Corus Entertainment Inc.

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 Q1 2026 Analyst and Investor Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. Thank you. As a reminder, this call is being recorded. I will now turn the call over to Mr. John Gosling, CEO of Coors Entertainment. Mr. Gosling, you may begin your conference.

Thanks very much, Joelle, and good morning, and happy new year, everyone. Welcome to our fiscal 2026 first quarter earnings call. I'd like to remind everyone that we have slides to accompany today's call, and you can find them on our website at www.coorsent.com. under the Investor Relations dash Events and Presentations section. I'll start off by drawing your attention to our standard cautionary statement, which comes down on slide two. We note that forward-looking statements may be made during this call, and actual results may differ materially from forecast projections or conclusions in these statements. We'd also like to remind those on our call today, in addition to disclosing results in accordance with IFRS, The 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 measures, the company's report results, and factors and assumptions related to forward-looking information can be found in our first quarter 2026 report shareholders and the 2025 annual report, which can be found on CDAR+, or in the investor relations dash financial report section of our website. Joining me on today's call are Jennifer Lee, who is our chief administrative and legal officer, as well as senior finance team members Doug Spence and Ann Duggan, all of whom are outlined on slide three. All right, let's move on to slide four, and I'll start with a brief update on the proposed recapitalization transaction, which was first announced this past November. On December 17th, we received an interim court order which authorizes us to proceed with concurrent special meetings of note holders and shareholders to seek approval of the plan of arrangement for the transaction. This plan represents the culmination of a thorough strategic review that our board launched in early 2024 with the help of leading financial and legal advisors. Following this very comprehensive process where we looked at a number of options and factors, the board unanimously determined that this recapitalization transaction represents the best value option sorry, the best viable option for Forrest and our stakeholders at this time. The proposed transaction is expected to deliver substantial benefits by reducing total debt by more than $500 million, generating annual cash interest savings of up to $40 million, providing continued increased access to our secured lending facility and extending debt maturities by five years. This transaction is already strongly supported by several key stakeholders, with over 74% of senior note holders and more than 86% of Class A voting shareholders backing it. Importantly, this proposal also seeks to preserve as much value as possible for all stakeholders, particularly in light of the significant debt burden, the upcoming maturities of our credit facility, and the $750 million of senior notes and the ongoing industry headwinds. Last week, we filed and mailed meeting materials to all security holders as of the record date, which was December 24th, in respect of the meetings, which will be held later this month on January 30th. The meeting materials provide comprehensive details on the proposed transaction, along with clear instructions on how to vote. We urge all stakeholders to vote early, ahead of the January 28th proxy deadline, and to vote for this transaction. The dedicated proposed transaction page on our website also has more information on how to access materials how to vote, and information on who to call for assistance or more information about the process. All right, now over to slide five for a review of some key factors that contributed to viewing and advertising trends this fall and to provide highlights on the performance of our strong fall schedule. As mentioned on our last call, sports, particularly the Blue Jays playoff run in September and October, contributed to a temporary but significant shift in audience behavior. This impacted our specialty audiences in particular, as well as advertising buying patterns, all of which is similar to what we see during the Olympics. We saw audience momentum pick up notably once the World Series wrapped up, which set the stage for a return to more typical patterns across our networks. We are proud that Global emerged once again as the number one network in core primetime post the baseball season, with 11 of the top 20 most watched programs, including number one reality series Survivor and proven franchises 911, NCIS, and FBI, all ranking in the top 10. Plus, new franchise extension Sheriff Country secured a top 20 ranking in its freshman run. Core specialty channels also increased their presence in the rankings, reflecting the strength and broad reach of our portfolio. And in particular, W Network maintained its position as the number one specialty entertainment destination this fall, with Hallmark Channel's Countdown to Christmas again driving the success. History remains the number one factual network with eight of the top 20 specialty entertainment programs, and Home Network and Flavor Network continue to be in the number one and number two lifestyle brand positions. In addition... Our thoughtful rationalization of our kids' specialty portfolio to better reflect viewer case and demand has resulted in some audience consolidation into our remaining kids' brands. We saw Y2B in for the first time ever a boomerang position within the top 20 networks this fall. These achievements underscore the effectiveness of our strategic programming decisions and the continued appeal of our brands to Canadian audiences. On the streaming side of the business, overall viewing continues to gain strength, hitting an all-time high in Q1 for hours streamed. and monthly hours per monthly active user on Stack TV and global TV app combined. Stack TV tuning has grown by 5% during the fall 25 season, primarily driven by video on demand, which was up 23% over last year. Our streaming offerings are full of potential, and the revenue team is working diligently to pursue attractive opportunities in this area. All right, turning to slide six, let's take a look ahead to our exciting and packed winter schedule. Global Anonymous, a robust slate of premieres anchored by the landmark 50th season of Canada's number one reality series, Survivor. The mid-season lineup features exciting new additions, including drama series CIA, an expansion of the FBI universe, reality competition debut America's Culinary Cup, and true crime series Harlan Coleman's Final Twist. Rounding up the schedule, several of the most watched series return, with new seasons of the top 20 ranked series, Matlock, Elspeth, NCIS Origins, and Sheriff Country. In addition, the fall's number one new comedy, DMV, and Emmy Award-winning comedy, Abbott Elementary, also returns. Over to specialty. Showcase unveiled new titles in this lineup, including Peacock Originals, The Copenhagen Test, and Ponies. W's Network features new Peacock Originals series, The Birbs, and the comedy Zed Suite, probably Z-Suite, actually, alongside returning favorites, The Chicken Sisters, When Calls the Heart, and Outlander. Flavor Network continues to deliver fresh culinary content with new seasons and series, including Worst Cooks in America, Gordon Ramsay's Secret Service, the Great British Baking Show, Professionals, and Stanley Tucci's Searching for Italy. Over on Home Network, we welcome Property Pros, Kirstie Alsop and Phil Spencer with Season 10 of Love at Our List at UK, and the History Channel introduces gripping new series, History's Deadliest with Bing Raines. Overall, This diverse and dynamic lineup underscores course commitment to delivering compelling, fresh content together with the hits that engage audiences across all of our platforms. All right, moving on to slide seven. I'll briefly note that with the ongoing limited visibility on multiple fronts, including ongoing volatility in the macroeconomic, regulatory, and competitive environments, we do not believe it's appropriate to provide specific quarterly outlooks at this time. We are very focused on our strategic plans, including completing the recapitalization transaction and remain focused on discipline cost management and execution of value enhancing actions and opportunities. With that, I'll turn it over to Doug to review the financial results.

Thanks, John. Consistent with the outlook for TV advertising we provided on the Q4 call, our first quarter results reflect the continuation of trends in the broader advertising market related to linear TV demand, oversupply of digital inventory, and macroeconomic conditions. In addition, Lower subscriber revenue reflects the discontinuation of seven specialty channels since Q1 of last year, declines in the linear business, and ongoing disputes with certain distributors. TV advertising revenue was in line with our prior outlook with a decline similar to Q4 of fiscal 2025. This, combined with the lower subscription revenue, contributed to consolidated revenue of $268 million for the quarter, an 18% increase from the prior year. Consolidated segment profit was $57 million for the quarter, reflecting the revenue decline partially offset by the benefits of our cost reduction initiatives. For the first quarter, these resulted in a 16% reduction in general and administrative expenses. This was at the top end of our Q1 outlook of 10% to 15%, and includes a decrease of 10% in employee costs. In addition, lower amortization of program rights and film investments resulted in an 11% decrease in direct cost of sales. Combined, these helped to drive total expenses lower by $32 million, or 13% for the quarter, reflecting meaningful progress on our cost reduction commitments and efforts to right-size our business. The consolidated segment profit margin was 21% for the quarter, down from 26% last year. Free cash flow was negative $54 million in Q1. This reflects the lower segment profit, higher net investment in program rights and film investments, and proceeds from a sale of property in the prior year. Program rights in particular were impacted by the timing of certain buildings and program premieres in the current year, and this was partially offset by discontinuation of certain program rights related to TV portfolio changes in the prior year. At the end of our first quarter, we were in compliance with all covenants and had approximately $45 million of cash and cash equivalents and $35 million available to be drawn under our revolving credit facility. Net debt to segment profit increased to 7.39 times at the end of the first quarter, compared to 6.01 times at the end of last year, driven by the lower segment profit and higher debt balances. As John mentioned, we continue to focus on opportunities to further offset lower revenue while delivering on our longer-term strategic objectives. This includes progressing our proposed recapitalization transaction to strengthen Coors's financial position and support a sustainable business strategy. Moving to slide eight, TV segment revenue was $245 million for the first quarter, down 19% from the prior year. This was mainly driven by lower TV advertising revenue, which declined 23% to $135 million, and subscriber revenue, which declined 15% to $99 million. When we normalized for the sunset of two specialty channels in December 2024 and five additional channels at the start of the first quarter, combined with ongoing disputes with certain distributors, subscriber revenue for the quarter was down 3% compared to last year. Distribution, production, and other revenue was 2% lower for the quarter, driven by a pause in production in our animation studio as part of our cost containment efforts. TV segment expenses were $189 million in the quarter, down 13% from the prior year, driven by an 11% reduction in direct cost of sales and a 16% decline in general and administrative costs. Direct cost of sales benefited from the channel portfolio changes mentioned earlier, as well as reduced costs associated with certain digital sales initiatives. The savings in general and administrative costs reflected management's ongoing focus on cost contained. Overall TV segment profit declined 35% in the first quarter, mainly reflecting lower revenue, partially offset by the benefit of expense savings from significant ongoing cost reduction initiatives as we work to mitigate the impact of lower revenues. TV segment profit margins were 23% in Q1 compared to 28% last year. Moving to slide nine, radio segment revenue of $22 million for the quarter decreased 4% from the prior year period due to lower advertising demand. From a category perspective, Q1 saw declines in government or political spending and professional services, but saw increased pharmaceutical advertising, as well as benefiting from resilient revenues in the retail, entertainment, and automotive categories, which have historically been significant advertisers on radio. Radio segment profit increased to $5 million, up 38% in the quarter, with cost containment measures more than offsetting the lower advertising demand. Radio segment profit margin improved significantly 24% in Q1 compared to 16% last year benefiting from our cost reduction initiatives. I'll now turn it over to Jen for comments on the regulatory environment and recent developments.

Thanks, Doug. Turning to the regulatory side, you'll recall we actively participated in multiple important processes last year related to the implementation of the Online Streaming Act. Right now, we are essentially in a wait mode. As we look to the CRTC to finalize key parts of the new regulatory framework for all broadcasting, that's digital and linear, domestic and foreign. In addition, we are waiting for a final judicial decision that will allow us to receive our full amount of independent local news funding. Overall, what we need to see is final, refreshed rules governing broadcasting distribution and spending on Canadian programs. These policies impact Chorus' future operating conditions, which is why we've been so engaged in the processes and advocated so strongly for change. Years of slow progress or inaction on this front have deepened competitive imbalances for Chorus and other independent broadcasting companies, including with foreign streamers and domestic vertically integrated distributors. Updates to frameworks that govern not only digital players but also market dynamics, including disputes and negotiations among broadcasters and distributors, foreign and domestic, are very important to Corus and the future of our business. We are undeniably a highly regulated industry and we are not calling for all rules to be repealed. Rather, what we're seeking is smarter rules that promote fair competition in the sector and better serve all Canadians. CRTC has taken some important steps since Parliament passed the Online Streaming Act in 2023 to advance policies and rules for the industry. And the regulator must urgently conclude that work. This is about seeing through the long-needed actions to truly support, strengthen, and create a realistic future for Canadian broadcasters. Now is not the time to slow down or turn back.

Thanks, Jen. Just to echo what you've just said, Ottawa projects are bubbling the playing field for Canadian broadcasters and update the way that rules are enforced and disputes are resolved. All of this is critical to our sector and, of course, its business and operations. Our ability to keep bringing news to communities across the country and produce popular and beloved Canadian shows is highly dependent on our ability to also successfully distribute our channels broadly on linear and digital. We continue to shift with audience and viewer habits, growing our digital offerings, including on Stack TV and on fast channels with more in the works. But in reality, the current broadcasting rules do not do enough to create a fair playing field for independent Canadian broadcasters like Coarse and need urgent updating to support our business and future. As we noted during the CRTC's market dynamics review last year, existing regulatory tools are an insufficient check on anti-competitive behavior by big distributors, streamers, and dominant players. We need rules that do more to promote fair dealings in the broadcast sector so all Canadian companies have a real chance to compete. On our part, we are very focused on the areas most squarely in our court, growing our products and services in light of the future of broadcasting, right-sizing our cost structure, and, of course, on the proposed recapitalization transaction. In keeping with our practice of transparency and frankness, I want to emphasize that this proposed plan is particularly important because without the recapitalization transaction, or in the event it is not completed on the terms and timeline currently contemplated, we could be forced to look at alternatives that likely offer no consideration for many of the stakeholders. As such, I reiterate that the board has strongly encouraged all security holders to participate in the upcoming vote and to vote for the proposed transaction. It represents our best and most viable option to help course build a stronger future for all. Before turning it over to questions, I'd like to thank our incredibly talented and dedicated teams here at course, our board members, and our many business partners and clients for their ongoing commitment and support. And with that, back to you, Joelle, for questions.

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 prompt that your hand has been raised. 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 Adam Shine with National Bank Financial. Your line is now open.

Thanks a lot. Good morning and Happy New Year. John, just beyond the vote at the end of this month, if we look ahead to obviously a pending CRTC approval, I mean, when do you think that might happen? Do you think you might get an expeditious review pursuant to some of the urgency you just alluded to?

Thanks, Adam. Sure. You know, we've obviously been in conversations over the last little while on that matter, and it's very hard to predict. You know, you've seen many of these in the past where the timeline is not particularly clear and can end up getting extended, but we're certainly looking for an expedited review. We've made that clear. Part of that will be on us, obviously, to provide the requested information, and that process is all happening right now. So, It's very, very hard to predict, as you know, but we're going to try to move that along as quickly as we can.

Okay. I mean, historically, these have been probably within a six-month sort of timeframe. So, one way or another, we're looking at somewhere around, you know, May-ish, subject to any delays into the summer, right?

Ideally, you know, that timeframe would be great. I just don't know that we can predict that at this point.

Okay. Yeah. Also, you know, in terms of difficulty and prediction, going back to Jen's comments on, you know, the pending final decision on the ILNF, any potential timeframe there? And maybe you can just remind us of, you know, the buckets of dollars you're expecting and whether that potentially has changed in any particular direction. I'll let Jen answer that one.

Yeah, it's a quick answer. Adam, unfortunately, we don't have any insight into that. As you know, the decision is pending with the courts. so we don't have any particular insight. Again, on that same front, nothing to imply or indicate that the buckets, as you said, would be changing. CRTC did confirm our eligibility back in June, and we're just waiting for the streamer portion to come through.

Yeah, just a reminder there, we're capped at 48% of 45% of whatever that amount is. And, of course, the amount is changing because I would imagine the streamer revenues are increasing in Canada. So that was a bit of a moving target. But I think the CRTC did have a number of around $50 million or over.

$40 million related to the streamer contribution. Right. And we would be capped at 45% of that.

And then there's also the money that comes from the traditional distributors that we are receiving now, and that's in Q1. That's the amount there. So, yeah, it's still, again...

Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from Vince Valentini with TD Cowan. Your line is now open.

Hey, thanks very much. Good morning. I understand you don't want to give specific quarterly guidance, but given as we move into the second quarter, there's no longer the Blue Jays World Series run, and you should be lapping some periods that already fell off quite a bit. Last year, of course, we've got the Olympics towards the end of the second quarter. That was maybe an offset. Is there any reason to think that you can't do a little bit better on advertising revenue in Q2 versus what we just saw in Q1?

Well, that's always the goal, right, is to improve, flatten that slope of the decline. You're right. There's a headwind with the Olympics. We see that every two years, essentially, although the Winter Olympics are probably a bigger impact. given that they're right in the middle of our winter schedule. But I guess the other slight headwind is we did have elections last year. Ontario was in Q2. It was a few million dollars of additional advertising revenue. It's not huge, but that will certainly not help. But you're right. It seems like there should be the ability to improve what that trajectory looks like, but it's very hard to say at this point.

Okay. That's very good. And This dispute with a distributor, is there a major distributor that is just not paying you for your specialist channels at this point, or can you elaborate on what that dispute is?

Yeah, we probably don't want to get into that in too much detail, but yes, there are major distributors that we were having that situation with, so... Look, our view is that we're very, very certain of our position and that we're out the money. But until we get to the position of having the money, it's very difficult for us to record that. So that's why that's come up this quarter. But we probably don't want to get into any of you tell us this is still, you know, all in front of the regulator.

So this is regulator, not courts that have to decide this?

Well, it could be both.

Okay. And last one. the working capital outflow was pretty meaningful in the first quarter. Are there some timing issues here that we could see reverse a bit in Q2 or later in the year?

Yeah, you'll always see a reversal, just sort of a natural reversal in Q2. I think a couple of things come to mind in Q1. One, there was more cash taxes this year than last year, and that runs through the word capital line. So that's not quite $10 million, but that's an item. And then I'd say at the end of November, we were a little bit short on some payments that came in the first day of the second quarter. And again, that's not probably quite $10 million. So those two items combined hurt the working capital in Q1, but those will certainly reverse as we go forward. So that was part of what was happening. I mean, the working capital number year over year is relatively stable, but within that, there's a lot of moving pieces and those two actually hurt us. So we would expect some recovery there.

Thanks. Okay. Thanks, Vince.

I don't know for the questions at this time. I will now turn the call over to Mr. John Gosling for closing remarks.

All right. Thank you very much, operator. A brief call today. I know everybody's busy, and we'll take a little poll here to determine the metal standing of the two questions today. But just to remind everyone again, please be sure to review the materials if they are in front of you for the recapitalization transaction. And your proxy vote is very important. And the sooner that that can come in, the better, obviously. And by all means, just, you know, please do vote because it is very important to us and our future. Thanks, everyone.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.