SILVER SPRING, Md.,
May 6, 2020 /PRNewswire/
-- Discovery, Inc. ("Discovery" or the "Company") (NASDAQ:
DISCA, DISCB, DISCK) today reported financial results for the
quarter ended March 31, 2020.
David
Zaslav, President and Chief Executive Officer of
Discovery said, "The world is facing an unprecedented challenge and
I want to express our profound gratitude to the medical workers and
front-line responders who are risking their personal safety every
day during this fight with COVID-19. I am also enormously proud of
Discovery's employees who have pulled together and stepped up with
resilience, heart and creativity. They continue to nourish our
viewers at a time when our trusted brands and beloved personalities
are a unique source of comfort and familiarity. As we navigate
through the remainder of 2020, our priority remains on the
well-being of our employees, clients, customers, and production
partners. Furthermore, we will continue to focus on maintaining a
healthy balance sheet with robust liquidity and investing in our
businesses to position ourselves for long-term growth amid the
changes in the pay-TV landscape."
First-Quarter 2020 Financial Highlights
- Total revenues decreased 1% compared to the prior year quarter
to $2,683 million, and were flat
ex-FX.(1)
-
- U.S. advertising revenues were unchanged and distribution
revenues increased 2%; and
- International advertising revenues were unchanged and
distribution revenues increased 1%, ex-FX.
- Net income available to Discovery was $377 million and diluted EPS was $0.55 per share.
- Total Adjusted OIBDA(2) decreased 4% to $1,113 million, or decreased 3% ex-FX.
- Adjusted EPS(3) was $0.87 per diluted share.
- Free cash flow(4) was $230
million.
- The Company repurchased 19 million Series C shares for
$523 million at an average price of
$26.87 per share.
|
|
Three Months Ended
March 31,
|
Dollars in
millions, except per share amounts
|
|
2020
|
|
2019
|
|
%
Change
|
Ex-FX(1)
|
Total
revenue
|
|
$
|
2,683
|
|
|
$
|
2,707
|
|
|
(1)
|
%
|
—
|
%
|
Net income
available to Discovery
|
|
$
|
377
|
|
|
$
|
384
|
|
|
(2)
|
%
|
|
U.S. Networks Adjusted
OIBDA
|
|
1,016
|
|
|
1,061
|
|
|
(4)
|
%
|
|
International Networks
Adjusted OIBDA
|
|
207
|
|
|
219
|
|
|
(5)
|
%
|
(2)
|
%
|
Total Adjusted
OIBDA(5)
|
|
$
|
1,113
|
|
|
$
|
1,159
|
|
|
(4)
|
%
|
(3)
|
%
|
Diluted
EPS
|
|
$
|
0.55
|
|
|
$
|
0.53
|
|
|
4
|
%
|
|
Adjusted
EPS
|
|
$
|
0.87
|
|
|
$
|
0.85
|
|
|
2
|
%
|
|
Free cash
flow
|
|
$
|
230
|
|
|
$
|
498
|
|
|
(54)
|
%
|
|
Operational Highlights
- Discovery and Amazon announced an expanded collaboration that
will provide a complimentary one-year subscription to Food Network
Kitchen to all Amazon Fire TV and Fire Tablet customers in the
U.S.
- Total share of viewing across the international portfolio in
the first quarter of 2020 increased 4% on
average.(6)
- Discovery was the most-watched pay-TV portfolio in the U.S.
among P2+ audiences in the first quarter of 2020,(7)
while in primetime, Discovery was the most-watched pay-TV portfolio
among key demos.(8)
- TLC was the No. 1 cable network among women 25-54, 18-49, and
18-34, and delivered its best primetime performance ever among
women 25-54 and its best in 17 years among P25-54. March 2020 marked 11 consecutive months of
year-over-year primetime growth for TLC among women
25-54.(9)
Segment Results
U.S. Networks
|
|
Three Months Ended
March 31,
|
Dollars in
millions
|
|
2020
|
|
2019
|
|
%
Change
|
Advertising
|
|
$
|
1,026
|
|
|
$
|
1,022
|
|
|
—
|
%
|
Distribution
|
|
708
|
|
|
697
|
|
|
2
|
%
|
Other
|
|
22
|
|
|
33
|
|
|
(33)
|
%
|
Total
revenues
|
|
$
|
1,756
|
|
|
$
|
1,752
|
|
|
—
|
%
|
Costs of revenues,
excluding depreciation & amortization
|
|
447
|
|
|
422
|
|
|
6
|
%
|
Selling, general
& administrative(10)
|
|
293
|
|
|
269
|
|
|
9
|
%
|
Adjusted
OIBDA
|
|
$
|
1,016
|
|
|
$
|
1,061
|
|
|
(4)
|
%
|
First-Quarter 2020 Highlights
- Revenues of $1,756 million were
consistent with the prior year quarter.
-
- Advertising was flat, primarily driven by increases in pricing,
the continued monetization of content offerings on our next
generation platforms, and higher inventory, offset by lower overall
ratings and secular declines in the pay-TV ecosystem.
- Distribution increased 2%, primarily driven by increases in
contractual affiliate rates, partially offset by a decline in
linear subscribers.
- Total portfolio subscribers for March
2020 were 6% lower than March
2019, while subscribers to the fully distributed networks
were 4% lower. The first quarter of 2020 was the first full quarter
in which our networks lapped carriage on certain virtual
multichannel video programming distributors.
- Total operating expenses increased 7% to $740 million.
-
- Costs of revenues increased 6% primarily due to an increase in
content investments.
- SG&A expenses increased 9% primarily due to higher
marketing expenses to support our next generation initiatives.
- Adjusted OIBDA decreased 4% to $1,016
million.
International Networks
|
|
Three Months Ended
March 31,
|
Dollars in
millions
|
|
2020
|
|
2019
|
|
%
Change
|
Ex-FX
|
Advertising
|
|
$
|
376
|
|
|
$
|
393
|
|
|
(4)
|
%
|
—
|
%
|
Distribution
|
|
515
|
|
|
527
|
|
|
(2)
|
%
|
1
|
%
|
Other
|
|
32
|
|
|
32
|
|
|
—
|
%
|
3
|
%
|
Total
revenues
|
|
$
|
923
|
|
|
$
|
952
|
|
|
(3)
|
%
|
—
|
%
|
Costs of revenues,
excluding depreciation & amortization
|
|
470
|
|
|
507
|
|
|
(7)
|
%
|
(4)
|
%
|
Selling, general
& administrative(10)
|
|
246
|
|
|
226
|
|
|
9
|
%
|
13
|
%
|
Adjusted
OIBDA
|
|
$
|
207
|
|
|
$
|
219
|
|
|
(5)
|
%
|
(2)
|
%
|
First-Quarter 2020 Highlights
- Revenues decreased 3% compared to the prior year quarter to
$923 million, and were consistent
ex-FX.
-
- Ex-FX, advertising was flat, primarily driven by contributions
from the UKTV Lifestyle Business(11) and growth in our
next generation initiatives, offset by the discontinuation of
certain pay-TV distribution agreements in the Nordics, and the
impact of COVID-19 in key advertising markets.
- Ex-FX, distribution increased 1%, primarily driven by content
licensing arrangements and higher affiliate rates in our
Latin America business unit, as
well as monetization of our next generation initiatives in
Europe and Asia. This growth was partially offset by the
discontinuation of certain pay-TV distribution agreements in the
Nordics, and lower contractual rates in certain European
markets.
- Total operating expenses decreased 2% to $716 million, and increased 1% ex-FX.
-
- Ex-FX, costs of revenues decreased 4% primarily due to lower
content costs in certain European markets, partially offset by
content investments in our next generation initiatives and
contributions from the UKTV Lifestyle Business.
- Ex-FX, SG&A increased 13% primarily due to higher marketing
and personnel costs related to our next generation
initiatives.
- Adjusted OIBDA decreased 5% to $207
million, and decreased 2% ex-FX.
Corporate and Inter-Segment Eliminations
For the first quarter of 2020, Corporate Adjusted OIBDA improved
by $10 million compared to the prior
year quarter, primarily due to lower professional services fees,
partially offset by investments in technology infrastructure and
facilities.
First-Quarter 2020 Consolidated Results
- Total revenues decreased 1% compared to the prior year quarter
to $2,683 million, and were
consistent ex-FX.
- Net income available to Discovery decreased to $377 million, or $0.55 per diluted share, primarily due to lower
Adjusted OIBDA and losses from our equity method investments
compared to gains in the prior year quarter, partially offset by
lower interest expenses.
- Total Adjusted OIBDA decreased 4% to $1,113 million, as U.S. Networks Adjusted OIBDA
decreased 4% and International Networks' Adjusted OIBDA decreased
5%. Ex-FX, Total Adjusted OIBDA decreased 3% and International
Networks Adjusted OIBDA decreased 2%.
- Adjusted EPS increased to $0.87
compared to the prior year quarter. Please refer to the table
"Calculation of Adjusted Earnings Per Diluted Share" on page 9 for
additional details.
- Cash provided by operating activities decreased to $335 million, primarily due to investments in
content and higher operating expense to support our next generation
initiatives, as well as higher cash taxes, partially offset by
lower interest expenses. Capital expenditures increased
$61 million to $105 million due to investments in technology
infrastructure, software development, and facilities. Free cash
flow decreased to $230 million driven
by lower cash provided by operating activities and higher capital
expenditures.
Other Items
Share Buyback
In February 2020, the Company's Board of Directors
authorized additional common stock repurchases of up to
$2 billion. Under the stock
repurchase authorization, management is authorized to purchase
shares from time to time through open market purchases at
prevailing prices or privately negotiated purchases subject to
market conditions and other factors.
During the three months ended March 31,
2020, the Company completed its $1 billion repurchase
authorization and repurchased an additional $159 million under its $2
billion repurchase authorization, representing total shares
repurchased of approximately 19 million Series C common shares for
$523 million at an average price of
$26.87 per share.
Liquidity and Debt
The Company has implemented several
measures that it believes will ensure sufficient liquidity and
flexibility in light of the current uncertainty surrounding the
impact of COVID-19. On March 12,
2020, the Company drew down $500
million under its $2.5 billion
revolving credit facility. In addition, on April 30, 2020, to preserve flexibility in the
current environment, the Company reached an agreement with its
lender group, led by Bank of America, N.A., to amend certain
provisions of its revolving credit facilities, including resetting
the Maximum Consolidated Leverage Ratio to 5.5x from the third
quarter of 2020 until the first quarter of 2021. Please refer to
the Form 8-K filed today with the Securities and Exchange
Commission for full details.
2020 Outlook(12)
Discovery may provide
forward-looking commentary in connection with this earnings
announcement on its quarterly earnings conference call. Details on
how to access the audio webcast are included below.
Conference Call Information
Discovery will host a
conference call today, May 6, 2020 at 8:00 a.m. ET to discuss its first quarter 2020
results. To listen to the audio webcast of the call, please visit
https://corporate.discovery.com.
Cautionary Statement Concerning Forward-Looking
Statements
This press release contains certain
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements are based on current expectations, forecasts and
assumptions that involve risks and uncertainties and on information
available to the Company as of the date hereof. The Company's
actual results could differ materially from those stated or
implied, due to risks and uncertainties associated with its
business, which include the risk factors disclosed in its Annual
Report on Form 10-K filed with the SEC on February 27, 2020 and its Quarterly Report on
Form 10-Q for the quarter ended March 31, 2020, expected to be
filed today.
Forward-looking statements include statements regarding the
Company's expectations, beliefs, intentions or strategies regarding
the future, and can be identified by forward-looking words such as
"anticipate," "believe," "could," "continue," "estimate," "expect,"
"intend," "may," "should," "will" and "would" or similar words.
Forward-looking statements in this release include, without
limitation, statements regarding investing in the Company's
programming, strategic growth initiatives, the impact of COVID-19,
and the effects of the Scripps Networks acquisition and related
transactions. The Company expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any
forward-looking statement contained herein to reflect any change in
the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is
based.
About Discovery
Discovery, Inc. (Nasdaq: DISCA, DISCB,
DISCK) is a global leader in real life entertainment, serving a
passionate audience of superfans around the world with content that
inspires, informs and entertains. Discovery delivers over 8,000
hours of original programming each year and has category leadership
across deeply loved content genres around the world. Available in
220 countries and territories and in nearly 50 languages, Discovery
is a platform innovator, reaching viewers on all screens, including
TV Everywhere products such as the GO portfolio of apps;
direct-to-consumer streaming services such as Eurosport Player,
Food Network Kitchen and MotorTrend OnDemand; digital-first and
social content from Group Nine Media; a landmark natural history
and factual content partnership with the BBC; and a strategic
alliance with PGA TOUR to create the international home of golf.
Discovery's portfolio of premium brands includes Discovery Channel,
HGTV, Food Network, TLC, Investigation Discovery, Travel Channel,
MotorTrend, Animal Planet, Science Channel, and the forthcoming
multi-platform JV with Chip and Joanna
Gaines, Magnolia, as well as OWN: Oprah Winfrey Network in
the U.S., Discovery Kids in Latin
America, and Eurosport, the leading provider of locally
relevant, premium sports and Home of the Olympic Games across
Europe. For more information,
please visit corporate.discovery.com and follow @DiscoveryIncTV
across social platforms.
DISCOVERY,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited; in
millions, except per share amounts)
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
Revenues:
|
|
|
|
|
Advertising
|
|
$
|
1,402
|
|
|
$
|
1,415
|
|
Distribution
|
|
1,223
|
|
|
1,224
|
|
Other
|
|
58
|
|
|
68
|
|
Total
revenues
|
|
2,683
|
|
|
2,707
|
|
Costs and
expenses:
|
|
|
|
|
Costs of revenues,
excluding depreciation and amortization
|
|
918
|
|
|
930
|
|
Selling, general and
administrative
|
|
645
|
|
|
626
|
|
Depreciation and
amortization
|
|
326
|
|
|
372
|
|
Restructuring and
other charges
|
|
15
|
|
|
5
|
|
Total costs and
expenses
|
|
1,904
|
|
|
1,933
|
|
Operating
income
|
|
779
|
|
|
774
|
|
Interest expense,
net
|
|
(163)
|
|
|
(182)
|
|
Loss on extinguishment
of debt
|
|
—
|
|
|
(5)
|
|
(Loss) income from
equity investees, net
|
|
(21)
|
|
|
11
|
|
Other expense,
net
|
|
(58)
|
|
|
(27)
|
|
Income before income
taxes
|
|
537
|
|
|
571
|
|
Income tax
expense
|
|
(130)
|
|
|
(153)
|
|
Net income
|
|
407
|
|
|
418
|
|
Net income
attributable to noncontrolling interests
|
|
(28)
|
|
|
(29)
|
|
Net income
attributable to redeemable noncontrolling interests
|
|
(2)
|
|
|
(5)
|
|
Net income available
to Discovery, Inc.
|
|
$
|
377
|
|
|
$
|
384
|
|
Net income per share
allocated to Discovery, Inc. Series A, B and C common
stockholders:
|
|
|
|
|
Basic
|
|
$
|
0.55
|
|
|
$
|
0.53
|
|
Diluted
|
|
$
|
0.55
|
|
|
$
|
0.53
|
|
Weighted average
shares outstanding:
|
|
|
|
|
Basic
|
|
517
|
|
|
524
|
|
Diluted
|
|
685
|
|
|
714
|
|
DISCOVERY,
INC.
CONSOLIDATED
BALANCE SHEETS
(unaudited; in
millions, except par value)
|
|
|
March 31,
2020
|
|
December 31,
2019
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
1,453
|
|
|
$
|
1,552
|
|
Receivables,
net
|
2,564
|
|
|
2,633
|
|
Content rights and
prepaid license fees, net
|
89
|
|
|
579
|
|
Prepaid expenses and
other current assets
|
520
|
|
|
453
|
|
Total current
assets
|
4,626
|
|
|
5,217
|
|
Noncurrent content
rights, net
|
3,756
|
|
|
3,129
|
|
Property and
equipment, net
|
1,040
|
|
|
951
|
|
Goodwill
|
12,966
|
|
|
13,050
|
|
Intangible assets,
net
|
8,332
|
|
|
8,667
|
|
Equity method
investments
|
542
|
|
|
568
|
|
Other noncurrent
assets
|
2,128
|
|
|
2,153
|
|
Total
assets
|
$
|
33,390
|
|
|
$
|
33,735
|
|
LIABILITIES AND
EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
|
421
|
|
|
$
|
463
|
|
Accrued
liabilities
|
1,471
|
|
|
1,678
|
|
Deferred
revenues
|
376
|
|
|
489
|
|
Current portion of
debt
|
607
|
|
|
609
|
|
Total current
liabilities
|
2,875
|
|
|
3,239
|
|
Noncurrent portion of
debt
|
15,267
|
|
|
14,810
|
|
Deferred income
taxes
|
1,550
|
|
|
1,691
|
|
Other noncurrent
liabilities
|
2,294
|
|
|
2,029
|
|
Total
liabilities
|
21,986
|
|
|
21,769
|
|
Commitments and
contingencies
|
|
|
|
Redeemable
noncontrolling interests
|
442
|
|
|
442
|
|
Equity:
|
|
|
|
Discovery, Inc.
stockholders' equity:
|
|
|
|
Series A-1
convertible preferred stock: $0.01 par value; 8 shares authorized,
issued and
outstanding
|
—
|
|
|
—
|
|
Series C-1
convertible preferred stock: $0.01 par value; 6 shares authorized;
5 shares
issued and outstanding
|
—
|
|
|
—
|
|
Series A common
stock: $0.01 par value; 1,700 shares authorized; 163 and 161
shares
issued; and 160 and 158 shares outstanding
|
2
|
|
|
2
|
|
Series B
convertible common stock: $0.01 par value; 100 shares authorized; 7
shares
issued and outstanding
|
—
|
|
|
—
|
|
Series C common
stock: $0.01 par value; 2,000 shares authorized; 546 and 547
shares
issued; and 340 and 360 shares outstanding
|
5
|
|
|
5
|
|
Additional paid-in
capital
|
10,770
|
|
|
10,747
|
|
Treasury stock, at
cost: 209 and 190 shares
|
(7,897)
|
|
|
(7,374)
|
|
Retained
earnings
|
7,712
|
|
|
7,333
|
|
Accumulated other
comprehensive loss
|
(1,122)
|
|
|
(822)
|
|
Total Discovery, Inc.
stockholders' equity
|
9,470
|
|
|
9,891
|
|
Noncontrolling
interests
|
1,492
|
|
|
1,633
|
|
Total
equity
|
10,962
|
|
|
11,524
|
|
Total liabilities and
equity
|
$
|
33,390
|
|
|
$
|
33,735
|
|
DISCOVERY,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited; in
millions)
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
Operating
Activities
|
|
|
|
Net income
|
$
|
407
|
|
|
$
|
418
|
|
Adjustments to
reconcile net income to cash provided by operating
activities:
|
|
|
|
Content rights
amortization and impairment
|
704
|
|
|
697
|
|
Depreciation and
amortization
|
326
|
|
|
372
|
|
Deferred income
taxes
|
(75)
|
|
|
(43)
|
|
Share-based
compensation (benefit) expense
|
(4)
|
|
|
30
|
|
Equity in losses of
equity method investee companies, including cash
distributions
|
31
|
|
|
3
|
|
Unrealized loss from
derivative instruments, net
|
27
|
|
|
—
|
|
Remeasurement gain on
previously held equity interest
|
—
|
|
|
(8)
|
|
Realized gain from
derivative instruments, net
|
(21)
|
|
|
—
|
|
Other, net
|
29
|
|
|
44
|
|
Changes in operating
assets and liabilities, net of acquisitions and
dispositions:
|
|
|
|
Receivables,
net
|
36
|
|
|
(10)
|
|
Content rights and
payables, net
|
(899)
|
|
|
(816)
|
|
Accounts payable and
accrued liabilities
|
(202)
|
|
|
(211)
|
|
Foreign currency,
prepaid expenses and other assets, net
|
(24)
|
|
|
66
|
|
Cash provided by
operating activities
|
335
|
|
|
542
|
|
Investing
Activities
|
|
|
|
Business
acquisitions, net of cash acquired
|
—
|
|
|
(22)
|
|
Investments in and
advances to equity investments
|
(42)
|
|
|
(34)
|
|
Purchases of property
and equipment
|
(105)
|
|
|
(44)
|
|
Other investing
activities, net
|
77
|
|
|
6
|
|
Cash used in
investing activities
|
(70)
|
|
|
(94)
|
|
Financing
Activities
|
|
|
|
Principal repayments
of debt, including discount payment
|
—
|
|
|
(453)
|
|
Repurchases of
stock
|
(527)
|
|
|
—
|
|
Distributions to
noncontrolling interests and redeemable noncontrolling
interests
|
(173)
|
|
|
(163)
|
|
Borrowings under
revolving credit facility
|
500
|
|
|
—
|
|
Other financing
activities, net
|
(59)
|
|
|
(36)
|
|
Cash used in
financing activities
|
(259)
|
|
|
(652)
|
|
Effect of exchange
rate changes on cash, cash equivalents, and restricted
cash
|
(24)
|
|
|
(37)
|
|
Net change in cash,
cash equivalents, and restricted cash
|
(18)
|
|
|
(241)
|
|
Cash, cash
equivalents, and restricted cash, beginning of period
|
1,552
|
|
|
986
|
|
Cash, cash
equivalents, and restricted cash, end of period
|
$
|
1,534
|
|
|
$
|
745
|
|
DISCOVERY,
INC.
SUPPLEMENTAL
FINANCIAL DATA
RECONCILIATION OF
NET INCOME TO
ADJUSTED OPERATING
INCOME BEFORE DEPRECIATION AND AMORTIZATION
(unaudited; in
millions)
|
|
|
Three Months Ended
March 31, 2020
|
|
U.S.
Networks
|
|
International
Networks
|
|
Other
|
|
Corporate
and Inter-
Segment
Eliminations
|
|
Total
|
Net income available
to Discovery, Inc.
|
|
|
|
|
|
|
|
|
$
|
377
|
|
Net income
attributable to redeemable
noncontrolling interests
|
|
|
|
|
|
|
|
|
2
|
|
Net income
attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
28
|
|
Income tax
expense
|
|
|
|
|
|
|
|
|
130
|
|
Other expense,
net
|
|
|
|
|
|
|
|
|
58
|
|
Loss from equity
investees, net
|
|
|
|
|
|
|
|
|
21
|
|
Interest expense,
net
|
|
|
|
|
|
|
|
|
163
|
|
Operating income
(loss)
|
$
|
777
|
|
|
$
|
124
|
|
|
$
|
3
|
|
|
$
|
(125)
|
|
|
$
|
779
|
|
Restructuring and
other charges
|
12
|
|
|
1
|
|
|
—
|
|
|
2
|
|
|
15
|
|
Depreciation and
amortization
|
226
|
|
|
82
|
|
|
—
|
|
|
18
|
|
|
326
|
|
Employee share-based
compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
(7)
|
|
Inter-segment
eliminations
|
1
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
Total Adjusted
OIBDA
|
$
|
1,016
|
|
|
$
|
207
|
|
|
$
|
2
|
|
|
$
|
(112)
|
|
|
$
|
1,113
|
|
|
|
|
Three Months Ended
March 31, 2019
|
|
U.S.
Networks
|
|
International
Networks
|
|
Other
|
|
Corporate
and Inter-
Segment
Eliminations
|
|
Total
|
Net income available
to Discovery, Inc.
|
|
|
|
|
|
|
|
|
$
|
384
|
|
Net income
attributable to redeemable
noncontrolling interests
|
|
|
|
|
|
|
|
|
5
|
|
Net income
attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
29
|
|
Income tax
expense
|
|
|
|
|
|
|
|
|
153
|
|
Other expense,
net
|
|
|
|
|
|
|
|
|
27
|
|
(Income) from equity
investees, net
|
|
|
|
|
|
|
|
|
(11)
|
|
Loss on
extinguishment of debt
|
|
|
|
|
|
|
|
|
5
|
|
Interest expense,
net
|
|
|
|
|
|
|
|
|
182
|
|
Operating income
(loss)
|
$
|
787
|
|
|
$
|
159
|
|
|
$
|
3
|
|
|
$
|
(175)
|
|
|
$
|
774
|
|
Restructuring and
other charges
|
4
|
|
|
4
|
|
|
—
|
|
|
(3)
|
|
|
5
|
|
Depreciation and
amortization
|
273
|
|
|
82
|
|
|
—
|
|
|
17
|
|
|
372
|
|
Employee share-based
compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
30
|
|
Transaction and
integration costs
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
Settlement of a
withholding tax claim
|
—
|
|
|
(29)
|
|
|
—
|
|
|
—
|
|
|
(29)
|
|
Inter-segment
eliminations
|
(3)
|
|
|
3
|
|
|
(2)
|
|
|
2
|
|
|
—
|
|
Total Adjusted
OIBDA
|
$
|
1,061
|
|
|
$
|
219
|
|
|
$
|
1
|
|
|
$
|
(122)
|
|
|
$
|
1,159
|
|
DISCOVERY,
INC.
SUPPLEMENTAL
FINANCIAL DATA
SELECTED FINANCIAL
DETAIL
(unaudited; in
millions, except per share amounts)
|
|
CALCULATION OF
ADJUSTED EARNINGS PER DILUTED SHARE
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
$
Change
|
%
Change
|
Diluted net income
per share allocated to Discovery,
Inc. Series A, B and C common stockholders:
|
|
$
|
0.55
|
|
|
$
|
0.53
|
|
|
$
|
0.02
|
|
4
|
%
|
Per share impacts,
net of tax:
|
|
|
|
|
|
|
|
Amortization of
acquisition-related intangible
assets
|
|
0.30
|
|
|
0.34
|
|
|
(0.04)
|
|
(12)
|
%
|
Restructuring and
other charges
|
|
0.02
|
|
|
0.01
|
|
|
0.01
|
|
NM
|
|
Settlement of a
withholding tax claim
|
|
—
|
|
|
(0.03)
|
|
|
0.03
|
|
NM
|
|
Adjusted earnings per
diluted share
|
|
$
|
0.87
|
|
|
$
|
0.85
|
|
|
$
|
0.02
|
|
2
|
%
|
|
CALCULATION OF
FREE CASH FLOW
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
$
Change
|
%
Change
|
Cash provided by
operating activities
|
|
$
|
335
|
|
|
$
|
542
|
|
|
$
|
(207)
|
|
(38)
|
%
|
Purchases of property
and equipment
|
|
(105)
|
|
|
(44)
|
|
|
(61)
|
|
NM
|
|
Free cash
flow
|
|
$
|
230
|
|
|
$
|
498
|
|
|
$
|
(268)
|
|
(54)
|
%
|
|
NM: Not
Meaningful
|
Impact of COVID-19
On March 11,
2020, the World Health Organization declared the current
novel coronavirus ("COVID-19") outbreak to be a global pandemic.
COVID-19 continues to spread throughout the world, and the duration
and severity of its effects and economic disruption are currently
unknown. In response to this declaration and the rapid spread of
COVID-19, the United States and
other countries throughout the world have imposed varying degrees
of restrictions on social and commercial activity in an effort to
slow the spread of the illness. These measures have had, and are
expected to continue to have, a significant adverse impact upon
many sectors of the economy, including the media industry. We are
closely monitoring the impact of COVID-19 on all aspects of our
business and geographies, including how it will impact our
customers, employees, suppliers, vendors, distribution and
advertising partners, production facilities, and various third
parties.
While we did not incur significant disruptions during the three
months ended March 31, 2020, we have
taken certain steps to mitigate the risks to our business in light
of the pandemic. We are unable to predict the full impact that
COVID-19 will have on our financial position, operating results,
and cash flows due to numerous uncertainties and the speed with
which the COVID-19 situation is developing. The extent to which
COVID-19 impacts our results will depend on future developments,
which are highly uncertain and cannot be predicted, including new
information that may emerge concerning the severity of COVID-19 and
the actions to contain the virus or treat its impact, among others.
Our consolidated financial statements presented herein reflect the
latest estimates and assumptions made by management that affect the
reported amounts of assets and liabilities and related disclosures
as of the date of the consolidated financial statements and
reported amounts of revenue and expenses during the reporting
periods presented. Actual results may differ significantly from
these estimates and assumptions. We assessed goodwill, other
intangibles, deferred tax assets, programming assets, and accounts
receivable for recoverability based upon latest estimates and
judgments with respect to expected future operating results,
ultimate usage of content and latest expectations with respect to
collectability. No asset impairments were recorded as of
March 31, 2020, as the fair value of
such assets exceeded their carrying value. However, due to
significant uncertainty surrounding the situation, management's
judgment regarding this could change in the future.
The effects of the pandemic may negatively impact the Company's
financial position, results of operations, and cash flows. In
particular, our advertising revenues, which represented 54% of our
consolidated revenues in 2019, may decrease significantly
throughout the remainder of 2020 if our advertising partners in
certain sectors (such as travel) reduce their advertising spending
or if we are limited in our ability to create and air new content
due to prolonged production shutdowns and delays. The Company
generally relies on third-party production partners to produce its
content, and these third-party production partners were forced to
shut down during the first quarter of 2020 due to COVID-19. The
Company continues to monitor customer and consumer demands by
employing innovative production and programming strategies,
including content filmed by our on-air talent and seeking viewer
feedback on which content to air. We intend to continue to adapt
our plans as needed to drive our business and meet our obligations
during the COVID-19 situation. However, the current level of
uncertainty over the economic and operational impacts of COVID-19
means the related financial impact cannot be reasonably estimated
at this time.
In response to the COVID-19 pandemic, during the first quarter
of 2020, the Company pursued a number of cost savings initiatives
that it believes will offset a portion of potential revenue losses
and deferrals due to the impact of COVID-19, through the
implementation of travel, marketing, production and other operating
cost reductions. The Company also implemented remote work
arrangements effective mid-March 2020
and to date, these arrangements have not materially affected our
ability to maintain our business operations. Additionally, certain
sporting events that the Company has rights to have been cancelled
or postponed, thereby eliminating or deferring the related revenues
and expenses. For example, on March 24,
2020, the International Olympic Committee and the
Tokyo 2020 Organizing Committee
agreed to postpone the Olympic Games to 2021. The Company expects
that the postponement of the Olympic Games will shift
Olympic-related revenues and defer significant expenses from fiscal
year 2020 to fiscal year 2021.
In addition, we have implemented several measures that we
believe will preserve sufficient liquidity in the near term. As
described further in Liquidity and Capital Resources, during
March 2020, we drew down $500 million under our $2.5 billion revolving credit facility to
increase our cash position and maximize flexibility in light of the
current uncertainty surrounding the impact of COVID-19. We have
upcoming corporate debt maturities in June
2020 of $600 million and in
June 2021 of $640 million.
Finally, the Coronavirus Aid, Relief, and Economic Security Act
("CARES Act") was enacted on March 27,
2020 in the United States.
The CARES Act provides numerous tax provisions and other stimulus
measures, including temporary changes regarding the prior and
future utilization of net operating losses, temporary changes to
the prior and future limitations on interest deductions, temporary
suspension of certain payment requirements for the employer portion
of Social Security taxes, technical corrections from prior tax
legislation for tax depreciation of certain qualified improvement
property, and the creation of certain refundable employee retention
credits. As of March 31, 2020, we do not expect the CARES Act
to have a material effect on our financial position and results of
operations. We continue to monitor other relief measures taken by
the U.S. and other governments around the world.
Non-GAAP Financial Measures
In addition to the results
prepared in accordance with U.S. generally accepted accounting
principles ("GAAP") provided in this release, the Company has
presented Adjusted OIBDA, Adjusted EPS and free cash flow. These
non-GAAP measures should be considered in addition to, but not as a
substitute for, operating income, net income, earnings per diluted
share and other measures of financial performance reported in
accordance with GAAP. Please review the supplemental financial
schedules for reconciliations to the most comparable GAAP
measures.
Definitions and
Sources
(1) Methodology for
Calculating Growth Rates Excluding the Impact of Currency
Effects: The impact of exchange rates on our business is an
important factor in understanding period-to-period comparisons of
our results. For example, our international revenues are favorably
impacted as the U.S. dollar weakens relative to other foreign
currencies, and unfavorably impacted as the U.S. dollar strengthens
relative to other foreign currencies. We believe the presentation
of results on a constant currency basis ("ex-FX"), in addition to
results reported in accordance with GAAP, provides useful
information about our operating performance because the
presentation ex-FX excludes the effects of foreign currency
volatility and highlights our core operating results. The
presentation of results on a constant currency basis should be
considered in addition to, but not a substitute for, measures of
financial performance reported in accordance with GAAP.
The ex-FX change represents the percentage change on a
period-over-period basis adjusted for foreign currency impacts. The
ex-FX change is calculated as the difference between the current
year amounts translated at a baseline rate, which is a spot rate
for each of our currencies determined early in the fiscal year as
part of our forecasting process (the "2020 Baseline Rate"), and the
prior year amounts translated at the same 2020 Baseline Rate.
In addition, consistent with the assumption of a constant
currency environment, our ex-FX results exclude the impact of our
foreign currency hedging activities, as well as realized and
unrealized foreign currency transaction gains and losses. Results
on a constant currency basis, as we present them, may not be
comparable to similarly titled measures used by other
companies.
(2) Adjusted OIBDA and Adjusted OIBDA
Excluding the Impact of Currency Effects: The Company evaluates
the operating performance of its segments based on financial
measures such as revenues and Adjusted OIBDA. Adjusted OIBDA is
defined as operating income excluding: (i) employee share-based
compensation, (ii) depreciation and amortization, (iii)
restructuring and other charges, (iv) certain impairment charges,
(v) gains and losses on business and asset dispositions, (vi)
certain inter-segment eliminations related to production studios,
(vii) third-party transaction costs directly related to the
acquisition and integration of Scripps Networks and other
transactions, and (viii) other items impacting comparability, such
as the non-cash settlement of a withholding tax claim.
The Company uses this measure to assess the operating results
and performance of its segments, perform analytical comparisons,
identify strategies to improve performance and allocate resources
to each segment. The Company believes Adjusted OIBDA is relevant to
investors because it allows them to analyze the operating
performance of each segment using the same metric management
uses.
The Company excludes share-based compensation, restructuring and
other charges, certain impairment charges, gains and losses on
business and asset dispositions and acquisition and integration
costs from the calculation of Adjusted OIBDA due to their impact on
comparability between periods. The Company also excludes
depreciation of fixed assets and amortization of intangible assets,
as these amounts do not represent cash payments in the current
reporting period. Certain corporate expenses are excluded from
segment results to enable executive management to evaluate segment
performance based upon the decisions of segment executives. Total
Adjusted OIBDA should be considered in addition to, but not a
substitute for, operating income, net income, and other measures of
financial performance reported in accordance with GAAP. Refer to
the comments in footnote 1 for the methodology used to calculate
growth rates excluding foreign currency effects.
(3) Adjusted EPS: The Company
defines Adjusted EPS as earnings excluding the impact of
amortization of acquisition-related intangible assets and
meaningful one-time items, per diluted share. The Company believes
Adjusted EPS is relevant to investors because this metric allows
them to evaluate the performance of the Company's operations
exclusive of the non-cash amortization of acquisition-related
intangible assets and meaningful one-time items that impact the
comparability of results from period to period.
(4) Free Cash Flow: The Company
defines free cash flow as cash flow from operations less
acquisitions of property and equipment. The Company uses free cash
flow as it believes it is an important indicator for management and
investors of the Company's liquidity, including its ability to
reduce debt, make strategic investments and return capital to
stockholders.
(5) Financial Highlights
Table: This table presents a selection of the Company's
financial results. Because the table as shown excludes the "Other"
and "Corporate and Inter-Segment Eliminations" operating segments,
Total Adjusted OIBDA will not foot as presented in the table.
(6) Source: Total Audience
Measurement among all individuals. Share of viewing percent is
defined as the share of viewing to all TV channels in a market,
except in the Nordics business unit. In the Nordics, share percent
is defined as the share of viewing for commercial channels only.
Due to a change in methodology, Russia is excluded from totals. Change in
share percent is calculated by adjusting the prior year to include
any newly acquired channels, as if the acquisitions had occurred on
January 1, 2018.
(7) Source: Nielsen, Q1 2020
(12/30/2019-3/29/2020). Primetime is
8pm-11pm and Total Day is
6am-6am. Live+7-day.
Duration-weighted delivery: "Most Watched".
(8) Source: Nielsen, Q1 2020
(12/30/2019-3/29/2020). Primetime is
8pm-11pm. Live+7-day. Key demos
include: all persons 18+, and women and men in the age groups 18-49
and 25-54. Duration-weighted delivery: "Most Watched".
(9) Source: Nielsen, Q1 2020
(12/30/2019-3/29/2020). Primetime is
8pm-11pm. Data based on program based
daypart (000s). Live+3-day, Cov Rtg/(000s).
(10) SG&A Expenses: Selling,
general and administrative expenses exclude employee share-based
compensation, third-party transaction and integration costs related
to the acquisition of Scripps Networks and other transactions, and
for 2019, exclude the settlement of a withholding tax claim.
(11) UKTV Lifestyle
Business: In June 2019, the
Company and BBC dissolved their 50/50 joint venture, UKTV, a
British multi-channel broadcaster, with the Company taking full
control of UKTV's three lifestyle channels and BBC taking full
control of UKTV's seven entertainment channels.
(12) 2020 Outlook: Discovery does
not expect to be able to provide a reconciliation of the non-GAAP
forward-looking commentary to comparable GAAP measures as, at this
time, the Company cannot determine the occurrence or impact of the
adjustments, such as the effect of future changes in foreign
currency exchange rates or future acquisitions or divestitures that
would be excluded from such GAAP measures.
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SOURCE Discovery, Inc.