SILVER SPRING, Md.,
Aug. 5, 2020 /PRNewswire/ -- Discovery, Inc. ("Discovery" or
the "Company") (NASDAQ: DISCA, DISCB, DISCK) today reported
financial results for the quarter ended June 30, 2020.
David Zaslav, President
and Chief Executive Officer of Discovery said, "Our top priority is
the health and safety of our employees as global economies and our
offices begin to reopen. I want to thank all of our teams for the
exceptional focus and dedication even during these turbulent times
that continued to drive outstanding progress for our business,
including renewals with four of our largest distribution partners
and meaningful cost containment. We generated significant free cash
flows in Q2, demonstrating the durability of our business,
especially against the backdrop of a historic disruption to the
global advertising market due to the impacts of the pandemic. With
our significant liquidity cushion and the initial signs of
stabilization that we're seeing in many of our key markets around
the world, we are pleased to announce our intention to resume
returning capital to shareholders through share repurchases. We are
cautiously optimistic about the global outlook for the rest of the
year and firmly believe that the long-term prospects for Discovery
remain as vibrant as ever."
Second-Quarter 2020 Financial Highlights
- Total revenues of $2,541 million
decreased 12% compared to the prior year quarter, or decreased 11%
ex-FX.(1)
-
- U.S. distribution revenues increased 7%, or increased 2%
excluding certain non-recurring items, and advertising revenues
decreased 14%; and
- International distribution revenues decreased 2% and
advertising revenues decreased 37%, ex-FX.
- Net income available to Discovery was $271 million and diluted EPS was $0.40 per share.
- Total Adjusted OIBDA(2) decreased 12% to
$1,127 million, or decreased 11%
ex-FX.
- Adjusted EPS(3) was $0.77 per diluted share.
- Free cash flow(4) was $879
million.
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
Dollars in
millions, except per share amounts
|
|
2020
|
|
2019
|
|
%
Change
|
Ex-FX(1)
|
|
2020
|
|
2019
|
|
%
Change
|
Ex-FX(1)
|
Total
revenue
|
|
$
|
2,541
|
|
|
$
|
2,885
|
|
|
(12)
|
%
|
(11)
|
%
|
|
$
|
5,224
|
|
|
$
|
5,592
|
|
|
(7)
|
%
|
(5)
|
%
|
Net income
available to Discovery, Inc.
|
|
$
|
271
|
|
|
$
|
947
|
|
|
(71)
|
%
|
|
|
$
|
648
|
|
|
$
|
1,331
|
|
|
(51)
|
%
|
|
U.S. Networks Adjusted
OIBDA
|
|
1,062
|
|
|
1,126
|
|
|
(6)
|
%
|
|
|
2,078
|
|
|
2,187
|
|
|
(5)
|
%
|
|
International Networks
Adjusted OIBDA
|
|
193
|
|
|
286
|
|
|
(33)
|
%
|
(29)
|
%
|
|
400
|
|
|
505
|
|
|
(21)
|
%
|
(18)
|
%
|
Total Adjusted
OIBDA(5)
|
|
$
|
1,127
|
|
|
$
|
1,281
|
|
|
(12)
|
%
|
(11)
|
%
|
|
$
|
2,240
|
|
|
$
|
2,440
|
|
|
(8)
|
%
|
(7)
|
%
|
Diluted
EPS
|
|
$
|
0.40
|
|
|
$
|
1.33
|
|
|
(70)
|
%
|
|
|
$
|
0.95
|
|
|
$
|
1.86
|
|
|
(49)
|
%
|
|
Adjusted
EPS
|
|
$
|
0.77
|
|
|
$
|
0.98
|
|
|
(21)
|
%
|
|
|
$
|
1.64
|
|
|
$
|
1.83
|
|
|
(10)
|
%
|
|
Free cash
flow
|
|
$
|
879
|
|
|
$
|
596
|
|
|
47
|
%
|
|
|
$
|
1,109
|
|
|
$
|
1,094
|
|
|
1
|
%
|
|
Operational Highlights
- Total share of viewing across the international portfolio in
the second quarter of 2020 improved 4% on average, with strong
share growth in India, UK and
Italy.(6)
- In the second quarter, Discovery's portfolio of networks in the
U.S. gained more share in primetime than any other TV portfolio in
each of our target demos.(7)
- TLC delivered its best quarter in network history and was the
top network across all of TV on Sunday nights among W25-54, P25-54
and W18-49, driven by the performance of the '90 Day Fiancé'
franchise. The network also continues to be the No. 1 destination
for women on cable TV in 2020.(8)
Segment
Results U.S. Networks
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
Dollars in
millions
|
2020
|
|
2019
|
|
%
Change
|
|
2020
|
|
2019
|
|
%
Change
|
Advertising
|
$
|
997
|
|
|
$
|
1,153
|
|
|
(14)
|
%
|
|
$
|
2,023
|
|
|
$
|
2,175
|
|
|
(7)
|
%
|
Distribution
|
739
|
|
|
688
|
|
|
7
|
%
|
|
1,447
|
|
|
1,385
|
|
|
4
|
%
|
Other
|
20
|
|
|
22
|
|
|
(9)
|
%
|
|
42
|
|
|
55
|
|
|
(24)
|
%
|
Total
revenues
|
$
|
1,756
|
|
|
$
|
1,863
|
|
|
(6)
|
%
|
|
$
|
3,512
|
|
|
$
|
3,615
|
|
|
(3)
|
%
|
Costs of revenues,
excluding depreciation & amortization
|
442
|
|
|
441
|
|
|
—
|
%
|
|
889
|
|
|
863
|
|
|
3
|
%
|
Selling, general
& administrative(9)
|
252
|
|
|
296
|
|
|
(15)
|
%
|
|
545
|
|
|
565
|
|
|
(4)
|
%
|
Adjusted
OIBDA
|
$
|
1,062
|
|
|
$
|
1,126
|
|
|
(6)
|
%
|
|
$
|
2,078
|
|
|
$
|
2,187
|
|
|
(5)
|
%
|
Second-Quarter 2020 Highlights
- Revenues of $1,756 million
decreased 6% compared to the prior year quarter.
-
- Advertising decreased 14%, primarily driven by a decline in
demand stemming from the COVID-19 pandemic and, to a lesser extent,
secular declines in the pay-TV ecosystem and lower inventory,
partially offset by higher overall ratings and pricing.
- Distribution increased 7%, primarily driven by increases in
contractual affiliate rates and certain non-recurring items,
partially offset by a decline in linear subscribers. Excluding the
non-recurring items, distribution revenue increased 2%.
- At June 30, 2020, subscribers to our fully distributed
networks were 5% lower than the prior year. Total portfolio
subscribers, excluding the one-time benefit of free previews
provided during the pandemic, were 7% lower than at June 30,
2019.
- Total operating expenses of $694
million decreased 6%.
-
- Costs of revenues were consistent with the prior year quarter,
primarily due to investments in content to support our next
generation initiatives, offset by a non-recurring reserve release
established in purchase accounting and a reduction in production
projects as a result of the COVID-19 pandemic.
- SG&A expenses decreased 15% primarily due to lower
marketing-related expenses and, as a result of COVID-19, a
reduction in travel costs.
- Adjusted OIBDA decreased 6% to $1,062
million.
International
Networks
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
Dollars in
millions
|
2020
|
|
2019
|
|
%
Change
|
Ex-FX
|
|
2020
|
|
2019
|
|
%
Change
|
Ex-FX
|
Advertising
|
$
|
276
|
|
|
$
|
466
|
|
|
(41)
|
%
|
(37)
|
%
|
|
$
|
652
|
|
|
$
|
859
|
|
|
(24)
|
%
|
(20)
|
%
|
Distribution
|
486
|
|
|
518
|
|
|
(6)
|
%
|
(2)
|
%
|
|
1,001
|
|
|
1,045
|
|
|
(4)
|
%
|
(1)
|
%
|
Other
|
21
|
|
|
36
|
|
|
(42)
|
%
|
(43)
|
%
|
|
53
|
|
|
68
|
|
|
(22)
|
%
|
(22)
|
%
|
Total
revenues
|
$
|
783
|
|
|
$
|
1,020
|
|
|
(23)
|
%
|
(20)
|
%
|
|
$
|
1,706
|
|
|
$
|
1,972
|
|
|
(13)
|
%
|
(10)
|
%
|
Costs of revenues,
excluding
depreciation & amortization
|
365
|
|
|
497
|
|
|
(27)
|
%
|
(23)
|
%
|
|
835
|
|
|
1,004
|
|
|
(17)
|
%
|
(14)
|
%
|
Selling, general
& administrative(9)
|
225
|
|
|
237
|
|
|
(5)
|
%
|
(1)
|
%
|
|
471
|
|
|
463
|
|
|
2
|
%
|
6
|
%
|
Adjusted
OIBDA
|
$
|
193
|
|
|
$
|
286
|
|
|
(33)
|
%
|
(29)
|
%
|
|
$
|
400
|
|
|
$
|
505
|
|
|
(21)
|
%
|
(18)
|
%
|
Second-Quarter 2020 Highlights
- Revenues of $783 million
decreased 23%, or decreased 20% ex-FX, compared to the prior year
quarter.
-
- Ex-FX, advertising decreased 37%, primarily driven by a decline
in demand stemming from the COVID-19 pandemic and, to a lesser
extent, the discontinuation of certain pay-TV distribution in the
Nordics.
- Ex-FX, distribution decreased 2%, primarily driven by the
impact on sporting events due to COVID-19, the discontinuation of
certain pay-TV distribution in some European markets, and lower
contractual rates, partially offset by increases in digital
distribution.
- Total operating expenses of $590
million decreased 20%, or decreased 16% ex-FX.
-
- Ex-FX, costs of revenues decreased 23% primarily due to the
timing of sporting events in Europe due to COVID-19.
- Ex-FX, SG&A was relatively consistent with the prior year
quarter.
- Adjusted OIBDA of $193 million
decreased 33%, or decreased 29% ex-FX.
Corporate, Inter-segment Eliminations, and Other
- For the second quarter of 2020, Corporate Adjusted OIBDA
improved by $3 million compared to
the prior year quarter.
Free Cash Flow
- Cash provided by operating activities increased to $991 million from $674
million in the prior year quarter. Free cash flow increased
to $879 million from $596 million, primarily due to the timing of
working capital, partially offset by higher capital expenditures.
Capital expenditures increased due to investments in technology
infrastructure, software development, and facilities.
Other Items
Share Buyback
In February 2020, the Company's Board of Directors
authorized 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 June 30,
2020, the Company did not repurchase any shares under its
$2 billion repurchase authorization,
which has $1.8 billion remaining. We
expect to resume repurchasing shares in the open market once the
blackout period ends on August 6,
2020.
2020 Outlook(10)
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, August 5, 2020 at 8:00 a.m. ET to discuss its second 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 June 30, 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, changes in the pay TV
ecosystem, and the impact of COVID-19. 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
June 30,
|
|
Six Months Ended
June 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Revenues:
|
|
|
|
|
|
|
|
Advertising
|
$
|
1,273
|
|
|
$
|
1,619
|
|
|
$
|
2,675
|
|
|
$
|
3,034
|
|
Distribution
|
1,225
|
|
|
1,206
|
|
|
2,448
|
|
|
2,430
|
|
Other
|
43
|
|
|
60
|
|
|
101
|
|
|
128
|
|
Total
revenues
|
2,541
|
|
|
2,885
|
|
|
5,224
|
|
|
5,592
|
|
Costs and
expenses:
|
|
|
|
|
|
|
|
Costs of revenues,
excluding depreciation and amortization
|
810
|
|
|
938
|
|
|
1,728
|
|
|
1,868
|
|
Selling, general and
administrative
|
635
|
|
|
709
|
|
|
1,280
|
|
|
1,335
|
|
Depreciation and
amortization
|
334
|
|
|
320
|
|
|
660
|
|
|
692
|
|
Impairment of goodwill
and other intangible assets
|
38
|
|
|
—
|
|
|
38
|
|
|
—
|
|
Restructuring and
other charges
|
7
|
|
|
7
|
|
|
22
|
|
|
12
|
|
Total costs and
expenses
|
1,824
|
|
|
1,974
|
|
|
3,728
|
|
|
3,907
|
|
Operating
income
|
717
|
|
|
911
|
|
|
1,496
|
|
|
1,685
|
|
Interest expense,
net
|
(161)
|
|
|
(161)
|
|
|
(324)
|
|
|
(343)
|
|
Loss on extinguishment
of debt
|
(71)
|
|
|
(23)
|
|
|
(71)
|
|
|
(28)
|
|
Loss from equity
investees, net
|
(23)
|
|
|
(20)
|
|
|
(44)
|
|
|
(9)
|
|
Other (expense)
income, net
|
(6)
|
|
|
9
|
|
|
(64)
|
|
|
(18)
|
|
Income before income
taxes
|
456
|
|
|
716
|
|
|
993
|
|
|
1,287
|
|
Income tax (expense)
benefit
|
(156)
|
|
|
271
|
|
|
(286)
|
|
|
118
|
|
Net income
|
300
|
|
|
987
|
|
|
707
|
|
|
1,405
|
|
Net income
attributable to noncontrolling interests
|
(25)
|
|
|
(36)
|
|
|
(53)
|
|
|
(65)
|
|
Net income
attributable to redeemable noncontrolling interests
|
(4)
|
|
|
(4)
|
|
|
(6)
|
|
|
(9)
|
|
Net income available
to Discovery, Inc.
|
$
|
271
|
|
|
$
|
947
|
|
|
$
|
648
|
|
|
$
|
1,331
|
|
Net income per share
allocated to Discovery, Inc. Series A, B
and C common
stockholders:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.40
|
|
|
$
|
1.33
|
|
|
$
|
0.96
|
|
|
$
|
1.86
|
|
Diluted
|
$
|
0.40
|
|
|
$
|
1.33
|
|
|
$
|
0.95
|
|
|
$
|
1.86
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
508
|
|
|
528
|
|
|
513
|
|
|
526
|
|
Diluted
|
674
|
|
|
716
|
|
|
680
|
|
|
715
|
|
DISCOVERY,
INC. CONSOLIDATED BALANCE SHEETS (unaudited; in
millions, except par value)
|
|
|
June 30,
2020
|
|
December 31,
2019
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
1,683
|
|
|
$
|
1,552
|
|
Receivables,
net
|
2,473
|
|
|
2,633
|
|
Content rights and
prepaid license fees, net
|
113
|
|
|
579
|
|
Prepaid expenses and
other current assets
|
448
|
|
|
453
|
|
Total current
assets
|
4,717
|
|
|
5,217
|
|
Noncurrent content
rights, net
|
3,540
|
|
|
3,129
|
|
Property and
equipment, net
|
1,088
|
|
|
951
|
|
Goodwill
|
12,987
|
|
|
13,050
|
|
Intangible assets,
net
|
8,091
|
|
|
8,667
|
|
Equity method
investments
|
530
|
|
|
568
|
|
Other noncurrent
assets
|
2,136
|
|
|
2,153
|
|
Total
assets
|
$
|
33,089
|
|
|
$
|
33,735
|
|
LIABILITIES AND
EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
|
367
|
|
|
$
|
463
|
|
Accrued
liabilities
|
1,607
|
|
|
1,678
|
|
Deferred
revenues
|
263
|
|
|
489
|
|
Current portion of
debt
|
339
|
|
|
609
|
|
Total current
liabilities
|
2,576
|
|
|
3,239
|
|
Noncurrent portion of
debt
|
14,944
|
|
|
14,810
|
|
Deferred income
taxes
|
1,463
|
|
|
1,691
|
|
Other noncurrent
liabilities
|
2,306
|
|
|
2,029
|
|
Total
liabilities
|
21,289
|
|
|
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
|
10,798
|
|
|
10,747
|
|
Treasury stock, at
cost: 209 and 190 shares
|
(7,897)
|
|
|
(7,374)
|
|
Retained
earnings
|
7,980
|
|
|
7,333
|
|
Accumulated other
comprehensive loss
|
(1,021)
|
|
|
(822)
|
|
Total Discovery, Inc.
stockholders' equity
|
9,867
|
|
|
9,891
|
|
Noncontrolling
interests
|
1,491
|
|
|
1,633
|
|
Total
equity
|
11,358
|
|
|
11,524
|
|
Total liabilities and
equity
|
$
|
33,089
|
|
|
$
|
33,735
|
|
DISCOVERY,
INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS (unaudited; in millions)
|
|
|
Six Months Ended
June 30,
|
|
2020
|
|
2019
|
Operating
Activities
|
|
|
|
Net income
|
707
|
|
|
1,405
|
|
Adjustments to
reconcile net income to cash provided by operating
activities:
|
|
|
|
Content rights
amortization and impairment
|
1,355
|
|
|
1,378
|
|
Depreciation and
amortization
|
660
|
|
|
692
|
|
Deferred income
taxes
|
(188)
|
|
|
(554)
|
|
Impairment of goodwill
and other intangible assets
|
38
|
|
|
—
|
|
Share-based
compensation expense
|
30
|
|
|
69
|
|
Equity in losses of
equity method investee companies, including cash
distributions
|
71
|
|
|
37
|
|
Unrealized loss from
derivative instruments, net
|
22
|
|
|
—
|
|
Loss on extinguishment
of debt
|
71
|
|
|
28
|
|
Remeasurement gain on
previously held equity interest
|
—
|
|
|
(14)
|
|
Realized gain from
derivative instruments, net
|
(21)
|
|
|
—
|
|
Other, net
|
41
|
|
|
50
|
|
Changes in operating
assets and liabilities, net of acquisitions and
dispositions:
|
|
|
|
Receivables,
net
|
122
|
|
|
(231)
|
|
Content rights and
payables, net
|
(1,386)
|
|
|
(1,570)
|
|
Accounts payable,
accrued and other liabilities
|
(174)
|
|
|
(132)
|
|
Foreign currency,
prepaid expenses and other assets, net
|
(22)
|
|
|
58
|
|
Cash provided by
operating activities
|
1,326
|
|
|
1,216
|
|
Investing
Activities
|
|
|
|
Investments in and
advances to equity investments
|
(81)
|
|
|
(147)
|
|
Purchases of property
and equipment
|
(217)
|
|
|
(122)
|
|
Proceeds from
dissolution of joint venture
|
65
|
|
|
105
|
|
Business
acquisitions, net of cash acquired
|
—
|
|
|
(60)
|
|
Other investing
activities, net
|
79
|
|
|
4
|
|
Cash used in
investing activities
|
(154)
|
|
|
(220)
|
|
Financing
Activities
|
|
|
|
Principal repayments
of debt, including discount payment
|
(2,164)
|
|
|
(1,740)
|
|
Borrowings from debt,
net of discount and issuance costs
|
1,979
|
|
|
1,482
|
|
Repurchases of
stock
|
(527)
|
|
|
—
|
|
Distributions to
noncontrolling interests and redeemable noncontrolling
interests
|
(202)
|
|
|
(191)
|
|
Principal repayments
of revolving credit facility
|
(500)
|
|
|
(225)
|
|
Borrowings under
revolving credit facility
|
500
|
|
|
—
|
|
Commercial paper
borrowings, net
|
—
|
|
|
173
|
|
Other financing
activities, net
|
(84)
|
|
|
(142)
|
|
Cash used in
financing activities
|
(998)
|
|
|
(643)
|
|
Effect of exchange
rate changes on cash, cash equivalents, and restricted
cash
|
12
|
|
|
(18)
|
|
Net change in cash,
cash equivalents, and restricted cash
|
186
|
|
|
335
|
|
Cash, cash
equivalents, and restricted cash, beginning of period
|
1,552
|
|
|
986
|
|
Cash, cash
equivalents, and restricted cash, end of period
|
$
|
1,738
|
|
|
$
|
1,321
|
|
|
|
|
|
|
|
|
|
DISCOVERY,
INC. SUPPLEMENTAL FINANCIAL DATA RECONCILIATION
OF NET INCOME TO ADJUSTED OPERATING INCOME BEFORE
DEPRECIATION AND AMORTIZATION (unaudited; in
millions)
|
|
|
Three Months Ended
June 30, 2020
|
|
U.S.
Networks
|
|
International
Networks
|
|
Corporate,
Inter-
segment
Eliminations, and
Other
|
|
Total
|
Net income available
to Discovery, Inc.
|
|
|
|
|
|
|
$
|
271
|
|
Net income
attributable to redeemable noncontrolling
interests
|
|
|
|
|
|
|
4
|
|
Net income
attributable to noncontrolling interests
|
|
|
|
|
|
|
25
|
|
Income tax
expense
|
|
|
|
|
|
|
156
|
|
Other expense,
net
|
|
|
|
|
|
|
6
|
|
Loss on
extinguishment of debt
|
|
|
|
|
|
|
71
|
|
Loss from equity
investees, net
|
|
|
|
|
|
|
23
|
|
Interest expense,
net
|
|
|
|
|
|
|
161
|
|
Operating income
(loss)
|
$
|
836
|
|
|
$
|
68
|
|
|
$
|
(187)
|
|
|
$
|
717
|
|
Depreciation and
amortization
|
225
|
|
|
84
|
|
|
25
|
|
|
334
|
|
Impairment of goodwill
and other intangible assets
|
—
|
|
|
38
|
|
|
—
|
|
|
38
|
|
Restructuring and
other charges
|
—
|
|
|
3
|
|
|
4
|
|
|
7
|
|
Employee share-based
compensation
|
—
|
|
|
—
|
|
|
31
|
|
|
31
|
|
Inter-segment
eliminations
|
1
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
Total Adjusted
OIBDA
|
$
|
1,062
|
|
|
$
|
193
|
|
|
$
|
(128)
|
|
|
$
|
1,127
|
|
|
Three Months Ended
June 30, 2019
|
|
U.S.
Networks
|
|
International
Networks
|
|
Corporate,
Inter-
segment
Eliminations, and
Other
|
|
Total
|
Net income available
to Discovery, Inc.
|
|
|
|
|
|
|
$
|
947
|
|
Net income
attributable to redeemable noncontrolling
interests
|
|
|
|
|
|
|
4
|
|
Net income
attributable to noncontrolling interests
|
|
|
|
|
|
|
36
|
|
Income tax
(benefit)
|
|
|
|
|
|
|
(271)
|
|
Other (income),
net
|
|
|
|
|
|
|
(9)
|
|
Loss from equity
investees, net
|
|
|
|
|
|
|
20
|
|
Loss on
extinguishment of debt
|
|
|
|
|
|
|
23
|
|
Interest expense,
net
|
|
|
|
|
|
|
161
|
|
Operating income
(loss)
|
$
|
898
|
|
|
$
|
180
|
|
|
$
|
(167)
|
|
|
$
|
911
|
|
Depreciation and
amortization
|
222
|
|
|
82
|
|
|
16
|
|
|
320
|
|
Restructuring and
other charges
|
3
|
|
|
6
|
|
|
(2)
|
|
|
7
|
|
Transaction and
integration costs
|
—
|
|
|
—
|
|
|
4
|
|
|
4
|
|
Employee share-based
compensation
|
—
|
|
|
—
|
|
|
39
|
|
|
39
|
|
Inter-segment
eliminations
|
3
|
|
|
18
|
|
|
(21)
|
|
|
—
|
|
Total Adjusted
OIBDA
|
$
|
1,126
|
|
|
$
|
286
|
|
|
$
|
(131)
|
|
|
$
|
1,281
|
|
DISCOVERY,
INC. SUPPLEMENTAL FINANCIAL DATA RECONCILIATION
OF NET INCOME TO ADJUSTED OPERATING INCOME BEFORE
DEPRECIATION AND AMORTIZATION (unaudited; in
millions)
|
|
|
Six Months Ended
June 30, 2020
|
|
U.S.
Networks
|
|
International
Networks
|
|
Corporate,
Inter-
segment
Eliminations, and
Other
|
|
Total
|
Net income available
to Discovery, Inc.
|
|
|
|
|
|
|
$
|
648
|
|
Net income
attributable to redeemable noncontrolling
interests
|
|
|
|
|
|
|
6
|
|
Net income
attributable to noncontrolling interests
|
|
|
|
|
|
|
53
|
|
Income tax
expense
|
|
|
|
|
|
|
286
|
|
Other expense,
net
|
|
|
|
|
|
|
64
|
|
Loss on
extinguishment of debt
|
|
|
|
|
|
|
71
|
|
Loss from equity
investees, net
|
|
|
|
|
|
|
44
|
|
Interest expense,
net
|
|
|
|
|
|
|
324
|
|
Operating income
(loss)
|
$
|
1,613
|
|
|
$
|
192
|
|
|
$
|
(309)
|
|
|
$
|
1,496
|
|
Depreciation and
amortization
|
451
|
|
|
166
|
|
|
43
|
|
|
660
|
|
Impairment of goodwill
and other intangible assets
|
—
|
|
|
38
|
|
|
—
|
|
|
38
|
|
Restructuring and
other charges
|
12
|
|
|
4
|
|
|
6
|
|
|
22
|
|
Employee share-based
compensation
|
—
|
|
|
—
|
|
|
24
|
|
|
24
|
|
Inter-segment
eliminations
|
2
|
|
|
—
|
|
|
(2)
|
|
|
—
|
|
Total Adjusted
OIBDA
|
$
|
2,078
|
|
|
$
|
400
|
|
|
$
|
(238)
|
|
|
$
|
2,240
|
|
|
Six Months Ended
June 30, 2019
|
|
U.S.
Networks
|
|
International
Networks
|
|
Corporate,
Inter-
segment
Eliminations, and
Other
|
|
Total
|
Net income available
to Discovery, Inc.
|
|
|
|
|
|
|
$
|
1,331
|
|
Net income
attributable to redeemable noncontrolling
interests
|
|
|
|
|
|
|
9
|
|
Net income
attributable to noncontrolling interests
|
|
|
|
|
|
|
65
|
|
Income tax
(benefit)
|
|
|
|
|
|
|
(118)
|
|
Other expense,
net
|
|
|
|
|
|
|
18
|
|
Loss on
extinguishment of debt
|
|
|
|
|
|
|
28
|
|
Loss from equity
investees, net
|
|
|
|
|
|
|
9
|
|
Interest expense,
net
|
|
|
|
|
|
|
343
|
|
Operating income
(loss)
|
$
|
1,685
|
|
|
$
|
339
|
|
|
$
|
(339)
|
|
|
$
|
1,685
|
|
Depreciation and
amortization
|
495
|
|
|
164
|
|
|
33
|
|
|
692
|
|
Restructuring and
other charges
|
7
|
|
|
10
|
|
|
(5)
|
|
|
12
|
|
Transaction and
integration costs
|
—
|
|
|
—
|
|
|
11
|
|
|
11
|
|
Employee share-based
compensation
|
—
|
|
|
—
|
|
|
69
|
|
|
69
|
|
Inter-segment
eliminations
|
—
|
|
|
21
|
|
|
(21)
|
|
|
—
|
|
Settlement of a
withholding tax claim
|
—
|
|
|
(29)
|
|
|
—
|
|
|
(29)
|
|
Total Adjusted
OIBDA
|
$
|
2,187
|
|
|
$
|
505
|
|
|
$
|
(252)
|
|
|
$
|
2,440
|
|
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
June 30,
|
|
Six Months Ended
June 30,
|
|
2020
|
|
2019
|
|
$
Change
|
%
Change
|
|
2020
|
|
2019
|
|
$
Change
|
%
Change
|
Diluted net income
per share allocated to
Discovery, Inc. Series A, B and C
common stockholders:
|
$
|
0.40
|
|
|
$
|
1.33
|
|
|
$
|
(0.93)
|
|
(70)
|
%
|
|
$
|
0.95
|
|
|
$
|
1.86
|
|
|
$
|
(0.91)
|
|
(49)
|
%
|
Per share impacts,
net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
acquisition-related
intangible assets
|
0.30
|
|
|
0.28
|
|
|
0.02
|
|
7
|
%
|
|
0.60
|
|
|
0.62
|
|
|
(0.02)
|
|
(3)
|
%
|
Restructuring and
other charges
|
0.01
|
|
|
0.01
|
|
|
—
|
|
—
|
%
|
|
0.03
|
|
|
0.02
|
|
|
0.01
|
|
50
|
%
|
Impairment of goodwill
and other
intangible assets
|
0.06
|
|
|
—
|
|
|
0.06
|
|
NM
|
|
0.06
|
|
|
—
|
|
|
0.06
|
|
NM
|
Legal entity
restructuring, deferred tax
impact
|
—
|
|
|
(0.64)
|
|
|
0.64
|
|
NM
|
|
—
|
|
|
(0.64)
|
|
|
0.64
|
|
NM
|
Settlement of a
withholding tax claim
|
—
|
|
|
—
|
|
|
—
|
|
NM
|
|
—
|
|
|
(0.03)
|
|
|
0.03
|
|
NM
|
Adjusted earnings per
diluted share
|
$
|
0.77
|
|
|
$
|
0.98
|
|
|
$
|
(0.21)
|
|
(21)
|
%
|
|
$
|
1.64
|
|
|
$
|
1.83
|
|
|
$
|
(0.19)
|
|
(10)
|
%
|
CALCULATION OF
FREE CASH FLOW
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2020
|
|
2019
|
|
$
Change
|
%
Change
|
|
2020
|
|
2019
|
|
$
Change
|
%
Change
|
Cash provided by
operating activities
|
$
|
991
|
|
|
$
|
674
|
|
|
$
|
317
|
|
47
|
%
|
|
$
|
1,326
|
|
|
$
|
1,216
|
|
|
$
|
110
|
|
9
|
%
|
Purchases of property
and equipment
|
(112)
|
|
|
(78)
|
|
|
(34)
|
|
44
|
%
|
|
(217)
|
|
|
(122)
|
|
|
(95)
|
|
(78)
|
%
|
Free cash
flow
|
$
|
879
|
|
|
$
|
596
|
|
|
$
|
283
|
|
47
|
%
|
|
$
|
1,109
|
|
|
$
|
1,094
|
|
|
$
|
15
|
|
1
|
%
|
|
NM: Not
Meaningful
|
Impact of COVID-19
On March 11,
2020, the World Health Organization declared the coronavirus
disease 2019 ("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 associated economic disruption
remain uncertain. Restrictions on social and commercial activity in
an effort to contain the virus have had, and are expected to
continue to have, a significant adverse impact upon many sectors of
the U.S. and global economy, including the media industry. We
continue to closely monitor 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.
Demand for our advertising products and services has been
reduced by the pandemic, particularly in the second quarter of 2020
when the economic disruptions from limitations on social and
commercial activity increased. Also, our third-party production
partners remained shut down during most of the second quarter of
2020 due to COVID-19 restrictions. Our advertising revenues, which
represented 54% of our consolidated revenues in 2019, have declined
during the first half of 2020 and may continue to decline
significantly throughout the remainder of 2020 if our advertising
partners in certain sectors (such as travel) reduce or fail to
resume their advertising spending or if we continue to be limited
in our ability to create and air new content due to prolonged
production shutdowns and delays. Additionally, certain sporting
events that the Company has rights to have been cancelled or
postponed, thereby eliminating or deferring the related revenues
and expenses, including the Tokyo
2020 Olympic Games were postponed to 2021. We expect 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 response to these impacts of the pandemic, we continued to
employ innovative production and programming strategies, including
producing content filmed by our on-air talent and seeking viewer
feedback on which content to air. We also pursued a number of cost
savings initiatives during the second quarter of 2020 that we
believe will offset a portion of anticipated revenue losses and
deferrals, through the implementation of travel, marketing,
production and other operating cost reductions and will continue to
do so for the remainder of 2020. We also implemented remote work
arrangements effective mid-March 2020
and to date, these arrangements have not materially affected our
ability to operate our business. Throughout the second quarter of
2020 and beyond, we began the process of re-opening office
locations across the globe on a case-by-case basis, after careful
consideration of the number of COVID-19 cases in each respective
area, rate of infection growth, recovery and mortality rates, local
environment, governmental restrictions, health recommendations,
benchmarking and overall business need and impact. We are
monitoring these locations closely and remain agile and flexible as
needed. We expect to continue this process throughout the remainder
of 2020 and beyond as conditions warrant.
We are unable to predict the full impact that COVID-19 will have
on our financial position, operating results, and cash flows in the
mid- to long-term due to numerous uncertainties. 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.
In addition, we have implemented several measures to preserve
sufficient liquidity in the near term. During the second quarter of
2020, we entered into an amendment to our revolving credit
facility, which increased flexibility under our financial covenants
and issued $1.0 billion aggregate
principal amount of Senior Notes due May
2030 and $1.0 billion
aggregate principal amount of Senior Notes due May 2050. The proceeds from the notes were used
to fund a tender offer for $1.5
billion of certain Senior Notes with maturities ranging from
2021 through 2023 and to repay $500
million that had been drawn down under our revolving credit
facility.
In light of the impact of COVID-19, 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
expected credit losses. We recorded a goodwill impairment charge of
$36 million for our Asia-Pacific reporting unit during the three
months ended June 30, 2020. Asset
impairments of $2 million were
recorded as of June 30, 2020, as the
carrying value of such assets exceeded their fair value.
Adjustments to reflect increased expected credit losses were not
material. Further, hedged transactions were assessed, and we have
concluded such transactions remain probable of occurrence.
Due to significant uncertainty surrounding the impact of
COVID-19, management's judgments could change in the future. The
effects of the pandemic may have further negative impacts on the
Company's financial position, results of operations, and cash
flows. However, the current level of uncertainty over the economic
and operational impacts of COVID-19 means the related financial
impact cannot be reasonably and fully estimated at this time.
The Coronavirus Aid, Relief, and Economic Security Act ("CARES
Act") was enacted on March 27, 2020
in the United States. As of
June 30, 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 believes free
cash flow 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
"Corporate, Inter-segment Eliminations, and Other" operating
segment, 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 and Japan are excluded from totals. Change in
share percent is calculated by adjusting the prior year to include
any newly acquired channels.
(7) Source: Nielsen, Q2 2020
(3/30/2020-6/28/2020) vs. Q2 2019
(4/1/19-6/30/19) for Primetime.
Primetime is 8pm-11pm. Live+7-day.
Target demos include: adults, men, and women aged 25-54; adults,
men and women aged 18-49; and adults, men and women aged 18-34.
Tied with FOX for Total TV among M25-54 for share gain.
(8) Source: Nielsen, Q2 2020
(3/30/2020-6/28/2020) and YTD
(12/30/2019-6/28/2020) for Primetime
and Sunday nights. Primetime is 8pm-11pm. Data based on program based daypart
(000s). Live+3-day.
(9) 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.
(10) 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 Communications