Ladies and gentlemen, thank you for standing by. Welcome to the AT&T Investor Relations. At this time all participants are on listen-only mode. If you should require assistance during the call please press star and then zero and an operator will assist you offline. Following the presentation the call be open for questions. If you would like to ask a question press one and then zero and you will be placed in the question queue. If you are in the question queue and would like to withdraw your question you can do so by pressing one and then zero. As a reminder thus call is being recorded. I would like to now turn the conference over to your host. Thank you. Hello, everyone. I'm Amir Rozwadowski, Head of Investor Relations for AT&T. Welcome to our call today to discuss the agreement we just announced between AT&T and Discovery to combine WarnerMedia with Discovery. Joining me on the call today are John Stankey, CEO for AT&T, Pascal Desroches, CFO for AT&T, David Zaslav, CEO for Discovery, and Gunnar Wiedenfels, CFO for Discovery. We would like to walk you through the details of the transaction and what it means for both companies, then open up the floor for questions. Before we begin, I need to call your attention to the Safe Harbor statement. Today's conference call will include forward-looking statements. The forward-looking statements include statements concerning the expected timing, completion, and effects of the proposed merger and distribution, the company's outlook for the future, as well as other statements of future plans and strategies. There are a number of risks and uncertainties and other important factors that could cause our actual results to differ materially from those suggested by the forward-looking statements. Additional information is available in our and Discovery's SEC filings and on the investor relations page of both AT&T and Discovery's websites. Please refer to the press release for our complete Safe Harbor statement. With that, I'll turn the call over to John Stankey. John? Thank you, Amir. Good morning, everyone, and thank you for joining us on short notice. Let me first start by saying how excited we are about the opportunity this creates for both WarnerMedia and Discovery. We're equally excited about what it does for AT&T and our shareholders. I'll take a few minutes to address the why and why now in this transaction and talk about its structure. I'm going to hand it over to David. This transaction brings together two entertainment leaders with complementary content strengths and positions the new company to be one of the leading global direct-to-consumer streaming platforms. The deal also provides AT&T with additional flexibility to invest in what I believe is an equally compelling opportunity, becoming the preeminent U.S. broadband provider. I know the question you're asking is, why are we doing this now? The fact of the matter is, direct-to-consumer is a global opportunity that is rapidly evolving. The pace of that evolution is accelerating. To compete and win, you must build global scale. Simply put, to invest the kind of capital we need, we need the instruments of capital necessary to do so. This is a move to align each of our businesses with the right asset and capital base for their respective future success. In other words, this move unlocks the value embedded in our media business and gives it the tools, talent, content, and capital to ensure its position as a world-class player. The hard work and consistent execution of the WarnerMedia team has cemented a domestic U.S. D2C foothold and is poised for continued growth and rapid international expansion. WarnerMedia and Discovery together solidifies the joint entity's leading position in the global direct-to-consumer race. Together, WarnerMedia and Discovery will have a combined content spend that exceeds most industry peers. In addition, we're uniting the most awarded leader in scripted entertainment, animation, news, and sports in WarnerMedia with a leader in real-life entertainment in Discovery. By combining these two, it creates one of the most compelling global content portfolios in entertainment. This also creates substantial value opportunity for AT&T shareholders. Our shareholders will retain their stake in our leading communications company that comes with an attractive dividend. Plus, they'll retain a 71% stake in the new entity. There is now an opportunity for parallel growth in both telecommunications and media, which many would argue that our stock was not effectively reflecting. By doing this deal now, WarnerMedia will be in a position to self-fund its growth, and AT&T will have the flexibility to invest and address the growing long-term demand for connectivity and be the leading, best-capitalized broadband connectivity provider in the country through 5G and fiber. Let's move to slide five for a summary of the deal. At the highest level, this transaction is an opportunity to unlock value for AT&T shareholders on both sides of this deal. It will be executed through a Reverse Morris Trust, under which WarnerMedia will be spun or split off to AT&T shareholders and simultaneously combined with Discovery. The transaction is expected to be tax-free to AT&T and to our shareholders. AT&T will receive $43 billion in a combination of cash, debt securities, and WarnerMedia's retention of certain debt. Upon close, which we expect in mid-2022, AT&T shareholders will receive stock representing 71% of the new company, with Discovery shareholders receiving the remaining 29%. We plan to reset our dividends at that time. We'll still have a very attractive dividend yield with enough free cash flow after dividends to allow us to step up our investments in 5G and fiber, which we believe will deliver consistent growth and attractive returns to our shareholders. I'll now turn it over to David for a deeper dive on the benefits derived from this deal for both companies. David? Thanks so much, John. These last few months with John and together architecting this deal has been a fun and exhilarating and truly bonding experience. A big thank you to you, John, my friend and partner. This is a really exciting day and a seminal event for our respective companies. I could not be more proud and humbled by the opportunity to both unlock and drive incremental shareholder value from the combined assets of what I believe is the most compelling, valuable, and iconic IP and brand portfolio in global media today, and to begin the next chapter of our growth trajectory. John and I have been discussing a singular vision for a while now, that simply put, these assets are better together. In fact, not just better together, but together, we are the best global media company in the world. Together, we are a significantly stronger company and one positioned to better serve our consumers with compelling entertainment around the world. It's the combination of creative and operational leadership, quality content, brands, and franchises, the deepest programming and film library with over 200,000 hours, a uniquely compelling and differentiated mix of category leadership across key genres, scripted movies and series, animation, sports, news, nonfiction, and kids, all areas where we have the talent and strength to compete and win. With the broad global reach, relevance, and local content pipelines in every market, we believe this deal alters the growth profile of the companies in a material way, in an explosive way. John and I have aligned quickly that the new company will not only be able to enhance its programming depth across its legacy linear pay TV and broadcast channels, but also will accelerate and assure its place as a fully scaled and differentiated global streaming platform. With the strong launches and healthy tailwinds we've each been able to build with Discovery+ and HBO Max, with a ton of consumer engagement, market awareness, and global rollouts planned throughout the year, the combination will fully establish us as one of the leading direct-to-consumer streaming players worldwide. The capabilities and overall optionality across each facet required to compete at the highest level of the direct-to-consumer playing field is significantly higher when we're together. Continuously driving a clean and curated consumer experience supported by an efficient and flexible tech stack. Broad global reach in over 200 countries with a wide owned and operated marketing funnel. A consistency of franchise tentpoles. Big loud films that act as beacons to bring viewers in. A deep and wide offering of genres, verticals, and formats to keep consumers engaged and nourished on the platform. A steady free cash flow machine to continuously invest in putting the most compelling content on the screen and on every platform. It's a complicated and challenging strategic roadmap that every single one of our peers is on, and we see this opportunity to bring together our collective momentum, assets, and shared vision to meaningfully accelerate our path. Before turning over to Gunnar for some more detailed commentary around financial metrics and policy, let me say how proud I am of the Discovery team and all of the hard work and their consistent track record of success. We love Discovery's hand, but the quantum leap that the combination of WarnerMedia and Discovery brings in terms of scale and reach made this deal so compelling and captivating to John and I over the last few months. The chance to really create something so unique and compelling to drive long-term shareholder value. We couldn't resist it, and we couldn't be more excited. With that, Gunnar. Thank you, David. I am incredibly excited about this opportunity and the combination of these assets to drive shareholder value and creating so many different pathways for long-term growth. As you have seen, the complementary nature of the brands, the businesses, and the strong free cash flow generation catapult this combined entity to near the top of our peer group in terms of its financial profile and investment resources with significant scale across every level of the company. Presuming we close this transaction during mid-2022, and with 2023 as our first full year of operation, we expect revenue of roughly $52 billion, of which we currently estimate at least $15 billion will be from direct-to-consumer. We also expect EBITDA of around $14 billion and free cash flow conversion of around 60%, which should place us at or near the top of the industry. Our expected free cash flow profile will support both rapid debt paydown as well as the requisite direct-to-consumer investments and increased content spend to pursue the strategic direction both John and David have laid out. Further, we see a number of areas where we should be able to drive significant efficiencies, find cost synergies, and enable best practices across the new company. We should also be able to avoid building out duplicative cost structures, tech foundations, and capital requirements as our combined operation grows. To that end, we expect at least $3 billion of cost synergy alone, phased in post-close, and that will likely take around two years to complete. Note, this is cost capture alone and does not factor in any of the harder-to-quantify, but potentially significant upside from synergistic revenue opportunities that we may be able to capture as we bring these valuable products to consumers, and where we can look at cross-promotion and marketing, joint development, and production, and unlock new content franchises and opportunities across the vast library of iconic IP. As you may recall, following our Scripps Discovery merger, we ultimately delivered synergies significantly above our initial cost synergy estimate, and the opportunity here is so much larger. As John and David have detailed, the focus of this combination is the breadth and depth of creative talent and storytelling, and our aim will be to embrace, extend, and maximize these capabilities and unmatched IP by leaning in even further from a resource perspective. Regarding financial policies and capital allocation, the playbook will be straightforward. Based on our conversations with rating agencies, I am very confident this combined company will be rated investment grade, and we intend to rapidly reduce leverage through strict allocation of free cash flow to debt paydown. Our long-term gross leverage profile will be two and a half to three times, and we expect to be around three times 24 months post-close. At that time, we expect to be in a very strong position of financial flexibility, generating significant free cash flow to reinvest in dynamic growth and world-class content and to create attractive shareholder returns. I could not be more excited about this combination and the opportunity to generate world-leading entertainment for our consumers and substantial value for our shareholders, and I am very confident in our ability to manage the integration, synergy capture, the expanded leverage profile, and strategic directive, given our strengthened linear portfolio and strong momentum across our direct-to-consumer efforts. Now I'd like to turn it back over to John. Thank you, Gunnar. Let's talk about what AT&T will look like once this transaction closes on slide 13. First, connectivity is intrinsic to everything we do. We're leading the way to 5G and fiber to support that. This transaction gives us the flexibility to execute a steady and disciplined approach in that pursuit. You'll see a company very familiar to you. Now tightly focused and better positioned to capitalize on the growing long-term demand for connectivity. You'll also see a company with the financial resources and flexibility to be a leader in broadband connectivity across all market segments with a management team that is aligned and laser-focused on executing AT&T's effectiveness and efficiency transformation. Our goals with the new AT&T are simple and straightforward. We plan to continue the momentum in our mobility business by stepping up our investment in our wireless network. We expect to effectively deploy the assets we acquired during the recent C-band auction, reaching 200 million pops with that spectrum by the end of 2023. We intend to double down on our fiber expansion. We expect to more than double our current fiber footprint by the end of 2025, reaching 30 million customer locations, with the single goal of offering the best fixed broadband service in the market. We don't intend to stop there. We also will be a company focused on operational excellence and operating efficiently. This move ultimately positions the company for revenue growth, margin expansion, and earnings growth in one of the most vital and resilient industries in this country and the world. In fact, on a comparable basis, we expect to grow revenues and profit consistent with GDP plus once this deal closes. We'll have significantly increased our financial flexibility to execute on a capital allocation plan focused on total return. Pascal will now take you through these details and give you our expectation of the financial profile of our company going forward. Pascal? Thank you, John. Let me start with slide 14. A lot of you are thinking about the value of this deal compared to what we paid three years ago. It's important to keep in mind that in addition to the attractive valuations we just covered, we have already realized healthy returns on our Time Warner investment, including cash generated from the business since it was acquired and the nearly $5 billion in assets that we have sold. Today's announcement is the next step in enhancing the value of WarnerMedia. Not only do our shareholders get the benefit of a tax-free transaction, but there is real value created from both synergies and a long-term opportunity to invest in what we believe is an immediate global media leader. The new company will have scale capital, and content to compete with anyone in the industry. Now let's look at post-transaction profile for AT&T. The reduction of debt, along with growth expectations from investments, will really change the financial profile of the company. In mobility, we'll continue the winning game plan you've seen the last few quarters. Our focus is on profitable growth and increasing our market share, while also retaining our high-quality phone base. As John mentioned, we plan on stepping up our investment in 5G. Our expectations for our fiber expansion are also high. We are taking market share in our current fiber footprint, with penetration rates in the new build areas accelerating. All this creates an improved growth profile for the company. Once the transaction is completed, we expect on a comparable basis, annual revenue growth in the low single digits, annual mid-single-digit adjusted EBITDA, and adjusted earnings per share growth driven by strong mobility and broadband growth and continued transformation savings. Adjusted earnings per share could go even higher if we move to repurchase shares. This transaction allows us the opportunity to reset our approach to capital allocation. Those details are on slide 15. We are taking a focused total return approach with our capital allocation strategy, which is focused on three key elements. One, increasing investments in our business to deliver attractive returns, including revenue and earnings growth. Two, paying an attractive dividend. Three, reducing leverage levels much quicker than originally targeted. This strategy provides investors with near-term income generation, plus potential value creation via debt reduction and earnings growth. All are focused on one goal, creating value for shareholders. Let's look at this more closely. As John mentioned, we plan to resize the dividend after the transaction closes. We now expect a dividend payout ratio of 40%-43% on anticipated free cash flow of $20+ billion. We see this as an attractive dividend with a solid return to shareowners, while providing additional flexibility to invest in areas that deliver attractive returns. One of the key elements of this deal is the reduction of debt for AT&T. At close, net debt will be reduced by $43 billion. We expect this to drive net debt to adjusted EBITDA to the 2.6x range after close. Going forward, we expect to reduce net debt to adjusted EBITDA even further through a combination of EBITDA growth and debt paydown. By the end of 2023, we expect net debt to adjusted EBITDA to be less than 2.5x, a year earlier than current expectations. Finally, our total return strategy invests in growth based on the highest returns. We believe investments in accelerating our 5G capacity build and success-based fiber is the best use of capital. As an example, we expect internal rate of returns on our fiber investment to be in the mid-teens, creating significant value for shareholders. After we close the transaction, we expect capital expenditures to be about $24 billion a year. Going forward, we intend to phase out most of our vendor financing arrangements. Strengthening our balance sheet will give us greater flexibility going forward. This could give us the option to increase our dividend and/or repurchase shares in the future. That concludes our presentation. I'll now turn it back to Amir for the Q&A. Amir? Thank you, Pascal. Operator, we are ready to take the first question. Thank you. Ladies and gentlemen, if you wish to ask a question, please press one then zero on your telephone keypad. You may withdraw your question at any time by repeating the one-zero command. Our first question comes from John Hodulik with UBS. Thank you. Okay, great. Thanks, guys, and congratulations on the transaction. Maybe first for John, on process. Did you guys talk to other potential partners as part of the process here? Is there any breakup fee involved? Second, on the dividend, it looks like you guys are moving to an $8 billion-$9 billion number. Just how did you get to that number? Is it a function of just maintaining the level of debt reduction that you had previously? Just any sort of thoughts about how you got there? For David, obviously very early in the process, but just how do you see the D2C strategy for NewCo evolving? Obviously, you've got a couple different platforms. Do those eventually get combined, or do you end up adding the Discovery content to HBO Max? Thanks. Good morning, John. Look, anytime you go into a significant decision to restructure a business like this, I think you'd be disappointed if I didn't tell you that I was diligent, working with the management team and the board and evaluating any path that was a viable path or something that structurally could be an alternative. I'm not going to go into a lot of detail on kind of going through history, but I will assure you, the iterations that were evaluated over the period of time, since probably mid-last year, my thought process around capital needs and how the business was evolving that factored into that, the team's success in the market and what they were going to require in terms of resources to move forward, who are the right partners or the right opportunities for us to look at to possibly accelerate that. It was a pretty extensive and thorough approach, and I will tell you We are really pleased with where this came out. This is a really good combination. I don't want to speak on David's behalf, but we all want this transaction to go and go cleanly, and we've set this thing up with a high degree of deal certainty. We have a voting arrangement with two key shareholders in Discovery that secures almost 45% of the vote. We all want to move this thing through the approval process swiftly and quickly, and I think we set up this transaction to give us the best prospects of doing that. In terms of the thought process on the dividend, it's fairly straightforward. It's the same thought process around how we got to this transaction in the first place. I wanted to do the right thing for the shareholders, and I wanted to think about what that balance was across all the various interests and returns that anybody who buys into the AT&T stock would have thought about. That's a combination of unleashing the media company and carrying that forward with AT&T shareholders owning 71% of that. David's going to do a great job watching that grow and have a profile of growth that I think any shareholder who wants to stick with it will enjoy. It's also about allowing the AT&T communications team to start investing at a level to grow that business at GDP Plus. I think we can clearly do that. You start with those two things and then say, what makes sense on the dividend? I think what makes sense is to continue our competitive payout for our return-oriented investors, which are a large part of our base, but that return, as you indicated, somewhere in that range, puts us above the 95 percentile. I think it's really attractive cash flows. It's a really strong capital position at that point, and people should feel pretty good about that dividend and what it means. We'd like to make sure that shareholders who have been with us continue to feel like they're getting a competitive return on the dividend, and they're going to see competitive returns on the two growth aspects of the equity as well as they move forward. David? Thanks, John. The key to direct-to-consumer is have content that people love. In this competitive world that we're in right now, it's not good enough to have content that people love. You got to have content that people love so much that they would run home and pay for it before they'd pay for dinner or the roof over their head. What this gives us coming together, the building block of this transaction is just extraordinary library of characters, stories, big tentpole brands. We come to the direct-to-consumer marketplace with, I think, the best set of IP. You add to that in Europe with a leader in sports. We talked earlier about news. I think we have all this great IP, and what we're going to do is we're going to spend the next year or so, and we're doing it ourselves. John & Jason are doing it, trying to figure it out. For us, we thought it was going to be mostly subscription, we found that the ad-lite product had unbelievable ARPU for us, over $6. We charge $5, we make over $6, we're making $11 a subscriber, make 50% more than we were making on the cable stuff. This is a learning process, we're doing it in Europe, where we have the football. In some markets, we're offering the football together, all on Discovery+. In others, you get it through Discovery+ for a cheaper price, you bundle. Iger's done a terrific job of that. The bundling has been a big advantage and provided growth and stickiness. John and I have talked a lot about it. We're going to watch and cheer for AT&T and Jason and see they're having such success. How is that growing? Where is it growing? By the time this transaction closes, we have the IP, we'll have a little more experience. We'll figure out exactly how to do it in each market, and we'll probably experiment in a lot of markets. John, if I can maybe add from a financial perspective view, you will not be surprised that this was one of the key focus areas for our diligence and modeling here. If you look at the models that have been successful in the market, I guess the bookends are sort of one fully integrated product versus sort of a bundled approach. We have modeled out various permutations of go-to-market strategies and gotten our confidence range for our revenue assumptions. Obviously, the geography of that might change a little regarding subscriber numbers, ARPU, et cetera, but we're very, very confident if you just take a step back here. For both products, HBO Max and Discovery+, what we're seeing is tremendously encouraging metrics, return, engagement, and to David's point, ARPU. Those are the three building blocks of a superior customer lifetime value. We'll work hard over the next few months here to determine the final go-to-market approach. I feel very, very good about our hands. I met one of the biggest streaming players who said to me recently, "If I had you, my churn would be zero." I think just the combination of people now spending over three hours with us. Then you add to that Batman, Wonder Woman, King Kong, Sex and the City, Friends. It's an unrivaled combination. Churn matters. We think we could be very attractive together and pretty compelling. Thanks very much, John. Operator, if you can take the next question. Yes. Thank you. Our next question comes from the line of Brett Feldman with Goldman Sachs. Please go ahead. Yeah. Thanks. Taking the question, just one here for Dave. In the past, you've noted what a great value you are and a partner you are to your linear distributors. We've talked a lot about streaming on this, but you've talked about how you're really the glue that holds the bundle together, and after the transaction, you can make the case you're going to be the super glue. As you think about the merits of the transaction and the motivations for doing it, beyond streaming, are you also anticipating in the outlook you've given to us that you'll be able to drive a better yield on the portfolio of content you have in the linear bundle and not just in the streaming world? Thanks. Well, in the traditional business, which is generating really compelling free cash flow for us, and together, we think that there's a tremendous amount of synergy, which is the combination of us reaching about 20% of viewers in America on any given day, the leader for women. You put that together with the leader for news, the leader in sports, all the entertainment content. This is aside from HBO. It gives us a chance to be a wonderful partner to advertisers, really compelling, and it gives us a chance to be a great partner to distributors who have a real focus on keeping that bundle going. I thought that the NFL deal was great for the cable business because it was going to keep that bundle together. One of the brilliant strategies that John deployed was I was watching going, "Holy smokes." The NHL with rights to move that IP around. All the sports are locked up long term. Live sports locked up long term. It's quite a compelling strategy. NHL, NBA, baseball, March Madness. We've played a little bit of a similar game in Europe, but without, I don't think as much success as John and the team have had here. What we did was we found that we bought the Bundesliga, and it was super expensive, and we didn't have enough of it. We had a hard time, if you guys remember, many years ago. We decided if it's a good sport, we need a lot of it, and we should try and stay away from football because it was just too expensive unless we were really big in a market and we could get it to a point where we thought it could be profitable. Football is fantastic here in the U.S., the NFL, but John's strategy of let the other guys pay a massive amount for football and let me lock up all the other great sports in America. It's a very unusual thing. The hard thing about Europe is there's different sports in each country and different cultures. Ski jumping is huge, or it's handball. The idea, when you look at the leagues and the live sports that John was able to do, and I was talking to Jeff Zucker after the baseball deal and the NHL deal, just thought it was quite brilliant, and it's lucky for us that those are all locked in long term. I think it'll really help us. If I could just add one point we hear from the CFO as well. Discovery is spending more in content than ever before this year. Despite the enormous synergy potential that we're seeing, our intention clearly is to keep growing the combined content spend between these two companies coming together for the next couple of years. We are going to be an even greater partner to the amount of networks. The only other thing I would add is we have 10- 12 channels in every country in the world. When we took HD and Food, when you saw our market share growing all around the world and you saw our international business really accelerating, now imagine the greatest TV and movie library. Our focus is going to be to get to 200, 300 million subscribers. We're almost at 100 now, there is a huge amount of content there that we can put on platforms around the world. Thanks very much, Brett. Operator, if we could have the next question. Thank you. Our next question comes from the line of Simon Flannery with Morgan Stanley. Please go ahead. Great. Thank you very much. Good morning. Congratulations. I wonder, Pascal, could you just go through the process for determining the dividend? How exactly will you determine what that number is? It'd be helpful to think about that framework. On the capital spending on the fiber and the C-band, are you going to move, pull stuff forward this year, or is this year still consistent with the expectations? Any color to the current plans would be great. Any change to the interim C-band disclosure? I think you'd said 100 million covered pops by early 2023. Do you get there faster as well? Thank you. Simon, let me hit first the dividend, just reiterating some of the points John made. When we are looking at the absolute level of dividends, we're going to consider first and foremost, where can we deliver the most attractive returns to our shareholders? We think investing additionally in our businesses is paramount, and we plan to step up our investments. Two, we are committed to continuing to deliver a very attractive dividend as we move forward. We said 40%-43% of our free cash flow, which is expected to be $20+ billion. What I would tell you is we believe that would put us in The 95th percentile of all dividend payers in terms of yield. Overall, we think you're going to have a really healthy dividend. In terms of your questions on C-band, I think it's safe to say we're going to accelerate our deployment. We said that in our remarks, we expect to be over 200 pops in 2023. Great. Thank you. Thank you very much, Simon. Operator, next question. Our next question comes from the line of Alexia Quadrani with JP Morgan. Please go ahead. Thank you. David, circling back to your comments on the power of sports. My question is, do you plan to utilize the new scale to compete more in sports rights? Do you see yourself migrating the rights that you have or the rights through Turner or the potential new rights more to streaming platforms going forward? Just to follow up, I know it's really early days, but any comments and the combined company obviously spent so much money already in content, but any comments on how we should think about maybe content spend going forward? Sure. Thanks, Alexia. Look, we're pretty flush with sports rights in a good way. We have the Olympics. We have three more Olympic Games in all of Europe. We have most of the tennis. We have most of the cycling. We have football in a few markets. As I just said, we have the sports that AT&T was able to lock up. Outside the U.S., we mostly can move that around and in many cases with a fair amount of flexibility. We've been using it to drive our subscription platform, and we're trying to figure out the best way to do that. We also have our PGA deal where we partnered with Jay Monahan, and we own together the PGA Tour outside the U.S. I think we have plenty of sports. Our focus will be how do we use what we have. I think the key to this business is the extraordinary IP that John developed, taking HBO, taking the motion pictures, taking the scripted, taking all the brands and content that we have. That'll be the core of what we think is going to be 200, 300, eventually 400 million subscribers around the world. The appeal of what we have is so broad that there's no reason why this can't be the broadest, most successful direct-to-consumer platform in the world. We'll spend more money this year if you add it up to about $20 billion, but we're a content company. It's all about best creatives and putting it on the screen. That was the vision that John and I had. We're going to work real hard so that as the AT&T shareholders that stay with us, that we all have a wonderful ride together. Thank you. Great. Thanks very much, Alexia. Operator, if we can have the next question. Thank you. Our next question comes from the line of Michael Nathanson with MoffettNathanson. Please go ahead. Thanks. I have two. First, David, in the past when we've talked about SVOD, you always made a point that your lane was not crowded, where the other side, you had people kicking soccer balls, chasing the same ball, 10 people you would say. What have you learned now that you wanted to basically pivot from non-fiction into a broader set of content? What's been a key reason and why are you doing it now? Secondly, knowing the AT&T or the WarnerMedia game plan, where do you think you'd see that, you said explosive growth. Where will we see the explosive growth come through on the WarnerMedia side post this merger? Thanks. Thanks, Michael. We're off to a really great start with our Discovery+ product. On a parallel level, so is HBO Max. What we've learned is people love our product in ways that even surprises us. Over three hours they're spending with us. It's compelling for them. It's very nourishing, it's also economically compelling. Churn is extremely low. We're also learning that the big tent pole that gets people to come in. We're continuing to grow soundly, the ability to drop into this product, a King Kong or a Godzilla or a Game of Thrones, that together we think that this could be much more compelling. The other thing is that outside the U.S., we're in sports and entertainment. In the U.S., we're the best non-fiction player in the U.S. It's what we do with the producers we deal with. For us to have tried to do scripted here in the U.S., we were very late and we were subscale. The company that John has built here, they are the best scripted players in television and motion pictures. They got the largest TV studio. They got the best people producing. The content that Warner Bros. Studios is, it's the content that you see that people are getting subscribers and it's the very best content in the world. It didn't make sense for us to try and build that. The chance to get the top of the pyramid, the very best IP in the world, and put that together with all of our global IP in language that was like an explosive combination to me and to John. We think it's going to, as I said, the ability of it to attract from families to men to women, it's a home run for us to take what we do and grab all this great IP from. From the creatives that know how to do it better than anybody else. Now we're going to learn a ton from them. We're going to retain them and support them because that team is the best in the business. Michael, one more thing on growth. Remember, HBO Max, on a standalone basis, grew revenues over 30% in the first quarter. Together, these two companies are a really powerful combination. Thanks very much, Michael. Operator, can we get the next question? Thank you. Our next question comes from the line of Jessica Reif Ehrlich with Bank of America Securities. Please go ahead. Thank you. This is for David. You sort of touched on the benefits of scale. I just wonder if you could maybe break it down a little bit more. In distribution, do you have a carriage deal with AT&T? I guess bigger picture there's just no getting around a company this size. How do you use your newfound scale in distribution on a global basis? Advertising, same sort of question, same thing in content. I mean, this isn't like a new size in many of these areas. More specifically on content, you guys have mentioned many times that you're spending currently $20 billion on content. How much of that is direct to consumer, and how does that ramp up over the next, let's say, three to five years? Okay. On the scale side, I think it gives us a chance to be a great partner to advertisers. Do they want to be in sport? Do they want to be in news? The length of view on HG and food is longer than the length of view on Fox News than NBC. We can deliver women, we can deliver men. I think we look at the scale as being we could be a very unique and strong partner to advertisers. Same with distributors. The scale will give us the chance when we sit down with distributors. Rutledge is focused on how do I hold on to the bundle? Brian is focused on how do I hold on to the bundle? What we have is going to be very friendly and very positive. If we continue to invest in it, which we will, it should give some additional legs to the bundle. I don't know, Gunnar, you want to talk about the dollars? Yeah. David mentioned the $20 billion spend this year, as we've said, vital synergies, that is going to grow very significantly. How that is going to fall between linear and direct to consumer, we will work through that. Keep in mind that one of the great advantages that we see with this combination of linear assets and direct to consumer is that we are able to exploit our IP across multiple platforms and across the global base. We are absolutely committed to drive those investments, and I have no doubt that we will be putting together a very, very compelling IP output here, both for traditional platforms and the D2C world. Thanks very much for the question. Operator, if we can take the next one. Thank you. Our next question comes from the line of Doug Mitchelson with Credit Suisse. Please go ahead. Oh, thanks so much. Some mechanical questions for me. On the AT&T side, the press release indicated WarnerMedia will be either issued to AT&T shareholders via dividend or through an exchange offer, a combination of both. John, Pascal, are you leaning towards a dividend or exchange offer? What factors will influence your decision on that? On the Discovery side, Gunnar, Discovery share classes being eliminated into just one class. What's the surviving class, and is it one for one for all the classes being merged together? Is the advance/ Newhouse preferred closed out and converted as part of that? Lastly, hopefully these are all quick. David, any relationship been predetermined with AT&T and Discovery post-merger? Is affiliate relationship extended? What's the HBO Max relationship on an ongoing basis with wireless and broadband and the like? Any sort of way to tap into that distribution on a long-term basis? Thank you all. Look, I'll start, Doug. Overall, we're expecting to maintain our optionality. We can either do an exchange or provide a direct distribution to our shareholders. We haven't made that decision. We're not going to make that decision until we get closer to the close of the transaction. Okay. Gunnar. Yeah. On the class, Doug, you're 100% right. Exactly the way you laid it out. It's all going to be collapsed into one class, and there's no preferred share classes left. One share, one vote. Look, I tell you, Doug, this has been a highly beneficial relationship despite some of the commentary that I picked up. We get a lot of benefit from churn in our core connectivity business. You know what our customer acquisition volumes have been. We have every motivation and incentive to keep a differential relationship with the company moving forward. I believe we're going to see new points of aggregation for content as we move forward. Wireless is starting to demonstrate itself. A wireless subscription is one of those points of aggregation, and it's going to be important that we think about servicing our customers as a result of that. When you think about what happens here, the opportunity for David to grow this media company globally is what outstrips the value creation from us owning the asset and driving churn and customer acquisition and connectivity domestically in the U.S. and allowing him to go after an opportunity globally that's got a much bigger multiple on it. Our intent is to continue the relationship, and then the shareowners that stick with the new entity will, of course, get the benefit of that as it continues to grow and scale through that distribution partnership. We just think that's a better way for us to handle the capital structure right now, given the growth requirements on the new media business. We've seen what John's communications business has done for HBO Max. It's hugely valuable for both. It's a great relationship. AT&T is only going to get stronger and more powerful. It's already the top direct consumer company in America with an extraordinary brand. We hope for years to come, we'll be figuring out how to create value for each other. All right. Thank you. Thanks very much for the question, Doug. Operator, if we can take the next caller. Thank you. Our next question comes from Rich Greenfield with LightShed Partners. Please go ahead. You need to take the mute button off there, Rich. It's us that usually want to put the mute button on when Rich is talking. All right. Okay. Operator, we can take the next caller, please. We tried, Rich. Thank you. Our next question comes from David Barden with Bank of America. Please go ahead. Hey, guys. Thanks so much for taking the question. I guess two, if I could. One, John, is there anything that you're not selling as part of this WarnerMedia transaction? For instance, are you retaining Xandr? Is Xandr going away? What will the relationship potentially be between AT&T and the advertising platform at Discovery? Pascal, on the $43 billion, there's a lot of moving pieces. Is there any kind of quantification you can give us as to what piece is cash, what part is debt, and how those moving parts will settle out? Thanks. Hi, Dave. We are retaining Xandr. The relationship in terms of how WarnerMedia continues to run its ad business is self-contained within the arrangement. It's been cared for in terms of the transaction and how those assets are dealt with. We still have the Xandr asset within AT&T. And Dave, when we're trying to decide how much of the $43 billion is cash versus debt, what we're trying to make sure we're solving for is to maintain the tax-free status of this transaction, and we'll have a better sense of that as we get closer to close. Got it. Thank you, guys. Thank you very much, David. Operator, if we can take the next question. Thank you. Our next question comes from Kutgun Maral with RBC Capital Markets. Please go ahead. Good morning, thanks for taking the questions. Two topics, if I could. Just on the cost side, Discovery has always been run so efficiently, and WarnerMedia has already gone through a few rounds of restructurings over the last few years. In that context, what makes up the $3 billion in expected cost savings? On the DTC side, you expect the deal to close the middle of next year. It's such a rapidly evolving ecosystem, so do you expect to change any of the near-term strategies on either Discovery+ and HBO Max until the deal closes? I know it's early days, but after the deal closes, when you think about the contours of the revenue growth ahead, Gunnar, you just said programming spend will increase significantly. Will that increased content investment drive a desire to maybe exercise some pricing power with a premium retail price point? Or do you expect to focus on a lower price point to drive sub growth and perhaps lean more meaningfully into advertising? Kutgun, maybe I'll start right there. You've nicely laid out the option space. As I said before, there may be some shifts in the geography depending on how we decide to take this content to market. As I said, I think between the two portfolios, we're going to have an amazing offering here, and we'll come back and keep you updated on how our thinking around that go-to-market approach evolves. On the cost side, look, this is an amazing opportunity. It's an enormous cost base that we're looking at. What makes this special compared with other combinations is that we're looking at a cost base that in both standalone business cases is set to grow very significantly. Even after the $3 billion of synergy that we're baking in here, we're expecting our cost base to grow because we are making investments. That makes synergy capture so much easier because in a way, part of this is just going to be cost avoidance by bringing the two platforms together. There would be a lot of duplication in our standalone business cases that we're simply not going to need. That's a specific aspect of the combination of two growth investment businesses here. Other than that, the way I look at synergies is really three things. You have the hardcore overlap duplication in the structure, which is straightforward. That mostly applies to overhead corporate functions, et cetera. We've also seen in our combination with Scripps a couple of years ago, that there is enormous standalone optimization potential looking at processes and really rolling out a global operating model, systems integration, et cetera, which arguably you could pursue on a standalone basis, but typically you don't have that triggering event to make those decisions. I expect that to be a big driver here as well. Last point on synergies here is revenue. As we pointed out, we have not assumed any revenue synergies. They're typically hard to quantify. If you just take a step back and look at what Discovery has delivered over the past three years, we have been growing share of viewing in almost every market consistently quarter after quarter as we're benefiting from the broader library and the better opportunity to make use of that content to optimize cross-promotion, et cetera. That's not a coincidence. That is a revenue upside. Again, we wouldn't factor anything in here, but I am very confident that we'll see significant opportunity on the revenue side as well. Look, with all that, I took a very hard look at these business case numbers here. I think we put together a very conservative case, and our ambition is going to be, as the last time, that we can lean over and achieve these numbers. I'll make a couple comments on the transition period to your question. Yeah, I think it's interesting we're pretty deep into this call and nobody's asked about regulatory approval process, which is a little bit unusual for me in my capacity. I think that's probably an artifact that's indicative of the fact that it should be a straightforward process in my view. I want to stress amongst, not just with people on this call, but for all of our employees at WarnerMedia, this is going to be a lot different than the Time Warner period because we're going to continue to execute the very plans that we have in place and nobody's going to be waiting around for direction or waiting for changes in signals. We have a plan. These plans are important. We launch an AVOD product in June. We start our international rollout in Latin America in June, Europe later in the year. These are all things that we continue to move forward on and are going to continue to lean in on. I will tell you the point of view on this, it's really important to think about in this transaction maybe versus others. AT&T shareholder will own 71% of this new entity when it comes together. A large portion of the value that's been created in this company is by virtue of what we've been able to do to start scaling the HBO Max business. That pivot and that scale and the hard work by the WarnerMedia team to do that is not insignificant. The last thing I want to do is hand off an asset that's not growing at the rate and pace that we want it to grow because it'll be a key driver of value and what we want to hand off and what we believe we've engineered for David is him to pick up an entity that can grow rapidly and that we can see the equity begin to appreciate the market because of that and our shareholders enjoy the benefit of that to the extent that they choose to stay along for the ride, which yours truly will be staying along for the ride on my piece of it. I think it's really important to understand it's heads down and continuing to do what we intend to do here and we're not going to alter plans. When you look at this business, I mentioned this earlier, we went into Time Warner with an idea of creating a global HBO, all the series were sold in virtually every market in the world. That's not a bad strategy, it's an arms dealer strategy that creates value, it doesn't create asset value. The courage and the conviction of John to come in here, you can see it in the numbers. They've been investing. They've been investing in getting back Sopranos and Sex and the City and Game of Thrones. Not only they've been producing more content by investing more in it, they've been getting it back. The strategy of taking that all to market and being able to be a real force, a global force. At the same time, they built a platform. I built a platform. I know what it's like. We have hundreds of engineers. It's not easy. It takes a super long time. We're rolling out over the next 18 months. John's rolling out and Jason over the next 12-18 months. We're both doing the same thing, but it's best of class what they built. We couldn't come together with the old Time Warner. If we came together with the old Time Warner, we'd say, "Okay, let's get going." We'd look and we'd say, "There's nothing in the suitcase." It's a great brand, but the majority of the really good stuff is not in the suitcase. Real kudos to John for recognizing he had to pivot this company. You don't always see what that takes. I know what it takes. The attraction to us was the suitcase is full with the best content that was pulled back and not monetized so that the long-term value of a direct-to-consumer product could really happen. That's what we were doing at the same time. I think what the Warner team has done and the conviction that John has shown is compelling because it's the reason that this deal can happen and be successful. Thanks very much for the question. Operator, if we can take the next color. Thank you. Yeah. Our next question comes from Philip Cusick with JP Morgan. Please go ahead. Hi, guys. Thanks for squeezing me in. The 30 million fiber homes by 2025, John, that's a great goal. Do you expect to accelerate the fiber deployment from the 3 million this year and 4 million next year you've already outlined? I know Pascal mentioned $24 billion a year in CapEx almost as an aside, which is a nice step up. How do you anticipate that additional capital will be allocated? Phil, we're on a ramp and I don't expect we're going to do more than $3 million this year on that acceleration. We'll probably start engineering at a little heavier pace later in the year to take the next incremental step up in 2022. It won't change our completed counts for 2021, nor will it change any of the guidance that we've given you on cash and what our investment levels are going to be in 2021. As we've indicated, this is kind of a package deal in terms of capital allocation, is how I think about it, and we'd like to close the transaction in mid-2022, receive the funds, restructure the balance sheet, and that'll give us the flexibility to move through. You should expect to see a nice ramp-up to $4 million, maybe $4 million in change for 2022. I will tell you in terms of what the pace looks like as we hit 2023, the latter part of 2022 is really going to be an artifact of execution and how well the team is doing, and we'll keep you updated on that as we go through that. John, if I can clarify. In your prepared remarks right around when we were talking about 30 million, you said we won't stop there, but I wasn't sure if that was referring to the 30 million or to the overall business. It was a little confusing. My expectation, Phil, is we have $30 million in our sights right now. I have expectations that there's growth in this country on robust scale connectivity for a good period of time to come. I'd be probably naive right now if I told you that at $30 million, we're done, stopped, and we're just going to nurse the business along. That makes sense. Thanks, John. Thanks very much, Phil. Operator, can we take the next question? Thank you. Our next question comes from the line of Benjamin Swinburne with Morgan Stanley. Please go ahead. Thanks. Good morning, everybody. Two for you, David. We rarely see John Malone give up control or give up high vote shares. I know he's not on the call, but anything you could share with us about his motivation here to embrace this transaction and give up those high vote share class stock, which I know has real value to him, and he's not getting any premium for them here. Can you just talk about what he saw? This came up earlier, but the Warner Media employees have been through a lot over the last several years in terms of acquisitions and synergies and et cetera. What's your message to them, and what do you take from your Scripps experience that you think can help you integrate these assets in a way that keeps everybody motivated and excited given it's been a lot of change over the last several years? Thanks very much. Thanks. Yeah. Well, let me start with the second question. I think the recipe is respect and knowing what you know and knowing what you don't know. If you take a look at our company now, many of our top leaders that work for me are from Scripps and built a great operation. They were the best and the brightest. That was our mission. Our mission wasn't we know how to do it. Our people are the best. Our mission was we have a great company. Ken Lowe built a great company. The interesting thing about this business is we have a lot to learn. We are in scripted and sports outside the U.S., there's no better scripted TV or movie company in the world than what John has built here. The people there, the reason we're doing this deal is we have the greatest respect for that team. How do we keep them? How do we incent them? How do we create a creative structure that brings more great people? It first starts out with everybody's in the tent. Now let's figure out how we make this work together. In many cases, there's not that much of an overlap between us. I'd say that's the idea. I want to spend a lot of time with them on a personal level. That's what I think I do. To me, I think my success has been about getting great people to work with me and giving them a lot of credit and giving them a lot of autonomy and finding out what else they need to be successful. I think I can't wait to meet a lot of the people at Warner, but I know a lot of them. A lot of them I know for 30 years. We really have a lot of the same culture, except that culture was very disruptive at Warner. The last three and a half years has been an amazing job by John to provide stability, a future. All employees want a future. They want to know that where are we going to be in five years? Where are we going to be in 10 years? That's the courage and conviction that he showed. He's going to keep fighting with the Warner side. I'm going to fight with the Discovery side. We're going to get together, we're going to have a new company with one culture. On the John Malone side, look, I really believe that you are kind of who you hang out with, and I don't know how it happened to me that I got to hang around with Jack Welch for 15 years, and now I've gotten to hang out with John Malone for more than that. We know each other for 30 years. We talk every day. He has extraordinary vision. I learn from him every day. It's probably the greatest gift to me in my life, but it's a gift to the shareholders. The way John sees the world, the way he's always striving for shareholder value and he sees the chessboard. He sees things that nobody else can see. When you hang out with him, you get to see things that no one else can see because you start to hear John in your ears. John will be on the board. He saw what I saw. The two of us couldn't be more excited about the opportunity that this presents. It's all about 200, 300, 400. It's about a global platform that reaches people on every device. This is the greatest global IP company in the world, and the ability to serve. This is a renaissance moment for people all of a sudden have TV sets in their hands. In some markets, we can reach them for $1. We never had access to these billions of people. Malone sees that. He sees it clearer than anybody, and he's also a very generous person. He's been extraordinarily generous with me. From the very beginning, he said, "I want this for the shareholders. I want this for me." You remember, John built a lot of these assets. He wanted it. He said, "I want it for you, David, because you're the right person at the right time, and we still have a lot to do together." A lot of people forget that when John Malone took the job, because I do believe in karma. When John Malone took the job to go out and work for Bob Magness at TCI, he had another offer. The offer was from Steve Ross to run Warner, and he loves Steve, and he ended up not going to run Warner, really because he wanted to raise his family in Colorado. He wanted a different kind of life. Here it is, it's back with us. It's back with us in wonderful shape, thanks to the hard work of John and the team, and off we go. I'll give a slightly different take on that. I think everything Dave said is absolutely right on the money, but delivering this 71% stake to the AT&T shareholders, the right way to deliver it was with one share, one vote, and that's the only appropriate governance approach, and we insisted on that being the case moving through this. Thank you both. Thank you very much for the question, operator. If we can move to the next caller. Thank you. Our next question comes from Michael Rollins with Citi. Please go ahead. Thanks. Good morning. Just a couple follow-ups. First, should the debt reduction guidance for AT&T be considered a medium-term target on a longer-term path to reduce leverage? Do the comments now suggest that AT&T is comfortable with go-forward net debt leverage of near two and a half times EBITDA? Just secondly, on the disclosures to generate $20 billion of free cash flow or $20 billion-plus of free cash flow and $24 billion of CapEx, there was a comment that vendor financing would be de-emphasized in the future. I'm just curious how vendor financing is considered in those figures and if there's just an incremental amount of vendor financing that needs to be factored into this financial target. Thanks. Let me take the latter part of your question first, Michael. Vendor financing right now, we have vendor financing where we're spending on CapEx that doesn't go through free cash flows, and we have CapEx spent for cash. Going forward, our intention is virtually all of the CapEx will be cash CapEx unless we find really attractive terms with vendor financing. The $24 billion is an all-in number, and that's how you should take it. In terms of our long-term leverage target, we haven't provided any guidance beyond what I said in my remarks. We're going to get to 2.5x or lower in 2023. We had previously said 2024. This really accelerates that, and we feel really good about having strong financial flexibility over the next couple of years. Thanks very much for the question, Michael. Operator, we have time for one last question. Thank you. That question comes from the line of Kannan Venkateshwar for with Barclays. Please go ahead. Thank you. Just a couple. I mean, firstly, on the free cash flow side, on the Discovery front, I mean, pro forma, I guess the conversion ratio of 60% is higher than what Time Warner ever did, I think, earlier on a weighted average basis across Discovery and Time WarnerMedia, that would be a very high number. Gunnar, if you could just talk through how you get to that number despite all the investments at HBO that you contemplate making. Then, John, from your perspective at AT&T, now you have a lot more flexibility strategically in how you approach bundling. Is there a possibility that you consider other bundling mechanisms outside of HBO as you go forward and think through the wireless side of the business? Thank you. Kannan, let me start with the free cash flow question. That obviously has also been a key focus area of our analysis here, there are a couple of points just of the nature of the industry with comparably low CapEx and then the impact of the delevering over time, which helps drive conversion as well. I would say the most important factor that changes the profile, compared with the past, is the fact that we're growing a D2C business here. As you can see here, we're assuming a pretty significant shift in the composition of our business, the D2C business has a much more beneficial working capital profile than the traditional media business has ever had. I mean, we all know how, especially on the linear TV side, working capital with high levels of receivables have always been a working capital drag. It’s very different in the direct-to-consumer business. Kannan, if you think back to probably even before the Time Warner transaction closed, the first wireless provider to start putting content connectivity-based service was AT&T, and we, even before the Time Warner transaction, began bundling HBO in with wireless, and that started a trend of other providers bundling in Hulu, Netflix, et cetera. My bias and my point of view has been that the wireless subscription was ultimately going to evolve into an opportunity as an aggregation point, and I think we just got to look at trajectory in the markets today. The MVPD dynamic is a mature business, and it served its purpose as an aggregation point for a long time, but it's now starting to be replaced by opportunities like wireless and fixed broadband as being natural and logical places for aggregation of services and extending value to a consumer. I will tell you, as we've looked forward to our growth prospects and what we've communicated to you, what we have not really thought about or what we haven't factored in is I do believe that that aggregation dynamic is going to change. We're seeing a little bit of a resettling of, for example, entertainment. There'll be a resettling of music, be a resettling of gaming. All these natural places where people buy high-value subscriptions could be reaggregation points for those. There's probably some value to be created in that reaggregation point over time. It's a long way of saying, I think we've leaned into the prospect of always using different services to provide value to the customer. Whether we owned HBO Max or not, we'd probably be continuing to look at that. I do believe there is an evolution that's going to occur in the industry as a result of that over time. With that, let me close. Yeah, you're welcome. Let me close this out. I'd like to thank all of you for your time today on short notice, coming together to listen to what's going on. It starts a very exciting time, I think, for both companies. As I mentioned in my opening remarks, the genesis of this was stepping back and asking ourselves, what's in the best interest of the AT&T shareholder, given the needs that we have to capitalize on all the growth opportunities across media and connectivity at AT&T. This was after some very careful consideration, the right path to ensure that we could not only allow the media business to secure its future and grow, effectively seize the direct-to-consumer opportunity that's in front of it, but to also reinvigorate our growth in the communications company. I'm really pleased with how this worked out because we have a great partner that matches up incredibly well to our respective business. They're entirely complementary, and I think the mindset and the approach, as you've heard David discuss this morning, is very consistent with where we're heading, and it will be an incredibly smooth transition. David, I'll turn it to you if there's any closing remarks you want to make before we step off here. I would just say that I'm super excited about this. Our whole board is. John, we're going to be partnering together in driving this over the next year. We couldn't be more excited about it. It's a big moment for us. We're going to just spend the next couple of years trying to make John proud of what we did for his shareholders. Thank you all very much. Have a good rest of the day. Thank you, ladies and gentlemen. That does conclude our conference for today. We thank you for your participation and for using AT&T Conferencing Service. You may now disconnect.