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Edited Transcript of CJR.B.TO earnings conference call or presentation 18-Oct-19 12:00pm GMT

Q4 2019 Corus Entertainment Inc Earnings Call

CALGARY Oct 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Corus Entertainment Inc earnings conference call or presentation Friday, October 18, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Douglas D. Murphy

Corus Entertainment Inc. - President, CEO & Director

* John Richard Gossling

Corus Entertainment Inc. - Executive VP & CFO

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Conference Call Participants

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* Adam Shine

National Bank Financial, Inc., Research Division - MD, Head of Montreal Research & Research Analyst

* Aravinda Suranimala Galappatthige

Canaccord Genuity Corp., Research Division - MD

* David John McFadgen

Cormark Securities Inc., Research Division - Director of Institutional Equity Research

* Drew McReynolds

RBC Capital Markets, LLC, Research Division - Analyst

* Jeffrey Fan

Scotiabank Global Banking and Markets, Research Division - Director of Telecommunication Services & Canadian & U.S. Telecom and Cable Equity Research Analyst

* Maher Yaghi

Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst

* Tim Casey

BMO Capital Markets Equity Research - Equity Research Analyst

* Vince Valentini

TD Securities Equity Research - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the Corus Entertainment Fourth Quarter and Year-end 2019 Analyst and Investor Call. (Operator Instructions) Please be advised that today's conference is being recorded.

Thank you. I'll now turn the call over to Mr. Doug Murphy, President and CEO of Corus Entertainment.

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [2]

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Thank you, operator, and good morning, everyone. Welcome to Corus Entertainment's Fiscal 2019 Fourth Quarter and Year-end Earnings Call. I'm Doug Murphy, and joining me this morning is John Gossling, Executive Vice President and Chief Financial Officer.

Before I read the cautionary statement, I'd like to remind everyone that there are a series of slides that accompany this morning's call. You can find them on our website at www.corusent.com under the Investor Relations section.

Now let's move to the standard cautionary statement found on Slide 2. Today's discussion contains forward-looking statements that may involve risks and uncertainties. Additional information concerning factors that could cause actual results to materially differ from those in our forward-looking statements are contained in the company's filings with the Canadian Securities Administrators on SEDAR.

With that, I'll now turn to our fourth quarter and year-end results and offer some perspective on fiscal 2020 starting on Slide 3. What a difference a year makes? At this time, last year, we faced skepticism about our ability to deliver television advertising sales growth in a fast-changing media environment and yet we did just that. There were those who felt we had too much debt and we couldn't delever fast enough, and yet we did just that.

As Canada's leading pure-play in media and content company, our team has a disciplined focus on these first principles to maximize audiences, monetize those audiences while we rationalize and evolve our operating model. This discipline has endured time and again as we face challenges head-on, identify opportunities and innovate to create solutions.

Today, I am pleased to proudly declare as we celebrate our 20th anniversary on the TSX that Corus had delivered record top and bottom line results for the year. Our annual consolidated revenue of $1.69 billion was up 2% for the year. We delivered 4 quarters of consecutive television advertising revenue growth with an increase of 4% in the fourth quarter and 7% for the year. This is an outstanding achievement and a direct result of the successful execution of our strategy to reach audiences in new ways and evolve the way television is sold.

We delivered annual consolidated segment profit of $585 million, up 2% for the year. Our annual consolidated segment profit margin of 35% is equal to last year's results. Once again, our strong free cash flow of $310 million for the year demonstrates the powerful ability of our portfolio to generate cash, and we use that cash wisely. Our revised Capital Allocation Policy is delivering on its intended results.

We finished fiscal 2019 with leverage of 2.82x net debt to segment profit and paid down an impressive $250 million of bank debt in the year. Our increased financial flexibility enables us to make targeted organic investments in the core business that will contribute to future revenue growth, and we're paying an attractive dividend. John will take you through our detailed segment results later in the call.

First, I want to spend a few minutes sharing some of the exciting progress we are making in our business. I love this time of year when we launch the new fall TV schedules. As detailed on Slide 4, our fall Global Television schedule bounded out of the gate strong in the premiere week with a powerful lineup of new and returning shows, including the #1 new series, the Prodigal Son; the #1 reality series, again Survivor; and the most-watched late-night show, Saturday Night Live. In fact, Global charted 4 of the top 5 and 10 of the top 20 most-watched television series in Canada with fans flocking to returning favorites, such as New Amsterdam, 911, NCIS and FBI. It's still early in the season, but we're very pleased with performance of our schedule. And a shameless plug, don't forget, viewers can watch Global's great content on demand on globaltv.com and via the Global TV app, which is available across a wide variety of platforms. Be sure to check that out.

Taking a look at our speciality television portfolio on Slide 5, many of our top Specialty Channels also did well out of the gate. Our Specialty Channels are home to 3 of the top 5 series so far this fall with the leaders being showcases Swamp Thing coming in at #1 followed closely behind by HGTV the Very Brady Renovation at #2 and showcases Pennyworth at #4.

Now moving to Slide 6. We continue to work to optimize our portfolio with fewer bigger channels that standout in a crowded marketplace and attract valuable audiences. This has meant shutting down smaller services in our portfolio, such as Sundance in fiscal 2018 and IFC and Cosmo in fiscal 2019. And as you know, we divested TLN last year. In turn, we are investing to grow audiences on our bigger Specialty Channels with winning content providing increased value to our distribution partners.

Let me briefly describe 2 examples of these types of investments. The first was our rebrand of ACTION to Adult Swim. Earlier this year, we deepened our partnership with WarnerMedia, striking a multiyear multi-platform deal to bring the first 24/7 Adult Swim channel to Canada. We rebranded an existing legacy network, ACTION, which had broad distribution in order to attract the highly coveted younger audiences with this great new content. Adult Swim has more than doubled the adult 25 to 54 and highly coveted 18 to 34 audiences since launch as compared to the prior year legacy channel. We expect to see continue upward momentum with upcoming launch of the highly anticipated fourth season of Adult Swim's #1 fan favorite series, Rick and Morty , this November.

The other example is our new partnership with Crown Media Family Networks and the launch of the Hallmark Channel as an innovative branded block on W last fall. The network's adult 25 to 54 audience grew by 13% for the 2019 broadcast year and 39% during the fiscal 2019 holiday season compared to the same period in the prior year. We recently announced W's lineup of festive flicks in Hallmark Channel's Countdown to Christmas with more than 30 new holiday themed titles running from November 1, 2019, to January 1, 2020, and we look forward to another great season. We have set our sights on repeating W Network's strong holiday season performance last year as the #1 Specialty Channel in the country.

Now onto Slide 7. In today's world of choice, we're making investments to provide audiences more flexibility when it comes to how, when and where they watch our premium content and engage with our brands. We were particularly excited to announce the launch of STACKTV in June, a first of its offering for Corus, Amazon and Canada. STACKTV enables us to deliver our diverse portfolio of premium broadcast content and brands to new and existing audiences.

With STACKTV, Canadians with a Prime Video subscription can pay an incremental fee of $12.99 per month to access 12 of our most popular networks encompassing Global and our specialty brands focused on lifestyles, drama and kids genres, both live and on-demand. The initial customer response to STACKTV has exceeded our expectations.

We expect the combination of this exciting fall schedule I've described, combined with ramped up marketing investments to promote the Amazon Fire Stick and the Amazon Prime holiday campaign to accelerate this early momentum.

Moving to Slide 8. Long-form ad-supported video on-demand, AVOD premium video content, is in high demand by advertisers, and we have a variety of strategies in play to monetize this demand. For example, Global TV is now available on Comcast (sic) [Chromecast], Android, iOS, Apple TV and Amazon Fire. In May, with Global TV, Corus became the first Canadian broadcaster to launch on Roku, the leader in the U.S. connected TV streaming market. In August, Global TV launched on Android TV. Globalnews.ca now reaches 12 million unique visitors on average each month and is the #1 private sector online news site in Canada. We're very proud of that. In the coming year, we will explore additional platform opportunities, including the next generation of our Global TV app. Stay tuned for that.

Turning to Slide 9. Opportunities in short-form content and custom social video provide another compelling prospect for revenue growth and diversification. In June, we announced the launch of so.da originals that will produce premium short-form content series to pursue opportunities in this fast-growing social digital video market. And we've also deepened our partnership with Twitter by creating custom content for advertisers. Our first series from this partnership, #PowerUp, produced for Samsung, features Director X mentoring 3 and up and coming directors as they shoot their music videos entirely on the new Galaxy Note10 phone.

The acquisition of Canadian operations of KIN Community also has provided us with a new and strong social media imports in network where we can leverage great short-form content targeted both men and women. And finally, we're just ramping up our 360-degree multi-platform partnership with global media company, Complex Networks, to reach new audiences with engaging short-form content and with the recent debut of Complex hit digital series, Hot Ones and Sneaker Shopping to late-night TV on Global.

Over to Slide 10. Corus is a world leader in the drive to fundamentally transform how television is sold. Audience-based buying is yet another example of how targeted investments and our operating discipline generates consistent results. In fiscal 2019, 17%, 1-7%, of our English TV advertising revenue was audience-based buying. That's compared to 13% in the prior year. In Q4 of fiscal '19, audience-based buying represented 22% of English television advertising revenue, up from 17% the prior quarter. Again that's compared to 13% in the year's prior quarter. We can already see and pacing indicates further upward momentum in Q1 for fiscal '20.

Corus is a strong advocate for a shared industry approach to audience-based buying in Canada, and we're pleased that beginning early next year, both Rogers and Corus will use the same common audience segments addressing nearly half of Canada's TV audiences. Meaningful progress is being made as we further build out the cynch automated audience-based buying platform by actively expanding features, adding more inventory and making continuous product design improvements. This is what our customers, both agency and client partners alike, have been asking for, so that television can better compete with the massive digital media players. As this platform further scales throughout the year, we will continue to add inventory and expand our user base and grow our audience-based buying.

Now turning to our original content business beginning on Slide 11. Over the course of fiscal 2019, we have made purposeful investments to advance our Own More Content strategy significantly growing our Nelvana and Corus Studios content slate for sale in the global content marketplace. We have built a powerful integrated kids content ecosystem to leverage our Corus Advantage.

Let me describe what I mean. A great example is our new series, The Remarkable Mr. King. This new television animated series is based on a best-selling Kids Can Press book, Mr. King, with more than 350,000 copies in print around the world. And this property was reimagined as an animated series from our talented Nelvana studio, and it was created using our wholly owned and proprietary Toon Boom animation software and is set to broadcast on Canada's preschool Powerhouse network, our very own Treehouse channel. By leveraging all these assets, we have a kids content engine unique to many companies in the world and will help us build franchise IP in Canada for the global market.

In fiscal 2019, we significantly increased our production at Nelvana. The second season of the Emmy-nominated series, Esme & Roy, was greenlit this past May, and Nelvana recently greenlit a new live ACTION series for fan favorite, The Hardy Boys, which has been already sold to a premium U.S. streaming partner. These details will be announced closer to the launch of this exciting new property.

Our merchandise business is also ready for takeoff. Building on the successful premier of Bakugan: Battle Planet on Cartoon Network in the U.S. and TELETOON in Canada last December, we have now successfully achieved worldwide distribution of the TV series in partnership with Spin Master and TMS Entertainment to support the merchandise launch for the return of this Powerhouse property. The second season, Bakugan: Armored Alliance, is also been greenlit for production. It's great to have the band back together. Bakugan is anticipated to be an important contributor to Nelvana's growth in fiscal '20 and '21 as we head towards the holiday shopping season this year.

Over to Slide 12. We have previously announced that Corus Studios has 19 series in production for fiscal 2020 as compared to 11 series last year, providing an impressive slate of original programming to grow this emerging business in the international market. We launched Corus Studios in 2015 and now have an impressive catalog of content with more than 500 episodes for sale, and this will continue to scale year-after-year with great content and new buyers.

For example, Corus Studios announced multiple international content sales for its original lifestyle and factual content, notably the sale of growing competition series, Fire Masters to Cooking Channel in the U.S. and A+ E Networks in the U.K., we have pre-broadcast sales of demolition show, Salvage Kings to A+ E Networks in the U.K. and multiple other territories, and the sales of $ave My Reno and Big Rig Warriors in the U.S. Don't forget now, our earlier announcement of a global licensing deal with Netflix for the classic car restoration series, Rust Valley Restorers, another example of the buoyant market for our content around the world.

With that, I will now turn things over to John, who'll walk us through our segmented Q4 and year-end results for fiscal 2019. John?

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [3]

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Great. Thanks, Doug. Good morning, everyone. I'll start on Slide 13. Overall, the Q4 results were better than our expectation, contributed to record revenue and segment profit for the year, as Doug mentioned. Corus consolidated revenues were consistent for the quarter and increased 2% for the year. At the same time, consolidated segment profit was up 2% for the year, but decreased 4% for the quarter as we faced 3 distinct headwinds.

As referenced in the waterfall chart, these headwinds in Q4 were related to: one, the disposal of TLN, which was an impact of $3.3 million in the quarter; two, a multiyear SVOD sale in the prior quarter of $4.6 million; and three, a swing in stock-based compensation expense related to the share price improvement during the year and that was an impact of $3.4 million in the quarter. These are partially offset by excellent growth in the core business of $6.5 million in the quarter.

We delivered a strong consolidated segment profit margin of 29% for the quarter and 35% for the year and that's just down slightly from 30% in the prior year quarter and consistent with 35% in the prior full year, as we continued with our unyielding commitment to remain fiscally disciplined and manage costs.

Net income attributable to shareholders for the quarter was $23 million or $0.11 per share basic and that compares to $34 million or $0.16 per share basic in the prior year quarter. Net income attributable to shareholders for fiscal 2019 was $156 million or $0.74 per share basic compared to a net loss attributable to shareholders of $785 million or $3.77 per share basic in the prior year and that includes broadcast license and goodwill impairment charges taken in Q3 last year.

As a reminder, the current year results include an accounting estimate change related to the useful lives of television brand intangible assets, which increased amortization expense for the year by $103 million. Adjusted basic earnings per share for the quarter were $0.13 per share and $0.85 per share for the year and that compares to $0.19 per share or $1.14 per share, respectively, in the prior year comparable period and again, that reflects the impact of the accounting estimate change related to the brand intangibles.

Now let's turn to our TV results for the fourth quarter and full year as detailed on Slide 14. Overall, TV segment revenues were consistent in Q4 and increased 3% for the year. Our TV advertising revenue grew 4% in the quarter or 6%, excluding the impact of the sale of TLN and that contributed to an impressive growth of 7% for the year. The primary contributors to this outperformance continue to be: one, improved yield from better inventory utilization and increased demand on many of our networks; two, momentum with audience-based buying; three, innovative new advertising formats; four, contribution from direct-to-consumer advertisers; and five, strong double-digit growth in digital advertising as we make our premium content available in more places, therefore, increasing inventory available for sale. Subscriber revenue were down 4% in the quarter and 2% for the year. Adjusting for disposition of TLN, subscriber revenues would have down 2% in Q4 and 1% for the full year.

Merchandising, distribution and other revenues were down $3.5 million in Q4 and $6.7 million for the year. And as I previously mentioned, the prior year includes a multiyear SVOD sale of $4.6 million, which did not recur this year and as well included $1.3 million in revenue from TLN last year. Adjusting for this, merchandising, distribution and other revenues would have increased by 10% and that was in line with our expectations. This is a clear example of how we can benefit from our continued focus on revenue diversification and the merits of our Own More Content strategic priority, as Doug has covered. As is the case with large content businesses around the world, we expect to continue to see variability from quarter-to-quarter in this revenue category. Early indicators are that merchandising sales from Bakugan are moving in the right direction, and we look forward to updating you further on that property in Q1.

Our preliminary look for the first quarter of fiscal '20 indicates that if you exclude the pro forma impact of the sale of TLN, TV advertising revenue and total TV segment revenue are expected to be flat to prior year. With 6 weeks remaining in the quarter, we're mindful of the fact that there can be some variability in this estimate, both positive and negative. Total expenses in TV were consistent in the quarter and up 1% for the year. The increase in the year was primarily driven by revenue-related G&A cost, including variable compensation to increase TV advertising revenue in the year.

In the fourth quarter, TV segment profit was consistent and increased 6% for the year. TV segment profit margins were 32% and 37%, respectively, for the quarter and year and that compares to 32% and 36% in the prior year comparable period.

Next, let's turn to our Radio results as outlined on Slide 15. Radio segment revenues decreased 2% in Q4 and 4% for the year and that continues to be driven primarily by Radio advertising challenges in Alberta and the Toronto market. Results from our most recent ratings book in September suggest that Toronto is starting to move in the right direction, and we're working hard to maintain that momentum.

Radio segment profit decreased $1.5 million in the quarter and $5.7 million for the year. Our Radio segment profit margin of 20% for the quarter and 24% for the year were declines from 25% and 27%, respectively, in the prior year. And that was mainly attributable to the Radio advertising challenges that I mentioned in those markets.

Finally, over to Slide 16. Corus continues to drive very strong free cash flow. We delivered $94 million of free cash flow for the quarter and $310 million for the year. As Doug mentioned, we paid down $250 million in bank debt and ended the year with leverage of 2.82x net debt to segment profit, and that's down from 3.28x in the prior year, meeting our goal of under 3x.

Our revised capital allocation policy for fiscal 2019 will continue into fiscal 2020 to maintain our momentum as we pay down bank debt, increase our financial flexibility and achieve our deleveraging objective. As anticipated, today, we declared a dividend of $0.06 per Class B share and that's payable in December as detailed in our press release this morning.

And with that, I will hand things back over to Doug.

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [4]

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Thank you, John. And finally, turning to Slide 17. We have a lot to be excited about as we celebrate our 20th anniversary with a record result and embark on our new fiscal year. Our company is safely executing our operating plan, optimize the core, as we build for the future. Our team fully embraces a moneyball approach to making smart, targeted investments. This approach is to hit singles, many singles and to get on base rather than swinging for the fences. It's simple math. The higher our on-base percent is, the more runs we score and that's how we win and that's what we're doing.

To remind you, some of these investments include: acquiring more rights to put our content in more places and grow our audiences, especially on digital platforms; optimizing our portfolio of channels by adding Hallmark on W and launching Adult Swim; launching STACKTV on Amazon Prime Video Channels; increasing our younger audiences with many new initiatives, including Complex Networks, so.da originals, our Twitter content partnership, the distribution of Global TV on Roku and connected TVs and more; leading the industry with data-driven initiatives like audience-based buying soon to be scaled as we rollout cynch.

Our company generates exceptional cash flow that funds these singles on-base investments and also supports our deleveraging efforts as we pay an attractive dividend to our shareholders. On behalf of our entire executive leadership team and our Board of Directors, we would like to thank each and every person at Corus for their hard work and dedication. Our people are extremely resilient. And despite the challenges we have experienced, we continue to deliver great results. And we have a solid plan in place for fiscal 2020, and we'll apply the same disciplined approach as we did this year to provide value for our audiences, partners, clients and shareholders. And thank you to all of you for your support of Corus as we work to deliver on our long-term plan and build for the future.

John and I will now be happy to take any questions you may have. Over to you, Jack.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Aravinda Galappatthige with Canaccord Genuity.

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Aravinda Suranimala Galappatthige, Canaccord Genuity Corp., Research Division - MD [2]

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Congrats, Doug and John, on the year and the quarter.

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [3]

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Thanks.

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Aravinda Suranimala Galappatthige, Canaccord Genuity Corp., Research Division - MD [4]

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I wanted to sort of touch on the ad VOD opportunity and give you a chance to expand a little bit on that. I mean it seems that you're going to use the Global TV app as sort of the base to build on that opportunity. Can you perhaps layout what's the path from here would look like when you kind of throw in your relationships with some of the MCNs like Complex and Kin? How can you kind of develop this to sort of become a meaningful driver to your advertising lineup?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [5]

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Okay. There's a bunch of good stuff in that question, Aravinda, and thank you for your fine wishes for us. So we'll be announcing later this year some meaningful improvements to our Global Go app, but let me just describe the opportunity. There's a recent statistic I came across when I was at an event during TIFF, and that involve the audiences in the U.S. market to consume premium video content online. So that's television, movie content online, not YouTube-type content. 88% of that is SVOD and only 12% of it is AVOD. The -- you extrapolate that to Canada and it completely mirrors the demand that we're hearing from our advertising agencies to put more of our coveted premium video content online as an ad-supported opportunity.

So with that demand out there, we're looking at a couple different things: one is, we're looking at building out our authenticated Global app to include more of our great channels and content within the authenticated BDU ecosystem, and so it provides more value for our subscribers, but increases our digital audiences and the inventory for us to monetize. We're also exploring avenues of growth in front of the wall, as they say, where we provide completely free VOD to consumers and viewers in Canada. And so that's something that we're pursuing with intention this year, and you'll hear more about it in the coming quarters. It's one of those examples of targeted investments that we're making this fiscal year.

Now as you widen the net and talk about how does that -- how do you think about that in the context of Complex and other digital initiatives, that takes you back to audience-based buying and cynch. And what we'll do with cynch? Cynch will ultimately sit at the center of all of our audiences and inventory, not just linear television, but also VOD on -- from linear television within the authenticated system, also the Global TV app within the authenticated TV system, also Complex, also KIN, also our social media areas where we're creating new original content. So we'll be able to monetize all those impressions, both linear, digital, on-demand streaming, through the use of cynch as we sell audience-based buying.

So that's why we're being so deliberate in looking for new younger audiences on digital platforms, looking for new ways to distribute our content, there is a 30% of cadence that don't have the cable bundle and looking for new ways to create value and add value for the 70% that do by working in concert with our BDU partners to grow our respective businesses. Hope that hits the mark for you.

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Aravinda Suranimala Galappatthige, Canaccord Genuity Corp., Research Division - MD [6]

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Yes. And just switching gears to another topic ahead of the election on the regulatory front. We saw that proposed taxation on some of the web platforms, including Facebook, et cetera. Is there anything that -- as you kind of continue your discussions with the regulators, is there any areas where you feel hopeful about when you kind of look at the next 12 months that, that might be meaningful to the industry and to you guys?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [7]

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I was waiting for the regulatory question. You'll probably note the absence of the point in my remarks this time. So thank you for teeing that up for me. Listen, at least someone has waken up in Ottawa to the kind of complete sort of inappropriate non-taxation of foreign players in our country, so that's a start. God knows we need the revenue. But there's more to be done, including trying to plan ways to have the foreign Internet media broadcasters pay into the system, looking at further ways to consider leveling the playing field, which is part of our position, as you know well.

We have been working very diligently with the Deputy Ministers that kind of look over our industry and heritage and their team. And we have been given, I think, some promising signals that the new government will be informed about the need to move quickly and make change. Obviously whether or not we have a majority or minority government, may or may not accelerate change, which is a bit of stay tuned kind of a comment. But I think, for the first time in many, many years, the people that make the decisions as regards to the regulations of our industry and the broadcasting sector are aware of the fact that, that time is now to act. So let's just see what happens once we get a new government.

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Aravinda Suranimala Galappatthige, Canaccord Genuity Corp., Research Division - MD [8]

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And just a last one quickly for John. Just on the spike in CapEx in Q4, I was wondering if you can give us a little bit more color on that as well as the working capital looking ahead.

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [9]

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Sure. Sorry, the last part, Aravinda, was working capital looking ahead?

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Aravinda Suranimala Galappatthige, Canaccord Genuity Corp., Research Division - MD [10]

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Yes. And I'm just factoring in sort of the net investment in program rights there as well because we saw a bit more of an outflow from there in '19 versus '18.

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [11]

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Yes. So on CapEx in Q4, there was a spike. I think it's probably 2 or 3 things. One is, Doug mentioned a lot of the focus we have in ad tech and the work we're doing there. There's a lot of work being done in plumbing of the system to enable those things to be done more efficiently. So that's -- or to enable them. So that's part of it. I'd say frankly, part of it was catching up with where we want to be for the year and Q4 was an opportunity to get caught up. And as well, I'd say, 3 to get a little bit ahead of next year. So there's definitely some timing impact, both catching up in '19 and then trying to get ahead in '20 was what was driving it.

I think if you look forward on that line going forward, it will be up a little bit next year. We're still in the middle of the 600 repatriation. We've got all these initiatives on the revenue side of the house, but it won't be up materially. So if it's up another $5 million, I think that that's comfortable where we might end up.

And then on working capital, it's, obviously, been a big focus. We've done a much better job this year managing that. Still work to do on getting the money in the door from the agencies. They're typically a little tardy in paying us and that's an understatement to say the least.

On programming side, yes, you've seen the ramp up. We've been talking about that for a while. We do have to start to meet higher Canadian spend numbers as we go forward. So part of that having a stronger year in '19 and the way the CPE requirement works since there is a lag effect, so 2020 we will pick up a higher obligation than what we're expecting. So we've known for a while we're going to have to ramp up our spend into '20. Given how production works, that means that we have to start spending the money ahead of time. So that Q4 ramp, I think you will see that continue for the next year. That's going to be a phenomenon that we're going to have happening. So the cash spend will be slightly ahead of the amort as we go into 2020.

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Operator [12]

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Adam Shine with National Bank Financial.

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Adam Shine, National Bank Financial, Inc., Research Division - MD, Head of Montreal Research & Research Analyst [13]

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So obviously a nice bounce back year in F '19 versus the F '18 dynamic. And I guess, just following up on John's comments with reference to the CPE, I guess one for you, Doug. In that CPE-related submission where you're looking for little more sort of flexibility and perhaps relief because of that incremental spend that sort of comes to you. In it, you're talking about the prospect of some low-single digit declines in revenues. How do you characterize F 2020 at this point? I know you're not giving any particular guidance and sort of John referred to sort of a flattish start to the seasonally important Q1. Is F 2020, not to put words into your mouth, more of a sort of continue building the momentum but maybe in 2020 leaning a bit more heavily on that other revenue line where maybe there is a lift coming out of Bakugan as the key driver to mitigate some low-single digit declines and maybe add sales and subscriber revenues?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [14]

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Yes. Great question. So the submission we have in there is for regulated revenue declines. And that's -- so that's the traditional business. But increasingly, we have massive growth respectively in unregulated businesses like Bakugan, like Amazon, like Complex, like Kin, like so.da, like Twitter Originals. So those are all -- are all part of the offset to that. What we're asking for, just to be crystal clear, is not relief, but flexibility. We're asking for relief in our submission to the panel and to Aravinda's prior question, if the government rightly decides to have contributions to the system made by the Internet media companies, we would seek a reduction in our obligation because the overall pot will be probably enlargened.

So our application really says, don't -- let us take the money that we had to spend is an increase because of this year's revenues and let's change the timing of it, so we can make sure we can make great shows and make smart shows, but within the license term, we will meet our obligations as required. Does that help?

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Adam Shine, National Bank Financial, Inc., Research Division - MD, Head of Montreal Research & Research Analyst [15]

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Yes. Maybe John, just sort of some housekeeping items. So just in the Q4 in the context of some of these adjustments, Telelatino, if we try to reverse engineer it, maybe revenue's around the $6.3 million mark, and as per your waterfall $3.3 million, which is a little bit surprisingly high in terms of that particular contribution from Telelatino. So I don't know if there's anything usual there, but maybe just a math at $6.3 million would be helpful.

And then with respect to IFRS 16, you put some disclosures around assets and liabilities, I think, in the MD&A. I don't know if there's any reference yet to EBITDA as an adjustment, but if you can speak to that. Otherwise maybe we wait for perhaps Q1 reporting for that.

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [16]

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Sure. So on the first one on TLN, yes, Q4 for them -- they're a little bit different than the rest of our business, so they were because we don't own them any more $6.6 million, almost $6.7 million was the revenue number last year in Q4 for them. Typically, they're more around a $5 million mark what we've seen for them. And then yes, you've got the EBITDA. So that's primarily -- they have an event business that they run in the summer and it also is impacted by World Cup soccer in certain years in the summer. So that's why it's a little bit higher in Q4. As we look ahead into what that's going to look like, Q1 was slightly less than $5 million of revenues, so that's where we're going to be comping and a couple million dollars of EBITDA in Q1, so a bit lighter than what we saw in Q4. And then...

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Adam Shine, National Bank Financial, Inc., Research Division - MD, Head of Montreal Research & Research Analyst [17]

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Super. That's helpful. Yes.

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [18]

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Sorry, your second question?

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Adam Shine, National Bank Financial, Inc., Research Division - MD, Head of Montreal Research & Research Analyst [19]

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It's the IFRS 16, EBITDA.

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [20]

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Yes. So the EBITDA right now, I mean, we're still finalizing that, and we'll have obviously a very clear view as we go into that mode in Q1. It looks like it's about $13 million of EBITDA right now. So that would provide a small lift for us. We have to, obviously, figure out how it all flow through the cash flow, and I know there's been some noise from the calendar year reported in terms of the way that the operating expense gets recharacterized now as financing flows, which has bit of an odd result. But net-net, the cash flow won't change in total, but the way that we determine free cash flow will change and it'll be something close to that EBITDA impact.

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Operator [21]

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Jeff Fan with Scotiabank.

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Jeffrey Fan, Scotiabank Global Banking and Markets, Research Division - Director of Telecommunication Services & Canadian & U.S. Telecom and Cable Equity Research Analyst [22]

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Just wanted to go back on the outlook for 2020, I guess Q1 and just want a clarification, John. Were you referring the revenue being flat, just the total TV or was it TV advertising? And if it is flat, I guess, the question would be given the strong fall season and we've gotten elections and the momentum that we've seen, wondering why flat, like is there anything that we should be thinking about that we should factor into our F '20, particularly in Q1?

Second question is regarding your free cash flow for '20. Few moving parts, as John, you mentioned with the CapEx and CPE, but at the end of the day, can you give us some sense as to how 2020 free cash flow is going to look relative to '19? And what you plan to do with that free cash flow? Is it continuing to pay down debt? Or is there any plans for share buybacks or other allocations?

And then the last question is a bigger picture question perhaps for Doug. You talked a lot about cynch, and I think this is potentially a big opportunity. You guys and obviously Rogers sounds like are on board. How important is it to get the other major broadcaster onboard? And what are the kind of barriers or roadblocks in getting them onboard?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [23]

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I'll go back to front, Jeff. With Rogers and Corus now aligned on common audience segments and using cynch, that's as they say effectively half of Canada now is going to be targeted and addressed with that level of specificity. We are speaking to all the other players. I'm highly confident that we'll get everybody in to vote. The only barriers basically are effectively setting of these priorities in various organizations. It's impossible to argue with the merit of doing this and it's impossible to argue with the fact that we have a unique opportunity in Canada because of our industry structure, wherein we have 3 large broadcasters, 2 of which are owned by distributors. We have 2 video distribution platforms rolling on across the country that we can now design to optimize our broadcast businesses.

It would be a fool's errand if we didn't get this right this time, and that's the advocacy that I personally and our company and our revenue team are bringing forward to all of our partners in the broadcast and getting complete support from the agency groups and from the big advertisers. So stars are aligning here. It's not going to happen overnight. It's going to probably take a couple years to really get a complete common industry standard and then have all of the sort of plumbing build that's John referred to earlier that some of the investments we're making today. But I think, it's very obvious how important it is in terms of making it easy to buy television targeted segments to answer and be more effectively able to compete with the digital players. And there's lots of other new things we're working on that over time we're going to be talking to you -- all of you about. And so that's the answer to that question.

As regards Q1, like let's remember, last year, we did plus 4% in the biggest quarter of the year. Being flat is an hell of an outcome in our opinion. And as we say, there's still volatility in the business. There's lots of uncertainty out there. The money still comes in sort of slow, and the election, frankly, is not that impactful. The Elections Act has restricted the amount of advertising that can be spent, which is just what it is. And so -- and also if we're fighting, they come in and they pay a full rate card, but then you have got to find other inventory to make up with other advertisers.

So it's a bit of a balancing act. It's not exactly all incremental, and we have to make some investments. Also if you can believe it, the election -- that election debate which we all watched I'm sure intently, there's a fairly meaningful investment that we like to make to cover all the campaigns and the buses and our reporters and all kind of stuff. So it's not necessarily a panacea in terms of the way it is in the U.S.

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [24]

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No. And as well on the revenue side, Jeff, we have to preempt some primetime programming on Global, so that impacts our audiences and our ad revenue. So I'd say given what Doug's mentioned about relatively limited incremental revenue, some additional cost for the news team and the preemption effect, it's probably EBITDA neutral to be honest. I mean I don't see a whole lot of benefit coming there.

Jeff, just to clarify, you asked is was my comment around TV ad or TV segment? It's actually about both. And just to make sure, there's an excluding TLN comment in there. So as I said to Adam's question, TLN was just a little bit short of $5 million of revenue in Q1 last year, and the split on that, it's about $3 million sub and almost $2 million of advertising. So that'll hopefully help you.

On free cash flow for '20, as I mentioned to Aravinda, there are some investments that we're ramping up on the Canadian programming side that's going to have a cash impact. But I think if we go back to what we've said pretty consistently, we're pretty comfortable saying that the free cash flow is going to be around $300 million plus or minus. I think there's some pressure, a slight minus for 2020, but we've got potential upside on working capital, and frankly, the strong finish we had in '19, I think, sets us up well for '20. So we're feeling like, yes, there's a little bit of pressure, but we're pretty confident that it's going to hang in somewhere around that $300 million mark, maybe a little bit lower in '20.

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Operator [25]

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Vince Valentini with TD Securities.

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Vince Valentini, TD Securities Equity Research - Analyst [26]

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I'm going to try to clarify a couple things. First, the common audience segments and the cynch platform partnership with Rogers. Did I hear you say it's coming early in calendar 2020, so it hasn't actually started in your fiscal Q1 yet?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [27]

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It's a scaling exercise, Vince. So it's starting -- we've been at it now for 3 or 4 quarters, and we have a whole bunch of advertisers trialing it. A few of the very big agencies are on the beta testing. And then we're getting feedback from users, where we're agile kind of software developing it as we're doing it. And it's going to evolve over this fiscal and next fiscal. So it's kind of a multiyear cycle. But it continues to grow and it continues to help us as we look to kind of leg up the momentum we have in audience-based buying. Audience-based buying at this moment, the lion's share of it is not through cynch, let's be clear. Cynch is a -- it's an evolving platform that we've been able to be deployed in time to enable the complete acquisition of a -- of an audience segment without the need to speak to inside sales rep or issue an RFP, they can just go right online, open the app and buy it. And so in the future, we kind of think about sort of 3 different types of customer-centric selling.

Cynch will be the low-touch selling, wherein you'll be able to just open the app, pick your waits and your play time and your campaigns, they're going to post the next day and you are done. You have the kind of the medium touch, which is the more traditional selling of television where you issue an RFP, you sit with your sales, account manager and talk about your business plan needs. And there's a high touch, which gets more into the evolving opportunities we see in our sales and this is being an agency of records of certain companies of giving much more integration in our Corus Tempo lifestyle and reality shows and much more value-added premium customer service.

So that's how we think about the suite of it. So in particular, to answer your question, cynch will be a multiyear scaling project. Our plan has it kind of continuing to grow this year, but I wouldn't really see it starting to leg up until fiscal '21.

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Vince Valentini, TD Securities Equity Research - Analyst [28]

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That's great, Doug. Can you give basically the same kind of context and answer on dynamic ad insertion? Where we are in the pendulum of getting all the distributors to put your ads into their streams in real time?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [29]

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Yes, of course, absolutely. DAI is another opportunity and that will also plug into cynch. I guess just to kind of reiterate because I think it's really important that everybody in the call is understanding of the vision here. Cynch will be the kind of fulcrum by which we'll be able to buy all of the audience segments to where your inventory is and DAI is one of those audience segments. So DAI represents a huge opportunity we believe in Canada. We have -- now obviously Rogers is onboard. We have a trial now with Shaw. We're talking to Bell. They'll be coming onboard shortly. They just have some issues that they have to contend to on their side.

And so it's not happening as fast as I'd like, but it's happening. And it will -- again, it will answer the question as to why television has historically abandoned the on-demand customer behavior to Netflix and others. We should have all of our great shows available. After they have their first linear window, they should be available on demand on the season stack. And then we should be able to drop ad weight in there accordingly and that's what we're gearing up to. So steady progress there, Vince, but again, it's going to take a few quarters to really get up there.

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Vince Valentini, TD Securities Equity Research - Analyst [30]

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Okay. And clearing up on a couple other things. John, the adjustment to subscription revenue for TLN is very clear. But wasn't there also some sort of large renewal in Q4 last year with some retroactive payments? Were you able to equal that with renewals this year? Or was that a drag on subscription revenue year-over-year?

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [31]

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No. That's a wash, you're right. We were able to -- we had a renewal in Q4. So that was essentially flat year-over-year -- that impact.

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Vince Valentini, TD Securities Equity Research - Analyst [32]

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And is there anything in early 2020 to be aware of on that renewal front?

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [33]

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Well, we've got one big one to go. I don't think -- it doesn't seem like that's likely to happen in Q1. So we're planning for Q2 on that. I guess the other thing on the sublimes coming into the year, the shutdown of those 2 services that Doug mentioned in the end of September, that's about a $2 million impact in Q1 and it was sort of TLN impact, which I gave that number.

So yes, there's going to be some pressure on that line as we move through TLN and some of these channel shutdowns. But we do have that renewal that we'd like to get it done as soon as possible. It's been out there for a while, but I think it's probably a Q2 event.

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [34]

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Vince, this is Doug, again. Just to circle back with you. We have roughly 50 advertisers now doing DAI on our Rogers set-top boxes and that includes Ignite, and there's been very, very strong demand. Basically -- we're effectively sold out on that small kind of initiative at the moment. So that's a little more color for you.

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Vince Valentini, TD Securities Equity Research - Analyst [35]

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Okay. Sorry, I got one more. But just to clarify, John, you said $2 million. That's a per quarter subscription revenue amount from those 2 channels?

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [36]

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That's Q1. It'll be a little bit more going forward because it's only 2 months in Q1, but -- so yes, call it $3 million if you want per quarter.

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Vince Valentini, TD Securities Equity Research - Analyst [37]

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Last thing, so I know you stopped and want to talk about pacings because you've been caught offguard in the past. But I just want to make sure I understand what you're saying. There's still the month of November left and you got all of this good ratings on Global. I mean, you don't have visibility on spot revenue in November, but yet you're telling us ad revenue will be flat. If you did just look at pacings as of October 18 now versus October 18 last year, would you be flat or negative and that's what's making you to stay cautious on the full quarter? Or is it possible you're up, but you want to give yourself a little bit of wider room in case the spot doesn't come through in November?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [38]

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Yes to your last comment.

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Vince Valentini, TD Securities Equity Research - Analyst [39]

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Okay. And how does that segue? I mean you say plus 4% is a tough comp, but I mean, we're all aware of what you did in Q2 this year, it was plus 11%, and I know there's a bit of Olympic impact on that. But I mean are you basically saying that we have to fully expect negative growth in Q2 if the comp goes from plus 4% to plus 11%, and you'll sit here and say minus 4% is great because of the tough comp? Or is there something else happening that could help you get back to positive growth in later quarters?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [40]

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Okay. So there's -- I mean clearly -- well, first of all, I'll repeat my off-sighted, we can't look around the corner comment because that's still is the way to go. We still want to be measured in what we tell everybody. We still want everybody to realize that we continue to be very disciplined operators in executing our plans basically to the plan. 11% is a tough comp. I mean -- and so we're fighting like hell to beat it, but we're also making remarkable strides in different revenue diversity initiatives, and that's what the -- I think, if I was the steerer of this group to look at something I would say consolidated revenue ultimately is part of the strategic planning here for us to have more growth out of our content segment, I said double digit from hereon in and that's our commitment there.

We will strive to get growth in TV every single quarter on our TV ads. We have some weakness in subscriber revenues that purposeful as we thin out the weaker channels, invest in the bigger channels to be stronger in the longer run. But we have growth from new vBDUs and other digital initiatives. So we are feeling optimistic that we're on the right track on TV ads, but I'd be reticent to giving you sort of a commitment that we're definitely going to be there. We don't want to give guidance. This industry is too volatile, too disrupted, and we just rather put the points on the board as each quarter goes by.

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Operator [41]

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(Operator Instructions) David McFadgen with Cormark Securities.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [42]

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Couple of questions. So maybe I'll just start off with a clarification. So when we're looking out to Q1 '20, you talked about TLN and the impact there will be $3 million in sub-revenue loss, and then should we also think about an additional $2 million from those other channels in Q1 '20 as well?

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [43]

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That's -- yes, that's subscriber. Yes.

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [44]

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Yes.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [45]

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Yes? Okay. I just wanted to make sure I got that correctly.

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [46]

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Yes. No, thank you. Good question.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [47]

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Okay. So you talked about Nelvana having pretty good production slate. Should we expect that the merchandising business could be up high single digit or possibly low-double digit in fiscal 2020?

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [48]

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Yes. Double digit.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [49]

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Double-digit? Okay.

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [50]

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Yes.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [51]

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Was there a bit of a lag this year and it's kicking in, in 2020?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [52]

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There's a bit of a lag. I mean the -- it's principally our Bakugan business. We have a merchandise agency business in Canada where our team is the merchandise agent for Peppa Pig and PJ Masks and other properties and that's very successful, small, but that's successful and growing. But the Bakugan business that from prior years, David, it starts with -- you got to tee up the broadcast and you got to get all the broadcasters around the world kind of in sync and broadcast needs to perceive the toy lines and the toy lines tends to come a little bit at first and then comes at a big wave and the wave is going to be this holiday.

And then we're confident enough that we have greenlit the second season as I mentioned in my remarks, so that's going to maintain momentum for subsequent big waves. And that's kind of the arc form, and we're fortunate to have a super partner in Spin Master, and I would encourage you to kind of read through on their comments because obviously, it's a huge franchise for them, but it will be a meaningful contributor in fiscal '20 and into fiscal '21 for us.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [53]

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Okay. And then you talked about STACK as being coming in better than expected, I guess. Can you give us any metrics on subscribers or anything like that?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [54]

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No. We're not going to do that. Every time we've sort of given you metrics really, this stuff just keep coming back, but then, boy, here's what I'll tell you, David. We think by and large the subscribers are coming from outside the BDU ecosystem. We have excellent data return from Amazon. So we have so much more analysis that we can do. So it's definitely blue ocean and not cannibalistic, and I think that's super encouraging. I'll also say that the behavior we're seeing is quite fascinating in that it's primarily live streaming that they're watching as opposed to on demand. But there is pretty impressive on demand consumption as well. And I think the other comment I would just make is, the Amazon Prime marketing in the holiday shopping season and the push on the Fire Stick, I think is going to be a pretty potent cocktail for us to really continue the momentum we've got.

So it's an exciting opportunity for us. It's a way for us to offset some of the subscriber challenges that we're experiencing. Many of them are self-inflicted because we're calling a herd of weaker services in favor of stronger services. And we were down -- when we bought Shaw Media on the roadshow, we had 45 Specialty Channels. We're now down to 35. And through -- and that's purposeful, and we're going to continue to look for more. We want to have fewer, stronger, better channels with great content partners, south of the border, and so that's part of the vision too.

And I think you look at the strength of that STACKTV bundle and it tell -- it's a real opportunity for us to talk to either BDUs in Canada and say, "Hey, there's some packaging opportunities that we could be doing that you could grow your business, but you're not doing it because you're in some legacy packaging thinking, so let's start innovating." So there's a lot of downstream benefits, not just from the Amazon STACK plan itself, but also from how it's helping us to innovate the packaging strategies in Canada.

I'll also add by the way, that all the audiences are all metered, so we're actually adding ratings through the Amazon STACK. So it's -- that's additive to the measured audiences in Canada through Numeris,

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [55]

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Okay. And then maybe just moving on the Radio. Do you think that, that business can actually be potentially flat sometime in 2020?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [56]

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That's funny. We'd like it to be growing quite honestly. We're hitting a whole bunch of herd in Alberta and that doesn't surprise any of you in the call. The radio industry in Alberta, as it's reported by all of us, is like down 10, so it's ugly. You're not going to go buy a car if you live in Edmonton, and you're not going to go buy a new cellphone if you live in Calgary. You're going to cover up. So that is I think a tale of macroeconomic realities there.

In Toronto, we have reason to be much more optimistic because of the recent return to the top 5 rank as of Q1 '07, which we haven't been there in a decade, but it takes a few quarters to monetize that from a national sales perspective. So in the interim what we're looking to do is continue to be disciplined about expense control and continue to look at making smart programming changes to get some momentum back in the business.

So radio as an industry not just in Alberta but across Canada had a soft year as reported by TRAM this year. We don't believe this is the beginning of a massive secular downturn. We think radio still has a place in media, and certainly, in campaigns, we have a lot of advertisers that want to be in Radio, but flat would be at a minimum our expectation, if not back to modest growth.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [57]

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Okay. And then just lastly, I guess, this one is for Doug is -- sorry, John, is on the leverage side. Do you think the leverage could go down by about 0.3, 0.4 in fiscal 2020?

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [58]

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I really can't comment that we've been trapped in that before, David, where that gets reverse engineered into what our EBITDA guidance is. So I think what we should say is we're just going to continue the comments around the capital allocation policy and what the use of cash is going to be would indicate that we are going to continue to repay the bank debt. So I think that's probably where I'll stop.

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Operator [59]

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Maher Yaghi with Desjardins.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [60]

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I wanted to ask you a question on margins in TV. As we look into 2020, I know you guys are not fond of giving guidance on top line since given the visibility that you have. But can you maybe tell us a little bit about what you expect to do on the margin side, either your internal cost structure if there's any additional cost savings you can get there? Or maybe update us also on content cost? How are they moving these days given the increased attention by multiple players in the U.S. to produce and grab content? Is that impacting your content cost in Canada? And also I wanted to ask you on the CapEx side. Your investments in PP&E has been -- was elevated in the quarter. Can you talk a little bit what you're expecting to do there on 2020?

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [61]

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Sure. Maher, it's hard to -- we've had this in the past. Well, it's hard to comment on TV margins when we don't comment on TV revenue because that's the biggest driver. But I can certainly talk generally about what's happening on the expense side. So on the G&A side of TV, yes, we're in a constant mode of optimizing the spend there and there is always a lot of initiatives going on. And part of -- the second part of your question, the CapEx, part of that is what drives the OpEx line as well in terms of savings. So we're very focused there. Programming, we've talked about what's happening with the Canadian spend and the application we've made there in terms of flexibility. So yes, there is some pressure there given the strength of F '19 that, that translates because the lag effect of the way the 30% obligation works. So there's definitely some pressure there, and we talked about the cash impact that we're seeing and expect to see on that as well.

I'd say on CapEx, as I said earlier, we could be up a little bit maybe $5 million in F '20. It depends really on our ability to get things done and there's lots of reasons in projects that they go little bit slower than you think sometimes. So we're cautious on that line. Obviously, we don't have high capital intensity. But of the total CapEx, it splits across 2 lines because there's some software that goes on to different line in the cash flow. But if CapEx was $35 million in total, I think that that's probably a decent number. It still will be up a little bit from where we're in '19, but not a lot.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [62]

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Okay. And the content that you're getting in the states, can you comment a little bit about the trends that you're seeing there on the cost there?

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [63]

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Sorry. Can you restate the question, Maher?

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [64]

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Yes. Your foreign content cost, like the new shows that you're getting, how are the cost for these shows trending recently?

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [65]

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Well, the -- they're basically manageable. I mean the U.S. programming content pricing is typically prearranged through certain output deals that we've structured with our content partners, both on specialty and conventional. In those cases where we're pursuing new platforms or new uses of content, there's occasionally investment and additional rise within that part of our output arrangement. But in some cases they're already part of our output arrangement. For example, one of the products we have in STACKTV is a Nickelodeon SVOD product and that was already rights that we had in our existing arrangement.

So we're not seeing any massive inflation in content. Every time we do a renewal on a output deal is typically a little bit of increased cost because it's just kind of way the world works. But we work very hard to find outside sales for the business. I mean our whole approach, when I talk about our principles to maximize audiences, monetize audiences, rationalize and evolve the operating model, ultimately we want to evolve the operating model so we can put more dollars on the screen, pay down more bank debt or flow through more money to EBITDA, and we have been consistent in terms of our discipline around that. So to the extent that which we do see modest increases in foreign programming, we're always looking for offsets internally.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [66]

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Okay. And my last question, are you seeing an increase in with the sense, let's say, by U.S. players content owners to hold on for online content in Canada not wanting to license it to Corus? Or are you seeing any change in their view about licensing for Canadian -- their content in Canada?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [67]

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I would say that many of them I'm not sure what they want to do yet with the one exception being Disney, and Disney has very smartly built -- we have 3 channels with Disney. We have TVE rights with them on Disney Channel XD and Junior. Those -- all the content in those channels are specifically designed for the linear services and with a TVE functionality like they would have in the U.S. When they looked at Disney+, what they have done is they built a whole new series of shows and they've dedicated certain movies to that series and there's a bunch of movies that can be available all over the place. So there's been a very purposeful sort of demarcation of content in terms of that.

The other large players are all trying to sort out what they want to do and they're caught in a bit of a pickle because there's always been a historic good source of revenue coming out of any market any kind of "discrete" market that's geographically bordered. And so for these players to walk away from that certainty of content as they concurrently make a pretty big bet on direct-to-consumer platforms and customer acquisition in turn as such, it's expensive.

So I would say more of them are trying to figure out how they're going to execute, and we are obviously in consistent and ongoing dialogue because we've been partners with these companies for decades. And so our plan is basically to find ways to ensure we have content for our services, but also to the extent to which these partners are coming into Canada direct-to-consumer, we want to work with them to advance their businesses and support them either with advertising, marketing arrangements, maybe revenue share, JVs. Those are all on the table in some cases. And so we're exploring all of those as we try to figure out with this new world as every other media and broadcast companies trying to do around the globe.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [68]

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So how do you deal with a company that's used to be your supplier potentially being a competitor in the market during that transition? Do you see revenue flex impacting your margins or your cost savings on the content can offset some of these revenue losses?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [69]

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I don't think this is going to happen for a long time where it's kind of an either/or. It's going to be an and for 5 to 10 years. It's not going to be like a switch is going to go off one day. To the extent to which there's conversations about rights that we used to hold outright, and as we renew, they want to change the rights grant, so they can take rights to do what they want to direct-to-consumer but leave us with the rights we want to do in our model, there is a commensurate savings in cost.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [70]

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Okay. Okay. So it's not something you expect to happen like you say in immediate future, hopefully not to...

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [71]

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No. I think this is one of the things that most of the market is overestimated in terms of its risk to our business model. These studios -- these big studios, they enjoy a lot of cash coming out of discrete foreign markets, and so they're going to be very thoughtful as to how they exploit direct-to-consumer because as we all know direct-to-consumer doesn't generate cash nor does it generate profit in many cases. So it's a -- for these guys, it's a 5- to 10-year build, and I think it's going to be very interesting to see what happens to Netflix. I would direct your attention and those on the call to what happens to Netflix' respected valuation and their subscriber base once these new entrants start really kind of hammering at them in their domestic market in the U.S., and otherwise. I think it's going to be an interesting battle.

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Maher Yaghi, Desjardins Securities Inc., Research Division - VP, Telecom, Media & Tech Analyst and Intellectual Property Analyst [72]

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Okay. And just to finish on this topic. Why do you think Disney's profile of content is allowing them to do the direct-to-consumer and as you say other players are likely a lot longer in terms of when they can do it? Like what's differentiating for Disney to do this?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [73]

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I think they've got such a great reservoir of IP. I mean they bought Lucas, they bought Marvel, they've got Disney brands, they got Pixar, they're making new shows all the time. They're the smartest company as far as windowing is concerned. They've got legacy IP, that's, in my view, second to none. So I think all those are kind of factors.

I think the one thing just while we're talking, I feel I'm having a beer with you, there's one thing that no one is talking about was Disney's pricing strategy and how Disney's pricing strategy is going to put a cap on Netflix. And the whole world has missed that from a strategic point of view how they're boxing in Netflix' pricing power and that's got fundamental problems for the long-term model of that business.

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Operator [74]

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Drew McReynolds with RBC.

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Drew McReynolds, RBC Capital Markets, LLC, Research Division - Analyst [75]

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Two quick ones for me. Just on the automotive weakness, is there anything kind of to drill down on that one? And then secondly, maybe for you, John, you get a little bit of questions here. Obviously your stock post the short transaction still seems a little oversold there. Any thoughts on the buyback kind of blending that in with your other kind of capital return or balance sheet priorities?

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [76]

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So on automotive, yes, Drew, it's been soft category and a challenged category for a few years now, quite frankly. Part of that is that they have had some success on digital because you go and you build your car on digital and then you save the file. It's sent to your nearest dealer and you start getting e-mails everyday come test drive the car that you built and it's pretty effective way to sell cars. Now you don't order a Jaguar unless you know what the Jaguar brand is, that's top of the funnel. So the automotive guys are mostly focused on the bottom of the funnel, which is effectively the conversion product and always part of the sales equation.

And then you're seeing the overall sort of malaise in the auto sector, which does -- if you're having a down year on revenue, the first thing you do is look at your marketing investments and where it is best spent. And so they've been intending to and I think it's a shortsighted, but it's what has been, they've been intending to kind of move dollars out of the top of the funnel to offset revenue weaknesses. And then in local markets, as I've mentioned earlier in Alberta, our automotive advertising is just ground to a halt effectively compared to where we were in prior years and it's not just Corus, but all the little broadcasters are seeing that as well.

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [77]

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And Drew, on the buyback question, I mean, it's certainly one that comes up a lot especially recently. We get it all the time south of the border and it's coming up a lot more now from the Canadian side as well. I think we've been pretty clear about what the use of our free cash flow is going to be. I don't think we'd say never ever would we do a buyback. But I think for now we're pretty set on what we want to do with the capital allocation and getting the bank debt down and getting leverage down remains the main priorities. So for now I think we're happy with what we've decided to do, but it can change.

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [78]

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Right. I would though just grab onto your comment that the share are mispriced in here. There's a point in time to take a nice position because we hope that all the work we're doing is going to get recognized, and we will get back to a more reasonable valuation i.e., where we were in May before the secondary came to the market.

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Operator [79]

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Tim Casey with BMO.

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Tim Casey, BMO Capital Markets Equity Research - Equity Research Analyst [80]

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I'll be quick. John, have you or can you articulate what level of leverage you would be more comfortable with to think about things like a buyback? I won't put a time on it, but what -- you're little south to 3 now. Can you give us a range where you might start considering other deployment of capital?

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John Richard Gossling, Corus Entertainment Inc. - Executive VP & CFO [81]

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So Tim, that also comes up a lot now that we've got within the target. We're probably better if we're going to chase the target that we do it formally. For sure, something sub-2.5 is a much more comfortable place to be. I mean that's not necessarily just specific to us. But I don't think we're ready to adjust the target yet. So I don't want to do it on the call. But definitely, somewhere a bit lower than where we are today to closer to 2, not maybe at 2 is a better place for sure.

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [82]

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And I think -- Tim, it's Doug. I would just also say that we have got a long list of investment ideas around here, and we have a very diligent process to sort of a filter what we do and what we don't do. And we're very pleased with the results of our organic investments and those will continue and have been accelerating in the last few quarters that we've gained more financial flexibility. And my bias as a CEO would be to continue to build value for the long-term shareholders by the continued transformation of our company. And I do think that in the future as we get more down towards that -- between 2 and 3, I think that targeted M&A might be something we consider probably before we do anything vis-à-vis a share buyback only because we want to continue to transform the company.

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Operator [83]

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There are no further questions at this time. I would now like to turn the call back over to Doug Murphy for final remarks.

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Douglas D. Murphy, Corus Entertainment Inc. - President, CEO & Director [84]

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Thank you, Jack, and thank you, everyone. We appreciate your interest in our company, and thanks for your very kind comments to us on the fiscal '19 results. And we are determined to continue that momentum rolling into fiscal '20. I want to thank, again, the Corus team on the call. I know there's many of you listening, and we look forward to seeing everybody in the future. Take care now. Bye-bye.

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Operator [85]

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This concludes the Corus Entertainment Fourth Quarter and Year-end 2019 Analyst and Investor Call. We thank you for your participation. You may now disconnect.