Discovery, Inc.

And gentlemen, thank you for standing by and welcome to the Discovery Inc. 4th Quarter 2021 Earnings Conference Call. At this time, all lines are in a listen-only mode. At the conclusion of the speaker's presentation, there will be a question-and-answer session. Also, please be advised that today's conference is being recorded. I would like to hand the conference over to Mr. Andrew Slavin, Executive Vice President, Global Investor Strategy and Sir, you may begin.

Good morning and welcome to Discovery's Q4 earnings call. With me today is David Zaslav, our President and CEO, Gunnar Wiedenfels, our CFO, and J.B. Perret, President and CEO of Discovery Streaming and International. Before we start, I'd like to remind you that today's conference call will include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include comments regarding the company's future business plans, prospects, and financial performance, as well as statements concerning the expected timing, completion, and effects of the previously announced transaction between the company and AT&T relating to the WarnerMedia business. These statements are made based on management's current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, the company disclaims any intent or obligation to update them. For additional information on important factors that could affect these expectations, please see our Form 10-K for the year ended December 31st, 2021 that we expect to file post this call, and our subsequent filings made with the U.S. Securities and Exchange Commission. And with that, I'm pleased to turn the call over to David.

Good morning, everyone, and thank you all for joining us today during this incredibly exciting time for our company. Our fourth quarter capped off a strong 2021 as we near the finish line of our transaction with AT&T to create the world's most dynamic media entertainment company, Warner Brothers Discovery. Upon close, Warner Brothers Discovery will stand on incredibly solid footing, creatively and financially. This is a real company, and we expect to deliver meaningful free cash flow over the near and long term. At Discovery Standalone, we ended the year with $4 billion of cash and generated substantial free cash flow this year, over $2.4 billion, even after absorbing over $1 billion of losses from our next generation investments. And our free cash flow will grow meaningfully from here. As a company, when we come together, we will stand on firm footing. look to benefit from both a very balanced business model and from the cost synergy tailwinds we expect to result from our merger. Supporting our expected reduction in gross leverage to three times or below within two years, starting from 4.5 times or lower net debt to EBITDA when we stand up the new company. Our vision for Warner Brothers Discovery is simple. We believe the companies with the most appealing and most complete menu of IP and content stand to achieve success. And I believe Warner Brothers Discovery has the most attractive content in the business. From Batman, Superman, Wonder Woman, Harry Potter, Game of Thrones, Euphoria, 90 Day Fiance, Hanna-Barbera, Looney Tunes, to the Food Network, HGTV, Discovery, HBO, and great personalities like Martha, Chip and Joanna Gaines, Guy Fieri, the Property Brothers, and Oprah, plus CNN, the premier global news network with real resources and news gathering services all over the world. Sports, with Eurosport, the Olympics, NBA, NCAA March Madness, Major League Baseball, and the National Hockey League, making us a global leader in sports alongside a wealth of local content all over the world, content that we've produced and garnered for the last 20 plus years. Taken together, we will have a broad menu of content to super serve every demo and every family member. Who would ever want to leave? When we bring all of our global content together, we will have one of the most compelling offerings in the marketplace and at a great value to customers. This was the premise and the vision that John and I shared when we put this deal together nearly a year ago. Initially, we planned to see how all these existing and complementary content pieces fit together, how well our package of content nourishes and enriches consumers, and what it does to churn and growth. From there, we can evaluate areas where we'll need to spend to fill in for our offerings. Together, we already spend aggressively across all demos and genres, and we'll have an even greater ability to do so as a merged company. And though we have the resources, we plan on being careful and judicious. Our goal is to compete with the leading streaming services, not to win the spending war. Whether breaking new franchises or reimagining and refreshing existing ones, we will have a truly scaled and diverse content engine with IP ownership across a highly monetizable collection of IP. Perhaps most importantly, we are not solely dependent on one business model as we reach across multiple platforms and touchpoints, every leg of the stool, from linear to direct-to-consumer to content production and monetization. As one of the leading content arms dealers in the industry, Warner Brothers Television is formidable. And as a company, we will also be uniquely positioned to better serve advertisers and distributors globally. Said another way, we can monetize across any number of different cash registers. Consider that Warner Brothers Television has over 100 active series being sold to over 20 platforms and outlets. It's a content maker and content owner generating significant revenue, free cash flow, and most importantly, optionality. There's not a lot of content makers out there. Certainly not of the scale and of quality that Warner Brothers Television is in the marketplace today. And particularly at a time when the demand for quality television production has never been stronger. An important distinction when considering the asset mix of this company. A very real, very balanced, and very complete company. We have a lot of muscle memory from the Scripps merger, which enabled us to thoroughly reexamine how we conduct our business. And we took that opportunity to better align our management, operations, and processes during a time of pronounced industry disruption and change. I believe that this same dynamic exists with the opportunity ahead for Warner Brothers Discovery. Turning briefly to the quarter, I'd like to call out a few highlights while Gunnar will take you through in more detail the puts and the takes. First, on the advertising side, underlying demand across our networks and channels has been resilient. Overall 2021 global advertising revenue increased 10% over 2020, with growth from both domestic and the international segments. In fact, international segment advertising revenue increased 23% in 2021, excluding the Summer Olympic Games, finishing the year on a strong note with growth across all regions. Here in the U.S., I'm pleased with our solid end to the year. Despite a marketplace that has endured some headwinds across COVID, and supply chain issues, helped in part by our outperformance against an industry-wide strong 2021-2022 upfront. At the same time, we've been very pleased with the results of our recently renegotiating distribution deals in the U.S. The team has done an excellent job continuing to demonstrate to affiliates that our portfolio is a great value, and they've clearly seen that reflected in our numbers this year. Within direct-to-consumer, Discovery Plus continues to perform very well. We end the year with 22 million total subscribers, passing peak investment loss levels supported by consistent and continued strong KPIs, advertiser interest, and overall monetization efforts. As previously discussed, we've thoughtfully and tactically managed our rollout and will continue to do so while sharpening our focus and gaining perspective for the next leg of our direct-to-consumer journey with WarnerMedia and HBO. Worth noting, we achieved a significant milestone this past quarter, having replatformed our Discovery Plus tech stack across Europe, bringing it onto a single platform consistent with the U.S. We achieved this important migration quite seamlessly, enabling a more feature-rich and personalized consumer experience. These efforts should ultimately drive better consumer engagement, higher retention, and ultimately lower churn, further supporting the trend we've enjoyed over the last few quarters. This replatforming also enables the rolling out of an add light tier to Discovery Plus in select international regions, something, as you know, that was not contemplated when we launched at the end of 2020. and which we expect will figure meaningfully in our eventual merged offering. The opportunity here is large, and we look to best practices from the U.S. We expect to launch the U.K. in March, with additional countries in Europe having been identified to follow thereafter. As part of our global content strategy, we do believe premium entertainment, news and sports offers an attractive service in many markets, And we are excited about the innovative deal with BT in the UK, where, as we announced a few weeks ago, we are in final exclusive negotiations to create a rich, extensive portfolio of sports content in that very important UK market. We will combine our Eurosport UK portfolio with BT Sport, bringing together key matches from the Premier League and all of the UEFA Champions League, Premiership Rugby, Olympic Games, Cycling Grand Tours, and Grand Slam Tennis. This will create a more compelling and simplified sport offering in the UK and Ireland, while also advancing our broader strategy of bringing sport and entertainment to more consumers with Discovery+. Staying with sports for a moment and fresh off the Winter Games from Beijing, despite the many challenges and obstacles, We were very pleased with the event, marked by healthy growth in subscriber additions, streaming minutes, and total viewers across our combined portfolio. Though perhaps most importantly in building upon the momentum from the summer games in Japan, it reinforced the value of delivering a much richer product experience that combines entertainment and sports in Europe, with strong appeal for the whole household. This enabled us to bring new and different viewers to the Olympics, as well as to introduce more sports viewers to our entertainment content, which greatly improves retention and lifetime value. And lastly, one closing thought before I turn it over to Gunnar. Depending on how soon we can complete the closing of our merger, this earnings could be our last as a standalone discovery. Me personally, it has been the honor of a lifetime to run this very special company over the last 15 years, alongside such an extraordinary group of leaders, employees, and board members. Folks that I've gotten to work with and learn from, like John Malone, the Newhouse and Myron family, and the guy that started this all out of a garage with a crazy idea that discovery could change the world, my great friend, John Hendricks. Having accomplished so much and to have had such a blast along the way, I often remark, this job is such a blessing of a lifetime. And we're all so lucky to be in this business and to get to do what we do. And I could not be prouder of what we've achieved together, but recognize that our most exciting days and biggest tests are ahead of us. And we absolutely can't wait to share the next leg of this journey with all of you. To close, I truly want to thank those of you that have joined us quarter in and quarter out during this first very formative chapter of Discovery's corporate journey. We believe the next chapter will be even more rewarding and fulfilling. With that, I'd like to turn it over to Gunnar.