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Eros International PLC (NYSE:EROS)
Q3 2020 Earnings Call
Mar 5, 2020, 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 Third Quarter Fiscal Year 2020 Earnings 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 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 would now like to turn the call over to Mr. Kishore Lulla, Executive Chairman and CEO of Eros International PLC. Please go ahead.

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Thank you. Good morning, everyone. On our last call, we touched upon the entertainment revolution in middle India. But today, the entertainment revolution is a global story across every household. This year for the first time in the global history, of a non-English language film, Parasite swept away the 92nd Academy Award for Best Picture and not in the foreign language category. This was a monumental moment in the media as it holds tremendous value for the non-English language markets globally, as well as the US in particular.

We are proud to be early believers in this strategy and have faith in the notion that stories are universal, and languages have no barrier. A global revolution may be taking place and driving newfound openness in the global cinema. But in India, we are experiencing our own entertainment revolution. Much like Parasite, non-Hindi Indian languages films have also been crossing barriers. As connectivity grow, demand for content from platforms and consumers continues to increase therefore opening up audiences to explore content outside of their primary language.

Over the past few years, we have continued to invest in creating multi-universe IP, co-production franchises and keeping our core focus on cultivating the talent and systems to deliver the most unique stories. With our success over the period of past 40 years of taking Indian cinema across the globe, and the last seven years with our Eros Now has proven to world that we are able to penetrate audiences with their subscriber base of over 26 million and growing community over reaching 200 million.

In the light of these trends, we are excited for our upcoming global trilingual releases like, Haathi Mere Saathi, starring Rana Daggubati and Vishnu Vishal is the first of its kind. Three copies, three films in Hindi, Tamil and Telugu. This has the ability to be pan-India as well as reach our audiences across the globe. A family, friendly picture that will fulfill the hearts of our audiences with a touching story about elephants and man uniting to save our planet, a very current topic while fighting for the justice. We are gearing up to bring this to our audiences in April, and are confident and will achieving theatrical [Phonetic] and commercial success all over the globe.

As global storytelling is soon becoming a reality, India is undergoing rapid speed changes where the devices and connections are growing faster at 7% CAGR than the population of 1.3 billion. 17% of the world's population by 2023, India will have 2.1 billion network devices of which 66% will be mobile connected.

As screens multiply, hunger for content grows. Eros Now is poised to make the most of the strengths with healthy subscriber growth, a 12,000 film library in 10 Indian languages. And industry pioneering partnerships we believe over global distribution initiatives will not only increase our growth, but benefit earnings, revenues, and free cash flow in the fiscal 2020 to '21, but more importantly, in subsequent years as annualized benefit of the subscribers come through.

I am also excited to share my new additions to our management team and we look forward to delivering our strategy. I would like now to pass on the call to Rishika, to discuss our digital progress. Thank you.

Rishika Lulla Singh -- Chairman of Eros Digital

Thank you so much, KL. Good morning, everyone. It gives me great pleasure to share with you over 60% growth, reaching 26.2 million monthly paying subscribers and a community of over 180 million. In essence, 2019 for Eros Now was a strong focus on distribution and technology. 2019 was the foundation year, wherein Eros Now started on the journey to deliver a custom product to every audience niche with the premise of a redesign of our technology backbone, with state of the art features and services.

Every piece of content by its native capability travels to its core energy and audiences. However, by adding the layer of technology on content to be specific dynamic subtitles, dynamic dubbing, language specific message tags, language neutral front end, voice space discovery, NLP, etc., we provide high quality premium programming and stories to traverse beyond the core and adjacent subscriber to potentially become a global product as we target a 900 million plus market.

Our core bundling deals in India have driven significant increases in our KPIs with a 130% increase in the number of screens, and 59% increase in watch time quarter-on-quarter. As our distribution continues to widen, it is important for us to ensure the platform truly feels like an extension of self, being really easy to use.

Our strategic direction, leverage technology and voice are central key themes to build out Tier 2 and Tier 3 audiences and viewership in middle India. So far, Eros Now has discovered driving appetite for original content and intricate dynamics in terms of language consumption with languages like Hindi, Marathi, Gujarati, Tamil, Telugu, etc., within our viewership matrix.

In view of the global launch of this new class, Netflix caused correction with mobile specific price points in India, Eros Now introduced a clean one price, all-you-can-eat strategy around the world. This clean price strategy was both geo-specific with deep research and understanding of the payment propensity of our target audience and all features included.

The payment platform by nature of that technology is unique, and it allows for all payment processes to feed into one single funnel, with consistency across all platforms. The launch of this in itself resulted in a 22% increase in the funnel from users to paid subscribers worldwide within one month of relaunch. Furthermore, we strive to make the most of our data insight, and continue to build upon artificial intelligence and machine learning features, custom to user cohorts to continue improving and widening our funnel.

I would also like to highlight the stellar partnerships in 2019. Apple Plus distribution, strategic technology partnership with Microsoft and our ground breaking YouTube Eros Now partnership. This is a global first for Eros Now and YouTube and the very beginning of a very exciting journey.

As KL previously mentioned, demographics and content changes are very much at play in a global scale, and that Eros Now with over what 250 digital premieres this quarter alone, we are gearing up to deliver the best of content and product experience to a connected India and beyond.

I would now like to pass the call to Prem Parameswaran.

Prem Parameswaran -- Executive Director and Group Chief Financial Officer and President of North America

Thank you, Rishika. 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 your questions. This quarter, we generated $50.8 million in revenues compared to $76.7 million in the third quarter of fiscal 2019 on a like-for-like basis.

Adjusted EBITDA for the quarter was $22 million compared to $35.8 million last year, which represents a margin of over 43%. This quarter, we released two medium budget films and four low budget films, as compared to two medium and 23 lower budget films for the same period last year. We digitally released a total of 249 films on Eros Now this quarter, as well as thousands of new music tracks and new short form content. Our Eros Now business continues to ramp nicely. We finished the quarter as Rishika said, with 186.9 million registered users and 26.2 million monthly paying subscribers.

We ended the quarter with net debt of $176.3 million, an increase over our position at year end, primarily due to a ramp on content spending, as well as an increased mark-to-market of our 25 million convertible notes and a slight increase in carrying value of our sterling-denominated UK retail bond due to currency fluctuations.

Our trade receivables balance has decreased by $10 million since March 31st, 2019 to $186.4 million partly due to a decline in syndication revenues associated with longer payment cycles. On the P&L, we are guiding toward the area of $80 million in adjusted EBITDA for full fiscal year 2020, growing at approximately 20% to 25% over the course of fiscal year 2021.

Thank you for listening. And we are now happy to take your questions.

Questions and Answers:

Operator

[Operator Instructions] We have the first question, comes from the line of Tim Nollen. Your line is now open.

Sean Kumar -- Macquarie -- Analyst

Hi. Good morning. This is Sean Kumar on for Tim Nollen. Thanks for taking the questions. So first on the distribution deals with YouTube, Apple TV and also Wasu in China, we should be seeing, I guess, the boost in Eros Now. So, can you comment on how that's been doing internationally? And if Eros Now is still on track for the $50 million targets by fiscal year '22? And just following that on pricing and ARPU, so the conversion rate of free-to-premium, have you been seeing shifts in ARPU with the international expansion and also the mix between DTC and Telco subs? Thanks.

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Rishika, please take that.

Rishika Lulla Singh -- Chairman of Eros Digital

Hi, morning. So, when it comes to all of our partnerships that we've kind of launched in the past quarter, YouTube has been live. And in fact, been successful for us. And it's just the beginning of our relationship when we look forward to seeing what more we can do together. Wasu has been performing well. However in view of recent times I think I would differ comment and for progress in terms of Wasu. But we believe that the digital sphere and the digital market in itself will continue to be buoyant around the world. We are still aiming to be imminently live this month on Apple Plus. And we look forward to achieving strong DTC worldwide subscriber growth.

Bear in mind, that is going to be live in over 109 countries. And we think that what we've seen so far in terms of appetite for Bollywood films driven globally at a worldwide scale, specifically from Eros Now has indeed been very promising and we really look forward to penetrating further in 109 countries. In terms of the ARPU, at a international level we won't really see much differentiation in terms of the ARPU in terms of what we have been achieving. However, in India, there has been a slight revision as mentioned, that funnel size has increased, and the conversions within that funnel is continually increasing. And as mentioned 22% increase in funnel conversion in itself is actually a very healthy and nice indication to the start of the journey with our new pricing. Sorry, I didn't quite remember the other parts of your question. If you could just let me know which parts I've missed.

Sean Kumar -- Macquarie -- Analyst

Great. Yes. Just the last part was on the DTC versus the Telco subs and I guess the effect of that on the ARPU mix.

Rishika Lulla Singh -- Chairman of Eros Digital

Okay.

Operator

Thank you. Next question comes from the line of Sanjay Mathur. Your line is now open.

Sanjay Mathur -- Wells Fargo Advisors -- Analyst

Hi, Rishika. Basically I was wondering about your subscriber growth on Eros Now. You've gained 2.7 million subscribers last quarter. You're targeting a pretty strong growth this quarter of almost 3.8 million subscribers. Can you shed some light on this? Is it coming from directly from YouTube and Wasu partnerships or somewhere else?

Rishika Lulla Singh -- Chairman of Eros Digital

Yeah. You would see a mix of this coming from YouTube. You'll see a mix of this coming from Wasu. We also integrated with a bunch of new payments gateways as well as a bunch of new marketing partnership around India with the bunch of brands, so be it Nature's Basket or Grofers, etc. And so others on the line, those are e-commerce sites ranging from a host of different industries. We expect a lot of growth to come from there. And as mentioned, we expect a healthy mix between D2C as well as B2B subscribers coming through. And over the next year to two year, we expect that mix to will also start changing.

Sanjay Mathur -- Wells Fargo Advisors -- Analyst

Regarding the Apple partnership, you have mentioned it for the last three to six months. It's not live yet. You are still expecting it by end of March. And any idea when it will be done? Because that looks like a tremendous partnership because of the reach [Phonetic] Apple has, and it should impact us tremendously.

Rishika Lulla Singh -- Chairman of Eros Digital

Absolutely, and 100% agree with you. That's why we're actually so excited about this partnership. And the fact that we are the only non-US players to be within this partnership with them during the launch phase is incredibly exciting. In terms of where we are, Apple have their own processes and time lines that they follow. They still haven't completed their initial phase of launch for the app. So we're very much discretion -- as operational discretion as to when that will be live. But we are pleased to be live this March and look forward to receiving a subscriber upswing from this distribution deal in particular.

Sanjay Mathur -- Wells Fargo Advisors -- Analyst

So, I'm assuming you're not counting any subscriber growth in this March quarter from Apple. So that's the tremendous growth from other places just in March, almost 3.8 million subscribers, right?

Rishika Lulla Singh -- Chairman of Eros Digital

Yes.

Sanjay Mathur -- Wells Fargo Advisors -- Analyst

Question for Kishore and Prem. So, you announced this facility for the credit line from investor or institution at $3.60 or more. You've not issued any stock. Can you give us a strategy where the Company is at this point regarding the strategic conversations with Citi? And where are you looking in the next 12 months on funding side? Is this the only credit line that we'll be looking for? Or you think something will come off the strategic conversations you're having with Citi?

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Hi, Sanjay. How are you? Thank you. I'll answer that. So basically, we are very happy with the strategic progress with Citi is making and obviously I cannot comment on what the Board is going to decide and what we are going to do. That's where I'll keep it at that. And second on the equity line of $50 million, is the Company's discussion as there in the press release at the opportunistic level whenever we decide as the right strategy for the company. And the third for the next year outlook, we are giving an outlook for the free cash flow. So whatever the capex we have planned. And if you've seen that this quarter alone we planned about 250 digital premiums. And the film slate you've seen that what we have said and the internal cash flow accruals and this inflection point which is occurring, whereby lot of subscribers and the growth which is coming from Eros Now. We are quite self sufficient, but of course, with the strategic alliance tie-up and with the other line-ups we are quite well-funded for the growth in the coming year.

Sanjay Mathur -- Wells Fargo Advisors -- Analyst

So, Kishore, one thing, you guys have generated almost $48 million in EBITDA in the last nine months. And we are still forecasting close to $80 million. So we are expecting a substantial increase in EBITDA in this fourth quarter. Are you guys very comfortable about that?

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Yeah. See this, Sanjay, as we have always said, Eros business is not to be seen quarterly. It's an annual business and we look at our business annually and never look at quarterly business. So the annual guidance of $80 million as we stated in our press release, we are quite comfortable. Of course, we had Shubh Mangal Saavdhan release in this February. And of course, then if you look at the film slate also coming years, which is very, very strong.

Sanjay Mathur -- Wells Fargo Advisors -- Analyst

Last question, Kishore, is basically as we go toward the year, will you break down Eros Now revenue separately? Because it looks like with the management additions you've done, you are basically making Eros Now a pretty much a separate entity with its own financials and all. Can you comment on that?

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Yeah. I think what we have said -- as said in the press release, we will be breaking down the revenues for the coming year into two verticals; one is the Eros Studio and one is Eros Digital. Basically that's where you can see the EBITDA margins on the both businesses separately, but not for this year, but maybe from coming from the next year onwards.

Sanjay Mathur -- Wells Fargo Advisors -- Analyst

Okay. I appreciate your time. Thank you.

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Thank you.

Operator

Thank you so much. Okay. No further question at this time. Please continue presenters for your closing remarks.

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Thank you everyone and thank you, all our stakeholders, Eros team all over the world. Thank you so much. Bye-bye.

Operator

[Operator Closing Remarks]

Duration: 20 minutes

Call participants:

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Rishika Lulla Singh -- Chairman of Eros Digital

Prem Parameswaran -- Executive Director and Group Chief Financial Officer and President of North America

Sean Kumar -- Macquarie -- Analyst

Sanjay Mathur -- Wells Fargo Advisors -- Analyst

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