Discovery Reports Fourth Quarter And Full Year 2019 Results

2/27/20

Discovery, Inc. (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the quarter and full year ended December 31, 2019.

David Zaslav, President and Chief Executive Officer of Discovery said, "2019 was a year of promises made and promises delivered. We achieved more than $3 billion of free cash flow and brought leverage down to the low end of our target range of 3-3.5x net debt to Adjusted OIBDA. Our differentiated local content strategy and global scale, coupled with our unique free cash flow conversion profile, provide distinct financial flexibility that allows us to adapt to changing media consumption habits. Our Board's confidence in our strategic direction is highlighted by the recent authorization to repurchase up to an additional $2 billion of our shares."

Financial HighlightsFourth Quarter 2019

  • Total revenues increased 2% to $2,874 million, or increased 4% ex-FX(1).
    • U.S. advertising and distribution revenues increased 1% and 5%, respectively; and
    • International advertising and distribution revenues increased 5% and 10%, respectively, ex-FX.
  • Net income available to Discovery, Inc. increased to $476 million and diluted EPS increased to $0.67 per share.
  • Adjusted OIBDA(2) decreased 8% to $1,105 million, or decreased 6% ex-FX.
  • Adjusted EPS(3) increased to $0.98 per diluted share.
  • Free cash flow(4) increased 27% to $1,132 million.
  • The Company repurchased 12 million Series C shares for $337 million, at an average price of $29.04 per share.

Full Year 2019

  • Total revenues increased 6% to $11,144 million, or increased 2% on a pro forma combined(5) ex-FX basis.
  • Net income available to Discovery, Inc. increased to $2,069 million and diluted EPS increased to $2.88 per share.
  • Adjusted OIBDA increased 12% to $4,671 million, or increased 7% on a pro forma combined ex-FX basis.
  • Adjusted EPS increased to $3.69 per diluted share.
  • Free cash flow increased 28% to $3,110 million.
  • The Company repurchased 23 million Series C shares for $637 million, at an average price of $27.49 per share.

Operational Highlights

  • In 2019, HGTV and Food Network launched in more than 30 new countries and territories combined as the Company continued to execute on its strategy to grow the global reach of the Scripps Networks.
  • Total share of viewing in 2019 for our top 10 international markets increased 2%, on average(7).
  • Established strong foothold across existing and new direct-to-consumer platforms in Europe, including Dplay in 10 markets(8), TVN Player in Poland, and Joyn(9) in Germany.
  • Discovery was the No. 1 most-watched pay TV portfolio in the U.S. among women 25-54 and 18+ for both primetime and total day in 2019(10).
  • TLC delivered its best year ever globally, improving both international share and viewership by 8%, and in the U.S., TLC was the fastest growing ad-supported cable network among women 25-54 and 18-49, with its best primetime performance in 16 years(11).

Fourth Quarter 2019

  • Revenues increased 2% to $1,752 million compared with the prior year's quarter.
    • Advertising revenue growth of 1% was primarily driven by increases in pricing and, to a lesser extent, the continued monetization of our digital content offerings and inventory, partially offset by lower overall ratings and secular declines in the pay TV ecosystem.
    • Distribution revenue growth of 5% was primarily driven by increases in contractual affiliate rates and additional carriage on virtual MVPD platforms, partially offset by a decline in linear subscribers.
    • Total portfolio subscribers for December 2019 were 5% lower than December 2018, while subscribers to the fully distributed networks were 3% lower.
  • Operating expenses increased 9% to $827 million.
    • Costs of revenues increased 12% primarily due to higher content spend.
    • SG&A expenses increased 6% primarily due to higher marketing and personnel expenses to support our direct-to-consumer initiatives.
  • Adjusted OIBDA decreased 4% to $925 million.

Full Year 2019

  • Revenues increased 12% to $7,092 million compared with the prior year. On a pro forma combined basis, revenues increased 3%.
    • Pro forma combined advertising revenue growth of 3% was primarily driven by increases in pricing and, to a lesser extent, the continued monetization of our digital content offerings and inventory, partially offset by lower overall ratings and secular declines in the pay TV ecosystem.
    • Pro forma combined distribution growth of 5% was primarily driven by increases in contractual affiliate rates and additional carriage on virtual MVPD platforms, partially offset by a decline in linear subscribers.
  • Operating expenses increased 4% to $2,975 million. On a pro forma combined basis, operating expenses decreased 4%.
    • Pro forma combined costs of revenues decreased 5% primarily due to content synergies realized from the integration of Scripps Networks.
    • Pro forma combined SG&A expenses decreased 3% primarily due to cost reductions in personnel, technology, and professional services fees, partially offset by higher marketing expenses to support our direct-to-consumer initiatives.
  • Adjusted OIBDA increased 18% to $4,117 million, or increased 10% on a pro forma combined basis.

Fourth Quarter 2019

  • Revenues increased 3% to $1,119 million, or increased 7% ex-FX, compared with the prior year's quarter.
    • Advertising revenues increased 5% ex-FX primarily driven by the consolidation of the UKTV Lifestyle Business(12) and growth in our direct-to-consumer initiatives.
    • Distribution revenues increased 10% ex-FX primarily driven by content licensing arrangements and higher affiliate rates in our Latin America business unit, and higher affiliate rates and monetization of direct-to-consumer initiatives in Europe and Asia.
  • Total operating expenses increased 10% to $804 million, or increased 11% ex-FX.
    • Ex-FX, costs of revenues increased 9% primarily due to investments in our direct-to-consumer initiatives and linear content, and, to a lesser extent, consolidation of the UKTV Lifestyle Business.
    • Ex-FX, SG&A increased 15% primarily due to investments in technology and personnel, as well as higher marketing expenses driven by subscriber acquisition costs for our direct-to-consumer initiatives.
  • Adjusted OIBDA decreased 10% to $315 million, or decreased 4% ex-FX.

Full Year 2019

  • Revenues decreased 3% to $4,041 million compared with the prior year. Ex-FX, revenues increased 3%. On a pro forma combined ex-FX basis, revenues were consistent with the prior year.
    • Pro forma combined ex-FX advertising growth of 4% was primarily driven by the consolidation of the UKTV Lifestyle Business, growth in our direct-to-consumer initiatives, and, to a lesser extent, higher pricing in certain European markets, partially offset by the impact of the Olympics in 2018.
    • Pro forma combined ex-FX distribution growth of 5% was primarily driven by content licensing arrangements, higher affiliate rates and new channel launches in our Latin America business unit, higher affiliate rates in Europe and monetization of direct-to-consumer initiatives in Europe and Asia.
  • Operating expenses decreased 3% to $2,984 million. Ex-FX, operating expenses increased 2%. On a pro forma combined ex-FX basis, operating expenses decreased 1%.
    • Pro forma combined ex-FX costs of revenues decreased 6% primarily due to rights and production costs for the Olympics in 2018, partially offset by investments in linear content and our direct-to-consumer initiatives, and the consolidation of the UKTV Lifestyle Business.
    • Pro forma combined ex-FX SG&A increased 11% primarily due to investments in technology and personnel, as well as higher marketing expenses driven by subscriber acquisition costs for our direct-to-consumer initiatives, partially offset by expenses incurred in the prior year for the Olympics and certain channel launches in Asia.
  • Adjusted OIBDA decreased 2% to $1,057 million. Ex-FX, Adjusted OIBDA increased 8%, or increased 5% on a pro forma combined ex-FX basis.

Corporate and Inter-Segment Eliminations

For the fourth quarter of 2019, Corporate Adjusted OIBDA decreased $19 million compared with the prior year's quarter, primarily due to investments in facilities and technology infrastructure, partially offset by lower professional services fees.

For full year 2019, Corporate Adjusted OIBDA decreased $115 million compared with the prior year, primarily due to investments in technology infrastructure and facilities, and higher professional services fees.

Fourth Quarter 2019 Consolidated Results

  • Total revenues increased 2% to $2,874 million, or increased 4% ex-FX, compared with the prior year's quarter.
  • Net income available to Discovery, Inc. increased to $476 million, or $0.67 per diluted share, primarily due to lower income tax expense and restructuring and other charges and higher operating revenues, partially offset by investments in direct-to-consumer initiatives.
  • Total Adjusted OIBDA decreased 8% to $1,105 million, as U.S. Networks Adjusted OIBDA decreased 4% and International Networks' Adjusted OIBDA decreased 10%. Ex-FX, total Adjusted OIBDA decreased 6% and International Networks Adjusted OIBDA decreased 4%.
  • Adjusted EPS increased to $0.98 compared with the prior year's quarter. Please refer to the table "Calculation of Adjusted Earnings Per Diluted Share" on page 16 for additional details.
  • Cash provided by operating activities increased 33% to $1,232 million reflecting improvements in cash efficiency and an increase in net income driven by lower restructuring and other charges and taxes. Capital expenditures increased $59 million to $100 million due to investments in technology infrastructure, software development, and facilities. Free cash flow increased 27% to $1,132 million primarily driven by improvements in cash efficiency, as well as lower restructuring and other charges and taxes, partially offset by an increase in digital investments and capital expenditures.

Full Year 2019 Consolidated Results

  • Total revenues increased 6% to $11,144 million, or increased 8% ex-FX, compared with the prior year. On a pro forma combined ex-FX basis, revenues increased 2%.
  • Net income available to Discovery, Inc. increased to $2,069 million, or $2.88 per diluted share, primarily due to lower restructuring and other charges, higher operating results and a one-time, non-cash tax benefit recognized in the second quarter of 2019, partially offset by a non-cash goodwill impairment charge in our Asia-Pacific region.
  • Total Adjusted OIBDA increased 12% to $4,671 million, as an 18% increase in U.S. Networks Adjusted OIBDA was partially offset by a $115 million decrease in Corporate Adjusted OIBDA and a 2% decrease in International Networks Adjusted OIBDA. Ex-FX, total Adjusted OIBDA increased 14% and International Networks Adjusted OIBDA increased 8%. On a pro forma combined ex-FX basis, total Adjusted OIBDA increased 7% as U.S. Networks Adjusted OIBDA increased 10% and International Networks increased 5%.
  • Adjusted EPS increased to $3.69 compared with the prior year. Please refer to the table "Calculation of Adjusted Earnings Per Diluted Share" on page 16 for additional details.
  • Cash provided by operating activities increased 32% to $3,399 million reflecting an increase in net income due to higher operating results and lower restructuring and other charges. Capital expenditures increased $142 million to $289 million primarily due to investments in technology infrastructure, software development, and facilities. Free cash flow increased 28% to $3,110 million primarily driven by lower restructuring and other charges, higher operating results, and improvements in cash efficiency, partially offset by an increase in digital investments and capital expenditures.

Other Items Share Buyback

In February 2020, the Company's Board of Directors authorized additional common stock repurchases of up to $2 billion upon completion of the existing $1 billion authorization. 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.

Pursuant to the Board of Directors' April 2019 authorization to repurchase up to $1 billion shares, the Company has repurchased approximately 23 million shares of its Series C common stock for a total of $637 million, at an average price of $27.49 per share, through December 31, 2019. The Company repurchased approximately 12 million shares of its Series C common stock for $337 million, at an average price of $29.04 per share in the fourth quarter of 2019.

2020 Outlook(13)Discovery will provide forward-looking commentary in connection with this earnings announcement on its quarterly earnings conference call. Details on how to access the call and audio webcast are included below.

About Discovery, Inc.

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 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, and Science Channel, 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 https://corporate.discovery.com and follow @DiscoveryIncTV across social platforms.

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