Andrew Slabin - EVP, Global Investor Strategy David Zaslav - President, Chief Executive Officer and Director Gunnar Wiedenfels - Chief Financial Officer

Drew Borst - Analyst, Goldman Sachs & Co. LLC Jessica Jean Reif Cohen - Analyst, Bank of America Merrill Lynch Vijay Jayant - Analyst, Evercore Group LLC Richard Greenfield - Analyst, BTIG LLC Alexia S. Quadrani - Analyst, JPMorgan Securities LLC Steven Cahall - Analyst, RBC Capital Markets LLC Michael B. Nathanson - Analyst, MoffettNathanson LLC John Janedis - Analyst, Jefferies LLC

Good day, ladies and gentlemen, and welcome to the Discovery Incorporated First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the conference over to Mr. Andrew Slabin, Executive Vice President, Global Investor Strategy. Sir, you may begin.

Good morning, everyone. Thank you for joining us for Discovery’s 2018 First Quarter Earnings Call. Joining me today is David Zaslav, our President and Chief Executive Officer; and Gunnar Wiedenfels, our Chief Financial Officer. You should have received our earnings release, but if not, feel free to access it on our website at corporate.discovery.com. During today’s call we will begin with some opening comments from David and Gunnar, after which we will open the call up for your questions. Please try to keep to one or two questions, so we can accommodate as many folks as possible. Before we start, I would like to remind you that today’s comments regarding the company’s future business plans, prospects and financial performance are forward-looking statements that we make pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are made based on management’s current knowledge and assumptions about future events and they involve risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, the company disclaims any intent or obligation to update them. For additional information on important factors that could affect these expectations please see our Annual Report for the year ended December 31, 2017, and our subsequent filings made with the U.S. Securities and Exchange Commission. With that, I’d like to turn the call over to David.

Good morning, everyone, and thanks for joining us today. The first quarter was a transformational period for Discovery, marked by a number of important milestones that will help to further differentiate our strategy from the rest of the marketplace, enhance our portfolio of quality, trusted brands and position us for our next generation of growth. In addition to reporting solid operating momentum across our businesses, we closed on our Scripps transaction and quickly began integrating the two companies. And thus far, I can unequivocally say, we love this combination even more now than when we first announced it. As Gunnar will detail, our combination is exceeding expectations on every level, which you will see reflected in our upwardly-revised synergy target, and we are continuing to drive more synergy value off of this base, and look forward to updating you in future quarters. In short, we feel real good about where we are, operationally, financially and strategically. And we see multiple areas where we can create meaningful long-term value. Behind this momentum, we are ahead of plan to rapidly reduce our debt levels and now plan to be around four times net debt to pro forma adjusted OIBDA by the end of this year. I’d like to share a few thoughts on the state of our industry, our differentiated position as the global leader in real life entertainment and why we are increasingly confident in our strategy. Let’s start by looking more closely at the current state of our business. Despite the challenges of the ecosystem, our existing business continues to show real growth. Net growth continues at the same time we are investing meaningfully across the company in new opportunities like direct-to-consumer, new technology that we expect to bear fruit and give us meaningful growth in the years ahead. We have a steady financial and operational tailwind and a model that provides a strong visible free cash flow generation. We are a free cash flow machine. Indeed, our free cash flow is like a moat in turbulent times. It’s a distinguishing strategic asset for Discovery. That free cash flow will, over time, provide us with a loaded gun, giving us flexibility to deploy that free cash flow like bullets wherever we see opportunity to drive shareholder value. Whether it’s investing in content, IP, platforms, products and services, extending our content onto all bundles and services, whether linear, digital, mobile, or direct-to-consumer, or just buying back our stock, we will have the cash to decide. Our focus on cost efficient, real life entertainment leveraged across all formats, regions and methods of delivery, gives us another distinct advantage over our peers. We’re not caught up in the increasingly competitive and high-cost scripted content game that has captured so much of our industry’s attention and resources over the past several years. We don’t just do shows; we curate passion brands for enthusiast audiences who, in a world where they can watch anything, seek us out, because our content provides them with something special and useful for their daily life. In cooking dinner to designing their dream home or car, we engage our viewers with content that entertains and inspires, while also providing real everyday value and utility. We don’t have just viewers either, we have super-fans, consumers who trust our brands and believe in our talent. And we have families who feel safe and entertained while watching our content. We’re also not renters. We own the vast majority of our content across regions, platforms and formats, and have the flexibility to take it wherever we want. As more and more viewers turn to their mobile devices, our strategy around global IP ownership, married to our portfolio of high-quality passion brands and utility content, gives us a distinct edge, we’re different than everybody else. And finally, we aren’t just in the U.S. We are truly international with our sales teams and relationships with consumers and our creative teams in over 220 markets. A marketing platform that can light up any show or brand in any market with our portfolio of world-class free-to-air, broadcast, and digital assets, facilitated by an industry-leading cloud-based IT platform, we know better than anyone how to take content around the world in multiple languages, and we’re just getting started with the Scripps IP. I believe these distinctions make us more differentiated relative to our peers as ever before and increasingly well-positioned to grow and deliver value as our industry evolves. Additionally, I remain confident in our ability to gain further penetration on skinny bundles and virtual MVPDs. However, here in the U.S., despite a number of promising advances, our industry still isn’t fully meeting the needs of its viewers. The vast majority of skinny bundles domestically are still by and large anything but skinny. At $35, $60, $90, or more a month, they’re inflated by the heavy costs of retransmission consent and sports. And given that nearly half of all households are either light or non-viewers of sports, and that about 25% of all audiences never watch any sports at all, the industry should be able to find a better way to accommodate what consumers really want. The tolerance of consumer subsidizing all that sports content is waning and weighing on the U.S. sub growth. The good news is the market is now beginning to respond to consumer sentiment and demand; the non-sports real skinny bundles. Many pay-TV and mobile companies have announced that they’re going to do non-sports skinny or entertainment heavy bundles, and new virtual providers have started to provide these offerings to try and meet consumer demand. As these offerings gain a stronger foothold, which I believe they will, the skinny bundles will go a long way to improving the stability of the U.S. ecosystem, even maybe gaining some traction against subscriber declines. These bundles present a terrific opportunity for content providers like Discovery. It’s our sweet spot. I have been saying for years, time’s up. It’s time for the U.S. to begin to look like every other market in the world. Turning to our transformation process with Scripps, Gunnar and I will provide more detail. At this point in the process, we feel good and we feel like we are in full command and control; drilling and driving forward every day, trying to optimize our company, Discovery and Scripps’ full potential. Turning to our combined efforts, we introduced the new Discovery to the marketplace here in the U.S. at numerous upfronts over the last few weeks to a very strong response from the advertising community. We’re off to a good start. The upfront, which feels healthy, presented us with the first opportunity to showcase our full and unique offering, and what we mean when we call ourselves the global leader in real life entertainment, a marketplace position that has great scope and reach, a deep endemic advertising base and category leadership across key quality brands; Food, Home, Science, Crime, Oprah and Cars, to name a few. Because we own and produce all of our own content, we have unique flexibility as we face the advertising market. Our portfolio accounts for 20% of ad-supported cable viewership in the U.S. And we have four of the top seven networks for women in total day viewing on all of ad-supported cable. I think the first time a company has accomplished that. We couldn’t be more excited about this year’s upfront as we go in as the new Discovery, with trusted quality brands and a strong comprehensive menu of demos and very broad reach across our networks. We believe we will be very successful for our advertising partners, the agencies and most of all, in creating more value for the new Discovery. I’d also like to share a few highlights from our digital businesses, where many of the initiatives we carefully seeded over the past few years are beginning to report meaningful user traction and revenue contribution as we expand our competency in building direct-to-consumer products and services. Our TV Everywhere business comprising our GO apps continues to provide meaningful contribution as a source of higher CPMs and incremental revenue and audience share, delivering more than 25 million streams monthly. We recently extended GO with the creation of an OWN app, and we anticipate adding HGTV and Food Network in short order. We think all of that will create more value and stronger demos in the future. Internationally, the Eurosport Player continues to benefit from the broad exposure it received on the back of the 2018 Winter Olympic Games. As we collect a greater share of data and insights from each sporting event and season, our dialogue with sports super-fans becomes even sharper, allowing us to better target subscribers for upcoming events, such as cycling and tennis at the moment and ultimately, how the better manage churn from sports that are rolling off. The Motor Trend group, our digital automotive joint venture, is another great example of how we are taking our expertise in nourishing super-fans in niche genres to a key consumer vertical, where we can become the multiplatform leader. The Motor Trend app, our OTT/SVOD product already has nearly doubled its subscriber base from when we came together last September, and is quickly becoming a leading digital destination globally for auto fans. As a next step, we will rename the Velocity network to Motor Trend network this fall, reinforcing our linear and digital car franchises under a common brand. Going forward, you can expect us to expand on this strategy in other key verticals, such as Food and Home, where our category leadership with Scripps presents numerous opportunities. For example, how do we own the kitchen with advertisers and e-commerce companies across multiple platforms and formats? In sum, we love our hand. Our differentiated position, where our IP ownership, aggregation of quality brands and focus on nourishing our enthusiast audience with content they love and seek out in a cluttered content world, will continue to open up new and exciting ways to connect with our fans. With the integration of Scripps moving swiftly forward, we are defining our future as the new Discovery with a broader strategy, portfolio of assets and a financial profile that we believe will allow us to deliver great upside to our shareholders this year and in the years ahead. Thanks for your time this morning. I’ll now turn it over to Gunnar.

Thanks, David, and thank you everyone for joining us today. As David expressed, this is an incredibly exciting time for us, and I could not be more optimistic about the opportunities ahead of us in transforming the new Discovery. I will first provide a brief overview of our first quarter results, followed by an update on our integration and transformation efforts, and will close with our outlook for the second quarter and fiscal year 2018. My commentary today will focus on our constant currency pro forma results unless otherwise stated which differ materially from our reported results given reported actual results only include 26 days of Scripps as of the merger’s close on March 6, whereas pro forma results are more [ph] reflective (16:01) of our underlying trends. Please also note that pro forma results include the operations of Scripps as well as OWN and Motor Trend, formerly The Enthusiast Network, as if all had been owned since the beginning of 2017. Please refer to our earnings release filed earlier this morning for all of the detailed cuts for our first quarter results. Now, let’s delve into the numbers. On a constant currency, pro forma basis first quarter total company revenues grew 10% driven by 2% domestic growth and 26% international growth, while adjusted OIBDA was down 6% with 1% U.S. growth and a 30% decline at international largely driven by the timing of the Olympic Games as we had highlighted on our fourth quarter call. Note that Discovery stand-alone first quarter adjusted OIBDA was down 9%, better than what we had guided to, due to strong cost controls across the board. And also note that excluding the impact of the Olympics, both Discovery’s stand-alone adjusted OIBDA, as well as pro forma adjusted OIBDA were positive. Looking at each operating unit, first quarter U.S. revenues grew 2% led by 2% advertising growth and 2% affiliate growth. The 2% advertising growth was driven by continued monetization and integration of our GO platform and digital offerings, as well as higher volumes, partially offset by lower linear delivery. Let me add that on a stand-alone basis, Discovery nets grew organic advertising 4% in line with our guidance of up low to mid-single digits, while the Scripps was modestly positive, primarily due to higher pricing, offset by lower delivery. The 2% distribution growth was primarily due to increases in affiliate rates, partially offset by declines in subscribers. Again, the Discovery stand-alone growth was in line with our previous guidance at 2%. Delving further into the drivers of U.S. affiliate and looking at the pro forma sub trends, subscribers for our combined portfolio were again down 5%, consistent with the trend over recent quarters. More importantly, subscriber declined for our combined fully distributed networks was again 3%, with some positive impact from HGTV and Food. With respect to affiliate fee trends, as we have previously noted we renewed our FiOS deal at the end of 2017. So while the deal was very successful, it impacted a smaller number of subscribers, so there was less of an overall pricing lift versus prior years. Pro forma first quarter U.S. adjusted OIBDA increased 1%. Turning to the international segment, all of my commentary will be on a pro forma constant currency basis, though it is worth highlighting that given the weakening dollar, currency was a very nice tailwind on both reported revenues and adjusted OIBDA. Pro forma total first quarter international revenues were up 26%, driven by 11% advertising growth, primarily due to the successful delivery of the Olympics across Europe, as well as strength at TBN in Poland, partially offset by weakness in Asia and LatAm due to lower pricing in the first quarter. Pro forma affiliate growth was 9%, driven by 10% growth at Discovery in line with the fourth quarter, and 1% growth at Scripps, which is a much smaller business, at around 5% the size of the legacy Discovery affiliate business, given Scripps’ limited historical pay-TV presence outside the U.S. Looking at the drivers of our first quarter affiliate growth by region, in Europe we had another quarter of solid growth, driven by higher digital revenues from the Eurosport Player due to the Olympics and another quarter of Bundesliga, as well as increases in contractual rates. In Latin America, we also saw healthy growth. We continue to see lower subscribers, particularly in Mexico and Brazil, but this was more than offset by higher pricing. And in Asia, our smallest market, we continued to be impacted by overall linear declines, given lower pricing as affiliate deals renew. However, on the positive side, we had another quarter of strong contributions from our mobile content licensing deal, as we had highlighted on our year-end call. We also saw significant growth in first quarter [ph] other (19:59) revenues internationally from sublicensing part of the Olympics IP. Turning to the cost side, pro forma operating costs were up 44% in the first quarter, driven primarily by sports rights and production costs, most notably from the Olympics. Adjusted OIBDA was down 30%, primarily due to the timing of revenues versus cost recognition of this year’s Olympics, which as we had previously called out, requires that all content and production expenses be recognized during the quarter in which the games are aired, while certain associated revenues are spread out pre and post the game. Having reviewed the highlights of our first quarter results, let me now provide some color on our second quarter expectations. Again, I will focus on pro forma constant currency growth. We expect second quarter U.S. advertising growth to be up low single digits. Trends remain consistent with our previous quarters with lower delivery offset by monetization of digital, and we expect second quarter U.S. affiliate growth to be again up in the low single digits range. Second quarter international advertising is expected to be up low single digits as well. We expect the solid pricing and delivery in key European markets to continue and trends in LatAm, particularly in Brazil, are picking up while trends in Asia remain soft. Finally, second quarter international affiliate is expected to be up in the mid-single digit range, driven by continued growth in Europe and LatAm for legacy Discovery’s nets and continued low growth of Scripps’ legacy affiliate business, partially offset by overall declines in Asia. And now I would like to share an update on our integration of Scripps. With our deal now having closed, we are in full transformation mode. As David mentioned, this is more than an integration of two combined companies. We are fully engaged in reshaping the business and positioning it to best address our industry’s challenges and opportunities. To that end, we have identified dozens of work streams and around 1,000 initiatives, examining how to best maximize the potential of the new Discovery, touching upon and refining virtually all of our core competencies, including content creation, advertising and global distribution of IP. All of our initial progress is extremely encouraging. With that, I am pleased to provide an update on our cost synergy target. We are raising our cost synergy target from the initial $350 million run rate within two years that we had laid out, and now expect to achieve at least $600 million of run rate cost synergies alone within the first two years of close or by March 2020, with an eye towards additional cost savings as we dig deeper and more broadly into the transformation. So, where is this all coming from? From a high level, key areas of focus include, number one, head count across virtually the entire combined company. Number two, real estate consolidation. Number three, marketing as we see room for more efficient spending across our broader portfolio. Number four, supply chain efficiency, where we see upside from coordinated global procurement. Number five, content spend at our networks where, for example, we have just begun to layer in legacy Scripps content across some of our international nets, ultimately allowing us to reduce costs while becoming less reliant on acquired content. Let’s look at cost-to-achieve. In the first quarter, we booked $56 million of Scripps stand-alone integration costs and $241 million of restructuring costs, including a reserve for severance and content impairments in the Nordics, where we look to increasingly leverage Scripps content versus previously acquired content. While a lot of the transformation activity is still being refined and restructuring impact is difficult to estimate at this point, we currently expect that we could see as much as roughly another $200 million for the second through fourth quarters of 2018 or early 2019. We will know more when our plans firm up, and we’ll provide details as we progress. Of the total restructuring cost for 2018, we currently anticipate that around two-thirds will impact our 2018 free cash flow. Note that first quarter free cash flow included roughly $70 million of cash restructuring and legacy Scripps transaction and integration costs. We are equally excited by the revenue synergy potential and enhanced growth prospects we will enjoy from the combination. We see them falling into several buckets. First and foremost is our combined U.S. upfront. We see real near-term opportunity from driving our domestic wallet share of pay-TV advertising around this year’s upfront, with negotiations having just begun, following our well-received presentations to Madison Avenue. We have also identified additional near and midterm revenue synergy potential to stem from greater focus on global distribution of Scripps Networks contents and networks. Ultimately, while the revenue opportunity here may indeed be the largest of all, this of course will take some time to unfold. We are in early innings, having just completed an analysis which identified several thousand hours of legacy Scripps Networks’ content that will roll out internationally throughout the year, as our content teams assess the strategic fit within their portfolios. The initial wave includes multiple pay-TV networks and free-to-air channels in Poland, the Nordics, Latin America and EMEA. Further, we are moving forward with our analysis and strategic plan to identify the market opportunities from launching Food and HGTV-branded networks in certain territories. For example, in Latin America, we will use the Scripps Networks Lifestyle content on a number of our networks, initially at our Home & Health channel, in addition to finalizing a rollout strategy for launching new brands across the region. Having walked through our updated synergy expectations, let me now turn to our outlook for the full-year 2018. We expect pro forma constant currency adjusted OIBDA growth to be in the mid-single digit range versus 2017’s pro forma adjusted OIBDA of $4.055 billion, even with the Q1 Olympics impact and with continued investment in digital initiatives like our GO platforms and the Eurosport Player. Please keep in mind that our full year reported adjusted OIBDA will be roughly $250 million lower than pro forma, since we are only including Scripps in our reported numbers from March 6 on. Turning to taxes. We expect our full year book tax rate to be in the mid-20% range and our cash tax rate excluding PPA amortization to be in the low 20% range, with full year total intangible asset amortization expected to be around $1.2 billion. As we have stated, the combined company will continue to generate significant cash flow. We expect full year reported free cash flow to be in the $2.3 billion range after the cash cost to achieve I previously noted. Please note that these numbers will depend on the timing of our synergies. Again, we will update you as we progress throughout the year. We will continue to allocate virtually all of our free cash flow towards paying down debt, and now expect to have leverage of net debt to pro forma AOIBDA of around four times by the end of the year. Note that in this number, we are currently not anticipating any additional material asset sales other than the recently closed sale of our Education business for $120 million. I will also again quantify the expected foreign exchange impact on our 2018 results. At current spot rates, FX is expected to be a nice tailwind and will positively impact revenues by approximately $200 million and positively impact adjusted OIBDA by approximately $50 million versus our 2017 reported results. In closing, as we continue to transform the new Discovery, we remain extremely optimistic about this powerful combination, which will allow us to accelerate the transformation of our business, drive free cash flow and ultimately generate significant long-term value for our shareholders. Thank you again for your time this morning, and now David and I will be happy to answer any questions that you may have.

Thank you. [Operator Instructions] And our first question will come from the line of Drew Borst with Goldman Sachs. Your line is now open.

Great. Thanks for the question. Wanted to ask about the synergy target. Thanks for the update. Do you anticipate – the $600 million, do you anticipate reinvesting any of that back into sort of growth initiatives for the business?

Well, so we – if you look at what we’ve said previously, we continue to make investments in our business for future growth a priority, and we have already budgeted for significant investments in our digital activities around the entire global footprint. So that will continue to happen. We do believe that the $600 million that I pointed out earlier are going to be a net impact that’s going to fall to the bottom line.

Drew, as we look at the synergy, just simplistically, Discovery itself is at about 1.4 – was at about $1.4 billion in free cash flow and Scripps was at 8. And we look at the cost synergy that we have, we have $600 million now in hand that we believe we can fully execute on, and we still have a number of buckets that we’re looking at, another 40 or 50 workstreams, which we’ll get back to you on. But our target is, we really think that we can – there’s no reason why we shouldn’t better than double our free cash flow. One of the main reasons for this transaction was all the strategic elements that we’ll talk about, and how this grounds us as maybe the leading IP global media company in the world. But when we look at our $1.4 billion, together with our synergy, we think we can get to $3 billion. And so, getting to $3 billion for us is a target, but we’re going to be relentless about it. And we also think that there’s some upside to that as we look at revenue opportunity moving our content around the world, and seeing how this great portfolio works with the advertising market. So that’s our target.

Great. Thank you. And if I could just get one more in, I wanted to ask about the legacy Scripps business. And I don’t want to dwell on this too much, because there was obviously a transition quarter with the deal closing in March. But, based on the numbers you presented, it did look like the U.S. Networks EBITDA for Scripps legacy was down a little bit, maybe low-single digit, 3%. I was wondering if you could just spend some time talking about what happened there in the quarter? And maybe more importantly, what do you see for sort of the remainder of 2018 at the legacy U.S. Networks for Scripps?

Well, generically as a big driver is the ratings of Food and HG, and one of the values of putting these companies together is not only the global scale that we have, but the portfolio that we have in the U.S. And we’re never going to be in a position where all the business – all the channels are growing at the same time. A year-and-a-half ago TLC was down 25%. We said to you we’re going to focus on who the audience is, how we grow it. We said we thought we can continue to drive ID. We thought we can get Science going and Velocity. Discovery has been down; Food and HG are down and one of our big priorities is focusing on those audiences. In the case of HG and Food, the actual household audience is quite strong. What we really need to do with those two channels is continue to refresh them and grow them, and we got a great team. One of the reasons that we were so attracted was the quality of the leadership there, and we’re convinced in spending more time with Kathleen Finch and her team, that we have a great team. But we are doing a lot of work on who the audience is, how we continue to nourish them, it’s what we do for Living. But we also have been more aggressive in getting our authenticated GO apps out. I mentioned that we’re generating 25 million streams, it’s primarily people under 30. That’s something that wasn’t being implemented at HG and Food. And so a piece of this is really trying to innovate those platforms by getting the content authenticated on all devices to as many people as possible as quickly as possible, and we think that will generate some growth. But then really digging in, like we did at TLC, like we’ve done at ID and like we did at Discovery and we need to do again to continue to grow. We look at the marketplace and we think it’s really a function of us. There’s an opportunity for us despite what’s going on in the marketplace to grow these channels, and we just have to do as good of a job as we can, creating quality content.

And then Drew, maybe from a financial perspective, one thing to keep in mind is the way I look at it is that Scripps essentially created a plain vanilla budget for the year knowing that we’re coming up on closing the transaction. So the Q1, “Scripps” stand-alone result is driven by increasing content and marketing expenses to sort of safeguard the asset. When I talked about the mid-single digit AOIBDA growth for the entire year earlier for the combined entity, that obviously includes the performance of the Scripps portfolio in the first quarter, and when it comes to an outlook for the rest of the year, clearly all those cost elements are part of our transformation initiatives, and we will look at everything. But it’s all baked into that mid-single digit growth guidance for AOIBDA.

Great. Thanks. Really appreciate that. It’s helpful.

Thank you. And the next question will come from the line of Jessica Reif with Bank of America Merrill Lynch. Your line is now open.

Thanks. I have two questions or two topics. First on the international, can you – Gunnar, you went so fast, I just – it sounds like the opportunity is rolling out Scripps content, and then also rebranding channels or creating new channels. I was hoping maybe you can give us more color on that, and are you planning on shutting down any channels? Can you size the opportunity and timing? And the second question is, David, talked a lot about, especially in your opening remarks about how the industry is changing which we all know. So if your leverage comes down to, let’s say, roughly the four times range by year-end 2018, our number, which may or may not be correct is 3 to 3.5 times year-end 2019. At what point would you consider making acquisitions or how do you think about the changing landscape, do you build or buy as your asset mix evolves?

Thanks, Jessica. So on international, you exactly pointed out the two most important levers. One is just lighting up the content in our global footprint, and as I said, we’ve been starting to create language versions for literally thousands of hours of content. We’ve put some stuff on air, but it’s very, very early days. But there will be different waves of rolling this out across the global footprint throughout the rest of the year, and we’ll keep you updated. And also programming teams in virtually all of our territories are looking at their programming strategy right now, and as for example in LatAm, there might be an opportunity to launch additional networks, create additional formats across territories. It’s early days still. We’re doing everything to get the stuff on air as quickly as possible. But it’s really too early to come up with any – very specific numbers here. On your question regarding leverage and capital allocation, so we will continue to follow the same logic that we have followed. Number one is the determination of our optimal leverage target range, and that continues to be at a 3 to 3.5 times leverage range. Number two is, we will then evaluate investment opportunities. We will continue to take a rigorous approach to make sure that we’re getting good returns, but we will make it a priority to grow the business. And number three is, we will continue to return excess capital to our shareholders through buybacks, and those will continue to be the priority, and as you rightly say, we’re at four times by the end of the year, so we should be breaking through the 3.5 times number during 2019. And that is exactly the logic that we will apply.

And we are on a mission in terms of speed. We think having that free cash flow in hand and that flexibility is very important. We like our assets. But we want to get down to a point where we do have that flexibility of looking, of investing more, of buying more stuff, of buying back more of our stock, just having the full flexibility to use that, figuratively the bullets that we have as a result of being a company that’s generating so much free cash flow. And we do feel like pace is important, because with things moving in the marketplace, we could uniquely acquire, invest, or take advantage of what we see as an opportunity even within our own company.

Thank you.

Thank you. And our next question comes from the line of Vijay Jayant with Evercore. Your line is now open. Q – Vijay Jayant: Thanks. Just want to follow-up on your comments, David, about the digital opportunity. Obviously Scripps is on Sling and Hulu, but Discovery is not on, I think you have a cash deal with DISH this year. How optimistic are you given the relationship Scripps has there to get the Discovery channels on that? And then just quickly, as you look to de-lever the balance sheet, some of your non-strategic assets I think like UKTV and Lionsgate, are those potentially for sale to expedite that process? Thanks so much. A – David Zaslav: Okay. Thanks, Vijay. We don’t comment on deals. But we think that we have very strong quality channels. We think Scripps does too. And as some of these over-the-top bundles develop, we think we really are in the sweet spot, based on every survey of what people want, whether it’s Discovery’s number one or between ID, Food and HG, they tend to be either one, two and three or in the top three of the top five channels that people want. And we’re moving toward this point of instead of stuffing these bundles with what gets leveraged in through re-trans and sports to thinking about what’s going on everywhere else in the world, which is the way you build a product. What do people want? And we have a lot of the great content that people want and we’re investing in making it better. The other piece that’s important as you look at – as we look at where we are versus the marketplace is, you look at one side of the business with scripted and movies, and executing in a – with exceptional storytelling and they’ve attracted some of the best producers and writers. But it’s getting a lot more expensive. It’s getting a lot more crowded. And when you look at what are the offerings if you’re a consumer and you want to spend $10 or $15, what could you get aside from traditional cable? You get Netflix, movies and scripted. You get HBO, movies and scripted. STARZ and Showtime, movies and scripted. Amazon Prime, movies and scripted. And so when we look at what we have, we see all that as over there. I’ve said before, that’s kind of the ball at my kid’s soccer game, and everyone’s running over there. Well you look at the rest of the field and you say if you’re here in the U.S., or you’re anywhere in the world and you want to have, as Reed said years ago, Netflix doesn’t have everything, but there’s some – if you go there, there’s some good stuff that you’re going to like, and it’s going to nourish you. And if you just put together our entire portfolio which we own globally, and you said that we were going to offer that platform alone, we could do it with others, we could do it with a few others, we could do it with one of the broadcasters, we could do it with a broadcaster in each market, but let’s assume we did it just ourselves globally. What other company could offer a multitude of 18 brands, 10 of them that people know everywhere in the world, and offer it for less than any of those channels and have content whether you’re in Brazil, Mexico, Italy, Poland, the U.S., Canada, where you look at that content and you say there’s loads of characters, stories and brands that I love. And so when we look at the marketplace, we say – it was announced two weeks ago, there’s two players with over 100 million subscribers, Netflix and Amazon, and there’s a hunt including with Disney, fantastic company, they’re going to try, who’s going to be the next one to get to 100 million subscribers? I believe the next one to get to 100 million subscribers is not going to be another scripted and movie player, because there’s just too many of them. Oh, another one of those? What’s the difference, who has what scripted series. What we have is different. It’s quality. And what mom around the world wouldn’t say that they – and it’s safe, that they would want what we have to offer. And so as we look at how we go direct to consumer, going global or going regional, doing something with one of the [ph] big fang companies, doing something ourselves, all of that looks attractive to us, because we think the marketplace is very crowded, and that the understanding of what each of those means is melding together. And you’re starting to see a lot of the same stuff and we’re different. Q – Vijay Jayant: Thanks so much.

Thank you. And the next question comes from the line of Rich Greenfield with BTIG. Your line is now open. Q – Rich Greenfield: Hi. Thanks for taking the question. A couple. As we look at the consolidation wave or maybe consolidation battles might be a better way of shaping it, there’s going to be a bunch of big companies that don’t win out on assets they’re trying to buy. And while you’ve talked about potential growth for Discovery, also wondering given that everyone seems focused on expanding outside of the slowing U.S. market into kind of the attractive overseas markets, what’s Discovery’s appetite to actually be consumed by one of these larger players? And then two, on AT&T Watch, during the trial a few weeks ago, Randall Stephenson essentially announced a product that’s coming, a sportsless bundle, that’s going to be free for probably 15 million, 20 million AT&T wireless subscribers. Wondering, David, is this the watershed moment for Discovery and the other non-sports cable network groups that you’ve been waiting for? And then just a little housekeeping point, Gunnar, you’ve mentioned that U.S. cable networks were actually helped a little bit by Food and by HGTV. Is there any way to look at what the organic growth rates were for the core Discovery networks? A – Gunnar Wiedenfels: Yeah, let me start with that last question, so that was related to my comment on subscriber trend, again on a consolidated, full portfolio basis, same pattern as in previous quarters with 3% sub decline for the fully distributed nets, and then 5% for the full portfolio. And you can think about it this way, Food and HG have been contributing positively to that 3% decline for the fully distributed nets and for Discovery stand-alone if you look at the old legacy Discovery portfolio, the trend has been bang in line with what we’ve seen in previous quarters. Q – Rich Greenfield: Thank you. A – David Zaslav: On the question on AT&T, I don’t really want to comment on any specific company. AT&T is a great company. There are a lot of very strong multichannel to the home companies and they are listening to their consumers every day. I can’t predict whether the moment is now, but the moment is coming. Consumers can’t subsidize these massive sports rights anymore. It’s not fair. And we’re suffering from it. The idea that you have to pay so much money in order to get the bundle, it’s something I’ve been saying for years, I think it’s going to end. It will either be driven by one or two players moving quickly, and then others following or it will be driven by some of the entrepreneurial companies that are already popping up. But there’s no question in my mind, because it’s an outlier, you look at all the countries in the world and the skinny bundles and you see the ecosystem there in most countries healthier than we are, because we don’t have an offering for somebody that doesn’t have a lot of money. We don’t have an offering for someone that goes to college. Their only choice is to get Netflix. It’s not sensible that we have all these broadband subscribers, and that the only product that they’re offering now is Netflix. Why aren’t they offering products that they help develop or they invested in for all these years? And so I think sensibility will come to the marketplace. More importantly, consumers are going to get what they deserve, which is an entry level ability to have multichannel cable without subsidizing sports and paying a massive amount to get an entry. On the point of what’s happening in the marketplace, we love it, because we’ve been hanging out outside the U.S. for the last 25 years. It’s where I’ve spend most of my time. In Europe, we’re the largest pay-TV media company in the world. We have infrastructure, sales, content and marketing know-how, every country in the world. Our brands are everywhere. This has been a conviction driver of John Malone and of Bob Miron from the Newhouse family, before I even got here. It’s the heritage of our company that we’re taking these quality brands everywhere in the world. And so there have been times when it’s been lonely, and there have been time as we’ve been investing in growing our free-to-air in our brands and building our infrastructure all around the world where when we went into sports in Europe, people said what are they doing that for. Now, we’re the leader in sports. We’ve got so much success with the Olympics. We invested in Kids in Latin America where we’re bigger than Disney in Brazil. And we’ve been doing that all with an eye towards the, where is the ball going to be? And we think having this very big international business was quite clever and owning all this IP everywhere in the world globally is clever. And so when we see people fighting over Sky, that looks to us like hey, we’ve been there, we’re in business with Sky, we compete with Sky, we’re bigger than Sky on the content side in Italy, and it looks to us like the market is coming our way. And when great companies like Disney and Comcast are looking for scale, they’re going to look around and they’re going to find there’s very few companies that have scale. Our goal is to stay as we are right now, because we think we can generate huge free cash flow. We think that we’re right about these affinity brands that we own, that we can make the turn that people are going to want to buy it, whether it’s the big global companies or the regional companies. We saw it with T-Mobile, they’re starting to offer Netflix. When mobile companies around the world want to offer something special to de-commoditize their platform, we got a whole menu. Having said that, there’s nothing different that we would be doing as we look to create broad shareholder value and execute on this free cash flow machine that would be different. Whether it’s a year from now or four years from now, if we’re the leader in sports, if we’re the leader with international infrastructure and free cash flow and EBITDA and if we’re the leader in Kids, those are things that would be very attractive to us in terms of shareholder value. But it also would be on a parallel basis very attractive, because I don’t know that there’s another company that has that basket. Q – Rich Greenfield: Sounds like it’s going to be a fun summer.

Thank you. And the next question will come from the line of Alexia Quadrani with JPMorgan. Your line is now open. Q – Alexia Quadrani: Hi, thank you. Scripps has historically been able to achieve relatively strong pricing in their flagship networks. I guess is there any color you can provide about how that may compare with some of your key networks, and the opportunity to leverage that strength? And is that what you’re referencing at least in part when you’re talking about already seeing some revenue synergies in this coming upfront? A – Gunnar Wiedenfels: Sure. So, Alexia, that really was one of the most important points for us when we looked at Scripps last summer. If you look at the performance of the two portfolios, Scripps certainly has had a strength in their monetization of their ratings. If you look at it from a power ratio perspective, many people have done the math. They were at a 1.1 versus a 0.8 for us. That’s certainly something that we’re hoping to be able to get some benefits out of. And as David said earlier, the upfronts so far have been positive for us from a feedback perspective, it’s still early days from a negotiation perspective, but we do see a lot of interest and we have full confidence in Jon Steinlauf who has taken over the combined ad sales team, and that’s why I said, I do think that there is a nearer term revenue opportunity here, again, way too early to put some hard numbers against it, but we’re optimistic.

There are some broad reach comparisons as with cable versus broadcast, that when you look at them, they just feel out of whack. With broadcast getting $45, $50 CPMs and cable really in the $10 to $20 CPM, and then you take a look at our ability to deliver across our women’s networks on any given night, a three rating, or on a good night, a four rating or a five rating. The ability for us to – the differentiation from the perspective of the advertiser was the ability to generate scale. Well – and to be able to have reach that’s compelling. We now have some very strong reach and we have some ability to really give detail on demographics and people that may be arguably are more engaged with our platforms than they are on a broader platform. And so we think that there’s some opportunity to make the argument that we have a very – that our audiences are even more valuable. It’s an argument that we would have been making before, and it’s an argument that we’ll make now.

Okay. Thank you very much.

Thank you. The next question comes from the line of Steve Cahall with Royal Bank of Canada. Your line is now open.

Thanks. Good morning. David, maybe one for you, and then Gunnar one for you as well. David, you’ve talked for a few quarters now about the global rights opportunity. I think it’s one of those issues where investors remain a little suspect until there’s a deal on the horizon. So can you get us any indication of whether or not you think you might be able to do a global deal here in the next year or two? And then Gunnar, just on the free cash flow side of things, there’s a few areas just because you ran through a lot, I want to make sure I understand. As we’re thinking about the bridge into next year, can you just help us with how much of the restructuring, again you’ll have this year versus the future years? And then also how the savings sort of stack up between 2018 versus the years beyond? Thanks.

Thanks, Steve. It is a work in progress. We are [ph] IP long (52:32). We own all of our content on all platforms, and as much success as we have with the Olympics, and we had a lot of success, we really expected that most of the mobile players across Europe would – we have the rights to the rings, so we could provide the rights for mobile players to affiliate with the rings year-round. We could have provided a lot of exclusive content to different providers in the marketplace. It wasn’t quite ripe yet. But the idea that we own the Olympics for the next nine years, and we’ve had from the date that we did the deal 11 years to build around it is a, for us, we think a successful formula. And outside of the Olympics and Eurosport we own all of our content globally and we look at it really more in the long-term. But this – one of the big successes that we had with the Olympics was generating a half a million subscribers, paying for the Olympics in less than 10 days, and being able to build a platform that got top ratings and that generated 3,000 hours – over 3,000 hours of streaming and then ability to navigate and curate within that platform to very good reviews. And at the same time to provide content in over 20 languages in linear and on cable. So we certainly, more than any other company, know how to provide content in every language on multiple platforms. And what we learned about the Olympics is on a parallel track to what we’ve learned with the Eurosport Player, that people seem to be willing to pay and not churn out a lot on things that they’re really passionate about. So for the people that love the Olympics, they really want it. It’s one of the reasons why we’ve gone from the buffet which we still offer, to this idea, just like you buy a magazine for tennis or you buy a magazine for cycling, that we give you much more dense, much more IP, short form, long form within a specific area. And so we pass on a load of stuff, but we are on the hunt now with Food, with Home, with Cars, and we’re looking at what other opportunities are there globally to own IP for the long-term that we cannot only build a global platform, but monetize it. And we’ll be focused on what we pay for that IP, to make sure that we can generate global IP, but global IP that if we can get the turn, either through a global player or the regional player, that we can generate real value. Food and HG and Travel are three that we think we can globally take advantage of, but we are looking at loads of opportunities, but we’ve passed on a lot of them, because we’re looking for the right ones.

And then Steve, on the free cash flow, a couple of maybe clarifying comments on the synergy ramp-up. I want to make sure that you guys understand what we see as the potential, the $600 million plus. The timing of that is obviously still influx, right? And the delta is going to be, are we going to be able to get those numbers earlier or later. And that’s why I don’t want to give any very specific guidance for a fiscal year, which is a bit of a random cutoff. But if you look at the comments I made earlier, we’re looking at mid-single digit AOIBDA growth for the year, obviously that is to a large extent synergy driven and could be on the lower end if we’re slower, could be on the higher end if we’re faster. That’s the way to look at it. But either way, the lion’s share of the synergy is going to hit in 2019. So, if you go back to the free cash flow guidance I said $2.3 billion after the cash restructuring expenses. We’ve already paid out $70 million in the first quarter, and as I said, we do expect a slightly higher total restructuring number than we originally guided to. So let’s say maybe $400 million. And I would encourage you to put in about two thirds of that for the cash impact of 2018.

So, Gunnar, just if I understand that, I mean, we should have a pretty nice bridge in terms of synergy plus restructuring tailwind as we move into 2019. Is that correct? Am I thinking about that right?

I agree.

Okay. Thank you.

Thank you. And the next question will come from the line of Michael Nathanson with MoffettNathanson. Your line is now open.

Thank you. David, I have two for you. One is on advertising, one’s on the Olympics. When you look at Scripps, one of the most amazing things was [ph] they had (57:23) really high commercial load per hour versus your own networks have a very low. So how do you see the balance of raising commercial loads maybe at your core networks versus reducing them at Scripps, and how you think about the right way to blend commercial minutes per content? And then I wondered now that you had the Olympics on the air, how do you feel about buying more soccer rights, where you don’t really have a nine year or 11 year hold on licenses? So can you contrast your sports appetite for maybe short-term soccer rights versus [ph] maybe rights (58:00) I don’t have those short-term cycles?

Thanks, Michael. I don’t know if you timed this in some kind of a special way. But I think this is the second year in a row that I have to wish you a happy birthday.

Yeah, thank you, David. [ph] You too David.

I’ll call you later with my wish and you can give me your wish.

Okay. Thank you. Thank you.

On the Scripps side, one of the things that they did was their commercial load was very high, and their promo load was extremely low. We were the opposite. We have now the ability to promote across all of our networks. So this idea that on any given night we’re getting a 3 or a 4 or 4.5 in women, for instance, we now have the ability to use the promo, not only to promote a particular network, but if we have a great show it’ll be able to go across ID, OWN, TLC, HG, Food. And in fact, HG spent a lot of money buying local time on ID trying to get people to come over. And so we’re going to try and understand promo in the traditional sense, our unique ability to do promo across our channels to move people around, both to save dollars, but also to maximize the movement of audiences, and then the importance of fully monetizing our platform. We’ve also developed a lot of analytics that are quite important. We’re seeing, for instance, when we go on our GO platform and we can quantify what – the viewership in terms of length of view and age, we can get a dramatic increase in CPM with some of the analytics that we have in place now. We have an ability to get higher CPMs. And we look at what Viacom is doing. We’re doing a similar thing, maybe there’s an opportunity. We’re talking to them about maybe doing something with them. And so the net-net is we’re going to put it all together and we’ll figure out how do we maximize growth of our channels, taking advantage of the unique ability we have that no one else has to reach across all of our platforms and let people know. We’re even looking at this idea of not just promoting. But if somebody’s watching on HGTV and the next show coming up is a show that they don’t want to watch, what would normally happen is they’d go to their other five or six favorite channels. But can we alert people that are watching HG, here’s what’s coming up on Food, here’s what’s coming up on ID, TLC and OWN? We’re doing it in a pilot – on a pilot basis, but we think that reach could be successful for us or unique, at least, and we’re trying to figure out how we use it. On the Olympics, I think the Olympics is a great model for us. We own it on all platforms for over a decade. We could build expertise. We’ve got 0.5 million subscribers in direct-to-consumer this past time, what worked with Snap? What worked with Facebook? What’s the ceiling? Could we get 1 million next time? Could we get 2 million? How would we get it? What would we do differently? And so the ability to iterate is very, very important. For us, I think it’s unlikely that you’ll see us competing in these three-year cycles of football. To the extent that we do, it will be because we get – we have some unique opportunity. But look, the Bundesliga was difficult for us. And in that case, we paid almost no increase and it was difficult for us. And so it was a good experience and it led us with better IP to get into this joint venture with ProSieben. But it also taught us a lesson in what we do and what we can’t do. And so I think it’s unlikely, particularly when you’re competing with platform companies that are trying to build asset value on the back of that IP and are willing to lose money on it. And so I think we’re going to stick to our knitting which is let others pay a lot for that kind of IP. And if we could own all the other sport at low single or reduced rates or high single in some cases, if we think the IP is great for extended periods of time, and that’s what we’ve been doing, much, much longer renewals, because we have something very unusual with Eurosport. We’re the only Pan-European player. That’s what we’re going to go. And the Olympics just added to that [ph] Patina (01:02:45). The IOC couldn’t have been happier. And so is there an opportunity for more Olympics in the future? Maybe. Our relationship with Bach is extremely strong. And is there an opportunity to get more IP? Well, if anybody was thinking, who should I be in business with in Europe in sport, as more and more leagues and IP owners that are saying they want to be in business with us.

Thanks, David.

Thank you. And our last question will come from the line of John Janedis with Jefferies. Your line is now open.

Hi. Thank you. David, maybe a bit of a follow-up. In the past, you’ve talked about improve [ph] monetization (01:03:25) as revenue driver for ID. And I was wondering, are you at a point now that it starts to accelerate with Scripps, because I think in the past you talked about an opportunity maybe in the hundreds of millions, and so I’m wondering does that still hold?

Well, we were on a mission with Scripps with – before Scripps with ID, because it’s the number one cable channel in America for women. Just to take a victory lap for Henry Schleiff and his team, the last fully distributed top 10 network in America was in the, it was History and I was on the Board of that and FOX News. And seven years later, eight years later, we launched ID and then Henry and his team come onboard, and it’s now the number one cable network in America. It’s loved. Its length of view is the same length of view or more than FOX News. And so we have been on a mission for the last couple of years to say that we should be getting more value for that great audience and for the type of audience that we generate in daytime, in late night, in prime, and the numbers only keep growing. And so now as we have a bigger menu and we’re going into the marketplace, and we have Jon Steinlauf running our operation, who had an ability to generate higher CPMs across the board at Scripps, got a better power ratio than we did, we hope that some of his know-how, his relationships and his unique approach will help ID as well as the rest of our channels.

Thank you.

Thank you. Ladies and gentlemen, thank you for participating in today’s conference. This does conclude your program. You may you all disconnect. Everyone, have a great day.