10-QPeriod: Q2 FY2018

Warner Bros. Discovery, Inc. Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 8, 2018For Securities:WBD

Summary

Discovery, Inc. (now Warner Bros. Discovery, Inc.) filed its 10-Q for the period ending June 29, 2018, reporting a significant increase in total assets to $33.5 billion from $22.6 billion at the end of the previous year. This growth is primarily driven by the transformative acquisition of Scripps Networks Interactive, Inc. for approximately $12 billion, completed in March 2018. This strategic move has substantially expanded Discovery's brand portfolio and content library, aiming for significant cost synergies and enhanced market competitiveness. Financially, the company saw a notable increase in revenues, with total revenues reaching $2.85 billion for the quarter, a 63% increase year-over-year, largely attributed to the inclusion of Scripps Networks' operations. However, this revenue growth was accompanied by a significant increase in costs and expenses, including higher interest expense from debt taken on to finance the acquisition and increased depreciation and amortization due to acquired assets. The company's net income available to Discovery, Inc. stockholders decreased to $216 million from $374 million in the prior year's comparable quarter, reflecting the substantial costs associated with the acquisition and integration. Key financial highlights for the quarter include a surge in goodwill and intangible assets due to the Scripps acquisition, a substantial increase in total debt, and significant restructuring and integration charges. Despite the increased debt, the company reported it remained in compliance with its financial covenants. Investors should monitor the integration progress of Scripps Networks and the company's ability to realize the anticipated synergies and manage its increased debt burden.

Financial Highlights

45 data points
Beta

Revenue

$2.85B

65.0% Gross Margin

Net Income

$216.00M

7.6% Net Margin

Total Assets

$33.49B

Cash & Equivalents

$392.00M

Free Cash Flow

$522.00M

Financial Statements
Beta
Revenue$2.85B
Cost of Revenue$995.00M
Gross Profit$1.85B
SG&A Expenses$687.00M
Operating Expenses$2.19B
Operating Income$650.00M
Interest Expense$196.00M
Net Income$216.00M

Key Highlights

  • 1Acquisition of Scripps Networks Interactive, Inc. for approximately $12 billion completed on March 6, 2018, significantly increasing assets and goodwill.
  • 2Total revenues increased by 63% year-over-year to $2.85 billion for the three months ended June 30, 2018, driven by the inclusion of Scripps Networks.
  • 3Net income available to Discovery, Inc. stockholders decreased to $216 million from $374 million in the prior year's comparable quarter.
  • 4Total debt increased significantly to $18.5 billion as of June 30, 2018, up from $14.9 billion at December 31, 2017, largely due to financing the Scripps acquisition.
  • 5Restructuring and other charges increased substantially to $187 million from $8 million year-over-year, primarily due to integration activities related to the Scripps acquisition.
  • 6Cash provided by operating activities increased to $716 million for the six months ended June 30, 2018, compared to $443 million in the prior year, but cash used in investing activities also surged due to the acquisition.

Frequently Asked Questions

The primary driver was the acquisition of Scripps Networks Interactive, Inc. in March 2018. This transaction led to a substantial increase in Goodwill, Intangible Assets, and overall Assets. Consequently, the company also took on significant debt to finance this acquisition, leading to a considerable increase in Total Liabilities.

While the acquisition significantly boosted revenues, it also led to higher costs, including increased interest expense from new debt and higher depreciation and amortization expenses from acquired assets. This, combined with substantial restructuring and integration costs related to the Scripps acquisition, resulted in a decrease in net income available to Discovery, Inc. stockholders for the quarter compared to the prior year.

As of June 30, 2018, the company had $392 million in cash and cash equivalents. It also has access to a $2.5 billion revolving credit facility. The company's debt level increased significantly due to the Scripps acquisition, but management stated it remained in compliance with its financial covenants. The company expects its cash balance, operating cash flow, and revolving credit facility to be sufficient to meet its cash needs for the next twelve months.

The company incurred significant restructuring and other charges, totaling $187 million in the quarter, primarily related to personnel termination costs, contract terminations, and facility closures associated with integrating Scripps Networks. These costs are part of establishing a more efficient cost structure for the combined entity.