10-QPeriod: Q3 FY2021

Warner Bros. Discovery, Inc. Quarterly Report for Q3 Ended Sep 30, 2021

Filed November 3, 2021For Securities:WBD

Summary

Warner Bros. Discovery, Inc. (WBD) reported its third-quarter 2021 financial results, showing an increase in total revenues to $3.15 billion, up from $2.56 billion in the prior year's comparable period. This growth was driven by strong performance in both Advertising and Distribution revenues across its U.S. and International Networks segments. The launch and expansion of its direct-to-consumer (DTC) product, discovery+, played a significant role in bolstering distribution revenue. Despite revenue growth, operating income saw a decline to $329 million from $531 million year-over-year. This was primarily due to a substantial increase in costs of revenue and selling, general, and administrative expenses, reflecting investments in content and marketing, particularly to support the discovery+ launch and the broadcasting of the Olympics. The company also highlighted its pending merger with WarnerMedia, which is progressing with expected closure in mid-2022, and outlined the significant financial and operational considerations related to this transformative transaction.

Financial Statements
Beta
Revenue$3.15B
Cost of Revenue$1.53B
Gross Profit$1.62B
SG&A Expenses$944.00M
Operating Expenses$2.82B
Operating Income$329.00M
Interest Expense$159.00M
Net Income$156.00M
EPS (Basic)$0.24
EPS (Diluted)$0.24
Shares Outstanding (Basic)589.00M
Shares Outstanding (Diluted)663.00M

Key Highlights

  • 1Total revenues increased by 23% to $3.15 billion, driven by a 12% rise in Advertising and a 15% rise in Distribution revenues.
  • 2The launch and rollout of the direct-to-consumer (DTC) product, discovery+, contributed significantly to the increase in distribution revenue, with 20 million paid DTC subscribers reported as of September 30, 2021.
  • 3Operating income decreased by 38% to $329 million, mainly due to a significant increase in costs of revenues (up 52%) and SG&A expenses (up 49%), largely driven by investments in content for discovery+ and the Olympics.
  • 4The company announced a pending merger with WarnerMedia, expected to close in mid-2022, which is structured as a Reverse Morris Trust transaction and will create a larger, combined global entertainment company.
  • 5Cash flow from operations remained strong, providing $1.9 billion for the nine months ended September 30, 2021, although lower than the prior year's $2.2 billion.
  • 6Debt levels remain substantial, with total debt standing at $14.8 billion net of unamortized discount, premium, and issuance costs, though the company has no outstanding borrowings on its revolving credit facility.
  • 7International Networks segment revenue saw a significant 44% increase (43% ex-FX) to $1.3 billion, boosted by advertising recovery and the Olympics broadcast.

Frequently Asked Questions

The primary drivers of revenue growth were increased Advertising revenue, benefiting from market recovery post-COVID-19 and the Olympics broadcast, and Distribution revenue, significantly boosted by the launch and expansion of the direct-to-consumer (DTC) service, discovery+.

Operating income decreased primarily due to substantial increases in costs of revenues and selling, general, and administrative expenses. These increases are attributed to higher content investments for discovery+ and the Olympics, as well as increased marketing expenses to support the new DTC platform.

The merger with WarnerMedia is progressing and is anticipated to close in mid-2022. It is structured as a Reverse Morris Trust transaction, and both companies' Boards of Directors have approved it. The transaction remains subject to shareholder approval, regulatory approvals, and other customary closing conditions.

The company has a substantial debt load totaling approximately $14.8 billion (net). While there were no outstanding borrowings on its revolving credit facility as of September 30, 2021, it has been actively managing its debt by redeeming older notes and has a large revolving credit facility in place. The upcoming WarnerMedia merger will significantly increase its consolidated debt.