PSKY 2026 Q2 Earnings Call

Good afternoon. Thank you for taking the time to join us for the Paramount Q2 2026 earnings call. I'm Kevin Creighton, EVP of Corporate Finance and Investor Relations. Joining me today is our Chairman and Chief Executive Officer, David Ellison, our Chief Financial Officer, Dennis Cinelli, and our Chief Strategy and Operating Officer, Andy Gordon. As a reminder, we'll be making forward-looking statements today that involve risks and uncertainties. Our remarks will also include non-GAAP financial measures. Reconciliations of these measures can be found in our earnings letter or in our trending schedules, which contain supplemental information. These can be found on our investor relations website. I'll now turn it over to David for a few brief remarks before we address analyst questions.

Thanks, Kevin. Good afternoon, everyone. A year ago, we set three priorities for the new Paramount: invest in storytelling, scale our direct-to-consumer business globally, and drive enterprise-wide efficiency. 12 months in, I'm proud to say we are delivering on all three. We nearly doubled our theatrical slate, deepened our roster with top-tier creative talent, greenlit 40 new and returning series for Paramount+, expanded our sports portfolio with the UFC, Zuffa Boxing, while broadening our partnerships with UEFA, adding to an already strong lineup that includes the NFL, WNBA, PGA Tour, March Madness, and more. At the same time, we've made meaningful progress in technology and product development, including with the convergence of our streaming platforms, which is well underway, helping create a better, more seamless experience for users. These investments are translating into stronger performance.

Paramount+ grew to nearly 82 million subscribers, delivered its best quarter of retention ever, and posted double-digit growth in total view hours, all while expanding margins throughout the first half of the year. Among the quarter's many highlights, our studios business saw continued year-over-year profitability improvement while growing its pipeline. With more than 90 series in production across the group this year. The early turnaround reinforces our confidence in the strategy. We continue to make significant investments in theatrical and premium series to drive future engagement, subscriber growth, and long-term value. Across our broader portfolio, TV Media's profit grew 14%, even as revenue declined amid the broader industry shift away from linear. Enterprise-wide, we're tracking to over $2.7 billion in run rate efficiencies by year's end and still expect a total of $3 billion plus from the Skydance Paramount merger.

We're also continuing to advance a proposed combination for Warner Bros. Discovery, a deal which builds on the foundations we've established by creating a stronger, well-capitalized, creative-first company with the scale to compete alongside Netflix, Amazon, Apple, and others, benefiting consumers, theatrical exhibition, and creators alike. The clearances we've received from competition authorities and governments represent 65 jurisdictions worldwide, confirm that the facts of the law are on our side, and we remain confident the transaction will be completed. One year in, we're proud of the progress we've made, a testament to the extraordinary talent, hard work, and dedication of our people around the world. Our conviction in our strategy is stronger than ever, and we're energized and optimistic about the opportunities ahead. With that, I'll turn it back over to Kevin for your questions.

Great. Thanks, David. We'll now go ahead and take questions from the analyst community, and then we'll open it up in the last few minutes for any final questions we're not able to address. Our first question comes from Steven Cahall at Wells Fargo. As a general transaction update, given that Paramount outbid a larger competitor for Warner, I think investors view it as a must-have rather than an opportunistic transaction. Can you give us an update on the path forward and what if the WBD transaction doesn't come to fruition? David, maybe take that first one.

Kevin, absolutely. Steve, I really appreciate the question. Look, we remain highly confident that this transaction will close, and we're preparing for basically a successful combination once it does. If you take a step back and just look at exactly where we are today, we received approvals from basically 65 regulators representing 65 countries around the world, including the U.S. federal government, Canada, European Union, China, and many more. I think if you look at everybody who has published an opinion on the merger, have all identified the markets the exact same way and have all come to the same conclusion, which is that this deal raises no competition concerns. The facts simply speak for themselves. When you look at the television market share, excluding YouTube, the combined company would represent less than 20% of all television watch time according to Nielsen.

If you include YouTube, which is the industry standard, it represents 13.4% based on the most recent Nielsen data. When you look at the theatrical box office over the past 12 months, the combined company would represent 18% of the domestic box office. If you do a 24-month look back, it's 22%, competing against larger scale global players like Netflix, Amazon, Apple, as well as other studios such as Sony, Disney, Lionsgate, and A24. We continue to believe very strongly that the combination of these two businesses create a stronger competitor that is good for Hollywood, good for consumers, and good for the creative community.

As it relates to the ongoing litigation, we're absolutely open to finding a solution out of court, we also really believe that we'll win at trial. We believe that the facts and the law are on our side, the trial date was just set for March of next year. As it relates to the financing, all that is in place. There's nothing at risk, we're confident we'll close the transaction, we're working towards that as fast as we possibly can.

All right. Great. Thanks, David. Our second question, which follows on to that one, is from Laura Martin at Needham, the question is: If the Warner transaction closes later than expected, what is the average burn rate, including ticking fees, commitments, and any other costs for Paramount shareholders?

Sure, let me take that. On the financing, both the equity and bridge is locked and committed throughout the remaining time we need to close the deal. In terms of incremental cost, we have two areas. We do incur costs beyond September 30th. The first is on the bridge, which carries modest fees. That will run $8 million to $9 million a month, plus an additional bridge commitment fee due in June of 2027. In total, this adds up to around $190 million in incremental financing if we don't close until June. The second, the merger agreement does provide an additional ticking fee for WBD shareholders if we close after September 30th. This is only payable when and if we close. It's $0.25 per share per quarter, which is about $650 million per quarter, will be funded at close through additional equity.

In terms of the question on our current liquidity and balance sheet, we ended the quarter at $1.6 billion in cash, $3.2 billion of undrawn revolver capacity. This is sufficient to fund the business, our dividend, transaction-related costs through the extended timeline. Actually, as we noted in the letter, we've seen positive free cash flow performance for the year. We took up our free cash flow guidance to 10% before transformation costs. We feel good about where we stand in terms of liquidity and managing through this extended time period.

All right. Great. Thank you, Dennis. Appreciate it. All right. We will now go ahead and pivot towards the business. Our first question on the streaming business comes from Steve Cahall at Wells Fargo, and it's on DTC growth. The question is: We've seen revenue growth slow at large streaming peers. Where do you think you are in terms of subscriber penetration and pricing for Paramount+? Do you believe that double-digit top-line growth, which is both Netflix's target and Disney's for their DTC service, is sustainable over the medium term? David, maybe you can take that one.

Yeah. No, Kevin, absolutely. Look, the short answer is yes, in terms of the double-digit growth. I think we just demonstrated that with 16% revenue growth year-over-year. But again, to just kind of level set, let's take a step back in terms of where we are as a standalone company. Which is, our business is very much in transition of a majority of our revenue and EBITDA coming from the linear business to transitioning to studios and streaming. We're making really significant progress as we work towards those goals. Everything we're seeing on the streaming side of our business is accelerating throughout the year. We've got great momentum. We're seeing top-line revenue grow. We're seeing improved profitability and ARPU also continue to improve. I think it's worth noting that we're not yet at scale today.