Skydance Earns $73 Million on Legacy Paramount Quarter, Then Maps $6 Billion of Cuts Against $87 Billion of Debt

Skydance reported third-quarter revenue of $7.03 billion on Monday, up 5% from a year earlier, for legacy Paramount alone before Warner Bros. Discovery joined.

The results were released after Monday's close. They cover legacy Paramount alone, and the combined company's first chapter is the plan that came with them.

Skydance Corporation is the combined company formed on October 6. It was renamed from Paramount Skydance and now trades on the New York Stock Exchange as SKYD.

"We came together with a clear mission to build the next generation media and entertainment company powered by creativity and technology," David Ellison and Ynon Kreiz wrote in the shareholder letter.

A profit on the legacy Paramount quarter

Net earnings were $73 million in the third quarter. Diluted earnings were $0.06 a share from continuing operations, the reported basis.

Adjusted earnings were $506 million on the letter's adjusted basis. Adjusted diluted earnings were $0.45 a share, labeled Adjusted (Non-GAAP) in the letter.

Barron's put the FactSet consensus estimate for adjusted earnings at $0.13 a share. The adjusted $0.45 came in $0.32 a share above that estimate, a TickerGrove calculation.

The largest single adjustment was a discrete tax item of $0.25 a share. The letter ties it mainly to a reserve for uncertain tax positions.

Operating income was $368 million, a margin of 5.2%. That line included $187 million of restructuring and transaction-related costs.

Revenue was $7.03 billion, up 5% from a year earlier. Barron's put the FactSet consensus estimate for revenue at $7.04 billion, just above the result.

Adjusted EBITDA was $1.0 billion, a margin of 14.2%. Adjusted EBITDA, earnings before interest, taxes, depreciation and amortization, is a non-GAAP measure, meaning it is not a standard accounting figure.

Streaming carried the growth

Paramount+ revenue grew 21% year over year to $2.13 billion. The company called it the service's fastest quarterly growth this year, with revenue per user up about 14%.

Subscribers reached 82.2 million at the quarter's end. That was up from 81.6 million in the second quarter.

Direct-to-consumer revenue rose 11% to $2.5 billion. Direct-to-consumer adjusted EBITDA was $225 million, a margin of 9.0%.

Growth came despite a headwind the company put at six percentage points. It cited Showtime declines and the full-quarter effect of folding BET+ into Paramount+.

Studios revenue rose 23% to $1.5 billion, on licensing and work for others. Studios adjusted EBITDA was $129 million, a margin of 8.6%.

TV Media revenue fell 7% to $3.0 billion, as advertising and affiliate revenue declined. TV Media adjusted EBITDA was $1 billion, a margin of 34.0%.

Six billion dollars of cuts, phased over three years

The combined company targets at least $6 billion of annualized run-rate savings within three years, net of reinvestment. The savings come from an expense base of more than $50 billion. Run-rate means the full annual pace once the cuts are in place.

Corporate overhead, real estate and facilities carry at least $2.2 billion of the savings. Marketing carries at least $1.0 billion, technology at least $1.4 billion, and procurement at least $1.4 billion.

The four areas sum to $6.0 billion, a TickerGrove calculation.

About 30% of the savings are to be realized in year one. About 70% are to be realized through year two.

The cuts carry one-time cash costs of roughly $4 billion through the transformation. About $1.5 billion to $2 billion of those costs land in 2027.

A separate Paramount program is on track for over $2.7 billion of run-rate efficiencies by the end of 2026. Its target was raised to more than $3 billion, and its remainder lands in 2027, incremental to this program.

Two balance sheets, six days apart

Paramount Skydance ended the quarter with $1.38 billion in cash. Its gross debt was $15.0 billion, before the acquisition closed.

Free cash flow was $31 million in the quarter. That was after $174 million of restructuring, transaction and transformation costs.

The acquisition was funded with $47 billion of new equity. It was also funded with $57 billion of new secured debt.

Gross debt following the closing was $87 billion. Cash was approximately $10 billion after the closing.

Part of that cash is earmarked for payments to Warner Bros. Discovery employees. Another part is earmarked for a securitization paydown.

The company targets net leverage of 3.0 times by the end of 2029. It expects investment-grade credit metrics within about three years of closing.

A bundle first, one platform behind it

A bundled offering of Paramount+ and HBO Max is planned for early 2027, the first step toward bringing the two together. HBO Max is the Warner Bros. Discovery streaming service, and the two stay separate services in the bundle.

The company aims to align the backend systems within a year of closing. That alignment is meant to enable a unified product.

Beginning with fourth-quarter results, the company will no longer report subscribers each quarter. It will highlight milestones and engagement instead, which makes the 82.2 million count the last quarterly figure under the new policy.

Full-year guidance for 2027 will come with the fourth-quarter results. Guidance will be annual after that, with quarterly updates in between.

By 2030 the company expects mid-single-digit annualized revenue growth. It also expects adjusted EBITDA margins in the mid-20% range and free cash flow above $10 billion.

Paramount alone stays on track for the high end of its 2026 outlook. That outlook is $3.9 billion of profitability, as the letter states it.

What remains unknown

What remains unknown starts with the market verdict: the results came after Monday's close. No settled reaction exists yet, and the first settled verdict comes Tuesday.

The Warner Bros. film slate has underperformed in the fourth quarter so far. The company expects a Studios profit impact of up to $200 million against prior expectations.

A stronger Paramount film slate partly offsets that impact, the letter said.

The bundle's price and terms are undisclosed. How the $87 billion of gross debt falls, quarter by quarter, is also undisclosed.

Tuesday brings the first settled verdict

What to watch: Tuesday's first settled session after the results. It will show whether investors credit the streaming growth or the debt load.

The fourth-quarter report is the second test, as the first with Warner Bros. Discovery inside it. The 2027 outlook arrives with that report, early next year.

The bundle launch in early 2027 is the third test. It will show whether two streaming services can sell as one.