Paramount (US:PARA)2024-08-08 21:18PART I – FINANCIAL INFORMATION Item 1. Financial Statements Consolidated financial statements for June 30, 2024, reflect a significant net loss driven by a $6.0 billion goodwill impairment, alongside improved operating cash flow and key strategic events Consolidated Statements of Operations Operating and net losses significantly increased for the three and six months ended June 30, 2024, primarily due to a $6.0 billion impairment charge and decreased revenues Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended June 30, 2024 (in Millions) | Three Months Ended June 30, 2023 (in Millions) | Six Months Ended June 30, 2024 (in Millions) | Six Months Ended June 30, 2023 (in Millions) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $6,813 | $7,616 | $14,498 | $14,881 | | Operating Loss | $(5,318) | $(250) | $(5,735) | $(1,476) | | Net Loss Attributable to Paramount | $(5,413) | $(299) | $(5,967) | $(1,417) | | Diluted Net Loss Per Share | $(8.12) | $(0.48) | $(9.06) | $(2.22) | - A significant impairment charge of $5.996 billion was recorded in the three and six months ended June 30, 2024, which was the primary driver of the increased operating loss5 Consolidated Balance Sheets The company's balance sheet at June 30, 2024, shows a significant reduction in total assets to $45.9 billion from $53.5 billion at year-end 2023, primarily due to a decrease in goodwill Consolidated Balance Sheet Highlights (Unaudited) | Metric | At June 30, 2024 (in Millions) | At December 31, 2023 (in Millions) | | :--- | :--- | :--- | | Total Current Assets | $11,679 | $12,703 | | Goodwill | $10,509 | $16,516 | | Total Assets | $45,890 | $53,543 | | Total Current Liabilities | $9,006 | $9,656 | | Long-term Debt | $14,488 | $14,601 | | Total Equity | $16,946 | $23,050 | Consolidated Statements of Cash Flows Net cash flow from operating activities for the six months ended June 30, 2024, was a source of $319 million, a significant improvement from a $401 million use in the prior year, driven by lower cash usage for programming Consolidated Cash Flow Highlights (Unaudited) | Metric | Six Months Ended June 30, 2024 (in Millions) | Six Months Ended June 30, 2023 (in Millions) | | :--- | :--- | :--- | | Net cash flow provided by (used for) operating activities | $319 | $(401) | | Net cash flow used for investing activities | $(197) | $(227) | | Net cash flow used for financing activities | $(237) | $(547) | | Net decrease in cash and cash equivalents | $(145) | $(1,171) | - Dividends paid on common stock decreased significantly to $68 million in the first six months of 2024 from $317 million in the prior-year period11 Notes to Consolidated Financial Statements The notes detail the pending Skydance merger, a $1.12 billion programming charge, a $5.98 billion goodwill impairment, and segment performance, with DTC revenue growth and improved profitability - On July 7, 2024, Paramount entered into a definitive transaction agreement for a merger with Skydance Media, expected to close in the first half of 2025, including a $6.0 billion investment into Paramount2022 - The company recorded a $1.12 billion programming charge in Q1 2024 due to a strategic decision to rationalize content and focus on mass global appeal titles40 - A goodwill impairment charge of $5.98 billion was recorded for the Cable Networks reporting unit, and a $15 million impairment for FCC licenses, in Q2 20244548 - On April 1, 2024, all outstanding shares of Mandatory Convertible Preferred Stock were automatically converted into Class B Common Stock2885 Management's Discussion and Analysis of Results of Operations and Financial Condition (MD&A) Management discusses an 11% revenue decline to $6.8 billion and a $5.3 billion operating loss, primarily due to a $5.98 billion goodwill impairment, offset by 43% growth in Adjusted OIBDA driven by the Direct-to-Consumer segment Overview For Q2 2024, revenues decreased 11% to $6.81 billion, resulting in a GAAP operating loss of $5.32 billion due to a $5.98 billion goodwill impairment, while non-GAAP Adjusted OIBDA increased 43% to $867 million Q2 2024 GAAP vs. Non-GAAP Results | Metric | Q2 2024 GAAP (in Millions) | Q2 2023 GAAP (in Millions) | Q2 2024 Non-GAAP (Adjusted) (in Millions) | Q2 2023 Non-GAAP (Adjusted) (in Millions) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $6,813 | $7,616 | N/A | N/A | | Operating (Loss) Income | $(5,318) | $(250) | N/A | N/A | | Adjusted OIBDA | N/A | N/A | $867 | $606 | | Diluted EPS from Cont. Ops. | $(8.12) | $(0.59) | $0.54 | $0.10 | - The significant difference between GAAP and Non-GAAP results is primarily due to a $5.98 billion goodwill impairment charge in Q2 2024 and programming charges of $697 million in Q2 2023, which are excluded from adjusted figures138149 Consolidated Results of Operations Consolidated revenues for Q2 2024 fell 11% year-over-year, driven by significant declines in Licensing and Theatrical revenues, while a $6.0 billion goodwill impairment charge was the primary cause of the substantial operating loss Revenues by Type - Q2 2024 vs Q2 2023 | Revenue Type | Q2 2024 (in Millions) | Q2 2023 (in Millions) | Change (%) | | :--- | :--- | :--- | :--- | | Advertising | $2,251 | $2,395 | (6)% | | Affiliate and subscription | $3,275 | $3,235 | 1% | | Theatrical | $138 | $231 | (40)% | | Licensing and other | $1,149 | $1,755 | (35)% | | Total Revenues | $6,813 | $7,616 | (11)% | - Paramount+ subscribers grew to 68.4 million at June 30, 2024, from 60.7 million a year prior, which helped bolster affiliate and subscription revenue161 - Licensing revenue decline was impacted by a lower volume of content produced for third parties and the effects of the 2023 labor strikes on content availability165 - The company recorded a goodwill impairment charge of $5.98 billion and an FCC license impairment of $15 million in Q2 2024176 Segment Results of Operations Q2 2024 segment performance was mixed, with Direct-to-Consumer achieving positive Adjusted OIBDA at $26 million, while TV Media and Filmed Entertainment experienced revenue declines and Adjusted OIBDA drops Adjusted OIBDA by Segment - Q2 2024 vs Q2 2023 | Segment | Q2 2024 Adjusted OIBDA (in Millions) | Q2 2023 Adjusted OIBDA (in Millions) | Change ($) (in Millions) | | :--- | :--- | :--- | :--- | | TV Media | $1,018 | $1,194 | $(176) | | Direct-to-Consumer | $26 | $(424) | $450 | | Filmed Entertainment | $(54) | $5 | $(59) | - Direct-to-Consumer (DTC) achieved profitability (Adjusted OIBDA) for the first time, improving by $450 million year-over-year199223 - TV Media's revenue decline was driven by an 11% drop in advertising, a 5% drop in affiliate & subscription, and a 48% drop in licensing revenues203 Liquidity and Capital Resources The company's liquidity improved with operating cash flow generating $319 million in H1 2024, cash and cash equivalents at $2.32 billion, stable total debt at $14.6 billion, and significantly reduced common stock dividends Capital Structure at June 30, 2024 | Item | Amount | | :--- | :--- | | Cash and cash equivalents | $2.32 billion | | Total Debt (Face Value) | $15.10 billion | | Credit Facility Availability | $3.50 billion | - Operating cash flow from continuing operations improved by $943 million in H1 2024 vs H1 2023, primarily due to lower content spending242243 - Dividends declared per common share were $0.05 in Q2 2024, consistent with Q2 2023, but the six-month total dividend payment was much lower ($69 million in 2024 vs $194 million in 2023) due to a dividend cut in mid-2023250 Critical Accounting Estimates Q2 2024 interim impairment tests resulted in a $5.98 billion goodwill impairment for Cable Networks, triggered by adverse market indicators and the Skydance transaction, with other units showing heightened future impairment risk - An interim goodwill impairment test was deemed necessary due to recent indicators in the linear affiliate marketplace and the estimated company value from the Skydance Transactions264 - The Cable Networks reporting unit required a $5.98 billion goodwill impairment charge, representing its entire goodwill balance, with fair value estimated using an 11% discount rate and a negative (3)% long-term growth rate267 - Three reporting units (CBS Entertainment, Paramount+, and Pluto TV) have fair values that exceed their carrying values by less than 10%, signaling a heightened risk of future impairment charges if market conditions or performance deteriorates268269 Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no significant changes to its market risk since the disclosures made in its Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no significant changes to market risk since the last annual report288 Controls and Procedures The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting during the quarter - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of the end of the reporting period289 - No material changes to internal control over financial reporting occurred during the last fiscal quarter289 PART II – OTHER INFORMATION Legal Proceedings This section incorporates by reference information on legal matters from Note 14, including a class action lawsuit related to the Skydance transaction and ongoing asbestos claims - The company references Note 14 for details on legal proceedings, which include litigation related to the Skydance Transactions and historical asbestos claims291117 Risk Factors The company outlines significant new risks associated with the pending Skydance merger, including business uncertainty, regulatory hurdles, contractual limitations like a 'no-shop' clause and a $400 million termination fee, and potential negative impacts if the deal is not completed - Uncertainty about the Skydance merger may adversely affect relationships with employees, commercial partners, clients, and customers293 - The Transaction Agreement includes a 'no-shop' provision and a $400 million termination fee, which may discourage or prevent alternative acquisition proposals296 - Failure to complete the merger could negatively impact the business and stock price, and the company would still incur substantial transaction-related costs301 - NAI's controlling stake, which is pledged in part to lenders, poses risks, with the pending acquisition of NAI by the Skydance Investor Group transferring this control313317 Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any equity securities during Q2 2024, with $2.36 billion remaining under the authorized share repurchase program as of June 30, 2024 - No shares were repurchased during the second quarter of 2024318 - The remaining authorization under the share repurchase program was $2.36 billion at the end of the quarter318 Exhibits This section lists all documents filed as exhibits with the Form 10-Q, including the Skydance Transaction Agreement, amended corporate bylaws, and Sarbanes-Oxley certifications - Key exhibits filed include the Transaction Agreement with Skydance Media, Amended and Restated Certificate of Incorporation and Bylaws, and Sarbanes-Oxley certifications320321