Industry Insider: The Slow Burn Year Closing Warner Brothers Discovery 3rd Quarter Earnings Call
On November 8th Warner Brothers Discovery (WBD) held the conference for their third earnings call. Andrew Slabin (Executive VP) introduced David Zaslav (CEO) and Gunnar Wiedenfels (CFO) as the present for this quarter’s final statements. WBD countries to move forward post-merger and even more recently settling in their success from the summer. This past summer has demonstrated the company's strength and vitality in the market. As previously covered in A HOT SET covering their second-quarter earnings call.
In understanding the current structure and temperature of the market Zaslav begins with sentiments toward the SAG-AFTRA negotiables that were taking place at the time. The timely concern presented an opportunity to discuss the company’s desire to navigate the evolving landscapes of the industry. The commitment to this ideology would begin with the amount of free cash flow and this quarter alone profited $2 billion. Zaslav’s excitement for debt reduction was evident as he predicted that the end of the final quarter would allow for the net leverage to be below 4x margin. As highlighted by the overall $2.4 billion worth of debt that WBD was able to square away this quarter. The second method tool that WBD has increasingly implemented has been presenting capital for growth opportunities. Of course, Max is a significant asset in terms of the marketability of the company’s entertainment sector.
Zaslav insisted that WBD would take advantage of its more high-profile properties fairly soon as they continued the search for their Global Head of Franchise at the time of this call. These properties include Game of Thrones, Harry Potter, and Superman. All of these have preset placements in the market that could have great potential to be expanded upon. Until then, Max persisted as an impactful figure in the subscriber-based platform competition. This quarter has seen a slight dip as the schedule for serial premieres was undercut not allowing room for promotional opportunities. However, 2024 holds more promising material in the upcoming lineup with True Detective: Night Country, The Regime, and The Sympathizer among the new serial releases. At the same time, many of the pop culture heavy hitters won’t be returning until 2025 such as The Last of Us, Euphoria, and White Lotus. So while Max prepares for the new influx of content Zaslav and the team look forward to making the platform more available. Currently, Max has a coverage of 45 percent of internet-accessed countries so this will be a priority that will be a part of the expansion that WBD is dedicated to overall.
In the news sector the introduction of CNN Max, a 24/7 news coverage streaming channel, has allowed the company to continue to keep tabs on the current events in Israel, Gaza, The West Bank, Lebanon, and Ukraine. CNN Max has been accepted among the younger demographic and presented by the analytics of those subscribed to the service versus that of the typical viewer of linear cable news. WBD plans to keep track of these metrics as they become more relevant with the ebb and flow of the news circuit.
Wiedenfels begins the financial statements for the third quarter by jumping into the EBITDA growth. The ex-FX EBITDA growth saw a 22 percent increase with a year-over-year evaluation of $500 million. And in the same vein, the studio revenue also saw a 3 percent overall increase primarily due to the success of the Barbie movie. However, this doesn’t reflect in the TV segment as the strikes played a significant part in the detriment this quarter. The EBITDA reviewed saw a 6 percent decrease with the slashing of many series returns partnered with the pushback in series releases.
In terms of the forward-looking statements for the fourth quarter and early 2024, Wiedenfels presented the driving forces that will help the efforts of WBD.
“Further drive and maintain cost discipline.”
“Investing in sustainable profitable growth.”
The investments are of specific importance as there has been a long-standing attempt to pursue this method on a grander scale. Zaslav and Wiedenfels stated their commitment to expediting their discovery for premiere growth avenues. To provide context to the possibilities of that effort it would include Max expansion to Latin America and EMEA countries. These may be implemented throughout 2024, so the early parts of the year are predicted to not recover from the ever-stagnant ad market until a larger EBITDA shift can potentially take effect.
Some of the final points that Wiedenfels finished the presentation with for the 2024 closing predictions on cash flows were as follows:
“Around $1 billion tailwind of cash costs to achieve largely going away.”
“Lower cash interest expense; and number three, further progress in AR and AP driven working capital initiatives offset by the potential headwinds I've noted, most importantly, a potential further decline in U.S. advertising.”
“The return to a normal content catalyst spend as well as the incremental growth investments I noted earlier.”
