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Edited Transcript of EROS earnings conference call or presentation 5-Mar-20 1:30pm GMT

Q3 2020 Eros International PLC Earnings Call

Mumbai Mar 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Eros International PLC earnings conference call or presentation Thursday, March 5, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kishore Arjan Lulla

Eros International Plc - Executive Chairman, Group CEO & MD

* Prem Parameswaran

Eros International Plc - Group CFO, President of North America & Executive Director

* Rishika Lulla Singh

Eros International Plc - Chairman of Eros Digital & Director

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Conference Call Participants

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* Sanjay Mathur

Australia and New Zealand Banking Group Limited - Chief Economist of Southeast Asia and India

* Sean Kumar;Macquarie;Media & Entertainment Equity Research

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Eros International Plc's Third Quarter Fiscal Year 2020 Earnings Call. This call is being broadcast live on the Internet, and a replay of the call will be available on the company's website. This morning, the company published its earnings press release on its website, erosplc.com.

The company would like to remind everyone listening, during this call, it will be making forward-looking statements under the safe harbor provision of the federal securities laws. The company's actual results may differ materially from those projected under forward-looking statements. During the call, the company will also discuss non-GAAP financial measures in talking about its performance. You can find a reconciliation of these measures to the GAAP financial measures in this company's press release.

I would now like to turn the call over to Mr. Kishore Lulla, Executive Chairman and CEO of Eros International Plc. Please go ahead.

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [2]

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Thank you. Good morning, everyone. On our last call, we touched upon the entertainment revolution in middle India. But today, the entertainment revolution is a global story across every household. This year, for the first time in the global history of a non-English language film, Parasite swept away the 92nd Academy Award for the Best Picture and not in the foreign language category. This was a monumental moment in the media as it holds tremendous value for the non-English language markets globally as well as the U.S. in particular. We are proud to be early believers in this strategy and have faith in the notion that stories are universal and languages have no barrier.

A global revolution may be taking place in driving new openness in the global cinema. But in India, we are experiencing our own entertainment revolution. Much like Parasite, non-Hindi Indian languages films have also been crossing barriers as connectivity grow, demand for content from platforms and consumers continues to increase, therefore, opening up audiences to explore content outside their primary language.

Over the past few years, we have continued to invest in creating multi-universe IT, core production franchises and keeping our core focus on cultivating the talent and systems to deliver the most unique stories. With our success over the period of last -- past 40 years of taking Indian cinema across the globe and the last 7 years with our Eros Now has proven to the world that we are able to penetrate audiences with a subscriber base of about 26 million and growing community overreaching 200 million.

In the light of these trends, we are excited for our upcoming global trilingual releases like Haathi Mere Saathi, starring Rana Daggubati and Vishnu Vishal. It's the first of its kind, 3 copies, 3 films in Hindi, Tamil and Telugu. This has the ability to be pan-India as well as reach our audiences across the globe, a family-friendly picture that will fulfill the hearts of audiences with a touching story about elephants and man uniting to save our planet, a very current topic while fighting for the justice. We are gearing up to bring this to our audiences in April and are confident in achieve critical and commercial success all over the globe.

As global storytelling is soon becoming a reality, India is undergoing rapid speed changes where the devices and connections are growing faster at 7% CAGR than the population of 1.3 billion. 17% of the world's population by 2023, India will have 2.1 billion network devices, of which 66% will be mobile connected. As screens multiply, hunger for content grows, Eros Now is poised to make most of the strengths with healthy subscriber growth, a 12,000 film library in 10 Indian languages and industry-pioneering partnerships. We believe our global distribution initiatives will not only increase our growth, but benefit earnings, revenues and free cash flow in the fiscal 2020 to '21, but more importantly in subsequent years as annualized benefit of the subscribers come through.

I'm also excited to share my new additions to our management team, and we look forward to delivering our strategy. I would like now to pass on the call to Rishika to discuss our digital progress. Thank you.

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Rishika Lulla Singh, Eros International Plc - Chairman of Eros Digital & Director [3]

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Thank you so much, KL. Good morning, everyone. It gives me great pleasure to share with you over 60% growth, reaching 26.2 million monthly paying subscribers and a community of over 180 million.

In essence, 2019 for Eros Now was a strong focus on distribution and technology. 2019 was the foundation year wherein Eros Now started on the journey to deliver a custom product to every audience niche with the premise of the redesign of our technology backbone with state-of-the-art features and purposes. Every piece of content by its native capability travel to its core and adjacent audiences. However, by adding the layer of technology on content, to be specific, dynamic subtitles, dynamic subbing, language-specific meta tags, language-neutral front end, voice-based discovery, NLP, et cetera, we provide high-quality premium programming and stories to traverse beyond the core and adjacent subscriber to potentially become a global product as we target a 900-plus million market.

Our co-bundling deals in India have driven significant increases in our KPIs with a 130% increase in the number of screens and 59% increase in watch time quarter-on-quarter. As our distribution continues to widen, it is important for us to ensure the platform truly feels like an attention of South, being really easy to use.

Our strategic directions, leverage technology and voice are central key themes to build out Tier 2 and Tier 3 audiences of viewership in Middle India. So far, Eros Now has discovered driving appetite for original content and intricate dynamics in terms of language consumption with languages like Hindi, Marathi, Gujarati, Tamil, Telugu, et cetera, within our viewership matrix.

In Europe, the global launch of Disney Plus, Netflix caused correction with mobile-specific price points in India. Eros Now introduced the clean one price, all-you-can-eat strategy around the world. This clean price strategy was though geo-specific with deep research and understanding of the payment propensity of our target audience and all features included. The payment platform, by nature of that technology, is unique and it allows for all payment purposes to feed into 1 single funnel with consistency across all platforms. The launch of this in itself resulted in a 22% increase in the funnel from users to paid subscribers worldwide within 1 month of relaunch.

Furthermore, we strive to make the most of our data insights and continue to build upon our special intelligence and machine-learning features, custom to user cohorts to continue improving and widening our funnel.

I would also like to highlight the stellar partnerships in 2019: Apple Plus distribution, strategic technology partnership with Microsoft and our groundbreaking YouTube-Eros Now partnership. This is a global first for Eros Now and YouTube and the very beginning of a very exciting journey.

As KL previously mentioned, demographics and content changes are very much at play in a global scale. And at Eros Now, with over 250 digital premieres this quarter alone, we are gearing up to deliver the best of content and product experience to a connected India and beyond.

I would now like to pass the call to Prem Parameswaran.

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Prem Parameswaran, Eros International Plc - Group CFO, President of North America & Executive Director [4]

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Thank you, Rishika. Good morning, everyone, and thank you again for joining us today on our earnings call. I'm looking forward to sharing with you some of our financial highlights this quarter, then we will take your questions.

This quarter, we generated $50.8 million in revenues compared to $76.7 million in the third quarter of fiscal 2019 on a like-for-like basis. Adjusted EBITDA for the quarter was $22 million compared to $35.8 million last year, which represents a margin of over 43%.

This quarter, we released 2 medium-budget films and 4 low-budget films as compared to 2 medium and 23 lower-budget films for the same period last year. We digitally released a total of 249 films on Eros Now this quarter as well as thousands of new music tracks and new short-form content.

Our Eros Now business continues to ramp nicely. We finished the quarter, as Rishika said, with 186.9 million registered users and 26.2 million monthly paying subscribers.

We ended the quarter with net debt of $176.3 million, an increase over our position at year-end, primarily due to a ramp on content spending as well as an increased mark-to-market of our $25 million convertible note and a slight increase in carrying value of our sterling-denominated U.K. retail bond due to currency fluctuations.

Our trade receivables balance has decreased by $10 million since March 31, 2019, to $186.4 million partly due to a decline in syndication revenues associated with longer payment cycles.

On the P&L, we are guiding towards the area of $80 million in adjusted EBITDA for full fiscal year 2020, growing at approximately 20% to 25% over the course of fiscal year 2021.

Thank you for listening, and we are now happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have the first question, comes from the line of Tim Nollen.

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Sean Kumar;Macquarie;Media & Entertainment Equity Research, [2]

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This is Sean Kumar on for Tim Nollen. So first, on the distribution deals with YouTube, Apple TV and also Wasu in China, we should be seeing, I guess, a boost in Eros Now. So if you could comment on how that's been doing internationally? And if Eros Now is still on track for the $50 million target by fiscal year '22? And just to follow on to that on pricing and ARPU. So the conversion rate of free-to-premium, have you been seeing shifts in ARPU with the international expansion and also the mix between DTC and telco subs?

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [3]

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Rishika, please take that.

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Rishika Lulla Singh, Eros International Plc - Chairman of Eros Digital & Director [4]

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So when it comes to all of our partnerships that we've kind of launched in the past quarter, YouTube has been live. And that, in fact, been successful for us. And it's just the beginning of our relationship, and we look forward to seeing what more we can do together.

Wasu has been performing well. However, in view of recent times, I think I would defer comment or progress in terms of Wasu. But we believe that digital sphere and the digital market in itself will continue to be buoyant around the world.

We are still aiming to be imminently live this month on Apple Plus. And we look forward to achieving strong DTC worldwide subscriber growth. Bear in mind, that is going to be live in over 109 countries. And we think that what we've seen so far in terms of appetite for Bollywood films driven globally at a worldwide scale, specifically from Eros Now, has indeed been very promising, and we really look forward to penetrating further in 109 countries.

In terms of the ARPU, at an international level, we won't really see much differentiation in terms of the ARPU in terms of what we have been achieving. However, in India, there has been a slight revision, as mentioned. That funnel size has increased, and the conversions within that funnel is continually increasing. And as mentioned, 22% increase in funnel conversion in itself is actually a very healthy and nice indication to the start of the journey with our new pricing.

Sorry, I didn't -- I don't quite remember the other parts of your question. If you could just let me know which parts I've missed.

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Sean Kumar;Macquarie;Media & Entertainment Equity Research, [5]

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Great. Yes. Just the last part was on the DTC versus the telco subs and, I guess, the effect of that on the ARPU mix.

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Rishika Lulla Singh, Eros International Plc - Chairman of Eros Digital & Director [6]

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(inaudible)

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Operator [7]

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Next question comes from the line of Sanjay Mathur.

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Sanjay Mathur, Australia and New Zealand Banking Group Limited - Chief Economist of Southeast Asia and India [8]

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Rishika, basically, I was wondering about your subscriber growth on Eros Now. You gained 2.7 million subscribers last quarter. You're targeting a pretty strong growth this quarter of almost 3.8 million subscribers. Can you shed some light on this? Is it coming from -- directly from YouTube and Wasu partnerships or somewhere else?

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Rishika Lulla Singh, Eros International Plc - Chairman of Eros Digital & Director [9]

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Yes. You would see a mix of this coming from YouTube. You'd see a mix of this coming from Wasu. We also integrated with a bunch of new payment gateways as well as a bunch of new marketing partnerships around India with a bunch of brands, so be it Nature's Basket or Grofers, et cetera. And so others on the line, those are e-commerce sites ranging from a host of different industries. We expect a lot of growth to come from there. And as mentioned, we expect a healthy mix between D2C as well as B2B subscribers coming through. And over the next year to 2 years, we expect that mix to also start changing.

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Sanjay Mathur, Australia and New Zealand Banking Group Limited - Chief Economist of Southeast Asia and India [10]

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Regarding the Apple partnership, you have mentioned it for the last 3 to 6 months. It's not live yet. You're still expecting it by end of March. And any idea of when it will be done? Because that looks like a tremendous partnership because of the REIT Apple has, and it should impact us tremendously.

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Rishika Lulla Singh, Eros International Plc - Chairman of Eros Digital & Director [11]

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Absolutely and 100% agree with you. That's why we're actually so excited about this partnership. And the fact that we are the only non-U. S. player to be within this partnership with them during the launch phase is incredibly exciting.

In terms of where we are, Apple have their own processes and time lines that they follow. They still haven't completed the initial phase of launch for the app. So we're very much at discretion as -- operational discretion as to when that will be live. But we are pleased to be lived this March and look forward to receiving a subscriber upswing from this distribution deal in particular.

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Sanjay Mathur, Australia and New Zealand Banking Group Limited - Chief Economist of Southeast Asia and India [12]

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So I'm assuming you're not counting any subscriber growth in this March quarter from Apple. So that's a tremendous growth from other places just in the March, almost 3.8 million subscribers, right?

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Rishika Lulla Singh, Eros International Plc - Chairman of Eros Digital & Director [13]

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Yes.

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Sanjay Mathur, Australia and New Zealand Banking Group Limited - Chief Economist of Southeast Asia and India [14]

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A question for Kishore and Prem. So you announced this facility for the credit line from investor or institution at $3.60 or more. You have not issued any stock. Can you give us a strategy where the company is at this point regarding the strategic conversations with Citi? And where are you looking in the next 12 months on funding side? Is this the only credit line that you'll be looking for? Or do you think something will come off the strategic conversations you're having with Citi?

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [15]

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I'm up to that. So basically, we are very happy with the strategic progress that Citi is making. And obviously, I cannot comment on what the Board is going to decide and what we are going to do. That's where I'll keep it at that.

And second, on the equity line of $50 million is at company's discretion, as said in the press release, at the opportunistic level, whenever we decide and at the right strategy for the company.

And the third, for the next year outlook, we are giving an outlook for the free cash flow, so whatever the CapEx we have planned. And if you've seen that this quarter alone, we planned about 250 digital premieres. And the film slate, you have seen that what we have said and the internal cash flow accruals and this inflection point, which is occurring, whereby a lot of subscribers and the growth which is coming from Eros Now. We are quite self-sufficient. But of course, with the strategic alliance tie-up and with the other lineups, we are quite well-funded for the growth in the coming year.

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Sanjay Mathur, Australia and New Zealand Banking Group Limited - Chief Economist of Southeast Asia and India [16]

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So Kishore, one thing, you guys have generated almost $48 million in EBITDA in the last 9 months. And we are still forecasting close to $80 million, so we're expecting a substantial increase in EBITDA in this fourth quarter. Are you guys very comfortable about that?

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [17]

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Yes. See, Sanjay, as we have always said, Eros business is not to be seen quarterly. It's an annual business. And we look at our business annually and then we look at quarterly business. So the quarter -- the annual guidance of $80 million, as we stated in our press release, we are quite comfortable. Of course -- and -- we had Shubh Mangal Saavdhan released in this February. And of course, then if you look at the film slate also coming years, which is very, very strong.

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Sanjay Mathur, Australia and New Zealand Banking Group Limited - Chief Economist of Southeast Asia and India [18]

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Last question, Kishore, is basically, as we go towards the year, will you break down Eros Now revenue separately? Because it looks like with the management additions you've done, you are basically making Eros Now pretty much a separate entity with its own financials and all. Can you comment on that?

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [19]

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Yes. I think what we have said -- as said in the press release, we will be breaking down the revenues for the coming year into 2 verticals, one is the Eros Studio and one is Eros Digital. Basically, that's where you can see the EBITDA margins on the both businesses separately, but not for this year, but way from coming from the next year onwards.

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Operator [20]

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Thank you so much. Okay, no further question at this time. Please continue, presenters, for your closing remarks.

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [21]

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Thank you, everyone. And thank you all of our stakeholders, Eros team all over the world. Thank you so much. Bye-bye.

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Operator [22]

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Ladies and gentlemen, that concludes today's conference call. Thank you all for participating. You may now disconnect.