Viacom Reports Second Quarter Results

Viacom Inc. (NASDAQ: VIAB, VIA) today reported financial results for the quarter ended March 31st, 2019.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20190510005075/en/

Driven by The Daily Show with Trevor Noah, Comedy Central delivered its eighth consecutive quarter of share growth - up 12% YOY. (Photo: Business Wire)

STATEMENT FROM BOB BAKISH, PRESIDENT & CEO

“This quarter we executed strongly on our strategic priorities and made significant progress in advancing our evolution. We grew viewership share at our flagship networks, accelerated our Advanced Marketing Solutions and continued our momentum at Paramount Pictures. We also achieved important milestones in expanding our distribution across traditional, digital and mobile platforms, while dramatically improving our audience reach through the integration of Pluto TV. As the media landscape continues to segment across price points, we’re confident in our strategy, strong results and the opportunities ahead as we continue to position Viacom for the future.”

FILMED ENTERTAINMENT

Paramount Pictures delivered its ninth straight quarter of improved year-over-year adjusted operating income, largely driven by gains at the global box office and monetization of library IP.

• Adjusted OI increased by $20 million YOY.
• Total revenue declined 1%, as strong growth in theatrical and ancillary revenues was offset by lower licensing revenues.
• Theatrical revenue more than tripled, driven by strong carryover performance and current quarter releases.
  • Paramount has delivered three consecutive quarters of year-over-year growth in worldwide theatrical revenue.
• Licensing revenue was primarily impacted by the timing of TV production availabilities and comparisons to last year’s direct-to-SVOD release of certain films.
• Growth in worldwide ancillary revenue was primarily driven by a new music rights licensing agreement.

Operational Highlights

• Paramount continued its global box office momentum in the fiscal second quarter, driven by Bumblebee and What Men Want.
• Pet Sematary, released in FQ3 and adapted from Stephen King’s horror novel, performed well in theaters.
• Paramount’s film slate for the remainder of fiscal 2019 includes:
  • Rocketman, the highly anticipated biographical musical film about Elton John – debuting in the U.S. in May.
  • Dora and the Lost City of Gold, a live action film based on Nickelodeon’s Dora the Explorer franchise – scheduled for release in August.
• Paramount Television’s momentum continued, with 22 shows ordered to or in production.
  • Delivered critically acclaimed Boomerang to BET in the quarter, with a second season announced in April.
  • Producing a third season of Tom Clancy’s Jack Ryan for Amazon, as well as a second season of The Haunting of Hill House for Netflix.

MEDIA NETWORKS

Viacom Media Networks achieved meaningful distribution on new and existing platforms, while growing Advanced Marketing Solutions and viewership share across flagship networks.

• Domestic advertising revenue growth rate improved for the second quarter, driven by accelerating growth in Advanced Marketing Solutions (AMS).
  • AMS revenue increased 76% in the quarter compared to 54% in the fiscal first quarter, benefiting from the Pluto TV integration.
  • This year’s late Easter timing had a 1% unfavorable impact on the domestic ad sales growth rate.
• Domestic affiliate revenue declined due to SVOD library licensing, which was halted while finalizing Pluto TV’s content strategy. Contractual rate increases were largely offset by subscriber declines.
• International revenue was impacted by foreign exchange, macroeconomic headwinds in the U.K. and the timing of SVOD.
• The decrease in revenue from consumer products, recreation and live events resulted from softness in certain consumer product franchises internationally.
• Adjusted OI declined 3%, reflecting lower revenue, partially offset by the timing and mix of original program launches, and cost transformation savings.

Operational Highlights

• Viacom maintained the #1 share of basic cable viewing with key domestic audiences in the quarter, including the 2-49, 2-11, 12-17, 18-34 and African American demos.
• In Live+SD viewing, Viacom flagships grew share by 2% YOY.
  • Comedy Central delivered its eighth consecutive quarter of share growth – up 12% YOY.
  • MTV was the fastest growing network in primetime among the top 30 broadcast and cable networks, and increased share for the eighth straight quarter – up 5% YOY.
  • Paramount Network earned its second consecutive quarter of share growth – up 3% YOY.

• Viacom had more top 10 and top 30 original cable series in the quarter than any other cable family among key demos.
• Internationally, Channel 5 delivered its third consecutive quarter of growth in viewership share, while Telefe maintained its #1 position and grew share for the fourth straight quarter.
• Viacom Digital Studios (VDS) continued to grow digital consumption in the quarter, with original programming and content from flagship brands.
  • Video views grew 69% YOY to 6.4B and more than doubled watch time YOY with nearly 10B minutes viewed.
  • Comedy Central delivered its best quarter ever for digital video streams and watch time – up 40% and 71% YOY, respectively.

• Studio production continued to expand globally.
  • Awesomeness’ PEN15 premiered on Hulu to outstanding reviews, with a second season announced in May.
  • Awesomeness produced the recently released Netflix film, The Perfect Date, and upcoming Netflix series, Trinkets.
  • Viacom International Studios continued to grow its global footprint, with new production centers in Madrid and Manchester announced in April.

SPOTLIGHT ON DISTRIBUTION & PLUTO TV

Viacom advanced its distribution across traditional and virtual MVPDs, mobile and direct-to-consumer; expanded product line with Pluto TV acquisition.

In March, Viacom reached a new long-term deal with AT&T:

• Includes broad carriage of Viacom brands on DirecTV and U-Verse.
• Viacom has renewed or extended the vast majority of its subscriber base.

Expanded carriage on vMVPDs:

• Gained carriage on AT&T’s DirecTV Now Plus and Max offerings.
• Added to fuboTV’s live TV streaming service and Charter Spectrum TV Essentials.

Growing momentum in mobile:

• Announced a significant content distribution agreement as the cornerstone of T-Mobile’s forthcoming mobile video service.
• Added MTV, Nick and TV Land to AT&T Watch.
• Viacom International Media Networks (VIMN) launched MTV Play on U.K. mobile provider EE and Paramount+, a cross-brand streaming video service, on Telia in Finland.
  • VIMN now has 22 mobile-only content deals with 18 operators in 30+ countries.

Broadened SVOD and direct-to-consumer distribution:

• Nickelodeon’s Noggin crossed 2.5M subscribers globally.
• Noggin, Nick Hits, Comedy Central Now and MTV Hits will be offered as Apple TV Channels in the all-new Apple TV App for iPhone, iPad and Apple TV later this month, on Samsung this spring and on Mac this fall.
• In April, Paramount+ signed its first Latin American partnership with NET in Brazil and Claro video in the rest of Latin America, including on mobile.

Accelerated growth in free streaming TV with Pluto TV:

• At the end of April, monthly active users grew to approximately 16 million, up 31% since December 2018.
• Announced several new distribution and content deals:
  • Comcast recently announced the inclusion of Pluto TV in its Xfinity Flex service, and Pluto TV will be coming to Xfinity X1 soon.
  • Grew roster of 150+ content partners with recent additions of CNN, BBC and Major League Soccer.
• Viacom launched 14 library channels on Pluto TV, broadening the content offering to kids, women and African Americans.
  • Launching Pluto Latino, its U.S. Hispanic channels, in July.
• International plans include launches in Latin America and Switzerland, and expansion in the U.K., Germany and Austria.

BALANCE SHEET AND LIQUIDITY

Viacom continued its focus on de-levering the balance sheet and delivered improvements in free cash flow.

• At March 31, 2019, gross debt outstanding was $8.96 billion. Adjusted gross debt was $8.31 billion.
• For the six months ended March 31, 2019, net cash provided by operating activities increased $420 million to $719 million.
• For the six months ended March 31, 2019, free cash flow increased $407 million to $642 million.

About Viacom

Viacom creates entertainment experiences that drive conversation and culture around the world. Through television, film, digital media, live events, merchandise and solutions, our brands connect with diverse, young and young at heart audiences in more than 180 countries.

For more information about Viacom and its businesses, visit www.viacom.com. Viacom may also use social media channels to communicate with its investors and the public about the company, its brands and other matters, and those communications could be deemed to be material information. Investors and others are encouraged to review posts on Viacom’s Twitter feed (twitter.com/viacom), Facebook page (facebook.com/viacom) and LinkedIn profile (linkedin.com/company/viacom).

Cautionary Statement Concerning Forward-Looking Statements

This news release contains both historical and forward-looking statements. All statements that are not statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements reflect our current expectations concerning future results, objectives, plans and goals, and involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause future results, performance or achievements to differ. These risks, uncertainties and other factors include, among others: technological developments, alternative content offerings and their effects in our markets and on consumer behavior; competition for content, audiences, advertising and distribution in a swiftly consolidating industry; the public acceptance of our brands, programs, films and other entertainment content on the various platforms on which they are distributed; the impact on our advertising revenues of declines in linear television viewing, deficiencies in audience measurement and advertising market conditions; the potential for loss of carriage or other reduction in the distribution of our content; evolving cybersecurity and similar risks; the failure, destruction or breach of our critical satellites or facilities; content theft; increased costs for programming, films and other rights; the loss of key talent; domestic and global political, economic and/or regulatory factors affecting our businesses generally; volatility in capital markets or a decrease in our debt ratings; a potential inability to realize the anticipated goals underlying our ongoing investments in new businesses, products, services and technologies; fluctuations in our results due to the timing, mix, number and availability of our films and other programming; potential conflicts of interest arising from our ownership structure with a controlling stockholder; and other factors described in our news releases and filings with the Securities and Exchange Commission, including but not limited to our 2018 Annual Report on Form 10-K and reports on Form 10-Q and Form 8-K. The forward-looking statements included in this document are made only as of the date of this document, and we do not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. If applicable, reconciliations for any non-GAAP financial information contained in this news release are included in this news release or available on our website at ir.viacom.com.

SUPPLEMENTAL DISCLOSURES REGARDING NON-GAAP FINANCIAL MEASURES

We utilize certain financial measures that are not in accordance with accounting principles generally accepted in the United States of America (“GAAP”), including consolidated adjusted operating income, adjusted earnings from continuing operations before provision for income taxes, adjusted provision for income taxes, adjusted net earnings from continuing operations attributable to Viacom and adjusted diluted earnings per share (“EPS”) from continuing operations, to evaluate our actual operating performance and for planning and forecasting of future periods.

We also utilize free cash flow, which is a non-GAAP financial measure, because we believe the use of this measure provides investors with an important perspective on our liquidity, including our ability to service debt and make investments in our business.

In addition, because foreign currency headwinds can be significant and unpredictable and are outside of our control, we provide certain financial information on a constant currency basis, excluding the impact of currency fluctuations, in order to provide a clearer view of our operating performance. This information compares results between periods as if exchange rates had remained constant period-over-period. We calculate this information by converting current-period local currency results using prior-year period average foreign currency exchange rates.

We believe that each of these adjusted measures provides relevant and useful information for investors because they clarify our actual operating performance, make it easier to compare our results with those of other companies, facilitate period-to-period comparisons of our business performance and allow investors to review performance in the same way as our management. Since these are not measures of performance calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, operating income, earnings from continuing operations before provision for income taxes, provision for income taxes, net earnings from continuing operations attributable to Viacom, diluted EPS from continuing operations and net cash provided by operating activities as indicators of operating performance and they may not be comparable to similarly titled measures employed by other companies.

The following tables reconcile our results of operations reported in accordance with GAAP for the quarters and six months ended March 31, 2019 and 2018 to adjusted results that exclude the impact of certain items identified as affecting comparability (non-GAAP).

The following table reconciles our net cash provided by operating activities (GAAP) for the quarters and six months ended March 31, 2019 and 2018 to free cash flow (non-GAAP). We define free cash flow as net cash provided by operating activities minus capital expenditures.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190510005075/en/