During his presentation of Warner Bros. Discovery’s fourth quarter results, on Thursday, I wouldn’t say that David Zaslav put lipstick on a pig, as the old Wall Street saw goes, but he definitely put a great spin on some rather tepid news. For instance, the company’s $12 billion Adjusted EBITDA projection for 2023 has been adjusted downward by Zaz to the “low to mid” $11 billion range—“pro-forma adjusted EBITDA,” as Zaz put it.
I am on record as having great admiration for Zaz and what he’s trying to pull off here. But I just don’t understand what “pro-forma adjusted EBITDA” even means, other than that WBD would probably be making less than $11 billion in EBITDA in 2023 if it weren’t for the adjustments and the pro-forma jujitsu. Nor am I a big fan of the way Gunnar Wiedenfels, Zaz’s hard-charging C.F.O., spun the 2022 performance—pro-forma adjusted EBITDA of $9.2 billion—and the outlook for this year. “I’m very pleased with where we ended the year and encouraged with our ability to balance choppy macro tides with success in repositioning the company for future growth,” he said. “I remain very optimistic about the range of potential outcomes in 2023 and beyond. These outcomes will reflect an incremental $2 billion of synergy and transformation efficiency capture, while additional puts and takes to consider include positive revenue inflection in D2C, the broader release slate at Warner Bros. Pictures and Games, balanced by cyclical advertising headwinds.” I am reaching for ChatGPT here. What’s he trying to say?
On the other hand, I give Zaz and Gunnar high marks for focusing on Job No. 1: Paying down debt. There’s better news on that front than I would have expected. On the earnings call, Gunnar reported that WBD has paid down $7 billion of debt since the deal closed nearly a year ago, bringing the company’s long-term debt down to $49.5 billion, with some $4 billion in cash. The company’s net debt therefore is starting to look nearly manageable at around $45 billion, and as Gunnar said, the company’s leverage ratio is now “just below 5x.” Zaz added that he expects the company’s “net leverage” to be “below” 4x by the end of this year. Gunnar expanded on that assertion by telling Wall Street analysts that he sees net leverage being “very comfortably” below 4x by the end of 2023. He then took the predictions even further, suggesting that WBD’s debt would be investment grade by mid-2024 and the company’s leverage ratio would be 2.5x to 3.5 by the end of 2024. (Those numbers, Gunnar added, do not include “some opportunities” that are “below deck, as we like to say.”)