Q4 2022 Walt Disney Co Earnings Call

November 8, 2022

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At this time I'd like to turn the floor over to senior Vice President of Investor Relations for Walt Disney Company, Alexia could Ronnie Ma'am. Please go ahead.

Good afternoon.

My pleasure to welcome everybody to the Walt Disney Company's fourth quarter 2022 earnings call. Our press release was issued about 25 minutes ago and is available on our website at www Dot Disney Dot com forward slash investors.

Today's call is being webcast and a replay and transcript will also be available on our website.

Joining me for today's call are Bob Chapek, Disney's Chief Executive Officer, and Christine Mccarthy Senior Executive Vice President and Chief Financial Officer.

Following comments from Bob and Christine we will be happy to take some of your questions. So with that let me turn the call over to Bob to get started thank you.

Alexia and good afternoon, everyone.

Fiscal 2022 was a strong year for our company as we continued our journey of telling incredible Disney stories utilizing groundbreaking technology in order to further develop our brands and franchises, while customizing and personalizing experiences to make magical memories that last a lifetime.

Those efforts resulted in truly phenomenal storytelling.

<unk> annual results at our parks experiences and products segment and outstanding growth in our direct to consumer services, which added nearly 57 million subscriptions. This year to reach a total of more than $235 million.

We are particularly pleased with growth in the fourth quarter, which saw the addition of $14 6 million subscriptions across our suite of services, including 12 million Disney plus subscriptions over $9 million of which were core Disney plus.

It has taken just three short years for Disney plus to transform from a nascent business to an industry leader.

That transformation is the direct result of the strategic decision we made at launch to heavily invest in our direct to consumer offering a decision made knowing that achieving rapid growth would result in short term losses.

Building a streaming powerhouse has required significant investment and now with its scale incredible content pipeline and global reach Disney plus is well situated to leverage our position for long term profitability and success.

Our financial results this quarter represent a turning point as we reached peak DTC operating losses, which we expect to decline going forward.

That expectation was based on three factors first the benefit of both price increases and the launch of the Disney plus add tier next month.

Our realignment of our cost, including meaningful rationalization of our marketing spend.

And third leveraging our learnings and experience in direct to consumer to optimize our content slate at distribution approach to deliver a steady state of high impact releases that efficiently drive engagement and subscriber acquisition.

With these factors. We believe we are on a path to profitable streaming business that generates shareholder value long into the future.

And assuming we do not see a meaningful shift in the economic climate.

We still expect Disney plus to achieve profitability in fiscal 2024 S losses begin to shrink in the first quarter of fiscal 2023.

Christine will go into more detail on the drivers of our direct to consumer operating performance and provide more insight into our expectations going forward and some of our key assumptions, but first I'd like to share a few highlights from the quarter.

Q4 was another strong period for parks experiences and products, which continued to deliver phenomenal results. Despite the impact of hurricane in.

I want to thank the amazing cast members in Orlando, who went above and beyond to help keep our guests safe and entertained during the storm.

From protecting the many animals that Disney animal Kingdom, the packing thousands of meal kits to donating and delivering emergency supplies to the community I am so proud of how our team came together to support our guest our neighbors and each other.

Our parks team is laser focused on enhancing the guest experience and creating those magical memories I mentioned at the outset. This focus along with the investments we made to bringing new attractions and experiences to our domestic parks is generating consistently strong demand, which on many days exceeds our current.

<unk>.

And we continue to manage attendance levels with a focus on providing guests with the highest quality experience and enhancing our parks overall financial performance.

One of the things that guests love most is the opportunity to celebrate at our parks as evidenced by the post pandemic return and sellout of special ticketed events like bogey bogey Bash and Mickey's not so scary Halloween Party I visited Disneyland with my family just before Halloween and the celebration was phenomenal.

Tickets for Mickey very Merry Christmas Party at Walt Disney World has now officially gone on sale and over half of all dates have already sold out.

As you know we are about to embark on the company's 100 <unk> anniversary celebration.

And kicks off at our parks on January 27th at Disneyland, where.

We'll unveil new platinum infused decor premier to all new nighttime spectacular and opened the highly anticipated Mickey and Minnie Runaway railway attraction.

This is only one part of what will be the largest cross company celebration of Disney's history with Activations around the world and we're so excited for fans and families to join us.

At our international Parks Disneyland, Paris is enjoying a great resurgence.

Our fantastic New Marvel Avengers campus opened on July 20 <unk>.

Yes, and guests love a highly immersive.

And dynamic environment of the first ever Marvel themed land in Europe .

Here to the recent closure of Shanghai Disney Resort, we're seeing positive momentum there and at Hong Kong Disneyland. We are hopeful that the situation will improve and are thinking of all of our employees there as we manage through the challenging COVID-19 environment.

Our Disney Cruise line is showing strong signs of recovery the new Disney wishes in high demand and we've seen a ramp up in bookings for our base fleet.

This quarter was also exceptionally strong in terms of creative excellence across our content engines.

Our teams received 57 Emmy awards spread across a remarkable 37 different titles emanating from a wide range of brands franchises and distribution channels.

ABC ended the season as number one in entertainment programming for the third consecutive year and ABC news continues to be the most trusted source of news with our number one positions across all day parts.

The accurately Thor love and Thunder the characters for Standalone film earned over $716 million worldwide.

This was our first time, we released a fourth film based on a single Marvel character and doors longevity is a great sign for Marvell and our ability to tell stories based on its characters long into the future.

The fourth quarter was also the first time in Disney history that we released Tentpole original content from Disney Marvel Star Wars, Pixar and National geographic and indication that we are now at full cadence of new releases as we hit our steady state as evidenced hocus pocus too was a smash.

Cash it becoming not only the most watched premier of Disney plus but also a new center record setting streaming movie with two 7 billion minutes viewed in its first weekend and.

And Marvel Studios Ms. Marvel completed its run in July and she Hulk Attorney at law debuted in August contributing to subscriber growth and driving substantial engagement Lucas.

Lucas films and or a spy thriller that explores the backstory of cassian <unk> a popular character from Rogue one.

Brave reviews, and showcases our ability to extend the stories from the big screen to our streaming services.

Turning to general entertainment the critically acclaimed prey from 20th century Studios was who was biggest premier ever across all films and series and was the most watched film premiere on Star plus in Latin America, and Disney plus under the Star banner in all other territories. Looking ahead, we are thrilled that <unk>.

Audiences are returning to the box office for blockbuster films, and we have big plans for the big screen in the fiscal year 2023.

Black Panther will conduct forever opens this Friday and Ryan Kugler has delivered yet another culture defining powerful film the reaction to this films premiere a few weeks ago was incredible and fan anticipation is very high as indicated by the strength of advanced ticket sales up next is.

Strange World from Walt Disney Animation Studios, which opens in theaters this Thanksgiving.

The highly anticipated avatar the way of water opens on December 16, and is the sequel to the highest grossing film of all time.

James Cameron and his team have once again created something truly magical using groundbreaking technology audiences are as excited as we are to return to Pandora and given the strong performance of September's re release of the original Avatar, we can't wait for the film to hit screens.

Our searchlight studio continues to deliver critically acclaimed films and three fantastic titles will be in theaters. This quarter. The banshees of insulin which is earned critical claim census, Dennis Premier that menu, starring Ray fines and Anya Taylor Joy.

And the Empire Flight from Academy Award winner Sam Mendes.

Looking even further into 2023, we'll see theatrical releases of three highly anticipated Marvel films Ant man and the Wasp quantum mania Guardians of the Galaxy volume three and the marvels and we could not be more excited about Disney live actions. The little Mermaid are re imagining of one of the.

Most popular animated films of all time.

<unk> Halle Bailey who's rendition of part of your World has already lit up the internet.

We're also bringing 999 happy hearts to life with a hilarious new live action Haunted mansion, featuring an all star cast.

Pixar will debut in all new original feature elemental and Harrison Ford is back in and eagerly awaited fifth, Indiana Jones film, which is going to be spectacular.

Of course, all of our theatrical titles will essentially make their way onto our streaming platforms complementing our robust slate of original content.

Tokyo, plus a new series from Disney Animation debuts tomorrow, along with save our squad an original series from UK that sees soccer superstar, David Beckham return home to mentor, a grassroots team accounted boys struggling to survive and their league.

On November 18th Disney plus we'll release disenchanted based on the successful in Shannon that came off 15 years ago.

Marvel's Guardians of the Galaxy holiday special will follow right after and Willow another long awaited sequel from Lucasfilm, we'll premiere the following week.

We are so fortunate to have an abundance of content from all of our creative engines paired with a wealth of knowledge and insight into what resonates with our fans as we move forward, we will increasingly leverage that knowledge to refine our distribution decisions in order to best serve our audience and maximize the return.

On our content investments.

Turning to sports ESPN was the number one cable network in total day and prime viewing amongst audiences, aged 18 to 49 in Q4 and the Walt Disney Company was responsible for 40% of sports hours watched amongst that age bracket the biggest share of any family of networks.

He SPN continues to lead with its multiplatform sports ecosystem with reach across linear streaming digital and social media serving fans at massive scale with the power and support of the Walt Disney Company behind it ESPN is an unequaled reach machine.

And the business is well positioned through our strategic portfolio of long term rights agreements with Eni to remaining disciplined in our approach. We recently announced an extension with Formula one through 2025, which is one of the fastest growing sports properties and is on pace to surpass last year's <unk>.

Record audience on ESPN.

For 2022 College football season is off to its best nine week start in five years across our networks and thanks to our incoming FCC agreement in 2024, we will remain the leading college football platform with over 60% of the college football market.

And our new long term NFL agreement includes Super Bowls, and annual ESPN, plus exclusive matchup and more regular season in playoff games and better scheduling.

On October 30, we marked another milestone moment in our DTC streaming services and the growth of the ESPN plus when the Broncos versus Jaguars NFL game from London became our most viewed ESPN plus event ever find.

Finally, we are exactly one month from the U S launch of Disney Pluses AD supported subscription offering which is a win for audiences.

Advertisers and shareholders.

The launch will bring fans a new slate of subscription plans across Disney plus crew ESPN, plus and the Disney bundle getting viewers flexibility in choosing an option that suits their needs.

The offering also as a key component to our total company advertising portfolio and advertiser interest has been strong.

We have been a leader in streaming advertising for some time and are bringing our years of experience, leading AD tech and relationships to this important opportunity.

Disney plus has secured more than 100 advertisers for our domestic launch window spanning a wide range of categories and our company has over 8000 existing relationships with advertisers, who will have the opportunity to advertise on Disney plus.

Strong based pricing reflects the value advertisers put on our audience, our brand safe environment for their messages and our sales experience.

We also have proven technology to deliver a great advertising experience on day, one and importantly, we have the ability to scale and innovate for audiences and advertisers alike.

We are incredibly excited about the launch of our new AD supported subscription offering for Disney plus which rolls out on December eight.

2022 was an important year of recovery coming out of the pandemic as we made foundational investments in our long term success.

As we celebrate the three year anniversary of Disney plus this week I can't help but reflect upon how our commitment to and substantial investment in our DTC business has helped create the world's most powerful suite of streaming services with the ability to reach hundreds of millions of viewers around the world.

With must see content.

Services, which arent just content delivery systems, but platforms that bring us closer to audiences than ever before and enable consumers to access more of the Walt Disney Company's total offering.

With our unmatched brands and franchises and robust pipeline of content capable of filling all of our distribution channels unique experiences and strong connections to audiences around the world.

I believe we are well positioned for future long term growth and I'm confident in our path forward.

With that I'll turn it over to Christine to talk in greater detail about our quarter and the year ahead.

Good afternoon, everyone.

We have wrapped up another dynamic fiscal year and as we enter into fiscal 2023, I will be diving a bit deeper than usual today into the results of our businesses and we will give some additional color on where we expect to go from here, especially given the inflection point that we believe we have now reached.

And our direct to consumer business.

Excluding certain items, our company's diluted earnings per share for the fourth fiscal quarter was 30.

And for the full fiscal 2022 year diluted EPS, excluding certain items was $3 53.

Our parks experiences and products segment had another stellar quarter with deep operating income in the fourth quarter more than doubling versus the prior year to $1 5 billion.

Our domestic parks delivered significant year over year revenue and operating income growth. Despite an adverse impact of approximately $65 million to segment operating income from hurricane Ian.

And per capita spending remained strong increasing 6% versus Q4 of fiscal 2021, and nearly 40% versus fiscal 2019.

Reflecting the continued popularity of premium offerings, including J D plus and lightning link.

We are also making meaningful progress on a return of international visitors to our domestic parks, particularly at Walt Disney World, where the mix of international attendance in the fourth quarter was roughly in line with pre pandemic levels.

Looking towards fiscal 2023, while we continue to monitor our booking trends for any macroeconomic impacts we are still seeing robust demand at our domestic parks and are anticipating a strong holiday season in Q1.

Disney Cruise line was also a meaningful contributor to the year over year increase in domestic parks and experiences operating income in Q4, reflecting the successful launch of the Disney wish in July and continued recovery of the existing fleet coming out of the pandemic.

Quarter to date occupancy for the wish continues to exceed 90%. While we have also seen a meaningful pickup in the rest of our fleet with booked revenue up versus pre pandemic levels.

And international Parks fourth quarter results also improved significantly year over year, driven by continued strength at Disneyland Paris, partially offset by a decrease at Shanghai Disney Resort.

As Bob mentioned the situation in Shanghai has recently been challenging the park is currently closed and we do not yet have visibility to a reopening date.

Q4 results at consumer products also increased versus the prior year driven by higher merchandise licensing results across several of our key franchises, including Nikki and friends and condo and toy story.

Moving on to media and entertainment distribution.

Operating income in the fourth quarter decreased by $864 million versus the prior year.

As a modest increase at linear networks was more than offset by wider losses at direct to consumer and to a lesser extent at content sales licensing and others.

Linear networks operating income in the fourth quarter increased 6% to $1 7 billion.

Driven primarily by growth at domestic channels.

The increase at domestic channels, primarily reflects higher results of cable driven by lower programming and production costs, partially offset by a decrease in advertising revenue.

Compared to the prior year fourth quarter cable programming and production costs benefited from the timing of the NBA finals, which were in Q4 of fiscal 2021 versus Q3 of fiscal 2022.

As well as from lower costs for major League baseball programming due to fewer games under our new contract.

These impacts were partially offset by higher NFL programming costs as a result of one additional game aired versus the prior year quarter.

The decrease in cable advertising revenue versus the prior year fourth quarter also reflects the timing impact of the NBA finals.

SPN advertising revenue in Q4 was down 23% year over year. However.

Adjusting for the timing impact of the NBA finals, it was down roughly 2%.

Note that in Q1 of fiscal 2023, we also expect to see a timing impact versus the prior year from two college football playoff games that are shifting into the second fiscal quarter. This year versus the first quarter last year.

Quarter to date ESPN domestic cash advertising sales are pacing down reflecting in part the absence of these two CFP gained.

The advertising landscape remains fluid the sports marketplace in particular is delivering strong audiences across our platforms with marketers looking to take advantage of live events and several categories, including political farmer insurance and restaurants.

Have continued to show relatively stable demand, while others remain cautious in anticipation of potential economic softness.

Total domestic affiliate revenue in the fourth quarter increased by 2% from the prior year driven by five points of growth from contractual rate increases partially offset by a four point decline due to a decrease in subscribers.

Looking ahead, we expect to see linear subscriber declines accelerate more in line with industry trends.

International channels operating income decreased by $25 million in the fourth quarter versus the prior year, reflecting lower results from our ongoing channels in operation, partially offset by a benefit from channel closures.

At content sales licensing and other results decreased versus the prior year by a little over $100 million in.

In line with guidance due to lower TV spot and home entertainment results, partially offset by higher theatrical results and an increase at our stage play business.

While difficult comparisons may persist in the intermediate term at our TV <unk> and home entertainment businesses results will vary quarter to quarter.

And we currently expect content sales licensing and other operating results to improve slightly in the first fiscal quarter of 2023 on both a sequential and year over year basis.

Finally, I'd like to spend some time talking about our fourth quarter results at direct to consumer where our losses peaked in the fourth quarter at approximately $1 5 billion.

Hulu and ESPN, plus added approximately $1 million and $1 5 million subscribers, respectively. During the quarter, while Disney plus added over 12 million global subscribers of which a little less than 3 million, we're at Disney plus Hot Star.

Core Disney plus added over 9 million subs in Q4 <unk>.

Accelerating as expected versus the 6 million net adds we saw in the third quarter.

Reflecting the success of Disney plus day, and our Tentpole content releases. In addition to continued growth from third quarter market launches.

Nearly $2 million of these net adds were from the U S and Canada and a little over $7 million were international core additions.

At the same time core Disney plus <unk> decreased by 5% between Q3, and Q4, reflecting an adverse foreign exchange impact and to a lesser extent, a slightly higher mix of subscribers from lower priced international markets.

<unk> at each streaming service is also impacted by the mix of subscribers to the bundle.

Our bundled and multi product offerings now account for over 40% of our fiscal year end domestic Disney plus subscriber count.

This shift has been purposeful as the bundle drive higher total company subscription revenue and higher long term subscriber value due to notably lower churn.

Lower pay per view revenue at ESPN, plus and slightly lower advertising revenue at Hulu and Disney plus Hot Star also impacted direct to consumer revenue in the fourth quarter relative to the third quarter.

With our expectation that peak losses are now behind us DTC operating results should improve going forward as we lay the foundation for a sustainably profitable business model.

In the first quarter of fiscal 2023, we expect direct to consumer operating results to improve by at least $200 million versus.

Versus the fourth quarter of fiscal 2022.

With larger improvement expected in Q2, reflecting a couple of key factors.

First our recently announced price increases across our direct to consumer offerings in the U S should begin to modestly benefit <unk> and subscription revenue in the first quarter.

However, given that the Disney plus price increase will not go into effect until towards the end of Q1. This benefit will be realized more fully in the second quarter.

Similarly, we do not expect the launch of the advertising supported tier of Disney plus in December to provide a more meaningful financial impact until later this fiscal year.

Additionally, our commitment to cost rationalization will allow us to scale effectively against our investments in particular, while DTC programming and production costs will increase from Q4 to Q1 over the course of the year content expense.

<unk> and Opex growth should slow as we approach steady state.

And marketing costs should decline as we continue to focus on aligning our costs with our dynamic business models.

As it relates to subscribers, we expect ESPN, plus and Hulu will continue to add new subscribers in Q1.

And we expect core Disney plus subscribers to increase only slightly in the quarter, reflecting tougher comparisons against Disney plus day performance.

As we've mentioned before subscriber growth will not be linear each and every quarter and the trend is driven by several factors, including content releases and promotions.

We expect Disney plus core subscriber growth to then accelerate in the fiscal second quarter, largely driven by international markets.

And that Disney plus Hot Star. We are currently expecting that subscribers will decline in Q1 due to the absence of the IPL, but we do expect to see some stabilization in Q2.

I'll note that our direct to consumer expectations are built on certain assumptions around subscriber additions based on the attractiveness of our future content.

Churn expectations for our upcoming price increases.

The financial impact of the Disney plus add tier and price increases and our ability to quickly execute on cost rationalization, while preserving revenue all of which was based on extensive internal analysis as well as recent experience provides a layer of uncertainty.

And our outlook.

Before we conclude there are a couple of other items I would like to mention around our fiscal 2023 expectations.

Cash content spend totaled $30 billion in fiscal 2022 and.

And we continue to expect it to be in the low $30 billion range for fiscal 2023.

Capital expenditures totaled nearly $5 billion in fiscal 2022 in line with our expectations and we currently expect that Capex will increase in fiscal 2023 to a total of $6 7 billion drill.

<unk> by higher spend across the enterprise.

Putting this all together, assuming we do not see a meaningful shift in the macro economic climate. We currently expect total company fiscal 2023 revenue and segment operating income to both grow at a high single digit percentage rate versus fiscal 2022.

We are confident about the opportunities we see to continue to transform our business for the next 100 years and look forward to sharing our progress with you all throughout 2023.

And with that I'll turn it back to Alexia and we would be happy to take your questions.

Thanks, Christine as we transition to Q&A, we ask that you. Please try to limit yourself to one question in order to help out help us get to as many ounces possible right and with that operator, we're ready for your first question.

And once again to ask a question you May press Star and then one on your Touchtone telephone.

We are using a speaker phone, we do ask that you. Please pickup your handset prior to pressing the keys to ensure the best sound quality.

So withdraw your questions you May press star and chip.

Again that is star and then one to join the queue.

Our first question today comes from Ben Swinburne from Morgan Stanley . Please go ahead with your question.

Thanks, Good morning, good afternoon, sorry.

Two questions Bob can you talk a little bit about how whats the.

Tumor experience is going to be like as you roll out. These this price increase here in a months Scott you've got customers on lots of different plans different distributors.

Can you talk a little bit about your confidence that it is going to be seamless and that consumers will have the ability to choose the plan that works best for them.

And then.

Christine on the parks margins U S margins this quarter.

I think through the first three quarters of fiscal 'twenty, two margins were up pretty nicely versus 19, and they were actually down I think this quarter. It didn't sound like there was anything in your prepared remarks that sort of commented on that there was a mention of cost inflation in the release.

But just wondering if you could spend a little bit of time talking about some of the cost.

Drivers in the U S parks business in the quarter anything unusual that you would want to call out and how we might want to think about that heading into 'twenty three thank.

Thank you.

Alright.

Thank you Ben.

In terms of trying to communicate to consumers.

Multitude of options, we're getting them, we believe that more choices is actually good and youre right. Its predicated upon our ability to communicate.

Options to the consumer, but we've got so many <unk>.

Ours have history with Hulu, where.

Where we've given them options between advertising and non advertising Hulu plus like TV without Hulu plus like TV that we believe that we've got a pretty good formula for how we can communicate and that formula has worked very well domestically and so we believe it will work as well internationally as well as across both Hulu Disney.

<unk> and ESPN plus I think it's important to keep in mind that we've got unmatched brands and as we continue to go ahead and extend our reach and there are different business models different pricing models for consumers that that choice itself will really enable us to.

Have maximum penetration regardless of the.

Brand under which the option is given to consumers, but also at the same time as our platforms become just that more and more platforms and less and less just distribution options.

We've got.

A pretty good formula for making it simple for the consumer but also enabling for the consumer to go ahead and subscribe in a way that suits them best.

Okay. Ben on your question about the park margins. So deep Haps segment margin came in around 24% for this quarter and that is lower than previous quarters. This year.

Let's remember that Q4 is historically the lowest quarter of the year for margin and there are two things going on here buses on the revenue and the expense side.

On the revenue side. It is primarily driven by traditional seasonality in our back to school time.

And to a lesser extent as I called out in my comment the impact of Hurricane and that was a $65 million drag on the quarter.

We have been using 2019 as our base for comparison.

Pre pandemic. So when you compare it to fiscal 19 Q4, the lower margin is driven by international performance.

And then if you flip to the expense side the increase in quarter over quarter expenses is the continued effect of bringing on some more guest offerings. So those are things like nighttime spectacular.

We also have hard ticket events and they have a lot of costs just in terms of setup and break down. We also remember have a new ship. The wish that just started operations and there are some other smaller one time items, but those are the real drivers of that lower margin this quarter.

Alright. Thank you your next question.

Okay.

Our next question comes from Philip Cusick from Jpmorgan. Please go ahead with your question.

Hi, Thank you.

Turning to T C.

I guess, let's focus on the profit in 2004 guidance, we've talked in the past what this means for probably a quarter or two in 'twenty four and not for the full year is that still the way to think about it and I didn't notice the <unk>.

Comment about assuming the economy, maybe doesn't get worse or something like that can you just talk about what it what drove you to add that language.

Well I'll take that bill.

So direct to consumer for 'twenty for profitability, you should be thinking about it at a quarter not a year basis.

And then on some of the profitability drivers that.

We talked about that I think answered the question about the economy.

We do have things like the.

The steady state of content on the service.

That's independent of the economy.

Our focusing on bundled offering as we refine our value proposition.

So increasing international.

Core market penetration once again that is somewhat reliant on a stable economy.

And increasing <unk> through the pricing increases would also I think be something that could be sensitive to.

The economic environment we.

We do have the Disney plus add tier launch and AD monetization growth and the indications that we have so far is that those are very strong. So we really are looking at sort of the puts and takes on what's going to be economically sensitive.

We just think an abundance of caution we really have to keep the health of the consumer.

In mind, when we think about achieving.

All of our goals.

This upcoming year.

Yeah.

Thank you. Our next question. Thank you if I can follow up.

Okay go ahead Phil.

I was just going to say you called out a few you both you and Bob called out G&A and marketing savings on the call. How is Disney thinking about just cost in general is there a process going on today to cut costs across the board and what might the timing of that'd be thanks again.

Yeah. Thanks for that question and follow up so we are actively evaluating our cost base currently and we're looking for meaningful efficiencies. Some of those are going to provide some near term saving and others are going to drive longer term structural benefits.

I just would point to what we did in the parks during the pandemic we.

We did some structural changes and the park is better off because.

Cause of that but those were structural benefits that did not slow back into their cost base.

We will update you with more information as our plan evolves.

Thank you next question. Thank you.

Our next question comes from Michael Nathanson from Moffatt Nathanson. Please go ahead with your question.

Thanks.

I have two one is on the parks in 'twenty three I was trying to understand what levers can you pull these things if there is a slowing U S consumer.

What can you do to kind of maintain the revenue growth I guess the revenue that we've seen.

So in other words, what can be different this time versus previous downturns and then Christine.

I'll come back to that operating profit guide, which you never give so I. Appreciate the fact you did it.

I'm just trying to the piece parts right.

See if I can get that our parks.

Yes.

Can you hone in a bit on the outlook for the rest of <unk> and 'twenty three is that what you see as kind of the.

Yes.

With slower of Oi growth next year. Thanks.

Yes.

Youre talking about park's Michael what is different is.

Compared to the last time, we had a slowdown in the economy for.

Or managing our parks business, we have more commercial tools and levers available to us.

One of the ones that's quite obvious as discounting that's something that we have used in the past and we will continue to use it because it is an effective lever for managing your yield, but we're not going to use it to the extent to which we used it during the last recession.

Some of the other things that are new would be the reservation system. So we manage attendance now we can track it real time on many days, we are fully booked now, but we can adjust that and be very flexible and real time on adjusting it.

We if we so choose the other thing is we have a tiered pricing structure that gives us a lot of flexibility and we also have re imagined our annual Pap business model and.

And we could also have some more flexibility in using our annual pass program.

We also have the technology advancements and this is more on the expense side that provides us opportunities for cost flexibility. So we have things like mobile ordering contactless check in so those kinds of things give us levers.

On the on the expense side.

But we do feel that we have once again harking back to the opportunity. We took during the pandemic. We did permanently remove a significant amount of operating expense at at the parks and that better positions US right now as we go into an uncertain economic environment.

Okay.

Michael do you have a second question.

It was on the Oi Guide right you don't usually give I'm trying to dig into the <unk> outlook, given what you said about the other businesses at this point.

Yes, we gave we gave the outlook that was more for the company as a whole, but we are still looking at <unk> being a strong continuing its strong growth <unk>.

The med.

We're looking at it in three components the direct to consumer we're looking at improving profitability. As we mentioned we believe that this quarter that we're reporting is the is the low point and it will improve from here.

CLS Uno.

That will have some challenges as we said so that'll be variable quarter to quarter and then we have to look at our linear business and we do have some declines that are in line with the industry and that's one that is just an industry issue that we're all going to be managing through.

Alright. Thank you your next question.

Our next question comes from non <unk> from Barclays. Please go ahead with your question.

Thank you.

Maybe I guess.

We look at the.

Well the streaming business as a whole land bank.

And look at the strategy going forward.

You will see a price increase next quarter and of course that is also.

So the AD supported tier.

That could help manage some of the churn, but as an offset it seems like some of the marketing expense.

We optimized along with some content spending so.

Bob If you look at the guidance right now.

Credible growth needs to accelerated going forward in order to get to the guidance, but a lot of the levered like pricing may actually for John could be higher.

And marketing costs naturally trend.

Lower.

When we think about that how do we become the.

The subscriber guidance with the financial model of the business.

And does it make sense to maybe you know.

The focus more on profitability than subgroup from our perspective going forward.

Our approach our approach going forward is going to be focused largely on profitability keeping in mind, though that the revenue growth that we have.

He is also going to be a key component towards the overall profitability.

If we look at.

The content, that's going to actually fuels.

Our subscriber growth and engagement we're obviously.

Managing that very carefully Christine talked about some cost management initiatives thats not only cross marketing, but also on the content spending itself as well, but we've also got an opportunity I believe to manage their profitability through that pricing power that we believe we have we launched these services.

Tremendous values to the consumer and everything that we've got shows us that we still.

Have some opportunity for continued price value.

Exploration on all of those are our services. So we.

We believe that in our history shows that when we've taken price increases across our streaming businesses that we don't meaningfully increased churn or cancellations. So we believe we've still got some headroom there so whether it's cost management or attention to revenue growth through sub ads through our great content additions or.

Through <unk>.

We believe that we've got a formula that gives us great confidence that we're going to achieve the guidance that we communicated.

Great. Thank you next question please.

Our next question comes from Steven <unk> from Wells Fargo. Please go ahead with your question.

Thanks, Joe Bob I think you called ESPN or reach machine and Christine talked about cord cutting and how thats something that everybody is going to be managing through so as you look to expand the reach of ESPN I know we've had this question before but how do you think about starting to.

Make a lot of the marquee streaming rights sorry, marquee sports rights also available on the streaming services.

Yes, Ken Foster or others, and how do you think about monetizing in a streaming world with a lot more of those expensive rights available and then Christine just on the Capex.

Moving up $1 billion or so this year I know some of that is maybe a shift of about $500 million from last year, but it's still a little more elevated than history.

<unk> said it was enterprise wide. So I'm wondering if the increase is more capital projects on the park side or if its other things like technology or studio expansions. Thank you.

Okay in terms of ESPN growth.

I think we all have to keep in mind that number one ESPN is that powerhouse brand and we certainly over time have been able to enjoy the benefits of that brand in a linear world. However, going forward. We've got the ability not only to continue to enjoy those benefits in a linear world but also.

Begin to grow.

Our opportunities in the digital realm.

And leverage that brand growth into other avenues that heretofore, we have not been able to necessarily tap into I think it's also important to look at ESPN in terms of an important part of the overall Disney portfolio or synergy machine. It is an integral part of the bundle itself. So when you take the fact that the great <unk>.

And we have the opportunity to grow it into different avenues.

And as I've said before sort of put one foot on the dock one foot on the boat and be flexible in terms of our speed of evolution.

I think it's going to be an important part of our business going forward live advertising continues to be a really important benefit that we sell into our advertising community. We've got multiple platforms.

I believe that.

It's going to via a very robust part of our company going forward.

Whether or not it's linear or whether it's digital or somewhere in between.

So on Capex, Steve, Yes, Youre right. It is up that was in my comments.

As you.

For those who have followed the company for a while we usually give you a capex number for the beginning of the year and by the end of the year. We haven't spent it all so there is some slippage that goes from one year into the next.

And also just with.

Our supply chain and labor shortages in various parts of the world, where we are having.

Having projects that slippage is probably a little more amplified.

We do have some technology spend both at the enterprise level as well as in demand some of it is consumer facing some of it is.

More internal to once again deliver longer term efficiencies and we have deepak projects pretty much everywhere around the globe. So we're continuing to build out those projects either on schedule or with some slippage that is slipping into 'twenty three.

Alright. Thank you. Thank you operator, I think we have time for one more question.

Yeah.

And our next question comes from Michael Morris from Guggenheim. Please go ahead with your question.

Thanks for taking my question. Good afternoon, guys two for me one.

Kristina I'm, hoping you can give us a little more detail on the sequential revenue decline at the <unk> segment, you talked about foreign exchange could.

Could you quantify how much of it came from foreign exchange.

Because as im looking at the <unk>.

<unk> on the domestic business domestic Disney parks in particular, they have sequentially comment as well so maybe how much was FX and a little bit more detail on kind of the core.

What's driving that Disney plus RPM compression.

My second question is on sports rights. There was an article out today about Netflix potentially looking at some sports rights Amazon.

Seems to have had success with Thursday night football package, So Bob I'm curious, how you see the landscape changing.

As these new entrants come in if you see that changing at all and how it impacts the environment. Thank you.

Well I'll take the first one.

On <unk> on the revenue decline. So there are a couple of things one is.

That on the <unk> the impact of foreign exchange on <unk> was about half of the decline.

And we do hedge and we have very successfully managed through this year's strong dollar for the most part.

However, as you know we are end markets all over the globe and some of the markets in which we have launched their currency.

We do not hedge for either extraordinarily high cost or illiquidity, so that foreign exchange impact is about half.

Of the impact and the other one is lower pay per view and this was at ESPN plus.

UFC, but we had.

A different games get different match schedule as you can tell them not at UFC fan when ice column games, but a different match catch cool.

The omission of key personality and Mcgregor, so that actually were the two primary factors lowering that year over year revenue.

Okay. Yeah in terms of the sort of is the landscape changing with new entrants, we really like our strong position that we've got going forward not only in terms of the breadth of the sports that we're engaged in but also the terms of the deals that we have so.

Exercise with discipline.

Think the college.

Conferences in terms of our negotiation.

Making sure that we.

We recognize that we don't need everything we just need the right thing.

But also making sure that as we go forward, we're looking at multi platform rights.

We will not do deals, where we don't give multi platform rights to give us that very flexibility that we talked about toggling between sort of go more linear traditional legacy distribution channels and that of the more did.

Digital.

Forward looking platforms. The big one that's coming up obviously for us would be the MBA, we'd love to be in business with the MBA, but again, we're going to do it in a fiscally responsible way.

Seeking multi platform rights. So we feel really good about our position going forward with the Reits that we've already got and the one or two that are still in.

In place.

Thank you.

I think with that well conclude the call.

Tom.

And ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for joining.

You may now disconnect your lines.

Okay. Thanks.

Now I have to read a statement here that I think there's still a note that the reconciliation of non-GAAP measures that were referred to on this call to equivalent GAAP measures can be found in our Investor Relations website. Let me also remind you that certain statements on this call, including financial estimates or statements about our planned guidance expectation fleece business.

<unk> our other statements are not strictly in nature may constitute forward looking statements under the securities laws.

Make these statements on the basis of our views and assumptions regarding future event business performance at the time that we make them and we do not undertake any obligations to update these statements.

We're looking statements are subject to a number of risks and uncertainties and actual results may differ materially from the results expressed or implied in light of a variety of factors, including economics, our industry factors are execution risks, including the connection with our DTC business plans related to content creation and future subscriber growth churn financial impact of Disney plus adhere and our new <unk>.

Pricing not on cost rationalization for more information about the risk factors. Please refer to our Investor Relations website and the press release issued today the risks or uncertainties described in our Form 10-K Form 10-Q, and other filings with Securities and Exchange Commission and we want to thank you all for joining us today and wish you a great rest of the day.

And ladies and gentlemen, with that we will conclude today's presentation. We do thank you for joining you may now disconnect your lines.

Goodbye.

[music].

Good afternoon, and welcome to the Walt Disney Company as fiscal full year and Q4 2022 earnings results Conference call.

All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

He joined the questions here you May press Star and then one using a touchtone telephone.

Draw yourself from the queue you May press star two.

Also note todays event is being recorded.

At this time I'd like to turn the floor over to senior Vice President of Investor Relations for Walt Disney Company, Alexia could Ronnie Ma'am. Please go ahead.

Good afternoon, it's my pleasure to welcome everybody to the Walt Disney Company's fourth quarter 2022 earnings call. Our press release was issued about 25 minutes ago and is available on our website at www Dot Disney Dot com forward slash investors.

Today's call is being webcast and a replay and transcript will also be available on our website.

Joining me for today's call are Bob Chapek, Disney's Chief Executive Officer, and Christine Mccarthy Senior Executive Vice President and Chief Financial Officer.

Following comments from Bob and Christine we will be happy to take some of your questions. So with that let me turn the call over to Bob to get started.

Thank you Alexia and good afternoon, everyone.

Those efforts resulted in truly phenomenal storytelling.

Record annual results at our parks experiences and products segment and outstanding growth in our direct to consumer services, which added nearly 57 million subscriptions. This year to reach a total of more than $235 million.

It has taken just three short years for Disney plus to transform from a nascent business to an industry leader.

Building a streaming powerhouse has required significant investments and now with its scale incredible content pipeline and global reach Disney plus is well situated to leverage our position for long term profitability and success.

Our financial results this quarter represent a turning point as we reached peak DTC operating losses, which we expect to decline going forward.

That expectation was based on three factors first the benefit of both price increases and the launch of the Disney plus add to your next month.

Our realignment of our cost, including meaningful rationalization of our marketing spend.

And third leveraging our learnings and experience in direct to consumer to optimize our content slate and distribution approach to deliver a steady state of high impact releases that efficiently drive engagement and subscriber acquisition.

With these factors. We believe we are on a path to profitable streaming business that generates shareholder value long into the future.

And assuming we do not see a meaningful shift in the economic climate.

We still expect Disney plus to achieve profitability in fiscal 2024 as losses begin to shrink in the first quarter of fiscal 2023.

Q4 was another strong period for parks experiences and products, which continued to deliver phenomenal results. Despite the impact of hurricane in.

I want to thank the amazing cast members in Orlando, who went above and beyond to help keep rguest safe and entertained during the storm.

From protecting the many animals with Disney animal Kingdom, the packing thousands of meal kits to donating and delivering emergency supplies to the community I am so proud of how our team came together to support our guest our neighbors and each other.

Our parks team is laser focused on enhancing the guest experience and creating those magical memories I mentioned at the outset.

This focus along with the investments, we made to bringing new attractions and experiences to our domestic parks is generating consistently strong demand, which on many days exceeds our current capacity and.

And we continue to manage attendance levels with a focus on providing guests with the highest quality experience and enhancing our parks overall financial performance.

One of the things that guests love most is the opportunity to celebrate at our parks.

Evidenced by the post pandemic return and sellout of special ticketed events like bogey bogey Bash and Mickey's not so scary Halloween Party I visited Disneyland with my family just before Halloween and the celebration was phenomenal.

Tickets for making very Merry Christmas Party at Walt Disney World has now officially gone on sale and over half of all dates have already sold out.

As you know we are about to embark on the company's 100 <unk> anniversary celebration.

And kicks off at our parks on January 27th at Disneyland.

We will unveil new platinum infused decor premier to all new nighttime spectacular and opened the highly anticipated Mickey and Minnie Runaway railway attraction.

This is only one part of what will be the largest cross company celebration of Disney's history with Activations around the world and we're so excited for fans and families to join us.

At our international Parks Disneyland, Paris is enjoying a great resurgence.

Our fantastic New Marvel Avengers campus opened on July 20th and guests love the highly immersive and dynamic environment of the first ever Marvel themed land in Europe .

Higher to the recent closure of Shanghai Disney Resort, we're seeing positive momentum there and at Hong Kong Disneyland. We are hopeful that the situation will improve and are thinking of all of our employees there as we manage through the challenging COVID-19 environment.

Our Disney Cruise line is showing strong signs of recovery the new Disney wishes in high demand and we've seen a ramp up in bookings for our base fleet.

This quarter was also exceptionally strong in terms of creative excellence across our content engines.

Our teams received 57 Emmy awards spread across a remarkable 37 different titles emanating from a wide range of brands franchises and distribution channels.

<unk> ended the season as number one in entertainment programming for the third consecutive year and ABC news continues to be the most trusted source of news with number one positions across all day parts.

The accurately Thor love of Thunder the characters for Standalone film earned over $716 million worldwide. This was our first time, we released a fourth film based on a single Marvel character and Thors longevity is a great sign for Marvell and our ability to.

Tell stories based on its characters long into the future.

Evidence Hocus pocus too was a smash hit becoming not only the most watched premier of Disney plus but also a new record setting streaming movie with $2 7 billion minutes viewed in its first weekend and Marvel Studios Ms. Marvel completed its run in July and she Hulk attorney.

La debuted in August contributing to subscriber growth and driving substantial engagement.

'cause films and or a spy thriller that explores the back story of Cassian <unk> a popular character from Rogue one earned rave reviews and showcases our ability to extend stories from the big screen to our streaming services.

Turning to general entertainment the critically acclaimed prey from 20th century Studios was <unk> biggest premier ever across all films and series and was the most watched film premiere on Star plus in Latin America, and Disney plus under the Star banner in all other territories. Looking ahead, we are thrilled that.

<unk> are returning to the box office for blockbuster films, and we have big plans for the big screen in the fiscal year 2023.

Black Panther will conduct forever opens this Friday and Ryan Kugler has delivered yet another culture defining powerful film.

Reaction to this films premiere a few weeks ago was incredible and fan anticipation is very high as indicated by the strength of advanced ticket sales up next is strange world from Walt Disney Animation Studios, which opens in theaters. This Thanksgiving.

Really anticipated avatar the way of water opens on December 16, and is the sequel to the highest grossing film of all time James.

Our searchlight studio continues to deliver critically acclaimed films and three fantastic titles will be in theaters. This quarter. The banshees of insurance, which is earned critical claims since it's Dennis premier that menu, starting refined and Anya tailored joy.

And the Empire Flight from Academy Award winner Sam Mendes.

Looking even further into 2023, we will see theatrical releases of three highly anticipated Marvel films at Manitowoc quantum Mania Guardians of the Galaxy volume III and from Marvels, and we could not be more excited about Disney live action. The little Mermaid are re imagining of one of the.

The most popular animated films of all time.

Turning Halle Bailey who's rendition of part of your World has already lit up the internet.

We're also bringing 999 happy hospitalized with the hilarious new live action Haunted mansion, featuring an all star cast.

Pixar will debut in all new original feature elemental and Harrison, Florida is back and eagerly awaited fifth, Indiana Jones film, which is going to be spectacular.

Of course, all of our theatrical titles will essentially make their way onto our streaming platforms complementing our robust slate of original content.

On November 18th Disney plus we'll release disenchanted based on the successful in channels that came up 15 years ago.

Marvel's Guardians of the Galaxy holiday special will follow right after and Willow another long awaited sequel from Lucasfilm, we'll premiere the following week.

Our content investments.

ESPN continues to lead with its multi platform sports ecosystem with reach across linear streaming digital and social media serving fans at massive scale with the power and support of the Walt Disney Company behind it ESPN is an unequaled reach machine.

<unk> record audience on ESPN.

The 2022 College football season is off to its best nine week start in five years across our networks and thanks to our incoming FCC agreement in 2024, we will remain the leading college football platform with over 60% of the college football market.

And our new long term NFL agreement includes Super Bowls, and annual ESPN, plus exclusive matchup and more regular season playoff games and better scheduling.

On October <unk>, we marked another milestone moment in our DTC streaming services and the growth of the ESPN plus when the Broncos versus Jaguars NFL game from London became our most viewed ESPN plus event ever find.

Finally, we are exactly one month from the U S launch of Disney Pluses AD supported subscription offering which is a win for audiences.

Advertisers and shareholders.

The launch will bring fans a new slate of subscription plans across Disney plus Hulu, ESPN, plus and the Disney bundle getting viewers flexibility in choosing an option that suits their needs.

The offering also as a key component to our total company advertising portfolio and advertiser interest has been strong.

We have been a leader in streaming advertising for some time and are bringing our years of experience, leading AD tech and relationships to this important opportunity.

Strong based pricing reflects the value advertisers put on our audience, our brand safe environment for their messages and our sales experience.

We also have proven technology to deliver a great advertising experience on day, one and importantly, we have the ability to scale and innovate for audiences and advertisers alike.

We are incredibly excited about the launch of our new AD supported subscription offering for Disney plus which rolls out on December eight.

2022 was an important year of recovery coming out of the pandemic as we made foundational investments in our long term success.

With must see content.

Services, which arent just content delivery systems, but platforms that bring us closer to audiences than ever before and enable consumers to access more of the Walt Disney Company's total offering.

With our unmatched brands and franchises and robust pipeline of content capable of filling all of our distribution channels unique experiences and strong connections to audiences around the world.

I believe we are well positioned for future long term growth and I'm confident in our path forward.

With that I'll turn it over to Christine to talk in greater detail about our quarter and the year ahead.

Good afternoon, everyone.

And our direct to consumer business.

Excluding certain items, our company's diluted earnings per share for the fourth fiscal quarter was 30.

And for the full fiscal 2022 year diluted EPS, excluding certain items was $3 53.

Our parks experiences and products segment had another stellar quarter with deep operating income in the fourth quarter more than doubling versus the prior year to $1 5 billion.

Our domestic parks delivered significant year over year revenue and operating income growth. Despite an adverse impact of approximately $65 million to segment operating income from hurricane Ian.

And per capita spending remained strong increasing 6% versus Q4 of fiscal 2021, and nearly 40% versus fiscal 2019.

Reflecting the continued popularity of premium offerings, including J D plus and lightning link.

We are also making meaningful progress on the return of international visitors to our domestic parks, particularly at Walt Disney World, where the mix of international attendance in the fourth quarter was roughly in line with pre pandemic levels.

Quarter to date occupancy for the wish continues to exceed 90%. While we have also seen a meaningful pickup in the rest of our fleet with booked revenue up versus pre pandemic levels.

At International Parks fourth quarter results also improved significantly year over year, driven by continued strength at Disneyland Paris, partially offset by a decrease at Shanghai Disney Resort.

As Bob mentioned the situation in Shanghai has recently been challenging the park is currently closed and we do not yet have visibility to a reopening date.

Q4 results at consumer products also increased versus the prior year driven by higher merchandise licensing results across several of our key franchises, including Mickey and friends and condo and toy story.

Moving on to media and entertainment distribution.

Operating income in the fourth quarter decreased by $864 million versus the prior year as a modest increase at linear networks was more than offset by wider losses at direct to consumer and to a lesser extent at content sales licensing and other.

Linear networks operating income in the fourth quarter increased 6% to $1 7 billion.

Driven primarily by growth at domestic channels.

The increase at domestic channels, primarily reflects higher results of cable driven by lower programming and production costs, partially offset by a decrease in advertising revenue.

Compared to the prior year fourth quarter cable programming and production costs benefited from the timing of the NBA finals, which were in Q4 of fiscal 2021 versus Q3 of fiscal 2022.

As well as from lower costs for major League baseball programming due to fewer games under our new contract.

These impacts were partially offset by higher NFL programming costs as a result of one additional game aired versus the prior year quarter.

The decrease in cable advertising revenue versus the prior year fourth quarter also reflects the timing impact of the NBA finals.

PSTN advertising revenue in Q4 was down 23% year over year. However.

Adjusting for the timing impact of the NBA finals, it was down roughly 2%.

Quarter to date ESPN domestic cash advertising sales are pacing down reflecting in part the absence of these two CFP gained.

Have continued to show relatively stable demand.

The others remain cautious in anticipation of potential economic softness.

Looking ahead, we expect to see linear subscriber declines accelerate more in line with industry trends.

Our content sales licensing and other results decreased versus the prior year by a little over $100 million in.

In line with guidance due to lower TV spot and home entertainment results, partially offset by higher theatrical results and an increase at our stage play business.

While difficult comparisons may persist in the intermediate term at our TV <unk> and home entertainment businesses results will vary quarter to quarter and we currently expect content sales licensing and other operating results to improve slightly in the first fiscal quarter of 2010.

Three on both the sequential and year over year basis.

Finally, I'd like to spend some time talking about our fourth quarter results at direct to consumer where our losses peaked in the fourth quarter at approximately $1 5 billion.

Core Disney plus added over 9 million subs in Q4.

Accelerating as expected versus the 6 million net adds we saw in the third quarter.

Reflecting the success of Disney plus day, and our Tentpole content releases. In addition to continued growth from third quarter market launches.

Nearly $2 million of these net adds were from the U S and Canada, and a little over $7 million or international core additions.

At the same time core Disney plus <unk> decreased by 5% between Q3, and Q4, reflecting an adverse foreign exchange impact and to a lesser extent.

Slightly higher mix of subscribers from lower priced international markets.

<unk> at each streaming service is also impacted by the mix of subscribers to the bundle.

Our bundled and multi product offerings now account for over 40% of our fiscal year end domestic Disney plus subscriber count.

This shift has been purposeful as the bundle drive higher total company subscription revenue and higher long term subscriber value due to notably lower churn.

With our expectation that peak losses are now behind us DTC operating results should improve going forward as we lay the foundation for a sustainably profitable business model.

In the first quarter of fiscal 2023, we expect direct to consumer operating results to improve by at least $200 million.

Versus the fourth quarter of fiscal 2022.

With larger improvement expected in Q2, reflecting a couple of key factors.

First our recently announced price increases across our direct to consumer offerings in the U S should begin to modestly benefit <unk> and subscription revenue in the first quarter.

However, given that the Disney plus price increase will not go into effect until towards the end of Q1. This benefit will be realized more fully in the second quarter.

Similarly, we do not expect the launch of the advertising supported tier of Disney plus in December to provide a more meaningful financial impact until later this fiscal year.

And opex growth should slow as we approach steady state.

And marketing costs should decline as we continue to focus on aligning our costs with our dynamic business model.

As it relates to subscribers, we expect ESPN, plus and Hulu will continue to add new subscribers in Q1.

And we expect core Disney plus subscribers to increase only slightly in the quarter, reflecting tougher comparisons against Disney plus day performance.

As we've mentioned before subscriber growth will not be linear each and every quarter and the trend is driven by several factors, including content releases and promotions.

We expect Disney plus core subscriber growth to then accelerate in the fiscal second quarter, largely driven by international markets.

And that Disney plus Hot Star. We are currently expecting that subscribers will decline in Q1 due to the absence of the IPL, but we do expect to see some stabilization in Q2.

I'll note that our direct to consumer expectations are built on certain assumptions around subscriber additions based on the attractiveness of our future content.

Churn expectations for our upcoming price increases.

And our outlook.

Before we conclude there are a couple of other items I would like to mention around our fiscal 2023 expectations.

Cash content spend totaled $30 billion in fiscal 2022 and.

And we continue to expect it to be in the low $30 billion range for fiscal 2023.

Capital expenditures totaled nearly $5 billion in fiscal 2022 in line with our expectations and we currently expect that Capex will increase in fiscal 2023 to a total of $6 7 billion drill.

Driven by higher spend across the enterprise.

Putting this all together, assuming we do not see a meaningful shift in the macroeconomic climate. We currently expect total company fiscal 2023 revenue and segment operating income to both grow at a high single digit percentage rate versus fiscal 2022.

We are.

<unk> about the opportunities we see to continue to transform our business for the next 100 years and look forward to sharing our progress with you all throughout 2023.

And with that I'll turn it back to Alexia and we would be happy to take your questions.

Thanks, Christine as we transition to Q&A, we ask that you. Please try to limit yourself to one question in order to help out help us get to as many ounces possible today and with that operator, we're ready for your first question.

And once again to ask a question you May press Star and then one on your Touchtone telephone.

You are using a speaker phone, we do ask that you. Please pickup your handset prior to pressing the keys to ensure the best sound quality.

To withdraw your question you May press Star and chip.

And that is star and then one to join the queue.

Our first question today comes from Ben Swinburne from Morgan Stanley . Please go ahead with your question.

Thanks, Good morning, good afternoon, sorry.

Two questions Bob can you talk a little bit about how what's the consumer experience is going to be like as you rollout. These this price increase here in a month you got you've got customers on lots of different plans and different distributors.

Can you talk a little bit about your confidence that it's going to be seamless and that consumers will have the ability to choose the plan that works best for them.

And then.

Christine on the parks margins U S margins this quarter.

I think through the first three quarters of fiscal 'twenty, two margins were up pretty nicely versus 19, and they are actually down I think this quarter. It didn't sound like there was anything in your prepared remarks that sort of commented on that there was a mention of cost inflation in the release.

But just wondering if you could spend a little bit of time talking about some of the cost.

Drivers in the U S parks business in the quarter anything unusual that you would want to call out and how we might want to think about that heading into 'twenty three.

Alright, Thank you Ben.

In terms of trying to communicate to consumers.

Multitude of options, we're getting them, we believe that more choices is actually good.

Youre right its predicated upon our ability to communicate.

The options to the consumer, but we've got so many years of history with Hulu.

We've given them options between advertising and non advertising Hulu plus like TV without Hulu plus like TV that we believe that we've got a pretty good formula for how we can communicate and that formula has worked very well domestically and so we believe it will work as well internationally as well as across both Hulu Disney plus.

And ESPN plus I think it's important to keep in mind that we've got unmatched brands and as we continue to go ahead and.

And our reach.

And.

<unk> business model is different pricing models to consumers that that choice itself will really enable us to have maximum penetration regardless of the.

Brand under which the option is given to consumers, but also at the same time as our platforms become just that more and more platforms and less and less just distribution options.

We've got.

Pretty good formula for making it simple for the consumer but also enabling for the consumer to go ahead and subscribe in a way that suits them best.

Okay. Ben on your question about the parks margins. So deep Haps segment margin came in around 24% for this quarter and that is lower than previous quarters. This year.

Let's remember that Q4 is historically the lowest quarter of the year for margins and there's two things going on here buses on the revenue and the expense side.

On the revenue side. It is primarily driven by traditional seasonality back to school time.

And to a lesser extent as I called out in my comments the impact of Hurricane and that was a $65 million drag on the quarter.

We have been using 2019 as our base for comparison.

Pre pandemic. So when you compare it to fiscal 19 Q4, the lower margin is driven by international performance.

And then if you flip to the expense side the increase in quarter over quarter.

<unk> is the continued effect of bringing on some more guest offerings. So those are things like nighttime spectacular.

We also have heart ticket events and they have a lot of costs just in terms of setup and breakdown. We also remember have a new ship. The wish that just started operations and there are some other smaller one time items, but those are the real drivers of that lower margin this quarter.

Alright. Thank you your next question.

Okay.

Our next question comes from Philip <unk> from Jpmorgan. Please go ahead with your question.

Hi, Thank you.

Turning to T C.

Let's focus on the profit in 2004 guidance, we've talked in the past what this means for probably a quarter or two in 'twenty four and not for the full year is that still the way to think about it and I did notice that.

Comment about assuming the economy, maybe doesn't get worse or something like that can you just talk about what it what drove you to add that language.

Well I'll take that bill.

So direct to consumer for 'twenty for profitability, you should be thinking about it as a quarter not a year basis.

And then on some of the profitability drivers that.

That we talked about that I think answered the question about the economy.

We do have things like.

The steady state of content on the service.

That's independent of the economy, we are focusing on bundled offerings as we refine our value proposition.

Increasing international.

Core market penetration once again that is somewhat reliant on a stable economy.

And increasing <unk> through the pricing increases would also I think be something that could be sensitive to.

The economic environment.

Do have the Disney plus add tier launch and AD monetization growth.

And the indications that we have so far is that those are very strong.

We really are looking at sort of the puts and takes on what's going to be economically sensitive, but we just think an abundance of caution we really have to keep the health of the consumer.

In mind, when we think about achieving.

All of our goals.

This upcoming year.

Thank you. Our next question. Thank you if I can follow up.

Okay go ahead Phil.

Yes, Thanks for that question and follow up Phil we are actively evaluating our cost base currently and we're looking for meaningful efficiencies. Some of those are going to provide some near term savings and others are going to drive longer term structural benefits.

I just would point to what we did in the parks during the pandemic we.

We did some structural changes and the park is better off because of that but those were structural benefits that did not flow back into their cost base.

We will update you with more information as our plan evolves.

Thank you our next question. Thank you.

Our next question comes from Michael Nathanson from Moffatt Nathanson. Please go ahead with your question.

Thanks.

I have two one is on the parks in 'twenty three I was just trying to understand what levers can you pull these things if there is a slowing U S consumer.

What can you do to kind of maintain the revenue growth I guess the revenue that we've seen so.

So in other words, what can be different this time versus previous downturns and then Christine.

Come back to that operating profit guide, which you never give so I. Appreciate the fact you did it.

I'm, just trying get a peek parts right.

Seasonally up at our parks.

Mrs.

Can you hone in a bit on the outlook for the rest of <unk> and 'twenty three is that what you see as kind of the.

Yes.

Slower of Oi growth next year. Thanks.

Yes.

We're talking about parks, Michael what is different is.

Compared to the last time, we had a slowdown in the economy for.

Or managing our parks business, we have more commercial tools and levers available to us.

If we so choose the other thing is we have a tiered pricing structure that gives us a lot of flexibility and we also have re imagined our annual Pap business model.

And we could also have some more flexibility in using our annual pass program.

On the on the expense side, but.

Okay.

Michael do you have a second question.

On the Oi Guide right you don't usually give I'm trying to dig into the <unk> outlook, given what you said about the other businesses at this point.

Yes, we gave we gave the outlook that was more for the company as a whole, but we are still looking at deep hep being a strong <unk>.

<unk> strong growth G med.

CLS Uno.

That will have some challenges as we said so that'll be variable quarter to quarter and then we have to look at our linear business and we do have sub declines that are in line with the industry and that's one that is just an industry issue that we're all going to be managing through.

Alright. Thank you your next question.

Our next question comes from Ben <unk> from Barclays. Please go ahead with your question.

Thank you.

Maybe I guess.

We look at that.

The streaming business as a whole land, if we step back and look at the strategy going forward.

You'll see a price increase next quarter and of course it is.

So the AD supported.

That could help manage some of the churn, but as an offset it seems like some of the marketing expense.

We optimize along with some content spending so.

Bob If you look at the guidance right now.

Ascribe growth needs to accelerate going forward in order to get to the data, but a lot of the levers like pricing may actually forwards churn could be higher.

And marketing costs that we tend to find any.

Lower.

So when we think about that how do we can say.

The subscriber guidance with the financial model of the business and does it make sense to maybe.

The focus more on profitability than subgroup from our perspective.

Going forward.

Our approach approach going forward is going to be focused largely on profitability keeping in mind, though that the revenue growth that we have.

He is also going to be a key component towards the overall profitability.

If we look at.

The content, that's going to actually fuels.

Our subscriber growth and our engagement we're obviously.

Managing that very carefully Christine talked about some cost management initiatives thats not only cross marketing, but also on the content spending itself as well, but we've also got on that.

Opportunity I believe to manage their profitability through that pricing power that we believe we have we launched these services at tremendous values to the consumer and everything that we've got shows us that we still.

Have some opportunity for continued price value.

Exploration on all of those are services. So we believe that in our history shows that when we've taken price increases across our streaming businesses that we don't meaningfully increased churn or cancellations. So we believe we still got some headroom there so whether it's cost management or attention to revenue.

Growth through sub ads through our great content additions or through <unk>.

We believe that we've got a formula that gives us great confidence that we're going to achieve the guidance that we communicated.

Great. Thank you next question please.

Our next question comes from Steven <unk> from Wells Fargo. Please go ahead with your question.

Yes. Thanks, So Bob I think you called ESPN, a reach machine and Christine talked about cord cutting and how thats something that everybody is going to be managing through so as you look to expand the reach of ESPN I know we've had this question before but how do you think about starting to make.

Make a lot of the marquee streaming rights or I'm, sorry, marquee sports rights also available on our streaming services wasn't that ESPN plus our other than how do you think about monetizing in a streaming world with a lot more of those expensive rights available and then Christine just on the Capex.

Moving up $1 billion five or so this year I know some of that is maybe a shift of about $500 million from last year, but it's still a little more elevated than history. You said it was enterprise wide. So I'm wondering if the increase is more capital projects on the park side or if its other things like technology or studio expansions. Thank you.

Okay in terms of ESPN growth.

Begin to grow.

Our opportunities in the digital realm.

And leverage that brand growth into other avenues that heretofore, we have not been able to necessarily tap into I think it's also important to look at ESPN in terms of an important part of the overall Disney portfolio. Our synergy machine. It is an integral part of the bundle itself. So when you take the fact that the great <unk>.

And we have the opportunity to grow it into different avenues.

And as I've said before sort of put one foot on the dock one foot on the boat and be flexible in terms of our speed of evolution.

I think it is going to be an important part of our business going forward live advertising continues to be a really important benefits that we sell into our advertising community. We've got multiple platforms.

I believe that.

It's going to via a very robust part of our company going forward.

Whether or not it's linear or whether it's digital or somewhere in between.

So on Capex, Steve Yes, you are right. It is up that was in my comments.

As.

And also just with <unk>.

Supply chain and labor shortages in various parts of the world, where we are having.

Having projects that slippage is probably a little more amplified.

We do have some technology spend both at the enterprise level as well as in <unk>. Some of it is consumer facing some of it is.

More internal to once again deliver longer term efficiencies and we have deep hap projects pretty much everywhere around the globe. So we're continuing to build out those projects either on schedule or with some slippage that is slipping into 'twenty three.

Alright. Thank you. Thank you operator, I think we have time for one more question.

And our next question comes from Michael Morris from Guggenheim. Please go ahead with your question.

Thanks for taking my question. Good afternoon, guys two for me one.

Kristina I'm, hoping you can give us a little more detail on the sequential revenue decline at the <unk> segment, you talked about foreign exchange could.

Could you quantify how much of it came from foreign exchange.

Because as im looking at the <unk>.

<unk> on the domestic business domestic Disney plus in particular, they have sequentially come in as well. So maybe how much was FX and a little bit more detail on kind of the core.

What's driving that Disney plus RP compression.

My second question is on sports rights. There was an article out today about Netflix potentially looking at some sports rights Amazon.

Seems to have had success with Thursday night football package, So Bob I'm curious, how you see the landscape changing.

As these new entrants come in if you see it changing at all and how it impacts the environment. Thank you.

Well I'll take the first one.

On on the revenue decline.

There are a couple of things one is.

That on the <unk> the impact of foreign exchange on <unk> was about half of the decline.

And we do hedge and we have very successfully manage through this year's strong dollar for the most part.

However, as you know we are in markets all over the globe and some of the markets in which we have launched their currency.

We do not hedge for either extraordinarily high cost or illiquidity, so that foreign exchange impact is about half.

Of the impact and the other one is lower pay per view and this was at ESPN plus.

UFC, but we had.

A different games get different match schedule. If you can tell I'm not a UFC fan when ice column games, but a different matched catch cool.

And the omission of key personality and Mcgregor, so that actually with the two primary factors lowering that year over year revenue.

<unk>.

Exercise with discipline.

The college.

Conferences in terms of our negotiation, making.

Making sure that we.

We recognize that we don't need everything we just needs the right things.

But also making sure that as we go forward, we're looking at multi platform rights.

We will not do deals, where we don't give multi platform rights to give us that very flexibility that we talked about toggling between sort of the more linear traditional legacy distribution channels and that of the more.

Digital.

Forward looking platforms. The big one that's coming up obviously for us would be the NBA, we'd love to be in business with the MBA, but again, we're going to do it in a fiscally responsible way.

And seeking multi platform rights. So we feel really good about our position going forward with the Reits that we've already got and the one or two that are still in.

In play.

Thank you.

I think with that well conclude the call I think last time.

And ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for joining.

You may now disconnect your lines.

Okay. Thanks.

Now I have to read a statement here that theres still a note that the reconciliation of non-GAAP measures that were referred to on this call to equivalent GAAP measures can be found in our Investor Relations website. Let me also remind you that certain statements on this call, including financial estimates or statements about our planned guidance expectations are.

Ms prospects or other statements are not historical in nature may constitute forward looking statements under the securities laws.

We make these statements on the basis of our views and assumptions regarding future events business performance at the time that we make them, we do not undertake any obligations to update these statements.

Forward looking statements are subject to a number of risks and uncertainties and actual results may differ materially from the results expressed or implied in light of a variety of factors, including economics, our industry factors are execution risks, including the connection with our DTC business plans related to content creation and future subscriber growth churn financial impact of Disney plus add tier on our.

A new pricing model and cost rationalization for more information about the risk factors. Please refer to our Investor Relations website. The press release issued today the risks or uncertainties described in our Form 10-K Form 10-Q, and other filings with the Securities Exchange Commission and we want to thank you all for joining us today and wish you a great rest of the day.

And ladies and gentlemen, with that we will conclude today's presentation. We do thank you for joining you may now disconnect your lines.

Q4 2022 Walt Disney Co Earnings Call

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