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Viacom Reports Second Quarter Results

Loudhouse ViacomViacom Inc. (NASDAQ:VIAB, VIA) reported financial results for the second quarter of fiscal 2017 ended March 31, 2017.

Bob Bakish, President and Chief Executive Officer, said, “In the second quarter, Viacom delivered continued top-line improvement, with growth in affiliate revenues, international media networks and across every business segment of Paramount Pictures. Additionally, we executed quickly on our strategic plan, making significant organizational changes to better focus and align Viacom’s brand portfolio and ensure strong leadership, including the appointment of Jim Gianopulos to chart a new course at Paramount. We are working diligently to cement Viacom as a partner of choice in the industry, presenting new and reinvigorated brand strategies for our advertisers, producing creative and flexible new opportunities with our distributors and recommitting ourselves to be the home for the world’s best talent.

“Viacom also took significant steps forward on our plan to strengthen our balance sheet, improve our leverage profile and enhance liquidity. Since the end of our first fiscal quarter, we completed a successful hybrid debt offering, redeemed outstanding debt and executed on the sale of non-core assets, including the pending sale of our stake in EPIX. There is a lot of work still to do, but we are making important changes at Viacom, taking substantial strides towards revitalizing our portfolio of brands and returning the company to consistent top-line growth.”

FISCAL YEAR 2017 RESULTS

(in millions, except per share amounts)

Quarter Ended
March 31,

B/(W)

Six Months Ended
March 31,

B/(W)

2017

2016

2017 vs.

2016

2017

2016

2017 vs.

2016

GAAP

Revenues

$ 3,256 $ 3,001 8 % $ 6,580 $ 6,155 7 %
Operating income

332

586

(43 )

1,038

1,425

(27 )
Net earnings attributable to Viacom

121

303

(60 )

517

752

(31 )
Diluted EPS

0.30

0.76

(61 )

1.30

1.89

(31 )

Non-GAAP*

Adjusted operating income

$

612

$

586

4

%

$

1,360

$

1,425

(5

)%

Adjusted net earnings attributable to Viacom

317

303

5

%

730

773

(6

)

Adjusted diluted EPS

0.79

0.76

4

%

1.83

194

(6

)

* Non-GAAP measures referenced in this release are detailed in the Supplemental Disclosures at the end of this release.

Revenues in the second fiscal quarter were $3.26 billion, an increase of 8%, or $255 million, compared to the previous year, reflecting gains across all Filmed Entertainment revenue streams, increases in worldwide affiliate revenues, and continued strength in international Media Networks revenues. Operating income decreased 43% to $332 million, and adjusted operating income increased 4% to $612 million. Reported operating income reflects restructuring and programming charges of $280 million resulting from the execution of new strategic initiatives, including the prioritization of six flagship brands: BET, Comedy Central, MTV, Nickelodeon, Nick Jr. and Paramount. Net earnings attributable to Viacom decreased to $121 million, and adjusted net earnings attributable to Viacom increased to $317 million. Diluted earnings per share for the quarter declined to $0.30, and adjusted diluted earnings per share increased to $0.79.

MEDIA NETWORKS

Media Networks revenues increased 1% to $2.39 billion. Excluding foreign exchange, which had a 1-percentage point unfavorable impact, worldwide revenues increased 2%. Domestic revenues declined 2% to $1.92 billion, while international revenues grew 11% to $478 million. Excluding foreign exchange, which had a 7-percentage point unfavorable impact, international revenues increased 18%. The gains in international revenues were driven by growth in Europe and the acquisition of Telefe, which had a 10-percentage point favorable impact.

Affiliate revenues grew 2% to $1.16 billion, with domestic and international affiliate revenues increasing 1% to $975 million and 10% to $181 million, respectively. The growth in domestic revenues principally reflects rate increases, partially offset by a modest decline in subscribers and a decline in revenues from SVOD and other OTT agreements. Excluding foreign exchange, which had a 4-percentage point unfavorable impact, international affiliate revenues increased 14%. The increase in international revenues reflected the impact of rate increases, subscriber growth and new channel launches, as well as higher revenues from SVOD and other OTT agreements. International affiliate growth included a 4-percentage point favorable impact from the acquisition of Telefe.

Advertising revenues decreased 1% to $1.11 billion. Worldwide advertising revenues increased 1%, excluding a 2- percentage point unfavorable impact from foreign exchange. Domestic advertising revenues decreased 4%, driven by higher pricing more than offset by lower impressions. International advertising revenues increased 11%. Excluding foreign exchange, which had an 11-percentage point unfavorable impact, international advertising revenues grew 22%. The gains in international advertising were driven by the acquisition of Telefe, which had a 17- percentage point favorable impact, and continued growth in Europe.

Ancillary revenues remained flat at $129 million in the quarter. Domestic ancillary revenues decreased 8% to $70 million while international ancillary revenues increased 11% to $59 million.

Media Networks reported adjusted operating income was $747 million, a decrease of 7% compared to the second fiscal quarter of 2016. Higher revenues were more than offset by advertising and promotion costs and increased SG&A expenses related to the acquisition of Telefe.

Performance highlights:

  • Nickelodeon achieved year-over-year ratings growth of 6% with kids 6-11 and 5% with kids 2-11. In the quarter, the network also had 10 of the top 10 TV shows with kids 2-11 and 6-11, and four of the top five shows with kids 2-5.
  • Comedy Central’s The Daily Show with Trevor Noah – the number one daily late night show with millennials – delivered its most-watched quarter to date, and digital viewing was up 37% versus the prior year, marking its best quarter ever for digital consumption.
  • In March, Viacom announced programming for the launch of the Paramount Network in 2018. Four original productions (American Woman; Heathers; Waco; and I Am Martin Luther King, Jr.) will premiere in the second fiscal quarter along with new seasons of Lip Sync Battle; Ink Master; and Bar Rescue; and new events from Bellator MMA.
  • VH1 continues its resurgence with a seventh consecutive quarter of year-over-year ratings growth, while TV Land and CMT achieved their best quarterly ratings in three years.
  • Telefe was Argentina’s monthly ratings leader in every major time period, while Colors in India co-led primetime ratings across Hindi general entertainment channels in the quarter.

FILMED ENTERTAINMENT

Filmed Entertainment revenues grew 37% to $895 million, reflecting gains in theatrical, licensing, home entertainment and ancillary revenues. Domestic revenues increased 25% to $458 million in the quarter, while international revenues increased 51% to $437 million.

Theatrical revenues rose 10% to $238 million, with revenues from current quarter releases up 73% compared to releases from the second quarter of fiscal 2016. Domestic theatrical revenues decreased 45%, while international theatrical revenues grew 98%, reflecting the strong international performance of xXx: Return of Xander Cage. Foreign exchange had a 3-percentage point favorable impact on international theatrical revenues.

Licensing revenues increased 45% to $347 million in the quarter, primarily driven by Paramount Television production, as well as higher revenues from licensing arrangements with pay television and SVOD distributors. Domestic licensing revenues grew 85%, while international licensing revenues increased 24%.

Home entertainment revenues increased 29% to $198 million in the quarter, reflecting the number and mix of current quarter releases. Domestic and international home entertainment revenues increased 23% and 49% respectively. Foreign exchange had a 5-percentage point unfavorable impact on international home entertainment revenues.

Ancillary revenues increased 149% to $112 million, primarily driven by the sale of a partial copyright interest in certain current year releases related to a film slate financing arrangement. Domestic ancillary revenues increased 158% to $93 million while international ancillary revenues increased 111% to $19 million.

Filmed Entertainment reported an adjusted operating loss of $66 million in the quarter compared to $136 million in the prior year quarter. The improvement principally reflected the various revenue increases, partially offset by higher operating expenses.

Performance highlights:

  • In March, Viacom announced the appointment of industry veteran Jim Gianopulos, as Chairman and CEO of Paramount Pictures, whose responsibilities include the implementation of a new strategic plan for the studio.
  • Paramount achieved significant revenue gains across all of its business units: theatrical, home entertainment, licensing and ancillary.
  • xXx: Return of Xander Cage showed global strength, grossing more than $346 million at the worldwide box office.
  • Paramount Television continues to build on its growing success as a premier content producer, delivering multiple hits including original series 13 Reasons Why and Shooter.

BALANCE SHEET AND LIQUIDITY

At March 31, 2017, total debt outstanding was $12.19 billion, compared with $11.91 billion at September 30, 2016. In the quarter, the Company continued to implement its plan to strengthen its balance sheet, reduce leverage and enhance liquidity, issuing $1.3 billion of hybrid securities, redeeming $1.4 billion of senior notes, and executing on the sale of non-core assets, including the pending sale of our stake in EPIX.

The Company’s cash balance was $671 million at March 31, 2017, an increase from $379 million at September 30, 2016. In the six months, net cash provided by operating activities increased $121 million, or 43%, to $405 million, free cash flow increased $80 million, or 35%, to $310 million and operating free cash flow increased $113 million, or 49%, to $343 million.