Bed Bath & Beyond Inc. (BBBY) CEO Mark Tritton on Q3 2021 Results - Earnings Call Transcript

Warner Bros. Discovery, Inc. (NASDAQ:WBD) Goldman Sachs Communacopia + Technology Conference 2022 Call September 13, 2022 12:15 PM ET

Company Participants

Gunnar Wiedenfels – Chief Financial Officer

Conference Call Participants

Brett Feldman – Goldman Sachs

Brett Feldman

Alright. Well, welcome everyone to our next session. It is my absolute pleasure to welcome to our Communacopia + Technology, Gunnar Wiedenfels, the Chief Financial Officer of Warner Bros. Discovery. Gunnar thanks so much for being with us.

Gunnar Wiedenfels

Thank you for hosting us.

Brett Feldman

At the same time, Emmys was a big night for you last night. Maybe want to give us a little bit of a recap here before we jump into it?

Gunnar Wiedenfels

Yes. I mean, it’s obviously great backdrop for today. But what I really liked about last night is it’s such great evidence for the way we look at Warner Bros. Discovery as one company, creating the best content. And we – just to go through the stats, we won 48 Emmys with a lot of distance to the number two and across the board. Obviously, HBO did phenomenally well, Casey Bloys and his team, big success, but also Warner Bros. Television. And one of the points that we made when we started talking about bringing these companies together and the strategy for Warner Bros. Discovery is that we are open for business. We love success of the shows on our own platform. But we also love the fact that Ted Lasso won an Emmy, Abbott Elementary, those are great successes. And yes, we are producing them not necessarily on our own platform, but it’s great to see that success as well. So really, really happy about last night and really, congratulations to the creative team that’s been able to drive the success.

Question-and-Answer Session

Q – Brett Feldman

That’s a great transition into sort of the first high level topic I wanted to ask you about. I think when the merger was first announced, a lot of investors assumed it was entirely about streaming. And I think that what you just alluded to is that really actually what Warner Bros. Discovery has is a much more balanced approach where you are looking to serve viewers across the linear, the free-to-air, theatrical, the streaming ecosystems. And I just want to maybe get your thoughts around why you continue to think that’s the right way for the company to go when it does seem like some other businesses have taken on more of a streaming-first mentality?

Gunnar Wiedenfels

Well, and we’ll see how that plays out in the long run. We are pretty clear about this, number one, because starting from the consumer, that’s how the consumer wants to get access to content, right. I mean, there is – I find it a weird idea that everything needs to be collapsed into just one platform, one window. We are open to be in business with B2B partners and the consumer wherever they want to be in business with us. Number two is we also obviously have a great competitive position to do just that. We are looking at, as we saw last night, the greatest creative output in the world, a massive library, a global footprint across all distribution platforms and that’s obviously a competitive advantage that we are going to leverage.

Brett Feldman

Okay. So it’s been about 5 months since the merger closed. Can you give us a little bit of a status check here? What would you say are the key integration milestones that you have accomplished so far? And I think maybe even more importantly, what are some of the key priorities you have for the remainder of the year to just ensure that you are positioned to meet some of these financial targets you have put out for the second half and for 2023?

Gunnar Wiedenfels

Yes. Look, great question. I never had any doubts about our ability to deliver those financial targets. When you approach a combination like this, I think the biggest question is how is the company coming together? How is the team coming together? How is the culture coming together? And I am very, very happy with the progress we have made. I mean, keep in mind it’s 150, 160 days in at this point. But if I just look at how David’s leadership team is gelling, how we are finding people across the combined organization from both sort of legacy company side that are willing to step up, that see the opportunity here, that are excited, that get involved in our integration effort, that bring ideas to the table and own certain initiatives worth $20 million, $30 million, $40 million of financial impact, there is a lot of very, very positive energy. That’s the biggest point for me. And it’s amazing how quickly the company has started to come together that way. Other big milestones, obviously, from a purely financial perspective, the U.S. ad sales upfront and Jon Steinlauf and his team had to put that together in very short time and it was a great success with more volume, more sell-out and I think, significantly higher price increases than what others have been able to do. And to your point about milestones ahead, we have stood up our integration management program. We already spoke about $1 billion worth of run-rate initiatives already implemented. We have got a very full funnel of further initiatives fully staffed, hundreds of people now, again, owning individual initiatives and I think lots of momentum as we go into 2023, which is driving the confidence in those financial outcomes for next year.

Brett Feldman

And can we drill into that a little bit because that’s a big question I get is how do we think about what those big buckets of synergies are and sort of the tempo and pacing at which we should expect to see them begin to flow through the P&L?

Gunnar Wiedenfels

Well, look, starting with the latter with the pacing, I have already guided to $2 billion to $3 billion of actual synergy capture in 2023. So, we are moving at pace here, which you have to because the great thing about a situation like this is that we have the opportunity. Everything is on the table. Now is the time to discuss. Now is the time to form a vision and really work as one company and to have the courage and make those courageous decisions at pace. So we are fully focused on that very, very much execution minded. And in terms of the buckets, as we have laid out before, we got about $6 billion of non-content expenses in the B2C space. That’s going to be a major factor. We are combining two products into one, two technology stacks into one, much, much greater efficiency on the marketing side as well. And we have already seen some of the benefits of that combined company getting behind House of the Dragon, largest marketing campaign in the history of HBO and it’s worked phenomenally well. But sort of one level deeper into the detail, the way we’ve set this up is we have created a number of work streams. We have identified people to lead those work streams. They are putting together groups of experts from both sides of the combined company to lead individual initiatives. And that way, we have at this point engaged hundreds of people across the organization with clear business cases, financial impact milestone plans and we are meeting on a weekly basis to deliver those initiatives.

Brett Feldman

I think on the last call, you talked about muscle memory from the last time you guys did an integration of Scripps. Are you finding that this really is essentially the exact same processes just at a bigger scale? And what have you had to tweak in order to make sure that this unique combination works well?

Gunnar Wiedenfels

Well, I think exact same is probably a little too hard, because obviously, there is, to your point, a different scale. There is also obviously no overlap in certain areas. But there is 100% muscle memory, because again, I mean, a lot of the people that are working on this now have just gone through the exact same exercise. And a lot of it is methodology, just the process, the philosophy of how we are setting these targets, the systems we use to manage, to just program manage the overall transformation and integration. And again, it’s the same people in many cases. And frankly, on both sides, legacy Discovery and legacy WarnerMedia, there is a lot of experience with doing this. And if I just take a step back here, you got to keep in mind that we went through this very conservative pre-close regulatory process. We had very, very little – legacy Discovery had very little access to management data, etcetera. We have more than caught up, if I just put side-by-side where we stood 160 days into Discovery/Scripps relative to where we are now 160 days into Warner Bros. Discovery.

Brett Feldman

You had noted on the last conference call that there were some elements of the business that you took ownership of it that were at a different run-rate than where it had been when you were first doing diligence. Now that you are even further into the process and you have given us that update, are things kind of trending as expected or are you finding anything else that’s a little bit different than where you thought it would be right now?

Gunnar Wiedenfels

No, we are not finding anything else. And frankly, we have found enough, but we are turning the page. And look, if you take a step back, Time Warner was sort of managed for sale then AT&T came in. So WarnerMedia has gone through a lot of change. And as I said on our earnings call, a lot of what’s happening in our financials right now is really still the impact of decisions that were made 12, 18 months ago. As I said, we are coming in with a clear vision. One company has a very balanced portfolio of assets as opposed to just one outlet in the D2C space. There has been plenty of public debate around those course correction measures that we have started taking. And again, I am very, very confident that we have got a good part of these initial cleanup exercises behind us and I am starting to see the impact of those initiatives coming to fruition. And everything I am seeing coming out of every meeting is just the enormous opportunity. And that is really the positive surprise here, because we are really – as I said, I think last week, we’re integrating five companies really and not two, and there is just tremendous opportunity and that marketing campaign behind the House of the Dragon is one example, but also very nuts and bolts operational topics such as the content workflows through the company. That’s amazing. It touches 12, 14 different systems, teams, processes and the ability to really set this up from scratch in a proper state-of-the-art setup is going to not only make us so much more efficient but also drive effectiveness in a major way. And so it’s really, really exciting.

Brett Feldman

Well, I’m glad you mentioned content integration because one of the places we’re going to see that is actually on the product side. Your intent is to effectively integrate HBO Max and Discovery+ into a single product. You’re going to begin that process commercially next summer, and that’s going to roll out in 2024 across different markets. I think some investors have thought maybe we would see it a little bit sooner after the merger closed. And so a common question that we get is, what are the steps that Warner needs to take from here in order to be at a point where they have an integrated product that they can bring to the market?

Gunnar Wiedenfels

It’s really very detailed operational steps. The strategy part is actually the easier one here. And what’s guiding our decision-making is that we want to get it right the first time, right out of the gate, an amazing consumer experience. We had that focus on the discovery side when we launched Discovery+. Would have launched that a little earlier as well but we decided to go out with a product that’s convincing. And we’ve had those 4.8, 4.9 stars on the App Store out of the gate and we’re able to maintain it. And if you look at the two products, unfortunately, both are not perfect right now. As many people know, HBO has that amazing content offering, has a lot more of the must-have features, but some technical debt in the technology setup and some of the implications for the user experience as well, even though the – we did relaunch an update there in August, which has helped improve that. And on the Discovery side, I think a cleaner user experience but some features that we would like to see. So long story short is we have to rebuild with taking the best parts of both platforms and rebuild a new state-of-the-art structure, and that’s going to take a little while.

Brett Feldman

Okay. You mentioned that you do know what you want the product to be. As in the second quarter, I think the two services had 92 million combined subscribers, and I think you estimate there is about 4 million overlap between them. And so a key question that we get is, well, if there isn’t a lot of overlap right now, what gives you confidence that it makes sense to have a single bundled product as opposed to different products that you can offer in service bundles to your customers?

Gunnar Wiedenfels

Look, the fundamental thesis here, and we will have to prove that out, it’s a hypothesis right now, is these perfect complements, right? I mean, we saw last night what HBO was able to produce, absolute sort of standout top-of-the-market quality content. And again, with the House of the Dragon, we’re experiencing it. Again, it can drive millions of people onto the platform. But the flip side of this kind of content is that it also drives higher churn rates. And because people come in and if you can’t convince people to then sort of get into that daily viewing habit, then some of them are going to leave again. Discovery is on the other side of the spectrum. Lowest churn rates or among the lowest churn rates in the industry. A lot of daily, very long viewing time kind of engagement. But traditionally, with the Discovery brands, it’s a lot harder to get this extreme buzz that drives sort of hundreds of thousands and millions of people onto the platform. So the thesis by combining the two, we’re creating a very, very compelling package. Over time, we can talk about news, sports, etcetera. So it’s a very, very compelling and complete offering that we’re able to bring to the market. And again, churn is one of the most important metrics here for the sustainability of this model, and I’m confident that we’re going to be able to significantly bring that down. In terms of how exactly we’re going to manage that transition, that’s something that obviously, as you would imagine, the teams are working through in a lot of detail right now. And as we get closer to the launch date, we’re going to be talking more about the more tactical elements of this.

Brett Feldman

Okay. The HBO brand and the whole suite of Discovery brands have a lot of equity with the audiences that have a lot of affinity for those brands. And so how are you thinking about sort of preserving those brands within an integrated product?

Gunnar Wiedenfels

Well, I think you’re right. It’s one of the great strengths of this portfolio, not only of IP and content assets but also brands is the fact that we have these household names. And we will talk more about the specific brand strategy at a later point. But what I will say is I do think there is a lot of value in the fact that we have HG Food, Magnolia Discovery, and then obviously, on the other side, HBO is obviously a big one. But I think there is a lot to be gained from the fact that these are established, very, very powerful brands in the market. And I think that’s going to be a factor in the content discovery approach that we’re going to take for the combined product.

Brett Feldman

And between now and the point at which you’re able to sort of bring the new product to market, what steps are you taking to make sure the current products remain relevant with their audiences?

Gunnar Wiedenfels

Well, take a look at House of the Dragon. The first episode is now well north of 30 million viewers. Most successful launch in – series launch in HBO’s history. And we’ve got other amazing content in the pipeline with The Idol coming up in the fourth quarter, The Last of Us next year, Succession returning, etcetera. So there is a slate of really, really exciting content coming down the pike. And we’re obviously continuing to market. We’re using the combined marketing footprint of Warner Bros. Discovery to continue driving these products. We’re also experimenting a little bit with content ingest on the two platforms. So I think a lot of positive and exciting stuff happening between now and the relaunch.

Brett Feldman

I know the quarter is not over yet, but can you give us any color on how you feel about the performance of these products in the third quarter?

Gunnar Wiedenfels

Don’t want to give specific guidance, but needless to say, House of the Dragon is going to be a factor.

Brett Feldman

Got it. As much as I would like for you to preannounce your pricing for the new product here, I’m pretty sure you’re not going to. So I’ll try to keep this at a higher level because you do have an interesting vantage point, right? You have a product right now that’s at the very high end of the market. You have one that set a more value price point. You have ad-free, you have ad-supported. And you’re, of course, very aware of what some of your competitors are doing. And as you just think about getting value out of your content on a streaming basis, what are the puts and takes that are going to factor into how you think about what price points will make sense for the product?

Gunnar Wiedenfels

Well, one of the reasons why we have decided not to talk about pricing more specifically yet is that there is so much dynamic change going on. And JB Perrette said it on our earnings call, this whole idea that you take an entire value chain of multiple exploitation windows, collapse it into one and then sell it at the lowest possible price point probably wasn’t a very sustainable strategy. Now the market environment has changed significantly. And when we first discussed this merger, HBO was obviously sort of close to the top or at the top of the market from a pricing perspective. That has fundamentally changed at this point. And I do think there is more pricing opportunity over time as everybody realizes that content offering and price point are a little out of whack here. Again, we will say more about that at the right time. But I do want to reiterate that we like the segmenting of a higher-priced ad-free offering, a discounted ad-light offering where we’re experiencing that with much lower ad loads than in the linear space, we’re able to get 2.5, 3x and potentially in the future, even more than that, the CPM. So we’re actually making more money on each subscriber in the ad-light space than on the ad-free version. And as David pointed out when we spoke about second quarter earnings, we’re also going to be looking – there is a sweet spot here at perfect product market combination because you have these segments of viewership in almost every market that are not going to be willing to pay at all. And we have one of the deepest content libraries in the world, so we’re also going to look hard at how to serve that vast segment.

Brett Feldman

Really, the biggest part of the revenue growth algorithm for the next few years is not going to be ARPU anyhow. It’s actually going to be subscriber growth. And you’ve established a target of getting to 130 million subscribers in your DTC business by 2025. That obviously implies over 40 million subscribers when you adjust for some of the overlap. And we get questions about, is that too ambitious? When you look at some of the larger streamers that have sort of gone ex growth, the market feels competitive. Obviously, you haven’t even rolled the new product out yet. But how do you think about what the TAM for the product is and what gives you confidence that you are very underpenetrated in those markets?

Gunnar Wiedenfels

Well, a couple of points. First of all, yes, obviously, looking at the TAM using broadband subscribers as sort of an upper ceiling, looking at how some of our competitors have penetrated that population, that’s one of the triangulations. Again, I do think, and David has said this before, it’s not about spending more than anyone else. It’s about delivering the content quality above everyone else. And again, last night, I think, is a testament to Warner Bros. Discovery’s ability to do just that. So I feel good about the opportunity. Obviously, a lot of growth potential internationally still. But I do want to respond to what you said, the subscriber target, we really didn’t give that as subscriber guidance because I think that’s one of the issues with sort of the old world of streaming service evaluation. It’s a proxy. We have given guidance to breakeven in the U.S. for the D2C business in 2024, and we’re targeting $1 billion of profit for the D2C business globally in 2025 despite the fact that we’re going to be rolling out additional markets with associated start-up losses. So that’s what we’re working towards. We’ve given the 130 million subscriber number as one of the defining parameters to get to that financial outcome. But we’ve also been very clear that we’re not optimizing for subscribers. We’re optimizing for a long-term sustainable business for one additional distribution platform that’s going to drive a better monetization of our content and as such, better shareholder value. And one specific trade-off is going to be maybe, we’re going to come to the conclusion that in a certain market, the licensing model might be better from a shareholder value perspective than launching our own service might mean that we’re happy with a handful of subscribers less but better profitability or the other way around. We will figure that out over time. All of this is obviously, right now, very much assumption-driven, but we’re optimizing for value, not for a hollow KPI such as subscribers.

Brett Feldman

And speaking of your profitability guidance, you’ve also said you think that over time, the long-term margin potential is 20% or greater on the DTC segment. Obviously, you haven’t inflected into the positive yet, and many of your peers are in the same state in terms of investment levels. And so a common question we get is, what gives companies like Warners the confidence that there is going to be an inflection of operating leverage and that you’re not going to have to continue to ramp up the marketing spend or the content spend?

Gunnar Wiedenfels

Well, there is a lot that even though you could argue we don’t know it yet, we have pretty strong indications, right? One is we’re not leveraging the full potential of our content yet because we haven’t launched in all of the markets. That’s going to be a major factor. We’re just getting more leverage out of each dollar of content spend. Again, I do, as I said earlier, believe that over time, there is going to be pricing power in these services because I fundamentally believe that they are underpriced and that the content is undervalued right now. Number three and maybe from a short-term perspective, the most important factor is the synergy opportunity here because again, we’re eliminating the full technology stack, where we stop competing against each other from a marketing perspective but we help each other, if you wish, we’re bringing the full WBD marketing power behind this product. So there is very significant leverage in the operating structure as well. And so – and we will take those two together, sequenced over the next 24, 36 months, and then we will keep updating the market on where we see this going. The most important point is it’s not the entire company getting behind that one distribution outlet. It’s D2C as one element of a balanced portfolio.

Brett Feldman

I am glad you mentioned international because if we think about one of the real compelling opportunities from the merger is bringing together the two companies’ international presences, right. So, HBO is already fairly well distributed as a streaming product outside the U.S. The Discovery linear business is effectively global. You are in over 200 countries and territories. And so as you think about bringing those things together, how do you think about that giving you an ability to accelerate your growth from a distribution standpoint? And I think you probably have both sides of the coin you can play there. But also, many of your competitors have realized that they are very under-invested in local-international content. To what extent do you think you might have an edge there as well?

Gunnar Wiedenfels

100%, I am absolutely convinced. To your point, we are active with boots on the ground and decades of experience in virtually every relevant market in the world. That has to be a factor. Also, we are already spending billions of dollars of – in local content in all these markets in our existing footprints with the knowledge of what the consumer wants in those markets. So, the ability to combine global scale, global exploitation of the content of every dollar spent here, on the one hand, with this hyper-local deep knowledge of the consumer in every key territory has to be a major factor. And again, I mean it’s not 100% comparable, but if we go back to what was driving the success that we saw when we combined Discovery and Scripps, international played a major role.

Brett Feldman

You have touched a lot on sort of this holistic approach to content, and you sort of alluded to some of the headlines that have been made around some projects that you didn’t really think were financially justified. What is the process that you are going through as you are looking at content? We get these questions, are there things that have been predetermined to go into one channel or the other? How are you thinking about windowing? How are you thinking about theatrical? What’s that filter?

Gunnar Wiedenfels

I think the two most important principles here are: number one, our commitment to the full value chain, commitment to a theatrical window, commitment to the home entertainment segment, streaming, linear. We will generally be open to servicing all of those platforms and at the same time, also be open for business with third-parties. We are producing and selling to third-parties as well and happily so. And number two, the second principle is we will have to be nimble. So, the vision is for us to strengthen the capability of the company and the leadership team to work together in the best interest of the company as a whole. One example of that is the way we handle the Elvis windowing decisions. And again, it’s not a static. There is not like one static framework, one mold that we can apply to every title, but it’s about the leadership team working together without ego and without feed them to look at the data. Some of this assumption-driven and not sort of actual data, but we can make assumptions decide for the – in the best interest of the company. That’s one of the reasons why Elvis has been in theaters for so long, why it’s had a very successful home entertainment window and now very successfully contributes to HBO Max. The sum is greater than each of the elements. And we have established a structure whereby we bring the perspectives of all the relevant business leaders together. We provide as much financial rigor and analysis and data as possible to support these decisions and then we iterate.

Brett Feldman

So, sticking with the content theme, we will talk a bit about sports. The company does have a few marquee sports contracts. You have the rights to the Olympics in Europe, the NBA in the U.S., but compared to other major media companies, your footprint in sports is a bit smaller. So, at a high level, what is the company’s sports strategy? Is it an area where you might look to ramp investment? And just generally speaking, as you see these rights escalating, what’s the filter you are using to determine whether it’s a fit?

Gunnar Wiedenfels

Well, it’s actually I think the same answer as always in that space. It is an absolutely important part of our strategy. It’s, as everybody knows, one of the drivers of emotional engagement, live viewership. And to your point, I think we bring something very unique to the table here. Yes, maybe a slightly smaller footprint in the U.S., but we have got the complete global coverage, a very strong position in LatAm, driven by Turner. Very strong position in Europe with Eurosport and then a very healthy position with Turner here in the U.S. as well. So, that is something that I think we might be able to leverage. It’s an asset. I do think we are a great partner, and there is a lot of tools to play with to come up with sort of mutually beneficial deal structures. To the – to your second point about pricing, look, I think it has been the same for decades. There is a risk of overpaying and it’s incredibly important to know exactly what we are playing for, to know exactly what we think the value is and draw a very clear line and have the courage to walk in those situations where you are at risk of paying more than that value.

Brett Feldman

Yes. So, let’s talk about your Networks segment. Obviously, the underlying secular trend that everyone focuses on is cord cutting. It’s kind of been at mid-single digit pacing, maybe it’s picking up a bit. We will get some more context over the next few weeks as some of your distributors report. But I think most investors assume that this is a secular trend that’s not going to go away. So, what’s your outlook for the video business, the linear video business at Warners? And what role do you see them playing in the company’s distribution strategy long-term?

Gunnar Wiedenfels

Well, we have been very clear that we are supporting all platforms, and I happen to believe that the linear business is going to be here for a very long time, and it’s going to continue contributing healthy cash flows. I don’t want to make predictions about whether these rates are accelerating, slowing, whether there is a bottom, a floor at some point, when we are going to hit that, etcetera. I think everybody can sort of make their own assumptions and model that out. What I have conviction in, though, is that we have an ability to extract a lot of on-top value relative to this ecosystem and this segment that certainly isn’t a growth driver in and of itself from an underlying viewership and revenue perspective. But – and again, this is – my conviction is driven by what I have seen what we were able to do when we combine Scripps and Discovery. And it goes through the entire P&L and down to free cash flow. I believe we can outperform competition by better – by being able to better program an integrated portfolio with an integrated content output that should drive viewership relative to others. I have no doubt, and I mentioned the upfront earlier, that we have many, many years ahead of very significant price upside in the ad markets. And for the past 4 years, 5 years, we have been able to again and again and again, chip away at that value gap, and there are many more chips to come over the next few years.

And then if you look into the cost structure, Kathleen Finch and Carhartt [indiscernible] International have already shown that they are able to more efficiently manage these network portfolios in today’s environment. So, there is opportunity there. It’s going to be one of the big synergy drivers to harmonize and sort of consolidate those network portfolios. And also from the content perspective, we are again committed to investing, including on the linear side, but we are also going to be able to much more efficiently program. So, take all that together, not trying to sell anyone the linear business as a hyper-growth business year, but I think we have many, many years of real upside ahead of us.

Brett Feldman

And you just mentioned the opportunity in advertising. How about your view on affiliate fees? Legacy Discovery, obviously, arguably under-earned relative to its audience, you are now bringing together a much more broad package of content. Do you feel like that can be one of the things that can keep the cash generation enduring for significantly longer, maybe more so than those separate businesses would have been able to do?

Gunnar Wiedenfels

Yes, I do. I am confident in the value that this combined portfolio offers to our distribution affiliates. You are right, probably from the – I mean, Discovery was very much sort of under-monetized. Maybe the combined portfolio is sort of a little closer to fair value. But it’s also a much more complete portfolio, including news, sports, scripted and unscripted entertainment and some of the most iconic brands. And if you look at how our networks are playing, we have got the majority of the top 10 networks pretty much every night. So, I think that’s great value. And so far, look, these discussions are never easy. It’s just – it’s a tough product to price, and there is a lot at stake for both sides every single time. But we have seen time and time again that we are able to find mutually beneficial deals with our affiliates and these are great partnerships.

Brett Feldman

Coming back to advertising, you had noted on the second quarter call that there was a little bit of weakness in the scatter market, which I don’t think was surprising, considering the economic environment has become a little more difficult. Any updates you can give in terms of how things evolved since then?

Gunnar Wiedenfels

No real update. It’s pretty much in line with what we were seeing when we reported earnings. And I think the theme here is visibility. It’s just an environment of limited visibility and it has been for quite some time. But clearly, there are some macroeconomic factors that we are watching closely, that others are watching closely. And I think there has been enough discussion out there about some of the verticals that are doing better or worse. But I think that’s going to continue to be a factor. But we gave guidance for the third quarter for our global ad sales, and we are tracking in that range still. But again, it’s – there is just a little less certainty than I would like to see for the next, call it, three quarters to four quarters or so. Again, from a longer term perspective, I do think we have an enormous opportunity to gain share. I am incredibly confident in Jon’s team to keep getting closer to fair value for our under-monetized inventory, the ability to increasingly bring in digital video inventory through Discovery+, HBO Max and our TV Everywhere app is going to continue to be a driver. We are going to get better at targeting. We are going to get better at the more tailored ad products as binge ad, pause ad products, etcetera. So, I do think there is a lot that we have to get right, but that is going to drive a lot of opportunity in this space.

Brett Feldman

Alright. So, I will wrap up with just a question or two here on financials since we do have the CFO. On the second quarter call, you said you are on pace to pay off $6 billion of debt, I believe by the end of August in a…

Gunnar Wiedenfels

Done.

Brett Feldman

Good, that’s one question. And that you expect to end the year with about 4.8 turns of net debt-to-EBITDA while maintaining your long-term leverage target of 2.5 turns to 3 turns, I believe you expect to get to by 2024. So, the first question is, as the macro remains somewhat uncertain, what gives you confidence that, that’s the right set of parameters and achievable targets? And then just as sort of a follow-up on that, what else could you do to ensure you can get there? Are there additional opportunities to flex the cost structure, particularly as you have had more time to evaluate it? And are there potentially asset sales, non-core things that you could groom out of the portfolio to accelerate the process?

Gunnar Wiedenfels

Look, I think the key here is thinking in scenarios, right. And I have the confidence because we are looking at upside, downside scenarios, base case scenarios, and I feel good about the guidance that we have given for this year and for next. Now, there are obviously outlier scenarios that you wouldn’t sort of factor in as part of that. But I feel very good about the – our view on sort of the relative probabilities of these scenarios. And look, there is always – if worse comes to worst, there is always things you can do that you don’t want to do in a better environment, but we are not discussing that right now. We are focused on doing the work, the operational day-to-day work, and there is so much opportunity. If I – as you know, I am very focused on free cash flow generation. And WarnerMedia essentially was flat-lining from a free cash flow perspective when we combined the two companies. And we have a number of initiatives in flight. It starts with obviously a better P&L outcome, but there are working capital opportunities, part of it, again, related to this amalgamation of dispersed systems so that it’s almost impossible to better manage working capital. We are fixing that. Over time, restructuring expenses are going to come down over time. Interest is going to come down as we de-lever. So, there is a lot of real opportunity above and beyond what we put in our sort of base plan. And the entire team is heads down fully focused on our vision, one company focused on execution. And I have no doubt that we will do very well over the next 12 months, 18 months.

Brett Feldman

And any non-core assets, real estate, gaming business, anything that’s under review?

Gunnar Wiedenfels

Well, we will obviously look at everything from the perspective of operating businesses. We have been very clear, we want to take the time, have a thorough strategic discussion. So, nothing for sale here right now. Regarding other, call it, non-core elements such as real estate or so we will – that’s all part of our integration review, and we will figure out what the right strategy and the right footprint is.

End of Q&A

Brett Feldman

Gunnar, thanks so much for being here. Really appreciate it.

Gunnar Wiedenfels

Thank you. Thanks everyone.

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