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 Q2 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 followed by 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, and good morning, everyone. Welcome to Chorus Entertainment's fiscal 2024 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.coruscant.com under the investor relations dash events and presentations section. Now let's move to the standard cautionary statement found in slide two. We note that forward-looking statements may be made during this call. ASPR results could differ materially from forecast projections or conclusions in these statements. We would 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 second 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. We are now at the midway point of the year, and we are pleased that our programming winter, if you would, is behind us. And with the change of season, a full spring schedule of new programming has arrived. On today's call, beyond the overview of our Q2 results and discussion of our outlook, we want to take a look at a broader level and talk about the audiences that have returned to primetime television, our ongoing pursuit of our video-first strategies and demand creation efforts across all our platforms and networks, and our Fit for the Future cost reduction initiatives to streamline our operating model in support of our Video First audience strategy. The results for the second quarter were as follows. Our consolidated revenue was $300 million for the quarter. Total consolidated segment profit was $53 million. Free cash flow was $33 million, which was up 15% over the prior year. Q2 revenue declines were partially offset by lower amortization of program rights and reduced operating expenses, which, when combined, were down 38 million or 13%, and leverage improved to 3.62 times pro forma net debt to segment profit at the end of the quarter as we directed free cash flow towards reduction of return loan facility. Over to slide four. Audiences have returned to global, and notable share gains have followed. We saw a significant lift of 143% in core primetime audiences compared to the prior schedule before the new content launched. Clearly, viewers are enjoying Global's winning schedule of new and returning hit scripted shows. This rising tide lifts all boats with Global's weekly average hours streamed on Stack TV increasing 36%, and on the Global TV app, they're up 95% since the premiere of our spring schedule. Let's provide some more highlights from the global launch. We have 10 of the top 20 shows on conventional television in Canada, including the number one show and number one drama, 9-1-1, perennial number one reality show, The Survivor, number one late-night show, Saturday Night Live, and we break it down by global days. Global enjoys the number one primetime series on Monday with NCIS Hawaii, Wednesday, Survivor, Thursday, 9-1-1, Friday, Fire Country, and Sunday night, CSI Vegas. Moving to slide five on our specialty channels, our great lineup has delivered 17 of the top 20 entertainment and lifestyle shows so far this season. Leading this charge is The Curse of Oak Island on History, which still reigns number one, followed by our Peacock exclusives on Showcase, delivering strong performance with TED ranked number two and Dr. Death ranked number five. The latest season of Hallmark's The Way Home is a beloved favorite of audiences, ranked number six. And Cora Studios' own backyard build ranks number 13 as our original content continues to drive audiences to our networks. Just a quick comment about Cora's specialty networks. When we look at live versus on-demand viewing trends, our live viewing levels are similar to those delivered by sports. Our top six specialty stations averaging 88% live versus 92% on sports specialty on English language networks. Our research shows that in an average week, 50% of adults 25-54 do not watch sports specialty networks, providing a compelling opportunity for marketers to diversify advertising buys beyond sports to increase their return on advertising investment working with chorus. On to slide six. Our video first strategy is designed to ultimately offset the declines in linear video viewing with growth in our premium digital video audiences on our streaming platforms. TV is still by far the best way for advertisers to reach audiences on the biggest screen in the home. Numeris introduced Video Audience Measurement, or VAM, recently, which is providing new insights into Canadians' cross-platform viewing habits by capturing all video activity in the home. It is currently active in Ontario and Quebec, which plans to roll out nationally. According to this VAM data, Total TV, which includes broadcaster and broadcaster streaming services, is the largest video platform. Among adults 18 plus, Total TV represented 66% of all time spent with video content within the home. At Chorus, our video ecosystem attracts audiences at scale in brand safe and trustworthy environments. We have grown our presence across the Total TV space with more than 25,000 hours of original content premiering every year when you include our global news. Our video reach in the Total TV ecosystem is significant. When you combine Our TV, global TV app, Stag TV and Pluto TV, we reach close to 30 million Canadians every month now across our traditional and streaming platforms, all in ad-supported environments. In fact, we are generating seven times more advertising impressions on premium digital video than two years ago, demonstrating the successful scaling of our streaming portfolio to become one of the largest providers of connected television advertising in Canada. As I said earlier, this rising tide of audiences returning to our spring schedule has lifted all boats. It's clear viewers will seek out great content on their preferred platform, and we're seeing this play out across our Video First ecosystem. I'll just give you a little more color on that. Stack TV, our flagship, first-of-its-kind hybrid streaming product with 16 of our top channels, continues to offer tremendous value to Canadians. We saw encouraging lift in subscriptions to Stack TV emerge near the end of Q1, reaching an all-time high in recent weeks. We are encouraged by these early results, driven by our returning schedule and exclusive Peacock content. The appeal of Leanback as broadcast television on Stack is evident in the fact that almost 50% of viewers view live on our channel feeds. The other, of course, view on demand, and the top 20 programs on demand are spread all across our brands. A reminder that on the Amazon platform, we monetize this increasing on-demand viewing through Dynamic Ad Insertion, or DAI, which continues to generate meaningful incremental advertising revenue. Our global TV app, which offers a free streaming premium video platform and news in front of the wall for all Canadians and a deep offering of live and on-demand content for authenticated subscribers, has also seen impressive results this spring. Last month, we reached a new record with over 6 million hours streamed on the app, driven by winning scripted content in global and our global news fast channels. Pluto TV is also delivering impressive audience growth with the appeal of its free ad-supported premium video. The easy-to-use platform delivers an unmasked offering of hit shows from all eras and genres with something for everyone to enjoy. And, again, the streaming on this platform reached an all-time high in January. So these three streaming platforms, Stack TV, Global TV App, Pluto TV App, they're the cornerstone of our video-first audience strategy strategy. to position the company for the future as we move beyond being a television broadcaster towards becoming an aggregator of premium video across all platforms, linear, streaming, and digital, while we concurrently build our cross-platform monetization capabilities. Chorus will benefit from what we expect to be an inevitable evolution in the trading market for premium long-form video advertising. An essential first step involves working to recast the advertising industry's view of video advertising from Linear TV to premium video impressions. That would include linear, digital, and streaming. Premium video across all platforms is how we need to sell our audiences. With the arrival of advertising-supported video now throughout the industry, Stack TV, Global TV app, Pluto TV, and new ad layers on competing platforms, it is a field of dreams moment. a critical mass of premium video, not search or display or user-generated content, but shows made by actors, writers, and directors delivering tried and true and trusted content that advertisers ultimately will come to given the growth the industry has built in impressions and audiences. Over to slide seven and some comments about our outlook. While the audience performance across our networks and platforms has been promising, unfortunately, we have yet to see this benefit our revenues. At this time, we are uncertain how much of this is a lingering impact from a shift in buying patterns related to the strike or how much of it is from other ongoing distortions in the advertising market, whether it be from the economy or increased competition. What we do know is that the advertising market is just beginning to digest the impact of the return of audiences for popular scripted shows on linear television and across related platforms. We're only seven weeks into the new schedule yet. Generally, advertisers and agencies tend to establish their media mix and marketing plan in advance, sometimes for the trading year, and that process kicks off after our annual June upfront. Last year, we had unfortunate timing with the writer's strike announced in May and the action strike in July. Of course, there's a great story to tell at this year's upfronts, but in the meantime, this limited visibility has caused us to have a disappointing outlook for the quarter ahead. Many of you always ask about some category commentary, so let me provide a few comments. There is strength in categories such as government travel, financial services, iGaming, and ongoing resiliency in the consumer packaged goods industry. We're experiencing weakness in telecommunications, alcoholic beverages, direct-to-consumer, and retail. And there's variability within certain categories, such as automotive, whereas certain companies have inventory and are spending while others don't and are not. In the entertainment category, most studios are cutting costs, but when a movie hits, they tend to heavy up on advertising investment. We're also seeing lots of shifts in release dates as studios jockey for position with their 10-4 releases. Interestingly, the health and beauty category is seeing weakness on television as advertisers redirect what had been prior linear advertising dollars to social media and influencers online. Our focus with this audience result is on demand creation, and the sales team, similar to what we're seeing in the U.S., is leveraging the full scale of our total digital inventory across Stack, Pluto, and Global TV app to unlock marketing investments. We are increasing our client direct activities in addition to working with our agency partners to monetize our strong scripted schedule launch, and importantly, educate the advertising community in Canada about the scale and performance of our video assets on both our networks and our platforms. Moving to slide eight. For the first time in as long as I can remember, we finally have a tailwind in terms of our Canadian programming expenses. To be very clear, it is both the function of one, of course, having finally worked off the harmful decision from the CRTC for our company to catch up on the CPE spending that was impacted during the COVID-19 pandemic production hiatus, and two, the meaningful declines in our regulated revenue these last seven quarters. The mechanics of the 30% CPE obligation calculation, based on prior year's regulated revenue, compounded by a mandated catch-up of $50 million in spending from 2020, had a significantly negative impact on our financial performance. Moving forward, we will not have an outsized obligation to contend with in fiscal 24, and we are seeing more relief in these costs in the back half of the year and ongoing. As mentioned on our Q1 call, this combined with the cost benefit of reduced foreign program deliveries during the U.S. strikes in the first half of the year and our ongoing Fit for the Future initiatives will result in notable savings to offset the lower revenue. I'll now turn it over to John, who can provide more detail on our cost control initiatives and to take you through the results for the quarter.

Thanks, Doug, and good morning, everyone. I'm on slide nine. The long-awaited return of scripted content to our global primetime schedule in mid-February marks the beginning of a path to normalization after prolonged disruptions for audiences, advertisers, advertising revenue, and programming costs. Our results were in line with our outlook for the second quarter given the ongoing challenges in the economic landscape and lower television advertising demand concurrent with the audience impact of the Hollywood strikes on our primetime schedule on global. This, combined with lower subscription revenue, the expected decline in content revenue, and the sale of Toon Boom in Q4 last year, contributed to lower consolidated revenue of $300 million, and that was a 13% decrease from the prior year. Consolidated segment profit was $53 million for the quarter, a decrease of $6 million, or 11%, and that reflects the sale of Toon Boom, which accounted for about $3 million of segment profit in the quarter last year. Lower revenue is partially offset by the benefits of our cost saving initiatives, These included the 17% decrease in amortization of program rights due to reduced Canadian programming expenditures and strike-related program supply disruptions, as well as a $9 million reduction in general and administrative expenses. All told, these helped drive total expense reductions of $38 million, or 13% for the quarter, as Doug mentioned. On a sequential basis, general administrative costs for the quarter were flat to Q1, despite incurring an additional $1 million in marketing costs to support the launch of fresh programing, and there was an additional $2 million in stock-based compensation in Q2. Consolidated segment profit margins were 18% for the quarter, and that's up from 17% last year. We delivered free cash flow of $33 million in the quarter, and that was an increase of 16% from the prior year. Proforma net debt to segment profit, which excludes Toon Boom, improved to 3.62 times at the end of Q2, and that compares to 3.67 times at the end of the last quarter, and was consistent with the last year end. This result reflects the impact of directing a significant portion of free cash flow towards debt repayment in Q2. Now, let's turn to TV results for the second quarter, and those are on slide 10. Overall, TV segment revenue was $278 million for the quarter, and that was down 14%. That was mainly driven by lower TV advertising revenue, which saw sequential improvement in the rate of decline to 12% versus 17% in Q1, and was within the expected range we outlined on the call last quarter. Subscriber revenue of $117 million per quarter was down 5%, reflecting declines in the traditional distribution system, partially offset by higher streaming subscriber levels. When we normalized for the change encouraged by a distributor, subscriber revenue was down 2% versus the prior year. Distribution, production, and other revenue was lower for the quarter, driven by fewer episode deliveries, reduced service work, and prior year multi-year licensing deals for Chorus Studios properties, as well, of course, as the Toon Boom sale last August, Given our much needed reduction in CP, as Doug has talked about, we would expect that our production and deliveries will be significantly declining in the quarters ahead as we focus on our video first strategies and fit for the future initiatives. New platform revenue represented 12% of total television advertising and subscriber revenue, which is consistent with Q1 and the prior year quarter. Direct cost of sales for TV was a significant 18% lower for the quarter. Ahead of our expectations, driven by a 17% decrease in amortization of program rights, as mentioned earlier, which includes a $9 million reduction in Canadian programming expenditures, amortization of film investments decreased by $3 million as our investments in new programming were reduced. TV employee costs were down 7% year-over-year, mainly reflecting the impact of headcount reduction initiatives. Other G&A expenses were down 16% as a result of cost-efficiency measures and reduced advertising and marketing spend given the delayed program delivery schedule following the end of the Hollywood strikes. Overall, TD segment profit was down 7% in the second quarter, reflecting the contraction advertising demand, as well as lower subscription revenue, and partially offset, of course, by the benefit of G&A expense savings from our extensive cost reduction initiatives and lower amortization of program rights. TD segment profit margins were 21% in the current year quarter, and that compares to 20% in the prior year. Proforma for the disposal of tomb, sorry, that was Proforma for the disposal of tomb boom. TD segment profit was flat, with margins improving to 21% from 19%. Looking ahead to the third quarter of fiscal 2024, visibility on macroeconomic conditions has not yet improved, and we are seeing lingering impacts from the lengthy disruption of advertising markets due to the strikes, which we are working to address through the demand creation initiative. Our expectation is for Q3 television advertising revenue declines in the 10% to 15% range compared to last year. Programming costs are expected to decline in a similar range compared to the prior year quarter. Next, turning to our radio results, as outlined on slide 11, radio results reflect lower advertising demand with growth in services, automotive, and beverage categories more than offset by declines in the retail, government-slash-political, telecommunications, and restaurant categories. Radio statement revenue of $21 million decreased 4% for the quarter, and that was a sequential improvement over the Q1 decline of 7%. These results were mainly driven by the impact of weakness in certain of our Western markets. Radio segment profit increased to close to $1 million in the quarter, and that benefits from cost containment measures more than offsetting lower advertising demand. Radio segment profit margin was 4% in Q2, and that compares to 2% in the prior year period. All right, over to slide 12. We made steady progress on our financial priorities in the quarter. At Feb 29, 2024, we were in compliance with all loan covenants and had a cash and cash equivalence balance of $62 million, with approximately $236 million available to be drawn under that $300 million revolving credit facility. We directed $22 million of free cash flow towards repayment of our long-term loan facility in the quarter and $32 million for the year to date, advancing our deleveraging goals in a disrupted advertising and revenue environment. This midpoint in our year marks a significant shift in direction. Our visibility on programming deliveries and expense has improved. Audiences are returning to global primetime across our platforms to engage with our strong content lineup. That said, it's early days, and we will still have significant work ahead as we ramp up our demand creation initiatives backed by promising early audience results. Our unwavering focus on streamlining our operations, lowering our costs, and prioritizing deleveraging remains paramount. helping to offset lower advertising demand as we navigate this period of low visibility in the broader advertising markets. We remain focused on capturing further cost savings opportunities and diligently executing on our long-term strategic plans. And with that, I will turn it back to Doug.