The FINANCIAL — Viacom Inc. on August 3 reported financial results for the third quarter of fiscal 2017 ended June 30, 2017.
Bob Bakish, President and Chief Executive Officer, said, “In the third quarter, Viacom strengthened its top line, with growth in advertising and affiliate revenues and gains across its Filmed Entertainment segment, while continuing to execute on a strategic plan to reinvigorate our brands, break down silos, deepen our relationships with business partners and reposition Paramount for the future.
“Among other recent successes, the Company entered into an unprecedented distribution and data partnership with Altice USA, secured a significant cross-platform talent agreement with award-winning writer, director and actor Tyler Perry and recorded quarterly year-over-year ratings growth across our Media Networks portfolio, with strong momentum at our flagship networks, including MTV. We also further delevered our balance sheet by redeeming over $1 billion of outstanding debt and completing the sale of our substantial interest in EPIX.
“Every day we are working hard to reinvent Viacom and revitalize its brands for the future, and the early, tangible results are encouraging. There remains much work to be done, but we will continue to build on this progress for our shareholders, partners and fans.”
Revenues in the third fiscal quarter increased 8%, or $257 million, to $3.36 billion, reflecting growth across Filmed Entertainment and Media Networks segments. Operating income declined 3% to $746 million, reflecting restructuring and programming charges of $59 million, principally resulting from the execution of strategic initiatives at Paramount. Adjusted operating income rose 5% to $805 million in the quarter. Net earnings from continuing operations attributable to Viacom grew 57%, or $248 million, to $680 million in the quarter, principally due to the gain on the sale of the Company’s investment in EPIX. Adjusted net earnings from continuing operations attributable to Viacom grew 12%, or $52 million, to $471 million, driven by the increase in tax-effected adjusted operating income. Diluted earnings per share for the quarter increased $0.60 to $1.69, and adjusted diluted earnings per share increased $0.12 to $1.17, according to Viacom.
MEDIA NETWORKS
Media Networks revenues grew 2% to $2.56 billion in the quarter, with affiliate revenues up 4% to $1.19 billion and advertising revenues up 2% to $1.24 billion. Domestic revenues were substantially flat at $2.04 billion, and international revenues increased 8% to $522 million. Excluding foreign exchange, which had a 5-percentage point unfavorable impact, international revenues increased 13% in the quarter, primarily driven by the acquisition of Telefe.
Domestic affiliate revenues increased 4% to $1.01 billion, principally reflecting higher revenues from SVOD and other OTT agreements, as well as rate increases, partially offset by a decline in subscribers. International affiliate revenues increased 1% to $178 million.
Domestic advertising revenues declined 2% to $955 million, reflecting higher pricing, more than offset by lower impressions. International advertising revenues grew 14% to $280 million in the quarter.
Ancillary revenues decreased 9% to $135 million in the quarter. Domestic ancillary revenues fell 17% to $71 million, while international ancillary revenues grew 2% to $64 million.
Adjusted operating income for Media Networks was substantially flat at $870 million in the quarter, primarily reflecting the increase in revenues offset by an increase in operating and SG&A expenses.
Performance highlights:
The Company secured a groundbreaking partnership with Altice USA, which ensures continued distribution of Viacom’s premiere networks in the Cablevision system, returns Viacom programming to Suddenlink customers, expands next-generation branded content offerings for viewers and leverages our industry-leading advertising products across multiple platforms and screens.
Viacom entered a multi-year talent agreement with Tyler Perry that encompasses television, film, short-form and digital video. The partnership will bring Perry’s signature brand of storytelling to Viacom’s audiences.
Sequential quarterly improvement in domestic ad sales revenues and momentum from the U.S. upfront indicate that the Company’s flagship brand strategy and renewed commitment to partnerships are resonating.
Under six months of new leadership, MTV recorded year-over-year ratings growth in June for the first time since 2011, and claimed four of the top 30 cable series in the quarter, including a rebooted Fear Factor – the network’s highest rated new series in the last two years.
BET experienced its strongest June year-over-year ratings growth in four years, and July was the network’s second consecutive month of year-over-year growth.
Comedy Central’s The Daily Show with Trevor Noah continued its ratings climb as cable’s number-one daily late night talk show with millennials, recording its highest-rated and most-watched quarter ever.
Nickelodeon continued to dominate the ratings in its major demographics, with 9 of the top 10 shows for kids 2-11 and four of the top five shows for kids 2-5. It grew year-over-year ratings by 5% and has remained the number-one kids network for eight consecutive quarters.
Revenue weighted share for VIMN’s portfolio of flagship brands increased 6% internationally, while Channel 5 outperformed the market and grew share for a sixth straight quarter. The successful integration of Telefe continued as the network maintained its strong market leadership in Argentina.
FILMED ENTERTAINMENT
Filmed Entertainment revenues grew 36% to $847 million, reflecting continued increases across all revenue streams. Domestic revenues rose 19% to $388 million in the quarter, while international revenues increased 56% to $459 million.
Theatrical revenues increased 189% to $263 million, with revenues from current quarter releases up 199% compared to revenues from releases in the third quarter of fiscal 2016. The growth in theatrical revenues was primarily driven by the release of Transformers: The Last Knight. Domestic theatrical revenues rose 85%, while international theatrical revenues increased 296%.
Licensing revenues rose 1% to $300 million in the quarter. Domestic licensing revenues decreased 9% due to the mix of titles available in the pay-TV window, while international licensing revenues grew 7%, reflecting higher revenues from arrangements with SVOD distributors.
Home entertainment revenues increased 14% to $218 million, primarily reflecting catalog distribution revenues, as domestic and international revenues increased 6% and 33%, respectively.
Ancillary revenues grew 61% to $66 million. Domestic ancillary revenues increased 77% in the quarter, while international ancillary revenues rose 10%.
Filmed Entertainment reported adjusted operating income of $9 million in the quarter compared to an adjusted operating loss of $26 million in the prior year quarter, an improvement of $35 million. The improvement principally reflected the various revenue increases, partially offset by higher operating expenses.
Performance highlights:
In June, Paramount announced the establishment of Paramount Players, a new production division that will develop, produce and market feature films in collaboration with Viacom’s flagship brands. AwesomenessTV founder Brian Robbins will lead the division as President.
The studio recently named accomplished filmmaker and producer Mireille Soria as President of Paramount Animation to oversee the group’s operations and work with Viacom’s teams to guide the creative development and production of its animated feature slate.
Transformers: The Last Knight opened to number one in the U.S. and in 53 markets internationally, including China.
Paramount TV continued to strengthen its portfolio, with 16 shows ordered to production and over 50 projects in development. Remaining fiscal 2017 releases include new seasons of Shooter, Berlin Station and Nickelodeon’s School of Rock, which was recently nominated for a Primetime Emmy for Outstanding Children’s Program.
BALANCE SHEET AND LIQUIDITY
In the quarter, the Company continued to implement its plan to strengthen its balance sheet, reduce leverage and enhance liquidity, redeeming over $1.0 billion of senior notes and debentures, and executing on the sale of our stake in EPIX. At June 30, 2017, total debt outstanding was $11.17 billion, compared with $11.91 billion at September 30, 2016.
The Company’s cash balance was $425 million at June 30, 2017, an increase from $379 million at September 30, 2016. In the nine months, net cash provided by operating activities increased $253 million, or 63%, to $653 million, free cash flow increased $195 million, or 61%, to $515 million and operating free cash flow increased $228 million, or 71%, to $548 million.
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