Versant Media Group, Inc. (VSNT) Earnings Call Transcript & Summary

Yes. So there's -- it's a great question. There's a little distinction here for us in our cable network brethren and local stations. So local stations, as you know, and I'm going back to my days when they get a lot of bespoke political ad dollars from specific campaigns given it's kind of geographically targeted. And that can be at the very local level as a kind of minor rate up to [indiscernible] and presidential. And obviously, purple states tend to attract the most money. For us, we get some political monies in. There could be some packs, for example, that are relevant nationwide sometimes you'll even see and you'll get some presidential election money like in the midterm, where it's more state-by-state or congressional district by district, maybe you get a little bit on like a very big state, and they don't mind the fact that it's shown to a lot of folks who can't vote in your relevant state, but you don't get that much of it. again, there's always a little bit of nuance because you have the virtual MVPDs, and they can target more specifically? There's some of it coming in through there. But again, not to the same extent as the local stations. The uplift we see is more what you mentioned as 1 of the other venues, which is just ratings lift. We definitely see that. There's a ton of interest in the midterms. And as we mentioned, 9 consecutive months of growth. a chunk of that is, we think for editorial decisions, but some of it is just the overall market where there's a lot of interest in it. So there's more inventory to sell -- we sell that to everybody. So a little bit may go to specific political ads, but a lot of it is kind of nonpolitical players who are interested in reaching the audiences that we get. And that's -- and again, that's true both on TV, which we've talked about, but also true on digital platforms like msnow.com. We'll get that -- and again, there, we can target as well to some extent. So we'll get some political, but we're less dependent on that specifically than maybe other folks in the political ad ecosystem.

Great. That's very clear. Maybe just zooming out and just asking about the overall advertising environment and the health of the overall market. How would you describe advertiser demand across news, sports, general entertainment, and how is scatter pricing behaving? Is it healthy market? Or do you see some pockets where there may be some concerns?

So right now, it has remained quite healthy. We're seeing strong demand really across the portfolio. I know it's always it's an area where there's clearly a lot of geopolitical kind of instability or uncertainty. And so I think we get asked this a lot about. There's a little bit of an undercurrent of, well, is there something -- could it change? And sure. I mean it could. This is it -- but it hasn't. And some of that uncertainty has been there now for a bit. And I do think part of what we're seeing across the board, and you're seeing a lot of strength on television is in the fragmented world that we live in with media fragmentation, those places that can aggregate audience have become more and more valuable. And I think even in a world where maybe there's uncertainty and people want to spend a little closer in, they're first allocating the money to these big audience platforms like television, and we've seen that consistently. And right now, we don't see any signs of that changing. Great. Maybe we can pivot and talk about the platforms business. I believe the current revenue growth guidance is for high single digits on an underlying basis. But there's also been a lot happening underneath the hood of the overall platform umbrella with the acquisition of full swing and the divestiture of sports engine.

So maybe that's a good place to start. Talk a little bit about that acquisition and the divestiture and how you view the overall platform's business?

Sure. let me start with the acquisition. So we bought full swing. We're super excited about it. And let me -- maybe I'll start with a little bit of why did we buy? What was the rationale? And it's I think a pretty -- for us, it's a very emblematic of how we approach M&A. We're very disciplined in how we look at inorganic opportunities. our [indiscernible] is the -- we really they should be in 1 of the 4 markets that we're in. And again, that's personal finance business use, CNBC, political news and opinion, golf and then a broader one, [indiscernible] entertainment and sports. This clearly was right in obviously, golf. And the reason each of those is important is in those markets, we have big brands, we attract very sizable audiences who engage with us and who trust us. And so there's a lot of value we can bring to assets there, and these are markets we know. So if you look at full swing, particularly as we were getting to CB opportunity, for those of you who are not familiar, it's a golf simulator and golf consumer technology company. So it is really tapped into kind of the large part, the indoor golf market. So as we look at this, a, the fundamentals of the market are great. There's 36 million, I believe, kind of what are called off-course golfers. So folks who golf, but they go it could be a top off, a full swing back [indiscernible] -- sorry, back 9 those kind of establishments [indiscernible] is what I meant to say is another one. And so growing market, and that $36 million is like -- I think it's like up 60% since 2019. There's more off course golfers than on course. So market fundamentals are great, and it's a growing business. And then you plug it into our assets, the Golf Channel, Golf down. We have the #1 media platform. We reach more golfers really anybody else to drive awareness and adoption of the service. On Golf Now, we already have great relationships with tons of golf courses, a lot of those off-course golf operators, they use golf -- now software to kind of book reservations or to be able to secure time at their facilities. So we know them. So we're able to, again, to both sides, drive the commercial channel and residential channel to drive a ton of value from a go-to-market perspective. And for full swing, they have tons of customers that are both commercial customers as well as residential. So we uniquely were able to drive tons of synergy value to this business, and that then translated to a very attractive kind of financial profile in terms of the returns we would generate. So that's for us, as we were kind of thinking about like from a M&A lens or from a platforms business starting there, how we thought about, okay, like this is really a great fit and what it enables us to do enable us to drive a lot of value. And then I think you would also ask like how do we think overall about platforms. We're very bullish on the core underlying Fandango and Golf. Now businesses, putting full swing aside are doing great. As we talked about high single-digit growth, we've delivered 9% in Q2, 9% in Q1. And we are very bullish on that business. There's still a ton of room to grow. We're still at like only less than 10% of total [indiscernible] booked on Golf Now, so a lot of room to grow share and similar story in Fandango. And so -- and then finally, on Sports engine, the other question you asked this on kind of the disposition I think for us, we want to be great stewards of capital. As we looked at sports engine in our portfolio, it was a time either you're going to be a buyer or a seller, it's a consolidating market. all of the things I just mentioned on full swing, how it kind of fits in with the asset portfolio, we couldn't convince ourselves. It was the same with SportsEngine in the rest of the portfolio and the synergies we could drive to it. And so without the value maximizing approach there in this time was to sell. And so that's what we did.

Great. And that's a great transition to the next question. which is just about Versant's goal to generate 50% of its revenue from non-pay TV sources over time. Maybe talk a little bit about why that's a critical goal and an important goal to have just as you think about the kind of long-term EBITDA and free cash flow trajectory of the company. And what are some of the milestones that you're looking out for over the next 12, 24, 36 months to make sure you're on track to achieve that goal?

Yes. Yes. So we put that kind of objective, and we've talked about it because, a, we think it is a good representation of the opportunity we have. A, we're not -- we are aware of the secular changes facing Pay TV. We think we're really well positioned within the market, but those changes are happening. And I think it would be kind of -- we're honest with ourselves on that -- and I think for us, though, we recognize that there was just opportunity like we just talked about with Golf Now. We've built this business and the brand strength and the audience strength we have, to kind of expand and kind of expand vertically and to provide consumers more and more utility on various other platforms. And in those 4 markets for those brands, we think 50% is a goal that is achievable. And again, it's not a number just kind of pulled out of the air, like we saw it, and we saw it in golf. So we look at that metric in each of those 4 verticals I mentioned. And today, in golf, actually, over half of the golf revenue now has nothing to do with the golf channel. It's actually golf now. And I'm not even talking about pulsing. It's over half before full length, even now going to be greater wood full swing. So I think we've demonstrated that you can do it. The playbook will be maybe -- will not be the exact same in each market. But I think since we demonstrated we could do it and with the strength of the brands, we thought that was an achievable goal that evolution, we think also makes the business even stronger. Because as you harness the core assets and the brands, it's a pretty efficient way to kind of drive margins and to drive audience scale and to kind of take a business that has on the trajectory for long-term growth. So that's the reason that we have why we think it's the right objective. In terms of our progress, and we mentioned in like 3 to 5 years being at 3% -- we're making steady progress against it. I think what we're looking for in the next, you mentioned 12, 18, 24 months is, we have a lot of initiatives in play that kind of are turns objective, whether it's the CNBC D2C launch. We've talked about MS NOW D2C, Fandango AVOD, integration of full swing, the launch of like Fandango 1, which is what we used to be called INDY Cinema, which is a software service for exhibitors, every 1 of those, a lot of organic, some inorganic. To kind of show them start to scale. And we're seeing good results. It's early, like the early results on Fandango AVOD are good. The D2C launches tomorrow, but it's to continue to kind of launch them and to see audience scale and then monetization will follow audience scale.

And these all feel like relatively, I'll call them low-hanging fruit because of the kind of capital allocation fight that you had to do within broader Comcast, right?

Yes. I mean 1 of the things we're focused on too is each of these we can execute capital very efficiently from a capital perspective because they are the products of the scale we have, like the organic ones harness our internal capabilities, like we already have infrastructure. We have video infrastructure. We have the technology. We have, obviously, the talent and the brands to use. So we're able to do them so that you're not going deep in the hole with kind of a bet on the come, but rather pretty efficient, modest investment for, we think, sizable opportunities. If I could just jump back to platforms for a moment. As you talked about, the outlook is for underlying high single-digit revenue growth for platforms.

But with the portfolio changes, I guess, on a reported basis, are you on track to do better than the high single digits just because my suspicion would be full swing will be accretive relative?

Yes. I mean -- so we're going to disclose and report such that we can show the A that we can show the underlying because we just want to be transparent on that. And like fulling is growing rapidly. There's a whole bunch of puts and takes here because there was a few months where we didn't have sports engine nor full swing, we have neither. And then there's going to be months then where we'll only have full swing towards the back end and it was early months with sports engine. So I think the numbers are going to kind of -- because they're apples and oranges like, yes, like in the back end of the year, where you're including full swing, it's going to -- like nominally, it will -- could look really, really strong, but we didn't think that was really representative of the kind of underlying performance. So we're very focused on the underlying. And in that visibility, like I think you'll see how each component is working.

Great. That's perfect. Last quarter, the second quarter, you raised full year revenue guidance and EBITDA and reiterated free cash flow dynamics. Just wondering like how you're pacing against those full year goals and anything that you would highlight maybe happening intra-quarter.

Yes. So first, on the full year, we're like we feel really good about the business. We wouldn't have raised guidance, obviously. If we didn't -- and the fundamental thing on the guidance, that's nothing to do with the ins and the outs of full swing or SportsEngine. It's it's the foundational like the momentum we have, all the ratings I mentioned before, and that's translating to great advertising. We've got the distribution renewals like on the terms we expected. So that that was ran us again, not a surprise. So it's based off of the fundamentals. In terms of the quarters -- and we mentioned this, for those of you who had Jane listened to our call on Q2, there is going to be a quarterly trajectory, which we've always known when we issued guidance, we -- this was embedded in there that the back end of the year has some different sports timing, it's in Q3 and 4 and especially in Q4. There's a different volume specifically of like NASCAR events year-on-year that affect our financials that are going to be represented in our results. In fact, we were pretty explicit that we're not expecting Q1 and Q2, we grew EBITDA, we're not expecting to grow EBITDA in the back end of the year. That's all embedded in the guidance that we gave. If you take [indiscernible] you abstract from the sports timing, which is kind of endemic to our industry, the fundamentals of the business are great. We feel very good about kind of how things are going going to continue going forward. Like we're bullish. We have very good visibility. Our distribution deals now with the renewals we've done, like 2/3 of them are not until '28 and beyond, we also have like very good visibility in the sports rights. A lot of our sports rights go past 2030. We have a few renewals sooner, but like I said, many are past that. We don't have any kind of big renewals in now or 2027. So that's helpful as we kind of look at the future of the business.

Great. On capital allocation, Versant generates substantial free cash flow you're reporting a quarterly dividend, you have a buyback authorization. Can you just talk a little bit about what are the priorities for person from a capital allocation perspective right now? Do you have appetite for more M&A or more divestitures?

So our capital allocation, we're consistent on this. It's 3 things. And for us, a big deal is their hands, not ours. And we're very proud that we can do this. A is a return to capital to shareholders. We've returned $305 million through the first half of the year between dividends and share buybacks. That doesn't include the $100 million ASR that we announced executing. Second is to invest in growth. It's part ways disciplined fashion. We have -- we talked about the organic initiatives we have few like a full swing where we know there's a high bar for both organic and inorganic, but for those that pass that bar. And third is to maintain a healthy balance sheet. We have a North Star on leverage. We've talked about at 1.25x. And if we may be a little above, a little behind temporarily, but that's -- that's our goal to get there in quick order. And again, we think all 3 of those work together so you can do and you don't have to pick between one or the other. And that's how we're going to continue to run. And when you talk about M&A, if it passes all the thresholds and fits within those parameters, again, sure. But that bar is high.

Pretty clear. To wrap it up here, 1 final question. As you look out over the next 12 to 24 months, maybe you can just tie it all together and talk a little bit about strategic priorities, things you're most excited about?

Yes. I mean as we talk -- we're very excited where the business is and the future. So for us, like next 12 to 18 months is really about executing our growth strategy we've talked about. And I'm I'm very excited about the core television business. We talked about the audience trends, monetization. It's all going really well. And if I look at the growth, we launched Fandango AVOD just a few weeks ago, that's out of the gate strong. We're launching the MSD to C tomorrow. We're very bullish and optimistic on it. We're going to launch a CNBC D2C. We haven't given the exact time frame, but it won't be that far into the future. And then we're seeing success on the early M&A and integrating them and full swing just closed, but I talked about Fandango AVOD, INDY Cinema and some of these other deals, free TV networks. They're all like we're pleased where -- how these growth initiatives have come together to evolve our business to continue to expand our audience and reach. And you put that all together, we feel good to continue to execute that same capital allocation approach we just discussed. And so I think that's kind of the full strategy we've been pursuing, and we're really looking forward to continuing to execute against that.

Great. Well, Anand, thank you so much for participating in our conference. It's been a privilege to have you on stage here today.

Thank you, Mike.