Release Date: July 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Corus Entertainment Inc (CJREF, Financial) has implemented significant cost-cutting measures, including reducing headcount by 25% since the beginning of fiscal 2023.
- The company is actively pursuing new revenue opportunities and engaging with lenders to manage liabilities.
- Corus has secured new program supply and is planning to rebrand its lifestyle networks with strong Canadian original programming.
- The company has seen encouraging trends in its streaming portfolio, with Stack TV reaching an all-time high on Amazon Prime Video.
- Corus has received interim regulatory relief from the CRTC, including a reduction in required spending on certain programming.
Negative Points
- Corus Entertainment Inc (CJREF) is facing ongoing disruptions in advertising markets, leading to a significant decline in TV advertising revenue.
- The company has announced the closure of two legacy AM radio stations and the cessation of operations for OWN: The Oprah Winfrey Network.
- Debt covenant relief under the company's bank credit facilities will expire at the end of August, creating financial uncertainty.
- The non-renewal of programming agreements with Warner Brothers Discovery will impact several of Corus's specialty networks.
- Corus recorded a substantial non-cash impairment charge of $960 million in the third quarter, reflecting the challenging advertising environment and competitive landscape.
Q & A Highlights
Q: BCE has made an application at the Ontario Superior Court for a permanent injunction on grounds of a breach in a two-year non-competition provision. Can you address what options are in front of you and if an injunction is a possibility?
A: We are exploring all our options and do not want to reveal our overall strategy at this point. However, it is not correct to assume that our only line of defense is through the regulator.
Q: Regarding debt covenants, how far from your 4.25 times covenant requirement do you expect to be in Q1 2025?
A: We won't provide future guidance, but you can draw a straight line from our current position. As of June 1, we had $30 million available on the revolver, implying that we were over 4.25 times, which is compliant with a 4.75 or 4.50 covenant. However, things are tight, and we are starting the process with lenders.
Q: The CRTC's broadcasting regulation review seems to be moving slowly. Is there a chance for a quicker approach to implement some parts of the regulation before the full two phases are done?
A: We share your analysis that the process is slow, but the CRTC has provided some interim changes. They have the flexibility to do more to create a tailored and workable solution for Canadian broadcasters, although we don't have high optimism for a faster timeline.
Q: With respect to cost savings, can you give us a sense of how you expect to build on the $36 million in savings to date and how many jobs have already been eliminated?
A: We have reduced about 500 positions from the beginning of fiscal 2023, with a target of 800 by the end of August. This represents nearly a 25% reduction in headcount, translating to significant cost savings.
Q: Regarding the Warner Brothers content not being renewed, what should we expect in terms of lost revenue and cost savings?
A: It’s too early to predict the exact impact, but there will be significant cost savings. We are confident in our ability to rebrand and launch new services with fresh content.
Q: On the topic of linear advertising, are advertisers willing to increase spend as content returns, or are we looking at a new normal?
A: Overall advertising spending in Canada is not in decline; it's the mix that is changing. Whether this is cyclical or more long-term is an open question.
Q: With the upcoming changes to HGTV and Food Network, is it reasonable to expect an accelerated advertising decline in Q1?
A: We do not expect Q1 to be materially different. Both channels will operate with their full schedule and Canadian programs, so the viewer experience and advertiser interest should remain stable.
Q: Regarding restructuring charges, should we expect them to be a one-time lump sum in Q4 or spread out over a couple of quarters?
A: Restructuring charges will be booked as they occur, so you will see charges in Q4. The cash flow impact will be spread out as these are continuous arrangements.
Q: Can you clarify the impact of losing NBC Universal content on channels like Showcase and Slice?
A: We will lose the Bravo content on Slice as of August 31, but the channel will continue to operate with other content. We remain in deal for Peacock content on Showcase.
Q: Given the uncertainties and weak visibility, does it make sense to consider a stronger foundation by recapitalizing now?
A: We are exploring all options and have disclosed our situation clearly. While it's not as simple as waving a magic wand, we are definitely considering all paths forward.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
