Discovery, Inc. (NASDAQ: DISCA, DISCB, DISCK) today 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(1).
- U.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(2) increased 6% to $1,126 million or increased 9% ex-FX.
- Adjusted EPS(3) was $0.87 per diluted share, excluding certain items.
- Free cash flow(4) 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(7).
- 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(8).
- Share of viewing in the top-10 international markets increased 3% on average in the third quarter(9).
- Revenues increased 3% to $2,678 million, or increased 5% excluding the impact of foreign currency fluctuations ("ex-FX")(1), 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")(2) 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")(3) 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(4) 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
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | Change | 2019 | 2018 | Change(5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 681 | 644 | 2,066 | 1,812 | 25 | 39 | 80 | 108 | 434 | 486 | 1,297 | 1,297 | 286 | 287 | 851 | 795 | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | Change | Ex-FX(1) | 2019 | 2018 | Change(4) | Ex-FX(1,5) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 520 | 508 | 1,565 | 1,577 | 36 | 34 | 104 | 256 | 479 | 449 | 1,483 | 1,675 | 234 | 213 | 697 | 663 | 5 | % | 12 | % | ||||||||||||||||||||||||||||||||||||||
| Adjusted OIBDA | $ | 237 | $ | 254 | (7) | % | 5 | % | $ | 742 | $ | 727 | 2 | % | 13 | % | |||||||||||||||||||||||||||||||||||||||||
- 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%.
Other The Other segment's revenues of $3 million and Adjusted OIBDA of $1 million were consistent with the prior year's quarter.
Corporate and Inter-Segment Eliminations Corporate Adjusted OIBDA for the third quarter of 2019 decreased 23% compared with the prior year's quarter, primarily due to expenses associated with transformation projects related to technology infrastructure and software development, as well as facilities-related expenses due to real estate consolidation.
Other ItemsShare BuybackIn April 2019, the Company's Board of Directors authorized additional common stock repurchases of up to $1 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 quarter, the Company, pursuant to its existing stock repurchase authorization, repurchased nearly 12 million shares of its Series C common stock for a total of $300 million, at an average price of $25.93 per share.
Full Year 2019 Outlook(10)Discovery will provide forward-looking guidance in connection with this quarterly earnings announcement on its quarterly earnings conference call. Details on how to access the call and 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.
