SILVER SPRING, Md.,
Nov. 5, 2020 /PRNewswire/ --
Discovery, Inc. ("Discovery" or the "Company") (NASDAQ: DISCA,
DISCB, DISCK) today reported financial results for the quarter
ended September 30, 2020.
David Zaslav, President
and Chief Executive Officer of Discovery said, "Discovery delivered
improving financial results in the third quarter, a testament to
the powerful appeal of our content and brands, led in the U.S. by
TLC, which beat top-rated sports and news networks in coveted
Primetime demos, even in a record year for cable news. And as
promised, our healthy liquidity position and another robust quarter
of free cash flow generation allowed us to return $228 million to shareholders through share
repurchases. In the midst of macroeconomic uncertainty with the
ongoing COVID pandemic, as well as the continuing evolution of our
industry, we remain focused on positioning Discovery for long-term
growth and shareholder value creation through the execution of our
strategic priorities, including our next generation
initiatives."
Third-Quarter 2020 Financial Highlights
- Total revenues of $2,561 million
decreased 4% compared to the prior year quarter, or decreased 5%
ex-FX.(1)
-
- U.S. distribution revenues increased 2% and advertising
revenues decreased 8%; and
- International distribution revenues decreased 4% and
advertising revenues decreased 9%, both ex-FX.
- Net income available to Discovery, Inc. was $300 million and EPS was $0.44 per diluted share.
- Adjusted EPS(2) was $0.81 per diluted share.
- Total Adjusted OIBDA(3) decreased 15% to
$954 million, or decreased 14%
ex-FX.
- Cash provided by operating activities was $860 million and Free Cash Flow(4) was
$787 million.
- Repurchased 11.2 million Series C common shares for
$228 million at an average price of
$20.37 per share.
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
Dollars in
millions, except per share amounts
|
2020
|
|
2019
|
|
%
Change
|
Ex-FX(1)
|
|
2020
|
|
2019
|
|
%
Change
|
Ex-FX(1)
|
Total
revenue
|
$
|
2,561
|
|
|
$
|
2,678
|
|
|
(4)
|
%
|
(5)
|
%
|
|
$
|
7,785
|
|
|
$
|
8,270
|
|
|
(6)
|
%
|
(5)
|
%
|
Net income
available to Discovery, Inc.
|
$
|
300
|
|
|
$
|
262
|
|
|
15
|
%
|
|
|
$
|
948
|
|
|
$
|
1,593
|
|
|
(40)
|
%
|
|
U.S. Networks Adjusted
OIBDA
|
951
|
|
|
1,005
|
|
|
(5)
|
%
|
|
|
3,029
|
|
|
3,192
|
|
|
(5)
|
%
|
|
International Networks
Adjusted OIBDA
|
127
|
|
|
237
|
|
|
(46)
|
%
|
(41)
|
%
|
|
527
|
|
|
742
|
|
|
(29)
|
%
|
(25)
|
%
|
Total Adjusted
OIBDA(5)
|
$
|
954
|
|
|
$
|
1,126
|
|
|
(15)
|
%
|
(14)
|
%
|
|
$
|
3,194
|
|
|
$
|
3,566
|
|
|
(10)
|
%
|
(10)
|
%
|
Diluted
EPS
|
$
|
0.44
|
|
|
$
|
0.35
|
|
|
26
|
%
|
|
|
$
|
1.40
|
|
|
$
|
2.21
|
|
|
(37)
|
%
|
|
Adjusted
EPS
|
$
|
0.81
|
|
|
$
|
0.87
|
|
|
(7)
|
%
|
|
|
$
|
2.46
|
|
|
$
|
2.70
|
|
|
(9)
|
%
|
|
Free cash
flow
|
$
|
787
|
|
|
$
|
884
|
|
|
(11)
|
%
|
|
|
$
|
1,896
|
|
|
$
|
1,978
|
|
|
(4)
|
%
|
|
Operational Highlights
- Total share of viewing across the international portfolio in
the third quarter of 2020 improved 5% on average, with strong
growth in the UK, Germany,
Italy and Norway. Additionally, Q3 marked five
consecutive quarters of year-over-year share
improvement.(6)
- Discovery's portfolio of networks accounted for 4 of the top 5
cable networks during Total Day in the third quarter among key
women demos, including HGTV, ID, TLC and Food
Network,(7) and gained more share in Primetime than any
other TV portfolio.(8)
- For 2020 to-date, TLC continues to be the #1 ad-supported cable
network in Primetime among women and #2 among persons aged 25-54
and 18-49.(9) On Sunday and Monday nights in the third
quarter, TLC was the #1 network on all of TV among women, driven by
mega-hit franchise shows 90 Day Fiancé: Happily Ever After
and 90 Day Fiancé: The Other Way.(10) And the
most recent 90 Day spinoff series, Darcey &
Stacey, has become the #1 freshman cable series year-to-date
among women demos and persons aged 25-54.(11)
Segment Results
U.S. Networks
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
Dollars in
millions
|
2020
|
|
2019
|
|
%
Change
|
|
2020
|
|
2019
|
|
%
Change
|
Advertising
|
$
|
941
|
|
|
$
|
1,019
|
|
|
(8)
|
%
|
|
$
|
2,964
|
|
|
$
|
3,194
|
|
|
(7)
|
%
|
Distribution
|
696
|
|
|
681
|
|
|
2
|
%
|
|
2,143
|
|
|
2,066
|
|
|
4
|
%
|
Other
|
22
|
|
|
25
|
|
|
(12)
|
%
|
|
64
|
|
|
80
|
|
|
(20)
|
%
|
Total
revenues
|
$
|
1,659
|
|
|
$
|
1,725
|
|
|
(4)
|
%
|
|
$
|
5,171
|
|
|
$
|
5,340
|
|
|
(3)
|
%
|
Costs of revenues,
excluding depreciation
& amortization
|
445
|
|
|
434
|
|
|
3
|
%
|
|
1,334
|
|
|
1,297
|
|
|
3
|
%
|
Selling, general
& administrative(12)
|
263
|
|
|
286
|
|
|
(8)
|
%
|
|
808
|
|
|
851
|
|
|
(5)
|
%
|
Adjusted
OIBDA
|
$
|
951
|
|
|
$
|
1,005
|
|
|
(5)
|
%
|
|
$
|
3,029
|
|
|
$
|
3,192
|
|
|
(5)
|
%
|
Third-Quarter 2020 Highlights
- Total U.S. Networks revenues of $1,659
million decreased 4% compared to the prior year
quarter.
-
- Advertising decreased 8% primarily driven by softer demand
stemming from the COVID-19 pandemic, secular declines in the pay-TV
ecosystem, and lower ratings, partially offset by higher
pricing.
- Distribution increased 2% driven by increases in contractual
affiliate rates, partially offset by a decline in linear
subscribers.
- At September 30, 2020,
subscribers to our fully distributed networks were 4% lower than
the prior year while total portfolio subscribers were 6% lower than
at September 30, 2019.
- Total operating expenses of $708
million decreased 2% compared to the prior year
quarter.
-
- Costs of revenues increased 3% primarily due to investments in
content to support next generation initiatives.
- SG&A expenses decreased 8% primarily due to lower
marketing-related expenses and, as a result of COVID-19, a
reduction in travel costs.
- Adjusted OIBDA decreased 5% to $951
million.
International Networks
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
Dollars in
millions
|
2020
|
|
2019
|
|
%
Change
|
Ex-FX
|
|
2020
|
|
2019
|
|
%
Change
|
Ex-FX
|
Advertising
|
$
|
365
|
|
|
$
|
394
|
|
|
(7)
|
%
|
(9)
|
%
|
|
$
|
1,017
|
|
|
$
|
1,253
|
|
|
(19)
|
%
|
(17)
|
%
|
Distribution
|
503
|
|
|
520
|
|
|
(3)
|
%
|
(4)
|
%
|
|
1,504
|
|
|
1,565
|
|
|
(4)
|
%
|
(2)
|
%
|
Other
|
34
|
|
|
36
|
|
|
(6)
|
%
|
(6)
|
%
|
|
87
|
|
|
104
|
|
|
(16)
|
%
|
(16)
|
%
|
Total
revenues
|
$
|
902
|
|
|
$
|
950
|
|
|
(5)
|
%
|
(6)
|
%
|
|
$
|
2,608
|
|
|
$
|
2,922
|
|
|
(11)
|
%
|
(9)
|
%
|
Costs of revenues,
excluding depreciation
& amortization
|
554
|
|
|
479
|
|
|
16
|
%
|
11
|
%
|
|
1,389
|
|
|
1,483
|
|
|
(6)
|
%
|
(6)
|
%
|
Selling, general
& administrative(12)
|
221
|
|
|
234
|
|
|
(6)
|
%
|
(8)
|
%
|
|
692
|
|
|
697
|
|
|
(1)
|
%
|
1
|
%
|
Adjusted
OIBDA
|
$
|
127
|
|
|
$
|
237
|
|
|
(46)
|
%
|
(41)
|
%
|
|
$
|
527
|
|
|
$
|
742
|
|
|
(29)
|
%
|
(25)
|
%
|
Third-Quarter 2020 Highlights
- Total International Networks revenues of $902 million decreased 5%, or decreased 6% ex-FX,
compared to the prior year quarter.
-
- Ex-FX, advertising decreased 9% primarily driven by a decline
in demand stemming from the COVID-19 pandemic and the
discontinuation of pay-TV distribution with certain European
operators.
- Ex-FX, distribution decreased 4% primarily driven by lower
contractual affiliate rates, the discontinuation of pay-TV
distribution with certain European operators, and the impact from
the timing of sporting events due to COVID-19, partially offset by
higher next generation revenues due to subscriber growth.
- Total operating expenses of $775
million increased 9%, or increased 5% ex-FX, compared to the
prior year quarter.
-
- Ex-FX, costs of revenues increased 11% primarily due to sports
content spend in Europe.
- Ex-FX, SG&A decreased 8% primarily due to a reduction in
travel costs as a result of COVID-19 and lower marketing-related
expenses, partially offset by higher personnel costs.
- Adjusted OIBDA of $127 million
decreased 46%, or decreased 41% ex-FX.
Corporate, Inter-segment Eliminations, and Other
- In Q3, Corporate Adjusted OIBDA decreased by $8 million compared to the prior year
quarter.
Free Cash Flow
- Cash provided by operating activities decreased to $860 million from $951
million in the prior year quarter. Free cash flow decreased
to $787 million from $884 million, primarily attributable to lower
operating results due to the negative impact of COVID-19 on
revenues and 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. During the three months ended
September 30, 2020, the Company
repurchased 11.2 million Series C common shares for
$228 million at an average price of
$20.37 per share, under its
$2 billion repurchase authorization.
There is $1.6 billion remaining under
the authorization.
2020 Outlook(13)
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.
Earnings Conference Call Information
Discovery will
host a conference call today, November 5, 2020 at 8:00 a.m. ET to discuss its third 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 September 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
September 30,
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Revenues:
|
|
|
|
|
|
|
|
Advertising
|
$
|
1,306
|
|
|
$
|
1,413
|
|
|
$
|
3,981
|
|
|
$
|
4,447
|
|
Distribution
|
1,199
|
|
|
1,201
|
|
|
3,647
|
|
|
3,631
|
|
Other
|
56
|
|
|
64
|
|
|
157
|
|
|
192
|
|
Total
revenues
|
2,561
|
|
|
2,678
|
|
|
7,785
|
|
|
8,270
|
|
Costs and
expenses:
|
|
|
|
|
|
|
|
Costs of revenues,
excluding depreciation and
amortization
|
1,003
|
|
|
914
|
|
|
2,731
|
|
|
2,782
|
|
Selling, general and
administrative
|
633
|
|
|
660
|
|
|
1,913
|
|
|
1,995
|
|
Depreciation and
amortization
|
341
|
|
|
322
|
|
|
1,001
|
|
|
1,014
|
|
Impairment of goodwill
and other intangible assets
|
—
|
|
|
155
|
|
|
38
|
|
|
155
|
|
Restructuring and
other charges
|
53
|
|
|
8
|
|
|
75
|
|
|
20
|
|
Total costs and
expenses
|
2,030
|
|
|
2,059
|
|
|
5,758
|
|
|
5,966
|
|
Operating
income
|
531
|
|
|
619
|
|
|
2,027
|
|
|
2,304
|
|
Interest expense,
net
|
(161)
|
|
|
(163)
|
|
|
(485)
|
|
|
(515)
|
|
Loss on extinguishment
of debt
|
(5)
|
|
|
—
|
|
|
(76)
|
|
|
(28)
|
|
Loss from equity
investees, net
|
(18)
|
|
|
(11)
|
|
|
(62)
|
|
|
(20)
|
|
Other expense,
net
|
(28)
|
|
|
(1)
|
|
|
(92)
|
|
|
(10)
|
|
Income before income
taxes
|
319
|
|
|
444
|
|
|
1,312
|
|
|
1,731
|
|
Income tax benefit
(expense)
|
11
|
|
|
(147)
|
|
|
(275)
|
|
|
(29)
|
|
Net income
|
330
|
|
|
297
|
|
|
1,037
|
|
|
1,702
|
|
Net income
attributable to noncontrolling interests
|
(29)
|
|
|
(29)
|
|
|
(82)
|
|
|
(94)
|
|
Net income
attributable to redeemable noncontrolling
interests
|
(1)
|
|
|
(6)
|
|
|
(7)
|
|
|
(15)
|
|
Net income available
to Discovery, Inc.
|
$
|
300
|
|
|
$
|
262
|
|
|
$
|
948
|
|
|
$
|
1,593
|
|
Net income per share
allocated to Discovery, Inc. Series A, B
and C common stockholders:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.44
|
|
|
$
|
0.35
|
|
|
$
|
1.40
|
|
|
$
|
2.22
|
|
Diluted
|
$
|
0.44
|
|
|
$
|
0.35
|
|
|
$
|
1.40
|
|
|
$
|
2.21
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
505
|
|
|
535
|
|
|
510
|
|
|
529
|
|
Diluted
|
672
|
|
|
713
|
|
|
677
|
|
|
714
|
|
DISCOVERY,
INC.
|
CONSOLIDATED
BALANCE SHEETS
|
(unaudited; in
millions, except par value)
|
|
|
September 30,
2020
|
|
December 31,
2019
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
1,893
|
|
|
$
|
1,552
|
|
Receivables,
net
|
2,444
|
|
|
2,633
|
|
Content rights and
prepaid license fees, net
|
389
|
|
|
579
|
|
Prepaid expenses and
other current assets
|
752
|
|
|
453
|
|
Total current
assets
|
5,478
|
|
|
5,217
|
|
Noncurrent content
rights, net
|
3,278
|
|
|
3,129
|
|
Property and
equipment, net
|
1,125
|
|
|
951
|
|
Goodwill
|
13,052
|
|
|
13,050
|
|
Intangible assets,
net
|
7,864
|
|
|
8,667
|
|
Equity method
investments
|
536
|
|
|
568
|
|
Other noncurrent
assets
|
2,105
|
|
|
2,153
|
|
Total
assets
|
$
|
33,438
|
|
|
$
|
33,735
|
|
LIABILITIES AND
EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
|
403
|
|
|
$
|
463
|
|
Accrued
liabilities
|
1,582
|
|
|
1,678
|
|
Deferred
revenues
|
435
|
|
|
489
|
|
Current portion of
debt
|
336
|
|
|
609
|
|
Total current
liabilities
|
2,756
|
|
|
3,239
|
|
Noncurrent portion of
debt
|
14,981
|
|
|
14,810
|
|
Deferred income
taxes
|
1,503
|
|
|
1,691
|
|
Other noncurrent
liabilities
|
2,158
|
|
|
2,029
|
|
Total
liabilities
|
21,398
|
|
|
21,769
|
|
Commitments and
contingencies
|
|
|
|
Redeemable
noncontrolling interests
|
443
|
|
|
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 329 and 360 shares outstanding
|
5
|
|
|
5
|
|
Additional paid-in
capital
|
10,825
|
|
|
10,747
|
|
Treasury stock, at
cost: 221 and 190 shares
|
(8,125)
|
|
|
(7,374)
|
|
Retained
earnings
|
8,278
|
|
|
7,333
|
|
Accumulated other
comprehensive loss
|
(898)
|
|
|
(822)
|
|
Total Discovery, Inc.
stockholders' equity
|
10,087
|
|
|
9,891
|
|
Noncontrolling
interests
|
1,510
|
|
|
1,633
|
|
Total
equity
|
11,597
|
|
|
11,524
|
|
Total liabilities and
equity
|
$
|
33,438
|
|
|
$
|
33,735
|
|
DISCOVERY,
INC.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(unaudited; in
millions)
|
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
Operating
Activities
|
|
|
|
Net income
|
1,037
|
|
|
1,702
|
|
Adjustments to
reconcile net income to cash provided by operating
activities:
|
|
|
|
Content rights
amortization and impairment
|
2,118
|
|
|
2,078
|
|
Depreciation and
amortization
|
1,001
|
|
|
1,014
|
|
Deferred income
taxes
|
(198)
|
|
|
(572)
|
|
Equity in losses of
equity method investee companies, including cash
distributions
|
96
|
|
|
61
|
|
Loss on extinguishment
of debt
|
76
|
|
|
28
|
|
Share-based
compensation expense
|
62
|
|
|
82
|
|
Impairment of goodwill
and other intangible assets
|
38
|
|
|
155
|
|
Realized gain from
derivative instruments, net
|
(4)
|
|
|
(12)
|
|
Unrealized loss from
derivative instruments, net
|
2
|
|
|
53
|
|
Remeasurement gain on
previously held equity interest
|
—
|
|
|
(14)
|
|
Other, net
|
36
|
|
|
47
|
|
Changes in operating
assets and liabilities, net of acquisitions and
dispositions:
|
|
|
|
Receivables,
net
|
156
|
|
|
(84)
|
|
Content rights and
payables, net
|
(2,100)
|
|
|
(2,332)
|
|
Accounts payable,
accrued and other liabilities
|
(166)
|
|
|
(21)
|
|
Foreign currency,
prepaid expenses and other assets, net
|
32
|
|
|
(18)
|
|
Cash provided by
operating activities
|
2,186
|
|
|
2,167
|
|
Investing
Activities
|
|
|
|
Purchases of property
and equipment
|
(290)
|
|
|
(189)
|
|
Purchases of
investments
|
(250)
|
|
|
—
|
|
Investments in and
advances to equity investments
|
(141)
|
|
|
(215)
|
|
Proceeds from
dissolution of joint venture and sale of investments
|
67
|
|
|
117
|
|
Business
acquisitions, net of cash acquired
|
(26)
|
|
|
(60)
|
|
Other investing
activities, net
|
90
|
|
|
56
|
|
Cash used in
investing activities
|
(550)
|
|
|
(291)
|
|
Financing
Activities
|
|
|
|
Principal repayments
of debt, including discount payment
|
(2,193)
|
|
|
(2,652)
|
|
Borrowings from debt,
net of discount and issuance costs
|
1,979
|
|
|
1,479
|
|
Repurchases of
stock
|
(741)
|
|
|
(300)
|
|
Principal repayments
of revolving credit facility
|
(500)
|
|
|
(225)
|
|
Borrowings under
revolving credit facility
|
500
|
|
|
—
|
|
Distributions to
noncontrolling interests and redeemable noncontrolling
interests
|
(216)
|
|
|
(227)
|
|
Other financing
activities, net
|
(101)
|
|
|
(67)
|
|
Cash used in
financing activities
|
(1,272)
|
|
|
(1,992)
|
|
Effect of exchange
rate changes on cash, cash equivalents, and restricted
cash
|
40
|
|
|
(57)
|
|
Net change in cash,
cash equivalents, and restricted cash
|
404
|
|
|
(173)
|
|
Cash, cash
equivalents, and restricted cash, beginning of period
|
1,552
|
|
|
986
|
|
Cash, cash
equivalents, and restricted cash, end of period
|
$
|
1,956
|
|
|
$
|
813
|
|
|
|
|
|
|
|
|
|
DISCOVERY,
INC.
|
SUPPLEMENTAL
FINANCIAL DATA
|
RECONCILIATION OF
NET INCOME TO
|
ADJUSTED OPERATING
INCOME BEFORE DEPRECIATION AND AMORTIZATION
|
(unaudited; in
millions)
|
|
|
Three Months Ended
September 30, 2020
|
|
U.S.
Networks
|
|
International
Networks
|
|
Corporate,
Inter-
segment
Eliminations, and
Other
|
|
Total
|
Net income available
to Discovery, Inc.
|
|
|
|
|
|
|
$
|
300
|
|
Net income
attributable to redeemable noncontrolling
interests
|
|
|
|
|
|
|
1
|
|
Net income
attributable to noncontrolling interests
|
|
|
|
|
|
|
29
|
|
Income tax
(benefit)
|
|
|
|
|
|
|
(11)
|
|
Other expense,
net
|
|
|
|
|
|
|
28
|
|
Loss on
extinguishment of debt
|
|
|
|
|
|
|
5
|
|
Loss from equity
investees, net
|
|
|
|
|
|
|
18
|
|
Interest expense,
net
|
|
|
|
|
|
|
161
|
|
Operating income
(loss)
|
$
|
696
|
|
|
$
|
21
|
|
|
$
|
(186)
|
|
|
$
|
531
|
|
Depreciation and
amortization
|
225
|
|
|
93
|
|
|
23
|
|
|
341
|
|
Restructuring and
other charges
|
29
|
|
|
13
|
|
|
11
|
|
|
53
|
|
Employee share-based
compensation
|
—
|
|
|
—
|
|
|
29
|
|
|
29
|
|
Inter-segment
eliminations
|
1
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
Total Adjusted
OIBDA
|
$
|
951
|
|
|
$
|
127
|
|
|
$
|
(124)
|
|
|
$
|
954
|
|
|
Three Months Ended
September 30, 2019
|
|
U.S.
Networks
|
|
International
Networks
|
|
Corporate,
Inter-
segment
Eliminations, and
Other
|
|
Total
|
Net income available
to Discovery, Inc.
|
|
|
|
|
|
|
$
|
262
|
|
Net income
attributable to redeemable noncontrolling
interests
|
|
|
|
|
|
|
6
|
|
Net income
attributable to noncontrolling interests
|
|
|
|
|
|
|
29
|
|
Income tax
expense
|
|
|
|
|
|
|
147
|
|
Other (income),
net
|
|
|
|
|
|
|
1
|
|
Loss from equity
investees, net
|
|
|
|
|
|
|
11
|
|
Interest expense,
net
|
|
|
|
|
|
|
163
|
|
Operating income
(loss)
|
$
|
771
|
|
|
$
|
—
|
|
|
$
|
(152)
|
|
|
$
|
619
|
|
Depreciation and
amortization
|
228
|
|
|
77
|
|
|
17
|
|
|
322
|
|
Impairment of goodwill
and other intangible assets
|
—
|
|
|
155
|
|
|
—
|
|
|
155
|
|
Restructuring and
other charges
|
4
|
|
|
5
|
|
|
(1)
|
|
|
8
|
|
Transaction and
integration costs
|
—
|
|
|
—
|
|
|
11
|
|
|
11
|
|
Employee share-based
compensation
|
—
|
|
|
—
|
|
|
11
|
|
|
11
|
|
Inter-segment
eliminations
|
2
|
|
|
—
|
|
|
(2)
|
|
|
—
|
|
Total Adjusted
OIBDA
|
$
|
1,005
|
|
|
$
|
237
|
|
|
$
|
(116)
|
|
|
$
|
1,126
|
|
DISCOVERY,
INC.
|
SUPPLEMENTAL
FINANCIAL DATA
|
RECONCILIATION OF
NET INCOME TO
|
ADJUSTED OPERATING
INCOME BEFORE DEPRECIATION AND AMORTIZATION
|
(unaudited; in
millions)
|
|
|
Nine Months Ended
September 30, 2020
|
|
U.S.
Networks
|
|
International
Networks
|
|
Corporate,
Inter-
segment
Eliminations, and
Other
|
|
Total
|
Net income available
to Discovery, Inc.
|
|
|
|
|
|
|
$
|
948
|
|
Net income
attributable to redeemable noncontrolling interests
|
|
|
|
|
|
|
7
|
|
Net income
attributable to noncontrolling interests
|
|
|
|
|
|
|
82
|
|
Income tax
expense
|
|
|
|
|
|
|
275
|
|
Other expense,
net
|
|
|
|
|
|
|
92
|
|
Loss on
extinguishment of debt
|
|
|
|
|
|
|
76
|
|
Loss from equity
investees, net
|
|
|
|
|
|
|
62
|
|
Interest expense,
net
|
|
|
|
|
|
|
485
|
|
Operating income
(loss)
|
$
|
2,309
|
|
|
$
|
213
|
|
|
$
|
(495)
|
|
|
$
|
2,027
|
|
Depreciation and
amortization
|
676
|
|
|
259
|
|
|
66
|
|
|
1,001
|
|
Impairment of goodwill
and other intangible assets
|
—
|
|
|
38
|
|
|
—
|
|
|
38
|
|
Restructuring and
other charges
|
41
|
|
|
17
|
|
|
17
|
|
|
75
|
|
Employee share-based
compensation
|
—
|
|
|
—
|
|
|
53
|
|
|
53
|
|
Inter-segment
eliminations
|
3
|
|
|
—
|
|
|
(3)
|
|
|
—
|
|
Total Adjusted
OIBDA
|
$
|
3,029
|
|
|
$
|
527
|
|
|
$
|
(362)
|
|
|
$
|
3,194
|
|
|
Nine Months Ended
September 30, 2019
|
|
U.S.
Networks
|
|
International
Networks
|
|
Corporate,
Inter-
segment
Eliminations, and
Other
|
|
Total
|
Net income available
to Discovery, Inc.
|
|
|
|
|
|
|
$
|
1,593
|
|
Net income
attributable to redeemable noncontrolling interests
|
|
|
|
|
|
|
15
|
|
Net income
attributable to noncontrolling interests
|
|
|
|
|
|
|
94
|
|
Income tax
(benefit)
|
|
|
|
|
|
|
29
|
|
Other expense,
net
|
|
|
|
|
|
|
10
|
|
Loss on
extinguishment of debt
|
|
|
|
|
|
|
28
|
|
Loss from equity
investees, net
|
|
|
|
|
|
|
20
|
|
Interest expense,
net
|
|
|
|
|
|
|
515
|
|
Operating income
(loss)
|
$
|
2,456
|
|
|
$
|
339
|
|
|
$
|
(491)
|
|
|
$
|
2,304
|
|
Depreciation and
amortization
|
723
|
|
|
241
|
|
|
50
|
|
|
1,014
|
|
Impairment of goodwill
and other intangible assets
|
—
|
|
|
155
|
|
|
—
|
|
|
155
|
|
Restructuring and
other charges
|
11
|
|
|
15
|
|
|
(6)
|
|
|
20
|
|
Transaction and
integration costs
|
—
|
|
|
—
|
|
|
22
|
|
|
22
|
|
Employee share-based
compensation
|
—
|
|
|
—
|
|
|
80
|
|
|
80
|
|
Inter-segment
eliminations
|
2
|
|
|
21
|
|
|
(23)
|
|
|
—
|
|
Settlement of a
withholding tax claim
|
—
|
|
|
(29)
|
|
|
—
|
|
|
(29)
|
|
Total Adjusted
OIBDA
|
$
|
3,192
|
|
|
$
|
742
|
|
|
$
|
(368)
|
|
|
$
|
3,566
|
|
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
September 30,
|
|
Nine Months Ended
September 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:
|
$
|
0.44
|
|
|
$
|
0.35
|
|
|
$
|
0.09
|
|
26
|
%
|
|
$
|
1.40
|
|
|
$
|
2.21
|
|
|
$
|
(0.81)
|
|
(37)
|
%
|
Per share impacts,
net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
acquisition-related
intangible assets
|
0.31
|
|
|
0.29
|
|
|
0.02
|
|
7
|
%
|
|
0.91
|
|
|
0.91
|
|
|
—
|
|
—
|
%
|
Restructuring and
other charges
|
0.06
|
|
|
0.02
|
|
|
0.04
|
|
NM
|
|
|
0.09
|
|
|
0.04
|
|
|
0.05
|
|
NM
|
|
Impairment of goodwill
and
other intangible assets
|
—
|
|
|
0.21
|
|
|
(0.21)
|
|
NM
|
|
|
0.06
|
|
|
0.21
|
|
|
(0.15)
|
|
(71)
|
%
|
Legal entity
restructuring, deferred tax
impact
|
—
|
|
|
—
|
|
|
—
|
|
NM
|
|
|
—
|
|
|
(0.64)
|
|
|
0.64
|
|
NM
|
|
Settlement of a
withholding tax claim
|
—
|
|
|
—
|
|
|
—
|
|
NM
|
|
|
—
|
|
|
(0.03)
|
|
|
0.03
|
|
NM
|
|
Adjusted earnings per
diluted share
|
$
|
0.81
|
|
|
$
|
0.87
|
|
|
$
|
(0.06)
|
|
(7)
|
%
|
|
$
|
2.46
|
|
|
$
|
2.70
|
|
|
$
|
(0.24)
|
|
(9)
|
%
|
CALCULATION OF
FREE CASH FLOW
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
$
Change
|
%
Change
|
|
2020
|
|
2019
|
|
$
Change
|
%
Change
|
Cash provided by
operating activities
|
$
|
860
|
|
|
$
|
951
|
|
|
$
|
(91)
|
|
(10)
|
%
|
|
$
|
2,186
|
|
|
$
|
2,167
|
|
|
$
|
19
|
|
1
|
%
|
Purchases of property
and equipment
|
|
(73)
|
|
|
|
(67)
|
|
|
|
(6)
|
|
9
|
%
|
|
|
(290)
|
|
|
|
(189)
|
|
|
|
(101)
|
|
(53)
|
%
|
Free cash
flow
|
$
|
787
|
|
|
$
|
884
|
|
|
$
|
(97)
|
|
(11)
|
%
|
|
$
|
1,896
|
|
|
$
|
1,978
|
|
|
$
|
(82)
|
|
(4)
|
%
|
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 due to economic disruptions from
limitations on social and commercial activity, which slightly eased
during the third quarter of 2020. Most of our third-party
production partners that were shut down due to COVID-19
restrictions came back online in the third quarter of 2020. Our
advertising revenues, which represented 54% of our consolidated
revenues in 2019, have declined during 2020 and may continue to
decline significantly throughout the remainder of 2020 if our
advertising partners in certain sectors (such as travel) further
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 we have rights to have been cancelled
or postponed, thereby eliminating or deferring the related revenues
and expenses, including the Tokyo
2020 Olympic Games which 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 continued to pursue a number
of cost savings initiatives during the third 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, including personnel
reductions, restructurings and resource reallocations to align our
expense structure to ongoing changes within the industry, and will
continue to do so for the remainder of 2020 and into 2021. 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.
We continue to re-open 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; however, we have also re-closed certain
office locations as conditions have warranted. 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. During the third quarter of 2020,
most of our production operations began to restart and as a result,
we have incurred additional costs to comply with various
governmental regulations and implement certain safety measures for
our employees, talent, and partners.
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. 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 and the extent of future surges
of COVID-19 and the actions to contain the virus or treat its
impact, among others. We will continue to monitor COVID-19 and its
impact on our business results and financial condition. 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. In 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. In
April 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 the
$500 million outstanding 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 our 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 second
quarter of 2020. Asset impairments of $2
million were recorded as of June 30,
2020, as the carrying value of such assets exceeded their
fair value. There were no impairments recorded during the third
quarter of 2020. 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
September 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 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.
(3) 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.
(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, the row "Total Adjusted OIBDA" will not foot as presented
in the table.
(6) Source: Total audience
measurement among all individuals. Share of viewing is defined as
the share of viewing to all TV channels in a market, except in the
Nordics business unit, which 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 is calculated by adjusting the prior year to include any
newly acquired channels.
(7) Source: Nielsen, Q3 2020
(6/29/2020-9/27/2020). Total Day
6a-6a. Data based on program based daypart (000s). Excludes
breakouts and networks with less than 50% duration per day. Some
networks may include Out-of-Home measurement, effective 8/31/2020.
W25-54/18-49. Live+3.
(8) Source: Nielsen, Q3 2020
(6/29/2020-9/27/2020) vs. Q3 2019
(7/1/19-9/29/19) portfolio shares for
total TV. Primetime is 8pm-11pm. Some
networks may include Out-of-Home measurement, effective 8/31/2020.
Key demos measured include women viewers aged 25-54, 18-49, and
18+. Live+7.
(9) Source: Nielsen, YTD
(12/30/2019-9/27/2020) for Primetime,
8pm-11pm. Data based on program based
daypart (000s). Some networks may include Out-of-Home measurement,
effective 8/31/20. W25-54/18-49/18-34 & P25-54/18-49.
Live+3.
(10) Source: Nielsen, Q3 2020
(6/29/2020-9/27/2020) for Primetime
on Sunday and Monday nights, 8pm-11pm. Data based on program based daypart
(000s). Some networks may include Out-of-Home measurement,
effective 8/31/20. W25-54/18-49/18-34. Live+3.
(11) Source: Nielsen, YTD
(12/30/2019-9/27/2020) for Primetime,
8pm-11pm. Data based on program based
daypart (000s). Some networks may include Out-of-Home measurement,
effective 8/31/20. P/W25-54 and W18-49/18-34. Excludes sports.
Live+3.
(12) 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.
(13) 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.