Viacom Q1 Revenue Falls

Viacom Q1 Revenue Falls

Viacom Q1 Revenue Falls

The FINANCIAL -- Viacom Inc. on February 8 reported financial results for the first quarter of fiscal 2018 ended December 31, 2017.

Bob Bakish, President and Chief Executive Officer, said, "In the quarter, Viacom aggressively drove progress on our strategic plan, delivering improvements in our business and positioning the Company for the future. Viacom's most-watched portfolio of domestic cable brands grew viewership share in the quarter, led by our powerful flagship networks, which now includes Paramount Network - the biggest and most ambitious network rebrand in our history. Internationally, we continue to deliver double-digit top-line and bottom-line Media Networks gains while launching innovative new partnerships in growth territories around the world.

"Viacom has also made considerable progress in its push to accelerate consumption and monetization on next-generation platforms, achieving substantial growth in worldwide digital advertising revenues, expanding distribution on fast-growing virtual MVPD and mobile services, and ramping up resources and talent at Viacom Digital Studios. Additionally, since the end of the quarter, we continued to expand our digital capabilities with the acquisition of influence marketer WHOSAY and the world's premier online video event, VidCon. In addition, our strategy to further diversify our core properties off-screen through live events, hospitality and consumer products continues to progress, with the much anticipated Broadway premiere of the SpongeBob SquarePants musical in the quarter, along with new initiatives across our portfolio.

"We remain deeply committed to maintaining strong financial discipline and delivering returns for our shareholders. In the quarter, Viacom continued to improve its leverage profile and we are on track to achieve $100 million in new cost savings in the current fiscal year, and hundreds of millions more in 2019."

Revenues in the first fiscal quarter decreased 8%, or $251 million, to $3.07 billion, reflecting declines in Filmed Entertainment and Media Networks segments. Operating income increased 2% to $717 million, primarily reflecting lower total expenses including the impact of a $42 million restructuring charge recognized in the prior year quarter. Adjusted operating income decreased 4% to $717 million in the quarter. Net earnings from continuing operations attributable to Viacom grew 35%, or $139 million, to $535 million, principally due to the enactment of tax reform. Adjusted net earnings from continuing operations attributable to Viacom remained flat at $413 million in the quarter. Diluted earnings per share for the quarter increased $0.33 to $1.33, and adjusted diluted earnings per share decreased $0.01 to $1.03, according to Viacom.

MEDIA NETWORKS

Media Networks revenues decreased 1% to $2.56 billion in the quarter, as a 1% increase in advertising revenues to $1.31 billion was more than offset by a 4% decrease in affiliate revenues to $1.09 billion. Domestic revenues declined 6% to $1.93 billion while international revenues grew 18% to $631 million. Excluding a 5-percentage point favorable impact from foreign exchange, international revenues increased 13% in the quarter, primarily driven by a 6-percentage point favorable impact from the acquisition of Telefe, as well as growth in Europe.

Domestic advertising revenues decreased 5% to $937 million, reflecting lower linear impressions partially offset by higher pricing, as well as growth in digital advertising revenue. International advertising revenues increased 22% to $371 million. Excluding a 5-percentage point favorable impact from foreign exchange, international advertising revenues increased 17%, principally due to a 10-percentage point favorable impact from the acquisition of Telefe, as well as growth in Europe.

Domestic affiliate revenues decreased 8% to $907 million, primarily due to subscriber declines and lower SVOD revenues, partially offset by rate increases. International affiliate revenues grew 18% to $187 million in the quarter. Excluding a 5-percentage point favorable impact from foreign exchange, international affiliate revenues grew 13%, driven by organic growth, as well as a 2-percentage point favorable impact from the acquisition of Telefe.

Ancillary revenues grew 5% to $158 million in the quarter, including a 2-percentage point favorable impact from foreign exchange. Domestic ancillary revenues increased 8% to $85 million and international ancillary revenues increased 1% to $73 million.

Adjusted operating income for Media Networks decreased 7% to $913 million in the quarter, principally due to an increase in segment expenses and lower revenues.

Performance highlights:

Carriage of Viacom programming returned to Suddenlink. Charter agreement signed in the quarter and full re-penetration on Charter's Select (most highly penetrated) tier achieved as of February 2018.

Viacom Digital Studios launched in November 2017 to accelerate production of digital-native content with a goal of doubling digital consumption across Viacom flagship brands by fiscal year end.

Viacom International Media Networks continued its strong performance, delivering double-digit revenue and profit gains. VIMN also expanded and diversified its footprint, with the launch of the Paramount+ service in the Nordics, mobile deals in Asia and Latin America and the launch of Spike (free-to-air) in Italy.

Viacom continues to hold the #1 share of basic cable viewing in all key demos, including Adults 18-49 and Kids 2-11, among others. Worldwide video consumption on Viacom sites, mobile apps and connected devices grew 38% year-over-year.

In January 2018, Paramount Network launched in the U.S. to solid early results. Its dynamic 2018 slate features cinematic original series, including Waco, Heathers, American Woman and Yellowstone; fan-favorites Lip Sync Battle, Ink Master and Bar Rescue; all-new Bellator events and a broad portfolio of films.

MTV grew primetime ratings by 14% and primetime share by 25% year-over-year, becoming the 2nd fastest growing entertainment network in primetime among the 40 largest cable channels. Video consumption across MTV's digital properties increased 101% year-over-year as social video views grew 105%.

BET achieved a second consecutive quarter of double-digit ratings growth, up 16% year-over-year. The network, which has remained #1 with African Americans 18-49 for 16 straight years, finished the quarter with the two highest rated awards shows on cable: the Hip Hop Awards and the Soul Train Awards.

Nickelodeon remained at #1 with Kids 2-11 and 2-5 for the 10th straight quarter, and continued to expand its off-screen initiatives through SpongeBob SquarePants: The Broadway Musical; strong sales of Paw Patrol toys and other consumer products; and new offerings such as the SlimeZone VR experience.

Comedy Central delivered a year-over-year increase in audience share for the third straight quarter, with South Park maintaining its lead as the #1 primetime original comedy on cable for the fifth year in a row. Finishing January as the #1 entertainment cable network among millennial men, TV's top brand in comedy also announced the June return of Clusterfest to San Francisco after a strong 2017 debut.

VH1, TV Land and CMT each closed out the quarter with growth in ratings and share. VH1 achieved its 10th straight quarter of year-over-year ratings improvement, while TV Land and CMT recorded their highest-performing first quarters in three years.

FILMED ENTERTAINMENT

Filmed Entertainment revenues decreased 28% to $544 million in the quarter, with domestic revenues down 42% to $270 million, and international revenues down 6% to $274 million. Theatrical revenues declined 48% to $100 million due to the number and mix of current quarter releases. Domestic and international theatrical revenues decreased 49% and 46%, respectively. Licensing revenues decreased 13% to $213 million in the quarter. Domestic licensing revenues decreased 36% while international licensing revenues grew 8%, primarily driven by the mix of titles available in each market. Home entertainment revenues were down 25% to $183 million, principally due to the comparison against the release of Star Trek Beyond in the prior year quarter. Domestic home entertainment revenues decreased 38% while international revenues increased 1%. Ancillary revenues decreased 38% to $48 million, with domestic ancillary revenues down 49% and international ancillary revenues up 27%.

Filmed Entertainment reported an adjusted operating loss of $130 million in the quarter compared to $180 million in the prior year quarter, an improvement of $50 million that primarily reflects lower operating expenses.

Performance highlights:

Studio leadership continued to execute on its turnaround strategy to stabilize costs and strengthen its bottom line, improving year-over-year adjusted operating income by 28% in the quarter.

In November 2017, Paramount Pictures concluded two key production agreements with Hasbro and Skydance Media. The studio also signed a production pact with The Fast and the Furious producer Neal H. Moritz.

Paramount Pictures continues to ramp up its production slate with upcoming tentpoles (e.g., Mission: Impossible, Top Gun: Maverick, World War Z 2), branded films from Paramount Players (e.g., What Men Want, Dora the Explorer) and Paramount Animation (e.g., SpongeBob The Movie), and SEGA's Sonic the Hedgehog.

Paramount Television continued its success, recently announcing a limited series adaptation of Catch-22 for Hulu, co-directed, produced by and starring George Clooney, as well as a revival of Mark Burnett's boxing series The Contender for EPIX. In January 2018, The Alienist premiered as cable's #1 new drama series this season in Live +3, reaching over 13 million viewers on TNT. This year will also feature the third seasons of Shooter on USA Network and Berlin Station on EPIX, as well as the return of Netflix's 13 Reasons Why and the premiere of Tom Clancy's Jack Ryan on Amazon.

BALANCE SHEET AND LIQUIDITY

In the quarter, the Company continued to execute on its plan to strengthen its balance sheet, reduce leverage and enhance liquidity, redeeming over $1.0 billion of senior notes and debentures. At December 31, 2017, total debt outstanding was $10.19 billion, compared with $11.12 billion at September 30, 2017, a reduction of $930 million.

The Company's cash balance was $394 million at December 31, 2017, a decrease from $1.39 billion at September 30, 2017. In the quarter, net cash provided by operating activities decreased $147 million to $12 million.