Discovery Communications Reports Second Quarter 2013 Results

SILVER SPRING, Md., July 30, 2013 /PRNewswire/ -- 

Second Quarter 2013 Financial Highlights:

• Revenues increased 30% to $1,467 million
• Adjusted OIBDA increased 23% to $668 million
• Net income increased to $300 million
• Free cash flow increased 125% to $311 million
• Repurchased 7.77 million shares of common and preferred stock for an aggregate purchase price of $521 million 

Discovery Communications, Inc. ("Discovery" or the "Company") (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the second quarter ended June 30, 2013.

David Zaslav, Discovery's President and Chief Executive Officer said, "Discovery's strong operating and financial momentum continued during the second quarter as we further capitalized on the organic growth opportunities across our portfolio while beginning to take advantage of the benefits that our recent strategic acquisitions provide.  Our sustained commitment to producing captivating content and the further expansion of global pay-tv markets combined to once again drive audience and revenue growth across our unique distribution platform.  The consistent financial gains we are delivering, along with the strength of our balance sheet, enable us to return significant capital to our shareholders while thoughtfully investing in our diverse brands and platforms in order to further build additional long-term growth opportunities."

Second Quarter Results

Second quarter revenues of $1,467 million were up $341 million, or 30%, compared to the second quarter a year ago, led by 61% growth at International Networks and 13% growth at U.S. Networks.  Adjusted Operating Income Before Depreciation and Amortization⁽¹⁾ ("OIBDA") increased 23% to $668 million, as International Networks were up 51% and U.S. Networks were up 11%.  Excluding the impact of licensing agreements, newly acquired businesses⁽²⁾ and foreign currency fluctuations, total company revenues increased 10% and Adjusted OIBDA increased 5%.

Second quarter net income available to Discovery Communications, Inc. stockholders of $300 million ($0.82 per diluted share) increased $7 million compared to $293 million ($0.76 per diluted share) for the second quarter a year ago, primarily due to the strong operating performance in the current year partially offset by higher interest and taxes as well as increased amortization associated with purchase price allocation for the SBS transaction. 

Free cash flow was $311 million for the second quarter, an increase of 125% from the second quarter of 2012, primarily due to increased operating performance and lower tax payments partially offset by higher content spending.  Free cash flow is defined as cash provided by operating activities less purchases of property and equipment. 

U.S. Networks' revenues in the second quarter of 2013 increased 13% to $793 million, primarily driven by advertising and distribution revenue growth. Advertising revenue increased 10% mainly due to higher delivery and increased pricing.  Distribution revenue increased 17%, largely due to $37 million of additional revenue from licensing agreements versus last year's second quarter.  The current quarter also included higher rates and subscriber growth primarily from networks carried on the digital tier. Excluding licensing revenues, distribution revenues grew 5% and total revenues grew 8% compared with the second quarter a year ago.

Adjusted OIBDA increased 11% to $472 million, primarily reflecting the 13% revenue growth which was offset by 17% higher operating expenses, mainly due to increased content amortization and marketing costs.  Excluding the impact of licensing agreements, Adjusted OIBDA grew 3% over last year's second quarter.

International Networks' revenues for the second quarter increased 61% to $652 million, as advertising revenues were up 119% and distribution revenues were up 29%.  Excluding newly acquired businesses and foreign currency fluctuations, total revenues were up 14%.  Distribution revenues, excluding newly acquired businesses, in local currency terms grew 14% mainly from increased subscribers, most notably in Latin America, as well as from additional contributions due to the consolidation of Discovery Japan. Advertising revenues, excluding newly acquired businesses, were up 21% in local currency terms primarily due to higher pricing and delivery in Latin America and increased viewership and higher pricing in Western Europe. Other revenue, excluding newly acquired businesses, declined by $8 million in local currency terms due to revenue recognized in the prior year associated with services provided to Discovery Japan.

Adjusted OIBDA increased 51% to $265 million on a reported basis, and was up 12% excluding newly acquired businesses and foreign currency fluctuations, reflecting the 14% revenue growth partially offset by a 16% increase in operating expenses.  The higher operating expenses were primarily due to increased content amortization, higher expenses related to channel launches in Western Europe and higher personnel costs, as well as costs related to consolidating Discovery Japan. 

Education revenues increased by $3 million and Adjusted OIBDA increased by $1 million compared to the second quarter of 2012, primarily due to assessment benchmark revenues and increased professional development fees.

Corporate and Eliminations

For the second quarter of 2013 Adjusted OIBDA decreased $12 million, primarily due to higher professional fees and personnel costs.

STOCK REPURCHASE

During the quarter, the Company, pursuant to its existing stock repurchase program, repurchased 3.77 million shares of its Series C common stock at an average price of $70.17 per share for an aggregate purchase price of approximately $265 million.  Additionally, the Company repurchased 4 million shares of Series C convertible preferred stock for $256 million, or $64.10 per share, from Advance Programming Holdings, LLC.

Following the quarter, from July 1, 2013 through July 26, 2013, the Company repurchased 1.59 million shares of its Series C common stock for approximately $119 million. 

The Company has repurchased 62.05 million shares of Series C common stock and 1.99 million shares of its Series A common stock under its $4.0 billion stock repurchase program to date at an aggregate purchase price of approximately $2.87 billion.  In aggregate, including the 17.73 million preferred shares acquired from Advance/Newhouse and from Advance Programming Holdings, LLC, the Company has repurchased 19% of its outstanding shares since buyback activity was authorized in 2010.

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

FULL YEAR 2013 OUTLOOK

For the full year ending December 31, 2013, Discovery Communications, Inc. expects total revenue between $5.550 billion and $5.625 billion, Adjusted OIBDA between $2.425 billion and $2.475 billion, and net income available to Discovery Communications, Inc. stockholders of $1.100 billion to $1.150 billion. Our updated outlook incorporates the impact of the purchase price allocation associated with the SBS transaction, current foreign exchange rates for revenues and expenses and the current share price for mark-to-market equity-based compensation calculations.

NON-GAAP FINANCIAL MEASURES

Adjusted OIBDA 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 and free cash flow.  The Company evaluates the operating performance of its segments based on financial measures such as revenues and adjusted operating income before depreciation and amortization ("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) exit and restructuring charges, (v) certain impairment charges, and (vi) gains and losses on business and asset dispositions. The Company uses this measure 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 Adjusted OIBDA 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, exit and restructuring 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.

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 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 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 second quarter results.  To listen to the call, visit http://www.discoverycommunications.com or dial 1-866-543-6403 inside the U.S. and 1-617-213-8896 outside of the U.S., using the following passcode: 91824906.

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/A filed with the SEC on February 19, 2013. 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, the full year 2013 outlook and plans for stock repurchases.   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.

  

   

SOURCE Discovery Communications, Inc.