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Discovery, Inc. Reports Second-Quarter 2020 Results

SILVER SPRING, Md., Aug. 5, 2020 /PRNewswire/ -- Discovery, Inc. ("Discovery" or the "Company") (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the quarter ended June 30, 2020.

David Zaslav, President and Chief Executive Officer of Discovery said, "Our top priority is the health and safety of our employees as global economies and our offices begin to reopen. I want to thank all of our teams for the exceptional focus and dedication even during these turbulent times that continued to drive outstanding progress for our business, including renewals with four of our largest distribution partners and meaningful cost containment. We generated significant free cash flows in Q2, demonstrating the durability of our business, especially against the backdrop of a historic disruption to the global advertising market due to the impacts of the pandemic. With our significant liquidity cushion and the initial signs of stabilization that we're seeing in many of our key markets around the world, we are pleased to announce our intention to resume returning capital to shareholders through share repurchases. We are cautiously optimistic about the global outlook for the rest of the year and firmly believe that the long-term prospects for Discovery remain as vibrant as ever."

Second-Quarter 2020 Financial Highlights

  • Total revenues of $2,541 million decreased 12% compared to the prior year quarter, or decreased 11% ex-FX.(1)
    • U.S. distribution revenues  increased 7%, or increased 2% excluding certain non-recurring items, and advertising revenues decreased 14%; and
    • International distribution revenues decreased 2% and advertising revenues decreased 37%, ex-FX.
  • Net income available to Discovery was $271 million and diluted EPS was $0.40 per share.
  • Total Adjusted OIBDA(2) decreased 12% to $1,127 million, or decreased 11% ex-FX.
  • Adjusted EPS(3) was $0.77 per diluted share.
  • Free cash flow(4) was $879 million.

 

   

Three Months Ended June 30,

 

Six Months Ended June 30,

Dollars in millions, except per share amounts

 

2020

 

2019

 

%
Change

Ex-FX(1)

 

2020

 

2019

 

%
Change

Ex-FX(1)

Total revenue

 

$

2,541

   

$

2,885

   

(12)

%

(11)

%

 

$

5,224

   

$

5,592

   

(7)

%

(5)

%

Net income available to Discovery, Inc.

 

$

271

   

$

947

   

(71)

%

   

$

648

   

$

1,331

   

(51)

%

 

U.S. Networks Adjusted OIBDA

 

1,062

   

1,126

   

(6)

%

   

2,078

   

2,187

   

(5)

%

 

International Networks Adjusted OIBDA

 

193

   

286

   

(33)

%

(29)

%

 

400

   

505

   

(21)

%

(18)

%

Total Adjusted OIBDA(5)

 

$

1,127

   

$

1,281

   

(12)

%

(11)

%

 

$

2,240

   

$

2,440

   

(8)

%

(7)

%

Diluted EPS

 

$

0.40

   

$

1.33

   

(70)

%

   

$

0.95

   

$

1.86

   

(49)

%

 

Adjusted EPS

 

$

0.77

   

$

0.98

   

(21)

%

   

$

1.64

   

$

1.83

   

(10)

%

 

Free cash flow

 

$

879

   

$

596

   

47

%

   

$

1,109

   

$

1,094

   

1

%

 

 

Operational Highlights

  • Total share of viewing across the international portfolio in the second quarter of 2020 improved 4% on average, with strong share growth in India, UK and Italy.(6)
  • In the second quarter, Discovery's portfolio of networks in the U.S. gained more share in primetime than any other TV portfolio in each of our target demos.(7)
  • TLC delivered its best quarter in network history and was the top network across all of TV on Sunday nights among W25-54, P25-54 and W18-49, driven by the performance of the '90 Day Fiancé' franchise. The network also continues to be the No. 1 destination for women on cable TV in 2020.(8)

 

Segment Results
U.S. Networks

 
 

Three Months Ended June 30,

 

Six Months Ended June 30,

Dollars in millions

2020

 

2019

 

% Change

 

2020

 

2019

 

% Change

Advertising

$

997

   

$

1,153

   

(14)

%

 

$

2,023

   

$

2,175

   

(7)

%

Distribution

739

   

688

   

7

%

 

1,447

   

1,385

   

4

%

Other

20

   

22

   

(9)

%

 

42

   

55

   

(24)

%

Total revenues

$

1,756

   

$

1,863

   

(6)

%

 

$

3,512

   

$

3,615

   

(3)

%

Costs of revenues, excluding depreciation & amortization

442

   

441

   

%

 

889

   

863

   

3

%

Selling, general & administrative(9)

252

   

296

   

(15)

%

 

545

   

565

   

(4)

%

Adjusted OIBDA

$

1,062

   

$

1,126

   

(6)

%

 

$

2,078

   

$

2,187

   

(5)

%

Second-Quarter 2020 Highlights

  • Revenues of $1,756 million decreased 6% compared to the prior year quarter.
    • Advertising decreased 14%, primarily driven by a decline in demand stemming from the COVID-19 pandemic and, to a lesser extent, secular declines in the pay-TV ecosystem and lower inventory, partially offset by higher overall ratings and pricing.
    • Distribution increased 7%, primarily driven by increases in contractual affiliate rates and certain non-recurring items, partially offset by a decline in linear subscribers. Excluding the non-recurring items, distribution revenue increased 2%.
    • At June 30, 2020, subscribers to our fully distributed networks were 5% lower than the prior year. Total portfolio subscribers, excluding the one-time benefit of free previews provided during the pandemic, were 7% lower than at June 30, 2019.
  • Total operating expenses of $694 million decreased 6%.
    • Costs of revenues were consistent with the prior year quarter, primarily due to investments in content to support our next generation initiatives, offset by a non-recurring reserve release established in purchase accounting and a reduction in production projects as a result of the COVID-19 pandemic.
    • SG&A expenses decreased 15% primarily due to lower marketing-related expenses and, as a result of COVID-19, a reduction in travel costs.
  • Adjusted OIBDA decreased 6% to $1,062 million.

 

International Networks

 
 

Three Months Ended June 30,

 

Six Months Ended June 30,

Dollars in millions

2020

 

2019

 

%
Change

Ex-FX

 

2020

 

2019

 

%
Change

Ex-FX

Advertising

$

276

   

$

466

   

(41)

%

(37)

%

 

$

652

   

$

859

   

(24)

%

(20)

%

Distribution

486

   

518

   

(6)

%

(2)

%

 

1,001

   

1,045

   

(4)

%

(1)

%

Other

21

   

36

   

(42)

%

(43)

%

 

53

   

68

   

(22)

%

(22)

%

Total revenues

$

783

   

$

1,020

   

(23)

%

(20)

%

 

$

1,706

   

$

1,972

   

(13)

%

(10)

%

Costs of revenues, excluding
depreciation & amortization

365

   

497

   

(27)

%

(23)

%

 

835

   

1,004

   

(17)

%

(14)

%

Selling, general & administrative(9)

225

   

237

   

(5)

%

(1)

%

 

471

   

463

   

2

%

6

%

Adjusted OIBDA

$

193

   

$

286

   

(33)

%

(29)

%

 

$

400

   

$

505

   

(21)

%

(18)

%

Second-Quarter 2020 Highlights

  • Revenues of $783 million decreased 23%, or decreased 20% ex-FX, compared to the prior year quarter.
    • Ex-FX, advertising decreased 37%, primarily driven by a decline in demand stemming from the COVID-19 pandemic and, to a lesser extent, the discontinuation of certain pay-TV distribution in the Nordics.
    • Ex-FX, distribution decreased 2%, primarily driven by the impact on sporting events due to COVID-19, the discontinuation of certain pay-TV distribution in some European markets, and lower contractual rates, partially offset by increases in digital distribution.
  • Total operating expenses of $590 million decreased 20%, or decreased 16% ex-FX.
    • Ex-FX, costs of revenues decreased 23% primarily due to the timing of sporting events in Europe due to COVID-19.
    • Ex-FX, SG&A was relatively consistent with the prior year quarter.
  • Adjusted OIBDA of $193 million decreased 33%, or decreased 29% ex-FX.

Corporate, Inter-segment Eliminations, and Other

  • For the second quarter of 2020, Corporate Adjusted OIBDA improved by $3 million compared to the prior year quarter.

Free Cash Flow

  • Cash provided by operating activities increased to $991 million from $674 million in the prior year quarter. Free cash flow increased to $879 million from $596 million, primarily due to the timing of working capital, partially offset by higher capital expenditures. Capital expenditures increased due to investments in technology infrastructure, software development, and facilities.

Other Items
Share Buyback
In February 2020, the Company's Board of Directors authorized common stock repurchases of up to $2 billion. Under the stock repurchase authorization, management is authorized to purchase shares from time to time through open market purchases at prevailing prices or privately negotiated purchases subject to market conditions and other factors.

During the three months ended June 30, 2020, the Company did not repurchase any shares under its $2 billion repurchase authorization, which has $1.8 billion remaining. We expect to resume repurchasing shares in the open market once the blackout period ends on August 6, 2020.

2020 Outlook(10)
Discovery may provide forward-looking commentary in connection with this earnings announcement on its quarterly earnings conference call. Details on how to access the audio webcast are included below.

Conference Call Information
Discovery will host a conference call today, August 5, 2020 at 8:00 a.m. ET to discuss its second quarter 2020 results. To listen to the audio webcast of the call, please visit https://corporate.discovery.com.

Cautionary Statement Concerning Forward-Looking Statements
This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties and on information available to the Company as of the date hereof. The Company's actual results could differ materially from those stated or implied, due to risks and uncertainties associated with its business, which include the risk factors disclosed in its Annual Report on Form 10-K filed with the SEC on February 27, 2020 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, expected to be filed today.

Forward-looking statements include statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future, and can be identified by forward-looking words such as "anticipate," "believe," "could," "continue," "estimate," "expect," "intend," "may," "should," "will" and "would" or similar words. Forward-looking statements in this release include, without limitation, statements regarding investing in the Company's programming, strategic growth initiatives, changes in the pay TV ecosystem, and the impact of COVID-19. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

About Discovery
Discovery, Inc. (Nasdaq: DISCA, DISCB, DISCK) is a global leader in real life entertainment, serving a passionate audience of superfans around the world with content that inspires, informs and entertains. Discovery delivers over 8,000 hours of original programming each year and has category leadership across deeply loved content genres around the world. Available in 220 countries and territories and in nearly 50 languages, Discovery is a platform innovator, reaching viewers on all screens, including TV Everywhere products such as the GO portfolio of apps; direct-to-consumer streaming services such as Eurosport Player, Food Network Kitchen and MotorTrend OnDemand; digital-first and social content from Group Nine Media; a landmark natural history and factual content partnership with the BBC; and a strategic alliance with PGA TOUR to create the international home of golf. Discovery's portfolio of premium brands includes Discovery Channel, HGTV, Food Network, TLC, Investigation Discovery, Travel Channel, MotorTrend, Animal Planet, Science Channel, and the forthcoming multi-platform JV with Chip and Joanna Gaines, Magnolia, as well as OWN: Oprah Winfrey Network in the U.S., Discovery Kids in Latin America, and Eurosport, the leading provider of locally relevant, premium sports and Home of the Olympic Games across Europe. For more information, please visit corporate.discovery.com and follow @DiscoveryIncTV across social platforms.

 

DISCOVERY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in millions, except per share amounts)

 
 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

Revenues:

             

Advertising

$

1,273

   

$

1,619

   

$

2,675

   

$

3,034

 

Distribution

1,225

   

1,206

   

2,448

   

2,430

 

Other

43

   

60

   

101

   

128

 

Total revenues

2,541

   

2,885

   

5,224

   

5,592

 

Costs and expenses:

             

Costs of revenues, excluding depreciation and amortization

810

   

938

   

1,728

   

1,868

 

Selling, general and administrative

635

   

709

   

1,280

   

1,335

 

Depreciation and amortization

334

   

320

   

660

   

692

 

Impairment of goodwill and other intangible assets

38

   

   

38

   

 

Restructuring and other charges

7

   

7

   

22

   

12

 

Total costs and expenses

1,824

   

1,974

   

3,728

   

3,907

 

Operating income

717

   

911

   

1,496

   

1,685

 

Interest expense, net

(161)

   

(161)

   

(324)

   

(343)

 

Loss on extinguishment of debt

(71)

   

(23)

   

(71)

   

(28)

 

Loss from equity investees, net

(23)

   

(20)

   

(44)

   

(9)

 

Other (expense) income, net

(6)

   

9

   

(64)

   

(18)

 

Income before income taxes

456

   

716

   

993

   

1,287

 

Income tax (expense) benefit

(156)

   

271

   

(286)

   

118

 

Net income

300

   

987

   

707

   

1,405

 

Net income attributable to noncontrolling interests

(25)

   

(36)

   

(53)

   

(65)

 

Net income attributable to redeemable noncontrolling interests

(4)

   

(4)

   

(6)

   

(9)

 

Net income available to Discovery, Inc.

$

271

   

$

947

   

$

648

   

$

1,331

 

Net income per share allocated to Discovery, Inc. Series A, B
        and C common stockholders:

             

Basic

$

0.40

   

$

1.33

   

$

0.96

   

$

1.86

 

Diluted

$

0.40

   

$

1.33

   

$

0.95

   

$

1.86

 

Weighted average shares outstanding:

             

Basic

508

   

528

   

513

   

526

 

Diluted

674

   

716

   

680

   

715

 

 

DISCOVERY, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except par value)

 
 

June 30, 2020

 

December 31, 2019

ASSETS

     

Current assets:

     

Cash and cash equivalents

$

1,683

   

$

1,552

 

Receivables, net

2,473

   

2,633

 

Content rights and prepaid license fees, net

113

   

579

 

Prepaid expenses and other current assets

448

   

453

 

Total current assets

4,717

   

5,217

 

Noncurrent content rights, net

3,540

   

3,129

 

Property and equipment, net

1,088

   

951

 

Goodwill

12,987

   

13,050

 

Intangible assets, net

8,091

   

8,667

 

Equity method investments

530

   

568

 

Other noncurrent assets

2,136

   

2,153

 

Total assets

$

33,089

   

$

33,735

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Accounts payable

$

367

   

$

463

 

Accrued liabilities

1,607

   

1,678

 

Deferred revenues

263

   

489

 

Current portion of debt

339

   

609

 

Total current liabilities

2,576

   

3,239

 

Noncurrent portion of debt

14,944

   

14,810

 

Deferred income taxes

1,463

   

1,691

 

Other noncurrent liabilities

2,306

   

2,029

 

Total liabilities

21,289

   

21,769

 

Commitments and contingencies

     

Redeemable noncontrolling interests

442

   

442

 

Equity:

     

Discovery, Inc. stockholders' equity:

     

Series A-1 convertible preferred stock: $0.01 par value; 8 shares authorized, issued and
outstanding

   

 

Series C-1 convertible preferred stock: $0.01 par value; 6 shares authorized; 5 shares
issued and outstanding

   

 

Series A common stock: $0.01 par value; 1,700 shares authorized; 163 and 161 shares
issued; and 160 and 158 shares outstanding

2

   

2

 

Series B convertible common stock: $0.01 par value; 100 shares authorized; 7 shares
issued and outstanding

   

 

Series C common stock: $0.01 par value; 2,000 shares authorized; 546 and 547 shares
issued; and 340 and 360 shares outstanding

5

   

5

 

Additional paid-in capital

10,798

   

10,747

 

Treasury stock, at cost: 209 and 190 shares

(7,897)

   

(7,374)

 

Retained earnings

7,980

   

7,333

 

Accumulated other comprehensive loss

(1,021)

   

(822)

 

Total Discovery, Inc. stockholders' equity

9,867

   

9,891

 

Noncontrolling interests

1,491

   

1,633

 

Total equity

11,358

   

11,524

 

Total liabilities and equity

$

33,089

   

$

33,735

 

 

DISCOVERY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)

 
 

Six Months Ended June 30,

 

2020

 

2019

Operating Activities

     

Net income

707

   

1,405

 

Adjustments to reconcile net income to cash provided by operating activities:

     

Content rights amortization and impairment

1,355

   

1,378

 

Depreciation and amortization

660

   

692

 

Deferred income taxes

(188)

   

(554)

 

Impairment of goodwill and other intangible assets

38

   

 

Share-based compensation expense

30

   

69

 

Equity in losses of equity method investee companies, including cash distributions

71

   

37

 

Unrealized loss from derivative instruments, net

22

   

 

Loss on extinguishment of debt

71

   

28

 

Remeasurement gain on previously held equity interest

   

(14)

 

Realized gain from derivative instruments, net

(21)

   

 

Other, net

41

   

50

 

Changes in operating assets and liabilities, net of acquisitions and dispositions:

     

Receivables, net

122

   

(231)

 

Content rights and payables, net

(1,386)

   

(1,570)

 

Accounts payable, accrued and other liabilities

(174)

   

(132)

 

Foreign currency, prepaid expenses and other assets, net

(22)

   

58

 

Cash provided by operating activities

1,326

   

1,216

 

Investing Activities

     

Investments in and advances to equity investments

(81)

   

(147)

 

Purchases of property and equipment

(217)

   

(122)

 

Proceeds from dissolution of joint venture

65

   

105

 

Business acquisitions, net of cash acquired

   

(60)

 

Other investing activities, net

79

   

4

 

Cash used in investing activities

(154)

   

(220)

 

Financing Activities

     

Principal repayments of debt, including discount payment

(2,164)

   

(1,740)

 

Borrowings from debt, net of discount and issuance costs

1,979

   

1,482

 

Repurchases of stock

(527)

   

 

Distributions to noncontrolling interests and redeemable noncontrolling interests

(202)

   

(191)

 

Principal repayments of revolving credit facility

(500)

   

(225)

 

Borrowings under revolving credit facility

500

   

 

Commercial paper borrowings, net

   

173

 

Other financing activities, net

(84)

   

(142)

 

Cash used in financing activities

(998)

   

(643)

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

12

   

(18)

 

Net change in cash, cash equivalents, and restricted cash

186

   

335

 

Cash, cash equivalents, and restricted cash, beginning of period

1,552

   

986

 

Cash, cash equivalents, and restricted cash, end of period

$

1,738

   

$

1,321

 
               

 

DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF NET INCOME TO
ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
(unaudited; in millions)

 
 

Three Months Ended June 30, 2020

 

U.S. Networks

 

International
Networks

 

Corporate, Inter-
segment
Eliminations, and
Other

 

Total

Net income available to Discovery, Inc.

           

$

271

 

Net income attributable to redeemable noncontrolling
interests

           

4

 

Net income attributable to noncontrolling interests

           

25

 

Income tax expense

           

156

 

Other expense, net

           

6

 

Loss on extinguishment of debt

           

71

 

Loss from equity investees, net

           

23

 

Interest expense, net

           

161

 

Operating income (loss)

$

836

   

$

68

   

$

(187)

   

$

717

 

Depreciation and amortization

225

   

84

   

25

   

334

 

Impairment of goodwill and other intangible assets

   

38

   

   

38

 

Restructuring and other charges

   

3

   

4

   

7

 

Employee share-based compensation

   

   

31

   

31

 

Inter-segment eliminations

1

   

   

(1)

   

 

Total Adjusted OIBDA

$

1,062

   

$

193

   

$

(128)

   

$

1,127

 

 

 

Three Months Ended June 30, 2019

 

U.S. Networks

 

International
Networks

 

Corporate, Inter-
segment
Eliminations, and
Other

 

Total

Net income available to Discovery, Inc.

           

$

947

 

Net income attributable to redeemable noncontrolling
interests

           

4

 

Net income attributable to noncontrolling interests

           

36

 

Income tax (benefit)

           

(271)

 

Other (income), net

           

(9)

 

Loss from equity investees, net

           

20

 

Loss on extinguishment of debt

           

23

 

Interest expense, net

           

161

 

Operating income (loss)

$

898

   

$

180

   

$

(167)

   

$

911

 

Depreciation and amortization

222

   

82

   

16

   

320

 

Restructuring and other charges

3

   

6

   

(2)

   

7

 

Transaction and integration costs

   

   

4

   

4

 

Employee share-based compensation

   

   

39

   

39

 

Inter-segment eliminations

3

   

18

   

(21)

   

 

Total Adjusted OIBDA

$

1,126

   

$

286

   

$

(131)

   

$

1,281

 

 

DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF NET INCOME TO
ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
(unaudited; in millions)

 
 

Six Months Ended June 30, 2020

 

U.S. Networks

 

International
Networks

 

Corporate, Inter-
segment
Eliminations, and
Other

 

Total

Net income available to Discovery, Inc.

           

$

648

 

Net income attributable to redeemable noncontrolling
interests

           

6

 

Net income attributable to noncontrolling interests

           

53

 

Income tax expense

           

286

 

Other expense, net

           

64

 

Loss on extinguishment of debt

           

71

 

Loss from equity investees, net

           

44

 

Interest expense, net

           

324

 

Operating income (loss)

$

1,613

   

$

192

   

$

(309)

   

$

1,496

 

Depreciation and amortization

451

   

166

   

43

   

660

 

Impairment of goodwill and other intangible assets

   

38

   

   

38

 

Restructuring and other charges

12

   

4

   

6

   

22

 

Employee share-based compensation

   

   

24

   

24

 

Inter-segment eliminations

2

   

   

(2)

   

 

Total Adjusted OIBDA

$

2,078

   

$

400

   

$

(238)

   

$

2,240

 

 

 

Six Months Ended June 30, 2019

 

U.S. Networks

 

International
Networks

 

Corporate, Inter-
segment
Eliminations, and
Other

 

Total

Net income available to Discovery, Inc.

           

$

1,331

 

Net income attributable to redeemable noncontrolling
interests

           

9

 

Net income attributable to noncontrolling interests

           

65

 

Income tax (benefit)

           

(118)

 

Other expense, net

           

18

 

Loss on extinguishment of debt

           

28

 

Loss from equity investees, net

           

9

 

Interest expense, net

           

343

 

Operating income (loss)

$

1,685

   

$

339

   

$

(339)

   

$

1,685

 

Depreciation and amortization

495

   

164

   

33

   

692

 

Restructuring and other charges

7

   

10

   

(5)

   

12

 

Transaction and integration costs

   

   

11

   

11

 

Employee share-based compensation

   

   

69

   

69

 

Inter-segment eliminations

   

21

   

(21)

   

 

Settlement of a withholding tax claim

   

(29)

   

   

(29)

 

Total Adjusted OIBDA

$

2,187

   

$

505

   

$

(252)

   

$

2,440

 

 

DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
SELECTED FINANCIAL DETAIL
(unaudited; in millions, except per share amounts)
CALCULATION OF ADJUSTED EARNINGS PER DILUTED SHARE

 
 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

$ Change

%
Change

 

2020

 

2019

 

$ Change

%
Change

Diluted net income per share allocated to
Discovery, Inc. Series A, B and C
common stockholders:

$

0.40

   

$

1.33

   

$

(0.93)

 

(70)

%

 

$

0.95

   

$

1.86

   

$

(0.91)

 

(49)

%

Per share impacts, net of tax:

                         

Amortization of acquisition-related
intangible assets

0.30

   

0.28

   

0.02

 

7

%

 

0.60

   

0.62

   

(0.02)

 

(3)

%

Restructuring and other charges

0.01

   

0.01

   

 

%

 

0.03

   

0.02

   

0.01

 

50

%

Impairment of goodwill and other
intangible assets

0.06

   

   

0.06

 

NM

 

0.06

   

   

0.06

 

NM

Legal entity restructuring, deferred tax
impact

   

(0.64)

   

0.64

 

NM

 

   

(0.64)

   

0.64

 

NM

Settlement of a withholding tax claim

   

   

 

NM

 

   

(0.03)

   

0.03

 

NM

Adjusted earnings per diluted share

$

0.77

   

$

0.98

   

$

(0.21)

 

(21)

%

 

$

1.64

   

$

1.83

   

$

(0.19)

 

(10)

%

 

CALCULATION OF FREE CASH FLOW

 
 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

$ Change

%
Change

 

2020

 

2019

 

$ Change

%
Change

Cash provided by operating activities

$

991

   

$

674

   

$

317

 

47

%

 

$

1,326

   

$

1,216

   

$

110

 

9

%

Purchases of property and equipment

(112)

   

(78)

   

(34)

 

44

%

 

(217)

   

(122)

   

(95)

 

(78)

%

Free cash flow

$

879

   

$

596

   

$

283

 

47

%

 

$

1,109

   

$

1,094

   

$

15

 

1

%

 

NM: Not Meaningful

 

Impact of COVID-19
On March 11, 2020, the World Health Organization declared the coronavirus disease 2019 ("COVID-19") outbreak to be a global pandemic. COVID-19 continues to spread throughout the world, and the duration and severity of its effects and associated economic disruption remain uncertain. Restrictions on social and commercial activity in an effort to contain the virus have had, and are expected to continue to have, a significant adverse impact upon many sectors of the U.S. and global economy, including the media industry. We continue to closely monitor the impact of COVID-19 on all aspects of our business and geographies, including how it will impact our customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various third parties.

Demand for our advertising products and services has been reduced by the pandemic, particularly in the second quarter of 2020 when the economic disruptions from limitations on social and commercial activity increased. Also, our third-party production partners remained shut down during most of the second quarter of 2020 due to COVID-19 restrictions. Our advertising revenues, which represented 54% of our consolidated revenues in 2019, have declined during the first half of 2020 and may continue to decline significantly throughout the remainder of 2020 if our advertising partners in certain sectors (such as travel) reduce or fail to resume their advertising spending or if we continue to be limited in our ability to create and air new content due to prolonged production shutdowns and delays. Additionally, certain sporting events that the Company has rights to have been cancelled or postponed, thereby eliminating or deferring the related revenues and expenses, including the Tokyo 2020 Olympic Games were postponed to 2021. We expect that the postponement of the Olympic Games will shift Olympic-related revenues and defer significant expenses from fiscal year 2020 to fiscal year 2021.

In response to these impacts of the pandemic, we continued to employ innovative production and programming strategies, including producing content filmed by our on-air talent and seeking viewer feedback on which content to air. We also pursued a number of cost savings initiatives during the second quarter of 2020 that we believe will offset a portion of anticipated revenue losses and deferrals, through the implementation of travel, marketing, production and other operating cost reductions and will continue to do so for the remainder of 2020. We also implemented remote work arrangements effective mid-March 2020 and to date, these arrangements have not materially affected our ability to operate our business. Throughout the second quarter of 2020 and beyond, we began the process of re-opening office locations across the globe on a case-by-case basis, after careful consideration of the number of COVID-19 cases in each respective area, rate of infection growth, recovery and mortality rates, local environment, governmental restrictions, health recommendations, benchmarking and overall business need and impact. We are monitoring these locations closely and remain agile and flexible as needed. We expect to continue this process throughout the remainder of 2020 and beyond as conditions warrant.

We are unable to predict the full impact that COVID-19 will have on our financial position, operating results, and cash flows in the mid- to long-term due to numerous uncertainties. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions to contain the virus or treat its impact, among others. Our consolidated financial statements presented herein reflect the latest estimates and assumptions made by management that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Actual results may differ significantly from these estimates and assumptions.

In addition, we have implemented several measures to preserve sufficient liquidity in the near term. During the second quarter of 2020, we entered into an amendment to our revolving credit facility, which increased flexibility under our financial covenants and issued $1.0 billion aggregate principal amount of Senior Notes due May 2030 and $1.0 billion aggregate principal amount of Senior Notes due May 2050. The proceeds from the notes were used to fund a tender offer for $1.5 billion of certain Senior Notes with maturities ranging from 2021 through 2023 and to repay $500 million that had been drawn down under our revolving credit facility.

In light of the impact of COVID-19, we assessed goodwill, other intangibles, deferred tax assets, programming assets, and accounts receivable for recoverability based upon latest estimates and judgments with respect to expected future operating results, ultimate usage of content and latest expectations with respect to expected credit losses. We recorded a goodwill impairment charge of $36 million for our Asia-Pacific reporting unit during the three months ended June 30, 2020. Asset impairments of $2 million were recorded as of June 30, 2020, as the carrying value of such assets exceeded their fair value. Adjustments to reflect increased expected credit losses were not material. Further, hedged transactions were assessed, and we have concluded such transactions remain probable of occurrence.

Due to significant uncertainty surrounding the impact of COVID-19, management's judgments could change in the future. The effects of the pandemic may have further negative impacts on the Company's financial position, results of operations, and cash flows. However, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably and fully estimated at this time.

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States. As of June 30, 2020, we do not expect the CARES Act to have a material effect on our financial position and results of operations. We continue to monitor other relief measures taken by the U.S. and other governments around the world.

Non-GAAP Financial Measures
In addition to the results prepared in accordance with U.S. generally accepted accounting principles ("GAAP") provided in this release, the Company has presented Adjusted OIBDA, Adjusted EPS and free cash flow. These non-GAAP measures should be considered in addition to, but not as a substitute for, operating income, net income, earnings per diluted share and other measures of financial performance reported in accordance with GAAP.  Please review the supplemental financial schedules for reconciliations to the most comparable GAAP measures.

Definitions and Sources
(1) Methodology for Calculating Growth Rates Excluding the Impact of Currency Effects: The impact of exchange rates on our business is an important factor in understanding period-to-period comparisons of our results. For example, our international revenues are favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S. dollar strengthens relative to other foreign currencies. We believe the presentation of results on a constant currency basis ("ex-FX"), in addition to results reported in accordance with GAAP, provides useful information about our operating performance because the presentation ex-FX excludes the effects of foreign currency volatility and highlights our core operating results. The presentation of results on a constant currency basis should be considered in addition to, but not a substitute for, measures of financial performance reported in accordance with GAAP.

The ex-FX change represents the percentage change on a period-over-period basis adjusted for foreign currency impacts. The ex-FX change is calculated as the difference between the current year amounts translated at a baseline rate, which is a spot rate for each of our currencies determined early in the fiscal year as part of our forecasting process (the "2020 Baseline Rate"), and the prior year amounts translated at the same 2020 Baseline Rate.

In addition, consistent with the assumption of a constant currency environment, our ex-FX results exclude the impact of our foreign currency hedging activities, as well as realized and unrealized foreign currency transaction gains and losses. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies.

(2) Adjusted OIBDA and Adjusted OIBDA Excluding the Impact of Currency Effects: The Company evaluates the operating performance of its segments based on financial measures such as revenues and Adjusted OIBDA. Adjusted OIBDA is defined as operating income excluding: (i) employee share-based compensation, (ii) depreciation and amortization, (iii) restructuring and other charges, (iv) certain impairment charges, (v) gains and losses on business and asset dispositions, (vi) certain inter-segment eliminations related to production studios, (vii) third-party transaction costs directly related to the acquisition and integration of Scripps Networks and other transactions, and (viii) other items impacting comparability, such as the non-cash settlement of a withholding tax claim.

The Company uses this measure to assess the operating results and performance of its segments, perform analytical comparisons, identify strategies to improve performance and allocate resources to each segment. The Company believes Adjusted OIBDA is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses.

The Company excludes share-based compensation, restructuring and other charges, certain impairment charges, gains and losses on business and asset dispositions and acquisition and integration costs from the calculation of Adjusted OIBDA due to their impact on comparability between periods. The Company also excludes depreciation of fixed assets and amortization of intangible assets, as these amounts do not represent cash payments in the current reporting period. Certain corporate expenses are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives. Total Adjusted OIBDA should be considered in addition to, but not a substitute for, operating income, net income, and other measures of financial performance reported in accordance with GAAP. Refer to the comments in footnote 1 for the methodology used to calculate growth rates excluding foreign currency effects.

(3) Adjusted EPS: The Company defines Adjusted EPS as earnings excluding the impact of amortization of acquisition-related intangible assets and meaningful one-time items, per diluted share. The Company believes Adjusted EPS is relevant to investors because this metric allows them to evaluate the performance of the Company's operations exclusive of the non-cash amortization of acquisition-related intangible assets and meaningful one-time items that impact the comparability of results from period to period.

(4) Free Cash Flow: The Company defines free cash flow as cash flow from operations less acquisitions of property and equipment. The Company believes free cash flow is an important indicator for management and investors of the Company's liquidity, including its ability to reduce debt, make strategic investments, and return capital to stockholders.

(5) Financial Highlights Table: This table presents a selection of the Company's financial results. Because the table as shown excludes the "Corporate, Inter-segment Eliminations, and Other" operating segment, Total Adjusted OIBDA will not foot as presented in the table.

(6) Source: Total Audience Measurement among all individuals. Share of viewing percent is defined as the share of viewing to all TV channels in a market, except in the Nordics business unit. In the Nordics, share percent is defined as the share of viewing for commercial channels only. Due to a change in methodology, Russia and Japan are excluded from totals. Change in share percent is calculated by adjusting the prior year to include any newly acquired channels.

(7) Source: Nielsen, Q2 2020 (3/30/2020-6/28/2020) vs. Q2 2019 (4/1/19-6/30/19) for Primetime. Primetime is 8pm-11pm. Live+7-day. Target demos include: adults, men, and women aged 25-54; adults, men and women aged 18-49; and adults, men and women aged 18-34. Tied with FOX for Total TV among M25-54 for share gain.

(8) Source: Nielsen, Q2 2020 (3/30/2020-6/28/2020) and YTD (12/30/2019-6/28/2020) for Primetime and Sunday nights. Primetime is 8pm-11pm. Data based on program based daypart (000s). Live+3-day.

(9) SG&A Expenses: Selling, general and administrative expenses exclude employee share-based compensation, third-party transaction and integration costs related to the acquisition of Scripps Networks and other transactions, and for 2019, exclude the settlement of a withholding tax claim.

(10) 2020 Outlook: Discovery does not expect to be able to provide a reconciliation of the non-GAAP forward-looking commentary to comparable GAAP measures as, at this time, the Company cannot determine the occurrence or impact of the adjustments, such as the effect of future changes in foreign currency exchange rates or future acquisitions or divestitures that would be excluded from such GAAP measures.

 

Cision View original content:http://www.prnewswire.com/news-releases/discovery-inc-reports-second-quarter-2020-results-301106516.html

SOURCE Discovery Communications

Media, Nathaniel Brown, (212) 548-5959, nathaniel_brown@discovery.com; Investor Relations, Andrew Slabin ,(212) 548-5544, andrew_slabin@discovery.com; Peter Lee (212) 548-5907, peter_lee@discovery.com

Data Provided by Refinitiv. Minimum 15 minutes delayed.