Discovery Reports Third Quarter 2019 Results

Posted by Discovery

Discovery, Inc. reported financial results for the quarter ended September 30, 2019.

David Zaslav, President and Chief Executive Officer of Discovery said, “Discovery once again delivered strong financial results across our portfolio, generating healthy revenue growth in the U.S. and internationally, and significant operational efficiencies from our ongoing transformation efforts. We also made progress in the buildout of our digital ecosystems that leverage our owned programming and brand strength. With a solid financial profile and strong balance sheet, we are able to invest meaningfully in our business and create additional value for shareholders.”

Third Quarter 2019 Financial Highlights

• Total Company revenues increased 3% to $2,678 million or increased 5% ex-FX.
• S. advertising revenues increased 3% and distribution increased 6%; and
• International advertising revenues increased 10% and distribution increased 8%, ex-FX.
• Net income increased to $262 million and diluted EPS increased to $0.35 per share.
• Adjusted OIBDA increased 6% to $1,126 million or increased 9% ex-FX.
• Adjusted EPS was $0.87 per diluted share, excluding certain items.
• Free cash flow decreased 3% to $884 million.
• The Company repurchased nearly 12 million shares for $300 million, at an average price of $25.93 per share.

Operational Highlights

• Food Network Kitchen, a first-of-its-kind direct to consumer product with live, interactive cooking instruction, and a collaboration with Amazon, launched in the U.S.
• Discovery was the No. 1 most-watched TV portfolio in the U.S. among women 25-54 for the last six months.
• TLC delivered another record-breaking quarter as the No. 1 ad-supported cable network in primetime among women 25-54 and women 18-49, with delivery up 16% and 10%, respectively.
• Share of viewing in the top-10 international markets increased 3% on average in the third quarter.

Third Quarter 2019 Consolidated Results

• Revenues increased 3% to $2,678 million, or increased 5% excluding the impact of foreign currency fluctuations (“ex-FX”), compared with the prior year’s quarter.
• Net income increased to $262 million, or $0.35 per diluted share, primarily due to higher operating results, lower restructuring and other charges and to a lesser extent, lower interest expense, partially offset by the impact from a non-cash goodwill impairment charge in our Asia-Pacific region.
• Adjusted Operating Income Before Depreciation and Amortization (“Adjusted OIBDA”) increased 6% to $1,126 million, as a 12% increase in U.S. Networks Adjusted OIBDA was partially offset by a 7% decrease in International Networks Adjusted OIBDA. Ex-FX, total Adjusted AOIBDA increased 9% and International Networks Adjusted OIBDA increased 5%.
• Adjusted Earnings Per Diluted Share (“Adjusted EPS”) was $0.87. Adjusted EPS excludes the per share impact from amortization of acquisition-related intangible assets, net of tax of $0.29, an after-tax, non-cash impairment on goodwill of $0.21, and restructuring and other charges, net of tax, of $0.02.
• Free cash flow decreased 3% to $884 million due to an increase in digital investments and capital expenditures, partially offset by lower restructuring and other charges. Cash provided by operating activities increased 2% to $951 million reflecting an increase in net income due to higher operating results and lower restructuring and other charges. Capital expenditures increased $43 million to $67 million due to transformation projects related to technology infrastructure and software development, as well as expenses related to real estate consolidation.

Third Quarter 2019 Segment Results

U.S. Networks

• Revenues increased 3% to $1,725 million.
• Growth in advertising was primarily driven by increases in pricing and to a lesser extent, the continued monetization of digital content offerings and inventory, and partially offset by lower overall ratings and the impact of audience declines on the linear networks.
• Growth in distribution was primarily driven by increases in contractual affiliate rates and additional carriage on streaming platforms, partially offset by the impact from a decline in overall subscribers.
• Total portfolio subscribers for September 2019 were 4% lower than September 2018, while subscribers to the fully distributed networks were 1% lower.
• Operating expenses decreased 7% to $720 million.
• Costs of revenues decreased primarily due to content synergies related to the integration of Scripps Networks.
• SG&A was flat as reductions in technology, professional services fees and personnel costs due to restructuring and the integration of Scripps Networks were offset by higher marketing expenses.
• Adjusted OIBDA increased 12% to $1,005 million.

International Networks

• Revenues increased 4% to $950 million. Ex-FX, revenues increased 9%.
• Ex-FX, growth in advertising was primarily driven by the consolidation of the UKTV Lifestyle Business, expansion of digital content offerings and to a lesser extent, higher pricing in certain markets in Europe.
• Ex-FX, growth in distribution was driven by certain content licensing arrangements, contractual price increases and new channel launches in our Latin America region, increases in digital licensing revenues and growth in Europe related to increases in pricing and monetization of digital content offerings.
• Operating expenses increased 8% to $713 million. Ex-FX, operating expenses increased 10%.
• Ex-FX, costs of revenues increased primarily due to higher expenses associated with expanded digital content offerings and to a lesser extent, consolidation of the UKTV Lifestyle Business.
• Ex-FX, SG&A increased primarily due to higher technology and personnel costs as a result of expanded digital content offerings and higher marketing related expenses.
• Adjusted OIBDA decreased 7% to $237 million. Ex-FX, Adjusted OIBDA increased 5%.―BCS Bureau