Good day, everyone, and welcome to the CBS Corporation First Quarter 2018 Earnings Release Teleconference. Today's call is being recorded. At this time, I would like to turn the call over to Executive Vice President of Corporate Finance and Investor Relations, Mr. Adam Townsend. Please go ahead.

Thank you. Good afternoon everyone and welcome to our first quarter 2018 earnings call. Joining us for today's remarks are Leslie Moonves, our Chairman and CEO and Joe Ianniello, our Chief Operating Officer. Following Les and Joe's discussion of the company's performance, we will open the call to questions. Please note that during today's conference call, results will be discussed on an adjusted basis unless otherwise specified. The first quarter 2018 results are only adjusted to exclude $9 million of M&A related expenses incurred during the quarter. Reconciliations for non-GAAP financial information related to this call can be found in our earnings release or on our website. Also note that statements on this conference call relating to matters which are not historical facts are forward-looking statements which involves risks and uncertainties that could cause actual results to differ. Risks and uncertainties are disclosed in CBS Corporation's SEC filings. A webcast of this call and the earnings release related to today's presentation can also be found on the investors section of our website at cbscorporation.com. Finally I'd like to remind you that today's call is to discuss our results for the first quarter and will not be responding to any questions or comments about the process with Viacom. With that it's my pleasure to turn the call over to Les.

Thank you, Adam and good afternoon everyone and thanks for joining us today. This was an especially outstanding quarter for the CBS Corporation. As you can see from our results, the strategy we have laid out for you is clearly working and the good news is there is so much more to come. Revenue grew 13% to $3.8 billion, a first quarter record. Operating income was up 8% to $781 million, an all-time high and EPS shot up 26% to $1.34. That's not only our best quarter ever for EPS but it's also our 33rd consecutive quarter of EPS growth. CBS' consistent strong performance quarter-after-quarter, year-after-year is actually what shareholders have come to expect from us and we continue to deliver these results while constantly investing in our future as well. This includes the continuous creation of must-have content, the launch of new digital platforms and the recruitment and retention of some of the best talent in the industry. Because at CBS, just as we've shown you, for the last 10 years it's not enough to win now, we must also strategically position ourselves to win for many years to come. I want to make one key point right up front from here that truly illustrates our momentum. In an era where others are concerned about losing subscribers caused by cord cutting and other matters, CBS Corporation is growing its subscribers. That's right. When you combine all of our paying subscribers across traditional MVPDs, virtual MVPDs and our direct-to-consumer services, our overall sub base is growing at both CBS and Showtime. We've now been up for three quarters in a row, whether you look at it sequentially or year-over-year and that sub growth accelerated here in the first quarter up mid-single digits from last year. At CBS, we've long said,…

Thanks, Les, and good afternoon, everyone. As you heard, we turned in a terrific first quarter with record revenue and profits. Each strong results make us that much more confident we will deliver on the 2018 outlook that we provided for you on our last call. Our success is the result of the strategy we put in place two years ago to proactively capitalize on the changes taking place across our industry. We saw a shift in the consumption habits of viewers who wanted to watch our content on demand and outside the home. We also saw bigger opportunities for our content, particularly in the international marketplace. So we aligned our businesses to better monetize these trends by launching new distribution models, creating more premium content and expanding the ways we get paid for our programming. That is what's driving our results today. Our non-advertising revenue grew 17% during the quarter and now makes up about 54% of our total revenue. As part of that, our growth in content licensing is driven by long-term contracts and output deals for our CBS and Showtime programming, which provide us with a steady, highly visible revenue stream. And in terms of affiliate and subscription fee revenue, as you heard, we are growing our paying subscriber base and importantly, we are increasing the average price per subscriber that we receive. This gives us a much more powerful business model and we are still in the early innings of this growth story. That is why we're so excited about our future. Now, let me give you some more details about our company's first quarter results. Revenue was up 13% to $3.8 billion with healthy gains across all three of our key revenue sources. As I mentioned, affiliate and subscription fee revenue continues to be a…

Thank you. And we'll go first to Ben Swinburne with Morgan Stanley. Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC: Thank you. I want to come back to the over-the-top and All Access strategy, Les, which is obviously you're seeing success there. And you're investing behind it, which makes sense. How are you thinking about your content strategy as you look out over the next kind of one to two years? Are you seeing sort of a rationale to have more regular new content on All Access to drive customers sort of the way you've implement that strategy at Showtime? And then from a distribution perspective, are you thinking about bundling All Access, whether it's with Showtime, or with services like Hulu, or even thinking about working with cable operators where you might be able to work the churn levels lower? I'd love your thoughts on both those topics.

Yeah, let me deal with content first. Obviously, we're expanding the number of originals we're doing on All Access. We're expanding the number of originals we're doing on Showtime as well. Plus, we're producing for a lot more outlets. So our studios have something like 65 shows in production right now, which is a big increase from what it's done before. And when we analyze our shows, by and large, they're are profitable before we begin. So even though we're producing content for All Access and, obviously, the goal is to get our subscribers up, there is a great international play on them as well like we did with Star Trek where we got many millions of dollars for originals there. So on virtually every show, we have a strategy and we have a plan for monetizing it and there are very, very few shows we don't go into where we're not making a profit off the back. Whether it's for CBS, whether it's All Access, whether it's Showtime, or whether it's an outside service that we provide for. In terms of the bundling, we're already selling All Access with Showtime OTT, so we're already doing that. And we're obviously exploring all sorts of other ways of distributing it. As you know, we're very pleased with where we are with the number of subs. And like some of the other streaming services that are bigger than us, they've made a variety of deals. We're also looking at them and we're not averse to any ideas there. Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC: That's helpful. And then just along those lines maybe for Joe, as you think about the investment in content and also marketing of all these OTT services over the next couple of years, does that still allow for margin expansion in the overall CBS business as we look through your kind of 2020 objectives?

Sure, Ben. Yeah, look, I think we're demonstrating that because just year-over-year we're spending hundreds of millions of dollars more on owned content and you see us managing the margin to kind of flattish. And so we're able to see that because, as Les pointed out, the turnaround time to turn the cost into revenue is pretty quick. And so with the international marketplace – when we create a franchise, we're looking to maximize that franchise. And so it's not a one-size-fits-all. So we're able to definitely maintain margin while we continue this investment. So I think really that's the key here, what we're talking about. Because usually you have to step backwards when you're making long-term investments and here we're able to maintain it and still set us up for better growth in the future. Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC: Thank you both.

Great. Thanks, Ben. Let's take the next question.

We'll go next to Jessica Reif with Bank of America.

Hello, thanks. Two questions. First one is on advertising. With parts of the industry in turmoil, not you, agencies, the rating system, viewers changing the way they're watching, could you just talk about how different or what you're doing to change your approach to advertising in general, especially as we're going into the upfront? And kind of as a sideline, on the OTT advertising as you mentioned the higher CPMs, is there any seasonality? Are there any particular categories that platform lends itself to? And then I have a different topic.

Okay. Jessica, let me tell you, on the agency ratings measurement, look, we've always said best content wins. And so whether you're doing that direct to the clients which more and more clients are doing that direct business, and they just want to make sure that we're delivering. So whatever the measurement system is, whatever the rules are, we're comfortable with that. Our job is to produce quality content that appeals to mass audiences. And I think when you stack us up against our competition, we stand out. And so as long as we have that and we're able to demonstrate that consumption, the monetization will follow. So clearly it's changing. I mean we're setting our sales up, organization differently. Digital advertising are clearly at higher CPMs, direct-to-consumer we're expanding the advertiser base so we're doing all of those things not to be relying on intermediaries that stop us from maximizing our revenue. On the OTT front, they are at higher CPMs because they're more effective, they're more targeted. And so we have the data to support that and it's more valuable to the advertisers. So as more and more of that consumption becomes more and more acceptable to the advertisers and they see the effect, I think it just become standard. But we're not seeing any particular seasonality to the consumption, it's more driven on the release schedule and the stuff that's in the pipeline as opposed to seasonality or time of day.

Okay. And then the last question, the second question on – it's about premium content. I mean obviously you guys scaled up dramatically, but so have all these other, not just traditional players but the other players and I just – can you talk about the impact it's had on your programming, whether it's on costs, on talent, buyers, et cetera?

Yeah. No, it's a good question. Obviously, with Netflix doing something like 75 or 80 original series and Amazon and Hulu also investing in original content, Apple is doing it, YouTube is doing it, there is a lot more competition out there. Obviously, they are more competitive with All Access and Showtime, and there are certain cases where we will not pay the kind of money that they will. We'll have more discipline with that, but fortunately over there we've got David Nevins and a bunch of phenomenal developers. And as you see their content, you know more about Showtime content than just about any other premium service that's out there. So the quality of our development internally we have to work hard and once again translating it to our other services, obviously, the CBS Television Network and The CW Network it's sort of the same as it's been in the past. Yeah, there is a lot more competition for writers and actors, and the price of poker in certain cases has gone up when you go after talent, when Netflix can go after a Shonda Rhimes or a Ryan Murphy who are the top people who are out there, and give them hundreds of millions of dollars, but we have something else to offer at CBS Network. We get visibility with a show on something called the backend. So there's a guy named Chuck Lorre over at Warner Brothers whose had Big Bang and Young Sheldon who's made a lot more than a couple of hundred million dollars on the backend of his shows on the CBS Television Network. So there's a give-and-take on that, and you know, we're pretty competitive in everything we do, and I think we do every form of content really well and no matter what the competition is.

Great. Thank you.

Great. Thank you, Jessica. Next question?

We'll go next to Michael Morris with Guggenheim Securities.

Thanks. Good afternoon, guys. Two topics. One on programming and one on subscribers. So on programming, one genre where I would argue that you're the lightest is kind of the kids, young adults, family type of programming. And my question is as you look at both your linear portfolio and also your over-the-top products, is that a genre you would like to be bigger in? And when you look at potentially investing in that, what are kind of the factors you're thinking about in terms of trying to fuel your strategy going forward? And then I have one on subs?

Yeah. I mean you're absolutely right. That hasn't been an area we've been focused on. Kids don't watch CBS. There's an FCC rule that says we have to put on three hours a week of acceptable programming. I think we have 10 to 15 children watching every Saturday morning on CBS. So it is an area we are not particularly strong in. As we see some of the success that Netflix has had with younger programming, obviously it's something that we are looking at as we head to the future to invest more in that. So you may see us doing more of that right now.

Okay. Thanks on that. And then, Les, you did mention the subscribers growing across your business which is healthy. But if I think specifically about your station subscribers which are traditional MVPDs and the virtual MVPDs, with the launch of some of the new MVPDs over the last quarter or two, have you seen an improvement in that trend as a stand-alone? What are you seeing there at this point?

Yeah. I think the virtual MVPDs are growing. You see growth on some of them and as we said earlier, the more they grow, the more we grow. Because they are paying us better rates than we're getting from the traditional MVPDs, so we encourage that. And I think some of the results are very encouraging at some of them. So that's one of the points that we continue to make. The newer the service, the more we get paid for it. So these shifts are good and they are becoming substantial.

Okay. Great. And can you help us at all with whether or not they've actually been additive to the ecosystem in general since kind of the launch of YouTube and Hulu virtual MVPD services?

Mike, it's Joe. It's hard to say that for us it's been clearly additive. We don't have stations across the country. We only cover a third of the country. And as you know the deals we have with our affiliates are really cash license fees. So we can't comment and say that, but what we can say is in the markets where we are, yeah, it is absolutely additive.

Okay. That's great. Thanks, Joe. Thanks, Les.

Thanks, Mike.

Thank you, Mike.

Gwen, we'll take the next question.

We'll go next to Alexia Quadrani with JPMorgan.

Thank you. I have a question on the advertising and really sort of the traditional TV platform. I mean given that advertisers really value the really strong demand for TV because of its mass reach, and it really is not able to replicate that mass reach elsewhere in any other media, is there any concern that as viewership continues to fragment, even if you're keeping or you've been gaining share across all your platforms in aggregate that this becomes an issue, and advertisers may be a little bit less willing to pay those premiums for your top programming and sports? Or is that really years away, and given where pricing going clearly not on the table right now?

Alexia, it's been a question for years and years as viewers are shifting how come CPMs continue to go up. Because in a universe of 1,000 channels, the network numbers become even more and more important. So I've been doing this a long time. I think I've only seen CPMs go down once in like 20 years or something like that. So the top events, the sporting events, the live events, are still going to produce huge numbers. It's still the hottest thing in town. Even as ratings go down somewhat, or appear to go down because they're watching it on different platforms or different times, network advertising is still the best game in town. That's the reason scatter is up so much, and that's the reason we're looking forward to the upfront very much.

And then just a follow-up for Joe if I can. On the comment about content sales, I think you said the pipeline was robust, I mean clearly saw some nice benefit in the quarter. I guess any more color? Are we expect to see some of the content sales in maybe the back half of this year? And is there any coming from sort of the U.S., or is it really driven by the big demand internationally?

Yeah. Look, I'll just give you just a couple of hit titles that we haven't brought to market. You know, Scorpion and Ray Donovan is just two successful shows that we have on the air for multiple years. So that's the type and quality that we feel like we have to decide when and how to bring that to market domestically. But clearly, and the international marketplace is a little different as we sell those shows earlier. So the 800 hours I was referring to in my comments were really domestic.

All right. Thank you very much.

Thanks, Alexia. Next question please.

We'll go next to John Janedis with Jefferies.

Thanks. A couple questions for me, too. One is look, this earnings season there's been deflation in ARPU at the MVPDs and it feels like increasingly premium cable network promotions are being used to drive subs. So understanding there's a mix in terms of how you guys get paid, can you talk about the mix of paid Showtime subs coming from traditional players relative to the Amazons and the other OTT players and your confidence around average rate per sub growth? And then I guess on a related topic, I know it's early, but is there evidence that increased originals you spoke to are leading to lower churn?

Yeah, John, it's Joe. Look, I think the new distribution platforms, it's a higher ARPU for Showtime. And so that split or that business model is much better for us as more and more people subscribe that way. So again, if they switch, it's better for us. If not, we should just try to get it in the rate. And what was the second part of your question?

Yeah, I'll take this. There's no question that more original programming creates much less churn. The reason it's changed is Showtime's airing pattern, where we used to put on two shows or three shows per quarter. Now we will do one per month, one brand-new show per month, which has helped the churn a great deal. All Access, as you know, we've only had like two and a half shows on. That's going to be increased to seven or eight. We expect the churn to go way down on that and we're going to continue to do originals. And that's sort of a proven number.

Thanks. And, Les, maybe one other quick question is, look, as you know, and you talked about this, there's been a lot of concern about content pricing on the licensing side and so can you expand more on your comment in the release related to growth from renewal periods for licenses of library programming? To what extent was that a domestic comment? And can you talk about your confidence level that that current, I guess, either demand or trend continues?

Yeah, look, it's both domestic and international. And I think, look, it's just driven by the content that we have available and that's why we're producing more and more. We sell it and then we sell it over and over and over again. And we license it to multiple platforms. And so the windowing, John, becomes very, very important on how we window it. And so we want to be very strategic on how we're making our content available. And so that will continue as long as we keep filling the pipeline.

As we said earlier, when we have an original programming, we already have its life laid out for, whether it's over and out in 10 episodes or hopefully it turns into 150 episodes. But even in the base case, we have it worked out where we know what we're going to get internationally within a range. We know where the domestic possibilities are. And as a result, before we even greenlight anything, we basically know the range of profitability, which is why I'm able to say there are very, very few shows that lose us any money, even some that are abject failures.

Okay. Thanks a lot.

Thanks, John. Let's go to the next question.

And we'll go next to Bryan Kraft with Deutsche Bank.

Hi. Good afternoon. I wanted to ask you two questions. First, some of your peers are producing a fair amount of content to put on other companies' platforms to participate in ad share models, whether it's Facebook, or Snap, or YouTube. As far as I can tell, you focused a lot more on using your content to build your own subscription services and then licensing, of course, to other platforms. What are your thoughts on these third-party platform ad share models? Are they good business models for content creators? And do you plan to do more on that front? And then I had a separate question. If you were to merge with another media company, any media company, that has international cable networks, would that international cable network presence be more of a positive or a negative factor in determining your success in launching direct-to-consumer services in international markets? And how would it impact the go-to-market strategy? Thanks.

Bryan, the second question we're not going to answer for obvious reasons. The first question is, yes, we do some of those deals with ad sharing. Each deal that we do is very different. There are certain deals on our digital content, digital streaming sites that we do. We do ad sharing, where we'll sell some of the ads, they'll sell some of the ads. I think today content is marked by a no rules basis. In other words, you can't say you won't do a deal like such and such because you have to be open to virtually any kind of deal that's available with different streaming services, different cable services, et cetera, et cetera, and that's sort of the mantra that we live by in selling our content.

Okay. Thanks, Les.

Thank you, Bryan. Next question, please.

And we'll go next to Steven Cahall with Royal Bank of Canada.

Thank you. A couple for me. Maybe first on the international launches, I know in Canada you had licensing agreement with Bell so when we think about these international All Access launches, are you clawing back content from those existing licensing deals? Or does All Access just sit next to those and give the customer a couple of different options for content?

Hey, Steve. It's Joe. The way we're doing that is in conjunction with the partners meaning they have an exclusive except for All Access. Over time, obviously, we'll revisit that but for now what seems to be working best like we did in the U.S. is we just want a little carve-out as we grow our owned distribution service but, again, it's obviously tiny relative to the partners reach so we still are providing tremendous value to our partners. So it's a slow and steady kind of rollout but the opportunity is real and it's big.

Got you. And then just as a follow-up, cable margins were kind of defied gravity against the industry for many years above 40%. We saw them dip down a little bit this quarter. I know the business is very strong but just so that we're setting expectations, should we expect the margins there to just be a little more modest going forward even if the earnings growth is still quite strong?

Yeah. Look, we're increasing our investment in content and promotion so as we said, we premiered four shows. It's not only the production cost but it's also the marketing. So, the margin came in at 38% for the quarter so anything around the 40% margin in any industry is a pretty darn good margin. So I think again we're maintaining that but, again, the goal for us is really to invest and grow the subscribers. And if that means we sacrifice a half a margin point, we're certainly going to look at that holistically. But I think we've been managing it consistently and I would, Steve, look at margins on an annual basis. Again, a quarter sometimes it swings up or down but over time I think if you look at it consistently it's still a very, very healthy margin business.

Great. Thank you.

Great. Thanks, Steve. Next question, please.

And we'll go next to Laura Martin with Needham. Laura Martin - Needham & Co. LLC: Hi, there. Les, I'm going to ask a content question. So in answer to Ben's question, you said you had 65 series in production, and on your prepared comments you said 14 of which four were for Netflix. So I'm really interested in as a content super fan, are the nature of content changing? When you look at what you're doing for cable versus over-the-top, versus your own broadcast network and Showtime, is the nature of content changing? How do you see content differing over these different platforms?

Yeah. It's a very good question and one of the things we pride ourselves in is being able to do different kinds and different work. The nature of content is very different for Showtime and All Access which is obviously super premium content that costs more that's done without any advertising, and then the next level is the CBS Television Network which is also premium content but obviously we do 22 or 24 episodes of that. Once again it needs to demand a bigger audience like The Big Bang Theory is the number one comedy and NCIS is the number one drama on television. They need to have a much broader audience than you'll find on Showtime or on All Access. And then you move to Netflix. We have a variety of different shows depending on their needs, moving further on different levels. The CW obviously is a different cost structure at a different demographic base and then you move into our daytime and syndication shows which we do a lot of game shows, we have the top game shows in Wheel and Jeopardy and we do Entertainment Tonight. We also do soap operas. So as I said, whether it's Ray Donovan or Homeland, till the price is right, we do them all well. We do them all well and we do them for whomever needs them. So we're good salesmen and we're good producers. Laura Martin - Needham & Co. LLC: Okay. I thought the most interesting stat I heard – I think Joe gave it – a third of your subs have chosen the ad-free option for All Access. That shocked me. My question then is are you thinking about rethinking pricing on all these ad-driven over-the-top services? Because it sounds like there's a clear consumer niche market that doesn't want ads.

Yeah, look, Laura, look, that's exactly why we kind of made the point. The point is we have millions and millions of subscribers. A lot of our revenue is paid through third parties, meaning advertisers or distributors. But when the consumer is making the choice and electing to pay $10 a month, that speaks volumes. And that gives us a lot of strength when we go into those negotiations because we know the consumer has knowingly elected to pay that. Not being subsidized by advertising or not being subsidized in a big bundle in a cable package. They chose to do that and so that certainly gives us a lot of confidence as we head into those revenue negotiations. Laura Martin - Needham & Co. LLC: Right, but I'm asking about sports and news. You guys are launching all these ad driven over-the-top services. Does it make you want to offer an option to not have an ad driven?

Yeah, Laura, think about that as a feeder service. What they're doing is we're getting them used to the consumption outside the home and on-demand with product that's timely. For news or sports or now entertainment news, and that's going to be a subset of All Access. So you like the product and we're going to upsell you to a paid subscription service. So this is part of getting people used to this form of consumption as we sell them up. Laura Martin - Needham & Co. LLC: Okay. So it's an on-ramp. I get what you're doing. It's an on-ramp. That makes sense.

On-ramp. That's the better word, Laura. It's an on-ramp. You don't mind if we use that in the future. I'll give you credit. We're on-ramping them to All Access. Laura Martin - Needham & Co. LLC: Perfect. That's very helpful. Thanks, guys.

Thanks, Laura.

Thanks Laura. Next question, please.

We'll go next to John Hodulik with UBS.

Great. Thanks. Maybe first a follow-up to Mike Morris' question on accelerating subscriber trends. Can you give us a little bit more color on where that acceleration is coming from? Is it the multichannel environment some sort of combination of traditional and streaming? Or is it the D to C side? And then along with that, the Sling TV is really the only major platform that you guys aren't distributed on. What's the outlook there? Is it something that we can expect in the next renewal cycle? And then one other question if I may. We've got near-term targets for All Access and Showtime. How should we think of longer-term and how big the market opportunity is? Is it a question of just continuing to add more content and growing the market that way? And is there any consideration to – we're expecting obviously a big D to C launch in 2019 so we're getting out there and getting share before these other D to C products come to market. Thanks.

Okay. John. It's Joe. On your subscriber growth number, obviously just the law of numbers, the virtual MVPDs are smaller than our OTT stuff, so just as a percentage. But both areas, the growth is significant. And so I think, again, we're seeing that, again, as folks just are choosing a broadband platform is great and some of them are just saying, hey, I just want what I want and I want just CBS. So we're catching them all so I would say both of those are contributing very nicely. As far as our targets though, obviously we gave you our targets for 2020. We think we're going to beat or meet those. That was before we launched All Access internationally. So obviously we wouldn't have launched All Access internationally if we didn't see a lot of good data points along the way domestically. And I think we're being prudent on how we roll it out internationally. So look, we certainly look at Netflix subscribers every quarter that they report and we see what the opportunity is and based on the strength and depth of our content, we feel we are in the very early innings of this growth story.

And regarding Sling TV, I imagine that the next negotiation we will probably be on that platform. You never know, it's always part of a negotiation. We're not on now, but we probably expect to be.

Okay. Thanks, guys.

Thank you, John. All right. Thanks a lot. Gwen, we have time for one more question.

We'll go to Marci Ryvicker with Wells Fargo.

Thank you. Speaking of Netflix, I know that you are producing original content but how much of your library content is still on Netflix now? Has that gone down over time? And then the second question is, Joe, you mentioned local media looking to be up low to mid-single digits so it feels like it's acceleration from Q1 to Q2. Is that from retrans, political or are you actually seeing a stronger underlying ad environment at the local stations?

Okay. Marci, I'll take the second one first, the low to mid-single digits. Yeah. Look, it's certainly political. It's helping that and retrans. I would call the local ad market as steady. Clearly in the first quarter we comped against the Olympics, so we're seeing that steady in the back half of the year. It's going to obviously be driven by political and again as well as retrans. So that's really going to be the story for local. And as far as Netflix, look, Netflix is still, as Les mentioned in his prepared remarks, Criminal Minds and NCIS is still a top 10 show viewed on Netflix so they're still very interested in our library and so we continue to have an ongoing relationship with them selling them shows as they come available.

Thank you.

Great. Thanks, Marci, and thank you everyone for joining us this evening. Have a good night.

And that concludes our conference for today. Thank you for your participation. You may now disconnect.