and a focus on core activities. These efficiency initiatives are reflected in our Q1 results and will be evident throughout the year. Our results for the quarter were as follows. Our consolidated revenue was $370 million for the quarter. Total consolidated segment profit was $121 million, and free cash flow was $24 million. Q1 revenue declines were partially offset by lower amortization of program rights and reduced operating expenses, which, when combined, total costs were down 17%. This spotlights the impressive results from our enterprise-wide cost review as we pursue fit for the future efficiencies to streamline our operating model. Leverage was 3.67 times pro forma net debt to segment profit at the end of the quarter. John will take you through the results for the first quarter in more detail during his remarks. It is too early to pinpoint the timing of a recovery in advertising demand and revenues. On the one hand, we expect the return of new scripted programming to catalyze primetime marketing investments by our advertisers. On the other hand, the macroeconomic environment remains uncertain, while distortions related to post-pandemic normalization of many advertising categories persist, resulting in continued low visibility. It is too early to provide any outlook on Q3. Here is what we are seeing now in the industry for the second quarter. Certain advertising categories are showing early signs of year-over-year improvement as we enter calendar 2024. The important automotive sector has returned to television with marketing investments in Canada and the U.S. as supply chain issues appear largely resolved. Theatrical entertainment advertising has also seen a recent rebound, encouraged by the breakout success of Barbie and Oppenheimer, as well as the resolution of the Hollywood strikes now that actors can participate in marketing stunts and junkets. Further, studios and streamers alike appreciate the importance of a strong box office performance to optimize the economics of their significant investments in feature films. Consumer packaged goods advertising remains in flux. as some industry players adjust their advertising spending to reflect weakening macroeconomic trends, while others step in to fill the void, seeking competitive advantage. As a result of the recent Hollywood strikes, we experienced declines in all ad categories in Q1, reflecting the broad impact of reduced advertiser demand given lower audience delivery. Certain categories were influenced by other factors. For example, financial services advertising declines, we believe, result from increases in interest rates. Advertising and communication services, we suspect, has been negatively affected by industry consolidation and agency changes. As expected, premium digital video is growing as a percentage of the total video advertising pie, validating our video first strategic ambitions. We are working with our agency partners to review their digital media mix in an attempt to reallocate other digital dollars to premium digital video. Finally, the relaunch of our scripted programming schedule in the winter and spring represents an exciting opportunity for our advertising partners as the return of many fan favorites is expected to result in strong audience delivery. Over to slide four. The writers and actors are back in action. Production is in full swing, promising a standout schedule with fresh, original scripted programming set to debut the week of February the 12th. Our programming lineup, with its top-performing returning hits replete with pre-existing fan affinity and new buzzworthy shows, is designed to bring viewers back to global this winter and into the spring. To set up the full launch of our scripted content in the months ahead, we have smartly crafted a schedule that begins in January, delivering 17 hours of new simulcast original programming to warm up the time slots, promoting the return of all scripted shows in February and March. For example, returning hits NCIS Sydney and Seal Team, reality series I Can See Your Voice and The Wall are part of the January lineup on Global. By March, We will have a full complement of simulcast programming on global, also with 17 hours of simulcast. Here is a quick overview. The neighborhood kicks off on Mondays, followed by our stellar lineup of NCIS and NCIS Hawaii. We're excited to welcome LL Cool J, reprising his role as Sam Hanna from NCIS LA. Tuesday, see the popular return of reality fan favorite Big Brother Canada. premiering March 5th, leading into our winning FBI franchise lineup, all simulcast with CBS. Mega hit series Survivor returns with season 46 in Mamanuka Island, Fiji, on Wednesdays, followed by Big Brother Canada and the award-winning comedy Abbott Elementary wrapping up the night. Thursdays, see the return of Ghosts in 9-1-1 on this new night and time. and the warm and hilarious dramedy So Help Me Todd, followed by the highly anticipated premiere of Elsbeth. Fridays are home to the final season of SWAT, fantastic hit series Fire Country, and a fresh new season of the top-performing chorus Canadian original, Crime Beat. And on Sunday nights, we kick off at 60 Minutes, then a new season of the equalizer and top-ranked series CSI Vegas. Chorus Specialty Services will deliver standout new and returning series, including the previously announced and highly anticipated live-action comedy series Ted, based on the blockbuster film franchise. Creator Seth MacFarlane is set to reprise the voice of the iconic, irreverent, and lovable foul-mouthed teddy bear, Ted. Fan-favorite Dr. Death makes its much-anticipated return, starring Edgar Ramirez and Mandy Moore. Dr. Death claimed the number three program across all specialty entertainment when it first debuted in 2021. Yesterday, we announced the green light for season two of Renovation Resort, starring HDTV Canada's Scott McGillivray and Brian Baumler. These stars will feature in our schedule later this spring with the return of Cora Studios' Scott's Vacation House Rules and Brian's All In. And on Stack TV, Cora Studios' HDTV's rock-solid builds and History's rough value restorers are driving audiences as we leverage our growing portfolio of original content across platforms. Moving to slide five. Our focus on growing premium digital video revenue remains front and center as we expand our streaming offerings to new audiences, platforms, and advertisers. This new platform revenue measure is an important metric that tracks our progress in advancing our video-first strategy as we transform into a premium video aggregator with cross-platform monetization capabilities. In Q1, new platform revenue was resilient as compared to our linear platforms, down only 4%, representing 12% or $38 million of our total TV advertising and subscriber revenue. Pluto TV, a global leader in free ad-supported streaming television, proudly celebrated its one-year anniversary in Canada as the largest fast platform in the country, streaming over 1 billion total viewing minutes monthly. Pluto TV was Paramount Global's largest worldwide launch with the most expansive content offering in its history. One year later, Pluto TV Canada now offers over 160 channels with 47 of those channels from Chorus. The service has doubled the hours of content available on the platform in the last year to more than 40,000 hours of hit movies, shows, documentaries, news, and music, all for free. Stream now and pay never. In December, we announced that our premium multi-channel streaming service, Stack TV, is now available for even more Canadians to enjoy through the Bell 5 TV app. Existing 5 TV app customers can now add Stack TV to their subscription and unlock access to content both live and on-demand. Stack TV is now recognized by Canadian BDUs as a must-have offering for their customers given its unique live and demand hybrid streaming offering, and vast library of exclusive premium video content. We are excited about the multiple initiatives underway as we build our inventory of premium digital video. This remains a key opportunity for us in 2024 and beyond. I'll now turn it over to John to take you through the results for the quarter.

Great. Thanks. Good morning, everyone. I'll start on slide six. Ongoing challenges in the economic landscape and the lack of new scripted programming on our prime time schedule, given the strikes, had a significant impact on television advertising demand in the first quarter, as we expected. This, combined with lower subscription revenue and the sale of Toon Boom in Q4 last year, contributed to lower consolidated revenue of $370 million, and that was a 14% decrease from the prior year. Consolidated segment profit was $121 million for the quarter, and that's a decrease of 8%. This reflects the lower revenue partially offset by decreased amortization of program rights due to the strike-related program supply disruptions, as well as the strong benefits of our cost savings initiatives, which helped to drive total expense reductions of $50 million for the quarter. Consolidated segment profit margins were 33% for the quarter, and that's up from 31% last year. We delivered free cash flow of $24 million in the quarter, an increase of 14% from the prior year. And pro forma net debt to segment profit, excluding tune boom, was 3.67 times at the end of the first quarter compared to 3.62 times at the end of August 2023, and that reflects the impact of lower segment profit. Now, let's turn to our TV results for the first quarter as detailed on slide 7. Overall, TV segment revenues were $342 million for the quarter, and that's down 15%. This was mainly driven by lower TV advertising revenue, which declined 17% in Q1 and was within the expected 15% to 20% range we outlined on our call last quarter. Subscriber revenue of $118 million per quarter was down 7%, and that reflects declines in the traditional distribution system and the impact of scripted program supply disruptions on what is typically a strong season of new content launches that drive subscriber acquisition activity. Towards the end of Q1, Streaming subscriber levels showed strong growth, but did not offset declines within the traditional paid fee distribution system. Distribution production and other revenue was lower for the quarter, driven by the Toon Boom disposition last August. Pro forma for Toon Boom, this revenue line was up 2% in Q1. Effective this quarter, we will no longer provide the supplementary optimized advertising revenue metric, as we do not believe it will change in a meaningful manner moving forward from its current level of just under 60%. We remain intensely focused on building our advanced advertising capabilities as we change how television and how premium video is sold. As Doug mentioned, we will continue to provide the new platform revenue metric to help you measure our progress in driving incremental revenue as we expand our digital and streaming offerings. Direct cost of sales for TV was down a significant 21% for the quarter, and that was slightly better than expected, driven mainly by a 22% decrease in the amortization of program rights. due to the strikes that halted our original scripted programming deliveries. TV employee costs were down 5%. That's mainly as a result of headcount reduction initiatives over the past few quarters. Other G&A expenses were down 27%, reflecting cost efficiency measures and reduced advertising and marketing spend as a result of the programming delivery hiatus from the strikes. Overall, TV segment profit was down 8% in the first quarter, primarily as a result of the contraction in advertising demand and lower subscription revenue, but partially offset by lower optimization of program rights and the benefit of G&A expense savings from our numerous cost reduction initiatives. TV segment profit margins were 36% in the current year quarter, and that compares to 33% in the prior year. Looking ahead to the second quarter of fiscal 2024, visibility on macroeconomic conditions remains low at this early stage in the new calendar year. Labor actions by the Hollywood Writers and Actors Unions are now resolved. and our HIP programming is set to return late in the second quarter. The delayed delivery of scripted programming is expected to result in a Q2 television advertising revenue decline in a high single to low double-digit percentage range compared to last year. We continue to expect improvement in advertising demand as we approach the launch of our winter-spring 2024 schedule. Programming costs for Q2 are expected to decline in a similar range, with new scripted programming delivery starting in mid-February and into March. This long-awaited return to a normal schedule represents an important step on our road to recovery. Now let's turn to the radio results on slide eight. Radio results reflect lower advertising revenue with growth in automotive and retail categories, more than offset by declines in the professional services, restaurant, and entertainment categories. Radio segment revenue of $27 million decreased 7% for the quarter, and that was mainly due to the impact of broader macro conditions on national sales. Radio segment profit decreased $5 million in the quarter as a result of the lower revenue. Radio segment profit margin was 17% in Q1 compared to 20% in the prior year period. Over to slide 9, as we outlined last quarter, we are prudently focused on streamlining our operations, lowering our costs, and prioritizing deleveraging as we await improved visibility on advertising recovery in the medium term. At November 30th, 2023, we were in compliance with all loan covenants and had a cash and cash equivalents balance of $59 million with approximately $250 million available to be drawn under our revolver. Importantly, we have turned the corner on two significant headwinds. First, as I outlined earlier, the end of the Hollywood strikes brings the return of our hit programming starting next month. We're actively engaging with advertisers on the cross-platform rollout of our content lineup to drive advertised demand. Second, we will finally revert back to normal levels of required Canadian programming spending after two challenging years with last year's obligation topping out at a whopping 36% of regulated revenue. We are diligently executing our long-term strategic plan as we position course to benefit from a lower cost base and prioritize deleveraging to strengthen the balance sheet. With that, I'll turn it back to you, Doug.