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Eros International PLC (NYSE:EROS)
Q4 2020 Earnings Call
Jul 30, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to Eros International PLC's Fourth Quarter and Fiscal Year End 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 earning results 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 this 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 Group Chief Executive Officer

Thank you. Good morning, everyone. Thank you for joining our call. Firstly, I want to highlight that we are expecting our merger with STX Entertainment, which was announced in April. We'll be closing later today within hours. The company will make a separate public announcement, announcing the details of the transaction closing. We are extremely excited about our future as a combined company and at the same time, very proud and grateful for all your support on our journey so far the at this point.

This quarter represents yet another important step into company's transformation from a traditional movie producer and syndicator of content with somewhat unpredictable revenues to an OTT platform with a strong mix of growing high-quality recurring revenues. Our paying subscriber base now totals 30 million, which represents a growth rate of 56% over a year. We believe that recent initiatives will not only increase the growth rate, but importantly, [Technical Issues] source of revenues into [Technical Issues]. While we expect the numbers of paying subscribers to continue to grow rapidly, we believe that innovative partnerships such as our tie-up with YouTube will lead to a considerable number of incremental D2C subscribers.

Outside of India, we are Apple's only Indian partner, and we have high hope for the success of this global service, which we benefit from each subscription as we continue to unlock markets. On Apple, we are currently live in USA, Canada, India [Technical Issues]. These initiatives will benefit revenues, earnings, free cash flow in subsequent years, and annualized benefit of these subscribers materialize. Elsewhere, our tie-ups around the world will also be additive to our earnings.

We have very high expectations from our tie-up with Microsoft Azure in providing a differentiated viewer experience for our subscribers. Some of the initiatives are very exciting and differentiated. Furthermore, our strategic technology relationship with Microsoft has accelerated by the global entertainment shift. We expect to be fully migrated to the new Azure infrastructure with a brand new technology stack in the next month. At the same time, we are laser focused on the R&D and the partnership with Microsoft to dynamically dub our content and make Eros Now a language-agnostic platform.

Our slate of the new programming for the forthcoming period, in our opinion, is the strongest it ever has been. We have many exciting new projects, which we are working on. While impacted by the COVID-19 disruption, our production team was still able to release three original during the peak of pandemic, which demonstrates the determination and the innovation of our production platform. Perhaps, the most important development in this quarter has been the considerable addition to our management team across the board including Pradeep Dwivedi, CEO India and Shikha Kapur, CEO Eros Studios India. It is also encouraging for us to see such talent pool put their confidence in the future of Eros. We are confident that they will add considerable value to the company.

At the quarter end, we had a net debt of $176 million. We believe we can continue to bring down this over the coming years, as we accomplish [Phonetic] cash flow positive under our current plans, reverting to a truly digital business and surpassing our goal of 50 million subscribers paid subs in the next two years.

Now, I'll hand it on to Rishika Lulla, Chairman and CEO of Eros Digital.

Rishika Lulla Singh -- Chairman, Eros Digital

Thank you, KL. Good morning, everyone. I'm pleased to announce Eros Now has achieved 29.3 million monthly paid subscribers for the quarter ending 31st March, 2020. The past year has been a strong year for Eros Now with marquee technology content and distribution partnerships with global powerhouses, such as Microsoft, NBC, Apple, YouTube, etc, which will all transform the entire Eros Now experience with the backdrop of global changing consumer habits, further fueling digital growth. We expect to fully migrate to our new technology infrastructure next month, where battened architecture delivery is complete and AI-related functionality with a brand new focus [Phonetic]. These technology enhancements, prima facie, may not seem exciting, however, against the backdrop of an expected 900 million connected devices in India in the next two years, great Indian language content premiers on Eros Now, as well as a high ARPU English language service launching soon, technology will be a key component to help us further enhance and diversify our recent subscriber growth, as well as improve our key metrics.

In India, we continue to invest in target into the entry level customers, bundled customers, wherein we offer a value pack via our distribution partners and direct customers. We will continue to focus on middle India for our growth strategy that we believe is the true growth strategy to target a fully paid subscriber base audience and now with our English language service on Eros Now, we will penetrate the top-8 cities and focus on increasing ARPU in a big way.

The impact of stay-at-home culture is not fully reflected in this quarter's subscriber base. However, I am pleased to share now, more than ever, the importance of our large library and ability to be nimble. We released original music and three original shows during the lockdown and found that consumption of our library of films has doubled. India is going to see a further surge of growth coming into the large screen plays with smart TV OEMs looking at video as their primary driver for sales and adoption, which is further fueled by high-speed broadband by Jio GigaFiber, Airtel Extreme and other services in the country. We are gearing up to take advantage of these trends across a well-entrenched distribution network that we have built.

The entire funnel of video viewers in the country is going to grow drastically as more users coming into the short film funnel [Technical Issues] converted into paid subscribers. Eros Now itself achieved a 15% conversion this quarter alone and we aim to grow and continue monetizing and converting our base to paid subscribers. The changes in the ecosystem presents a really exciting opportunity unfolding for Eros Now and we are excited to be a part of this digital transformation, capitalizing on growth trends while providing an invaluable customer experience.

I would now like to pass the line to Pradeep Dwivedi, CEO Eros India.

Pradeep Dwivedi -- Chief Executive Officer, Eros India

Thank you, Rishika. First, for the benefit of those who might be new to Eros, I want to highlight some of our studio strengths. As one of the leading participants in the Indian film entertainment industry, we believe that our size, scale and market position will continue contributing to our growth in India and internationally. We have established our size and scale by aggregating a film library of thousands of films over the years. We have demonstrated our market position by releasing, domestically or globally, Hindi language films which has been consistently among the top grossing films in India over the past few years. We have released 36 of the top-110 highest grossing box office films in India in the past decade or so. We do believe that we have very strong relationships with the Indian creative community and a reputation for quality productions. Eros as a brand is dominant across South Asian diaspora worldwide, with a 40-plus year of history, and it is synonymous with popular films in multiple Indian languages as demonstrated by our consistent leading market office -- box office market share. This means that we are well positioned to continue the shift to digital and direct-to-consumer.

These factors, along with our digital and worldwide distribution platform will enable us to continue to attract talent in film projects of a quality that we believe is one of the best in our industry, and we've built, what we believe, is continuing to be a strong film slate in the coming years with some of the leading actors and production houses with whom we have previously delivered our biggest hits. We believe the combined strength of our new releases and our extensive film library positions us well to build the new strategic relationships.

At the most fundamental level, it is a deep-rooted relationship with marquee Bollywood talent across acting, directing, cinematography, sound and music, choreography, that really makes the magic. Eros has unparalleled global production capabilities augmented by innovative and rich partnerships with leading producers and platforms.

And our most recent strategic collaboration with Epic Games, which, as most of you would know, are the producers of the popular game Fortnite, will allow us to use Epic's Unreal Engine across the production slate, paving the way for real-time technology throughout Indian entertainment. Our combination of technology and creativity is fundamental to our formula of sustainable business success.

At this point, I would like to pass on the mic to my colleague Prem Parameswaran, who's CFO of Eros PLC and President of our North America business. Prem?

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

Thanks, Pradeep. Good morning everyone again, and thank you for joining us on our earnings call. I want to share with you some of our financial highlights for this quarter and fiscal year-end and then we will take some questions. This year, we generated $155.5 million in revenue and $54.8 million in EBITDA, which represents a margin -- EBITDA margin of 35.3%. Our Eros Now business had a very strong year, as Rishika pointed out, ending with 29.3 million monthly paid subscribers and a 196.8 million registered users, increases of 56% and 27%, respectively over the same period last year.

Eros Now digitally released a total of 630 films in 12 different Indian languages, over 8,000 music audio and video files, as well as over 500 units of short-form in Eros Now originals and quickie content. We ended the year with net debt of just $176.4 million, which implies a net debt-to-EBITDA ratio of 3.2 times. Our trade receivables balances has also decreased meaningfully from last fiscal year and now stands at $102 million. We are very excited about our merger with STX.

And with that, thanks for listening, we're now happy to take your questions.

Questions and Answers:

Operator

[Operator Instructions] And from Wells Fargo, we have Sanjay Mathur. Please go ahead.

Sanjay Mathur -- Wells Fargo Securities -- Analyst

Hi, Kishore, congratulations on completing the merger with STX. You mentioned that you will be basically announcing the merger closing in the next couple of hours. Could you give a little bit of idea, I know COVID is here, but in the -- around 2022 or so, an idea where your revenues and EBITDA might be? If you can give that ballpark figure, it'll be really exciting.

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Yeah, you see -- thank you, Sanjay and thank you for -- Wells Fargo for our support. You see, I think as a strategic vision for Eros STX, we have various combinations to drive the long-term growth of the diversified markets and provide more consistent and stable revenue profile. I think you will have Eros Now growth, you will have the different -- STX slate is the best slate this year. There will be a lot of details in the merger announcements, so I will not be able to talk much on that, but I think the last -- on the closure of the merger, when we announced, the revenues for December '19 were $600 million for the company. And I think we are not giving any guidance for this year or the next year until the -- everything goes to normalcy. But we are looking at -- after the normalcy is achieved, we are looking at a $1 billion revenue for 2022.

Sanjay Mathur -- Wells Fargo Securities -- Analyst

Okay, that's exciting. Some more questions, Kishore, for you. We see the net debt for the combined company probably will be down substantially, as Prem mentioned, receivables are down very substantially. So as the net debt has come down and STX has guaranteed $300 million in revenue coming in the next couple of years and J.P. Morgan is extending your credit line of $350 million. So you probably will have the most amount of money you've ever had as a company. Can you give some guidance on -- or give us some idea how your slate would look in the next 18 to -- 18 months to two years?

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

I can talk about -- as I said that at the completion of the merge, I would like the new management, our CEO and Co-Chairman, Bob Simmons and Co-President with Rishika and Noah Fogelson and also Andy Warren, the CFO of the company, to talk about the various exciting things which are going to happen with this new company. But just to give you, the money, as you rightly said, from the previous announcement of 17 April, is going to be deployed in content and we keep the leverage low, and the net debt figures and the cash balances figures will be in the announcements soon, we will wait for that.

And there is a full slate of also the STX and Eros in that merger announcement. I think we're just one or two, three hours away, whatever the last pieces of the merger, which had to be technically done. So I don't want to take the thunder away from the announcements, so let's wait for that. But you would have an amazing slate, I can promise you and STX has built in really an amazing slate and has a lot of talent. And as you know that Bob has an amazing relationship with the talent within the Hollywood industry, I think he's going to capitalize this in a big way and you will see the best slate coming out of STX in Hollywood also.

Sanjay Mathur -- Wells Fargo Securities -- Analyst

Thanks, Kishore. I have some questions for Rishika and Pradeep.

Pradeep Dwivedi -- Chief Executive Officer, Eros India

Yes, Sanjay.

Sanjay Mathur -- Wells Fargo Securities -- Analyst

Pradeep, you have some background in advertising and so does Ali Hussein when he joined from YouTube. Your registered users have almost -- close to 200 million now. At what point do you want to monetize the registered users with bringing advertising in just like Hulu does and WeTalk [Phonetic] which just launched? Can you give a little bit of feeling on when we should expect some kind of advertising revenue coming from you guys?

Pradeep Dwivedi -- Chief Executive Officer, Eros India

Sure, Sanjay. At a strategic level, India is a big advertising-driven market and as you know price sensitivity, especially in emerging markets, such as India, parts of Middle East, Africa, North Africa, etc, and other South Asian markets remains very high. So we do believe that the advertising revenues represents a significant opportunity for us to monetize the content. But you do realize that it also diverts the viewer experience in a significant way. So our current Eros Now strategy on streaming, as Rishika would expand on it, would also allude to the fact that we want to be an uninterrupted on-demand viewing platform and continue to build really good quality audiences as we move forward.

We do recognize that the advertising revenue represents a significant market opportunity and what we really want to do is look at all of our strategic options in terms of investing in platforms and technology. And as the market continues to mature, and we see a significant uptake on the advertising revenue side as well, we will definitely explore all of these business models. As our Chairman and CEO, Kishore just pointed out, there is a long-term strategic thinking going on in the group, as we -- both with our merger partner. And we -- you can look forward to some exciting directions in that area as well.

Sanjay Mathur -- Wells Fargo Securities -- Analyst

Rishika, I wanted to ask you about the Microsoft partnership which you just highlighted. So when do you expect the dubbing part of the technology to take place? Because that is an unbelievable market worldwide when you can dub into different languages in India and other parts of the world. Can you give some idea of when we should expect the Microsoft dubbing technology to take place?

Rishika Lulla Singh -- Chairman, Eros Digital

Hi, Sanjay. Great to speak to you today. The Microsoft partnership is something we're really, really excited about because it actually changes the entire viewing experience for the customer. And as I mentioned, technology is actually going to become the backbone for us to start meeting and expanding upon our own KPIs on performance. The dubbing part is particularly, particularly interesting. It's something that we're very focused on and we're currently in a R&D phase to figure out the smoothest way and the most seamless way for that to happen because the most important part of the dynamics of stopping [Phonetic] and dubbing is that it should seem as natural as possible, so to not interfere with the viewer experience so that we can start capitalizing on global trends of content crossing borders. So R&D is under way and we're hoping to have a really, really cool flashy and precise product on that front.

Sanjay Mathur -- Wells Fargo Securities -- Analyst

Rishika, a couple of more things. You've said that NBC Peacock will be launching. Can you give an idea when you are going to launch the Peacock subscription service Eros Prime and how it will integrate with Eros Now? What kind of model will take place? And how will it help us get more subscribers?

Rishika Lulla Singh -- Chairman, Eros Digital

Absolutely, so with NBC, we have a great relationship, wonderful guys and the way our deal actually works is as we have that content libraries for Eros Now, so we're looking to launch that within the next few months, and it wouldn't be just NBC. We'll hopefully be announcing some other really fun pieces of content to start supporting the Eros Now English language service but what's most exciting about that is, it actually helps us penetrate deeper into India's top-8 cities, which have a higher share of the ARPU. So as we continue to focus, not only going wide on our subscriber base, this becomes really key and pivotal for us to drive those ARPUs up even further.

Sanjay Mathur -- Wells Fargo Securities -- Analyst

Thanks a lot, Rishika. One last question for you, Kishore. Basically, you guys had mentioned at the merger announcement about $50 million in synergies when the company merges. Can you give us an idea how these synergies will be achieved?

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

I would like this to leave it to Andy Warren to explain it. He'll explain it at the announcement. I don't want to take all the questions of the merger this morning until the details are published.

Sanjay Mathur -- Wells Fargo Securities -- Analyst

Okay. I appreciate it. Thank you for taking all the questions. Good luck.

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Thanks, Sanjay.

Operator

From Macquarie, we have Tim Nollen. Please go ahead.

Tim Nollen -- Macquarie Research -- Analyst

Thanks. So should we expect later today or in the next few days a separate release and even a call with more details on the merger announcement with things like targets and so forth? Is that to come in the imminent future?

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Yeah, hi, Tim. Good morning. I think you will expect a press release today about the merger.

Tim Nollen -- Macquarie Research -- Analyst

Okay. So more details will come in that. So we just have to wait for that to come.

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Yeah.

Tim Nollen -- Macquarie Research -- Analyst

Okay.

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

I think in two, three hours you should have that. And I think also, you will see that in this announcement, you will see that we'll have -- we'll talk about the Investor Day and all those things, which you will get more color and you can then talk to the new management also. You will have that.

Tim Nollen -- Macquarie Research -- Analyst

Okay. So we'll have some combined company numbers and then there is an Investor Day coming up as well.

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Yeah, the Investor Day and the combined company's numbers will come later, but you will have some color on the guidance for some color -- on the 22 and what is the whole criteria of the logic and what we are going to do. You will have that.

Tim Nollen -- Macquarie Research -- Analyst

Okay. So we'll wait for that. So on the numbers that we do have then, the March quarter, you had a revenue drop of about 50%, 60%. I just want to understand -- I'm sure COVID affected that toward the end of the quarter in March, but can you speak to some of the components of that? I mean, I would assume Eros Now was probably still quite good and it was film and TV that suffered. Could you give us a little bit more color on March?

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Definitely, definitely, Tim. I think if you look at even the last year announcement, we said that this year our revenue is going to be less than the last year because we have stopped syndicating annual business inflection point we were waiting for, whereby we are trying to become a digital company rather than all-traditional media company and that's what has happened, so that we're going to rely on the recurring revenue and the subscriber growth. So we stopped syndicating last year. And also if you look at this quarter, the March quarter was practically a wash out from the Eros studio point of view because of the COVID and no theatrical releases in theaters, and the other syndication and TV point of view.

But digital is growing. Our revenue -- our EBITDA guidance for March '20 was anywhere between $70 million to $80 million. We have even achieved without -- with the COVID effect about $55.6 million EBITDA, which is a remarkable achievement for Eros' management team. And I think with the future now, naturally, we'll see in the merger announcement, how we are looking at the future, especially now with Eros Now, and the inflection point has happened, the recurring revenue is going up. That will help Eros Now in a big way and also the digital component of the Eros path and really excited about the future, Tim.

Tim Nollen -- Macquarie Research -- Analyst

So I'll just split out Eros Now really specifically. If your paid sub number was up -- your user number was up, I mean, I would assume Eros Now revenue growth was probably still OK. Or was there anything in ARPU, for example, or anything in distribution deals that might have weighed on the revenue growth? I just want to make sure Eros Now is healthy, which I assume it is.

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Yeah, no, it's very healthy. No, if you look at it now, so assume, suppose Eros Now growth, as we rightly said -- we have been talking since a couple of two, three years, so B2C, B2B2C revenues, now you will see that when the transition is happening, say from B2B2C to B2C consumer, the ARPU will keep up rising. And then as we have guided the market about 50 million subscribers by 2022, we will be on target to achieve that. And I think the best thing would be that, how do we actually transition from B2B2C to B2C, which will result in more higher ARPU of revenues for the subscribers in the next two years. And I think with this sort of a silver lining, as you can say, that COVID could help us in achieving that. Naturally we can get hit by the theatrical at the Eros studio side, which is fine as long as we are going to achieve more subscriber growth and higher ARPU revenues and more engagement within the Eros Now itself worldwide.

Tim Nollen -- Macquarie Research -- Analyst

Okay. Few more actually -- oh, and did you give a free cash flow number for the year-end? I didn't hear that.

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

No, we didn't. I think it's in the 20-F, you can do this, and please go through all the numbers and then -- we are catching up today anyway, so we can...

Tim Nollen -- Macquarie Research -- Analyst

All right, I'll check that. A couple of more then. Is it possible -- are you willing or is it possible to give June numbers for Eros Now for subscribers or anything?

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Yeah, I think June numbers, I think -- Rishika?

Rishika Lulla Singh -- Chairman, Eros Digital

Yeah. Tim, we'll definitely be sharing the June numbers in due course. But we're really, really excited. We would have seen the quarter growth stronger than the previous quarter, which we've just announced which is up to March 31. We would have also seen some really great increased metrics that we track internally across things like time spend, engagement, etc, and you would have also seen a more diverse profile of subscribers coming in at a global scale, as well.

Tim Nollen -- Macquarie Research -- Analyst

Okay, great. I noticed the number you said consumption outside India was up 47%, so I'm assuming your ex-India subscriber penetration and usage is going up, which should be good for ARPU, correct?

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Yeah.

Rishika Lulla Singh -- Chairman, Eros Digital

Definitely, and we'll also be launching in the balance countries with Apple. So we're currently only kind of live in the U.S., Canada and India. Our deal with them covers worldwide territories, so we're looking forward to the rest of them rolling out throughout the year.

Tim Nollen -- Macquarie Research -- Analyst

Great. Can I ask just two last ones, please? I don't know if you can answer this now, maybe I have to wait for the merger announcement, but once you're together with STX, what more can you tell us about what content will be on Eros Now? I assume they would have pre-existing distribution deals with other OTT services. But is it like any new films from them will come on to your service or is there any in their library that will be on Eros Now?

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Yeah, I think, if you look at Eros Now, not only from the STX perspective, let's assume, I'll talk about the general perspective now. As we have a deal with NBCUniversal, so whereby we have X thousand hours from NBCUniversal, which comprises of the old -- their library content and the new content and the episodic content, similar to kind of deals you will see with the other studios, which we have finalized, which we'll be announcing soon. So you will see a full Eros Now prime service and the major thing would be, as Rishika talked, a couple of this service will be higher and we are targeting the 8 metro cities, the consumer of this service, whereby we'll -- the ARPU will go up. And, of course, depending upon the STX, the film slate and their output deals, wherever the -- India could be excluded from those deals, will be part of the Eros Now service or until then whatever they have signed, whatever we have to honor, we'll honor that. And in the future, that will become the part of the Eros Now service.

Tim Nollen -- Macquarie Research -- Analyst

Right. That's what I thought. Very last question. Debt -- net debt, you said, was $176 million. What is the structure of the net debt now? You had a convertible bond, I believe that might be gone now. Could you just fill us in on what the debt structure is?

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

As on 30th June, the convert debt is zero, 30th June, there is no convert debt. But you will -- or why don't you wait for the announcement for the merger today, you will have the net debt figure of the combined entity. And so that will be more exciting for you, Tim.

Tim Nollen -- Macquarie Research -- Analyst

Okay. But it's fixed debt, it's not convertible, it's not...

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

No, no, no, not fixed, no, no, no, not at all -- of the combined, it's zero convertible debt.

Tim Nollen -- Macquarie Research -- Analyst

Okay, all right. That's great. Thanks for taking all the questions.

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Thanks, Tim. Have a nice day.

Operator

Thank you. I will now turn it back to Mr. Lulla for closing comments.

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Yeah. Thank you so much. I really want to thank all our shareholders, all our friends, all our team worldwide, all our stakeholders for supporting us and we are embarking on a new journey today, which is -- and I'm really excited about after 40 years of starting Eros. And this will become Eros STX Global Corporation and we're really looking forward to working with my partners and the new stakeholders and the new boat, which is going to be an exciting journey for the years to come. I thank everyone.

Operator

[Operator Closing Remarks]

Duration: 29 minutes

Call participants:

Kishore Lulla -- Executive Chairman and Group Chief Executive Officer

Rishika Lulla Singh -- Chairman, Eros Digital

Pradeep Dwivedi -- Chief Executive Officer, Eros India

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

Sanjay Mathur -- Wells Fargo Securities -- Analyst

Tim Nollen -- Macquarie Research -- Analyst

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