VIA - Q1 2008 Viacom Earnings Conference Call
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FINAL TRANSCRIPT VIA - Q1 2008 Viacom Earnings Conference Call Event Date/Time: May. 02. 2008 / 8:30AM ET www.streetevents.com Contact Us © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT May. 02. 2008 / 8:30AM, VIA - Q1 2008 Viacom Earnings Conference Call CORPORATE PARTICIPANTS Jim Bombassei Viacom, Inc. - SVP-IR Sumner Redstone Viacom, Inc. - Executive Chairman Philippe Dauman Viacom, Inc. - President, CEO Tom Dooley Viacom, Inc. - CFO, CAO CONFERENCE CALL PARTICIPANTS Doug Mitchelson Deutsche Bank - Analyst Alan Gould Natixis - Analyst Michael Nathanson Sanford Bernstein - Analyst Kevin Holt van Kampen - Analyst Ingrid Chung Goldman Sachs - Analyst Spencer Wang Bear Stearns - Analyst Jessica Reif-Cohen Merrill Lynch - Analyst Michael Morris UBS - Analyst Tuna Amobi Standard & Poor©s - Analyst Benjamin Swinburne Morgan Stanley - Analyst Imran Khan JPMorgan - Analyst PRESENTATION Operator Good day, everyone, and welcome to the Viacom first-quarter 2008 earnings release teleconference. Today©s call is being recorded. At this time, I would like to turn the call over to the Senior Vice President of Investor Relations, Mr. Jim Bombassei. Please go ahead, sir. www.streetevents.com Contact Us 1 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT May. 02. 2008 / 8:30AM, VIA - Q1 2008 Viacom Earnings Conference Call Jim Bombassei - Viacom, Inc. - SVP-IR Good morning, everyone. Thank you for taking the time to join us for our first-quarter earnings call. Joining me for today©s discussion are Sumner Redstone, our Chairman; Philippe Dauman, President and CEO; Tom Dooley, Chief Administrative Officer and CFO; and Jimmy Barge, Controller and Head of Tax and Treasury. Please note that in addition to our press release, we have slides containing supplemental information available on our website. Before we begin, let me refer you to page number 1 in the web presentation and remind you that certain statements made on this call are forward-looking statements that involve risks and uncertainties. These risks and uncertainties are discussed in more detail in our filings with the SEC. Reconciliations for non-GAAP financial information discussed on this call can be found in our earnings release or on our website. And now, I would like to turn the call over to Sumner. Sumner Redstone - Viacom, Inc. - Executive Chairman Good morning, everyone. I thank you for joining us today. You know, it is always great to start the day off with great news. And that is exactly what we did today. Viacom©s results in the first quarter were strong, more than strong, and I assure you that we will continue to build on this momentum as we move throughout the year. Fact is, we have all the right ingredients for success at Viacom. Year after year, the value of our compelling entertainment brands continues to rise as new audiences discover and embrace the superior creative content that we deliver. As we move that content on to more and more platforms, here and all around the world, we become a part of our audience©s lives. Whether they©re kids or teens or adults or even baby boomers, these are the consumers that advertisers value most, and we know how to reach and how to connect with them. Philippe has brought visionary leadership and a focus on execution that has generated a palpable change throughout this entire company. Philippe and Tom and the other members of Viacom©s senior management are pushing creativity and efficiency to new heights. They are capitalizing on new opportunities across our businesses. They are fully exploiting our existing partnerships and entering into new relationships that open the door to attractive revenue opportunities in the short- and in the long-term, including, of course, the new premium Entertainment joint venture. I have enormous confidence in our entire team at Viacom and their plans for delivering even greater value for our shareholders. As a matter of fact, I constantly think what a wise decision it was to ask Philippe to join Viacom as the CEO and Tom as the CFO. Now I will turn this over to Philippe. Philippe Dauman - Viacom, Inc. - President, CEO Thank you very much, Sumner, and good morning, everyone. I am pleased you could join us today. We have started 2008 with strong momentum. Last year, we made substantial changes to our infrastructure and processes, and today we are realizing the benefit of that work. While we continue to make improvements, the Company is operating at a higher level of effectiveness and efficiency across the board. Our brands and our content continue to be unmatched in the entertainment business. We cater to some of the most valuable and dedicated audiences across every platform and every screen. Our task is to remain authentic and true to those audiences, providing them with content and experiences that tap into their passions and interests. That task really has not www.streetevents.com Contact Us 2 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT May. 02. 2008 / 8:30AM, VIA - Q1 2008 Viacom Earnings Conference Call changed over the years, but how we go about doing it and the types of experiences and engagement we provide have changed dramatically. Today, I am confident that we are fulfilling our mission as well if not better than ever before, and that view is supported by our results. Throughout the Company, we remain focused on our core strategic objectives, continuing to fuel the creativity that drives our business across platforms, continuing to grow, nurture, and monetize our brands and create new ones, growing and monetizing our digital business, and maintaining the highest level of execution across the Company. Let©s begin with our financial results. For the purposes of our discussion this morning, Tom and I will speak to certain adjusted numbers. Consolidated revenues grew 15% for the quarter to $3.12 billion. Media Networks© revenues were up 16% for the quarter to $2 billion. Worldwide Advertising Sales grew 8% and Domestic Advertising Sales grew 7% in the first quarter, as we continued to benefit from a strong scatter market, which again increased double digits over the upfront. One month into the second quarter, the scatter market continues to hold up, and while it is still early in the quarter, we anticipate our second-quarter Domestic Ad Sales growth to be comparable to growth in the first quarter. Worldwide ancillary revenues rose 72% in the quarter, driven largely by the ongoing success of Rock Band. Affiliate fees were up 13% in the quarter, with both rate and subscriber increases contributing to the growth. The Filmed Entertainment segment delivered 12% revenue growth in the quarter to $1.15 billion. Operating income for the total company was $567 million in the first quarter, a 14% increase over the comparable adjusted results in the prior year. Adjusted net earnings from continuing operations increased 19% to $282 million in the first quarter, and adjusted diluted EPS from continuing operations were $0.44, a 29% increase over the comparable results in 2007. Now, let©s turn to our Media Networks business. The underlying strength of our brands is derived from the powerful connection we establish with our audiences. We are in constant touch with our consumers, using research throughout the process to better understand what is important to them, what our brands mean to them, and how they want to experience our brands in their lives. This research informs the content we create. It informs how we market it and we tailor it, how we expand it and how we deliver it in digital and other platforms. With a deep understanding of our core demographics, we bring innovative solutions to our advertising partners, making that connection even more valuable as it moves across multiple platforms. For example, working with Unilever, MTV developed a five-episode microseries called Fresh Takes for Dove. Featuring Alicia Keys, each 3 1/2 minute episode airs during The Hills and deals with issues young women face. The results from the first two episodes were very encouraging, breaking through an all brand recall metric, boosting brand opinion, and importantly, retaining viewers through the commercial break. The demographics our networks cater to are the very ones shaping the digital world. This gives us a distinct competitive advantage as we expand our digital presence. Better execution means we are moving more quickly to capture opportunities, and we still have room to improve our execution further. With interactive web tools, we now have the ability to launch digital extensions of new shows at the same time they go on air to enhance the audiences© experiences with that program, immediately creating a higher level of engagement. Of course, engaging audiences is key not only in the digital realm, but also in the linear television world. In our business, there is one fundamental constant -- hits matter. They drive every aspect of our business, allowing us to build our brands and expand geographically. Over the last few quarters, I©ve talked about the surge in the creative energy in our company. That, coupled www.streetevents.com Contact Us 3 © 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.