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Edited Transcript of TVA.B.TO earnings conference call or presentation 12-May-20 6:30pm GMT

Q1 2020 TVA Group Inc Earnings Call

MONTREAL Jun 28, 2020 (Thomson StreetEvents) -- Edited Transcript of TVA Group Inc earnings conference call or presentation Tuesday, May 12, 2020 at 6:30:00pm 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

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Fiscal 2020 First Quarter Results Conference Call. Your host for today will be Mrs. Anick Dubois, Vice President, Finances, 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 afternoon, 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 reports filed 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. Good afternoon. First of all, let me say to everyone who is listening that I hope that everyone is well and staying safe. Obviously, the COVID-19 crisis affected the end of the first quarter, and we will be talking about it during this call.

The COVID-19 pandemic had a limited impact on the first quarter of 2020, small enough that our Q1 results are positive. However, we need to kept -- keep that in perspective as this unprecedented situation is having a significant impact on Canadian and on the global economy.

As a provider of essential services, our focus is to continue our mission through 3 priorities that are: protect the health and safety of our employees, perform our role and -- as an essential service of informing and entertaining the public, implement our business continuity plan. We have taken a number of measures to protect our 2,000 employees and their families. All operations that can be performed remotely are currently being done by telework.

We have restricted access to our premises to our employees working in essential services, who need to be physically present at our facilities, which amounts to 500 TVA Group employees. All necessary health precautions and social distancing measures are -- have been put in place. We have also had to reduce many of our activities as a result of Québec government directives. Among other impacts, the COVID-19 virus and the measures to prevent its trend have led to a significant reduction in advertising revenues, the cancellation or postponement of many sporting events broadcast live on TVA Sports, a reduction in the publication frequency of some periodicals and the suspension of most of our content production activities.

However, TVA Group has been able to maintain essential services that inform and entertain the public at this time. While Quebecers have been staying home to limit the spread of COVID-19, they have been able to count on the TVA news, LCN, Salut Bonjour and our digital platforms to keep them well informed.

Given the social implications of this pandemic, we have unscrambled the LCN channel in order to make it easier for everyone to access our news service. We have also adapted our entertainment programming. In a very short space of time, TVA launched 2 major productions. First, we started a daily program called (inaudible) which reached nearly 1 million viewers every night. This event has become a real social movement that breaks down the walls of evolution and showcases the incredible spirit of solidarity and creativity in Québec in these unprecedented times.

Then on Sunday evening, we presented the television event Une chance qu'on s'a together with the public broadcaster Télé-Québec and in partnership with the government of Québec. Nearly 80 Québec artists came together to unite Quebecers and play them a stirring tribute. The show raised $2 million for organization that support seniors and victims of domestic violence.

Let me turn to Q1 results and the impact of COVID-19 on each of our business segments. In the Broadcasting segment, TVA Group's total market share increased by 2.1 points to 40.4% in the first quarter of 2020. TVA Network was up 1.1 points and the specialty channels, 1 point, driven by a 2.2 points surge by LCN, which rose to a record 6.9% and remained the most watched specialty channel in Quebec.

Unfortunately, at the end of the quarter, we were forced to cancel or postpone several production. We also adjust Salut Bonjour's time slot to respond to the new circumstances, and we adapted the production of Salut Bonjour Weekend to avoid traveling between regions. The programming of the specialty channels was reviewed in view of the availability and dubbing of programs we had bought.

At TVA Sports, we stopped several in-house productions when the pro sport leagues shut down and we adjusted our programming to the new conditions. At MELS, the first quarter financial results of our film production and audiovisual services were up significantly, driven mainly by the use of our sound stages and equipment by local and international producers. That was the case for a Fox blockbuster shoot at our studios, the latest installment in the Home Alone family comedy franchise.

With regard to the impact of the crisis, all -- as all domestic and foreign production have been postponed, rentals activity are suspended. Post-production services, including visual effects and dubbing, are being carried out by telework or with strict health precautions.

At MELS, sound stage rentals and post-production will resume as some shoots start again -- start up again and the border reopens. As content production is expected to continue growing in all markets in the long term, we want to position MELS to seize even more opportunities to bring blockbuster and foreign series to its sound stages and to maximize business opportunities for its special effects and post-production services.

To achieve this, we have announced that Martin Carrier is joining our management team. Martin will take over from Michel Trudel as President of MELS in January 2021. Martin Carrier has more than 20 years of experience in managing and directing world-renowned businesses.

Turning to our magazine segment. The decline in revenues continued in the first quarter of 2020 and declined sharper with the crisis. But our efforts to reduce operating expenses, enhance operational efficiencies and focus on our promising brands yield an 18.4% reduction in operating expenses on a comparable basis and enable the segment to make a positive contribution to the corporation's operating results.

We are pleased to report that according to the latest Vividata survey, TVA Publications held its position as the top publisher of French language magazines in Québec, with more than 3.6 million readers of its monthly, and our English language titles are read by more than 5.4 million people. Under the lockdown, we still continue printing and distributing our magazines, but at a reduced pace. We decided to push -- to publish, sorry, our magazines every 2 weeks since we had to adapt to our readers' new circumstances. We plan to resume publishing on a weekly basis at the end of May.

Our new Production & Distribution segment, which includes the operation of the companies in the Incendo Group has made a positive contribution to the corporation's financial results since its acquisition. In addition to diversifying our revenue streams and expanding our international presence, particularly in English language markets, it will enable us to take advantage of the growth in demand of original content production we expect after the current crisis. Production is still shut down. The production team is concentrating its efforts on finalizing scripts and preproduction in order to be ready to go when operations can resume.

With respect to distribution activities, the work is continuing as Incendo just closed a deal for the distribution of some 30 of its films in Spain. In view of the COVID-19 crisis, the corporation had to adjust the cost structure to the reduced volume.

On March 27, we cut the working hours of 25% in our workforce and product -- provided supplemental benefits to top up the government emergency relief program and minimize the impact on our employees as far as possible.

For conclusion, as is the case with many businesses, we expect more pronounced financial impacts will be felt in the coming quarters. Given the uncertainty about the pandemic duration and possible impacts, it is not possible to predict the overall effects on our operational and financial results at this time. But we believe that with our good financial health, solid balance sheet and the measures we have put in place, we will have the liquidity with -- we need to us -- to see us through this difficult period.

TVA Group adjusted to the situation quickly. We did what we do best: create, bring people together and make a difference in our community. This is what gives me confidence that we will get through this.

I now give the floor back to Anick, who will review our financial results. Thank you.

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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 first quarter results. TVA Group recorded operating revenue of $137 million in the first quarter of 2020, a year-over-year increase of $3 million or 2%.

Broadcasting revenues decreased by 2%, essentially due to a 6% decrease in TVA Network's advertising revenues, a 15% decrease in commercial production revenues due to lower volume of activity and a 10% decrease in TVA Sports advertising revenues. Those positive variances were partially offset by the inclusion of revenue from the Évasion and Zeste specialty services for a full quarter and a 5% increase in the subscription revenue from the other specialty services, streaming from the renewal of most of our distribution agreements at rates reflecting the fair value of our channel.

Magazine publishing revenues declined 30%, mostly due to continued decrease in advertising revenue, subscription revenue and newsstand revenue on a comparable basis and the discontinuation of the publication of Elle Canada and Elle Québec magazines, the last issue of which were released in May 2019.

MELS revenues increased 39%, mainly due to a significant increase in sound stage, mobile units and equipment rental revenue due to higher volume, and the presence of a major production in our studio and a 55% increase in dubbing and described video revenue due in part to the new CRTC license condition for described video. Those positive variances were partially offset by a 21% decrease in post-production revenue.

Our new Production & Distribution segment created following the acquisition of Incendo on April 1, 2019 at $4.8 million revenue in first quarter results. TVA Group's EBITDA reached $8.5 million for the first quarter, an increase of $4.5 million compared to the same quarter last year.

Our Broadcasting segment reported positive EBITDA of $3.8 million, a positive variance of $1.3 million. The Magazine segment recorded EBITDA of $0.7 million down by $0.7 million, while MELS segment posted EBITDA of $3.2 million, $3.1 million higher than last year.

Our new Production & Distribution segment made a positive EBITDA contribution of $0.7 million to our quarterly financial results. Finally, the corporation declared a net loss attributable to the shareholder of $0.7 million or $0.02 per share compared with a net loss of $6.7 million or $0.16 per share for the first quarter.

As mentioned by France, the positive first quarter results must, however, be viewed in the context of the COVID-19 pandemic that have limited impact on this period. 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) So the first question we have comes from David McFadgen.

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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 of questions. So regarding TVA Sports, now that you're not paying the sports programming rights, would TVA Sports actually be in a position where the EBITDA will be positive?

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

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In the first quarter, yes, you're right. But however, this is a temporary impact since we don't know yet if all the games and the sport season will be postponed or canceled. And this is not a permanent situation.

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

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No. No, I know. But as long as it's like -- so you're not paying the programming rights and TVA Sports is actually EBITDA positive, right?

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

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This is not a question of payment. This is a question of amortization of the cost. But yes, you're right.

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

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Okay. Can you give us an idea, like right now, I guess, maybe for the month of April, how the revenue is doing on the TV side for TVA Network and then for the specialty channels. Just wondering like -- because I think some of your viewership is probably up and I was just wondering if you're benefiting at all from that or you're just -- your advertising demand just isn't there?

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

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It's too early to give you an answer regarding April and the upcoming months. But if you look at the first quarter results on the advertising revenue side, TVA Network has been [impact]. We are down by 6% and TVA Sports is down by 10%. And we have been -- this negative variance is mostly coming from the month of March. So you can imagine that we will be affected in the upcoming months, but it's too early to give you a percentage.

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

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Okay. And in your filing, you talked about bad debt expense. Is that anything material or not at this point?

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

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Compared to our overall expense, no, it's not significant for the moment.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [10]

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Okay. And then just looking at MELS. I know that the revenue is probably not much if anything, given all the production activity is halted. What would be the ongoing monthly cash burn of that business while we wait for the situation to grow back to some sort of normalcy?

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France Lauzière, TVA Group Inc. - President & CEO [11]

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Can you just repeat your question with more detail? Sorry, I'm not sure I understand everything?

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [12]

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Yes. No problem. So now, the revenue is probably minimal, if anything, because of all the production activity is stopped, right? I'm just wondering what the monthly cash burn is at that business?

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France Lauzière, TVA Group Inc. - President & CEO [13]

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Well, you're right that all the production stopped for MELS to yield activities. We don't know. It's too early to know when this will -- when we will be able to continue the -- yes, to resume the production activity. But all the other activities for MELS are going on right now. So we have a part of this business who are still doing some activities in some business. And I would add that we don't have cancellation at the time. If the producer postponed, so we're talking with them and maybe in the near -- in the next few weeks, we will be more able to see the impact for the year.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [14]

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Okay. What -- I mean given your current situation, would MELS be EBITDA negative, or actually semi-positive, given you have some activity going on?

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France Lauzière, TVA Group Inc. - President & CEO [15]

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No. The results are still positive for now, yes.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [16]

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Okay. All right. And then can you give us an update on what's happening with MELS and distributing TVA Sports on the same manner as RDS. And I think they're filing an appeal in the Federal Court of Appeal. Just wondering what's the latest with that?

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France Lauzière, TVA Group Inc. - President & CEO [17]

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Yes. You're talking about the undue preference front?

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [18]

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Yes.

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France Lauzière, TVA Group Inc. - President & CEO [19]

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From our situation of TVA Sports that is distributed with a disadvantage?

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [20]

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Yes.

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

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Okay. So the CRTC recognized, as you probably know, that TVA Sports and RDS are 2 comparable channels, and ruled in our favor on the question on unfair distribution. So they [start you] on that matter. Now Bell didn't do anything with it. So we have (inaudible) CRTC to be sure that their conclusion will be adopted by Bell. That's what -- for the rest, we have also the market value strategy that's still going on with Bell. Bell is the only one who didn't pay for fair market value for TVA Sports. So we're losing a great amount of money for that, and we'll be continuing to negotiating with them because all of the other big distributor accept our terms of the fair value.

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David John McFadgen, Cormark Securities Inc., Research Division - Director of Institutional Equity Research [22]

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Okay. But it isn't -- on the matter of distribution in terms of distributing TVA Sports on the same package as RDS, I thought that Bell has filed an appeal to the Federal Court of Appeals. Have they done that?

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

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Yes, but I cannot tell you more detail at the time for the moment.

More questions?

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Operator [24]

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No questions in the queue at this time. (Operator Instructions) And we don't seem to have any questions in the queue at this time.

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

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Okay. Perfect. Well, thank you. Thank you, and I hope everyone is staying safe. Talk to you next quarter. Thanks.