Corus Entertainment's (CJREF) CEO John Cassaday on Q3 2014 Results - Earnings Call Transcript

Jul.10.14 | About: Corus Entertainment, (CJREF)

Corus Entertainment Inc. (OTCPK:CJREF) Q3 2014 Results Earnings Conference Call July 10, 2014 3:00 PM ET

Executives

John Cassaday - President, Chief Executive Officer

Doug Murphy - Chief Operating Officer, Executive Vice President

Tom Peddie - Chief Financial Officer, Executive Vice President

Analysts

Vince Valentini - TD Securities

Paul Steep - Scotia Capital

Aravinda Galappatthige - Canaccord Genuity

Haran Posner - RBC Capital Markets

Tim Casey - BMO Capital Markets

Adam Shine - National Bank Financial

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Corus Entertainment Q3 Analyst and Investor Conference Call. During the presentation, all parties will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded, Thursday, July 10, 2014.

I would now like to turn the conference over to John Cassaday, President and Chief Executive Officer. Please go ahead, sir.

John Cassaday

Thank you, operator. Good afternoon, everyone. I am John Cassaday and welcome to Corus Entertainment's fiscal 2014 third quarter report and analyst call. We would like to thank you all for joining us today.

Before we read the cautionary statement, we would like to remind everyone that there are a series of PowerPoint slides that accompany this call. The slides can be found on our website at www.corusent.com in the Investor Relations section.

We will now run through the standard cautionary statement. This discussion contains forward-looking statements that may involve risks and uncertainties. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the company's filings with the Canadian Securities Administrators on SEDAR.

Now we would like to introduce you to the Corus Entertainment team joining us on the call today. We have Tom Peddie, Executive Vice President and Chief Financial Officer, and Doug Murphy, Executive Vice President and Chief Operating Officer.

Turning to slide three of the PowerPoint presentation and our operating results for the third quarter of fiscal 2014. Our acquisition of Historia and Séries+, TELETOON's five specialty television networks and two Ottawa-based radio stations have contributed to Corus' strong revenue and segment profit growth in Q3. With these acquisitions now fully integrated into our scalable technology at Corus Quay, we were able to capture significant cost synergies which translated into immediate gains for the company.

Our consolidated revenues in the quarter were $214 million, up 14%, and consolidated segment profit was $80 million, up 23% from the prior year. These results include 100% of TELETOON as of September 1, five months of Historia and Séries+ and four months of the Ottawa radio stations. With the adoption of IFRS 11 - Joint Arrangements, our operating results for fiscal 2013 have been restated to eliminate the segment profit related to our 50% economic interest in TELETOON which is now recorded under other income. This restatement did not change reported net income for fiscal 2013.

Moving to slide four. The acquired assets have driven our double-digit revenue and segment profit growth for the quarter and contributed to a significant increase in adjusted net income attributable to shareholders, up 21% to nearly $42 million. The seamless integration and subsequent cost savings from these acquisitions, combined with favorable financing terms continues to drive EPS and free cash flow growth for the company and our shareholders.

Our adjusted basic earnings per share attributable to shareholders for the quarter was $0.49, up 20% from $0.41 per share last year. The company also generated impressive year-to-date free cash flow of $182 million compared to $121 million in the prior year. With the integration of our new assets completed, we are pleased to report that we will exceed the top-end of our synergy target range of $12 million to $15 million in EBITDA by 2015.

Turning to slide five. In Q3 our radio results continued to be challenging. A weaker ad market, coupled with rating softness in certain markets resulted in revenue and segment profit declines of 8% and 21%, respectively. On the cost side, the division segment profit decline reflects expected incremental expenses associated with the acquisition and startup of the Ottawa stations. Even with these increased costs, the division achieved strong segment profit margins of 28% year-to-date. Our soft year-to-date results, particularly ongoing national agency sales weakness and the expectation of continued softness in Q4 made it necessary for us to record a non-cash broadcast license and goodwill impairment charge of $75 million in the third quarter.

Turning to our television division. Q3 total revenues and segment profit increased 22% and 30%, respectively. In Q3 softness in ad markets continued particularly in the consumer packaged goods category where lower demand negatively impacted rates. Despite the advertising challenges in the quarter, specialty ad revenues in our television division increased 42% year-over-year, fueled by the addition of our newly acquired assets.

From an audience perspective, the ratings across our core television brands such as W Network and YTV remain impressive while our family brands CMT and ABC Spark are growing smartly. On the subscriber front, revenues grew 24% in the quarter largely due to the addition of these new networks, which offset subscriber declines in our PayTV business as well as some packaging and rate changes on certain specialty networks.

In our international kids business, merchandising, distribution and other revenues decreased 27% in the quarter as a result of timing of studio service work, lower domestic distribution sales and of course lower merchandising revenues. Our ongoing focus on rigorous cost controls, combined with the swift integration of the acquisitions resulted in what we consider very impressive segment profit margins of 43% for the division on a year-to-date basis, up from 41% last year and outstanding margins of 44% in this particular quarter.

Moving to slide six and our outlook for the radio business. To address radio's rating and revenue softness, the division has moved swiftly to implement a turnaround plan. The plan targets our programming strategies and refines our sales structure to significantly lower radio's cost base and position the division for a return to growth in fiscal 2015.

On the programming front, the plan includes extensive research in four key PPM markets to help shape our programming strategies and our branding solutions. In March, the division rebranded two stations to drive rating growth. We launched JUMP! 106.9 in Ottawa with a groundbreaking format that offers listeners more contemporary hits with fewer interruptions delivered in a 90 minute nonstop block. We are confident that this brand will be a very strong performer.

We also extended our portfolio of country-based stations to Woodstock, Ontario with the rebranding of CKDK-FM to Country 104. In addition, we have launched new on-air lineups and refreshed programming for many of our key radio brands, including Toronto's Q107 and Toronto's 102.1 the Edge. In Western Canada, our Vancouver news talk station, CKNW announced the launch of a new series TED Radio Hour featuring the best talks from the culturally iconic TED conferences. This will be a first in Canada and builds on CKNW's brand promise to offer listeners unique and innovative programming with content that appeals to a broad and diverse audience. These are just some of the many programming initiatives that our radio division is undertaking.

On the sales front, radio refined its sales structure and introduced new selling strategies designed to grow local direct retail advertising. The division continued its rigorous focus on costs, further tightening control of its administrative expenses. The turnaround plan led to a reorganization which will result in annualized cost savings in the range of $3 million to $4 million.

Moving to television. In Q4, we expect continued revenue and segment profit growth in our television division. On the advertising front, even though we are facing some headwinds, we are forecasting double-digit growth. The addition of our acquisitions will offset the lower demand we are currently experiencing from the multinational consumer packaged goods category. In Q4, we are also forecasting subscriber growth which is attributable to our new networks.

On the ratings front for Q4, we expect our flagship networks W and YTV to maintain their position as market leaders with their audiences and outperform against their competitive set. We also expect to see continued ratings growth on our family networks, ABC Spark and CMT, which are experiencing a nice lift in audiences. In addition, we anticipate strong rating and revenue increases from Telelatino with the network's broadcast of FIFA World Cup Soccer which has resulted in record-breaking audiences of nearly 2.7 million Canadians for the service during the tournament.

In our PayTV business, viewership of the newest season of Game of Thrones drew record numbers with more than 1.1 million viewers across the country. Game of Thrones has become the most-watched drama series on pay television. While the business saw some slippage in subscribers after the promotional campaign expired, summer retention offers are currently in place to mitigate seasonal churn.

With the rollout of an impressive lineup of new original HBO and Showtime series this summer, subscriber gains in our pay business are anticipated. The schedule includes new seasons of the critically acclaimed Showtime series, Ray Donovan and the final season of HBO's True Blood. A new HBO series called The Leftovers starring Justin Theroux based on the best-selling novel by Tom Perrotta, Sensitive Skin, a new original series starring Kim Cattrall and later this summer the premier of Steven Soderbergh's HBO series The Knick starring Clive Owen as a doctor living in turn-of-the-century New York. We expect these series to generate a great deal of social activity and viewing across platforms.

In our international kids business, important progress has been made on Nelvana's new lineup of global preschool and boys action brands that includes a strong merchandising component. Nelvana has closed a global partnership deal with Nickelodeon on its new preschool girls property, Little Charmers with Spin Master as the global toy partner. Little Charmers is set to air in early 2015, with toys arriving on shelf later in the year.

Nelvana also closed the global master toyco relationship with Spin Master for our preschool boys property, Trucktown based on the award-winning book series. Additionally, Nelvana has two properties in development in the lucrative boys action category, Mysticons created in partnership with Michael Eisner's The Topps Company and Chub City produced by Dentsu Entertainment and Fuel Entertainment. Both series will have strong ancillary merchandising plans in place.

Nelvana continues to make gains on the exploitation of its library with global digital players. Nelvana's brands are now available on Hulu in the United States and on a Nelvana branded iTunes offering in the U.K., which went live in early April. Nelvana is also ramping up as a (inaudible) with YouTube as another source of revenue for its library of more than 4,000 episodes.

In addition, our studio is planning to leverage Nelvana's creative talent by pursuing more production service work opportunities which will drive additional revenues for the business. As part of our growth strategy, Corus will continue to invest in companies that are focused in the new media technology and mobile space, including venture capital companies like Relay Ventures and Disney's Steamboat Ventures and the kids mobile games app company, Fingerprint which recently benefited from a second round of financing from Corus and backing from a new investment partner DreamWorks Animation.

In conclusion, as our third quarter results demonstrate, our acquisitions have been a critical addition to our core business. We look forward to leveraging the opportunities provided by these assets as they strengthen our brand portfolio. While the advertising landscape in fiscal 2014 has been challenging, we are pleased that the company continues to build shareholder value by delivering impressive free cash flow rather, a strong balance sheet and superior segment profit margins.

We are highly confident that we will see a solid return to advertising growth in fiscal 2015. Why? While customers planning cycles, particularly in CPG that reflect the devalued Canadian Dollar will now be able to start off with a fresh start for fiscal 2015, secondly, we will have no Olympics and no World Cup to contend with and third, we saw of some very strong upfront performance on our key brands with our major customers.

Of course, the CRTC's Let's Talk TV process is of great interest to the entire industry and probably most of you know that in Corus' submission we stated that the Canadian broadcast system is working well for all constituents, including consumers, and that a regulated à la carte regime would dramatically change the existing infrastructure and lead to a massive reduction in jobs across Canada. Canadians enjoy a great variety of programming from everywhere and while we do need to examine how we regulate the system as the environment changes, we need to do this analysis with a complete understanding of the facts, our history, our standards and our goals.

We believe the problem is not an absence of choice. There is an abundance of choice. We believe the problem relates to the perception of the current value equation. All participants in the broadcasting system have a vested interest in retaining their customers. Corus will do this in a market responsive way with more innovation while providing increased value to consumers. Our market experience suggest there is no upside for Canadian consumers, programmers and those they employ to change the existing system in the manner proposed.

The American regulator, the Federal Communications Commission has already come to this conclusion, even with dramatically superior economies of scale in the U.S. market. Regulation in the proposed form could also miss the goal by actually reducing choice and value for consumers. We look forward to appearing at the hearings in September to present our views to the CRTC.

We hope you have found these comments helpful, and we will now be delighted to take any questions that you may have. So, operator, back over to you.

Question-and-Answer Session

Operator

Thank you, John. (Operator Instructions). Our first question comes from the line of Vince Valentini of TD Securities. Please proceed.

John Cassaday

Good afternoon, Vince.

Vince Valentini - TD Securities

Hi, guys. Thanks. Can I just ask the standard question, as you can appreciate, we know these acquisitions are working out well and the synergies are nice, but that the topline growth numbers are somewhat irrelevant given all the acquisition contribution. Can you strip out for us just what the organic TV segment revenues were this quarter, both for advertising and subscriptions?

John Cassaday

Well, no. I mean, again, we are talking about the total company and again, our view is somewhat different than yours, Vince. I look at this really not much different than had we done line extensions. These are core business, bolt-on acquisitions done immediately accretive. The growth is there. I think the key thing is we remain optimistic that given our competitive position, as I said in my opening remarks, that we are going to see a return to ad growth on our core business in fiscal 2015. We believe that that is going to be the case for both radio and television and in fact all sectors of our television business but suffice to say as we signaled in our last call, the ad results in Q3 were as expected below a year ago.

Vince Valentini - TD Securities

Okay. Maybe I will try one other one. The radio restructuring program, do you have any sense of what the restructuring costs could be in order to get at the $3 million to $4 million in cost savings?

John Cassaday

Yes, around $4 million.

Vince Valentini - TD Securities

Great. Thanks.

John Cassaday

Thanks, Vince.

Operator

Our next question comes from the line of Paul Steep with Scotia Capital. Please proceed.

Paul Steep - Scotia Capital

Great. Thanks. John, maybe you could talk a little bit about, you talked about the talking TV submission in general, but in there specifically, to the skinny basic, you talk about threats to the children's genre and argue for Treehouse and YTV being in the basic segment. Maybe if you could talk a little bit more to the view behind the work you did on that submission?

John Cassaday

Thank you, Paul. Our view is that the Canadian system has been cobbled together over the last 40 years, recognizing that unlike any other broadcast system in the world, we have, as a former colleague of mine used to say, 85% of our seats facing the back of the auditorium and that is all Canadians have access to virtually all of the top U.S. shows. So there is a form of protectionism inherent in our system, but we have protected many industries in Canada, including recently, the automotive industry.

So our view is that we need to do better job explaining to Canadian consumers how valuable the Canadian system is to them and that it's worth giving up a little as it relates to freedom of choice and only in that way are they gong to continue to have access to Canadian stories and particularly Canadian news and sports, but also Canadian drama and lifestyle shows, which we don't think are going to be affordable in an environment that results in significant loss of penetration. So we will argue that the system is evolving as it should, that there is lots of choice for consumers out there and that we should be perhaps more patient in seeing how things evolve before we dramatically alter the status quo.

It's true that if you were to ask any kid whether they would like two scoops of ice cream or one, they would choose two and if you ask any consumer including even an employee at Corus, if they would prefer to have complete freedom of choice on cable, they would say yes, but the reality of it is that that is not really the case. We have presented a very compelling piece of consumer research offered by Prof. Dilip Soman at the Rotman School of Management at the University of Toronto that talks about how perplexing and confounding a plethora of choice is in fact to consumers.

And he illustrates in a number of different cases how presenting more choice to the consumer actually results in less consumption and less satisfaction than more, quite frankly, consumers find too much choice utterly confounding and perplexing. And what we will point out to the commission, the CRTC, is that our worry would be that given a skinny basic and an à la carte regime that consumers will opt-out for Netflix and anything that makes it simpler for them than what the commission is proposing now.

My final comment would be that, I think that we should all look at this as like the beginning of a union management negotiation where there is a polarization on the table. I do not believe that that we will end up in a situation which has skinny basic and à la carte and we will certainly argue aggressively that that's the wrong answer for the Canadian broadcasting system, and we certainly believe that's not the appropriate response for Corus.

Paul Steep - Scotia Capital

Okay. Just two quick other ones. On radio restructuring, you were clear on it. Other than that, just understanding the timing we should think about in terms of positive impact out of it. Is it fair to say that this is going to ramp likely over the next six months or a couple quarters out from seeing the positive side of this?

John Cassaday

Really the answer comes in two parts. One, we do not expect to see a dramatic turnaround in Q4, for sure. In the markets that are measured by diaries, we won't see anything until the December book comes out but in the PPM markets, we should begin to see steady and consistent progress beginning right away. We are already seeing improvement at Rock 101 in Vancouver. We are already seeing improvement at Q107 in Toronto and we really and truly believe that we are on track, that we have hit bottom and that we are going to see a significant improvement in radio and I know no one needs reminding that the leverage is ugly on the way down in radio, but it's beautiful on the way up and we are certainly anticipating that we will see growth in fiscal 2015 and given the excellent work that Doug Murphy and his team have done in controlling our costs that we will see the benefits of that next fiscal year.

Paul Steep - Scotia Capital

Great, and then final one. Just to clarify, we talked about it, maybe two quarters ago. You cited that TV packaging and rate changes in the MD&A as one of the impacts on TV. I just want to make sure those are different or aren't different from the Telelatino and Treehouse, I think even CMT, we talked about in Q1, I think that was.

John Cassaday

I am not sure I understand the question. Doug?

Doug Murphy

I think I do. Hi, Paul. Doug. The packaging changes are simply, occasionally will get moved around and new pass will be offered by our BDUs across the country and we see some mild erosion and I would underscore the word mild. We see that a little bit in CMT, a little bit in Treehouse. So we have seen occasional shifts such as that but I would reiterate that it is not a major economic impact to the business.

Paul Steep - Scotia Capital

That's great. Thanks, guys.

John Cassaday

Thank you, Paul.

Operator

(Operator Instructions). Our next question comes from the line of Aravinda of Canaccord Genuity. Please proceed.

Aravinda Galappatthige - Canaccord Genuity

Hi. How are you? Thanks for taking my questions. I just wanted to touch a little bit on PayTV. We have seen a little bit more persistent weakness there, even obviously with this notwithstanding the success of Game of Thrones. I just wanted to talk about, maybe if you can touch on the longer-term options you have there. I know you've, in the past floated the idea of maybe a tiered offering. What broad options you have going forward, if you continue to see a sustained weakness there?

Doug Murphy

Hi, Aravinda, it is Doug. I will take this one. First of all, the outcome in the quarter, again, last time we stressed that we are managing this business for margin and we are trying to be very tactical about how we look at our promo activity. So any of the subs that you have seen come off from the prior quarter, all of them are promotional subs, low margin subs. Our fully paid subs are actually flat. It's exactly what we are trying to do.

We were in market on an acquisition campaign in parallel with Game of Thrones, given that our remittance of lag above 60 days, we are not going to see those sub ads, those promo sub ads, I should underscore, show up until our Q4 results now, which we will talk about during our next conference call in the next quarter. So our expectation is that we will see a nice leg up on a year-over-year basis because we shifted the promo activity.

As for longer-term, our view remains consistent with our past comments. This is a business and a product that has got very high value. We all know and we have stated unequivocally the strength of Game of Thrones in Canada is twice as strong on a per cap basis in terms of audience as it is in the U.S. So we are confident and you may have saw also today, maybe you didn't, I am not sure if you have the Emmy Twitter feed or not but Game of Thrones has got 19 Emmy award nominations, and once again, this underscores the high-quality content that we offer to our subscribers on all platforms in HD and on-demand.

So we are holding our ground on what we believe the future of that business is. We think it's got lots of opportunity and we are working with the BDUs now to rollout a number of new initiatives in the coming year, which include packaging with broadband, packaging possibly with skinny basic packaging in a variety of different ways to entice and attract new subscribers.

Aravinda Galappatthige - Canaccord Genuity

Great. Thanks for that. Just maybe for Tom on the cash flow front. With respect to the year-to-date numbers, the ratio of the programming cash outflows versus the OpEx seems it has skewed a bit in your favor. I guess, in other words, the cash spend is a lot lower than the amortization. Is that something that we can expect to normalize by year end or is there something that we need to pay attention to?

Tom Peddie

Aravinda, I think you captured it. As I said in the Q2 call, we were preserving cash in the first half of the year. We have a number of significant program expenditures that we will be making in the second half. So that when you look at where we finished last year, last year we finished with free cash flow, I think of about $155 million, so we actually generated free cash flow in the fourth quarter last year. This year, as you saw, that we are at $182 million, we believe we will be users of cash in Q4 this year. So it will normalize out by the end of the year.

Aravinda Galappatthige - Canaccord Genuity

Great, and just one last one from me. With respect to Nelvana, I know it's hard to call on a quarterly basis, but as we lap the tougher quarters, do you expect some stabilization as we think about Q4 and the initial quarters of 2015?

Doug Murphy

Yes, well, it's Doug again. The gap will be narrow. There will be single digit variances from the year prior, I would expect in the fourth quarter. We have got a lot of activity at the moment in Q4 with our TV sales group and our digital opportunity to exploit new buyers internationally. So yes, the lapping will soon be with us.

Aravinda Galappatthige - Canaccord Genuity

Great. Thanks. I will leave it at that.

Operator

Our next question comes from the line of Haran Posner. Please proceed.

Haran Posner - RBC Capital Markets

Yes. Thanks, good afternoon. Maybe just, Doug, a follow-up on your question or your comments early on PayTV. I think you mentioned year-over-year growth. I just wanted to clarify what time frame are you talking about there?

Doug Murphy

My comment was that we will be growing in the fourth quarter versus the third quarter.

Haran Posner - RBC Capital Markets

Okay, got you.

Doug Murphy

So I am expecting it to grow up its base.

Haran Posner - RBC Capital Markets

Okay, so sequential subscriber growth.

Doug Murphy

That's correct.

Haran Posner - RBC Capital Markets

And then maybe just moving on with respect to content ownership. I think something that you flagged at the Investor Day that you want to pursue further. Just wondering if there is any update in terms of that strategic initiative?

Doug Murphy

There is nothing to share at this point in time. We will be sharing more at our next Investors Day. We have been working extremely diligently to build a wire owned slate of content beyond just the animation pipeline at Nelvana and without giving any specifics because we are still in the throes of nailing down number of opportunities. We are very pleased with the developments on our unscripted reality owned slates. More to come on that.

Haran Posner - RBC Capital Markets

Okay. That's great. And then maybe just lastly, either for Tom or John. With respect to the synergy target, good to hear that you will succeed that the high end of that range. I am just wondering if you can give us a little bit more color. Are we talking a couple of million dollars? Is there something you can sort of leverage in terms of where that's coming from?

John Cassaday

Well, we talked about a synergy range of $10 million to $15 million and on a sustainable basis, we will be a couple million dollars above that. The benefit this year was on a one-time basis somewhat better than that due to some programming write-downs but the ongoing synergy saves associated with the acquisitions will be a couple of million above the high end of our range.

Haran Posner - RBC Capital Markets

That's very helpful. Thanks very much.

Operator

Our next question comes from the line of Tim Casey of BMO. Please proceed.

Tim Casey - BMO Capital Markets

Thanks, John.

John Cassaday

Hi, Tom.

Tim Casey - BMO Capital Markets

Hi. Listen, can we just go back to your comments about your confidence in the ad market turning next year because obviously that's going to be one of the key things to turn the numbers. You know, I appreciate at the upfront you are encouraged by that, but is there any other anecdotes or metrics that you are hearing from your sales team that you can underpin that confidence with? Or is it more of something that we are going to have to wait and see play out when the big buying season does come around? Thanks.

John Cassaday

Yes, and that is the key question. The board asked us this morning as we were presenting our operating plan for next year, what's the single biggest risk and our response was that the ad economy recovers as we anticipate it will. So again, why do we have that confidence and you are absolutely right in saying we will know when we know, but here is why we are convinced that it will grow. Obviously we are hearing some stronger economic news out of the U.S., in particular, over the last several weeks. So that's a positive factor.

The point I made earlier in our opening remarks about the impact of the U.S. dollar. I am going to make sure everybody understands that. In my previous life, I ran a foreign multinational food company and the way that system works, as you make your commitment to largely your U.S. parent in U.S. dollars based on the information you had at that time. I can tell you, in talking to our customers, none of them expected the dollar to drop from virtually par to $0.90, and as a result they had to scramble to recover to get back in line as best they could with the estimate that they had given in U.S. dollars as for their performance for 2014.

Where do you go to find money when you find yourself in an unanticipated situation like that is that which is discretionary and of course advertising is at the top of that list. So we saw significant reduction in our consumer packaged goods business this year, and I won't name names, but says suffice to say, pretty much across the board. And the same held true for the quick service restaurants in the restaurant business in Canada. Again many of them foreign-owned chains that could simply not recover that devaluation in the Canadian dollar quicker.

So, Tim, a big factor and underlying our belief that we are going to see this turnaround is that as they do their planning for next year, they are going to do it off, I do not know what number they will pick, but let's say $0.92, $0.94, $0.95, but it's not going to be parity. And so we are expecting that we will see a nice uptick there. And then, of course, what we saw this year was two big, big events that took people out of the ad market, because a lot of times advertisers say, I don't want, even if I am not an advertiser in the Olympics, or even if I am not an advertiser in the World Cup, I know that those events are going to siphon audience. So I am going to keep my powder dry during those times. So I think we were pretty convinced that based on that factor that there is another stimulus that we will see come back into play.

And then the final one I mentioned was just that, in talking to our sales folks as they are making their upfront commitments, solidifying their upfront commitments with the advertisers, we are seeing confidence and in fact incremental spending from the bulk of them. So no one knows but it wasn't without considerable thought that I made the comment as confidently as I did. But all I can do is give you our best estimate and I can tell you that we are anticipating that the ad market in kids next year will grow in the 1% to 2% range, that it will grow in the women's space in the 2% to 5% range and those aren't shoot the lights numbers, but they are the kind of numbers that can deliver us good bottom line growth given the leverage that we have with our business.

And then on radio, we are expecting to recover from a very disappointing performance this year, given the moves that we have made to shore up our ratings position and assuming the radio market remains know in positive growth areas., i.e., 1% to 2%. We think that we can deliver modest growth on the radio side and nice earnings growth again because of our leverage.

Doug Murphy

I would just add to that, Tim, this is Doug, that both divisions, radio and television will be rolling out some new digital strategies to take advantage of that growth opportunity in advertising. Increasingly we are hearing and responding to our agencies' requests to bring them sort of 360 advertising solutions that can include product integrations in our shows and a digital component that pairs with that. So we have a whole bunch of great work that's being done. The details of which we will share, likely in the fall, which will arm us in a really effective manner to exploit the growth in digital advertising off both our core broadcast divisions of television and radio.

Tim Casey - BMO Capital Markets

That's great. Thanks for the color.

John Cassaday

You are welcome.

Operator

Our next question comes from Adam Shine of National Bank Financial. Please proceed.

Adam Shine - National Bank Financial

Hi, good afternoon. Thanks a lot for taking my question. Maybe just a follow-up to Tim's question. When we look at the outlook for 2015, which you gave back in January and I think it's been reiterated in the MD&A, John, most of what you just described in terms of the ad growth expectations in 2015, they largely jive with what I am modeling and as you say, they are not shoot the lights out but there is certainly a recovery from this year's trend, but I don't understand how you get to the EBITDA guidance in terms of a delta 2015 versus how 2014 is tracking without obviously some real greater than expected operating leverage obviously and maybe what I am missing is more opportunities to materially reduce costs, but at the same time that obviously has implications for subsequent ratings if you start impacting programming spend. So can you maybe speak a little bit more to the color of the guidance, which I acknowledge really changes once a year and maybe we will get an update of January or November coming?

John Cassaday

Yes, it will be before January. We will have an Investor Day, probably around sometime in November and at that time we are quite hopeful that we will have a really good read, given the importance of Q1 in our industry. As to the likelihood of us being able to deliver earnings in our stated guidance range of about $340 million to $360 million. So I get take the fifth on that and ask for your indulgence since it's too early for us to do anything more than to say that at this particular point in time we are still confident that we can get there. But we need a few more, well I think we deserve a few more weeks to see if our anticipated and expected ad recovery is there for us. It sounds like you don't disagree with our assessment of why that's possible. But we are happy to have these extra few weeks between now and our Investor Day to really firm up that guidance for you. But we are certainly not changing it today.

Tom Peddie

If I could just add on the cost side Adam, I think management has demonstrated a consistent track record of managing our margins, I think, to the surprise of the street and we will continue to look at taking cost out. Obviously we have zero intention of doing anything that's going to hamper the core business whatsoever. If you look at the mix of our cost activities over the years, we have been taking cost of the OpEx, G&A in order to put more value on the screen and that explains our ratings performance relative to our competitors. So yes, there is a lot of operating leverage in our P&L in both radio and television and we will benefit accordingly when we get this expected turnaround in revenue. So it's both a pending revenue and day-to-day expense story.

Adam Shine - National Bank Financial

Okay. No, I appreciate that, and obviously good luck for the TV hearings.

Tom Peddie

Thank you.

John Cassaday

Thank you.

Operator

And we have a follow-up question from the line of Vince Valentini. Please proceed.

Vince Valentini - TD Securities

Yes, thanks. I do have a follow-up question, but just want to clarify first related to the last question. The synergies, I guess it is now over $15 million. Am I wrong in saying you don't get a full year benefit of that this year, but you get a full your benefit next year, because you didn't own all these stations for the full year? Is that right?

John Cassaday

That's correct.

Vince Valentini - TD Securities

Okay. So there is some tailwind there to your cost, if you want to look at it that way, automatically just getting the full year.

John Cassaday

Yes, a little bit. There is a bit of an offset because of that incremental save that we got this year that I said was one-time but your first point is valid but the other side of it is true too and that is that that we did have a one-time gain that's not going to be repeatable.

Vince Valentini - TD Securities

Okay. My other question, back to the cash flow, probably for Tom, working capital was a pretty significant inflow this quarter, about $15 million. Again can you tell us in terms of timing there? Do you expect that to reverse somewhat in the fourth quarter or is there anything sustainable, maybe to do with the acquisitions?

Tom Peddie

I would. Vince, it is Tom. I would say that it is a reversible, as I said when we were forecasting our c ash flow for the year-end. As I said, we will be a user of our cash in the fourth quarter, primarily driven by the program spend but there could be some movement on the working capital depending on what happens from a receivable point of view.

Vince Valentini - TD Securities

Wonderful. Thank you.

Operator

(Operator Instructions). We have another question from the line of Andrew Davis, a retail investor. Please proceed.

Unidentified Participant

Hi, guys. It is pretty obvious based on your statements around Let's Talk TV that everyone should perceive it going through as currently outlined by the CRTC as in the company's eyes definitely a negative thing, but is there any internal analysis being done around positives with respect to consumers you have been exiting the cable market and then potentially will be returning if given the opportunity to select a Corus specialty channel on its own, rather than as part a basic package? Do you guys see any positives of that for the company?

John Cassaday

We realize that cord cutting in cord shaving has been an issue in Canada, not to the degree that it has in the United States, but if you were to say on balance, would we expect more return to the system as a result of an à la carte regime, then we would see potential damage from an à la carte regime. The answer to that would be no. We don't see there being a net positive associated with new people coming back. I think that that would not be the case.

Now, are we working on plans to mitigate. Absolutely. We have got to do a really good job making sure that we have programming that people don't want to miss. Doug talked at length about some of the shows that we have. We made reference to them in our opening comments. At the end of the day, we saw I think great evidence in the past couple of years, particularly with AMC and a show like Breaking Bad, how one show can define a network and move it from being in the realm of nice-to-have in to must-have overnight and all of us need to have more must-have shows on our services. And that's what we are focusing our attention on doing right now and that's the way we are trying to mitigate against the potential downside of more choice in the system.

Operator

And there are not further questions at this time.

John Cassaday

Okay, thank you everyone. We look forward to talking to you in the days and weeks ahead. Bye for now.

Operator

Ladies and gentlemen, that concludes the conference call today. We thank you for your participation and ask that you please disconnect your line.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!