TD's Notes Revenue Beat, But Opex Skewed to Q1/22
Event
Q1/22 results. 8:00 am call at (1-888-882-4478).
Impact: MIXED
Revenues exceeded expectations, but programming costs were elevated in the
income statement (30% Y/Y increase in programming amortization) and the cash
flow statement (combined cash investments in programming and films was up Y/Y by
$19mm, or 20%, and we also note that cash used for working capital was up $41mm
Y/Y, which acts as a drag on management's definition of FCF). This led to EBITDA
declining slightly Y/Y (albeit a touch higher than consensus – see bullets below)
despite 10% consolidated revenue growth. The timing of programming investments
also led to arguably weak FCF this quarter ($36.5mm versus $62.4mm last year
excluding a venture capital gain of $43.5mm), so we hope (and expect) to hear on
the call that post-pandemic programming cost inflation will moderate in the balance
of fiscal 2022.
Given the negative street bias towards CJR.B shares for some time, we suspect
that the elevated opex will offset these key positives as it pertains to the share price
reaction today:
1. TV advertising revenue growth of 16% exceeded our estimate of 15%, which
marks the third consecutive quarter of very strong post-pandemic growth
(subscription growth of 3% also exceeded our estimate of 2%).
2. Total TV segment revenue was back above pre-pandemic levels (+1.1% versus
Q1/20), but the share price certainly is not. CJR.B shares were 10% higher
on January 13, 2020, and we note that debt has been reduced by $386mm
(equates to $1.79 per share) in that two year period.
3. STACKTV and other paying streaming subs increased to 725k (versus 675k at
the Q4/21 release), and the service will now be available outside of Amazon
Prime via a new distribution deal with Rogers Cable.
4. An NCIB for up to 5% of the stock was announced. With net debt down again
(2.66x at Q1/22 versus 2.76x at Q4/21), we expect buybacks to occur going
forward.
Total revenue $464 million (+10% y/y) versus TD/consensus $461mm/$456mm.
Total EBITDA $177.2 million (-1% y/y) versus TD/consensus $178.5mm/
$176.8mm.
Adjusted EPS $0.37 versus TD/consensus $0.33/$0.36.