10-QPeriod: Q2 FY2013

Warner Bros. Discovery, Inc. Quarterly Report for Q2 Ended Jun 30, 2013

Filed July 30, 2013For Securities:WBD

Summary

Warner Bros. Discovery, Inc. (WBD), during the period ending June 29, 2013, demonstrated robust revenue growth, driven by strong performance in both its U.S. and International Networks segments. Total revenues increased by 30% year-over-year for the quarter and 19% for the year-to-date, reaching $1.47 billion and $2.62 billion, respectively. This growth was fueled by a significant surge in advertising revenue, up 40% and 27% for the periods, alongside a consistent rise in distribution revenue. The company's strategic acquisitions, particularly the substantial purchase of SBS Nordic for approximately $1.8 billion, have contributed to expanded international market presence and are expected to yield future synergies, though they also led to increased depreciation and amortization expenses. Despite the overall positive revenue trend, the company's net income available to stockholders saw a modest increase of 2% to $300 million for the quarter and 3% to $531 million year-to-date. This moderated profit growth can be attributed to higher costs of revenues, increased selling, general, and administrative expenses, and a significant rise in interest expenses due to increased debt levels related to acquisitions and refinancing. Notably, the company's cash position decreased substantially, from $1.2 billion at the end of 2012 to $375 million, primarily due to significant cash outflows for business acquisitions and stock repurchases, which investors should monitor closely.

Financial Highlights

50 data points
Beta

Revenue

$1.47B

70.2% Gross Margin

Net Income

$300.00M

20.4% Net Margin

EPS (Diluted)

$0.41

Total Assets

$14.69B

Cash & Equivalents

$375.00M

Free Cash Flow

$311.00M

Financial Statements
Beta
Revenue$1.47B
Cost of Revenue$437.00M
Gross Profit$1.03B
SG&A Expenses$394.00M
Operating Expenses$918.00M
Operating Income$549.00M
Interest Expense$80.00M
Net Income$300.00M
EPS (Basic)$0.41
EPS (Diluted)$0.41
Shares Outstanding (Basic)359.00M
Shares Outstanding (Diluted)363.00M

Key Highlights

  • 1Total revenues increased by 30% year-over-year to $1.47 billion for the quarter and 19% to $2.62 billion year-to-date, driven by strong advertising and distribution revenue growth.
  • 2Acquisition of SBS Nordic for approximately $1.8 billion significantly expanded the company's international footprint.
  • 3Advertising revenue showed strong growth, increasing by 40% for the quarter and 27% year-to-date.
  • 4Net income available to Discovery Communications, Inc. stockholders increased by a modest 2% to $300 million for the quarter and 3% to $531 million year-to-date.
  • 5Cash and cash equivalents decreased significantly from $1.20 billion at December 31, 2012, to $375 million at June 30, 2013, primarily due to acquisitions and stock repurchases.
  • 6Long-term debt increased substantially from $5.21 billion to $6.46 billion, largely to finance acquisitions.
  • 7The company continues to repurchase its stock, with $1.3 billion remaining authorization as of June 30, 2013.

Frequently Asked Questions

Revenue growth was primarily driven by strong performance in both the U.S. Networks and International Networks segments. Advertising revenue saw a significant increase of 40% year-over-year for the quarter, alongside a consistent rise in distribution revenue. The acquisition of SBS Nordic also contributed to the expansion of revenues, particularly within the International Networks segment.

The acquisition of SBS Nordic for approximately $1.8 billion and other smaller acquisitions in 2013 significantly increased the company's total assets and goodwill. It also led to a substantial increase in long-term debt, from $5.21 billion to $6.46 billion, to finance these transactions. Consequently, cash and cash equivalents decreased significantly from $1.20 billion to $375 million.

While revenue growth was robust, net income available to stockholders saw more modest growth due to increased costs. These include higher costs of revenues related to content, increased selling, general, and administrative expenses, and a notable rise in interest expense due to higher debt levels. The company's ability to manage these rising costs and leverage its expanded asset base from acquisitions will be key to future profitability.

The company has seen a substantial decrease in its cash balance due to significant cash outflows for acquisitions and stock repurchases. Concurrently, its long-term debt has increased considerably. The company has approximately $1.0 billion available under its revolving credit facility and plans to fund its operations and future needs through existing cash, operating cash flow, and potential financing transactions. Investors should closely monitor the company's cash flow generation and debt management strategies.