Discovery, Inc.

Ladies and gentlemen, welcome to the Warner Brothers Discovery fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Additionally, please be advised that today's conference call is being recorded. I would now like to hand the conference over to Mr. Andrew Slabin, Executive Vice President, Global Investor Strategy. Sir, you may begin.

Good morning and thank you for joining us for Warner Brothers Discovery's Q4 earnings call. Joining me today is David Zasloff, President and Chief Executive Officer, Gunnar Wiedenfels, Chief Financial Officer, and J.B. Perret, CEO and President, Global Streaming and Games. Today's presentation will include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include comments regarding the company's future business plans, prospects, and financial performance. and above risks and uncertainties that could cause actual results to differ materially from our expectations. For additional information on factors that could affect these expectations, please see the company's filings with the U.S. Securities and Exchange Commission, including but not limited to the company's most recent annual report on Form 10-K and its reports on Form 10-Q and Form 8-K. And with that, I'd like to turn the call over to David.

Hello, everyone, and thank you for joining us for our fourth quarter and full year earnings call. Our top priority this year was to get this company on solid footing and on a pathway to growth, and we've done that. We said we'd be less than four times levered, and we are. We paid down $5.4 billion in debt for the year for a total of more than $12.4 billion since the deal closed. We're now at 3.9 times and expect to continue to delever in 2024. We've significantly enhanced the efficiency of the organization with a long runway still to go. We said we were gonna generate meaningful free cash flow, a key KPI for our leadership and company. And we've exceeded our goal with 6.2 billion for the year. Gurner will take you through the financials. But I would just highlight that as we look at the start of the first quarter, two months in, we are already seeing markedly improved free cash flow for Q1 versus first quarter last year, an inflection sequentially in linear, and an acceleration in streaming advertising. We are optimistic that the efforts we've undertaken on digital and advanced advertising solutions, much of which you'll hear about leading up to and during the upfront, will enable us to achieve a more competitive profile. Bottom line, We're a far healthier company now, and we're building real momentum. And we expect 2024 will be a year to drive that momentum forward even further. That said, this business is not without its challenges. Among them, we continue to face the impacts of ongoing disruption in the pay TV ecosystem and a dislocated linear advertising ecosystem. We are challenging our leaders to find innovative solutions. For example, our US networks and sports teams have been collaborating on a number of initiatives aimed at expanding audience reach and impact through cross-promotion. And I do believe we are getting smarter at determining what's working and what's not, which is helping to drive healthy traction in ratings and an improved near-term outlook in advertising revenue. Internationally, Gerhard Zeiler and his regional teams are doing an outstanding job as international networks are performing strongly and gaining momentum, particularly in EMEA. Of note, linear advertising in EMEA was positive in Q4, with standout markets in Poland, Germany, and Italy, the latter of which is enjoying a truly material upswing in ratings behind some of the incredibly successful programming moves at flagship Novea, which had its best quarter ever in Q4. I was just in Italy two weeks ago and spent some time with the team. Their ratings this quarter are tracking it up over 20%. It's a terrific creative team and they have some real momentum. In fact, EMEA enjoyed its largest quarterly year-over-year share growth since the outset of the pandemic in 2020, despite some sluggishness in the UK and certain Nordic markets. This next chapter for Warner Brothers Discovery is about putting us on a pathway to growth. And we've got a lot of drivers of that growth, which at its core is underpinned by great storytelling. We are a creative storytelling company powered by 100 years of arguably the best franchises, brands, libraries, and content in the business. And we are on offense. Our studios are back and firing on nearly all cylinders after the strikes. We're one of the biggest makers and sellers of content in the world. On the theatrical and gaming side, while we did have some real misses this year, we also had some really big wins, including Barbie, the number one movie globally and the most successful movie in the history of Warner Brothers, and Hogwarts Legacy, the biggest game of 2023. Also in 2023, we relaunched our theatrical animation division with a commitment to have two features a year on our slate beginning in 2026. Bill Domanski is leading our animation division after spending two decades at DreamWorks, and he's hard at work here with us on the lot. Now, with the addition of animation, DC, and our existing Warner Brothers and New Line cinema labels, we have created a home for every kind of film and story to be told, and we are excited about what's ahead for movie-going audiences. We've had a challenging couple of years, but we are now very excited about our slate in the year ahead, starting with Dune Part 2, which arrives in theaters a week from today and has strong tracking, 97% on Rotten Tomatoes, which is rare for a sequel. We also have Godzilla vs. Kong, The New Empire, a follow-up to the hugely successful 2021 film opening next month. When we launched this company almost two years ago, We made it clear we believe in this business. We're a pure storytelling company, and we're going to bring the best people in front of and behind the camera back to Warner Brothers. And we have been laser focused on doing just that. First, Warner Brothers is back in business with Tom Cruise. Our partnership with Tom is off and running. Mike and Pam spent a couple of days hard at work with Tom in London earlier this month. As you saw yesterday, we are in negotiations for a new film by Academy Award winner Alejandro Iñárritu, starring Tom. This will be the first of many films with us and Tom, and we look forward to a long future together. Paul Thomas Anderson is also at Warner hard at work on his new film, starring Leonardo DiCaprio, Sean Penn, and Regina Hall. Maggie Gyllenhaal's new movie is set to begin shooting soon, starring Christian Bale, Jesse Buckley, Penelope Cruz, and Annette Bening. Black Panther's director Ryan Coogler and star Michael B. Jordan are coming together for a new original genre film that will go in front of cameras later this spring. George Clooney is back with Warner Brothers and working on a number of exciting projects. On the TV side, we just announced another season of the hit show True Detective with creator and showrunner Issa Lopez. Juggernaut series The White Lotus from creator and showrunner Mike White is currently in production. And Craig Maven has started filming the new season of the hit show The Last of Us. It's really encouraging to see so many incredibly talented creatives here at Warner Brothers. And most importantly, They share our vision to be home to great storytelling, stories that entertain, inform, and when we are at our best, inspire. This is the Warner Brothers we are building together. This is the Warner Brothers of the future. A real strategic advantage we have as a company, and I've talked about it often, is the strength and depth of our franchises. which I believe will be a meaningful driver of asset value and growth for us. And we intend to deliver on our commitment to reinvigorate the best of them. And as I've said, our major franchises have been underused and underleveraged. We are hard at work to begin to get full value. Superman. We haven't made a Superman movie in over a decade. James Gunn's Superman starts filming next week. I've had a glimpse into what James and Peter are doing, and it really does serve as an exciting indicator of where the new DC is headed under their leadership. And there'll be more that you'll hear from them in the months ahead. Game of Thrones. George R.R. Martin is in pre-production for the new spin-off, A Night of the Seven Kingdoms, which will premiere in late 2025 on Max. Harry Potter. We've not been shy about our excitement around Harry Potter. The last film was made more than a dozen years ago. I was in London a few weeks ago with Casey and Channing, and we spent some real time with JK and her team. Both sides are thrilled to be reigniting this franchise. Our conversations were great and we couldn't be more excited about what's ahead. We can't wait to share a decade of new stories with fans around the world on Max. We're aiming for a debut in 2026. A top priority for us has been building Max our streaming service. We fought hard to get Max to be profitable last year. We are now committed to driving profitable top-line growth. And while it's still early innings, we feel good about the trajectory we're on and are on track to achieve our guidance of $1 billion in EBITDA in 2025. We're especially excited about the next 24 months. We have a number of meaningful growth levers ahead. including the rollout of MAX in key international regions and markets, starting with Latin America next week, with markets in EMEA and APAC to follow later in the year, including new markets France and Belgium to coincide with the Paris Olympics this summer. Keep in mind, we are only available in less than half the addressable households and markets as compared to our larger peers. So we still have a huge opportunity for growth and globalization over the next two years, including many critical markets around the globe, such as the UK, Germany, Italy, Australia, and Japan. All of which we have a substantial amount of local content. And in many, we have sports as well. We're also driving better segmentation and monetization. by launching the new ad supported offering, which is currently only available here in the US. And by the end of this year, we'll be available in over 40 markets globally as well. We also have a number of lucrative partnership deals internationally that will help us scale in more efficient and accelerated fashion. It's worth noting that Q4 saw the lowest US churn rates in HBO Max and Max's history. And the personalization and product improvements planned for this year should continue to have a positive impact on churn. And finally, we're excited to be refreshing and reigniting our content pipeline at Max. The fact is, the strikes really slowed down production. And we didn't have as much content as we wanted for Max. And we're now moving forward with a great slate. Our most recent series, True Detective Night Country, starring Jodie Forster, was a real success, averaging over 12.5 million viewers, the highest season ever for the series. Looking ahead, we've got one of the best lineups in the history of HBO. This next quarter, we'll have Hacks and House of the Dragon, followed by DC's The Penguin and the new Dune series. Then, in 2025, we'll kick off the year with the new season of The White Lotus, followed by The Last of Us and Euphoria, just to name a few. Also coming to Max from Warner Bros. Motion Pictures are Aquaman and The Last Kingdom on February 27th. Wonka will join the service on March 8th, followed by Dune Part 2 in the spring. We also inked a multi-year deal with A24 in December to bring A24's theatrical releases exclusively to Max. They've already started being carried. I want to mention one other area of our business before turning it over to Gunnar to talk through the quarter. As you heard last week, we're entering a new joint venture with Disney and Fox focused on sports. We believe this will provide a terrific consumer experience and will be a great business we couldn't be more excited about it we'll also be able to bundle this product with max so we see this new joint venture as another potential driver of incremental growth for our business going forward one more point on our sports business last weekend we saw great coverage and strong ratings at the nba all-star game and all-star weekend We have a strong positive 40 year relationship with the NBA. And in terms of our NBA rights, we are now fully engaged in renewal discussions and they are constructive and productive. Our global sports portfolio continues to provide real meaningful value to all of our platforms. We're proud to be the home of one of the most coveted collections of premium sports content in the industry. along with a best-in-class talent roster and exceptional production values. We're excited for our expansive coverage of the Paris Summer Olympics throughout all of Europe as well. The hard work we've done over the last nearly two years has positioned us well financially and creatively. And as we look towards the future, we will continue to make the tough calls and do what is necessary to get this business on a clear pathway to growth, and to drive increased shareholder value. With that, I'll turn it over to Gunnar, and he'll walk you through the financials for the quarter.