Warner Bros. Discovery, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results reflect the WarnerMedia business only from the April 8, 2022 merger closing. Discovery is the accounting predecessor, so reported comparisons with 2021 are not like-for-like; management also presents unaudited pro forma combined comparisons.
Business context
WBD operates globally across Studios, Networks and direct-to-consumer (DTC), including Warner Bros., HBO, HBO Max, Discovery Channel and discovery+. The merger combined Discovery with AT&T’s WarnerMedia business. WBD issued approximately 1.732 billion shares to AT&T shareholders; the preliminary purchase consideration was $42.4 billion. The company reported 92 million core DTC subscribers at June 30, 2022.
Key financial metrics
| Metric | Q2 2022 | Comparable period / context |
|---|---|---|
| Revenue | $9.827 billion | $3.062 billion in Q2 2021; the increase primarily reflects the merger. Pro forma combined revenue was $10.823 billion versus $11.211 billion, down 3% reported and 1% excluding foreign-exchange effects. |
| Operating income (loss) | $(3.639) billion | Includes $1.033 billion of restructuring and other charges and $2.266 billion of depreciation and amortization. |
| Net income (loss) attributable to WBD | $(3.418) billion; $(1.50) per diluted share | Q2 2021: $672 million; $1.01 per diluted share. The periods are not directly comparable. |
| Adjusted EBITDA | $1.664 billion | $1.117 billion in Q2 2021 actual; pro forma combined Adjusted EBITDA was not presented as a comparable consolidated figure in the cited table. Adjusted EBITDA excludes significant items and is not GAAP income. |
| Segment Adjusted EBITDA | Studios $239 million; Networks $2.262 billion; DTC $(518) million; Corporate $(305) million; eliminations $(14) million | DTC remained loss-making; management cited higher programming investment. |
| Operating cash flow / capital spending | Not separately stated for Q2 | For the first six months: operating cash flow $1.334 billion; property and equipment purchases $307 million. These imply a simple cash-flow-less-capex proxy of about $1.027 billion. |
| Cash and debt at June 30 | Cash and cash equivalents $2.575 billion; total debt principal $52.759 billion | Debt net of unamortized items was $52.485 billion; net debt on that carrying-value basis was approximately $49.910 billion. |
| Liquidity | $6.0 billion revolving credit facility; no revolver or commercial paper borrowings outstanding at June 30 | Current assets $15.449 billion; current liabilities $14.436 billion. The company reported covenant compliance. |
Material changes versus prior periods
- Merger accounting substantially expanded the balance sheet: total assets were $142.240 billion at June 30, versus $34.427 billion at December 31, 2021; debt principal rose to $52.759 billion from $15.187 billion.
- Q2 pro forma combined revenue declined 3% year over year (1% excluding FX). Advertising was up 3%, distribution down 2%, and content down 15% on the pro forma comparison.
- On a pro forma combined, FX-adjusted basis, Networks Adjusted EBITDA declined 11% in Q2; DTC Adjusted EBITDA was a $560 million loss versus a $235 million loss in the prior-year pro forma quarter. Studios Adjusted EBITDA was down 7% on the pro forma comparison.
- Six-month reported operating cash flow increased to $1.334 billion from $1.103 billion, while investing cash flow included $2.419 billion of cash acquired in the merger and $720 million of derivative proceeds.
Outlook, management commentary and risks
- No specific revenue, earnings, free-cash-flow or subscriber guidance is provided in the filing. Management said cash, operating cash generation and available credit were expected to cover short- and long-term cash needs, while noting that merger-related debt materially increases future financial commitments and interest costs.
- Management expects significant content investment and one-time merger integration costs. The company recorded $1.033 billion of Q2 restructuring and other charges, including $496 million of content impairments, $329 million of content-development write-offs and $208 million of employee termination costs, following a strategic content review and integration efforts.
- Merger-related purchase accounting remains preliminary, including valuation of the film and television library, intangible assets and income taxes. The company expects to finalize merger accounting within one year of closing.
- Risks cited include integration and synergy execution, DTC competition and subscriber retention, advertising and affiliate trends, COVID-19 impacts, foreign exchange, content performance, high leverage, refinancing and capital-market access, and potential impairment of goodwill or intangible assets. WBD also noted that some WarnerMedia results after closing were below pre-close budget projections and that corrective actions were underway.
- Commitments include $34.548 billion of content purchase obligations and $52.759 billion of debt principal in the contractual-obligations table. A legacy Six Flags guarantee covers estimated gross undiscounted future cash flows of $544 million through 2028; no liability was recorded, and the company could not predict any potential loss.
- At June 30, the company reported $1.386 billion of reserves for uncertain tax positions and approximately $258 million of related interest and penalties. It also recorded acquired WarnerMedia tax reserves and an AT&T indemnification receivable under the tax matters agreement.
- Subsequent events included $1.3 billion of term-loan repayments during July and August, $300 million of commercial paper issued in August, and credit-agreement amendments allowing specified cash restructuring costs to be added back to covenant EBITDA subject to a 15% cap.
Most important facts for investors to verify
- Use pro forma combined results—not reported year-over-year totals alone—to assess underlying performance, and review the assumptions and exclusions in those pro forma figures.
- Track debt repayment, interest expense, leverage and covenant headroom as integration proceeds; confirm the effect of subsequent repayments and the amended EBITDA definitions.
- Monitor DTC subscriber trends, programming costs and losses, and whether management’s integration and synergy plans improve segment economics.
- Assess the final merger purchase-price allocation, content and intangible-asset amortization, and any further impairment or restructuring charges.
- Review the timing and cash impact of content commitments, tax exposures, the Six Flags guarantee and other contingent obligations.