Q2 2020 Earnings Call

Good morning, ladies and gentlemen, and welcome to Arrows International plc second quarter fiscal year 2020 earnings calls this call is being broadcast lie on the Internet and a replay of the call will be available on the company's website.

This morning, the company published its earnings.

Press release on its website arrows plc dot com.

The company would like to remind everyone listening that during this call it will be making forward looking statements under the safe Harbor provisions at the federal Securities laws.

The company's actual results may differ materially from those projected under the forward looking statements.

During the call. The company will also discuss non-GAAP financial measures and talking about its performance you can find a reconciliation of these measures to the GAAP financial measures in the company's press release I.

I would now like to turn the call over to Mr., 'cause Shored, Lola Executive Chairman and CEO at Arrows International plc. Please go ahead Sir.

Thank you very much good morning, ladies and gentlemen.

You know a previous earnings calls Q1, that's why couldn't D., we spoken deal on how stories arguable and the quality of the engine production is very well suited to the traveled the world.

Well, we're experiencing what defeated a 40 years and digging and been set them all across the world and over the last seven years. Eros now has proven to the was that we are able to penetrate audience since it's the stories.

Good point being obviously, you get sold in China, or the last 18 months that due to it because when leases until may just erosnow deals that I cheated 2018, and Watson to name a few.

This morning's call would like to start to fend off having a team for each of these calls to provide context to the strategic thinking of the group.

Got it is not something we've been necessarily want you did about what the beauty of the next few months, but it is something we are working on a Saturday, but going to make see this investment and that is supposed to something for the next 18 months.

This team is for the awnings called would be interested in Madrid, what do you sense in the Middle India.

People are targeting 500 million users.

Life's we spoken on the ball was of the Eros into international markets. The next deal. So just the Internet use this is going to come in from the partially connected to the unconnected Indians living in the middle India and outside of that they'll tend to plugs English speaking cities.

According to the click escaped the objective for the next billion uses the who the internet phone condition in India has had you want to get a growth of 16%. This is also the cuattro vet in the digital cable subscriber base felt from seven to 10 million to 55 million and the same quarter. We had two announcements of the logistical miss in the water jewel, Google fiber and here to an extreme launch all did that occur to home.

Digital services all of that Bentek snow skewing of the growth of the telco subscribers launch of the few home into didn't been home Internet services growth off smartphones are attributed to the untapped potential of Middle India.

Okay, and then started here a couple of years ago is a great Testament of this vision and we suddenly realize the shift in becomes you must be it's been big budget Big talent floods to more stories on the call. My didn't do you imagine probably that did a lot more depth and character movies like we could do SMS are the Great example, told the whole consumer demand what's changing.

Before that the this complexity of the middle and guys. The contribution of the different languages that you didn't even more important goals in the national language of Indian films will present at the end driving subscription viewership.

So we get there also have already started working towards building a robust pipeline to solve the new digital India on the can pinsight, 50% of the total tells the movie slate isn't and is it not in the languages, we'll be able to big budget or digital released a few months ago was in four different Linden language Oh next to come from him talk he is a trilingual shooting in the dominant equal.

It's probably is gearing up it or do you still see these leases in four to five languages, along with building a pipeline of Eros now quickie in recent languages.

The big Dog Haas cooling maximizing the capability of the middle India is going to be technology, and I'm going to leave it to the she could dive deep into the face it off of a middle India strategy.

To sum up on the regional just two we simply Eros now he's very grateful to be the only bucket would be SNL across the people universe of a partnership with very unfair.

And we empower entertainment on solar power units than religious and we're looking.

We are walking on a very interesting cashcall I'm excited you for erosnow across smaller for from formed rutile to launched in the second off of the Fytwenty.

Some of the only detect statistics awful work is already visible with approximately 60% of the time spent on it all starts coming from outside of the top 10 cities in India, I never lost or reasonable he was responsible to big city off and about into top 10 cities in the on the time spent wisely and without ends up what does it feel even on the top in metrics for any digital business in the country.

The fact fulfilled the authenticated by third party to search engines is like counterpoint to search and KPMG to at least as opposed to simply that Vicki unclear to plus calling out that Eros now was the most popular what do these services do you do and see India and 68% of the it'll still subscribers watch Clinton daily as compared to 50. It puts an average for the other income and.

So this.

I'm not going to the country Chicago to give the headlines update for Eros now thank you.

Thank you very much gale.

Keeping in mind disparate theme and culture going forward for awning school I'm going to begin with wacky left off and then gets into the logic updates on the Eros now but.

We believe that technology is going to play a key role less content and entertainment Revolution in Middle India.

To get ready for this revolution in September earlier, this year, along with Microsoft and different Peggy Johnson, We announced this partnership to build the next generation video platform.

Netflix Amazon Prime video and all the new incumbents from Hollywood, including Disney Class H.B., IMAX and others have built to platform the English speaking audiences around the world.

Browse and touch the content in English and watch content in English I know recommendation layers are built on that logic now what happens if the subscriber doesn't speak English it throws the algorithm off a partnership with Microsoft addresses this very issue.

The new platform is being built allowing for subscribers to leverage voice commands insights to enable indic content discovery significant amounts of R&D and resources in dynamic dumping, allowing for consumers to watch their favorite movies and shows and that chosen language as either subtitles adopt and eventually an enhanced.

To make exercise to improve the recommendation and machine learning algorithms.

Based on the evolution of the self learning platform, we will be able to deliver much best best a cost of my cohorts in middle India as well as global niche markets that we're making online video more accessible and more enjoyable for the common Pos.

It gives me great pleasure to show that in the first half of this fiscal year, we have grown up paid subscriber base to by 4.7 million subscribers, achieving 23.5 million monthly paid Eros now subscribers.

We have also grown a registered community to a healthy 177.7 million.

It's imperative to have a strong foundation in order to grow and meet all moon shot target of 50 million and beyond monkey paid subs.

On the foundation to achieving growth is built upon a successful marriage between content and technology.

At the core strategy has always been difficult to make local stories of global experience investing in unique compelling content to adapt exploit and expand great stories the consumers around the world. It's something we have always been very excited about.

Great stories, transcend languages, and couches and can come from anywhere.

A great example, if this is our original series Metropark about the Indian could drop the family based based out of new jazzy.

The local global stage the Metro Park was very successful and appreciated by global audience is growing time spend on average by I use it U.S. user base by 22%, becoming one of our top four markets in times of time spent.

Breaking down the Indian viewership, 63% of the Indian view as came from non Metro cities. This potentially as the highest penetration any digital video service in India Southern Accentuating all story of developing a video service the metal India.

Movies continued to be a dominating contributor to overall viewership on the platform contributing 65% if the time span.

Original series. However is now contributing 20% viewership, which has increased 40% quarter on quarter saw the proving our content strategy.

We look forward to rolling out on next generation video platform early next year, and we remain laser focused on that 50 million subscribe to target, while focusing on a higher direct to consumer scheme.

As Mitchell, India grows and our subscriber base matures, we are focused on revenue maximization and strive to drive innovation across content and technology everyday for our subscriber in community aiming to deliver an experience truly unique to you I would now like to pass the line to friend.

[noise] good morning, everyone and thank you again for joining us today on our earnings call.

Looking forward to sharing with you some of our financial highlights. This quarter, then we will take some of your questions.

This quarter, we generated 32.3 million in revenues compared to 63.4 million in the and the second quarter fiscal year 2019.

On a like for like basis.

EBITDA for this quarter was 7.8 million compared to 27.5 million last year. This quarter, we believe 11 lower budget films as compared to four medium and 13 lower budget films last year.

We released over 120 films and Eros now this quarter as well thousands of new music tracks in new short form content.

Are you are Eros now business continues to firing all cylinders as Richard said, we finished the quarter with 177.7 million registered users and 23.5 million monthly paying subscribers.

We ended the quarter with net debt.

Just 112.6 million a sizable reduction 32.4 million remote March yearend balance sheet.

Our net leverage for me very conservative on a trailing 12 month basis, we are only at one and a half time net debt to adjusted EBITDA.

You know, we're going to reiterate our guidance of 200 to 220 million in revenue.

And he said 95 million in adjusted EBITDA for the fiscal yearend 2020.

We're also committed to reaching cash flow positive by this fiscal year end over the following two fiscal years, we expect our topline growth to be in the 20, 20% plus range.

For listening and we're happy to take your questions.

At this time people might you asking question. Please press Star then the number one on your telephone keypad again, a star the number one on your telephone keypad to asking question.

Your first question comes from the line of 10 Nolan with Macquarie.

Hi, guys. Thanks, a lot I've got a few things here or if there's any background noise, but can I ask about the numbers in the quarter first off. Please your revenues were about half what they were a year ago in the same quarter. You said you had 11 low budget films I'm, assuming it has to do with you. After currently scheduled right why your revenues were low I think you also said.

Last quarter that you would be reducing your TV syndication output.

So I'm, assuming that's part of it as well if you could maybe just talk about those and why you're confident about getting to the full year cod.

Related research if there's anything so I could give us on aero snow nice to see the sub numbers continue to climb pretty rapidly.

Is there anymore do you see higher ARPU, so kind of men or are we still talking about some of the lower price telco deals and what's the progress there. So that's all kind of one one large first question you also.

Had announced a couple of quarters ago, you would be initiating a share buyback program I Wonder if you could update us on the thoughts there and do you have any update on the care rating agency efforts to restore a credit worthy grading. Please thanks.

Thank you good morning, Tim So therefore cushion so I'll take the first one on the second question she going on through I've been going to take the told in the fourth one piece yeah.

Okay. So the first question as older. They indicated you know that we're not doing the TV syndication, increasing the erosnow penetration and the revenue guidance of 200 million for the whole year and the if adult 80 to 95 million Oh, we got reiterating that that will achieve that there were no medium budget that will typically leases. This here there was little budgets.

[laughter] off that that's fair you could see that the revenue of the dip, but this is as for our guidelines and as for our expectation.

So we're very confident in achieving our full year guidance, what we're going to on Erosnow.

Hi, Tim I'm on Eros now offers a very much in line with what we discussed in the last quarter and India growth has been really really high and we look forward to achieving a lot more grows on the international side once we launch across Apple Clos as well as I deal with wants to in China, which will be.

Launching this month, so Adam when these deals would roll out and actually become lines would start to see a bit more if the shift in the opposite this way, we expect off whose true right as well as looking at skew changing between India and international.

We also had a few distribution deals as well with Dolby and now that all content is also Dolby enabled Dolby I'm going to be distributing awesome able to have one last distribution and then outside of India, which we also expect the skews to change.

Terrific and you want to yeah, Yeah, sure and Tim.

Thanks for the question I think a couple of just to answer answer your question on on the revenues and on the EBITDA.

And just adding on what.

Sure in Russia, because that I think you'll see we do actually have a very strong upcoming theatrical release slate, including or blockbuster hendi title, which will be coming up this quarter as well as the Apple plus distribution or other telco partnership.

[noise] are all coming online this quarter.

So you know you're gonna see a ship also historically, our third quarter and it's easily been a big quarter for us.

We we still feel pretty confident about our year end projections.

With regards to care.

As I can tell you we're in full compliance with all of our creditors and our debt commitments and we are working with them with the with the rating agencies to try to restore our investment grade rating and you know I can't predict and they'll do that or.

I'm not emigrating, but I can tell you weren't full compliance of all are so hopefully that that should happen.

And of course it back.

Okay. Thanks, [laughter] correct make a couple of quick follow ups. Then I think you said last quarter you would be.

Providing a new you know a distribution to the piano and your presentation the piano with I get what studio versus digital I might have missed it but is there a breakout between those two divisions in the revenues.

And currently on the guidance for full year I would assume you got some numbers for Apple plus another chocolate district distribution deals as well as the phasing of the film release schedule built into that full year guidance is that right.

That's right to Oh, you don't know if you look at the Hockey's went on for because all the systems, which we've been living in the fourth quarter. That's a in three languages on this a high to trickle revenue for them.

And also the absolute plus numbers and the other thing goes into due to see them, but speech. We do we'll do that I spoke to should be launching from this quarter on words. So we will see the numbers going on to walk through mobile, which is China hundred entity million subscribers official launch. This month itself. So we should see some numbers from there.

That's an increase of our ARPU is there she 'cause it.

Okay. So it is there a breakout available or will it be available between which I think as you know two new divisions the studio versus the digital.

Yeah, I think when we'll be filing almost exclusively be breaking that out in that that's flipped on the order. So looking like a fight and when we file. This excludes okay. Okay, great and then lastly about share buyback any further comment on share buybacks.

Oh share buyback, we are working with our banks in the lawyers and depending on the advice Ben actually happens, we'll inform the market.

Okay. Thank you.

Thank you Tim.

Your next question comes from the line of Sun Jay mother.

Hey, Wells Fargo adviser.

Hi, Kishore and brame listening to your presentation.

Ben but you start for Whiting numbers for Eagle is now.

And it looks like the company's broadly restructured and promoting yields now.

And reaching those numbers that you just gave we probably have to do at least.

Close to 55, and 65 million revenues in the next two quarters to reach that.

How confident are you and getting that done.

Hi, Thanks, Oh, we're very confident you know if you look at the 200 million value for this year that includes some don't disclose if it's too or you know division and the studio decision because of some good if he can we have some high budget movies between believes in the fourth quarter.

And then you have this isn't revenues, which is going to subside disagree. So they're very confident in that you can go some busy and this is going to be more than 55 to six year, given what you're talking about him to disclose that anymore. So.

That's for sure I had one more follow up so we are talking about the absolute let's be that that you're launching this quarter.

Right No euros now is not available on up plus is that going to be a separate service like HBO and Showtime and all or you might be integrated into the bundle of about.

Hi, Sunday, our relationship with Apple is actually two fold why we're looking at a bundle as well as a standalone and will be available later this month.

Okay. So there could be a bundled service also without.

Launching is that right.

Yes, and as soon as we are alive and launch we will be sharing a little bit more information with the market.

[noise] and billet, Richard got billet before only international markets sort of who come into India also.

[noise] only non U.S. plans to have this deal with Apple Pos and it's across all of the hundred class countries that they are launching into it would be India and international so as soon as it as it is live you will see it in the U.S. you can't accept trend multiple other markets.

Well.

I really appreciate the answers and hopefully before the company stock is trading very cheaply at this level.

Can you provide us a little bit about guidance on your strategic review that has been going all the Citi Bank, Ben do we expect to hear something.

But that is probably constraining you from buying back the stock at these levels.

Can you provide a little <unk> guidance on that point.

Yes, you know that you know he doesn't want to love to speak if and when would they said it was was that for this.

If you did you get to each party, they're going on I would say that is a very very happy the distorted interview and as opposed to be chosen Vicki.

We hope to see something good reserves.

Okay.

I would now like to turn the conference back over to Kishore Lola for closing remarks.

Thank you very much a everyone for supporting us for listening to us.

On believing in digital strategy. Thank you haven't had a good day.

Thank you. This concludes today's conference call you may now disconnect.

[noise].