Corus Entertainment Inc. (CJR-B.TO) Q1 FY2026 Earnings Call Transcript & Summary

Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Corus Entertainment Q1 2026 Analyst and Investor Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I will now turn the call over to Mr. John Gossling, CEO of Corus Entertainment. Mr. Gossling, you may begin your conference.

Thanks very much, Joelle, and good morning, and Happy New Year, everyone. Welcome to our fiscal 2026 first quarter earnings call. I'd like to remind everyone that we have slides to accompany today's call, and you can find them on our website at www.corusent.com under the Investor Relations-Events and Presentations section. I'll start off by drawing your attention to our standard cautionary statement, which can be found on Slide 2. We note that forward-looking statements may be made during this call, and actual results may differ materially from forecasts, projections or conclusions in these statements. We'd also like to remind those on our call today, in addition to disclosing results in accordance with IFRS, Corus also provides supplementary non-IFRS or non-GAAP measures as a method of evaluating the company's performance and to provide a better understanding of how management views the company's performance. Today, we will be referring to certain non-GAAP measures in our remarks. Additional information on these non-GAAP measures, the company's reported results and factors and assumptions related to forward-looking information can be found in our first quarter 2026 report to shareholders and the 2025 annual report, which can be found on SEDAR+ or in the Investor Relations-Financial Reports section of our website. Joining me on today's call are Jennifer Lee, who is our Chief Administrative and Legal Officer; as well as senior finance team members, Doug Spence and Ann Duggan, all of whom are outlined on Slide 3. All right. Let's move on to Slide 4, and I'll start with a brief update on the proposed recapitalization transaction, which was first announced this past November. On December 17, we received an interim court order, which authorizes us to proceed with concurrent special meetings of noteholders and shareholders to seek approval of the plan of arrangement for the transaction. This plan represents the culmination of a thorough strategic review that our Board launched in early 2024 with the help of leading financial and legal advisers. Following this very comprehensive process where we looked at a number of options and factors, the Board unanimously determined that this recapitalization transaction represents the best value option -- sorry, best viable option for Corus and our stakeholders at this time. The proposed transaction is expected to deliver substantial benefits by reducing total debt by more than $500 million, generating annual cash interest savings of up to $40 million, providing continued increased access to our secured lending facility and extending debt maturities by 5 years. This transaction is already strongly supported by several key stakeholders with over 74% of senior noteholders and more than 86% of Class A voting shareholders backing it. Importantly, this proposal also seeks to preserve as much value as possible for all stakeholders, particularly in light of the significant debt burden, the upcoming maturities of our credit facility and the $750 million of senior notes and the ongoing industry headwinds. Last week, we filed and mailed meeting materials to all security holders as of the record date, which was December 24, in respect of the meetings, which will be held later this month on January 30. The meeting materials provide comprehensive details on the proposed transaction, along with clear instructions on how to vote. We urge all stakeholders to vote early ahead of the June -- sorry, January 28 proxy deadline and to vote for this transaction. The dedicated proposed transaction page on our website also has more information on how to access materials, how to vote and information on who to call for assistance or more information about the process. All right. Now over to Slide 5 for a review of some key factors that contribute to viewing and advertising trends this fall and to provide highlights on the performance of our strong fall schedule. As mentioned on our last call, sports, particularly the Blue Jays playoff run in September and October, contributed to a temporary but significant shift in audience behavior. This impacted our specialty audiences in particular, as well as advertising buying patterns, all of which is similar to what we see during the Olympics. We saw audience momentum pick up notably once the World Series wrapped up, which set the stage for a return to more typical patterns across our networks. We are proud that Global emerged once again as the #1 network in core prime time post the baseball season with 11 of the top 20 most watched programs, including #1 reality series Survivor and proven franchises, 911, NCIS and FBI, all ranking in the top 10 plus new franchise extension Share of Country secured a top 20 ranking in its freshman run. Corus specialty channels also increased their presence in the rankings, reflecting the strength and broad reach of our portfolio. And in particular, W Network maintained its position as the #1 specialty entertainment destination this fall with Hallmark Channel's Countdown to Christmas again driving the success. History remains the #1 factual network with 8 of the top 20 specialty entertainment programs and Home Network and Flavour Network continue to be in the #1 and #2 lifestyle brand positions. In addition, our thoughtful rationalization of our kids specialty portfolio to better reflect viewer demand has resulted in some audience consolidation into our remaining kids brands. We saw YTV and for the first time ever Boomerang position within the top 20 networks this fall. These achievements underscore the effectiveness of our strategic programming decisions and the continued appeal of our brands to Canadian audiences. On the streaming side of the business, overall viewing continues to gain strength, hitting an all-time high in Q1 for hours streamed and monthly hours per monthly active subscribed user on STACKTV and Global TV app combined. STACKTV tuning has grown by 5% during the fall '25 season, primarily driven by video-on-demand, which was up 23% over last year. Our streaming offerings are full of potential, and the revenue team is working diligently to pursue attractive opportunities in this area. All right. Turning to Slide 6. Let's take a look ahead to our exciting impact winter schedule. Global announced a robust slate of premieres anchored by the landmark 50th season of Canada's #1 reality series Survivor. The mid-season lineup features exciting new additions, including drama series, CIA, and expansion of the FBI Universe, reality Competition debut America's Culinary Cup and True Crime series, Harlan Coben's final Twist. Rounding out the schedule, several of the most watched series returned with new seasons of the top 20 ranked series, Matlock, Elsbeth, NCIS Origins and Share of Country. In addition, the fall's #1 new comedy, DMV and Emmy award-winning comedy Abbott Elementary also returned. Over to Specialty, showcase unveiled new titles in this lineup, including Peacock Originals, the Copenhagen Test and Ponies. W's Network features new Peacock Original series, The Burbs and the Comedy Z Suite, probably Z Suite actually, alongside returning favorites, The Chicken Sisters, When Calls the Heart and Outlander. Flavour Network continues to deliver fresh culinary content with new seasons and series, including Worst Cooks in America, Gordon Ramsay's Secret Service, The British -- Great British Baking Show, Professionals and Stanley Tucci's Searching for Italy. Over on Home Network, we welcome Property Pros, Kirstie Allsopp and Phil Spencer with Season 10 of Love It or List It U.K. and the History Channel introduces gripping new series, History's Deadliest with Ving Rhames. Overall, this diverse and dynamic lineup underscores Corus commitment to delivering compelling fresh content together with the hits that engage audiences across all of our platforms. All right. Moving on to Slide 7. I'll briefly note that with the ongoing limited visibility on multiple fronts, including ongoing volatility in the macroeconomic, regulatory and competitive environments, we do not believe it's appropriate to provide specific quarterly outlooks at this time. We are very focused on our strategic plans, including completing the recapitalization transaction and remain focused on disciplined cost management and execution of value-enhancing actions and opportunities. With that, I'll turn it over to Doug to review the financial results.

Thanks, John. Consistent with the outlook for TV advertising we provided on the Q4 call, our first quarter results reflect the continuation of trends in the broader advertising market related to linear TV demand, oversupply of digital inventory and macroeconomic conditions. In addition, lower subscriber revenue reflects the discontinuation of 7 specialty channels since Q1 of last year, declines in the linear business and ongoing disputes with certain distributors. TV advertising revenue was in line with our prior outlook with a decline similar to Q4 of fiscal 2025. This combined with the lower subscription revenue, contributed to consolidated revenue of $268 million for the quarter, an 18% increase from the prior year. Consolidated segment profit was $57 million for the quarter, reflecting the revenue decline, partially offset by the benefits of our cost reduction initiatives. For the first quarter, these resulted in a 16% reduction in general and administrative expenses. This was at the top end of our Q1 outlook of 10% to 15% and includes a decrease of 10% in employee costs. In addition, lower amortization of program rights and film investments resulted in an 11% decrease in direct cost of sales. Combined, these helped to drive total expenses lower by $32 million or 13% for the quarter, reflecting meaningful progress on our cost reduction commitments and efforts to rightsize our business. The consolidated segment profit margin was 21% for the quarter, down from 26% last year. Free cash flow was negative $54 million in Q1. This reflects the lower segment profit, higher net investment in program rights and film investments and proceeds from a sale of property in the prior year. Program rights, in particular, were impacted by the timing of certain billings and program premieres in the current year, and this was partially offset by discontinuation of certain program rights related to TV portfolio changes in the prior year. At the end of our first quarter, we were in compliance with all covenants and had approximately $45 million of cash and cash equivalents and $35 million available to be drawn under our revolving credit facility. Net debt to segment profit increased to 7.39x at the end of the first quarter compared to 6.01x at the end of last year, driven by the lower segment profit and higher debt balances. As John mentioned, we continue to focus on opportunities to further offset lower revenue while delivering on our longer-term strategic objectives. This includes progressing our proposed recapitalization transaction to strengthen Corus' financial position and support a sustainable business strategy. Moving to Slide 8. TV segment revenue was $245 million for the first quarter, down 19% from the prior year. This was mainly driven by lower TV advertising revenue, which declined 23% to $135 million and subscriber revenue, which declined 15% to $99 million. When we normalize for the sunset of 2 specialty channels in December 2024 and 5 additional channels at the start of the first quarter, combined with ongoing disputes with certain distributors, subscriber revenue for the quarter was down 3% compared to last year. Distribution production and other revenue was 2% lower for the quarter, driven by a pause in production in our animation studio as part of our cost containment efforts. TV segment expenses were $189 million in the quarter, down 13% from the prior year, driven by an 11% reduction in direct cost of sales and a 16% decline in general and administrative costs. Direct cost of sales benefited from the channel portfolio changes mentioned earlier as well as reduced costs associated with certain digital sales initiatives. The savings in general and administrative costs reflected management's ongoing focus on cost containment. Overall, TV segment profit declined 35% in the first quarter, mainly reflecting lower revenue, partially offset by the benefit of expense savings from significant ongoing cost reduction initiatives as we work to mitigate the impact of lower revenues. TV segment profit margins were 23% in Q1 compared to 28% last year. Moving to Slide 9. Radio segment revenue of $22 million for the quarter decreased 4% from the prior year period due to lower advertising demand. From a category perspective, Q1 saw declines in government or political spending and professional services but saw increased pharmaceutical advertising as well as benefiting from resilient revenues in the retail, entertainment and automotive categories, which have historically been significant advertisers on radio. Radio segment profit increased to $5 million, up 38% in the quarter, with cost containment measures more than offsetting the lower advertising demand. Radio segment profit margin improved significantly to 24% in Q1 compared to 16% last year, benefiting from our cost reduction initiatives. I'll now turn it over to Jen for comments on the regulatory environment and recent developments.

Thanks, Doug. Turning to the regulatory side. You'll recall we actively participated in multiple important processes last year related to the implementation of the Online Streaming Act. Right now, we are essentially in a wait mode as we look to the CRTC to finalize key parts of the new regulatory framework for all broadcasting. That's digital and linear, domestic and foreign. In addition, we are waiting for a final judicial decision that will allow us to receive our full amount of independent local news funding. Overall, what we need to see is final refreshed rules governing broadcasting distribution and spending in Canadian programs. These policies impact Corus' future operating conditions, which is why we've been so engaged in the processes and advocated so strongly for change. Years of slow progress or an action on this front have deepened competitive imbalances for Corus and other independent broadcasting companies, including with foreign streamers and domestic vertically integrated distributors. Updates to frameworks that govern not only digital players, but also market dynamics, including disputes and negotiations among broadcasters and distributors, foreign and domestic are very important to Corus and the future of our business. We are undeniably a highly regulated industry, and we are not calling for all rules to be repealed. Rather, what we're seeking is smarter rules that promote fair competition in the sector and better serve all Canadians. CRTC has taken some important steps since parliament passed the Online Streaming Act in 2023 to advance policies and rules for the industry. And the regulator must urgently conclude that work. This is about seeing through the long-needed actions to truly support, strengthen and create a realistic future for Canadian broadcasters. Now is not the time to slow down or turn back.

Thanks, Jen. Just to echo what you've just said, Ottawa project of leveling the playing field for Canadian broadcasters and update the way that rules are enforced and disputes are resolved. All of this is critical to our sector and to Corus' business and operations. Our ability to keep bringing news to communities across the country and produce popular beloved Canadian shows is highly dependent on our ability to also successfully distribute our channels broadly on linear and digital. We continue to shift with audience and viewer habits, growing our digital offerings, including on STACKTV and on FAST channels with more in the works. But in reality, the current broadcasting rules do not do enough to create a fair playing field for independent Canadian broadcasters like Corus and need urgent updating to support our business in the future. As we noted during the CRTC's market dynamics review last year, existing regulatory tools are an insufficient check on anticompetitive behavior by big distributors, streamers and dominant players. We need rules that do more to promote fair dealings in the broadcast sector, so all Canadian companies have a real chance to compete. On our part, we are very focused on the areas most squarely in our court, growing our products and services in light of the future of broadcasting, rightsizing our cost structure and, of course, on the proposed recapitalization transaction. In keeping with our practice of transparency and frankness, I want to emphasize that this proposed plan is particularly important because without the recapitalization transaction or in the event it is not completed on the terms and time line currently contemplated, we could be forced to look at alternatives that likely offer no consideration for many of the stakeholders. As such, I reiterate that the Board has strongly encouraged all security holders to participate in the upcoming vote and to vote for the proposed transaction. It represents our best and most viable option to help Corus build a stronger future for all. Before turning it over to questions, I'd like to thank our incredibly talented and dedicated teams here at Corus, our Board members and our many business partners and clients for their ongoing commitment and support. And with that, back to you, Joelle, for questions.

[Operator Instructions] Your first question comes from Adam Shine with National Bank Financial.

John, just beyond the vote at the end of this month, if we look ahead to obviously a pending CRTC approval, I mean, when do you think that might happen? Do you think you might get an expeditious review pursuant to some of the urgency you just alluded to?

Thanks, Adam. Sure. We've obviously been in conversations over the last little while on that matter. And it's very hard to predict. You've seen many of these in the past where the time line is not particularly clear and can end up getting extended. But we're certainly looking for an expedited review. We've made that clear. Part of that will be on us, obviously, to provide the requested information, and that process is all happening right now. So it's very, very hard to predict, as you know, but we're going to try to move that along as quickly as we can.

Okay. I mean, historically, these have been probably within a 6-month sort of time frame. So one way or another, we're looking at somewhere around May-ish, subject to any delays into the summer, right?

Ideally, that time frame would be great. I just don't know that we can predict that at this point.

Okay. Also, in terms of difficulty and prediction going back to Jen's comments on the pending final decision on the ILNF, any potential time frame there? And maybe you can just remind us of the buckets of dollars you're expecting and whether that potentially has changed in any particular direction?

I'll let Jen answer that one.

Yes, it's a quick answer, Adam. Unfortunately, we don't have any insight into that. As you know, the decision is pending with the court. So we don't have any particular insight. Again, on that same front, nothing to imply or indicate that the buckets, as you said, would be changing. CRTC did confirm our eligibility back in June, and we're just waiting for the streamer portion to come through.

Yes. Just a reminder there, we're capped at 48% -- 45%, sorry, of whatever that amount is. And of course, the amount is changing because I would imagine the streamer revenues are increasing in Canada. So that one is a bit of a moving target. But I think the CRTC did have a number of around $50 million or over.

$40 million related to the streamer contribution, and we would be capped at 45%.

Right. And then there's also the money that comes from the traditional distributors. But we are receiving that and that's in Q1, that's the amount there. So yes, it's still -- again...

[Operator Instructions] Your next question comes from Vince Valentini with TD Cowen.

I understand you don't want to give specific quarterly guidance. But given as we move into the second quarter, there's no longer the Blue Jays World Series run and you should be lapping some periods that already fell off quite a bit last year. Of course, we've got the Olympics towards the end of the second quarter, that was maybe an offset. Is there any reason to think that you can't do a little bit better on advertising revenue in Q2 versus what we just saw in Q1?

Well, Vince, that's always the goal, right, is to improve -- flatten the slope of the decline. You're right. There's a headwind with the Olympics. We see that every 2 years essentially, although the Winter Olympics are probably a bigger impact given that they're right in the middle of our winter schedule. But I guess the other slight headwind is we did have elections last year. Ontario was in Q2. It was a few million dollars of additional advertising revenue. It's not huge, but that will certainly not help. But you're right, it seems like there should be the ability to improve what that trajectory looks like, but it's very hard to say at this point.

Okay. That's fair, John. And second, this dispute with a distributor, is there a major distributor that is just not paying you for your specialty channels at this point? Or can you elaborate on what that dispute is?

Yes, we probably don't want to get into that in too much detail. But yes, there are major distributors that we were having that situation with. So look, our view is that we're very, very certain of our position and that we are at the money. But until we get to the position of having the money, it's very difficult for us to record that. So that's why that's come up this quarter. But we probably don't want to get into anything detail as this is still all in front of the regulator.

So this is regulator, not courts that have to decide this?

Well, it could be both.

Okay. And last one, the working capital outflow was pretty meaningful in the first quarter. Are there some timing issues here that we could see reverse a bit in Q2 or later in the year?

Yes. You'll always see a reversal of just sort of a natural reversal in Q2. I think a couple of things come to mind in Q1. One, there was more cash taxes this year than last year, and that runs through the working capital line. So that's not quite $10 million, but that's an item. And then I'd say at the end of November, we were a little bit short on some payments that came in, in the first day of the second quarter. And again, that's not probably quite $10 million. So those 2 items combined hurt the working capital in Q1, but those will certainly reverse as we go forward. So that was part of what was happening. I mean the working capital number year-over-year is relatively stable. But within that, there's a lot of moving pieces, and those 2 actually hurt us. So we would expect some recovery there.

There are no further questions at this time. I will now turn the call over to Mr. John Gossling for closing remarks.

All right. Thank you very much, operator. A brief call today. I know everybody is busy, and we'll take a little poll here to determine the metal standing of the 2 questions today. But just to remind everyone again, please be sure to review the materials if they are in front of you for the recapitalization transaction. And your proxy vote is very important. And the sooner that, that can come in, the better, obviously. And by all means, just please do vote because it is very important to us and our future. Thanks, everyone.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.