Eros International Plc Reports Third Quarter FY 2019 Results

Eros International PLC (NYSE:EROS) (“Eros”), a Global Indian Entertainment Company, today announced unaudited financial results for the three and nine months ended December 31, 2018.

Eros Executive Chairman and CEO Kishore Lulla commented:

“We grew quarterly revenue 21.0% over last quarter and expanded our Adjusted EBITDA margin to 40.9%. Our foresight into creating a diversified slate, both linguistically and by budget, helped deliver strong television sales as well as theatrical and digital results. Our Eros Now OTT platform has continued to grow rapidly and reached 15.9 million paid monthly subscribers as of December 31, 2018, a 22.3% increase over last quarter. We have achieved our previously announced year-end target of 16 million paying subscribers in just nine months. This tremendous achievement in a relatively short period of time demonstrates that we are well on our way to achieving 50 million paying subscribers in the next three years. Our balance sheet remains conservative and we are well-capitalised, with net debt of $159.1 million, a decrease versus the second quarter of FY 2019.

Q3 FY 2019 Results

We achieved our strongest quarterly revenue performance in more than two years, $86.6 million in gross revenue and $76.7 million in reported revenue after the impact of IFRS 9 and 15. The growth was fuelled primarily by Eros Now and by $41.1 million in revenue across theatrical and television businesses. Our digital & ancillary business generated $35.6 million in revenue, a growth of 31.4% over last quarter, and represented 46.4% of our total revenue this quarter – the largest proportion ever. Eros Now achieved 15.9 million paid subscribers this quarter, which represents growth of 218% year-over-year, and registered users grew to more than 142 million, a 78% increase versus the prior year period.

Eros is currently at an inflection point transforming itself into a holistic content and digital ecosystem. As we continue to undergo this shift we expect the skew of digital and ancillary revenues to increase relative to our traditional theatrical and TV syndication businesses. The shift to digital will increase the visibility of our earnings as we move towards a more annuity-type business model – higher quality of earnings and more sustainable growth.

Content

As we look ahead to Fiscal Year 2020, we believe we have a strong film slate, which includes Saif Ali Khan starrer ‘Kaptan’, the trilingual remake of ‘Haathi mere Saathi’, ‘Kaamiyab’, ‘Ticket to Bollywood’, and a host of regional releases. In addition, we have a host of remarkable originals such as ‘Dashavtar’, ‘Ponnyin Selvan’, ‘Flesh’, ‘Bhumi’ coming up on ErosNow that we look forward to releasing in the upcoming quarters.

The theatrical slate this quarter included the critically acclaimed ‘Tumbbad’, ‘Boyz 2’ (Marathi), ‘Mumbai Pune Mumbai 3 (Marathi)’, Andhadhun’ (Hindi), ‘Helicopter Eela’ (Hindi) and ‘Namaste England’ (Hindi) and our twin Telugu releases ‘Amar Akbar Anthony’ and ‘Savyasachi’ amongst others. Over the last nine months we have released 56 films and four digital series and are on track for our strongest year in terms of output. Consistent with our strategy to create compelling premium content within a controlled budget, we had 25 releases this quarter which spanned genres and budgets. Our two December 2018 Eros Now digital premieres of our theatrical releases in an exclusive post-theatrical first window, ‘Happy Phir Bhagjayegi’ and ‘Manmarziyan’, drove an average 75 minutes of session time, which is materially higher than the industry average of 30-50 minutes across Indian OTT platforms in 2018. To put that in context, the average session time on YouTube is between 8-12 minutes.

Over the past nine months we have digitally-premiered a total of 46 movies on Eros Now. This quarter Eros Now successfully premiered 19 movies across seven Indian languages: Hindi, Marathi, Malayalam, Assamesse, Gujarati, Bengali and Kannada.

Our focused approach of choosing a balanced content slate spanning genres, languages and budgets, continues to deliver positive results and contributes to our growing high-quality library. Our TV syndication business thrived on the back of a strong theatrical release slate and growing global demand for film content in the analogue and PayTV windows. We currently have TV syndication content deals in place with over 30 international broadcasters and digital platforms around the world including the US, Asia, Europe and the Middle East. This is a testament to the continued demand for quality content amongst Indian PayTV platforms, as well as to the quality of our library catalogue and theatrical releases. In December, we announced that we had executed several significant long-term television syndication deals with leading TV networks around the world. The deal encompasses over 60 catalogue films from Eros’ vast library syndicated across global broadcast companies including Viacom – Colors in India, SABC in South Africa, E Vision in the UAE and Tanzania TV, among others.

We have grown our digital catalogue on the Eros Now Platform to over 12,000 movies across 10 Indian languages and counting. This quarter, we released one film or digital premiere on Eros Now weekly, added 165 music videos and 445 movie titles.

The launch of our digital series, comprising a broad mix of genres ranging from comedy to horror and crime thriller has proved successful. Eros Now originals are gaining critical acclaim. We won over ten awards for our originals ‘Side Hero’ and ‘Smoke’ across various platforms. These shows were a first step towards driving ‘Binge Watching’ habits on the platform, which resulted in a 25% increase in average subscriber session time. In addition, our series ‘Smoke’ has also recently been nominated at SXSW under the ‘Title Design’ category. Fellow nominees also include Black Panther, Aquaman, Deadpool 2 and Mowgli. We launched our latest Eros Now original series, Operation Cobra, last week – a slick, action-packed spy thriller set in the UK.

We also recently launched Eros Now Quickie, an innovative platform for high quality short form original content. We have now launched ten original Quickie episodics including, ‘Date Gone Wrong’ and the fun-series ‘Paisa Fek Tamasha Dekh’ as well as over 26 ‘mini-movie’ premieres. We are planning to release at least four pieces of short-form content each month on the platform. Engagement data has been very encouraging from consumers - across Quickie content we have a 75% retention rate from episode to episode.

We have a very compelling upcoming slate of Eros Now originals, below are some of the highlights of our pipeline:

• Dashavatar with Anirudh Pathak: (Target release: February 2019)
• Ponnyin Selvin with Krish Jagarlamudi: (Target release: March 2019)
• Flip with Bejoy Nambiar (Target release: March 2019)
• Flesh with Siddharth Anand: (Target release: March 2019)
• Mrityulok with Zeishan Qadri: (Target release: March 2019)
• Bhumi with Pavan Kripilani: (Target release: April 2019)
• Crisis with Nikhil Advani and Gaurav Chawla: (Target release: May 2019)
• Sanyasi Raja with Prakash Jha: (Target release: June 2019)
• Kurukshetra: (Target release: TBD)
• Blue Oak Academy: (Target release: June 2019)

The music ecosystem in India has been growing exponentially over the past few years. In India there are currently over 100 million digital audio streaming users, a number which is growing rapidly. Music is integral to our films and our premium content offering to consumers. Film music is often marketed and monetized separate from the underlying film, both before and after release. Our deep music library comprises a key component to our unique Eros Now offering, being the only app combining both video and music entertainment. Our music content also represents significant value in the form of intellectual property rights, the value of which is set to grow over time.

Music is a key focus area for us going forward as well as a vital component of the content ecosystem. This quarter we released 11 original singles and signed five artists. Over the next three years we envision having over 60 artists signed and releasing original music daily.

Product, Technology and Partnerships

Refining and creating a unique and seamless product for our 140 million plus registered user base is at the core of what we do. We continually test and tweak across the 150 countries we are present to test not only new features, but also new distribution models.

This quarter Eros Now entered into a strategic partnership with the Indian telecommunications operator BSNL. A first for an Indian telecommunications operator, the Eros Now service will be bundled in price and sold as a stand alone service with the telecommunications operator’s post paid and pre paid subscription price. We are excited about this partnership and the strong prospective subscriber growth expected. International Distribution also got a boost with the launch of Celcom and Etisalat partnerships in the third quarter, as well as closure of large deals in the UK and Africa. Importantly, we witnessed 3X growth in Eros Now Users on Amazon Fire TV and Amazon Channels in the US and UK. Next quarter will be an exciting quarter as we open out some new and non-traditional markets for Eros Now and a continued focus on distribution in China.

Large themes for product strategy going forward will be based on improved modalities around consumer payment and loyalty, improving search and recommendation, launch of the linear product feature on Eros Now, new video player with custom features and localization development for the service. We continue to work with our product partners to focus on “deep integrating” the Eros Now service across major large screen and small screen partners across the world.

Competition and Outlook

The shift to streaming is accelerating at a rapid pace globally – India is no exception. Media and OTT players everywhere are in land-grab phase. The digital opportunity in India is enormous and we believe we are well-positioned to achieve a meaningful share of the total addressable market. A recent Morgan Stanely research report1 made the case for the competitive advantages of OTT platforms with scaled, global consumer relationships and unique compelling IP. The same report highlighted Eros Now as being the fourth largest OTT platform globally – behind only Netflix, Amazon and Hulu. We have the largest movie library with over 12,000 titles, a growing stable of short form digital content through our flagship Quickie platform and a growing music library. Our goal is to reach a total paid subscriber base of over 50 million subscribers, including at least 10 million B2C (direct-to-consumer) subscribers, within three years. Over the same period we expect the mix of domestic paying subscribers versus international paying subscribers to be approximately 80/20.

Indian language content remains the main driver of video consumption across the digital ecosystem, it is estimated that only 7% of digital content is English language. Our large diversified library gives us significant competitive advantage compared to our peers. Our output of new originals and digital premieres is larger than any other OTT player in India – including international and domestic players. Eros Now is also unique in that we are the only service that offers a combined music and video entertainment experience. With our aim to release an original track daily and the continuous increase of our library supplemented by the studio business, we believe there is a market opportunity ready to be taken.

Our recent BSNL deal and international strategy are one of the primary steps to achieve 50 million subscribers over the next three years as well as deepening relationships with key partners such as Roku, Amazon devices and channels etc. We have a strong track record and leading box office market share in our theatrical business. China continues to be focus area for our business and we are making inroads. Our recent partnership with iQiyi allowed us to expand our footprint into the fast-growing Chinese market with one of the largest online video sites in the world. We are also progressing with multiple distribution deals for the theatrical exploitation of some of our content in China. With our deep talent relationships, data learnings and premiere writers room we are confident in creating groundbreaking, cinematically acclaimed content across a financially and linguistically diversified slate. Over the past 10 years Eros has been responsible for 36 out of the top 110 highest grossing box office films in India.

We have always believed in being at the forefront of technology when it comes to delivering content to our 1.6 billion plus audiences in India and around the world. With an eye for content and deep user understandings we are excited for the realm of possibilities that lay ahead for video content consumption. We strongly believe that the quality of content should mirror the levels of sophistication and engagement from the user. Beyond our current efforts in content creation we are exploring an alternative reality to create the ultimate user experience. The Eros Now Extended Reality experience will drive deep connected engagement from our audiences where the lines between the real world and the simulated world can be blurred. This will be an ultimate immersive premium content experience.”

1 Morgan Stanley. Swinburne, B. (January 24, 2019) 2019 Outlook – The World Pivots to Streaming.

Eros International Plc Financial Highlights :

Financial Results for the Three and Nine Months Ended December 31, 2018

Revenue

In the three months ended December 31, 2018, the Eros film slate was comprised of 25 films, of which two were medium budget and 23 were low budget as compared to four films in the three months ended December 31, 2017, of which all were low budget films. In addition, Eros Now released three original series titled Smoke, Date Gone Wrong and Paisa Fek Tamasha Dekh during the three months ended December 31, 2018.

In the three months ended December 31, 2018, the Company’s slate of 25 films comprised of six Hindi films, 17 regional films and two Tamil/Telugu as compared to the same period last year where its slate of four films comprised three Hindi films and one regional film.

In the nine months ended December 31, 2018, the Eros film slate was comprised of 56 films of which seven were medium budget and 49 were low budget films as compared to 16 films in the nine months ended December 31, 2017, of which one film was high budget, three were medium budget and twelve were low budget. In addition, Eros Now released four original series titled Side Hero, Smoke, Date Gone Wrong and Paisa Fek Tamasha Dekh during the nine months ended December 31, 2018

In the nine months ended December 31, 2018, the Company’s slate of 56 films comprised of 14 Hindi films, five Tamil/Telugu film and 37 regional films as compared to the same period last year where its slate of 16 films comprised of eight Hindi films, one Tamil/Telugu films and seven regional films.

Gross revenue for three and nine months ended December 31, 2018, respectively are $86.6 million and $225.6 million compared to $67.5 million and $193.7 million for the three and nine months ended December 31, 2017, respectively. Gross revenue for the three and nine months ended December 31, 2018, respectively, have been adjusted towards significant financing component on account of adoption of new accounting pronouncements.

Accordingly, the Company’s reported revenue for three and nine months ended December 31, 2018 are $76.7 million and $200.4 million, respectively, compared to $65.2 million and $189.3 million for the three and nine months ended December 31, 2017, respectively. Adjustments to reported revenues upon adoption of new accounting pronouncements for three and nine months ended December 31, 2018 are as below.

For the three months ended December 31, 2018, aggregate theatrical revenues increased by 69% to $21.8 million from $12.9 million for the three months ended December 31, 2017 and in the nine months ended December 31, 2018, revenue decreased by 0.7% to $55.5 million, compared to $55.9 million for the nine months ended December 31, 2017. The variation in theatrical revenue is primarily due to mix of films.

For the three months ended December 31, 2018, aggregate revenues from television syndication decreased by 34.4% to $19.3 million from $29.4 million for the three months ended December 31, 2017 and in the nine months ended December 31, 2018, revenue decreased by 20.7% to $55.5 million, compared to $70.0 million for the nine months ended December 31, 2017. The decrease is mainly due to lower catalogue sales during the period.

For the three months ended December 31, 2018, the aggregate revenues from digital and ancillary increased by 55.5% to $35.6 million from $22.9 million for the three months ended December 31, 2017 and in the nine months ended December 31, 2018, revenue increased by 41.0% to $89.4 million, compared to $63.4 million for the nine months ended December 31, 2017. The increase in revenue is primarily on account of contribution from catalogue revenues and digital business.

Revenue from India increased by 27.4% to $28.4 million in the three months ended December 31, 2018, compared to $22.3 million in the three months ended December 31, 2018 and in the nine months ended December 31, 2018, revenue from India increased by 3.8% to $75.8 million, compared to $73.0 million for the nine months ended December 31, 2018. The variation is due to mix of films.

Revenue from Europe increased by 141.2% to $12.3 million in the three months ended December 31, 2018, compared to $5.1 million in the three months ended December 31, 2017 and in the nine months ended December 31, 2018, revenue from Europe increased by 118.8% to $43.1 million, compared to $19.7 million for the nine months ended December 31, 2017. This was due to higher contribution from the monetization of catalogue films.

Revenue from North America increased by 700.0% to $0.8 million in the three months ended December 31, 2018, compared to $0.1 million in the three months ended December 31, 2017 and in the nine months ended December 31, 2018, revenue from North America increased by 114.3% to $1.5 million, compared to $0.7 million for the nine months ended December 31, 2017.

Revenue from the rest of the world decreased by 6.64% to $35.2 million in the three months ended December 31, 2018, compared to $37.7 million in the three months ended December 31, 2017 and in the nine months ended December 31, 2018, revenue from rest of world decreased by 16.6% to $80.0 million, compared to $95.9 million for the nine months ended December 31, 2017. This was due to lower catalogue sales during the period.

Cost of sales

For the three months ended December 31, 2018, cost of sales increased by 45.9% to $44.5 million compared to $30.5 million in the three months ended December 31, 2017 and in the nine months ended December 31, 2018, cost of sales increased by 18.4% to $119.1 million, compared to $100.6 million for the nine months ended December 31, 2017. The increase was mainly due to higher amortization costs, higher marketing, advertising and distribution costs.

Gross profit

For the three months ended December 31, 2018, gross profit decreased by 6.9% to $32.3 million, compared to $34.7 million in the three months ended December 31, 2017. The increase was mainly due to increase in amortization, marketing, advertising and distribution costs, which was partially offset by additional adjustment on account of adoption of new accounting standards for three months ended December 31, 2018.

In the nine months ended December 31, 2018, gross profit decreased by 8.5% to $81.2 million, compared to $88.7 million for the nine months ended December 31, 2017. The decrease was mainly due to increase in marketing, advertising and distribution costs and adjustment on account of adoption new accounting standard for the nine months ended December 31, 2018.

Adjusted EBITDA (Non- GAAP)

For the three months ended December 31, 2018, Adjusted EBITDA increased by 21.2% to $31.4 million compared to $25.9 million in the three months ended December 31, 2017.

The increase in Adjusted EBITDA is on account strong catalogue sales which was partially offset by increases in amortization, marketing, advertising and distribution costs for three months ended December 31, 2018.

In the nine months ended December 31, 2018, adjusted EBITDA increased by 39.0% to $81.9 million, compared to $58.9 million for the nine months ended December 31, 2017.

The increase in Adjusted EBITDA is on account of strong catalogue sales, which is partially offset by increases in amortization, marketing, advertising and distribution cost and share based payments adjustment for nine months ended December 31 2018.

Net finance costs

For the three months ended December 31, 2018, net finance costs increased by 77.3% to $3.9 million, compared to $2.2 million in the three months ended December 31, 2017 due to lower capitalization of interest.

In the nine months ended December 31, 2018, net finance costs decreased by 53.1% to $6.0 million, compared to $12.8 million for the nine months ended December 31, 2017 mainly due to unwinding of credit impairment loss reserve by $8.8 million and which was partially off-setted by lower capitalization of interest.

Income tax expense

For the nine months ended December 31, 2018, income tax expenses increased by 36.0% to $6.8 million, compared to $5.0 million in the nine months ended December 31, 2017. Effective income tax rates were 11.6% and 20.0% for December 31, 2018 and December 31, 2017, respectively excluding non-deductible share-based payment charges and gain/loss on fair valuation of derivative liabilities. The change in effective rate principally reflects a change in the mix of the profits earned from taxable and non- taxable jurisdictions.

Trade Receivables

As of December 31, 2018, Trade Receivables decreased to $210.0 million from $225.0 million as of March 31, 2018 after considering expected credit loss reserve upon adoption of new accounting standards during the period.

Net Debt

As of December 31, 2018, net debt decreased by 15.9% to $159.1 million from $189.2 million as of March 31, 2018 primarily on account of additional equity infusion during the period.

Conference Call:

The Company will host a conference call on Thursday, February 21st, 2018, at 8:30 AM Eastern Standard Time.

To access the call please dial 929-477-0448 or 888-254-3590 from the United States, or +44 (0)330 336 9126 or (0)800 358 6377 from outside the U.S. The conference call I.D. number 1016781. Participants should dial in 5 to 10 minutes before the scheduled time.

A replay of the call can be accessed through February 21, 2020 by dialling 719-457-0820 from the U.S., or +44 (0) 207 660 0134 from outside the U.S. The conference call I.D. number is 1016781. The call will be available as a live webcast, which can be accessed at Eros’ Investor Relations website.

About Eros International Plc

Eros International Plc (NYSE: EROS) is a leading global company in the Indian film entertainment industry that acquires, co-produces and distributes Indian films across all available formats such as cinema, television and digital new media. Eros International Plc became the first Indian media company to list on the New York Stock Exchange. Eros International has experience of over three decades in establishing a global platform for Indian cinema. The Company has an extensive and growing movie library comprising of over 3,000 films, which include Hindi, Tamil, and other regional language films. The Company also owns the rapidly growing OTT platform Eros Now which has rights to over 12,000 films across Hindi and regional languages. For further information, please visit: www.erosplc.com.

The cash outflow towards intangible film and content right includes, interest paid and capitalized $7,973 (December 31,2017: $8,684).

Bank prime lending rate (“BPLR”) and Marginal Cost based lending rate (“MCLR”) is the Indian equivalent to LIBOR. Asset backed borrowings are secured by fixed and floating charges over certain Group assets.

Analysis of short-term borrowings

Acceptances comprise of credit availed from financial institutions for payment to film producers for film co-production arrangement entered by the group. The carrying value of acceptances are considered a reasonable approximation of fair value.