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spk03: Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chorus Entertainment Q3 2024 Analyst and Investor Conference Call. All lines have been muted 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, simply press star, then the two. Thank you. As a reminder, this call is being recorded. I will now turn the call over to Mr. John Gosling, co-CEO of Chorus Entertainment. Mr. Gosling, you may begin your conference.
spk08: Great. Thank you very much. Thanks, and good morning, everyone. Welcome to our fiscal 2024 third quarter earnings call. Joining me today is Troy Reeb, our Chorus co-CEO. Before I read the cautionary statement, I'd like to remind everyone that we have slides to accompany today's call. You can find those on our website at www.courseent.com under the investor relations dash events and presentations section. Moving on to the cautionary statement 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 like to remind those on our call today, in addition to disclosing results in accordance with IFRS, course 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 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 our third quarter 2024 report to shareholders and the 2023 annual report. which can be found on CDAR Plus or in the Investor Relations-Financial Reports section of our website. Over to slide three. I'd like to start off today's call by acknowledging Doug Murphy's retirement and thanking him on behalf of our board and the chorus team for his commitment, leadership, and support over his 21-year career at the company. Today, Troy and I will outline our immediate areas of focus as we execute strategies that address the rapidly changing landscape enable us to pursue ongoing revenue opportunities and actively engage with our lenders. Our Board of Directors has given us a clear mandate to decisively right-size the business and create a more sustainable future. This means our priorities are to aggressively cut costs and manage our liabilities. We're making tough decisions to shutter areas of the business we can no longer sustain and pause longer-term development activities while we implement efficiency initiatives to further strengthen assets with more growth potential. The date In the fourth quarter alone, we have already announced a smaller executive leadership team and are pursuing accelerated headcount reductions with a focus on unprofitable and unsustainable initiatives and lines of business. By the end of August, we expect to have reduced our actual full-time headcount by almost 800 positions, or 25%, since the beginning of fiscal 2023. After transition period, we will cease operating two legacy AM radio stations in Vancouver and Edmonton, reducing our radio footprint. In addition, we announced that Global TV's Big Brother Canada has not been renewed after 12 incredible seasons and OWN, the Oprah Winfrey Network, will cease operations under course effective September 1, 2024, as originally planned. Additional savings have been identified on our roadmap. We are moving quickly to capture them with more announcements to follow. To reiterate, we can and will do much more. Turning to our liabilities, as disclosed, our debt covenant relief under our bank credit facilities will expire at the end of August, and we know many of you have questions on next steps. This morning, in our financials, we communicated our intention to actively pursue options for amendments or relief on certain financial covenants or repayment terms from our lenders in addition to our cost reduction initiatives. We are moving at pace to finalize a revised financial plan as part of this process. This aligns with the clear mandate I noted. Of course, this future state needs to be a more sustainable business that will focus on core activities, unique brand positioning, and areas where we can win. Before I turn it over to Troy, I wanted to comment on our new co-CEO structure. The board has delineated our roles to leverage our complementary strengths, with Troy taking on oversight of revenue and distribution in addition to content and networks, while I maintain oversight of finances, CFO, and add-on strategy, technology, and other corporate functions. This structure leverages the full range of skills and experience of our teams. I assure you that we have all hit the ground running and are fully aligned on what needs to be done, and we are committed to doing it. I'd like to congratulate Troy on his appointment. He's a valued colleague with deep knowledge and expertise in the media business and has a track record of making tough decisions to drive efficiency and reduce costs. With that, I will pass it over to you, Troy.
spk06: Thank you, John, and I also want to offer my congratulations to you. As John said, he and I have a clear mandate and vision to rightsize our company, and I look forward to our ongoing collaboration. For those of you who don't know me, I started with the company 25 years ago as a political journalist at Global News, and I continue to be a strong advocate for the role of local media and independent journalism. I first became a vice president in 2006 as the precursor to a major restructuring, which resulted in the centralization of control rooms and closure of set departments and TV stations across Canada. While difficult work, this modernization of production processes began what has been a hallmark of my career through successive roles overseeing first news and local TV stations, then later radio, the full global network, our specialty networks and streaming portfolio, and most recently our studio businesses distribution and revenue teams. I'm a passionate believer in the value of great content. We are fortunate at Chorus to have tremendous legacy in our brands, but that does not mean we also have to carry legacy cost structures. Global News won the first-ever Edward R. Murrow Award for Innovation 10 years ago by pioneering a way to have the same anchors host completely unique local newscasts in multiple cities. It enabled us to invest our content spending in the stories that matter to the local community rather than expensive studio crews and anchors replicated in stations across the country. Ten years later, we need to redouble our efforts to reduce legacy costs, not just in news but in all areas of the business. This includes changing the way we are regulated, While we have recently seen some positive developments from the CRTC, I want to be clear that we need to continue to be a prominent voice for the equitable treatment of Canadian broadcasters versus not only the foreign streaming and internet giants, but also versus Canadian distributors who compete with us for content rights at the same time as we negotiate with them for carriage of our services. I'll now take some time to discuss key tactics we're undertaking to chart our future, as well as to provide some additional context. Let's start with slide four and an update on recent developments. You will know that last month we announced that certain programming and trademark output agreements with Warner Brothers Discovery would not be renewed upon their expiry on December 31st, 2024. This is going to directly impact HGTV, Food Network, Magnolia, and the Cooking Channel. I'd like to address some misconceptions that have emerged since this announcement. It's important to note that Chorus holds all the broadcast licenses for its portfolio of specialty networks, and as a matter of course, carriage deals are not contingent on program supply agreements. That means we intend to continue to operate Canada's largest and most widely distributed networks in the home and culinary genres under new brands and with new content across our traditional television and streaming portfolios. Our rebranding plans for these channels are progressing quickly, and we expect to provide full details in the coming months. We will start from a position of strength, given one of the cornerstones of our lifestyle networks is our Canadian original programming. In HGTV Canada's latest broadcast year, 12 of the top 20 shows were Canadian originals, and all of them will be staying right where they are with Chorus. Remember that household names like the Property Brothers started out on W Network with Chorus and later moved to HGTV Canada, benefiting from our commitment to building high-quality Canadian shows and supporting up-and-coming Canadian talent. Further, our expertise in curating strong brands and content has built tremendous homegrown channels like Showcase and W Network that consistently rank in the top 10 specialty entertainment networks. we have full confidence in our team's ability to rise to the challenge again with our new lifestyle brands, given they will launch with broad carriage, all their big Canadian stars, and a fresh pipeline of the biggest series available in the global market. We are right now successfully securing new program supply, and while we will save our biggest announcements for our launch event, I'm pleased to say we've already landed Tentpole International Series Extreme Makeover Home Edition, and we can't wait to introduce you to our new brands. One final note related to our supply agreements. We have said before that we are actively exploring all legal and regulatory remedies. Our intent is to do what we need to do to protect our business. And while I'm not able to get into the details at this time, you should know this activity is well underway. Over to slide five. We're pleased that several of our major U.S. content partners have reached out to express their continued support. Our unwavering commitment to pursue success for their brands and content as a key partner in Canada has not gone unnoticed. In the coming weeks, we will announce expanded relationships with two existing studio partners that reinforce the value we offer as an independent broadcaster focused solely on media and content. At the same time as we build deeper partnerships on the channels and brands that work best for audiences and advertisers, we know that cannot be said of our entire portfolio. John mentioned earlier our decision to shut down two AM radio formats and the own specialty channels. This is part of an aggressive review of our entire portfolio with additional measures to come as we work to focus on those brands that offer the greatest opportunities for sustainable audiences, both in linear and digital. Chorus needs to be more agile than ever in our pursuit of growth opportunities in connected TV and premium digital video. Recently, we've seen advertisers accelerate their investments into that space, not as a replacement for linear television, but as part of a multi-platform future. While linear TV is no doubt in decline, it remains a crucial part of the advertising mix. Meantime, Chorus is successfully supplementing linear audiences with massive volumes of premium digital video inventory from our growing streaming portfolio. Stack TV trends are encouraging, with modest subscriber growth leading to an all-time high on Amazon Prime Video last week. We have an attractive Amazon Prime Day promotion in market right now that builds on our exclusive Peacock Originals deep-on-demand library of popular shows and, of course, 16 of our best live TV channels. More than half the viewing on both Stack TV and the Global TV app right now is coming from people watching live. And typically more than half of viewers are unduplicated from traditional television, meaning we are reaching valuable younger audiences. Another gem in our portfolio is our Global News free ad-supported television or fast channels. In addition to their home on the Global TV app, our Global News streams are available even more broadly across Amazon Prime Video, Roku, and Pluto TV. And Global News is the largest Canadian news provider internationally on YouTube. This is a winning formula for our advertisers, building on the value of our linear channels and providing unique audiences across ad-supported AVOD and fast environments. One quick final note, on June 6th, all 33 Chorus specialty channels were made available to Eastlink subscribers through brand new Chorus theme packs. We are excited that these customers once again have access to our full suite of networks. Moving to slide six. This fall represents a full return to a regular season schedule after a long period of U.S. scripted programming disruption. We've secured an outstanding slate across our networks and streaming platforms. And Global is well positioned to continue its momentum in primetime from this past spring. With 18 and a half hours of simulcast and an incredible fall lineup, including number one show Survivor, number one drama 9-1-1, and number one late night show Saturday Night Live, back for its 50th season. Our specialty networks will see a return of the ever-popular Hallmark Channel's Countdown to Christmas on W Network, and a powerful lineup of Canadian originals including Top Chef Canada on Food Network and Cora Studios' own rock-solid builds and gut job on HGTV, as well as Dead Man's Curse and Rust Valley Restorers on History Channel. Turning to regulatory developments on slide 7. Recent events underscore the fast pace of change in our industry and the need to quickly and thoughtfully update our regulatory environment to urgently address structural inequities in the market. When it comes to channel distribution, we have regulations in Canada governing how broadcasters and distributors must conduct themselves in their negotiations, and these include protections for independent programmers. We expect these rules and protections to be upheld, and we look forward to a broader discussion in the CRTC's upcoming structural relationships hearings. In the meantime, several encouraging regulatory developments have recently emerged. In May, the CRTC granted chorus interim relief for our English-language TV channels. This includes a reduction in required spending on so-called Programs of National Interest, or PNI. We've also been granted additional flexibility in how our total Canadian Programming Expenditure, or CPE, requirement is treated at the end of our license term. This is an important first step while we await more permanent regulatory change. In June, the CRTC announced another important decision as part of the Bill C-11 implementation process. Online streaming services that generate over $25 million a year in Canada and which are unaffiliated with licensed broadcasters will now be required to contribute 5% of their Canadian revenues to support the Canadian broadcast system effective with the 2024-25 broadcast year. The CRTC estimates this will provide up to $200 million a year in new funding to be directed to areas of need, including local news on radio and television. We expect a significant benefit from this to Chorus, which is currently the only conventional Canadian broadcaster not able to access regulated local expression funding. We also expect some funding to support local news through the agreement reached with Google for $100 million to be distributed to eligible news services. However, I must say the timing and quantity that Global News may receive is still unknown. Together, these are encouraging developments for our news business. While much has been made of the challenges facing journalism worldwide, I'm pleased to say Global News has bucked the trend with a 3.5% increase in revenue and 2% increase in total audience across linear and digital year-to-date. This at the same time as it has implemented substantial reductions in its cost structure. Going forward, our news team will continue to drive industry-leading efficiency efforts in order to cut costs, while also using digital technology to keep creating the local content that is most prized by audiences and advertisers. When we look across the broader media industry, the lingering impacts of the U.S. writers and actors strikes, the changing competitive environment, and macroeconomic uncertainty, we find that they are all contributing to lower advertising demand for traditional television. As large new entrants emerge in the digital and streaming realm, advertisers have expanded choices. That's leading to an oversupply of digital inventory, which is reducing share for linear television and putting pressure on price. In response, we are focused on making our inventory broadly available in the connected TV space and introducing new initiatives to stimulate advertising demand. We're also pleased to say that local TV has been a bright spot for Chorus, with robust interest from local advertisers in news. This spring saw audiences return in healthy numbers to global in prime time, giving us confidence as we prepare to launch an outstanding fall schedule. And while it's too early to predict how advertisers will behave in a market that is saturated with competing options, our sales teams are actively working to incent demand and demonstrate the value of our multi-platform media portfolio. With that, I will turn it back over to John for a review of our third quarter results. Great. Thanks, Troy.
spk08: Moving over to slide eight. Third quarter results reflect the continued impact of advertising market disruptions, as Troy has just discussed. TV advertising revenue results were in line with our third quarter outlook, and this, combined with lower subscription revenue, the expected decline in content revenue and the sale of Toon Boom in Q4 last year contributed to consolidated revenue of $332 million. That was a 16% decrease from the prior year. Consolidated segment profit was $68 million for the quarter, a decrease of 30%, and that reflects the revenue decline and the sale of Toon Boom last accounted for $3 million of segment profit last year in the quarter. Lower revenue is partially offset by the benefits of our cost reduction initiatives. These included a 15% decline in programming costs, which was consistent with our third quarter outlook, as well as an 8% reduction in general and administrative expenses. Combined, these helped to drive total expenses lower by $36 million, or 12% for the quarter. Consolidated segment profit margins were 20% for the quarter, and that's down from 24% last year. we delivered free cash flow of $18 million in the quarter. Proforma net debt to segment profit, excluding Toon Boom, increased to 3.91 times at the end of the third quarter compared to 3.62 times at the end of last quarter. This result includes the impact of directing $4.6 million of free cash flow towards debt repayment in Q3. In the third quarter, we recorded a non-cash impairment charge of $916 million in the television operating segment including $527 million against broadcast licenses, $315 million against brands and trademarks, and $74 million against program rights, as well as $44 million impairment charge in the radio operating segment, which included $21 million against Goodwill and $23 million against broadcast licenses. This reflects the contraction of advertising demand, an uncertain macroeconomic environment, changes to the competitive landscape, including the non-rule of programming and output arrangements with Warner Bros. Discovery, and a meaningful decline in our share price. Looking ahead to the fourth quarter of fiscal 2024, we are still seeing ongoing disruptions of advertising markets, as well as an oversupply of digital advertising inventory and the temporary impact of the Olympics on demand, all of which we are working to address. Compared to last year, television advertising revenue for Q4 is expected to decline in a similar range to the third quarter that we just reported. Advertization of TV program rights is expected to decline by approximately 20% compared to the prior year quarter. In addition, we anticipate a more rapid decline in consolidated general and administrative expenses in the range of 10% to 15% compared to last year as a result of the implementation of additional cost reduction initiatives, providing a greater offset to the lower expected revenue. Now, let's turn to our TV results for the third quarter, and those are on slide 9. Overall, TV segment revenue was $308 million per quarter, and that's down 17%, mainly driven by the lower TV advertising revenue, which was down 15%. Subscriber revenue of $117 million per quarter was lowered by 6%, and that reflects declines in the traditional linear distribution system partially offset by higher streaming subscriber levels. When we normalized the change in carriage by distributor, which will begin to reverse in Q4 of this year, and a retroactive positive adjustment in the prior year quarter, 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 the Toon Boom disposal last August. The reduction of CPE for the year is expected to be the main contributor to lower production and deliveries in the quarters ahead. Direct cost of sales for TV was a significant 15% lower for the quarter, driven by the 15% decrease in amortization of program rights, and that includes $16 million of reduction in Canadian programming expenditures previously. Amortization of film investments decreased by $5 million as our investments in new programming were reduced. TV employee costs were down $7 million or 11% year-over-year as a direct result of headcount reduction initiatives and a reduction in short-term compensation. Other G&A expenses were down 5% or $2 million as a result of cost efficiency measures and the elimination of CRTC Part 2 fees. Overall, TV segment profit declined 29% in the third quarter, reflecting contraction in advertising demand due to ongoing challenges challenging ad market conditions, lower subscription and production revenues, and partially upset by the benefit of G&A expense savings from the significant cost reduction initiatives and lower amortization of program rights. TV segment profit margins were 22% in the current year quarter, and that compares to 26% in the prior year period. Proforma for the disposal of Toon Boom, TV segment profit was down 26%, with margins reducing from 25% to 22%. Now let's turn to radio results on slide 10. Our radio results reflect lower advertising demand with growth in automotive and home product categories more than offset by declines in the retail, professional services, entertainment, government, political, and restaurant categories. Radio segment revenue of $24 million decreased 10% for the quarter. Radio segment profit decreased to $2.6 million in the quarter with cost containment measures more than offset by this lower advertising demand. Radio segment profit margin was 11% in Q3 compared to 16% in the prior year period. Over to slide 11. As I mentioned off the top, we are working to address structural constraints within our debt agreements. We have delivered positive free cash flow and diligently reduced debt in the quarter and year to date, but an acceleration of cost reduction activity is necessary and a top priority given low forward visibility in the advertising environment. We have very strong elements of our core business that contribute attractive margins and will remain part of our future estate while we have to let go of other parts that are unprofitable or unsustainable. Again, we intend to pursue options for amendments or relief from certain financial covenants or repayment terms with lenders as we undertake this important work. Our plan is to emerge as a smaller but more profitable business with a sustainable future. As a reminder, our debt is comprised mainly of a term credit facility of $312 million with annual mandatory repayments of $10 million and the remainder due in 2027, as well as the senior unsecured notes of $500 million due in 2028 and $250 million due in 2030. At May 31st, 2024, we were in compliance with all loan covenants and had a cash and cash equivalence balance of $67 million, with approximately $98 million available to be drawn under the $300 million revolving credit facility. As of June 1st, Due to a reduction in the leverage covenant, the available amount on the revolver declined to $30 million. Moving to slide 12, in our third quarter MD&A, we've outlined factors that have contributed to the presentation of our interim consolidated financial statements on a going concern basis. For greater clarity, this assumes the course will continue in operation for the foreseeable future and we'll be able to take necessary steps to pursue revenue opportunities, reduce debt, and meet our commitments in the normal course of business. I'd like to close by re-emphasizing the significant actions we are taking, of course, to get to a smaller, more sustainable state while addressing our debt levels. In addition, we are awaiting details on the timing and quantum of much-needed local news funding in the upcoming broadcast year following recent regulatory decisions that Troy has taken you through. We are finalizing a plan to right-size the business, focus on the most compelling near-term opportunities designed to build on our success in digital and streaming, and optimize our core assets, including the rebranding of the large specialty lifestyle networks such as HGTV and Food Network. At the same time, we are materially lowering costs to improve profitability to drive free cash flow available for debt reduction as we actively pursue options for amendments to or relief from certain financial covenants and repayment terms. And finally, as Troy said, the Canadian broadcast system is better with chorus, and to that end, we will continue to advocate for changes to the way we are regulated to ensure equitable treatment of Canadian broadcasters. I want to close by saying our team has the talent, commitment, and fortitude to quickly execute on next steps. We thank you for your ongoing support. I will now take your questions over to you, operator.
spk03: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Mayor Yagi with Scotiabank. Your line is now open.
spk10: Good morning. Thank you for taking my question. I wanted to ask you, I mean, we have seen BCE already make an application at the Ontario Superior Court asking for a permanent injunction on grounds of a breach in a two-year non-competition provision that they believe is in the contract that they have with the suppliers. Can you address what the options are in front of you Is an injunction open as a possibility going forward, or your only line of defense is some application to the CRTC for making sure that the treatment of your channels by Rogers would be non-predatory?
spk08: Thanks, Matt. A couple of things. On that, so no, where you ended there, I would not suggest that that's our only line of defense, but it's probably fair to say that at this point we're working on all of our options, and I don't think we want to reveal the overall strategy at this point. But we do think we have avenues, as Troy was alluding to in his comments, so it's probably best to leave it at that. But don't assume that the only line of defense is through the regulator.
spk10: Okay. Maybe I'll switch here to the debt covenants. You mentioned that you're working on an additional cost-cutting measures and you're also going to seek some relief from your lenders. I know you don't provide future guidance, but how far from your 4.25-time covenant requirement you expect to be in Q1 2025, trying to understand just the quantum of the flexibility that you need to get, including in order to stay on side with your covenants.
spk08: You're right, Maher. We won't give guidance that far in the future in any respect. Obviously, it's just too hard to be able to see that and have that visibility. I think what I can point you to, though, is if you look at the disclosures around where we were at the end of Q3 and then how that was impacted in terms of revolver availability on June 1st as we step down to 4.5. I think you can draw a straight line between 475 to 450 to 425 and understand what that would mean. So, you know, as of June 1st, we have $30 million available on the revolver. So that would imply that at the end of Q3, we were over 425, which is fine. That's compliance standards. on a 475 covenant or even a 450 covenant. But obviously, what we've signaled here is that things are very tight and we're going to have to deal with it and we are starting that process with the lenders.
spk10: Okay. Just one last question on regulation. I mean, the cookie cutter approach that the CRTC has on broadcasting regulation obviously is not sustainable, not working for the industry. It's clear that different broadcasters have different needs and require flexibility in how they have their broadcasting requirements implemented. The CRTC is currently undergoing a review, but it looks like we're looking at the end of 2025 for some kind of a complete rollout. It's way too much into the future. Do you think that we could see a quicker approach implemented by the CRTC to roll out some parts of the regulation before the full two phases are done?
spk06: That's a great question and from your lips. Look, I think we share your analysis that this process has taken too long and continues to move too slow, although we acknowledge the chair's comments that she wants to move quickly. And let's just take stock of the fact that they have provided some interim changes, which I talked about in my earlier remarks. It is within the CRTC's power to continue to massage how they implement those interim relief measures and how they allocate funds from the interim funds that they've tasked the streamers with providing. So there are things that they can do, though I don't have a whole lot of optimism. I don't think we would hold out a whole lot of optimism that they would change from there. laid out timeline, they certainly do have a lot of work to do, and we expect that they're going to follow the timeline for the big decisions. But before they get to those big decisions, they certainly have the flexibility to do other things to try to create a more tailored and workable solution for Canadian broadcasters who clearly need it.
spk01: Okay. Thank you. Thanks, Mark.
spk03: Your next question comes from Adam Schein with National Bank Financial. Your line is now open.
spk02: Thanks. Good morning. So maybe I'll just continue off from the last part there. Acknowledging that the regulator probably will move slower than you need them to move and maybe not give you the fullness of your expectations, which has been the case over the past several years, if not decades. Are there greater actions that you can take? For example... notwithstanding your requirements around news, we all know that, you know, there's a significant sum that's spent on news each year and you're getting very little in return for that. So, you know, would you potentially, you know, gut the news operation in the absence of the regulatory relief you so desperately need at the moment? We'll start there.
spk06: I'll take that one. First off, there's a bit of a misconception in the way you phrased your question. Yes, local news, particularly in small markets, is very challenged. Basically, there was a time when a local television station could have a good hold on the local advertisers in the market. Now local advertisers can go to literally hundreds of other options. And, of course, Google and Facebook have driven very hard into the local advertising space. So no longer is there any kind of monopoly on local audiences or advertisers for local television stations, but they still have to produce local content that can only be monetized in a small market. It's particularly challenging in small markets, and that's where the focus of our restructuring efforts have been and will continue to be so that we can continue to provide those markets with service at the same time as taking out legacy costs. When we talk about the need to pivot our cost structure going forward, I should also note that national news, news where we can do it at scale, does quite well for us and is, in fact, one of the growth engines where we've been able to put it into the digital space. There are sort of two stories when it comes to news, and both rely on some really innovative thinking to take costs out of the overburdened local television space and put it into a place where we can operate news at scale. And I'll answer the main part of your question by saying our intention is to remain compliant with all of our license requirements.
spk02: Okay. I appreciate that, Troy. I think you're trying to behave better than you need to, but let me flip over to John. John, with respect to the cost savings that you outlined, I mean, you didn't outline quantum, but you talked about 800 positions being eliminated. Can you give us a sense as to where things have stood through May 31? I know you've talked, frankly, over the past two or three quarters about $36 million of savings, but can you give us a sense as to how you expect to build on that $36 million to date in savings, and how many jobs have already been eliminated as you head towards the $800 million?
spk08: I'll pull up the details, Adam, in a second. There's no doubt that there's a fairly heavy contribution in Q4 that we're going through right now to get to that $800 million number. In terms of dollars, I think it's not a bad assumption to assume... You know, we had been running kind of pre the reductions around $330 million of salary and benefit costs consolidated. And it's almost a direct relationship between the nearly 25% reduction in headcount and the reduction we're going to see in those costs. So, you know, that's not a bad way to look at it in terms of the total quantum of the cost. To the end of May... We were down about 500 positions from the beginning of 23. So to get to 800, as I said, there's going to be a fair bit more that's happened or happening in Q4.
spk02: Okay. But just to be very clear, so 500 positions already eliminated, 300 to go. We'll call it $82.5 million of potential targeted savings in the context of a quarter of the $330 million. And is it fair to say, just to be clear, that the $36 million or most of the $36 million of cost savings you've highlighted to date have been related to headcount?
spk08: In the quarter?
spk02: No, year-to-date.
spk08: Oh, year-to-date. No, that was a quarterly number at the 36th. Oh, okay. I'll have to dig that out. I'd say a lot of the cost savings in the current year to date are actually programming because of the impact of this. Right, right, right. And now we're seeing the benefit of the reductions in Canadian in Q3 and Q4.
spk02: Okay. If we think about, because the $82.5 million is obviously a bigger sum than we had otherwise anticipated, so it sounds like you're off to a pretty good and meaningful start in terms of the initiatives ahead. Does that... help you without us quickly doing the math and reflecting on some of the guidance adjustments for Q4. That would, in theory, get you meaningfully ahead in terms of boosting free cash flow and perhaps even keeping you on side some of the covenants. Is that a fair assessment or is there further concern in terms of ongoing ad pressure ahead next year, notwithstanding what Troy was talking about regarding your optimism in terms of the new global schedule, etc.? ?
spk08: Yeah, I think you've hit it right on the head there, Adam. So the way that we've been approaching this is, and look, we talked about this back on the call in April, we know that programming costs on global are coming back in the fall. That was about $40 million was the number we gave on the Q2 call. That's still a good number. So as we've been pushing hard on cost reduction, we know that we have to finish this year in a much better place. And I'm not necessarily suggesting we're going to be able to get that whole $40 million. We're going to work as hard as we possibly can to get it. But, yes, that assumes that the revenue environment is flatter than it's been, and I don't think we're in a position to say that right now. It's too early to call Q1. As Troy said, we have a very strong schedule. We like our position in simulcast. But, you know, does that mean that revenue is going to bounce back? I don't think we can say that at this point. That's the risk is that the revenue continues to decline. And, you know, we'll keep pushing hard on costs, knowing that programming costs are coming back. But, you know, at this point, it's a really hard call. And I don't think we can take the chance or create risk that we call for a revenue recovery that doesn't come to fruition and then we're in a very bad place. And, frankly, that's what's getting us to where we are right now as we're talking to you is the back half of the current year did not recover the way that we thought it was going to, and so we are where we are. So that's what is driving our thinking in terms of what we need to do next is we're not sure what next year is going to look like, and we're not going to call it up and be wrong.
spk02: Okay. I appreciate that. I'll queue up again. Thank you.
spk03: Thanks. Your next question comes from Drew McReynolds with RBC. Your line is now open.
spk07: Thanks. Thanks very much. Good morning. Maybe John, just from a timing of seeking release or amendments on the, you know, on your balance sheet, timing wise, presumably, you know, the intent, you know, obviously before, you know, your fiscal August year end, but, you know, maybe I'm incorrect there. But that is that the timeline we should be expecting here?
spk08: Yeah, I think that's the right way to think of it, Jeremy. Obviously, this could potentially be different than what we've seen in the last two rounds of covenant relief. There's probably more at play here and a different financial profile going forward. So that would be the idea. With that step down in the bank covenant to 425, we obviously need to have some relief in effect for September 1. And having the quarter reporting delayed a little bit, in a way, has put more pressure on the timing. But on the other hand, I think it has set us up better to have those conversations because I think now we have a better view of what we're dealing with. But you're basically right. That's what we have to have in place or attempt to have in place.
spk07: Okay. Thank you. And just I know Adam flushed through just some of the cost savings math. The 10% to 15% decrease in G&A for Q4 is like there's a couple of different kind of other G&A, and then there's a total G&A. Like, are you able to quantify that a little bit more from a dollar perspective?
spk08: Yeah, the other main piece is the marketing spend. So there's a bit less marketing in this Q4 than there was in the last Q4, and that's generally to do with the fall launch. I'd say there's always timing issues around other programming launches, but, you know, that's probably the other big piece in addition to salary and benefit costs. That's sort of low single-digit millions.
spk07: Okay. Okay. And just back on the subscriber revenue side, it's found that it didn't capture all of it, but Q3 underlined subscriber revenues were down 2%. Obviously, you've got the Eastlink deal done early June. Just what should we expect there here in Q4 and maybe just kind of at least through the fall what we should be modeling in here?
spk08: Yeah, look, I'd say the East Link News, of course, is very positive, and we're happy that we're back there. That's going to be, you know, a ramp through the summer. I think it's off to a very strong start. It's hard to predict. It's not going to go from, you know, from zero back to where it was right away. That's not what we expect to happen. So, you know, going forward, I think, you know, you're going to see – we've been talking about this for a long time – linear subscriber revenue is under – kind of overall pressure of probably 2% to 4% reduction, and that's subscriber reductions of, say, 6%, and then there's always some pricing things that can happen on the other side. Now, to the extent that we're looking at some of these networks coming down, as we've mentioned, you know, that could impact that overall trajectory, but that also has a profitability element to it as well that, you know, To the extent that we are dropping some revenue, we will be dropping some significant costs as well. So net-net, that's not going to be a negative thing in our estimation. But generally, yeah, I'd say linear subscribers down 3% to 4% is probably the right way to think of it, subject to some of those changes. And then how much we can continue to ramp stack is going to be the offset.
spk07: Okay, okay. Great. And then last one here, just on the oversupply, premium inventory from the streamers, obviously a focus for you in terms of monetizing your own inventory, but something you can't entirely control. What's your kind of outlook on the ability for that kind of supply demand to tighten up? Is it your working assumption that it stays oversupplied for a period of time?
spk06: Yeah, it's a really difficult one to predict. I think we would have liked to have seen some tightening up by this point in the calendar already. Whether or not the cycle works its way through in the new fiscal year is a good question. I think our teams are certainly working to try to incent demands and have come up with some new ways of packaging our inventory to combine both the linear and digital offerings, and linear is still a very, very attractive product for advertisers. So I think we have some optimism that we can start to turn the corner, but understand that it's not just the streamers who have been piling in a lot of additional premium digital video inventory, but others like YouTube as well. So the oversupply question is one that I think will hang over the market for the short term at least.
spk01: Okay. Thank you both. Thanks, Drew.
spk03: Your next question comes from Scott Fletcher with CIBC. Please go ahead.
spk04: Hi. Good morning. I just wanted to continue on the linear advertising piece. So you mentioned you called out a few items that are impacting demand there, but you also note that generally lower demand for linear advertising. When you're speaking to advertisers, are you sort of hearing them comment on potential willingness to increase spend in the future? Or are we potentially looking at sort of a new normal from this point forward? I guess to sum it up, do you think that there is a willingness to increase spend as content does return?
spk06: I'd say it's a question almost better put to the ad agencies. And I'm not trying to kind of kick the can. It is really hard for us to predict how much of this may be a longer-term trough. I would note that overall advertising spending in Canada is not in decline. It's the mix that is changing, and that's where our linear services are facing new pressure from digital and foreign providers. I think there are things that domestic advertisers, I think who do have a bias to Canadian services, can do to strengthen the position of Canadian providers. but whether or not this is cyclical or more long-term is a bit of an open question.
spk04: Okay, fair enough. And then I know it's still fresh and we're only sort of a month out, but is there any additional detail you can provide on what you expect potentially sort of lost revenue as the Warner Brothers content renewed in January? And maybe offset with the cost, I guess, as John mentioned.
spk08: Yeah, I think that's right, Scott. I don't know that we're in a position to predict that. There's obviously a lot of moving pieces, including what's the schedule going to look like, what the foreign schedule is going to look like. I think we have a very strong Canadian schedule on those services. So, yeah, that's still a ways out. But, yes, there will be significant cost savings for sure. And the rebrand and the launch of that is still to come as we get into the fall.
spk06: And I would say our intention is to hang on to everything that we can and to relaunch these services with distinct Canadian brands and all of our Canadian talent and some great new foreign shows to really show the advertisers that we can deliver the same kind of audiences we have for years and years. It's probably more of a question of how much additional competition there is in the market rather than our ability to actually deliver the CPMs and the audiences that we would expect.
spk01: Okay. Thanks for the call.
spk03: Your next question comes from Aravinda Galapati with Canaccord. Your line is now open.
spk09: Good morning. Thanks for taking my question. Maybe for John, with respect to sort of the countdown to December 31st, in terms of those specific channels, food, HGTV, et cetera, is it reasonable to expect that there could be sort of maybe an accelerated advertising decline in the run-up to that, or should things be relatively normal at that point? I mean, just in terms of sort of getting our Q1 forecast correct on that front. I'm just wondering whether the advertisers would react differently knowing sort of the changes that are coming. Just wanted to see if you had any thoughts on that that you can share.
spk08: Yeah, Troy and I are both shaking our head. I don't think there's any reason to think that Q1 should be any different than what it was always going to be. Programming is all there. You know, there's good support for the audiences. So, you know, why that would change. Yes, we've got our work cut out for us as we get into Q2. as with those rebrands kick in and the programming changes. But I don't think Q1, we would expect it to be a material change.
spk06: No, I think that both those channels will operate as HGTV and food throughout the fall, carrying the full schedule of the Warner Brothers Supply plus our Canadian programs. Understand that a big part of the revenue profile on those services is the integrated advertisers in the Canadian programs, and those will continue to run regularly. right through the end of the year and into the new year, so that won't change. And we don't actually expect the viewer experience is going to change substantially, nor should the advertiser experience.
spk09: Okay, thanks. And just a quick follow-up on the restructuring. Obviously, we'll continue to have meaningful restructuring charges in the upcoming quarter as well. Given the quantum of the reduction in headcount you talked about, Should we think of the restructuring cost being sort of a one-time lump sum in Q4, or would that sort of spread out over a couple of quarters? Again, that's just going to help us with working out our free cash flow numbers.
spk08: Yeah, so the accounting requires us to book those as they occur. So that means that you'll see restructuring charges again in Q4. But the cash flow impact, generally, these are continuance arrangements. So the cash flow doesn't come when we book the accounting charge in most cases. So you can assume the cash flow impact is similar to what it would have been just sort of normal course of people being active.
spk01: Okay.
spk09: Thank you.
spk03: I'll pass the mic.
spk01: Thanks, Irvinder.
spk03: Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. Your next question comes from Vince Valentini with TD Cowan. Your line is now open.
spk05: Thanks very much. First, can I just clarify on the NBC Universal content? You talk a lot about the Warner Brothers brands and channels and what you're doing in January to October. to relaunch but is there not some content on Showcase related to Peacock and maybe on Slice related to the Bravo stuff that is disappearing as well or have you found a way to keep that longer because it hasn't really been mentioned?
spk06: We are in deal for Peacock and I think you're referring to the Bravo content which was part of our program supply for our Slice channel our slice channel also has, uh, other content on it. And, um, uh, so yes, no, we don't, uh, we did, uh, see the, uh, the Bravo contents, um, we'll come to an end, uh, as of August 31st. Um, but our slice channel will continue to operate with other content there and, um, and Peacock's unrelated.
spk05: So the Rogers did not scoop the Peacock deal. You, you still have that for showcase for Nick? Oh gosh, no.
spk04: Yeah. Okay.
spk05: Thank you, Troy. Um, Back to the relaunched channels, can you help me understand how the mechanics work with the carriage deals and where the CRTC can get involved? Because I'm not sure I fully understand it. Come January 1st, all the distributors are going to have, I guess, an option for HGTV and Food Network under a new owner, and there's going to be an option for your new channels that you rebrand, which I agree are going to still have a good lineup of content, especially your Canadian stuff. But how long do these carriage deals last, and what happens to the rate when the distributors say, I can't pay for two, either I drop yours or the rate gets cut in half? What kind of protections do you have from the CRTC when that push comes to shove?
spk06: It's a great question, Vince. So first off, it comes back to my kind of misconceptions point early on. We have carriage deals for our services. They are not related in general to what the program supply of those channels are. We expect those channels will continue to have broad carriage deals. and be in deal with our distributors. We're going to have a great option and a great program supply on there, and we think that their customers, the BDU's customers, will be very pleased with the product that we offer. I will note the other competitor you've talked about doesn't have channels to put HGTV and food content on, so they'll need to launch services and seek carriage maybe not with themselves, but with competing BDUs. But that's a them problem, not an us problem. And I would just say that we are very optimistic that we will maintain carriage and maintain good viewership of our rebranded services with fresh new content. There is plenty of great food and home content out there in the international market that doesn't come from Warner Brothers Discovery.
spk05: So I get that the carriage deals have nothing to do with the content right away, but I think you acknowledge the carriage deals don't last forever. What I'm talking about is how long do you have before you need to renegotiate and cross that bridge, and I guess my question was forward-looking to when you come to that bridge, what would you do? But maybe I'll just start with the simple thing. Do you on average have sort of two years left on these carriage deals?
spk08: They're all different, Vince. So they're always rolling. There's always something being renewed. You know, on average, would they be that long? Yeah, probably, sometimes longer. It's interesting, you know, at this point, certain distributors are looking to lock things in for longer. So, you know, there's a certainty of supply that's important here as well. So, you know, look, every single distribution deal is different. It's a different negotiation. There's different factors at play. So it's hard to comment, and we don't get into individual deals, obviously, but But you're right, there are regulatory measures that we can invoke or request, and then there are sort of other general market conditions that also will impact this.
spk05: If you don't mind, one maybe two-part last question. Just taking a step back and looking at the broader picture, I mean, we know we've talked about in the past, and we see it in the CRTC filings, we know what the approximate EBITDA was for these channels that that have to be relaunched. Losing that and then trying to replicate it with the new channels, is there any chance that you, that plus any other CRTC relief on news funding or anything else, is there any chance that the next 12 months EBITDA is better than the last 12 months given that headwind? Do you have enough levers on cost cutting and what you can do with other content? Or is it just inevitable? It's just a matter of how much lower it is.
spk08: No, look, I think it goes back to what I said earlier. It's all going to come down to what's the TV advertising position look like going forward, right?
spk01: Because, yes, could we cover... Hello? Sorry, we are having technical difficulties. One moment, please. Vince? I'm still here.
spk08: Okay. I'm not sure where we lost you. We weren't looking at the lights on the phone. But at what point did we drop?
spk05: Pretty much at the very beginning of that answer to that last question, John. You were just saying.
spk08: Okay. So, yes, there are a lot of moving pieces on the cost side between programming, news funding, G&A cost saves. But the big impact or the big driver of this is going to be the TV advertising line. Right. And that's primarily linear. And, you know, that's what's just really hard to call at this point going forward. So, look, I think we feel pretty good. Troy went through this in a lot of detail. Feel very good about the schedule. We feel very good about the audience. So it's just a question of how we can monetize that in this world of a ton of digital technology. inventory out there that, frankly, some of it's relatively inexpensive. We can argue about how effective it might be, but at the end of the day, that's what's going to drive this whole story is what's TV advertising going to look like. That's really hard to give any kind of a future look at right now.
spk05: Given that, the second part of that last question then, given that answer, the visibility is so weak, so many moving pieces, equity is almost worthless based on where the share price is right now. It Does it not make sense to consider a stronger foundation of just recapitalizing now so that you can go out to all these counterparties for content or all your advertising buyers and say, look, we don't have over a billion of debt anymore. We've been able to, I won't throw numbers out on this call, but we've been able to significantly restructure that and now here's our new capital structure and platform and you can now deal with us and feel confident and move on. I don't understand how we We cobble together so many uncertainties and you're already going to be breaching the debt covenant. Why not just pull the plug now and reset things?
spk08: Yeah, look, I think you picked this up in your flash note this morning. And, you know, the disclosure is quite clear, I think, at least going through the situation today. and what we think is going to come next. So I wouldn't say it's as easy as you're describing for that just to wave a magic wand and for that to happen, but I think you've picked up on the path that we're definitely going down.
spk01: I appreciate that. Thanks, John. Thanks, Vince. Thanks, Vince.
spk03: There are no further questions at this time. I will now turn the call over to Mr. John Gosling, co-CEO for Closing Remarks.
spk08: Great, I'll be brief. Thank you operator and thanks everyone for your continued interest and support.
spk01: We do appreciate that. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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