Warner Bros. Discovery, Inc. — Q1 2024 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2024, compared with Q1 2023. WBD operates Studios, Networks and direct-to-consumer (DTC) businesses across film, television, streaming, sports, gaming and related activities.
Financial performance
- Revenue: $9.958 billion, down 7% year over year. Distribution revenue was $4.985 billion (-3%); advertising $2.148 billion (-7%); content $2.558 billion (-13%); and other revenue $267 million (-6%).
- Profitability: Operating loss was $267 million, versus $557 million. Net loss was $955 million, compared with $1.060 billion; net loss attributable to WBD was $966 million, or $0.40 per share, versus $1.069 billion, or $0.44 per share. Operating margin was approximately -2.7%, compared with -5.2%.
- Adjusted EBITDA: $2.102 billion, down from $2.611 billion. Studios generated $184 million (-70%); Networks $2.119 billion (-8%); DTC $86 million (up from $50 million); Corporate was $(346) million. Adjusted EBITDA margin was approximately 21.1%, versus 24.4%. This is a non-GAAP measure.
- Cash flow: Operating cash flow was $585 million, compared with cash used of $631 million. Investing used $207 million; financing used $1.237 billion. Cash, cash equivalents and restricted cash ended at $3.386 billion; unrestricted cash and cash equivalents were $2.976 billion.
- Liquidity and debt: Total debt, net of discounts and related adjustments, was $42.578 billion ($42.845 billion principal), versus $43.669 billion at year-end 2023. The current portion rose to $3.430 billion from $1.780 billion. WBD reported $6.0 billion of unused revolving credit capacity and said it was covenant-compliant; no facility or commercial-paper borrowings were outstanding at quarter-end.
- Balance sheet: Current assets were $13.902 billion and current liabilities $16.956 billion. Total assets were $119.819 billion; total equity was $45.115 billion.
- Segment and operating indicators: Studios revenue fell 13% to $2.821 billion; Networks fell 8% to $5.125 billion; DTC revenue was essentially flat at $2.460 billion. WBD reported 99.6 million DTC subscribers at quarter-end.
Material changes versus Q1 2023
- Revenue declined across distribution, advertising and content. Management cited U.S. linear subscriber declines, a soft linear advertising market and audience declines at domestic entertainment and news networks.
- Studios Adjusted EBITDA dropped 70%, reflecting, among other factors, lower games revenue versus the prior-year Hogwarts Legacy release and lower TV licensing revenue; higher theatrical rental revenue, including Dune: Part Two, partly offset the decline.
- DTC Adjusted EBITDA improved to $86 million, supported by higher advertising revenue and lower selling, general and administrative costs. Advertising benefited from higher Max U.S. engagement, B/R Sports on Max and ad-lite subscriber growth.
- Operating cash flow improved by $1.216 billion, which management attributed primarily to operating results excluding non-cash items and better working-capital activity. Debt repayments increased financing cash outflow.
Outlook, commentary and risks
- No specific financial guidance: The filing does not provide quantified revenue, earnings or cash-flow guidance. Management said cash, operating cash generation and revolving-credit availability are expected to meet short- and long-term cash needs.
- WGA and SAG-AFTRA strikes delayed some content deliveries in Q1 2024; management did not expect material strike-related impacts for the remainder of 2024. Linear distribution pressure and weak U.S. linear advertising markets are expected to remain material headwinds.
- The post-merger restructuring program is expected to be substantially complete by the end of 2024. WBD expects up to $5.3 billion in total pretax restructuring charges, of which $4.3 billion had been incurred through March 31, 2024; expected cash expenditures are $1.0–$1.5 billion.
- Key risks include competition and pricing for sports rights, including NBA renewal uncertainty; pressure on linear audiences and advertising; DTC execution and subscriber growth; potential impairment of goodwill and intangibles; leverage and debt covenant compliance; and legal, regulatory, cybersecurity and content-piracy risks. No impairment trigger was identified in the quarter, but Studios and Networks reporting units had limited headroom at the October 2023 annual test.
- Unusual items: Other income included a $90 million indemnification receivable accrual and a $25 million debt-extinguishment gain, partly offset by $137 million of foreign-currency losses. Content and game impairments were $126 million, compared with $96 million a year earlier.
- Subsequent events: On May 9, WBD announced a cash tender offer of up to $1.75 billion for specified senior notes, expected to be funded with debt financing and available liquidity. As of that date, it had approximately $850 million of commercial paper outstanding, expected to be repaid within the quarter.
Important facts for investors to verify
- Whether DTC profitability gains and subscriber trends can offset continuing Networks declines and the Studios earnings volatility.
- Near-term debt maturities, refinancing plans, tender-offer funding and the effect of interest costs on cash generation.
- Underlying operating cash flow and working-capital trends, including reliance on the receivables program, which had $5.170 billion of derecognized receivables outstanding.
- Progress against restructuring costs and cash-expenditure estimates, and whether weak linear advertising or sports-rights costs affect impairment assumptions.
- Potential outcomes and financial exposure from the pending Merger-related appeal and other legal matters; the filing does not provide a clear estimate of possible losses for certain matters.