Thursday afternoon’s quarterly earnings from Warner Bros. Discovery weren’t exactly scintillating: Earnings per share were a negative 51 cents, EBITDA was lower, and revenues drooped 4%.

The so-so results were hardly surprising given the twin Hollywood strikes, lots of bad will over brutal cuts, and that $55 billion debt hole the company started with 16 months ago. But it’s not too hard to see a light at the end of the tunnel that’s not attached to a chugging locomotive of doom.

There’s still a lot of debt, though that giant hole is slowly getting filled in. The company promised in its earnings to cut the ratio of debt to EBITDA to a still-stout 4X ratio (from more than 5X) by the end of 2023, and 3X by this time next year.

The debt, which WBD inherited from AT&T as part of the spinoff/merger/leveraged buyout that created the company in 2022, has hung over everything CEO David Zaslav and CFO Gunnar Wiedenfels have been doing since.

But it’s headed the right direction, even if there’s still a long way to go. More importantly, the company is now generating cash, instead of just eating it. As my former economics professor used to say, cash is king, or more specifically, free cash flow.

“FCF was strong at $1.7 billion in 2Q, well above our estimate,” Needham & Co. senior analyst Laura Martin, who also called thge FCF number “impressive.”

Partly that impressive number came thanks to reduced content spending. Like other Hollywood studios – which have been bleeding cash in the streaming wars – WBD now gets a reprieve from the spending as production is shut down by the actor and writer strikes.

Netflix, for instance, reported last week that cessation of hostilities between the studios during the strike is expected to turn this year’s FCF from a healthy post-pandemic $3.5 billion to a very healthy $5 billion.

MoffettNathanson had its own concerns about WBD’s numbers: the advertising business is still laboring under headwinds that might be a bigger long-term problem than just a typical non-election down year. The decline of cable and theatrical exhibition remain big issues, etc., etc. But so far so good, after five quarters of hard choices, wrote MoffettNathanson analyst Robert Fishman.

“Despite these challenges, there is a real path to long-term sustainability for the company,” wrote Fishman. “It is narrow and precarious, but management has so far taken the necessary steps. These many moving pieces, in combination, allow for tremendous free cash flow in the short term, something of consequence given the company’s significant debt load, but the question remains as to whether management can keep it up.”

And that is the question. Zaslav and Wiedenfels have laid off thousands of employees, killed off the nascent CNN+, merged Discovery+ content into a renamed HBO Max, launched an ad-supported tier, mothballed some shows, dramatically reduced content spending, and started licensing library shows such as Insecure.

That’s a lot, and it’s had the desired impact on the company’s very ugly previous bottom line, though it may not be enough.

“While much of this increased efficiency appears to have been found in genuinely mismanaged businesses, sustaining streamlined content production while trying to grow a DTC business is a tight rope to walk,” Fishman wrote.

After everything Zaslav and Wiedenfels have done, what tools are left at hand as they continue to financially engineer WBD into a sustainably structured company?

“It’s a big toolbox, but not an infinite one, and many of the fixes are one time in nature – there’s just one Alla(e)n (wrench), after all,” Fishman wrote.

And that’s the company’s still deep flaw. Favorable tax treatment over all those debt payments will help it keep moving forward.

So will that well-timed pair of Hollywood strikes. The unions may indeed be committed to higher pay, greater transparency, and serious limits on artificial intelligence, but it’s worth noting that the studios have serious incentives to take their time returning to negotiations. In the meantime, WBD can count the money it didn’t spend during the shutdown.

Once business resumes, whenever it resumes, WBD still has plenty of challenges:

• Will it continue to buy massively expensive sports rights for its cable operations (the NBA is up next for negotiations)? It’s already walked away from a handful of regional sports networks. Will the NBA on TNT continue to be a thing? How will sports be integrated in Max?During an earnings call, Zaslav said the company plans to integrate live sports and news into Max, but gave little detail on timing or amount of that live programming to be added.

• What’s happening with CNN post-Chris Licht? After Zaslav’s hand-picked news chief flamed out, the organization is a mess. It’s great that Zaslav saved all that money killing CNN+ but there’s no articulated streaming future for CNN, which seems bad. Will CNN be on Max, perhaps next to the sports? The post-Licht four-headed leadership suggests that Zaslav isn’t making CNN’s future a priority for now. That’s a big asset to let molder and wither in third place among the all-news cable networks.

• How does Max compete against the deep pockets of Apple and Amazon, and Disney (presumably) figuring out its streaming strategy beyond Disney+? Those excellent HBO shows are hits on streaming too, and scoop up shelves’ worth of Emmy nominations. But are those shows enough – especially at the price it takes to find, develop and produce them – to keep people subscribed to Max in a financially sustainable cadence?

• The billion-dollar (and counting) Barbie indeed has proven to be a massive hit, but dubious DC vehicle Blue Beetle is coming in a few days. That should chew up some of the wiggle room Barbie bought for theatrical exhibition with its boffo box office. But what becomes of the battered theatrical business, especially after Warner Bros. movie operations have been through a rugged restructuring, stars aren’t doing promotions during the strike, theaters are still getting hammered, and big movies are being pulled off fall schedules?

• There’s an overlap of 4 million subscribers between Discovery+ and Max. At some point, remaining Discovery+ subcribers will figure out that every single show on that service is also on Max, and they’ll just get Max. That’s already happened a little, causing a small decline in this quarter’s subscriber base. The good news for Zaslav is the Wall Street cares less about subscriber adds these days than it does about things like revenue per user, and free cash flow.

Martin suggested that the one-two punch of HBO’s elite programming and Discovery’s fandom-focused comfort viewing will give Max and WBD a leg up in long-term success, as will its substantial investment in videogames, which bring younger audiences, higher engagement, and higher return on invested capital.

“From a valuation point of view, WBD has multiple expansion toward DIS's multiples, if its execution is successful,” Martin wrote.

Fishman maintained MoffettNathanson’s “Market Perform” rating, and a $15 price target (it closed the week at $13.94), and suggested there was little reason to see the company move beyond that for a while to come.

“Despite clear progress to reduce the elevated debt load, we expect macro headwinds and growing secular pressures on the linear TV business combined with uncertainty around key strategic questions (i.e., how will sports be incorporated within DTC?) to keep the stock price rangebound,” Fishman wrote.

After all the restructuring and layoffs and other moves are done, does WBD still have a deep enough bench of talent, relationships and money to truly compete for the direct-to-consumer audiences of the future? And will any of it matter after next spring, when Zaslav and Wiedenfels can embark on a different kind of financial engineering: constructing a merger with NBCUniversal or perhaps private equity that will start this all over again?