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Edited Transcript of TVA.B.TO earnings conference call or presentation 2-Aug-19 2:00pm GMT

Q2 2019 TVA Group Inc Earnings Call

MONTREAL Aug 19, 2019 (Thomson StreetEvents) -- Edited Transcript of TVA Group Inc earnings conference call or presentation Friday, August 2, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anick Dubois

TVA Group Inc. - VP of Finance

* France Lauzière

TVA Group Inc. - President & CEO

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Conference Call Participants

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* David John McFadgen

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

* Vince Valentini

TD Securities Equity Research - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Fiscal 2019 Second Quarter Results Conference Call. Your host for today will be Mrs. Anick Dubois, Vice President of Finance TVA Group, Inc.; and Mrs. France Lauzière, President and Chief Executive Officer. Mrs. Dubois, please go ahead.

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Anick Dubois, TVA Group Inc. - VP of Finance [2]

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Good morning, ladies and gentlemen. Thank you for taking part in our call today. (foreign language)

Let me remind you that certain statements made on the call today may be considered forward-looking statements, and we would refer you to the risk factors outlined in yesterday's press release and report shared by the company with regulatory authorities.

I will now turn the call over to Mrs. Lauzière.

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France Lauzière, TVA Group Inc. - President & CEO [3]

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Thank you, Anick, and good morning, and thank you for being with us today.

First of all, we're satisfied with our results for the second quarter of our financial year. Unfortunately, given the many challenges we face, we had to make budget cuts and eliminate 68 positions during the quarter in order to reduce our operating expenses. We are already seeing a positive impact in our financial results, although their full benefits have yet to be realized.

To begin with our Broadcasting segment, TVA Group's total market share was 40.5%, up 0.3 points from the same period of 2018. TVA Network held its #1 position with a 23.5% market share. TVA Network had 7 of the top 10 shows in Québec during the second quarter, including La Voix, which was a standout again, holding the top spot with an average audience of more than 1.9 million.

Our specialty channels made a significant contribution to our television segment in Q2. Overall, they increased both their advertising revenues and subscription revenues. Our specialty channels had a combined market share of 17% in Q2 compared with 16.4% in the same period last year. The increase was due in part to the acquisition of Zeste and Évasion, which continues to have positive impacts on both our financial results and the range of our content offering. We also completed the integration of their operation, and we realized the expected synergies in terms of expenses.

LCN had a 5.5% market share, still far ahead of its main rival. Even though the Montreal Canadiens didn't make the playoffs, the TVA Sports channel posted great results and even some growth in the second quarter. The channel increased its market share from the same quarter of the previous year based on its coverage of the playoffs of the Stanley Cup finals and other exclusive properties such as boxing, MLB and the Blue Jays and the Montréal Impact.

While our specialty channels performed well and posted growth, it must be kept in mind that they have been short-changed for years on their fair market value, especially in the case of LCN and TVA Sports. While RDS, which is owned by Bell, and TVA Sports are 2 comparable sports channel with the same audience share per subscriber, their subscription fee are far from comparable. Bell must acknowledge the issues facing our entire industry and recognize the fair value of our channel. Since the current system isn't working, we will continue making our case to the CRTC and calling for quick action for the -- quick action to end the unfair treatment, sorry.

Now for our magazine, the advertising and subscription revenue were down, but nevertheless, we were able to increase our profit margin by taking initiatives to cut costs and improve operational efficiencies. We, therefore, canceled TVA Publication list licensing agreements for Elle Canada and Elle Québec as part of its ongoing effort to remain a leader in the Québec market and a major Canadian publisher.

TVA Group's trend is to keep the high-quality brands that are performing well, promote them and secure the future of this line of business.

For MELS, our studio rental activities suffered a drop in Q2 compared to last year due to the absence of blockbuster production in our studios. This shows how important it is that the government of Québec confirm the stability of its tax credit program in order to encourage foreign producer to choose our studios in Québec. We will continue pressing the provincial government to commit to maintaining, if not, enhancing its tax credit for the film industry. With assurances on this core, we would be able to move ahead with construction of the largest studio in North America and establish a strong foothold in the market for blockbuster production.

On the other hand, our other activities improved their results in Q2, especially the effects. The growth stemmed from increased volume as well as acquisition we made in 2018.

Now let's talk about Incendo. So far and since its integrations as part of TVA Group on April 1, we are very pleased with the results posted by our new Production & Distribution segment. It confirms that our acquisition strategy is sound and that Incendo will be a major plus for the diversification of our revenue stream for our international development and our move to -- into English language markets.

Lastly, I cannot leave unmentioned the purchase of the over-the-air network, V, and its digital assets by Bell Media. We believe this acquisition will further weaken an already precarious ecosystem by allowing a dominant player to become even more so. The transaction will significantly alter the balance of power between media companies and have major consequences. We plan to make our case to the appropriate entities.

Thank you to all. Now Anick will review our financial results. Anick?

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Anick Dubois, TVA Group Inc. - VP of Finance [4]

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Thank you, France. I would like to outline the main following financial highlights for the second quarter results. TVA Group recorded operating revenues of $146 million in the second quarter of 2019, a year-over-year increase of 4% or $5.8 million. Broadcasting revenues increased by 6% essentially due to the acquisition of operating revenue from the Évasion and Zeste channels since their acquisition on February 13, 2019, and an 11% increase in the advertising revenue of the other specialty channels.

Magazine publishing revenue declined 14% mostly due to decrease in the advertising revenues, subscription revenues and new spend revenues and the discontinuation of the publication of Elle Canada and Elle Québec magazine, the last issues of which were released in May 2019.

MELS revenues decreased 2% in the second quarter due primarily to an 18% decrease in revenue from soundstage, mobile units and production equipment rental, partially offset by revenue growth from film production and visual effects. Our new Production & Distribution segment created following the acquisition of Incendo on April 1, 2019, had $3.5 million revenue in second quarter results.

TVA Group's EBITDA reached $3.8 million for the second quarter, an increase of $6.6 million compared to the second quarter last year. Our Broadcasting segment reported negative EBITDA of $1.9 million, a positive variance of $6.2 million. The Magazines segment recorded EBITDA of $3.5 million, up by $0.5 million -- $0.7 million, sorry; while MELS segment posted EBITDA of $1.8 million, $0.7 million lower than last year. Our new Production & Distribution segment made a positive contribution of $0.3 million EBITDA to our quarterly financial results. Operational restructuring costs and others of $1.5 million in the second quarter of 2019 is mainly due to operational restructuring costs in connection with staff reductions mainly in the Broadcasting segment.

Finally, the corporation declared net loss attributable to the shareholder of $6.2 million or $0.40 per share compared with net loss of $9.6 million, $0.22 per share for second quarter of 2018.

This concludes the official portion of our conference call. We will now be pleased to answer your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Okay. So at the moment, we have one person in the queue, so that will be -- we have David McFadgen of Toronto Cormark Securities.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [2]

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Yes. A couple questions. So first of all, just on MELS. So the quarter was a bit challenged for it. You talked about the tax credits in Québec maybe being less favorable with other provinces. Is the expectation this year that MELS will report growth year-over-year in revenue and EBITDA?

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Anick Dubois, TVA Group Inc. - VP of Finance [3]

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We cannot make any prospective information, but we are -- even if the second quarter was a little bit harder in terms of revenue for MELS because there was not major production in our studio, we are still in communication and in discussion with the producer to bring them in Montreal. So again, this is why it's really important to get the tax credit confirmation from the government to help us to bring the producer in Montreal.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [4]

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Right. But even if you don't get a change in the tax credit, are you still optimistic that the business grows long term?

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Anick Dubois, TVA Group Inc. - VP of Finance [5]

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This is really what we expect for MELS. And keep in mind that this is a cyclical business. So right now there is a little bit less major production in our studio, but we expect that the cycle will come back in the upcoming months.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [6]

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Okay. So maybe you could give us an update on the status of TVA Sports getting a higher revenue or carriage fee from Bell. What's the latest? I think you're before the courts right now, right, to question the jurisdiction of the CRTC or maybe you could give us an update on that.

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France Lauzière, TVA Group Inc. - President & CEO [7]

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Yes. What we can tell, at that point, is we are still in conversation with the CRTC. We're talking to them about how to move forward. And things are going great, and we expect to have a discussion with Bell in late summer, new discussion. For sure, we're in favor of the fair business negotiations, so we will sit with them at the end of this summer.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [8]

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But are you still in front of the courts? Is there anything going on there?

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France Lauzière, TVA Group Inc. - President & CEO [9]

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We have some lawsuits as you know. It's public, but we will not comment on that matter today.

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Operator [10]

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(Operator Instructions) So we have another question, and this comes -- this next question comes from Vince Valentini of Toronto in -- well, TD Securities.

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Vince Valentini, TD Securities Equity Research - Analyst [11]

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We're hearing from other broadcasters, I mean Bell reported yesterday, Comcast and NBC, last week and Corus a little while ago, about some favorable trends in TV advertising with some of that being driven by digital-native companies just like Amazon and Peloton, who maybe didn't advertise on TV historically, but they've figured out that, that makes sense to put some of their ads on TV and some of them on their own digital properties. Are you seeing anything in the Québec market in terms of improvement in overall demand for TV advertising this year and then maybe your bookings for the important fall period from that dynamic or any other dynamic that may be going on in terms of advertisers, just in general, thinking the pendulum may have swung a bit too far to digital and somebody is coming back to TV. It certainly seems to be a consistent theme across English language broadcasters in North America. I'm not sure if you're seeing it in Québec.

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Anick Dubois, TVA Group Inc. - VP of Finance [12]

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For us, the advertising market remains a challenging market, but however, if you look at our Q2 results, the advertising position is really not bad for us. For TVA Network, for example, we maintain our advertising revenue. And if you are looking at all our specialty channel, if we exclude the fact that we acquired Zeste and Évasion, we are up by almost 11% in terms of advertising revenue. So this is really not bad.

We -- even if we heard some good news in the market, our strategy for TVA remain always the same. We are trying to diversify our revenue stream in order to be less dependent on the advertising revenue, for example, with all the acquisitions we made in the past year such as MELS and Incendo.

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Vince Valentini, TD Securities Equity Research - Analyst [13]

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Sorry, did I hear correctly? If you do a same-store basis not including acquired channels, your overall TV advertising revenue for all your properties combined was up 11% in Q2 this year versus Q2 last year.

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Anick Dubois, TVA Group Inc. - VP of Finance [14]

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Yes. The 11% was for all the specialty channels, including TVA Sports, and this percentage excludes the acquisition we make. So it's really on a comparable basis.

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Vince Valentini, TD Securities Equity Research - Analyst [15]

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And that's just specialty. That doesn't include the main TVA Network.

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Anick Dubois, TVA Group Inc. - VP of Finance [16]

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Yes. And for TVA Networks, the advertising revenue remained the same compared to last quarter.

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Vince Valentini, TD Securities Equity Research - Analyst [17]

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Wonderful. And any -- I suppose you -- without giving guidance, can you comment at all -- I mean Q2 is a bit of a slow period seasonally. And when we get back to the much more important September, October, November type months, any visibility that those kind of better ad trends are continuing?

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Anick Dubois, TVA Group Inc. - VP of Finance [18]

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Sorry, can you repeat your question?

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Vince Valentini, TD Securities Equity Research - Analyst [19]

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You have -- some of these other players in the industry are signaling that the -- these sort of better trends in demand for TV advertising revenue are continuing into their bookings into the very important fall period. I'm wondering if you have that kind of visibility. Are you seeing some decent trends in your bookings for calendar Q3?

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Anick Dubois, TVA Group Inc. - VP of Finance [20]

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It's really hard to answer your question at this time, but the fall remain an important period for us.

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France Lauzière, TVA Group Inc. - President & CEO [21]

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I would add, though, that it's still a tough market and might be the [bank] phone side, the things you receive from the other media might come from [angle] phone. But we have a tough market still and -- but that being said, we're doing fine, and the pacing is okay for fall.

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Operator [22]

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Well, at the moment that was the last question in the queue. (Operator Instructions)

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France Lauzière, TVA Group Inc. - President & CEO [23]

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All right.

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Anick Dubois, TVA Group Inc. - VP of Finance [24]

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All right. I think it's...

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France Lauzière, TVA Group Inc. - President & CEO [25]

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Thank you so much.

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Anick Dubois, TVA Group Inc. - VP of Finance [26]

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It's okay. Thank you for everyone.