Warner Bros. Discovery posts lax revenues, but impresses on cash flow
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Warner Bros. Discovery (NASDAQ:WBD) stock saw choppy trading around the flat line for most of Thursday morning after something of a mixed earnings report, with some lumpy revenue performance, but a sharply improved picture on cash flows to help slash debt.
Revenues rose 5.4% overall to $10.36B, narrowly missing expectations. Excluding the effects of foreign exchange, revenues fell 4% on a pro forma combined basis.
Total costs and expenses were slashed more than 16%, though, to $11.26B.
Net loss narrowed to $1.24B; comparing apples to apples, that's improved from a year-ago pro forma loss of $1.86B. The figure included $1.66B in pretax amortization from acquisition-related intangibles, though, as well as $146M in pretax restructuring.
Adjusted earnings before interest, taxes, depreciation and amortization was $2.15B, up significantly from a pro forma comparable of $1.77B.
Meanwhile, free cash flow had been estimated at under $1B, but actually came in at $1.7B.
"The important work we are doing to transform our businesses for the future continues to drive our strong financial performance as demonstrated by meaningful improvements to our balance sheet and our now increased synergy target of more than $5B," CEO David Zaslav said.
The company had amassed a pile of debt from the merger of Discovery with WarnerMedia, but it repaid $1.6B in Q2, and on Thursday launched a debt tender offer of up to $2.7B.
It ended the quarter with $3.1B in cash on hand, vs. $47.8B in gross debt and net leverage of 4.6x.
"This quarter alone we reported over $1.7 billion in free cash flow, and we remain bullish with respect to our delevering story and expect to be comfortably below 4.0x levered by the end of the year and at our target of 2.5-3.0x gross leverage by the close of 2024," Zaslav said, adding that will allow it to "lean into" growth opportunities such as investing in direct-to-consumer video.
On that note, amid the rebranding of HBO Max to Max, the company lost net DTC subscribers -- down 1.8M quarter-over-quarter to 95.8M.
Revenue by segment: Studios, $2.58B (down 23.3% pro forma); Networks, $5.76B (down 5.9%); Direct-to-Consumer, $2.73B (up 13.3%).
Revenue by type (actual comparison): Distribution, $5.14B (up 6.1%); Advertising, $2.52B (down 7.4%); Content, $2.45B (up 18.5%).

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