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Eros International PLCÂ (ESGC)
Q2Â 2020 Earnings Call
Nov 15, 2019, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, ladies and gentlemen, and welcome to the Eros International Plc's Second Quarter Fiscal Year 2020 Earnings Conference Call. This call is being broadcast live 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, erosplc.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 of the federal securities laws. The company's actual results may differ materially from those projected under forward-looking statements. During the call, the company will also discuss non-GAAP financial measures in talking about its performance. You can find a reconciliation of these measures to the GAAP financial measures in the company's press release.
I would now like to turn the call over to Mr. Kishore Lulla, Executive Chairman and CEO of Eros International Plc. Please go ahead, sir.
Kishore Lulla -- Executive Chairman and Chief Executive Officer
Thank you very much. Good morning, ladies and gentlemen. In our previous earnings call, Q1 FY20 we spoke in detail on how stories are global and the quality of the Indian production is very well suited to travel the world. Our experience over the period of 40 years in taking Indian cinema across the world and over the last seven years with Eros Now has proven to the world that we are able to penetrate audiences with our stories. Case in point being our serious surge in China over the last 18 months with the two theatrical releases and two major Eros Now deals with iQiyi in 2018 and Wasu to name a few.
With this earnings call, would like to start the trend of having a theme to each of these calls to provide context to the strategic thinking of the Group. The content is not something we will necessarily only deliver over the period of the next few months, but it is something we are working on already, but going to make serious investment in the resources to build for the next 18 months. This theme for the earnings call would be entertainment revolutions in the middle India. People targeting 500 million users. While we spoken on the promise of the Eros in the international market, the next real surge of the Internet users is going to come in from the partially connected to the unconnected Indians living in the middle India and outside of the Top 10 to 12 English speaking cities. According to the latest KPMG report, the next billion users, the ruler Internet population in India has had year-on-year growth of 60%. This is also the quarter where in the digital cable subscriber base fell from 75 million to 55 million and the same quarter, we had two announcements of the largest telco players in the world Jio Gigafiber and Airtel Xstream launch of their direct-to-home digital services. All of the directional skews of the growth of the telcos subscribers launch of the home entertainment, home Internet services, growth of smartphones are attributed to the untapped potential of middle India.
Our content strategy a couple of years ago is a great testament of this vision and we suddenly realize a shift in the consumer taste in big budget, big talent films to more stories than the common India man families that had a lot more depth and character. Movies like Vicky Donor, SMS are the great example of how the consumer demand were changing. To further add to this complexity of the middle India there is the contribution of the different languages that play in even more important role than the national language of Hindi in the promise of affinity and driving subscription viewership. So we at Eros have already started working toward building a robust pipeline to serve the new digital India On the content side, 50% of the 12,000 movie slate is in non-Hindi languages. Modi, our big budget original released a few months ago was in four different language. Our next theatrical film, Haathi is trilingual, shoot in Hindi, Tamil and Telugu.
Eros Now is gearing up original series releases in four to five languages along with building of our pipeline of Eros Now Quickie in regional languages. The big dark horse to truly maximizing the capability of the middle India is going to be technology and I'm going to leave it to Rishika to dive deep into the facet of our middle India strategy.
To sum up on the regional distribution play, Eros Now is very grateful to be the only partner with the BSNL across the prepaid universe. Our partnership with very own where and we empower entertainment on solar power units and villages and we are looking -- we are working on a very interesting cash economic strategy for the Eros Now across smaller -- from formed retail to launched in the second half of FY20. Some of the early data statistics of our work is already visible with approximately 60% of the time spent on Eros Now is coming from outside of the Top 10 cities in India. And our last original movie was responsible to bring city of Ahmedabad in the Top 10 cities in India on the time spent, while Ahmedabad doesn't feature even on the Top 10 metrics for any digital business in the country. The fact was further authenticated by third-party research agencies like Counterpoint Research and KPMG that release a report recently with FICCI and Creative First calling out that Eros Now was the most popular OTT service in Tier 2 and 3 in India and 68% of the Eros Now subscribers watch content daily as compared to 58% average for the other incumbent service.
I'm now going to request Rishika to give the headlines update for Eros Now. Thank you.
Rishika Lulla -- Chairman-Eros Digital
Thank you very much, KL. Keeping in mind the spirit of the theme and this culture going forward for our earnings call, I'm going to begin with where KL left off and then get into the larger update from the Eros Now business.
We believe that technology is going to play a key role as content in the entertainment revolution in middle India. To get ready for this revolution in September earlier this year, along with Microsoft and our dear friend 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+, HBO Max and others have built a platform for English speaking audiences around the world. You browse and search the content in English and watch content in English and your recommendation layers are built on that logic. Now what happens if a subscriber doesn't speak English, it throws the algorithm off. Our partnership with Microsoft addresses this very issue. The new platform is being built, allowing for subscribers to leverage voice commands and search to enable index content discovery. A significant amount of R&D and resources and dynamic dubbing allowing for consumers to watch their favorite movies and shows in their chosen language as either subtitles or dubbed and eventually an enhanced [Indecipherable] 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 better customer cohorts in middle India as well as global niche markets that will making online video more accessible and more enjoyable for the common person. It gives me great pleasure to share that in the first half of this fiscal year, we have grown our paid subscriber base by 4.7 million subscribers, achieving about 23.5 million monthly paid Eros Now subscribers. We have also grown our registered community to a healthy 177.7 million, it is imperative to have a strong foundation in order to grow and meet our moon shot target of 50 million and beyond monthly paid subs.
To us, the foundation to achieving growth is built upon a successful marriage between content and technology. The core of our strategy has always been the goal to make local stories a global experience, investing in unique compelling content to adapt, exploit, and expand great stories for consumers around the world is something we have always been very excited about. Great stories transcends languages and cultures and can come from anywhere. A great example of this is our original series Metro Park about an Indian Gujarati family based out of New Jersey. The local global stage for Metro Park was very successful and appreciated by global audiences, growing time spent on average by our US user base by 22%, becoming one of our top four markets in terms of time spent.
Breaking down the India viewership, 63% of the Indian viewers came from non-metro cities. This potentially is the highest penetration for any digital video service in India. Further accentuating our story of developing a video service for middle India. Movies continue to be a dominating contributor to overall viewership on the platform, contributing 65% of the time spent. Original series, however, is now contributing 28% viewership, which has increased 40% quarter-on-quarter further proving our content strategy. We look forward to rolling out our next generation video platform early next year and we remain laser focused on our 50 million subscriber target, while focusing on a higher direct-to-consumer skew. As middle India grows and our subscriber base matures, we are focused on revenue maximization and strive to drive innovation across content and technology every day for our subscriber and community aiming to deliver an experience truly unique to you.
I would now like to pass the line to Prem.
Prem Parameswaran -- Executive Director and Group Chief Financial Officer and President of North America
Good morning everyone and thank you again for joining us today on our earnings call. I'm 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 second quarter of fiscal year 2019 on a like-for-like basis. Adjusted EBITDA for this quarter was $7.8 million compared to $27.5 million last year. This quarter we released 11 lower budget films as compared to 4 medium and 13 lower budget films last year. We released over 120 films on Eros Now this quarter as well as thousands of new music tracks in new short form content.
Our Eros Now business continues to fire on all cylinders. As Rishika 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 of just $112.6 million, a sizable reduction of $32.4 million from our March year-end balance sheet. Our net leverage remains very conservative on a trailing 12 month basis. We are only at 1.5 times net debt to adjusted EBITDA.
On the P&L, we are going to reiterate our guidance of $200 million to $220 million in revenue and $80 million to $95 million in adjusted EBITDA for the fiscal year-end 2020. We are also committed to reaching cash flow positive by this fiscal year end. Over the following two fiscal years, we expect our top line growth to be in the 20% plus range.
Thanks for listening and we're happy to take your questions.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from the line of Tim Nollen with Macquarie.
Tim Nollen -- Macquarie Research -- Analyst
Hi guys, thanks a lot. I've got a few things here. Sorry, if there's any background noise. But could 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 the theatrical release schedule 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 part of it as well. If you could maybe just talk about those and why you're confident about getting to the full year guidance.
Relatedly, if there is any detail you could give us on Eros Now, nice to see the sub numbers continue to climb pretty rapidly. Is there any more D2C [Phonetic] i.e., higher ARPU subs coming in or are we still talking about some of the lower priced telco deals and what's the progress there? So that's all kind of 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 updates on the CARE Rating agency efforts to restore a credit-worthy rating increase? Thanks.
Kishore Lulla -- Executive Chairman and Chief Executive Officer
**[00:13:00]Thank you. Good morning, Tim. So there are four questions, I'll take the first one. The second question Rishika will answer it and Prem, can you take the third and the fourth one, please. Okay.
So the first question as already indicated that we are not doing the TV syndication increasing the Eros Now penetration and the revenue guidance of $200 million for the whole year and the EBITDA of $80 million to $95 million, we are reiterating that we will achieve that and there were no medium budget and no theatrical releases this year. There were low budget films of that and that's where you could see that the revenue of the dip, but this is as per our guidelines and as per our expectation. So we are very confident in achieving our full year guidance what we have given to you. On Eros Now.
Rishika Lulla -- Chairman-Eros Digital
Hi, Tim on Eros Now, our ARPUs are very much in line with what we discussed in the last quarter. India growth has been really, really high and we look forward to achieving a lot more growth on the international side once we launch across Apple Plus as well as our deal with Wasu in China, which will be launching this month. So as and when these deals rollout and actually become live, we'd start to see a bit more of a shift in the ARPUs, where we expect ARPUs to rise as well as looking at the skew changing between India and international. We also had a few distribution deals as well with Dolby and now that our content is also Dolby enabled, Dolby are going to be distributing us and we also have OnePlus distribution in and outside of India, which we also expect the skews to change. And Prem you want to --.
Prem Parameswaran -- Executive Director and Group Chief Financial Officer and President of North America
***[00:14:47] Yeah, yeah, sure. And Tim, hi. Thanks for the question. I think a couple of just to answer your question on the revenues and on the EBITDA and just adding on what both Kishore and Rishika said, I think you'll see we do actually have a very strong upcoming theatrical release slate including four blockbuster Hindi titles, which will be coming out this quarter as well as the Apple Plus distribution, our other telco partnerships that are all coming online this quarter. So you're going to see a shift, also historically our third quarter has seasonally been a big quarter for us. We still feel pretty confident about our year-end projections.
With regards to CARE, as I can tell you we are in full compliance with all of our creditors and our debt commitment. And we are working with them -- with the rating agencies to try to restore our investment grade rating and I can't predict when they will do that or I'm not -- I'm not in the rating agency, but I can tell you we are in full compliance with all our debt commitments. So hopefully that should happen over the course of time.
Tim Nollen -- Macquarie Research -- Analyst
Okay, thanks Prem. Can I make couple of quick follow-ups. I think you said last quarter, you would be providing a new distribution of the P&L, a new presentation of the P&L with I think it was studio versus digital. I might have missed it, but is there a breakout between those two divisions in the revenues? And secondly, on the guidance for full year, I would assume you've got some numbers for Apple Plus and the telco distribution deals as well as the phasing of the film release schedule built into that full year guidance, is that right?
Kishore Lulla -- Executive Chairman and Chief Executive Officer
That's right Tim. If you look at the Haathi is one of our big blockbuster films, which we'll be releasing in the fourth quarter, that's in three languages. That's a high theatrical revenue film and also the Apple Plus numbers and other telcos in the D2C numbers, which we told you the last quarter should be launching from this quarter onwards. So we will see the numbers growing and the Wasu mobile, which in China 180 million subscribers, so we should launch this month itself. So we should see some numbers from there and that will increase our ARPU as Rishika said.
Tim Nollen -- Macquarie Research -- Analyst
Okay. So is there a breakout available or will it be available between, what I think is your two new divisions, the studio versus the digital?
Kishore Lulla -- Executive Chairman and Chief Executive Officer
Yeah, I think when we'll be filing our 6-K we will be breaking that out in that, that's what the auditors are working on to file, when we file the 6-K.
Tim Nollen -- Macquarie Research -- Analyst
Okay. Okay, great. And then lastly, about share buyback, any further comment on share buybacks?
Kishore Lulla -- Executive Chairman and Chief Executive Officer
Share buyback, we are working with our banks and the lawyers. And depending when they advise when actually it happens we will inform the market.
Tim Nollen -- Macquarie Research -- Analyst
Okay, thank you.
Prem Parameswaran -- Executive Director and Group Chief Financial Officer and President of North America
Thank you, Tim.
Operator
Your next question comes from the line of Sanjay Mathur, Wells Fargo Advisors.
Sanjay Mathur -- Wells Fargo Securities -- Analyst
Hi Kishore and Prem. Listening to your presentation when will you start providing numbers for Eros Now and it looks like the company is totally restructured in promoting Eros Now and reaching those numbers that you just gave, we probably have to do at least close to $55 million and $65 million revenues in the next two quarters to reach that. How confident are you in getting that done?
Kishore Lulla -- Executive Chairman and Chief Executive Officer
Hi, Sanjay. Thank you. We are very confident, if you look at the $200 million revenue for this year that includes from the digital, the digital division and the studio division. And the studio division, we have some high budget movies which will release in the fourth quarter. And then you have the digital revenues, which is growing and the subscribers are growing. So we are very confident in achieving those numbers and this is going to be more than $55 million to $60 million what we're talking about in the digital revenue for the Eros Now.
Sanjay Mathur -- Wells Fargo Securities -- Analyst
Kishore, I had one more follow-up. So we are talking about the Apple Plus deal that you're launching this quarter. Right now Eros Now is not available on Apple Plus, is that going to be a separate service like HBO and Showtime and all or you might be integrated in a bundle with Apple?
Rishika Lulla -- Chairman-Eros Digital
Hi Sanjay. Our relationship with Apple is actually two-fold, where we're looking at a bundle as well as the stand-alone and will be available later this month.
Sanjay Mathur -- Wells Fargo Securities -- Analyst
Okay. So there could be a bundled service also with Apple launching, is that right?
Rishika Lulla -- Chairman-Eros Digital
Yes. And as soon as we are live and launched, we will be sharing a little bit more information with the market.
Sanjay Mathur -- Wells Fargo Securities -- Analyst
And will it -- Rishika, will it be for only international markets or it will come into India also?
Rishika Lulla -- Chairman-Eros Digital
Yeah, we are actually only non-US player to have this deal with Apple Plus and it's across all of the 100 plus countries that they are launching in. So it would be India and international. So as soon as it is live, you will see it in the US, UK etc. and multiple other markets.
Sanjay Mathur -- Wells Fargo Securities -- Analyst
Well, I really appreciate your answers and hopefully, the company stock is trading very cheaply at this level. Can you provide us a little bit more guidance on your strategic review that has been going on with Citibank, when do we expect to hear something -- because that is probably constraining you from buying back the stock at these levels. Can you provide a little bit of guidance on that point?
Kishore Lulla -- Executive Chairman and Chief Executive Officer
Yes. As you know that we are not allowed to speak even one word on the advice of lawyers [Indecipherable] which party we're going on. I would say that we are very, very happy with the strategic review and the results, which are generating and we hope to see some good results soon.
Operator
I would now like to turn the conference back over to Kishore Lulla for closing remarks.
Kishore Lulla -- Executive Chairman and Chief Executive Officer
Thank you very much everyone for supporting us, for listening to us and believing in the Eros strategy. Thank you and have a good day.
Operator
[Operator Closing Remarks]
Duration: 21 minutes
Call participants:
Kishore Lulla -- Executive Chairman and Chief Executive Officer
Rishika Lulla -- Chairman-Eros Digital
Prem Parameswaran -- Executive Director and Group Chief Financial Officer and President of North America
Tim Nollen -- Macquarie Research -- Analyst
Sanjay Mathur -- Wells Fargo Securities -- Analyst
