10-QPeriod: Q2 FY2022

Warner Bros. Discovery, Inc. Quarterly Report for Q2 Ended Jun 30, 2022

Filed August 5, 2022For Securities:WBD

Summary

Warner Bros. Discovery, Inc. (WBD) reported its first quarterly results following the significant merger with the WarnerMedia business of AT&T on April 8, 2022. The company experienced a substantial net loss of $3.42 billion for the three months ended June 30, 2022, largely driven by the acquisition-related costs, including substantial restructuring and other charges totaling over $1 billion, and significant amortization of intangible assets. Total revenues for the quarter were $9.83 billion, a substantial increase compared to the prior year, primarily due to the inclusion of WarnerMedia's operations. The balance sheet reflects the significant impact of the merger, with total assets ballooning to $142.24 billion, up from $34.43 billion at the end of 2021, driven by the recognition of substantial goodwill ($34.3 billion) and intangible assets ($48.7 billion) acquired. Total liabilities also surged to $89.29 billion, with long-term debt increasing dramatically to $51.39 billion from $14.42 billion. Investors should closely monitor the company's ability to manage its increased debt load and leverage ratios going forward, especially given the ongoing integration challenges and the competitive Direct-to-Consumer (DTC) market.

Financial Highlights

50 data points
Beta

Revenue

$9.83B

32.6% Gross Margin

Net Income

-$3.42B

-34.8% Net Margin

EPS (Diluted)

$-1.50

Total Assets

$142.24B

Cash & Equivalents

$2.58B

Free Cash Flow

$789.00M

Financial Statements
Beta
Revenue$9.83B
Cost of Revenue$6.63B
Gross Profit$3.20B
SG&A Expenses$3.54B
Operating Expenses$13.47B
Operating Income-$3.64B
Interest Expense$511.00M
Net Income-$3.42B
EPS (Basic)$-1.50
EPS (Diluted)$-1.50
Shares Outstanding (Basic)2.29B
Shares Outstanding (Diluted)2.29B

Key Highlights

  • 1Net loss of $3.42 billion for the quarter, primarily driven by merger-related costs and restructuring charges.
  • 2Total revenues of $9.83 billion for the quarter, reflecting the combined operations post-merger.
  • 3Significant increase in Goodwill ($34.3 billion) and Intangible Assets ($48.7 billion) on the balance sheet due to the acquisition.
  • 4Total debt increased substantially to $52.49 billion (net of adjustments), highlighting increased financial leverage.
  • 5Restructuring and other charges amounted to $1.03 billion, primarily related to content impairments and employee terminations post-merger.
  • 6Direct-to-Consumer (DTC) segment reported an Adjusted EBITDA loss of $518 million, indicating ongoing investment and competitive pressures in the streaming market.
  • 7The company has resegmented its operations into Studios, Networks, and Direct-to-Consumer (DTC) to align with its management structure.

Frequently Asked Questions

The primary driver of the substantial net loss of $3.42 billion is the significant integration and restructuring costs associated with the WarnerMedia merger, including substantial amortization of intangible assets, content impairments, and employee termination costs. These merger-related expenses, coupled with the inherent complexities of combining two large businesses, have heavily impacted the quarter's profitability.

The merger has dramatically altered the balance sheet. Total assets have surged, largely due to the recognition of significant goodwill and intangible assets acquired in the transaction. Concurrently, total liabilities have also increased substantially, primarily driven by the assumption of a large amount of debt from WarnerMedia. This has resulted in a significantly higher leverage profile for the combined entity.

The DTC segment reported an Adjusted EBITDA loss of $518 million for the quarter. This highlights the ongoing significant investment required to compete in the streaming market. Key concerns for investors include the ability of the company to attract and retain subscribers in a highly competitive landscape, manage the high costs associated with content creation and marketing, and ultimately achieve profitability in this segment.

The pro forma financial information presents the combined results of Discovery and WarnerMedia as if the merger had occurred at the beginning of the comparable prior year period. This information is useful for understanding the operational trends of the combined entity and is presented alongside the actual results which only reflect WarnerMedia's operations from the closing date of April 8, 2022. Investors should note that the pro forma figures do not include integration costs or synergies and are for illustrative purposes.