Company Accelerates Transformation, with
Further Progress against Key Strategic Initiatives
International Media Networks Deliver Seven
Consecutive Quarters of Year-over-Year Revenue Growth
Completed Tender Offer for $1 Billion in
Debt, Further Strengthening Balance Sheet
Viacom Inc. (NASDAQ: VIAB, VIA) today reported financial results
for the first quarter of fiscal 2018 ended December 31, 2017.
This press release features multimedia. View
the full release here:
http://www.businesswire.com/news/home/20180208005631/en/
The November 2017 premiere of "MTV
Floribama Shore" scored the network's highest ratings for a new
series in over 3 years. (Photo: MTV)
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.”
FISCAL YEAR 2018 RESULTS
(in millions, except per share amounts)
Quarter Ended
December 31, B/(W) 2017
2016 2017 vs. 2016
GAAP
Revenues
$ 3,073 $ 3,324 (8 )% Operating income
717 706 2 Net earnings from continuing operations
attributable to Viacom
535 396 35 Diluted EPS from
continuing operations
1.33 1.00 33
Non-GAAP*
Adjusted operating income
$ 717 $ 748 (4 )% Adjusted
net earnings from continuing operations attributable to Viacom
413 413 — Adjusted diluted EPS from continuing operations
1.03 1.04 (1 )
* Non-GAAP measures referenced in this
release are detailed in the Supplemental Disclosures at the end of
this release.
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.
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.
About Viacom
Viacom is home to premier global media brands that create
compelling entertainment content - including television programs,
motion pictures, short-form content, games, consumer products,
podcasts, live events and social media experiences - for audiences
in 183 countries. Viacom's media networks, including Nickelodeon,
Nick Jr., MTV, BET, Comedy Central, Paramount Network, VH1, TV
Land, CMT, Logo, Channel 5 (UK), Telefe (Argentina), Colors (India)
and Paramount Channel, reach approximately 4.3 billion cumulative
television subscribers worldwide. Paramount Pictures is a major
global producer and distributor of filmed entertainment. Paramount
Television develops, finances and produces original programming for
television and digital platforms.
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 company blog
(blog.viacom.com), Twitter feed (twitter.com/viacom) and Facebook
page (facebook.com/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: the public acceptance of
our brands, programs, motion pictures and other entertainment
content on the various platforms on which they are distributed;
technological developments, alternative content offerings and their
effects in our markets and on consumer behavior; the potential for
loss of carriage or other reduction in the distribution of our
content; significant changes in our senior leadership and the
ability of our strategic initiatives to achieve their operating
objectives; various uncertainties and risks related to a potential
combination with CBS Corporation, including that an agreement may
or may not be reached or may take an uncertain amount of time, and
that the effect of any potential transaction on Viacom and our
business cannot be ascertained at this time; economic fluctuations
in advertising and retail markets, and economic conditions
generally; evolving cybersecurity and similar risks; the impact of
piracy; increased costs for programming, motion pictures and other
rights; the loss of key talent; competition for content, audiences,
advertising and distribution; fluctuations in our results due to
the timing, mix, number and availability of our motion pictures and
other programming; other domestic and global economic, political,
business, competitive and/or regulatory factors affecting our
businesses generally; changes in the Federal communications or
other laws and regulations; and other factors described in our news
releases and filings with the Securities and Exchange Commission,
including but not limited to our 2017 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
http://www.viacom.com.
VIACOM INC.
CONSOLIDATED STATEMENTS OF
EARNINGS
(Unaudited)
Quarter Ended December 31, (in millions,
except per share amounts)
2017 2016
Revenues
$ 3,073 $ 3,324 Expenses: Operating
1,563 1,819 Selling, general and administrative
740
701 Depreciation and amortization
53 56 Restructuring
— 42 Total expenses
2,356 2,618
Operating income
717 706 Interest expense, net
(147
) (156 ) Equity in net earnings of investee companies
1 13 Gain/(loss) on extinguishment of debt
25 (6 )
Other items, net
(3 ) 9 Earnings from
continuing operations before provision for income taxes
593
566 Provision for income taxes
(42 ) (158 ) Net
earnings from continuing operations
551 408 Discontinued
operations, net of tax
2 — Net earnings
(Viacom and noncontrolling interests)
553 408 Net earnings
attributable to noncontrolling interests
(16 ) (12 )
Net earnings attributable to Viacom
$ 537 $
396 Amounts attributable to Viacom: Net earnings from
continuing operations
$ 535 $ 396 Discontinued
operations, net of tax
2 — Net earnings
attributable to Viacom
$ 537 $ 396
Basic earnings per share attributable to Viacom: Continuing
operations
$ 1.33 $ 1.00 Discontinued operations
— — Net earnings
$ 1.33 $
1.00 Diluted earnings per share attributable to Viacom:
Continuing operations
$ 1.33 $ 1.00 Discontinued
operations
— — Net earnings
$
1.33 $ 1.00 Weighted average number of common
shares outstanding: Basic
402.5 397.0 Diluted
402.6
397.9 Dividends declared per share of Class A and Class B common
stock
$ 0.20 $ 0.20
VIACOM INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions, except par value)
December 31,
2017 September 30, 2017
ASSETS Current assets: Cash and cash equivalents
$
394 $ 1,389 Receivables, net
3,125 2,970 Inventory,
net
959 919 Prepaid and other assets
527 523
Total current assets
5,005 5,801 Property and
equipment, net
936 978 Inventory, net
3,978 3,982
Goodwill
11,660 11,665 Intangibles, net
305 313 Other
assets
947 959 Total assets
$
22,831 $ 23,698
LIABILITIES AND
EQUITY Current liabilities: Accounts payable
$
351 $ 431 Accrued expenses
654 869 Participants'
share and residuals
800 825 Program obligations
698
712 Deferred revenue
421 463 Current portion of debt
120 19 Other liabilities
494 434 Total
current liabilities
3,538 3,753 Noncurrent portion of debt
10,069 11,100 Participants' share and residuals
339
384 Program obligations
485 477 Deferred tax liabilities,
net
235 294 Other liabilities
1,285 1,323 Redeemable
noncontrolling interest
249 248 Commitments and
contingencies Viacom stockholders' equity: Class A common stock,
par value $0.001, 375.0 authorized; 49.4 and 49.4 outstanding,
respectively
— — Class B common stock, par value $0.001,
5,000.0 authorized; 353.1 and 353.0 outstanding, respectively
— — Additional paid-in capital
10,129 10,119 Treasury
stock, 393.7 and 393.8 common shares held in treasury, respectively
(20,585 ) (20,590 ) Retained earnings
17,582
17,124 Accumulated other comprehensive loss
(576 )
(618 ) Total Viacom stockholders' equity
6,550 6,035
Noncontrolling interests
81 84 Total equity
6,631 6,119 Total liabilities and equity
$ 22,831 $ 23,698
VIACOM INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
Quarter Ended December 31, (in millions)
2017 2016 OPERATING ACTIVITIES Net earnings
(Viacom and noncontrolling interests)
$ 553 $ 408
Discontinued operations, net of tax
(2 ) — Net
earnings from continuing operations
551 408 Reconciling
items: Depreciation and amortization
53 56 Feature film and
program amortization
1,047 1,089 Equity-based compensation
14 23 Equity in net earnings and distributions from investee
companies
4 13 Deferred income taxes
(91 ) (63
) Operating assets and liabilities, net of acquisitions:
Receivables
(93 ) (323 ) Production and programming
(1,191 ) (1,020 ) Accounts payable and other current
liabilities
(232 ) (45 ) Other, net
(50
) 21 Net cash provided by operating activities
12 159 INVESTING ACTIVITIES
Acquisitions and investments, net
(2 ) (343 ) Capital
expenditures
(28 ) (52 ) Proceeds received from asset
sales
23 — Proceeds received from grantor trusts
2
46 Net cash used in investing activities
(5
) (349 ) FINANCING ACTIVITIES Borrowings
—
1,285 Debt repayments
(1,000 ) (900 ) Commercial
paper
100 — Dividends paid
(80 ) (79 ) Other,
net
(22 ) (14 ) Net cash provided by/(used in)
financing activities
(1,002 ) 292 Effect of
exchange rate changes on cash and cash equivalents
—
(38 ) Net change in cash and cash equivalents
(995 )
64 Cash and cash equivalents at beginning of period
1,389
379 Cash and cash equivalents at end of period
$ 394 $ 443
SUPPLEMENTAL DISCLOSURES REGARDING NON-GAAP FINANCIAL
INFORMATION
The following tables reconcile our results for the quarters
ended December 31, 2017 and 2016 to adjusted results that exclude
the impact of certain items identified as affecting comparability.
We use 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, as
applicable, among other measures, to evaluate our actual operating
performance and for planning and forecasting of future periods. We
believe that the adjusted results provide relevant and useful
information for investors because they clarify our actual operating
performance, make it easier to compare Viacom’s results with those
of other companies and allow investors to review performance in the
same way as our management. Since these are not measures of
performance calculated in accordance with accounting principles
generally accepted in the United States of America, 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 and diluted EPS from
continuing operations as indicators of operating performance, and
they may not be comparable to similarly titled measures employed by
other companies.
(in millions, except per share amounts)
Quarter
Ended December 31, 2017
Operating Income
Earnings from Continuing
Operations Before Provision for Income
Taxes
Provision for Income Taxes
(1)
Net Earningsfrom Continuing
Operations
Attributable toViacom
Diluted EPS from Continuing
Operations
Reported results (GAAP)
$ 717 $ 593
$ 42 $ 535 $ 1.33 Factors
Affecting Comparability: Gain on extinguishment of debt (2)
— (25 ) (6 ) (19 )
(0.05 ) Discrete tax benefit (3)
—
— 103 (103 ) (0.25
) Adjusted results (Non-GAAP)
$ 717
$ 568 $ 139 $
413 $ 1.03
Quarter Ended December 31, 2016
Operating Income
Earnings from Continuing
Operations Before Provision for Income
Taxes
Provision for Income Taxes
(1)
Net Earningsfrom Continuing
Operations Attributable to Viacom
Diluted EPS from Continuing
Operations
Reported results (GAAP) $ 706 $ 566 $ 158 $ 396 $ 1.00 Factors
Affecting Comparability: Restructuring (4) 42 42 14 28 0.07 Loss on
extinguishment of debt (5) — 6 2 4 0.01 Discrete tax benefit (6) —
— 15 (15 ) (0.04 ) Adjusted results (Non-GAAP)
$ 748 $ 614 $ 189 $ 413 $ 1.04
(1) The tax impact has been calculated by applying the tax rates
applicable to the adjustments presented.
(2) We redeemed senior notes and debentures totaling $1.039
billion in the quarter ended December 31, 2017. As a result, we
recognized a pre-tax extinguishment gain of $25 million.
(3) The net discrete tax benefit in the quarter ended December
31, 2017 was principally related to the United States' enactment of
the Tax Cuts and Jobs Act.
(4) We recognized a pre-tax restructuring charge of $42 million
in the quarter ended December 31, 2016 for severance associated
with management changes.
(5) We redeemed senior notes totaling $900 million in the
quarter ended December 31, 2016. As a result, we recognized a
pre-tax extinguishment loss of $6 million.
(6) The net discrete tax benefit in the quarter ended December
31, 2016 was principally related to the reversal of a valuation
allowance on net operating losses upon receipt of a favorable tax
authority ruling.
The following table includes a reconciliation of net cash
provided by operating activities (GAAP) to free cash flow and
operating free cash flow (non-GAAP). We define free cash flow as
net cash provided by operating activities minus capital
expenditures, as applicable. We define operating free cash flow as
free cash flow, excluding the impact of the cash premium on the
extinguishment of debt, as applicable. Free cash flow and operating
free cash flow are non-GAAP measures. Management believes the use
of these measures provides investors with an important perspective
on, in the case of free cash flow, our liquidity, including our
ability to service debt and make investments in our businesses,
and, in the case of operating free cash flow, our liquidity from
ongoing activities.
Reconciliation of net cash
provided by operating activities
to free cash flow and operating free
cash flow
(in millions)
Quarter Ended December 31,
Better/
(Worse)
2017 2016 $ Net cash provided by
operating activities (GAAP)
$ 12 $ 159 $ (147 )
Capital expenditures
(28 ) (52 ) 24 Free cash
flow (Non-GAAP)
(16 ) 107 (123 ) Debt retirement
premium
— 6 (6 ) Operating free cash flow
(Non-GAAP)
$ (16 ) $ 113 $ (129 )
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180208005631/en/
Press:Jeremy Zweig,
212-846-7503Vice President, Corporate Communications and Corporate
Affairsjeremy.zweig@viacom.comorAlex Rindler, 212-846-4337Senior
Manager, Corporate
Communicationsalex.rindler@viacom.comInvestors:James
Bombassei, 212-258-6377Senior Vice President, Investor
Relationsjames.bombassei@viacom.comorKareem Chin, 212-846-6305Vice
President, Investor Relationskareem.chin@viacom.com
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