Discovery Communications Reports First Quarter 2015 Results

SILVER SPRING, Md., May 5, 2015 /PRNewswire/ -- Discovery Communications, Inc. ("Discovery" or the "Company") (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the first quarter ended March 31, 2015.

"2015 is off to a great start, as our strategy of investing in and owning world-class content to leverage across our unparalleled global distribution platform continues to drive operating momentum and strong financial results," said David Zaslav, President and CEO of Discovery Communications. "Despite facing a challenging U.S. marketplace and foreign currency headwinds, Discovery is successfully building market share, expanding our distribution and developing programming that resonates with audiences around the world. I'm extremely pleased with our strong performance this quarter and the numerous opportunities Discovery has in the months and years ahead."

First Quarter Results

First quarter revenues of $1,537 million increased $126 million, or 9%, over the first quarter a year ago, led by 10% growth at International Networks and 6% growth at U.S. Networks.  Adjusted Operating Income Before Depreciation and Amortization⁽¹⁾ ("OIBDA") increased $43 million, or 8%, to $568 million, as 10% growth at U.S. Networks was partially offset by a 2% decline at International Networks.  Total Company revenues grew 17% and Adjusted OIBDA grew 14% excluding currency effects, as changes in foreign currency exchange rates reduced first quarter revenue growth by 8% and reduced Adjusted OIBDA growth by 6%.  Excluding currency effects, the Eurosport transaction⁽²⁾ and the consolidation of Discovery Family, total Company revenues increased 6% and Adjusted OIBDA increased 11%.

Discovery Communications, Inc.'s first quarter net income of $250 million ($0.37 per diluted share)⁽³⁾ increased $20 million, or 9%, compared to $230 million ($0.33 per diluted share) for the first quarter a year ago, as the strong operating performance in the current year and decrease in stock based compensation expense were partially offset by lower equity earnings, higher interest expense and higher restructuring charges. Adjusted Earnings Per Diluted Share⁽⁴⁾ ("Adjusted EPS"), which excludes the impact of amortization of acquisition-related intangible assets, was $0.42 in the first quarter of this year, up 11%, compared with $0.38 in the same period a year ago. Adjusted EPS increased 17% excluding currency effects, as changes in foreign currency exchange rates reduced first quarter Adjusted EPS by 6%. For the last twelve months, Adjusted EPS was $1.89, up 12% compared with $1.69 in the prior twelve months.

Free cash flow decreased to $29 million for the first quarter, as improved operating performance and a decrease in stock-based compensation was more than offset by the timing of tax payments and higher content payments. Free cash flow is defined as cash provided by operating activities less purchases of property and equipment.

SEGMENT RESULTS

U.S. Networks

U.S. Networks' revenues in the first quarter of 2015 increased 6% to $749 million driven by 13% distribution growth and 1% advertising growth. The 13% distribution revenue growth was primarily driven by higher rates and the consolidation of Discovery Family. Advertising revenues increased 1%, as higher pricing was partially offset by lower delivery.  Excluding the consolidation of Discovery Family, distribution revenues grew 8% and total revenues grew 3% over the prior year's first quarter. 

Adjusted OIBDA increased 10% to $425 million. Excluding the consolidation of Discovery Family, Adjusted OIBDA increased 6%, as operating expenses excluding the consolidation of Discovery Family declined 2%.

International Networks

International Networks' revenues for the first quarter increased 10% to $735 million, as growth in distribution and other revenues was partially offset by a slight decline in advertising revenues.  Changes in foreign currency exchange rates reduced first quarter international revenue growth by 17% and reduced Adjusted OIBDA growth by 13%.  Excluding currency effects and Eurosport, total revenues were up 9%.  Advertising revenues, excluding Eurosport, were up 12% in local currency terms, primarily due to increased pricing and volume in Northern Europe and volume in Southern Europe.  Distribution revenues, excluding Eurosport, grew 6% in local currency terms, mainly from increased subscribers and higher rates in Latin America.

Adjusted OIBDA decreased 2% to $215 million.  Excluding Eurosport and currency effects, Adjusted OIBDA was up 11%, reflecting the 9% revenue growth partially offset by a 8% increase in operating expenses. The higher operating expenses were primarily due to increased content amortization as well as higher personnel costs to support our localization strategy.

Education and Other

Education and Other revenues for the first quarter increased by $14 million and adjusted OIBDA increased by $2 million compared to the first quarter of 2014, primarily due to production contract contributions due to a studios business combination and the timing of certain program deliveries.

Corporate and Eliminations

Adjusted OIBDA increased by $8 million compared to the first quarter a year ago, primarily due to a decrease in stock based compensation costs and lower professional fees.

STOCK REPURCHASE

During the quarter, the Company, pursuant to its existing stock repurchase program, repurchased 6.4 million shares of its Series C common stock at an average price of $31.11 per share, for a total of $200 million.  Additionally, on February 23, 2015, pursuant to the previously announced share repurchase agreement between the Company and Advance/Newhouse Programming Partnership ("ANPP"), the Company repurchased 1.7 million shares from ANPP for at $68.83 per share, for a total of $117 million.  In total the Company spent $317 million on share repurchases during the quarter.

The Company has repurchased 97.7 million shares of Series C common stock and 2.8 million shares of its Series A common stock under its stock repurchase program to date at an aggregate purchase price of approximately $5.0 billion. In aggregate, including the 21.9 million preferred shares acquired from ANPP and from Advance Programming Holdings, LLC, the Company has repurchased 29% of its outstanding shares since buyback activity was authorized in 2010.  Note that the aggregate share numbers have not been adjusted to reflect the August 2014 special stock dividend.

Under the stock repurchase program, management is authorized to purchase shares of common stock from time to time through open market purchases at prevailing prices or privately negotiated purchases or pursuant to one or more accelerated stock repurchase agreements or other derivative arrangements as permitted by securities laws and other legal requirements and subject to stock price, business and market conditions and other factors.

On May 22, 2014, the Company entered into a share repurchase agreement with ANPP to repurchase their shares of the Company's Series C convertible preferred stock, on a quarterly basis, in proportion to the company's repurchases under its stock repurchase program in a manner that is intended to maintain ANPP's current ownership percentage of the Company. This agreement was amended by letter agreement on August 25, 2014.

OTHER ITEMS

Effective January 1, 2015, we realigned our International Networks reporting structure into the following regions: Northern Europe, which includes primarily the Nordics and U.K.; Southern Europe, which primarily includes Italy and Spain; Central and Eastern Europe, the Middle East, and Africa ("CEEMEA"), which has been expanded to include Germany; Latin America; Asia-Pacific; and Eurosport. Previously, International Networks' regional operations reported into the following regions: Western Europe, which included the U.K. and western European countries; Nordics; CEEMEA; Latin America; Asia-Pacific; and Eurosport. This realignment did not impact our consolidated financial statements other than to change the regions in which we describe our operating results for the International Networks segment.

In March 2015, Discovery Communications, LLC, a subsidiary of the company, issued $300 million of 3.45% Senior Notes due 2025 and €600 million of 1.90% Senior Notes due 2027. The Company used a portion of the net proceeds from these issuances to redeem its Senior Notes due June 2015 and the remainder for general corporate purposes.

On March 31, 2015, Discovery completed its acquisition of a controlling interest in Eurosport France, increasing its stake from 20% to 51%, for approximately €38 million or $40 million, which resulted in a $2 million gain.

FULL YEAR 2015 OUTLOOK

For the full year ending December 31, 2015, Discovery expects total revenue excluding currency to grow in the high single to low double digit range, Adjusted OIBDA excluding currency to grow in the low to mid-single digit range and Adjusted EPS excluding currency to grow in the high single to low double digit range.

NON-GAAP FINANCIAL MEASURES

Adjusted OIBDA, Adjusted Net Income, Adjusted EPS and Free Cash Flow

In addition to the results prepared in accordance with U.S. generally accepted accounting principles ("GAAP") provided in this release, the Company has presented Adjusted OIBDA, Adjusted net income, Adjusted EPS and free cash flow. The Company evaluates the operating performance of its segments based on financial measures such as revenues and Adjusted OIBDA. Adjusted OIBDA is defined as revenues less costs of revenues and selling, general and administrative expenses excluding: (i) mark-to-market equity-based compensation, (ii)depreciation and amortization, (iii) amortization of deferred launch incentives, (iv) restructuring and other charges, (v) certain impairment charges, (vi) gains and losses on business and asset dispositions, and (vii) certain inter-segment eliminations related to production studios.

The Company uses Adjusted OIBDA to assess operating results and performance of its segments, perform analytical comparisons, identify strategies to improve performance and allocate resources to each segment. The Company believes this measure is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses. The Company excludes mark-to-market equity-based compensation, restructuring and other charges, certain impairment charges, and gains and losses on business and asset dispositions from the calculation of Adjusted OIBDA due to their volatility. The Company also excludes depreciation of fixed assets and amortization of intangible assets and deferred launch incentives, as these amounts do not represent cash payments in the current reporting period. Additionally, certain corporate expenses and inter-segment eliminations related to production studios are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives.

The Company defines Adjusted net income as net income available to Discovery Communications, Inc. stockholders excluding the impact of amortization of acquisition-related intangible assets, and defines Adjusted EPS as earnings excluding the impact of amortization of acquisition-related intangible assets per diluted share.  Note that given the change in conversion ratio for our preferred stock, the preferred shares are now only included in the diluted share count.  The Company believes Adjusted net income and Adjusted EPS are relevant to investors because these metrics allow them to evaluate the performance of the Company's operations exclusive of the non-cash amortization of acquisition-related intangible assets that impact the comparability of results from period to period.

The Company defines free cash flow as cash provided by operating activities less acquisitions of property and equipment. The Company uses free cash flow as it believes it is an important indicator for management and investors of the Company's liquidity, including its ability to reduce debt, make strategic investments and return capital to stockholders.

Adjusted OIBDA, Adjusted net income, Adjusted EPS and free cash flow are non-GAAP measures, and should be considered in addition to, but not as a substitute for, operating income, net income, earnings per diluted share and other measures of financial performance reported in accordance with GAAP. Please review the supplemental financial schedules beginning on page 10 for reconciliations to GAAP measures.

Conference Call Information

Discovery Communications, Inc. will host a conference call today at 8:30 a.m. ET to discuss its first quarter results. To listen to the call, visit http://discoverycommunications.com or dial 1-800-901-5213 inside the U.S. and 1-617-786-2962 outside of the U.S., using the following passcode: DISCA.

Cautionary Statement Concerning Forward-Looking Statements

This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties and on information available to the Company as of the date hereof. The Company's actual results could differ materially from those stated or implied, due to risks and uncertainties associated with its business, which include the risk factors disclosed in its Annual Report on Form 10-K filed with the SEC on February 19, 2015. Forward-looking statements include statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future, and can be identified by forward-looking words such as "anticipate," "believe," "could," "continue," "estimate," "expect," "intend," "may," "should," "will" and "would" or similar words. Forward-looking statements in this release include, without limitation, statements regarding investing in our programming, strategic growth initiatives, plans for stock repurchases and the full year 2015 outlook. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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SOURCE Discovery Communications, Inc.

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