WEBVTT - Warner Bros. Sales Fall on Loss of NBA, Weak Film Slate 0:00:02.720 --> 0:00:10.559 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.600 --> 0:00:14.560 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.600 --> 0:00:17.840 Eastern on Apple, Cocklay and Android Auto with the Bloomberg 0:00:17.920 --> 0:00:21.040 Business App. Listen on demand wherever you get your podcasts, 0:00:21.360 --> 0:00:23.560 or watch us live on YouTube. 0:00:24.239 --> 0:00:26.920 We are an earning season, and right now the big 0:00:26.960 --> 0:00:30.560 media companies are taking their turn publishing their latest results. 0:00:30.600 --> 0:00:33.760 Warner Brothers coming out with numbers. The sales declined after 0:00:33.800 --> 0:00:36.199 it lost the NBA rights, but I don't know that 0:00:36.280 --> 0:00:38.280 it matters that much given that this is a company 0:00:38.800 --> 0:00:43.559 being absorbed by Paramount eventually potentially, Yes, right now that's 0:00:43.600 --> 0:00:45.600 kind of on hold, but the thinking is that it 0:00:45.680 --> 0:00:48.360 will be. Fox also came out with the results. The 0:00:48.360 --> 0:00:49.000 World Cup was. 0:00:48.960 --> 0:00:51.440 Certainly a good thing for that company. Let's begin. 0:00:51.560 --> 0:00:54.720 Getha rang and Athen she is our analyst on US Media, 0:00:54.800 --> 0:00:58.000 joining us from Princeton, KEITHA. Of the results that came out, 0:00:58.040 --> 0:00:59.000 what gets your attention? 0:01:00.520 --> 0:01:03.880 Yeah, I mean you pointed out Warner Brothers Discovery. Yes, 0:01:04.080 --> 0:01:07.160 you know, the earnings, as you said, Scarlett, and rightly 0:01:07.240 --> 0:01:10.199 so is definitely the sides the side show for the moment. 0:01:10.720 --> 0:01:12.720 But I think you know things could change very quickly, 0:01:12.720 --> 0:01:15.399 and you know, it could be the main piece here 0:01:15.440 --> 0:01:17.880 because we're really looking at a company, and I think 0:01:17.920 --> 0:01:20.240 everybody now is kind of thinking of what happens if 0:01:20.520 --> 0:01:24.760 the Paramount sky Dance deal falls through. And you know, 0:01:24.880 --> 0:01:27.880 we know that the merger agreement terminates on June fourth 0:01:27.920 --> 0:01:30.640 of twenty twenty seven, and if Paramount sky Dance can't 0:01:30.640 --> 0:01:33.240 get its act together and can't like settle out of court, 0:01:33.560 --> 0:01:36.680 there's a very high probability that they actually lose this 0:01:36.920 --> 0:01:39.720 trial and then they are in really bad shape. But 0:01:39.760 --> 0:01:42.240 Warner Brothers Discovery actually is doing a lot to improve 0:01:42.280 --> 0:01:45.280 its fundamentals. We saw some pretty decent results at least 0:01:45.280 --> 0:01:48.000 on the streaming side of the business as well as 0:01:48.520 --> 0:01:50.840 you know, on the TV network side. Yes, the loss 0:01:50.840 --> 0:01:53.520 of the NBA definitely hurt them, but it also helped 0:01:53.560 --> 0:01:56.200 them on the expense side, because you know, the EBITDA 0:01:56.320 --> 0:01:59.160 declines that we saw, we were seeing something like, you know, 0:01:59.240 --> 0:02:02.960 twenty five thirty percent ebidetic clients last year. Those really 0:02:03.000 --> 0:02:05.960 moderated now to around four to five percent. So there 0:02:06.040 --> 0:02:08.400 was some good news there as well. And then as 0:02:08.400 --> 0:02:10.680 you pointed out, for Fox, of course, huge quarter there 0:02:11.800 --> 0:02:14.519 with advertising. But again, the bigger story for Fox is 0:02:14.560 --> 0:02:16.880 also it's pending deal for Roku, so a lot of 0:02:17.520 --> 0:02:20.280 MNA stuff kind of overshadowing the fundamentals here. 0:02:20.800 --> 0:02:23.320 And I saw that Fox so they're not going to 0:02:23.320 --> 0:02:25.880 reopen the NFL negotiations until, you know, towards the end 0:02:25.919 --> 0:02:28.359 of the twenty twenty nine season. And I know there 0:02:28.400 --> 0:02:30.919 was some pressure maybe to do something sooner because the 0:02:31.000 --> 0:02:33.120 NFL knows that they can get a big increase in rights. 0:02:33.160 --> 0:02:34.280 What's what's the status there? 0:02:35.400 --> 0:02:38.359 Yeah, So you know, this was always a huge, huge 0:02:38.480 --> 0:02:42.000 downside risk for Fox. Pauls. I think, you know, just 0:02:42.240 --> 0:02:45.079 by them kind of you know, kicking the can down 0:02:45.080 --> 0:02:47.359 the road. This it's a huge sigh of relief, I 0:02:47.360 --> 0:02:50.480 think for investors because Fox was very, very heavily exposed 0:02:50.480 --> 0:02:52.960 to the NFL. You know, we ran some numbers and 0:02:53.000 --> 0:02:56.600 we thought that if the NFL actually did manage to 0:02:56.600 --> 0:02:59.800 secure a big rights increase, that would pressure Fox ebit 0:03:00.360 --> 0:03:04.160 about thirty to forty percent almost just because of the exposure. 0:03:04.680 --> 0:03:06.520 So this definitely, yeah, really. 0:03:06.320 --> 0:03:08.560 Helps kind of the investment case and gives them a 0:03:08.600 --> 0:03:11.520 lot of breathing time, if you will, to figure out 0:03:11.520 --> 0:03:12.400 everything with Roku. 0:03:13.480 --> 0:03:15.440 You know, we talk a lot with Randall Williams, he's 0:03:15.440 --> 0:03:18.520 our Business of Sports reporter, about the possibility of a 0:03:18.800 --> 0:03:22.920 strike for the MLB season at some point because of 0:03:22.960 --> 0:03:27.280 the discussion on some kind of salary cap if that happens, Gita, 0:03:27.320 --> 0:03:29.960 who's most exposed, Who among the big media companies will 0:03:30.000 --> 0:03:31.880 be most exposed? And is it as bad as we 0:03:31.919 --> 0:03:33.720 think it is, because, I mean, the MLB is not 0:03:33.840 --> 0:03:36.600 the NFL. There are so many games that the MLB 0:03:36.680 --> 0:03:39.680 plays as opposed to you know, trust the limited number 0:03:39.680 --> 0:03:40.600 of games for the NFL. 0:03:41.760 --> 0:03:45.320 Yeah, there's definitely you know, some overhang, Scarlett, but as 0:03:45.360 --> 0:03:48.240 you pointed out, not a whole lot of exposure from 0:03:48.240 --> 0:03:51.160 the national side, on the national TV right side. Remember, 0:03:51.200 --> 0:03:54.800 the MLB has a lot more local TV rights exposure. 0:03:55.760 --> 0:03:58.280 You know, it used to be the case with the 0:03:58.400 --> 0:04:01.160 r A sense of course that that business has been 0:04:01.240 --> 0:04:05.200 in secular decline. But yeah, some exposure definitely for for 0:04:05.320 --> 0:04:08.640 Warner Brothers, Discovery, with the Turner Networks, for Fox. But 0:04:08.720 --> 0:04:11.000 I think all of it can be mitigated with you know, 0:04:11.280 --> 0:04:13.040 the presence of other sports programming. 0:04:13.600 --> 0:04:15.560 Did Warner Brothers with this earnings at least did they 0:04:15.600 --> 0:04:18.000 comment on the pending deal with Paramount. Did they give 0:04:18.000 --> 0:04:20.000 you any color as to how this might play out. 0:04:21.040 --> 0:04:24.600 I mean, it was all just really boilerplate commentary. They said, 0:04:24.640 --> 0:04:27.880 you know that they are hopeful that the deal closes, 0:04:27.920 --> 0:04:30.680 but you know, I think at the same time, they 0:04:30.720 --> 0:04:34.320 do very much realize that, you know, things could go south, 0:04:34.400 --> 0:04:37.880 and I think David Zaslav is definitely prepared for that contingency. Remember, Paul, 0:04:38.000 --> 0:04:42.240 if if the deal doesn't go through next June, they 0:04:42.240 --> 0:04:45.320 do collect a nice, big fat check for seven billion 0:04:45.360 --> 0:04:47.640 dollars apart from, of course, the six hundred and fifty 0:04:47.680 --> 0:04:50.839 million dollar ticking fee that goes into effect on October first. 0:04:50.720 --> 0:04:53.200 Right, and that would be Paramount guidance paying for it 0:04:53.240 --> 0:04:56.120 in you know, a lot of that backed by Larry Ellison. 0:04:56.160 --> 0:04:57.240 When it comes down to it. 0:04:58.279 --> 0:05:01.680 We did hear though, that the you K regulators have 0:05:01.800 --> 0:05:05.080 approved the Paramount Warner Brothers deal. Does that move the 0:05:05.080 --> 0:05:06.760 needle at all, Gita or is it just. 0:05:06.839 --> 0:05:07.599 A duck in a box? 0:05:08.640 --> 0:05:11.599 Not at all, Scarlett. Really, the biggest thing right now 0:05:11.640 --> 0:05:14.000 for the Warner Brothers and the Paramount deal are the 0:05:14.160 --> 0:05:18.000 you know, the the twelve state ages who have filed 0:05:18.440 --> 0:05:21.400 a motion to basically block this merger, and it looks 0:05:21.440 --> 0:05:24.440 like the judge everything seems to be kind of favoring 0:05:24.839 --> 0:05:27.200 the courts right now. So so Paramount, is it really 0:05:27.240 --> 0:05:30.760 in a difficult situation at this point, Ken the I've been. 0:05:30.680 --> 0:05:32.760 Trying to read up on this, But is there any 0:05:32.760 --> 0:05:36.160 type of out of court settlement that Paramount could get 0:05:36.240 --> 0:05:38.880 that would be still preserve the merits of the deal 0:05:39.600 --> 0:05:42.000 while you know, satisfying these states. 0:05:42.520 --> 0:05:44.400 Yeah, it's it's really a double ed sword. 0:05:44.520 --> 0:05:48.039 So you know, if we listen to Rob Bonta, who is, 0:05:48.279 --> 0:05:52.000 you know, the age in California, he really seems to 0:05:52.160 --> 0:05:56.400 not be favoring a settlement. Structural remedies are always possible, Paul, 0:05:56.400 --> 0:05:58.960 But then, as you pointed out, does that then get 0:05:59.120 --> 0:06:02.120 Paramount the six billion dollars in synergies that they've promised. 0:06:03.400 --> 0:06:07.080 It's really going to be a very very tough road. 0:06:06.760 --> 0:06:09.320 The obviously, Paramount doesn't want to give up any of 0:06:09.360 --> 0:06:12.000 its assets. They want to get away with as few 0:06:12.000 --> 0:06:15.080 structural remedies as possible, but they might have to, you know, 0:06:15.160 --> 0:06:17.960 actually end up selling a big portion of the TV 0:06:18.040 --> 0:06:22.280 network's business or maybe even some of the studio assets. 0:06:22.880 --> 0:06:27.120 So GITA operationally, then Warner Brothers Discovery, paramount S Guidance 0:06:27.200 --> 0:06:30.320 have to continue to move forward as independent companies, right, 0:06:30.360 --> 0:06:32.719 Like they can't really can they do a lot in 0:06:32.800 --> 0:06:35.880 terms of you know, looking at operations and seeing where 0:06:35.920 --> 0:06:38.680 their synergies or they just have to continue as is. 0:06:39.720 --> 0:06:42.960 Yeah, so they are continuing as is, and actually ironically 0:06:42.960 --> 0:06:44.960 they both are doing kind of okay, just kind of 0:06:44.960 --> 0:06:48.039 given the situation. So Paramount, what we saw in their 0:06:48.080 --> 0:06:51.159 results was they actually posted pretty strong profits and a 0:06:51.160 --> 0:06:54.320 lot of that was driven by the synergies with the 0:06:54.360 --> 0:06:56.839 sky Dance transactions. So what we saw and what really 0:06:56.839 --> 0:06:58.560 I think surprised even the street, was that if you 0:06:58.600 --> 0:07:01.320 looked at the TV network business, we've seen margins of 0:07:01.320 --> 0:07:04.080 about twenty five percent just with all of those synergies 0:07:04.080 --> 0:07:06.279 in the business, you know, they kind of took that 0:07:06.440 --> 0:07:09.120 up to almost thirty five percent. So there's obviously a 0:07:09.160 --> 0:07:11.360 lot of cost savings to be extracted, which is really 0:07:11.400 --> 0:07:13.440 what the street is banking on with the whole Warner 0:07:13.440 --> 0:07:17.239 Brothers Discovery transactions, since they've outlined about six billion dollars 0:07:17.280 --> 0:07:19.880 in cost savings on the Warner Brothers side as well. 0:07:19.880 --> 0:07:22.160 We saw again, you know, they're managing their decline in 0:07:22.200 --> 0:07:25.040 the TV networks business pretty well. Streaming has been an 0:07:25.080 --> 0:07:29.600 absolute standout scarlet. They've really really made fantastic progress when 0:07:29.640 --> 0:07:32.600 it comes to profitability. You know, they posted margins of 0:07:32.600 --> 0:07:35.040 about seventeen percent, and remember their long term target is 0:07:35.080 --> 0:07:37.360 twenty percent, so they're really in pretty good shape. The 0:07:37.400 --> 0:07:39.200 studio is a little bit of an up and down, 0:07:39.640 --> 0:07:41.440 but we do have a pretty exciting line up. I mean, 0:07:41.480 --> 0:07:43.200 we have Done coming a little bit later this year, 0:07:43.200 --> 0:07:45.680 and then of course the Digger with Tom Cruise, which 0:07:45.720 --> 0:07:48.160 is you know, expected to do really well, so that'd 0:07:48.200 --> 0:07:48.679 be interesting. 0:07:49.200 --> 0:07:52.120 Stay with us. More from Bloomberg Intelligence coming up after this. 0:07:56.280 --> 0:07:59.920 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:08:00.080 --> 0:08:03.160 weekdays at ten am Eastern on Apple, Cocklay and Android 0:08:03.160 --> 0:08:06.480 Auto with the Blueberg Business app. Listen on demand wherever 0:08:06.520 --> 0:08:09.840 you get your podcasts, or watch us live on YouTube. 0:08:10.560 --> 0:08:12.440 Let's get back to the tech space, because why not. 0:08:12.480 --> 0:08:15.120 You can't stay away from tech very long because that's 0:08:15.120 --> 0:08:19.520 what's driving the bus here. I noticed at Google, which 0:08:19.560 --> 0:08:22.920 some people call Alphabet, they've had some changes in some 0:08:22.960 --> 0:08:27.320 of their AI management ranks. I was told by a 0:08:27.400 --> 0:08:29.440 guest from Franklin Templeton, who does a lot of this 0:08:29.520 --> 0:08:32.400 tech investing. Don't worry. It's okay. He's not going to 0:08:32.400 --> 0:08:34.280 be wandering far. But I want to talk to man 0:08:34.280 --> 0:08:36.160 Deep Sing because he knows all the tech stuff. Yes, 0:08:36.160 --> 0:08:39.439 he does work intelligence. Man Deep, we had some looks 0:08:39.440 --> 0:08:43.960 like some management changes at the all important AI business 0:08:44.080 --> 0:08:47.160 within Alphabet. Tell us what's going on there and whether 0:08:47.720 --> 0:08:48.840 investors should be concerned. 0:08:49.360 --> 0:08:53.760 Yeah, these are a couple of high profile departures after 0:08:54.600 --> 0:08:59.280 you know, recently, I believe four weeks back, there were 0:09:00.440 --> 0:09:03.280 a couple of other names that had departed. One went 0:09:03.360 --> 0:09:07.439 to open Ai. So the fact that Google is losing talent, 0:09:07.600 --> 0:09:09.600 I mean, these are people who have been there for 0:09:09.760 --> 0:09:12.960 very long. It's definitely not a good sign if you 0:09:13.000 --> 0:09:17.360 ask me. And plus their model release has been delayed. 0:09:17.520 --> 0:09:20.840 So the Gemini three point five version model pro one 0:09:21.440 --> 0:09:25.600 has been delayed, and from what we have gathered, the 0:09:25.679 --> 0:09:28.880 Gemini four is most likely going to get delayed. So 0:09:29.600 --> 0:09:32.240 this is a race about the models. And if you're 0:09:32.320 --> 0:09:36.920 not releasing a frontier model, and Anthropic and open Ai 0:09:37.320 --> 0:09:40.520 keep creating all the news about how their models can 0:09:40.800 --> 0:09:46.840 have you know, any system out there that's definitely feels like, 0:09:47.320 --> 0:09:50.000 you know, Google is missing at least the model lead 0:09:50.200 --> 0:09:54.240 right now, and it could change, but to my mind, 0:09:54.760 --> 0:09:58.280 this is not a positive and I think the stock 0:09:58.600 --> 0:09:59.800 reflected that sentiment. 0:10:00.559 --> 0:10:05.120 So we hear that they're going to really centralize their 0:10:05.200 --> 0:10:07.880 leadership to California that kind. 0:10:07.679 --> 0:10:09.920 Of is the seat of everything, even though we know that, 0:10:10.960 --> 0:10:11.080 is it? 0:10:11.160 --> 0:10:15.280 Larry Pager Surrey Brinn, who's been moving to outside of California. 0:10:14.800 --> 0:10:19.679 Florida, I don't know, Nevada, Nevada. Yeah, he went to village. Yeah, yeah, 0:10:19.720 --> 0:10:20.840 exactly Incline. 0:10:20.520 --> 0:10:23.200 Village, which is basically California, but just across the border. 0:10:23.720 --> 0:10:28.160 What does that say about California as the center of 0:10:28.280 --> 0:10:32.040 tech talent and how whatever efforts you want to make 0:10:32.080 --> 0:10:34.760 to try to decentralize that to spread it out to 0:10:34.800 --> 0:10:36.640 other places, maybe lower cost places. 0:10:36.720 --> 0:10:38.240 It's it's kind of a fool's errant, isn't it. 0:10:38.720 --> 0:10:39.040 Yeah? 0:10:39.080 --> 0:10:43.679 And look right now, it feels like anthropic and open 0:10:43.720 --> 0:10:47.560 AI are getting the big names when it comes to 0:10:47.840 --> 0:10:51.240 you know, the folks who are actually training these models, 0:10:51.280 --> 0:10:55.040 and you know the scaling laws that are driving all 0:10:55.120 --> 0:10:58.560 the development. So from that perspective, I mean, Google is 0:10:58.640 --> 0:11:01.960 still pretty large firm and they've got you know, folks 0:11:02.000 --> 0:11:04.600 all over but there was a time when Google and 0:11:04.679 --> 0:11:08.240 Meta used to be the magnet for the top talent. 0:11:08.800 --> 0:11:13.840 It feels like right now it's Anthropic and open Ai, 0:11:14.080 --> 0:11:18.079 and the departures kind of suggest that. I mean, even 0:11:18.120 --> 0:11:20.720 though Google has a lot going for them in terms 0:11:20.760 --> 0:11:25.240 of infrastructure, the TPUs and all those are positives, but 0:11:25.280 --> 0:11:27.840 when it comes to the model race, I mean, that's 0:11:27.840 --> 0:11:33.560 why Mark Zuckerberg spent millions to form that superintelligence unit 0:11:33.679 --> 0:11:36.719 with fifty people, but fifty of the smartest people and 0:11:36.840 --> 0:11:40.320 still Meta doesn't have a model that is comparable to 0:11:40.360 --> 0:11:43.800 the Frontier lab. So it is a very hard problem 0:11:43.840 --> 0:11:46.120 to solve in terms of catching up to the frontier 0:11:46.480 --> 0:11:50.000 and I feel once you slip, it will get hard. 0:11:50.400 --> 0:11:52.719 So just to follow upon that, if you don't come 0:11:52.720 --> 0:11:54.640 out with the frontier model and you have this talent, 0:11:54.760 --> 0:11:56.360 is it just a matter of time before that talent 0:11:56.400 --> 0:11:59.560 then goes to open Ai Nthropic out of frustration that 0:11:59.559 --> 0:12:01.480 they're not making more concrete progress. 0:12:01.600 --> 0:12:04.520 I mean, it sounds like, especially with Jeff Dean and 0:12:04.679 --> 0:12:07.959 a couple of guys that left, you know this week, 0:12:09.200 --> 0:12:12.280 there was an element of frustration, and that's been the 0:12:12.320 --> 0:12:16.559 case with Google since the chatchipt days they invented the transformer, 0:12:16.640 --> 0:12:19.720 Why weren't they the first ones to release a product? 0:12:19.760 --> 0:12:23.760 So it keeps coming back with this management team. It's like, 0:12:23.880 --> 0:12:28.240 you're not releasing new products fast enough. And yes, they 0:12:28.280 --> 0:12:31.200 have to defend that search business, which is the cash cow, 0:12:31.320 --> 0:12:35.400 which is what feeds everything. So I can see both sides, 0:12:35.480 --> 0:12:38.240 but when it comes to talent, they'll go to the 0:12:38.280 --> 0:12:40.640 place where they see, you know, a lot happening in 0:12:40.720 --> 0:12:44.640 terms of new products, model development, and so maybe Google 0:12:44.720 --> 0:12:48.160 is being conservative on the model side for a good reason. 0:12:48.360 --> 0:12:49.480 They have to defend search. 0:12:49.600 --> 0:12:51.640 I think what we're all coming to appreciate more is 0:12:51.880 --> 0:12:55.400 this stuff's expensive to do this stuff now and Google's 0:12:55.400 --> 0:12:57.600 out today with a twenty five billion dollar bond off. 0:12:57.760 --> 0:12:59.280 Yeah, they can reach capital. 0:12:59.679 --> 0:13:00.640 Snap the fingers. 0:13:00.760 --> 0:13:03.320 Yeah, Heaven like the Anthropics. 0:13:02.640 --> 0:13:04.600 And the opening as so the world. I mean, at 0:13:04.640 --> 0:13:07.360 some point they got to start hitting the capital markets, 0:13:07.400 --> 0:13:07.920 I would think. 0:13:08.559 --> 0:13:12.080 I mean, the interesting anecdote here is a lot of 0:13:12.360 --> 0:13:18.160 Google's cloud revenue comes from Anthropic running their workloads on Google. 0:13:18.440 --> 0:13:22.800 In fact, Entropics models are even trained on Google TPUs, 0:13:22.840 --> 0:13:26.400 so Google is the infrastructure provider for Entropic. But at 0:13:26.400 --> 0:13:29.600 the same time, they are competing at the model there. 0:13:29.640 --> 0:13:33.040 So it is kind of quite intertwined when you think 0:13:33.080 --> 0:13:37.200 about this race, and it's very concentrated. But I don't 0:13:37.200 --> 0:13:39.360 think Google cares about it being expensive. 0:13:39.440 --> 0:13:42.120 Yeah, before we let you go, there is a viewer 0:13:42.440 --> 0:13:45.719 I should say, a listener question for you today. It 0:13:45.840 --> 0:13:47.920 has to do with Advanced micro Devices, which is hired 0:13:47.960 --> 0:13:49.760 today by about one point eight percent, but it did 0:13:49.800 --> 0:13:52.880 plunge about seven percent after its latest set of results. 0:13:52.960 --> 0:13:55.040 How come AMD stock fell flat. 0:13:54.800 --> 0:13:57.960 When it reported earnings after the market clothes on Tuesday. 0:13:58.000 --> 0:14:01.680 What's your read on those results? I investors reacted negatively. 0:14:03.000 --> 0:14:07.040 I mean right now when we hear about how supply 0:14:07.200 --> 0:14:10.640 constrained the market is. And you know, we keep seeing 0:14:10.679 --> 0:14:14.320 with Nvidio's numbers every time they report, they just beat 0:14:14.360 --> 0:14:17.360 and raise in a big way. With AMD, we didn't 0:14:17.440 --> 0:14:20.680 see that big beat and rais and that's how the 0:14:20.720 --> 0:14:24.480 whisper numbers are always higher. You see the reaction with 0:14:24.560 --> 0:14:28.560 Sands today, Sock is down. They had phenomenal growth quarters. 0:14:28.600 --> 0:14:32.320 So that's where you know, expectations and even the consensus 0:14:32.400 --> 0:14:36.040 numbers are much lower when you compare to what the 0:14:36.080 --> 0:14:39.320 companies are measured against and Indy had a good quarter, 0:14:39.640 --> 0:14:42.560 but then it wasn't something to wow, you know, and 0:14:42.920 --> 0:14:44.400 have that snap positive reaction. 0:14:45.040 --> 0:14:47.960 Stay with us. More from Bloomberg Intelligence coming up after this. 0:14:52.280 --> 0:14:55.960 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:14:56.080 --> 0:14:59.160 weekdays at ten am Eastern on Apple, Cocklay and Android 0:14:59.160 --> 0:15:02.480 Auto with the Work Business Up. Listen on demand wherever 0:15:02.520 --> 0:15:05.840 you get your podcasts, or watch us live on YouTube. 0:15:06.760 --> 0:15:09.480 Hurts Global they put out some numbers that beat Wall 0:15:09.480 --> 0:15:12.640 Streets estimates six flags. Their shares are down as a 0:15:12.800 --> 0:15:16.680 water park operator reported revenue for the quarter that missed estimates. 0:15:16.760 --> 0:15:19.280 Let's break it down with Jody Louri. She's a senior 0:15:19.280 --> 0:15:22.360 credit analyst of Bloomberg Intelligence. She follows all these leisure companies. 0:15:23.720 --> 0:15:26.640 Let's first start with Hurts because I am a gold 0:15:26.760 --> 0:15:28.480 member at Hurts Global. 0:15:28.560 --> 0:15:29.240 I'm proud of it. 0:15:29.320 --> 0:15:32.280 I'm proud of it. Yes, what's going on? It hurts Jody. 0:15:33.640 --> 0:15:38.560 I mean, those are the priorities ball so's the thing 0:15:38.600 --> 0:15:41.200 that's interesting about Hurts is that they were very optimistic 0:15:41.440 --> 0:15:45.240 on their call. They talked about franchising as the next 0:15:45.280 --> 0:15:48.240 new endeavor, next big thing, how it was going to 0:15:48.320 --> 0:15:52.600 really help the company sort of get better margins and 0:15:52.640 --> 0:15:55.840 be similar to how the hotels do franchising or asset 0:15:55.920 --> 0:15:59.360 late models. But what's so interesting about it is when 0:15:59.400 --> 0:16:01.880 you set the bar so low on a company, it's 0:16:02.040 --> 0:16:06.760 very easy to beat expectations. We a few weeks ago 0:16:06.960 --> 0:16:10.200 wrote a few pieces on the company that were less 0:16:10.240 --> 0:16:14.600 positive in terms of just the path forward to liquidity 0:16:14.640 --> 0:16:19.680 and to the ability to sort of execute on this 0:16:19.760 --> 0:16:20.760 turnaround that they're doing. 0:16:22.320 --> 0:16:25.240 So talk a little bit about the unusual way that 0:16:25.320 --> 0:16:29.240 they're going to achieve this turnaround because they had a 0:16:29.320 --> 0:16:32.960 debt raise, but they also sold shares that allow people 0:16:33.040 --> 0:16:37.440 to short it. I didn't quite understand it, but bottom line, 0:16:37.480 --> 0:16:38.520 they needed money. 0:16:39.720 --> 0:16:40.560 Right Scarlett. 0:16:40.600 --> 0:16:44.320 It was not the most attractive of situations. It basically 0:16:44.360 --> 0:16:48.840 pushed unsecured holders down further in the capital structure, and 0:16:48.880 --> 0:16:54.440 it's a convertible note that is senior, and then also 0:16:54.760 --> 0:16:57.880 had that ability that people could hedge or they could 0:16:57.920 --> 0:17:00.840 short it. They weren't actually receiving any of the proceeds 0:17:00.880 --> 0:17:05.040 from issuing additional shares. They only received a nominal amount 0:17:05.040 --> 0:17:08.679 of money from the banks that did the offering, and 0:17:08.720 --> 0:17:11.600 so that was that was one of those situations that 0:17:11.640 --> 0:17:13.480 you kind of scratch your head and you say, okay, 0:17:13.680 --> 0:17:16.680 about a year ago, the company's equity actually did really 0:17:16.760 --> 0:17:19.440 well because you had a few activists involved in the company, 0:17:19.720 --> 0:17:21.880 and at that time they could have in theory issued 0:17:21.960 --> 0:17:24.800 equity and gotten some money for it. Here they were 0:17:24.840 --> 0:17:29.160 doing it for free. Now, what's sort of interesting about 0:17:29.240 --> 0:17:33.600 Hurts is that they've done a few senior convertible bond 0:17:33.760 --> 0:17:37.320 offerings over the past year and a half years. And 0:17:37.800 --> 0:17:38.640 the capital. 0:17:38.320 --> 0:17:39.560 Structure is just ugly. 0:17:39.760 --> 0:17:42.960 It's not one that makes you write home to mom about. 0:17:43.560 --> 0:17:46.520 So I'm looking at the capital structure that's it's definitely ugly. 0:17:46.640 --> 0:17:49.879 So and there's really no cash flow with no EBIT thought. Here, 0:17:49.880 --> 0:17:51.919 they used to crank out three four billion dollars of 0:17:51.920 --> 0:17:54.960 EBI thought per year, now just a couple of hundred. 0:17:55.320 --> 0:17:56.320 What happened. 0:17:57.760 --> 0:18:01.119 What didn't happen? Pop So in twenty twenty two, we 0:18:01.600 --> 0:18:03.680 sort of said that twenty twenty two was the best 0:18:03.720 --> 0:18:06.400 it was going to be for both Hurts and Avis, 0:18:06.880 --> 0:18:09.880 and they hit peaks in terms of even that generation. 0:18:10.240 --> 0:18:12.119 And that was a combination of coming off of the 0:18:12.160 --> 0:18:16.800 pandemic of people revenge spending, of them being able to 0:18:17.760 --> 0:18:21.719 access use vehicles at such a rate that was more attractive, 0:18:21.840 --> 0:18:27.439 and also they had significantly reduced their fleets at an 0:18:27.480 --> 0:18:30.919 attractive rate, and Hurts had come back from or structuring. 0:18:31.440 --> 0:18:34.880 Now after twenty twenty two, they both said, oh, let's 0:18:35.000 --> 0:18:38.720 give some money back to shareholders by way of buybacks, 0:18:38.800 --> 0:18:40.240 and after that. 0:18:40.200 --> 0:18:41.480 It's gotten worse and worse. 0:18:41.560 --> 0:18:44.960 Now Hurts of course had a couple of hiccups. They've 0:18:45.040 --> 0:18:47.960 definitely been a little bit more experimental than Avus and 0:18:48.040 --> 0:18:49.680 in terms of what they've tried to do to right 0:18:49.720 --> 0:18:54.600 side the business or attract customers attract investors. One of 0:18:54.640 --> 0:18:57.439 them was when they bought into Tesla and Evs and 0:18:57.480 --> 0:19:01.160 they didn't understand that if your visiting a national park 0:19:01.240 --> 0:19:05.280 in Wyoming, you're not necessarily comfortable having a Tesla, So 0:19:05.480 --> 0:19:07.679 having a lot of Tesla's in your fleet might not 0:19:07.720 --> 0:19:12.160 necessarily sit nicely with people, and so you had that. 0:19:12.359 --> 0:19:15.640 Now fast forward, they're well past that. But they brought 0:19:15.680 --> 0:19:17.840 in a new CEO and probably what you'd say is 0:19:17.880 --> 0:19:21.600 the eleventh hour of needing this help. And while they 0:19:21.640 --> 0:19:24.760 guide for positive Ebidad this year, I would sort of 0:19:24.840 --> 0:19:26.840 argue that the path to get there is a little 0:19:26.880 --> 0:19:31.520 bit tenuous, particularly when they're dealing with auto recalls when 0:19:31.520 --> 0:19:34.919 they're dealing with just these sort of hiccups that are unexpected. 0:19:35.119 --> 0:19:37.600 Yeah, I know a lot of people who actually bought 0:19:38.080 --> 0:19:41.040 used Tesla's from Hurts Okay because they needed to get 0:19:41.119 --> 0:19:43.960 rid of or trim down their fleet. Jody, before we 0:19:44.040 --> 0:19:46.120 let you go, we got to ask you about six Flags, 0:19:46.520 --> 0:19:50.760 the amusement park company, the water park operator. They reported results. 0:19:50.800 --> 0:19:54.119 The stock is down eighteen percent. What are you looking 0:19:54.160 --> 0:19:56.000 at from a credit perspective? 0:19:57.760 --> 0:20:00.400 The scarlet. What's so interesting that six Flags is is 0:20:00.480 --> 0:20:04.119 it definitely struck a little bit more positive tone in 0:20:04.160 --> 0:20:07.000 my view when you look at the company on a 0:20:07.080 --> 0:20:09.479 same park basis. By that we mean is that they 0:20:09.520 --> 0:20:11.320 got rid of eight parks, so they sold seven and 0:20:11.359 --> 0:20:14.520 they closed one last year, and so stripping out those 0:20:14.680 --> 0:20:18.280 parks that aren't operating, it actually was relatively positive. Now, 0:20:18.280 --> 0:20:22.040 there are caveats that, for instance, the adjusted EVADAD numbers, 0:20:22.080 --> 0:20:24.440 they had a lot of non cash buybacks. There are 0:20:24.440 --> 0:20:27.040 non cash add ins that somehow appeared out of nowhere 0:20:27.359 --> 0:20:31.040 that they didn't have last year. And so you say, okay, 0:20:31.960 --> 0:20:33.840 were those just sitting there and they were waiting for 0:20:33.840 --> 0:20:35.200 a time to kind of plug them in I'm not 0:20:35.280 --> 0:20:40.640 quite sure, but I think more importantly, they know they're 0:20:40.680 --> 0:20:43.840 at a time when they can sort of see a 0:20:43.880 --> 0:20:47.080 path forward. But I think the expectation is that with 0:20:47.160 --> 0:20:51.919 the Canada wildfires, with consumer health being a little bit rocky, 0:20:52.520 --> 0:20:56.200 that the sort of positives that we saw in second 0:20:56.280 --> 0:21:00.000 quarter might not necessarily be sustainable. But from a liquidity perspective, 0:21:00.080 --> 0:21:02.800 if they did buy some additional time with their debt 0:21:02.800 --> 0:21:05.440 issuance earlier this year, and with the fact that they're 0:21:05.440 --> 0:21:10.840 able to meet their Georgia Park put payment which comes 0:21:10.880 --> 0:21:13.800 to in a year or in January, I should say so, 0:21:14.119 --> 0:21:15.959 there are some bright spots to it, but I think 0:21:16.000 --> 0:21:19.160