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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to the Corus Entertainment Q1 2020 Analyst and Investor Call. [Operator Instructions] Please be advised that today's conference is being recorded. Thank you. I'd now like to hand the conference over to your speaker for today, Doug Murphy, President and CEO of Corus Entertainment. Please go ahead.
Thank you, operator, and good morning, everyone, and welcome to Corus Entertainment's Fiscal 2020 First Quarter Earnings Call. I'm Doug Murphy, and joining me this morning is John Gossling, Executive Vice President and Chief Financial Officer. Before I read the cautionary statement, I'd like to remind everyone that there are a series of slides that accompany this morning's call. You can find them on our website at www.corusent.com, under the Investor Relations section and on our webcast. Now let's move to the standard cautionary statement found on Slide 2. Today's discussion contains forward-looking statements that may involve risks and uncertainties. Additional information concerning factors that could cause actual results to materially differ from those in our forward-looking statements are contained in the company's filing with the Canadian Securities Administrators on SEDAR. With that, I'll now turn to our first quarter results and offer some perspective on the positive operating momentum we are seeing in fiscal 2020, starting on Slide 3. As Canada's leading pure-play Media & Content company, we are uniquely positioned for success with a powerful portfolio of channel brands, driven by strategic global partnerships and with our fast-growing owned content businesses at Nelvana, Corus Studios, Kids Can Press and Toon Boom. We are setting the industry standard in advanced advertising by pioneering new solutions to evolve how television is sold. And our team remains steadfast in the disciplined execution of our plan to continuously maximize audiences and, in turn, monetize those audiences as we rationalize and evolve our operating model. This guides us as we make smart investments to grow our portfolio of businesses, be they advertising, distribution or content creation and licensing. This disciplined approach has endured time and again, providing resilience when faced with the challenges of disruption as we identify opportunities and innovate to create solutions in a fast-changing media environment. At Corus, our diversified portfolio has delivered a solid start to the year with consolidated results in line with our expectations. We generated $468 million of consolidated revenue for the quarter, which includes the impact of changes made to our specialty TV portfolio with the shuttering of smaller channels to strengthen our offering for viewers. We are extremely pleased with this revenue result. Our Q1 consolidated segment profit was $184 million, and our strong free cash flow of $53 million for the quarter demonstrates, once again, the powerful ability of our portfolio to generate cash, enabling us to pay down a notable $49 million of bank debt in Q1. Ever-improving financial flexibility funds the investments we are making in our business in the pursuit of revenue growth. John will take you through our detailed segment results later in this call. Moving to Slide 4. Corus is an innovative entrepreneurial company with outstanding talent, cherished brands and great content. We are optimizing our television portfolio with fewer, bigger channels that stand out in a crowded marketplace and attract valuable audiences. This has meant disposing of a noncore asset, Telelatino, last March and shutting down smaller services in our portfolio, such as Sundance in fiscal 2018, IFC, Cosmo and most recently, FYI, in fiscal '20. In turn, we are investing in content to grow audiences on global and our bigger specialty television brands, providing increased value to our advertisers and our distribution partners with strong differentiated channels. Over to Slide 5. Our ambition at Corus is to diversify our revenue base by pursuing the global market for premium video content and build a third revenue stream beyond our media business in Canada. These international growth ambitions are rooted in our very important and growing content business. Nelvana Animation Studio is nearly 50 years old, employs hundreds of animators and is expected to deliver almost 200 0.5-hour equivalent episodes in the fiscal year. Last year, we ramped up the investment in our own content production slate. Importantly, we have green lit second seasons of Esme & Roy; Hotel Transylvania: The TV Series; and Corn & Peg, given their success with audiences around the world. Corus Studios is also growing as a producer of premium lifestyle and factual reality content for our networks. We are accelerating sales in the global market and have 21 series in production for fiscal 2020, including new seasons of fan-favorites Island of Bryan, Save my Reno and Backyard Builds. I am encouraged that so many of our series are going into second and third seasons which is fundamental to brand building and increases the potential to create franchise IP worldwide. The results of this strategy are apparent in the delivery of double-digit growth as promised in Q1. Moving to Slide 6. As you know, we are focused on maximizing our audiences on all platforms and then monetizing those audiences to achieve revenue growth. Last November, we hosted an investor education session here at Corus Key to provide a deep dive into our revenue team's go-to-market strategy. The session reviewed current advertising and subscriber trends as well as the many initiatives underway at Corus. These include innovations in advanced ad tech, building more advertising inventory, growing our presence on social and digital platforms and delivering content to audiences in new ways, including the evolution of our global TV app and the new distribution platforms such as STACKTV. We won't revisit these in detail today in our prepared remarks as the archived session is available in the Investor Relations section of our website under Events & Presentations. We are happy to take questions on our go-to-market revenue strategies. Our confidence that we are on the right track to sustainable growth is unwavering. With that, John will now take us through the detailed Q1 results.
Thanks, Doug. Good morning, everyone. I'll start on Slide 7. As Doug mentioned earlier, we delivered a solid start to the year with consolidated results that met our expectations. Effective September 1, 2019, we adopted international financial accounting standard, IFRS 16, related to the accounting for leases on a modified retrospective basis, an approach which does not adjust the results of prior periods. The significant impact of the IFRS 16 accounting standard on our Q1 2020 financial results are as follows: $3.4 million increase in segment profit, a $3.9 million increase in free cash flow and our leverage moves to 3.08x net debt-to-segment profit, reflecting the addition of $157 million to total debt and only 1 quarter of the segment profit benefit. Excluding the impact of IFRS 16, net debt-to-segment profit would have been the same as it was at August 31, 2019. Corus consolidated revenue of $468 million for the quarter, slightly ahead of the prior year. These results represent a positive start to our fiscal year, driven by our strong fall schedule on Global and the benefits of our overall revenue diversification strategy with significant contributions from new digital revenue initiatives and our content business. Consolidated segment profit of $184 million for the quarter was down 4% over the prior year as we invested in more owned and controlled content and absorbed the impact of the TLN disposal, which was partially offset by the benefit of the transition to IFRS 16. We delivered consolidated segment profit margins of 39% for the quarter, and that's down from 41% last year. Consolidated net income attributable to shareholders for the quarter was $78 million or $0.37 per share, and that's up compared to $60 million or $0.28 per share in the prior year. That's primarily due to accelerated amortization of television brand assets at the beginning of fiscal 2019. Further details can be found in this quarter's MD&A. Free cash flow of $53 million was ahead of the $42 million in the prior year quarter. This reflects an improvement in working capital, reduced interest payments on bank debt, lower restructuring and integration costs and the removal of base lease expenses under IFRS 16, and it's offset by greater programming and film investments as well as higher cash taxes. Now turning to Slide 6 (sic) [ Slide 8 ], our TV results for the quarter. Overall, TV segment revenues were up 1%. We have provided a waterfall chart this quarter as there are a few items to highlight that contributed to TV revenue of $430 million in Q1, and that's compared to $426 million in the prior year. The disposition of TLN in March 2019 and the discontinuation of 2 specialty channels, IFC and Cosmo, on September 30, 2019, resulted in TV revenue decreases in the quarter of $4.7 million and $2.5 million, respectively. This was more than offset by the benefit of $2.5 million in retroactive adjustments driven by a large BDU distribution agreement renewal in the quarter and $8.5 million of combined growth from new advertising revenue streams as well as merchandising, distribution and other revenues. Our focus on delivering consolidated revenue growth is evident with these results. In Q1, we delivered a 1% increase in TV advertising revenue, and that's 2% pro forma TLN as we benefited from a strong fall schedule, growth in digital advertising and a continued uptake of our advanced advertising offerings. Subscriber revenue was down 2% compared to prior year. Adjusting for the disposition of TLN in the prior year, subscriber revenue would have been essentially flat. The 15% increase in merchandising, distribution and other revenues over the prior year quarter reflects the increased content licensing revenue for Nelvana and Corus Studios as well as revenue from the relaunch of Bakugan. TV expenses in the quarter increased by 4% over the prior year. Direct cost of sales were up 7%, reflecting higher programming costs, including new programming output deals, Nelvana film amortization and other cost of sales. G&A expenses remained consistent with the prior year as we invest in multiple initiatives to drive revenue growth. Overall, TV segment profit decreased 3% in the quarter and TV segment profits were 42% compared to 43% in the prior year period. Now let's turn to radio results as outlined on Slide 9. Radio segment revenues were $38 million, a decrease of $3.4 million for the quarter, and that was impacted by softness in the entertainment and retail advertising environment as well as continued economic and ratings challenges in Alberta. Radio segment profit was $12 million, a decrease of $1 million in the quarter, given the challenging market conditions. However, our segment profit margin of 32% was consistent with the prior year, reflecting our continued focus on expense control. We made a notable change to our capital allocation policy in November, as seen on Slide 10. With our strong free cash flow and the weakness in our share price, we took the opportunity to implement a normal course issuer bid to buy back up to 5% of our public float of Class B shares. We believe this will provide yet another mechanism to return value to our shareholders. At December 31, 2019, we had repurchased nearly 1.7 million shares under the program. As detailed in our press release this morning, we declared a quarterly dividend of $0.06 per Class B share, providing a highly market-competitive dividend yield of approximately 4.3%. Our investments to optimize the core and build for the future, are working. We have delivered double-digit growth from many of our new digital and short-form video content initiatives and are starting to see tangible benefits from our own more content strategy. Lastly, we continue to strengthen our balance sheet through our strong track record of debt reduction. This continues to be a key priority as demonstrated by the $49 million in bank debt repayments for the quarter. With that, I'll turn it back to Doug.
Thank you, John. I'm now on Slide 11. It's the start of a new year and a new decade for that matter, and I can't help but reflect on the momentum we have built to date. We bought Shaw Media in April 2016 because we recognized that size, scope and scale were essential to compete and win. Today, we remain focused on delivering consistent, albeit modest consolidated revenue growth from our portfolio of businesses in order to pay down our bank debt and make smart investments for the future. Our strong fiscal 2019 results, along with the solid results delivered today, validate that our plan at Corus is working. I am confident we are on the right track. At Corus, we are doing everything in our power to create new opportunities as we position our company for the future while working within the confines of the current regulatory system. We are setting the standard in ad tech and see a compelling opportunity ahead for our industry, reflecting the unique market structure in Canada with 3 large broadcasters, 2 of whom are vertically integrated and owned by distributors and those distributors are bringing to the Canadian market 2 distinct video distribution platforms, X1 and MediaKind, which will both improve our viewers' experience but also provide us with a genuine opportunity to align as an industry to better serve the needs of our advertisers. Corus has been and will continue to advocate for the need to work together on an industry solution in Canada. This includes the adoption of common audience segments, improving the viewer experience and value proposition, both linear and on demand, creating more revenue opportunities with ad insertion on VOD, for example; there are others. And sharing data within the industry ecosystem to strengthen our business and help us compete with the foreign owned, unregulated digital media broadcasters. There is a real opportunity right now to create a more robust business broadcast ecosystem for advertisers and agencies to target audiences for maximum campaign impact and accelerate the transformation of how we sell television. Last year, Corus won Waterstone's coveted Most Admired Corporate Culture award as a result of our values-based culture. One of these values at Corus is to think beyond, which challenges us to imagine what's possible, invent opportunities and create new solutions. Our industry has made significant strides and is doing its part to grow and evolve our business models. Now it's time for Ottawa to come to the table. The broadcasting and telecom legislative review panel will deliver its long-awaited report later this month. We encourage the newly elected government to think beyond and quickly implement change. It is important that we work together, government and industry to build a new policy framework that works for all of us. Canadian media companies must be able to move faster and to invest where we want to invest. Canadian broadcasting policies still do not allow us that flexibility. At Corus, we maximize audiences through great storytelling as do other Canadian broadcasters. In fact, Canada has created some of the biggest stars in the world. Our industry needs the freedom to grow and evolve and to take Canadian talent and content to the next level. In this quarter coming, the next quarter and the quarter behind that, we will continue to advocate for policies, which enable a competitive Canadian media and content industry, but one that is driven by market forces. Finally, moving to Slide 12. I want to close our call today by reiterating the confidence we have in our portfolio of businesses at Corus. You've heard us speak of revenue diversity today. Every business at Corus is important and contributing to our top line results. Whether it's advertising on TV or radio, both nationally across the country or in 39 local markets and communities, or whether it's our subscriber revenues as a recurring business from our distributors for our leading portfolio of specialty channels or whether it's our content business now growing at double digits as expected or our rapidly growing digital business, resulting from our many smart investments over the last couple of years, each component of our portfolio contributes to the pursuit of consistent, albeit modest consolidated revenue growth quarter after quarter. We will see ups and downs in various parts of the business from quarter-to-quarter, but it is the sum of the parts that matter. We are off to a solid start in F '20 with ongoing momentum. And as we celebrate our 20th anniversary year as a company, we will continue to apply the same disciplined approach to provide value for our audiences, partners, clients and shareholders. We will now be happy to take your questions. Thank you, and over to you, operator.
[Operator Instructions] Adam Shine with National Bank Financial.
Okay. So happy new year, and obviously, Doug, with respect to regulation, good luck with I think your, what, fourth Heritage Minister in the last 5 or so years. So hopefully [indiscernible] around.
Thank you.
With respect to the Q1, I mean, when we last had the Q4 call -- sorry, yes, the Q4 call. I think you were talking about maybe flat-ish type of results in advertising. So did things sort of pick up a little bit in the back half of the period? Can you speak a little bit maybe to federal election spending as an incremental contributor, but also maybe importantly, to any changes at YouTube, vis-à-vis kids-related advertising, whether you saw some flow back into the conventional space or specialty as well?
First of all, the elections were not really material to our revenue whatsoever. The federal government introduced the Elections Act, which actually restricted spending this election cycle versus the one 4 years earlier. So that wasn't really a factor, unfortunately; it would have been nice if it was. In terms of the YouTube change in regulation on kids, that hasn't affected us either. That's effectively a calendar 2020 item. And it's relatively de minimis for our business model. We don't rely on YouTube to generate revenue in the same way. In terms of the first quarter, I would say the notable one there is continued progress in the audience segment selling. It's now north of 26%, which is our metric. I know it's hard for you guys to track that. But we track that as a percentage of our national business, and it continues to grow. Uptake continues to be extremely impressive. And this underscores my comments about how we're setting the standard for advanced advertising in Canada. So I think it's -- we're -- as you know, Q1 was a tough comp. So we're thrilled with the result, and our team is staying focused on executing our plan.
With respect to, I guess, tough comp, and obviously, you held up at a seasonally strong and important Q1 period. As we look ahead to Q2, you didn't really comment at all in regards to early trends, but can you maybe speak to those at all in the Q2?
The only comment we're going to give going forward now is on consolidated revenue growth, and we're confident we can get stable, albeit modest growth in consolidated revenue, and that's the real note I'm trying to make today, is we are a portfolio of businesses, Adam. And all of them are important to us. We're investing in diversifying our revenue base. And the results, I think, are quite apparent in Q1 with the strength in our content business. So our focus -- the whole team's focus at Corus is to deliver consolidated revenue growth.
No, and I agree with that statement. It just gets you into trouble with the other stuff anyway. Maybe one question quickly for John. Just vis-à-vis the TV spend. I think it was a little incrementally higher than anticipated, and maybe there were some timing issues, but you did call out the fact that there was some added staffing because of your digital and technology initiatives, and presumably, some additional amort costs related to the Bakugan sales. But anything else maybe from a timing perspective in regards to modeling for the rest of the year?
Sure. I'll kind of go through the pieces for Q1, and then I'll add some commentary on what we see going forward. So if you look at -- I said cost of sales was up 7% in TV. So that's roughly 3 pieces and about 1/3 each. The first one is program amortization, and I talked about foreign programming costs. That can be subject to timing. Q1 is a heavy period for new episodes. But we do have new output deals from Adult Swim, Hallmark and Discovery. So that is part of the increase. So I'd say, to the extent that we can ever be precise on foreign programming for Global, yes, there could be some timing effects there. But on the specialty side, that's pretty locked. So part of that increase will be sustained. If I look at the Nelvana film amort, I'd say that's temporary. The slate is bigger, Bakugan is there and because production is ramping, we have seen an increase in amort, on the film amort. That looks like it's going to continue into Q2 and then probably go back to kind of prior year levels for Q3 and Q4. And then on the other stuff kind of revenue related, you could almost consider pass-through type costs that stick to some of the revenue. Again, that's probably a Q1 impact and likely to return to prior year levels going forward. So there's sort of a mixture in there of what will continue and what was specific to Q1. And then on the G&A side, you mentioned headcount, salaries and benefits. Yes, that's up a little bit in Q1. That's partly some new headcount to support those initiatives. It's also just annual regular merit-type increases that we see. Now on the flip side of that, commission costs will be down a little bit year-over-year because we're not seeing the kind of growth that we had through last year. So that's going to be helpful. And we'll continue to have other maybe platform-related costs, if you want to call it that, for some of the digital initiatives as well. So that's the mixture.
Vince Valentini with TD Securities.
Yes, sorry, John, I'm not sure I caught what that third bucket was of costs that stick to the revenues? Are you talking about commissions or...
Not necessarily. It could be -- some of the revenue comes with a higher related costs associated with it, right -- sort of right out of the gate. That's why I called it pass-through. It's not always that. But it's -- think of it as lower-margin revenues that we have and we saw some pretty good growth in Q1. So that's what that category is. It's sort of our other, other cost of sales, if you want to call it that. But it was fairly significant, mostly because in the prior year we just didn't have a lot of that revenue. That didn't kick in until Q2 last year.
So this would be some of the digital initiatives within TV. It's not part of the content division. Is that correct?
Correct.
Okay. And on the Global side, just to clarify, so there were more episodes delivered in Q1 this year versus Q1 last year from all your primary partners in the states, and that caused a bit of timing issue, but Global -- specific costs related to Global's foreign programming should come back to more normal levels in Q2 and Q3. Is that correct?
For Global, yes. And I guess the one kind of bigger unknown for this year in the back half is going to be Olympics. So we saw in 2018 that with the Winter Olympics, that created a real change in the pattern of delivery. In the back half of that year. I mean it moved out of Q2 into Q3 and then into Q4. So that's a little bit harder to predict right now for us. We don't know how the competitive networks -- and we're a big CBS carrier, if you want to call it that, in terms of our primetime programming. So how CBS is going to program against NBC during the Olympics, I don't think we have a very clear view of that right now.
I would also say, Vince -- it's Doug -- that we had more hours in simulcast Q1 this year than we had a year prior. So there would have been some incremental cost increase accordingly.
And another clarification for you, maybe, Doug, is the -- I appreciate the lack of segmented detail in terms of guidance, and I agree that that's a prudent approach. But to clarify, were you saying consolidated revenue growth will be stable or slightly positive in Q2? Or are you just saying that's for the full year.
Quarter-over-quarter, that's what we're shooting for, Vince. So I mean Q2 is -- that's the next quarter we're targeting and we're working our tail off on that. And the team's aligned around working all those lines of business and the portfolio to get that to consolidated results.
And is that -- are you adjusting for TLN, Cosmo, IFC? When you say that...
It's just TLN on that, that's the only pro forma adjustment we'll make. I guess, Vince, I mean, the reality of it is the other headwind is radio right now, right? And we're not trying to dodge that. So that's why we talk consolidated, not TV.
No, no. But even given the Cosmo and IFC shutdown and given that very strong advertising comp last year, I mean, even stable on a consolidated basis would seem quite, I don't want to say heroic, but quite good.
I can -- I'll say, heroic, we're thrilled with that. That's exactly what we're trying to accomplish. I mean we want to make sure everybody realizes that we're very confident we can get to stable consolidated year-over-year. And that's kind of like the base case. And obviously, we're gunning for modest growth year-over-year. And as the sum of the parts are considered, that's what we're going to try to deliver.
And last clarification on that is the renewal of the large carriage deal, is all of the retro revenue related to that booked in Q1? Or could some of that spill into Q2?
No, it's all in Q1.
Okay, perfect. Just -- and I just want to clarify on IFRS 16, if I could. So the $3.4 million EBITDA boost in Q1, is that indicative of what we'll see every quarter. So it's in the range of $14 million for the full year.
Yes, it's a pretty straight line.
Okay. And then on free cash flow, some companies, there's no impact on free cash flow. Some companies, there's a boost, you seem to be recording it as a boost. Can you just walk us through what makes free cash flow go up $3.9 million? Are you not reporting the financing charges as a drag against free cash flow?
No, I think it's not that. It's that -- if you look at the definition of free cash flow for us, it's a GAAP definition so it takes the operating subtotal and the investing subtotal off the cash flow statement, and that's the basis for the free cash flow calculation. So with IFRS 16, the lease payments become debt repayments and they end up in the financing section. So they've been effectively moved out of operating down into financing. And you can see them, they're identified on separate lines in the cash flow statement. So that's what's happening. We're just moving it within the cash flow statement, and that's because of our definition of free cash flow, that's why the number goes up. And that's about a $15 million increase for 2020.
So $15 million for the full year just because of the shell game of where things show up under IFRS 16. Your earlier commentary on the last call being around $300 million of free cash flow, maybe even slightly below, did you take into consideration that potential $15 million boost?
Yes.
Maher Yaghi with Desjardins.
I wanted to ask you about your ad tech endeavors. And you've been talking about the need for the industry to coalesce around a system where everybody can get upside working together. How much of your revenue in advertising is flowing from these new TV ad revenues are coming from the new tech platforms that you have launched so far?
Well, the -- I think as I said before, it's a growing portion of our national TV ad. It was 26%. I'm not sure, Maher, if we've broken out the actual number for all of you. So I'm going to -- maybe we'll follow-up with a call after the fact on that once I clarify what we've disclosed. But the real opportunity here -- there's a couple of notes I want to make. The real opportunity here, first of all, is to acknowledge what we're hearing from our agency partners. The 5 major agencies that direct 95% of the national money in Canada, and that is they love the audience segment selling, they would love to see the industry on some common definition of segment selling, so they could more -- with more agility move the money into the TV segment selling to better kind of defend against the digital players who are hyper targeted. So that's kind of 1 note. And we're not yet in a position to announce more partners in the common segment selling, but there are a number of the big players in Canada who are kind of working with us now to consider how to do that. The second thing, which is a pointed comment I made in my remarks is, and that is that the industry in Canada, quite frankly, is really doing some -- I think some outstanding work. The 2 new video platforms are going to be fantastic reviewers. We're working together on ad tech. We're working together on a variety of initiatives. We need Ottawa to get going. And the industry can only do so much, but we're all shackled together on some of these age-old confines. And part of the note here is at some point in time, we need this new government to step up and make change that is authoritative and impactful and immediate. So that's the other piece of the note that I'm trying to make.
Okay. And so where do you see as a percentage of your, let's say, ad revenues ending the year, if you're talking about 1 quarter right now? Do you see that moving a lot before the end of the year? Or it's a multiyear, let's say, let's be...
It's hard to tell. Here's what I'll tell you, okay, if you look at Q1 over the last 3 years, in 2018, it was 10% of our national business, a year ago it was 17%, now it's 26%. So that trajectory, I would say, you could just extrapolate that.
Okay. Okay. Perfect. And on Nelvana, I love watching Hotel Transylvania. So kudos to you for continuing that series.
You can thank Adam Sandler for that, quite honestly. But go ahead.
I wanted to more know about the cost involved in improving and launching these series worldwide, as you mentioned, then trying to get another bucket of revenues coming from worldwide sales. What are we looking at in terms of cost to get an important position to deliver on that project?
Well. Every time we ramp up a new series, it's always front-loaded production and amortization costs in the film P&D side. So that is kind of like the scale and then once you get -- one you start delivering, then the front-end production investment is behind you and you start capturing margin. And it's always better to be -- as I made in my comments, second, third, fourth seasons are always better than just 1 season. One-and-done is not what we're trying to do. Our content team has been given very clear instructions to have subsequent seasons on everything we're making because we want to try to build franchise IP worldwide. So there's a bit of a front-end load on the production investment. And once you start scaling, it then kind of comes in. John, if you want to add anything on that?
Yes. I mean back to the cash flow statement, it seems like today's call is brought to you by the cash flow statement. Net film investment in the quarter, Maher, was about $15.5 million, and that was up from $10.6 million last year. So that's a line you'll see every quarter. You can see what we're investing. Now that can be net of tax credits, depending on timing. But that's an indication of the ramp-up in investment that we've seen. And that's what's going to drive the top line.
It should be steady at these levels.
Yes. And then I'd also say that the economics of Nelvana are one thing, and we're happy to have a conversation separately on this one. The economics of Corus Studios are a different model. So Corus Studios case, we effectively have a virtual studio wherein we work with independent producers happily, and we co-create content. And so the investment in that regard is kind of a lighter investment than is the kind of captive studio model we have with Nelvana. So there's a number of different kind of models we employ to build our content business. And that doesn't even get to Toon Boom, which is the -- one of our unheralded businesses, which is an international business. It's having some very nice growth. It's the dominant animation software for 2D. So I mean, there's a recent movie launch called -- named Klaus, which was on Netflix, which has been heralded with a number of awards. And that was made using Toon Boom, which we're very proud of. So we have a really nice little emerging content business here, and it's one that -- I made a comment over the summer that will be a double-digit growth for the rest of my life, and it was a bit of a bold statement, but I'm pleased to say that we're going to be there.
Okay. And so that gets me into the point of all this, I guess, for me, in terms of -- you're targeting flattish to improving -- slightly improving revenue year-on-year for the second quarter and, I guess, for the year as well. What does that mean to segment profit? How should we look at segment profit? And when do you think segment profit will turn -- will see the same kind of flattish to increasing trend as you get that investment done and move forward with the revenue generation that you can get from it?
It's a very good question, and we get it sometimes in the form of margin outlook-type questions as well. I'd say, if you look at what I've said earlier on, on the call about the cost of sales line. That's where we're going to see pressure, and that's both from what we're just talking about, the ramp-up in the film investment and the amortization that will come from that; and also on the programming side. And so I think that's what's going to put some pressure on the margin for sure. When that starts to really turn around is it's driven by timing of a whole bunch of things. It's a little bit hard to predict because we don't know exactly how some of those costs are going to flow from quarter-to-quarter. So I guess with -- I know you like to try to get me to give quarterly EBITDA guidance, but it's something that we really can't do.
No, no, just more trend-wise. So let's say, if I adjust for IFRS 16, and we should not hold our breath in terms of EBITDA for 2020, in terms of flattish, that the cost on these investments is going to off -- be more than IFRS adjustments that you have or you're going to benefit from, right?
Yes.
Okay. Perfect. And the last question on free cash flow utilization. So as you mentioned in your presentation, you have a few items that you want to invest in or deploy capital in. As you mentioned, production is one. You also have the NCIB and the debt repayment. Can you put them in order of priority for us, please?
I would say, the first priority is to make sure the needs of the business are being funded. Our team has brought us a number of great opportunities over the last couple of years, our social digital agencies, so.da, Complex Media, STACKTV. So we encourage a culture of entrepreneurialism. And as I mentioned in my comments, to think beyond value or the value that underscores our operating plan this year. So we will make funded investments in ideas the team brings us. That said, we're not confused about the importance of deleveraging and so I think when you look at your models, what I'd encourage you guys think about is the equity value increase that's going to occur as we keep paying down bank debt over the coming quarters and years. Our business remains highly cash generative and so I think bank debt repayment, after we funded the needs of the business, is the next priority. Of course, funding the dividend is there. The NCIB was added because we just felt, quite frankly, that there was -- the market reaction after the last quarter was surprising, and we wanted to take advantage of that because we think we're still grossly undervalued, given the cash that we generate and given stable top line performance and ongoing delevering. And so that's an item that we'll see through for the rest of this year. We can buy up to 10 million shares. And then M&A, we're kind of sitting on the sidelines. We're watching with interest a number of distressed assets out there. But we have no intention of moving quickly at the moment, we're pretty focused on our plan.
Okay. So you're below the 3x net debt-to-EBITDA that you had set yourself to be under a few years back. And do you have another objective you want to achieve in terms of reducing your leverage going forward?
So Maher, we were certainly heading down that path coming off of last year. The IFRS 16 change pushed us back up over 3. So we won't be able to report kind of an old-versus-new metric going forward. That's something that...
But you're at 2.8, if we use the same type of...
Yes, if we do. But we're technically not using that anymore. So the target of under 3 is now being compared to that 3.08 number that we're reporting. So I think as long as we're over the target, the first step is to get back under the target. And then do we revisit the target, will be what we look at once we get there. So there's no sense revising the target down right now, given that we're already above the target. Now others have done the other -- the opposite when this change happened and they pushed their leverage up, they actually took their leverage target ranges up. We don't have to do that. So we're -- I guess the answer is we're happy to stay at under 3 being the target for now until we get back under that on the new definition.
Yes. And just -- I mean the other thing I think you're trying to get at is, we want to keep delevering. So -- so clearly, our goal is to keep paying down bank debt because we appreciate the modeling of the equity value accordingly. So every time we look at internal investments, we always look at a cash-on-cash return. And it's a very disciplined process. And if we don't have confidence we can get cash back in the door from cash out the door then we're going to repay bank debt. That's our default. And so that's the discipline with which we operate the business.
Jeff Fan with Scotiabank.
Just a quick clarification on the free cash flow to Vince's question. So similar to like the $300 million if we take out the IFRS "benefit", that's $15 million. There was also, I guess, this year, roughly $20 million related to Canadian CPE spend. Is that still expected to be paid out? I know you've asked for some relief on timing, but that we should consider for 2020?
I think right now, we should -- that's our base case. And that's $20 million -- when you read the fund, that's $20 million of amortization, not necessarily cash. The cash could be a bit more than that. But timing on CPE cash is spread, right? I mean some of the 2020 programming that Doug talked about, that was already being invested in, in 2019. And on the flip side, some of the money will go into 2021. So it's a bit of a continuum in the way that cash moves. But yes, in the base case, we have us funding that additional CPE obligation in '20.
But '20 -- like, I guess, net-net, I mean, and $20 million is the kind of net number that we should be thinking about once we consider timing and amort and cash?
Sure, if you're blending all those lines together. I think we've said in the past that we do see the cash line for programming and film moving up this year. And it's for that reason as well as some additional foreign costs as well as the Nelvana investment.
Okay. Just on the new output deals, you mentioned Adult Swim, Hallmark, the revenue related to some of these output deals and I guess, if you can talk about the potential operating leverage off of these new output deals, not only in ads but also what you're doing with STACKTV. Can you talk a little bit about that as you kind of look out the next either few quarters, few years, just how you want to kind of talk about how that may trend?
Yes. So it's hard to really pull apart discretely, but I can give you 2 specific examples with regards to both those output deals. Once again, W is the #1 channel in the country over Christmas, including conventional stations. You might remember that we have all of our specialties now in floating rate cards, which gives us the opportunity to price more dynamically and so just those 2 realities together, and you get a nice incremental revenue bump because you've got the leading specialty channel with pricing flexibility and a number -- and great content. The second example would be Adult Swim, Rick and Morty, which was a massive breakout hit. It helped -- not only did it help us on our specialty channels, but it helped to propel STACKTV through the season. Obviously, with the Christmas shopping season upon us and the kind of network effect of the Amazon system, we saw a nice leg up. We're not going to disclose anything about subs, so I'll get ahead of that question. But let's just say that, that Rick and Morty service on Adult Swim was 1 of the most watched episodes on our STACKTV product line. So it's very evident to us that those investments, while they're showing up as inflation in the form of programming, they are necessary and important as we strengthen our core business and use those to deploy content on new platforms.
I guess, just -- I'll give you a specific kind of numerical example, Jeff, on Adult Swim in Q1, the ad revenue was up 60% year-over-year, and that's comparing to action, obviously, a year ago. And then sub revenue was up 14% in Q1. So there's real growth there coming from that programming.
And if you wouldn't mind me just extrapolating a little bit because the other piece that I think everybody is aware of, but we're really trying to have fewer, bigger channels. So in some regards, we're purposefully walking away from weak services that don't matter to anybody, IFC, Sundance, Cosmo, FYI, in favor of making investments in content that do matter, either specific channels like Adult Swim, or branded blocks like Hallmark and W. And that's part of how we're positioning the business for the future.
Okay. And then just maybe a bigger-picture question. I guess next week, Comcast is going to launch their Peacock. I think it will be one, if not the first, at least, traditional broadcasting unit to really focus on the ADVOD (sic) [ AVOD ] opportunity in the U.S. with ad tech and advanced advertising platforms. Doug, what's your view about that opportunity, particularly in Canada? And how do you think Corus may be positioned or can be positioned for that opportunity?
That's a great question. I think the AVOD is a real big opportunity in Canada. I think the SVOD business is a crowded space, quite frankly. There's already lots of research out there about subscription fatigue. So we're looking at all these platforms. We talked about during our go-to-market investor education session about investments we're making to launch a new Global Go app. We'll be providing more information on that in the months ahead. We think there is a lot of opportunity in the AVOD space. We hear from our agencies all the time, they want more premium video, long-form premium video on digital to monetize. There's just not enough of it out there. And most of the premium TV content that's online is on a sub -- an SVOD basis. So I quite frankly think that Peacock is on the right track. We're partners with NBCU on a number of fronts. So we're obviously working together on understanding what they want to do. And we are mindful of the fact that there's a lot of viewing that happens outside of the current bundle system. We've learned dramatically about that from our STACKTV experience. And so finding ways to get our content to new users on new platforms is clearly an opportunity for us and whether it's AVOD or SVOD or some hybrid, we're looking at all those scenarios. So I think Peacock's on to something, and we're learning a lot.
[Operator Instructions]
Operator, it sounds like we're done for the day.
This concludes the Corus Entertainment Q1 2020 Analyst and Investor Call. We thank you for your participation. You may now disconnect.