WWE Reports First Quarter 2014 Financial Results, $8 Million Net Loss
WWE issued their first quarter 2014 financial results today, reporting a net loss of $8.0 million:
STAMFORD, Conn.–(BUSINESS WIRE)– WWE (NYSE:WWE) today announced financial results for its first quarter ended March 31, 2014. For the quarter, the Company reported a Net loss of $8.0 million, or $0.11 per share, compared to Net income of $3.0 million, or $0.04 per share, in the first quarter last year. The decline in Net income was driven by the Company's launch of an over-the-top (OTT) digital network and lower results from its video game licensing business, due primarily to the transition to a new licensee. These factors were partially offset by improved results from the Company's filmed entertainment business.
For the quarter, our earnings reflected the launch of our WWE Network, which delivers unparalleled depth of programming, ease of use and value to our fans. With almost 670,000 WWE Network subscribers in the U.S. and nearly 400,000 domestic pay-per-view buying homes for WrestleMania 30, we are confident that we will reach our goal of 1 million subscribers by the end of 2014, stated Vince McMahon, Chairman and Chief Executive Officer. To drive WWE Network subscriber growth, we are highly focused on further developing our programming, expanding distribution platforms and executing customer acquisition campaigns. The expansion of WWE Network in the U.S. and international markets will provide a platform for long-term growth over the coming years.
As we launched WWE Network, we invested in marketing, programming and customer service. Although our earnings declined in the quarter, our performance surpassed our guidance, which targeted a range of Net loss from $12 million to $15 million, added George Barrios, Chief Strategy & Financial Officer. Regarding our TV licensing agreements, we are continuing to negotiate with potential distribution partners in the U.S. and India. Over the past several years, we have invested in people, content and technology, and we continue to believe the successful execution of our key initiatives could potentially result in doubling or tripling our 2012 OIBDA results to a range of $125 million to $190 million by 2015. We will provide more information and further guidance for 2014 and 2015 as appropriate.
For the second quarter 2014, the Company expects Net income to decline sequentially from the first quarter this year by a range of $7 million to $10 million, resulting in a Net loss of $15 million to $18 million. The decline in earnings reflects increased Live Event profits due to WrestleMania 30, which are expected to be more than offset by increased Network costs, a seasonal decrease in Licensing and lower results from Home Entertainment (reflecting difficult comparisons to first quarter adjustments).
Basis of Presentation
During the three months ended March 31, 2014, the Company launched WWE Network, which changed the way that certain content is delivered to our customers. In conjunction with this change, management reevaluated the way it views the business. The launch of WWE Network coupled with the continued convergence within the media landscape, has resulted in a change in the Companys management reporting to its chief operating decision maker. These changes necessitated a change in the Companys segment reporting to align with managements operational view. The Company now classifies its operations into ten reportable segments, which include the following: Network (which includes our pay-per-view business), Television, Home Entertainment and Digital Media, individual segments that comprise the Media Division; Live Events; Licensing, Venue Merchandise, WWEShop, individual segments that comprise the Consumer Products Division; WWE Studios and Corporate and Other.
Comparability of Results
In the prior year quarter, the Company recognized an estimated net positive impact to revenues of $2.0 million and $3.4 million in Operating income related to the transition to a new video game licensee, Take-Two Interactive. Expenses in the prior year first quarter also included a $4.7 million film impairment charge. In order to facilitate an analysis of financial results on a comparable basis, where noted, first quarter 2013 results have been adjusted to exclude these items. (See Schedule of Adjustments in Supplemental Information).
Three Months Ended March 31, 2014 – Results by Region and Business Segment
Revenues of $125.6 million increased 1% versus the prior year quarter as growth in North America was largely offset by lower revenues in international markets. North American revenues increased 4% from the prior year quarter driven primarily by the increased monetization of content as reflected in the Companys Media division, including revenue from Home Entertainment, Network, and Television, as well as improved performance by WWE Studios. These increases were partially offset by reduced licensing royalties associated with the Companys video games. Revenues from outside North America decreased 9% driven by the impact of the Company's video game transition and the absence of live events in international markets (versus three events in the prior year quarter).
Media Division
Revenues from the Company's Media division increased 12% to $76.2 million with growth coming from the launch of WWE Network as well as from increased television and home entertainment revenue as described below.
* Network revenues, which include revenue generated by WWE Network, pay-per-view and video-on-demand, increased 15% to $18.4 million from $16.0 million in the prior year quarter as the ramp-up of network subscribers and subscription revenue more than offset a decline in pay-per-view revenue. WWE Network, a 24/7 streaming network that provides access to live and scheduled programming, including all 12 live pay-per-view events, as well as a comprehensive video-on-demand library, launched on February 24, 2014. The network generated $4.4 million in subscription revenue with approximately 495,000 subscribers at quarter-end, and a retail price of $9.99 per month. Following the broadcast of WrestleMania 30, which aired live April 6th on WWE Network and on pay-per-view through cable and satellite providers, the Company announced that WWE Network had reached over 667,000 subscribers(1). The $4.4 million in network subscription revenue was partially offset by a $1.3 million decline in pay-per-view revenue. Pay-per-view revenue declined 9% to $13.8 million driven by a 10% decline in buys for the Companys Royal Rumble and Elimination Chamber events that reflected weaker performance in several international markets. None of the pay-per-view events in the current year quarter were included on WWE Network.
The details for the number of buys (in thousands) are as follows:
| Three Months Ended | ||||||||||||
| BroadcastMonth | Events (in chronological order) | March 31,2014 | March 31,2013 | |||||||||
| January | Royal Rumble® | 467 | 512 | |||||||||
| February | Elimination Chamber" | 183 | 213 | |||||||||
| Prior events | 28 | 20 | ||||||||||
| Total | 678 | 745 | ||||||||||
(1) Current subscriber number assumes full compliance with subscription terms (including the six month commitment).
* Television revenues increased 8% to $40.6 million from $37.7 million in the prior year quarter primarily due to the second season production and monetization of Total Divas, a program that debuted in July 2013, and contractual increases for existing programs. Additionally, the increase in television revenues reflected the timing of one additional episode of Raw in the U.S. (due to an additional Monday in the first quarter of 2014 as compared to the first quarter of 2013).
* Home Entertainment net revenues increased to $10.5 million from $7.0 million in the prior year quarter reflecting adjustments related to prior year sell-through estimates and contractual guarantees. Specifically, the quarter reflected the recognition of a $2.5 million minimum guarantee short-fall related to 2013 sales and a $2.2 million adjustment for higher current sell-through rates than anticipated for late 2013 releases. As a result of the latter adjustment, returns represented 24% of gross domestic retail revenue as compared to 49% in the prior year quarter. These factors were partially offset by a 17% decline in the average effective price to $7.88 and an 11% decline in units shipped.
* Digital Media net revenues were $6.7 million compared to $7.1 million in the prior year quarter. Lower newsstand revenue from the Companys print magazine more than offset the increased monetization of video content across various digital platforms.
Live Events
Live Event revenues increased 3% to $21.7 million from $21.0 million in the prior year quarter primarily due to an increase in the average effective price across our events in North America. The impact of staging three additional events in North America was essentially offset by the timing of three fewer events in international markets.
* There were 80 total events in the current quarter that were held in North America as compared to 80 total events in the prior year quarter, which included 77 events in North America and 3 events in international markets.
* North American events generated revenues of $21.7 million as compared to $20.0 million in the prior year quarter. The $1.7 million increase was driven by a 6% rise in average ticket prices to $41.82 that was attributable, in part, to changes in venue mix and, to a lesser extent, the introduction of VIP ticket packages, which were initiated in the second quarter of 2013. Average attendance of 6,400 fans at North American events was essentially unchanged from the prior year quarter.
* International live event revenues declined $1.0 million reflecting three fewer international events.
Consumer Products Division
Revenues from Consumer Products businesses were $23.2 million as compared to $32.6 million in the prior year quarter, primarily due to the decline in the Company's video game licensing royalties as described below.
* Licensing revenues were $14.0 million as compared to $24.0 million in the prior year quarter, primarily driven by the transition to a new video game partner, Take-Two Interactive, and contractual changes in the Company's licensing agreement. Estimated North American unit sales for our franchise game at retail were effectively unchanged versus the prior year period and compared favorably to a 33% industry decline in current generation software sales. Additionally, video game revenues in the prior year quarter were positively impacted by a $2.0 million benefit associated with the termination of our agreement with our former video game licensee, THQ.
* Venue Merchandise revenues decreased 2% to $5.0 million from $5.1 million in the prior year quarter primarily due to a 6% decline in per capita merchandise sales at domestic events to $9.64 in the current year quarter, which more than offset a 4% increase in total attendance at those events.
* WWEShop revenues increased 20% to $4.2 million as compared to $3.5 million in the prior year quarter based on a 16% increase in the volume of online merchandise sales to approximately 85,000 orders. Orders increased primarily due to mobile shop optimization and a new partnership with Amazon UK. The average revenue per order was essentially unchanged from the prior year quarter.
WWE Studios
WWE Studios revenue increased to $4.3 million from $1.9 million in the prior year quarter due primarily to the strong performance of The Call, which was released theatrically in March 2013. WWE Studios' movie portfolio generated income of $1.6 million in the quarter compared to a loss of $5.0 million in the prior year quarter, which included $4.7 million in film impairment charges. Recent movies, such as Scooby Doo! WrestleMania Mystery (direct-to-DVD) and Oculus (theatrical), released in March and April, 2014, respectively, have shown strong performances that are in-line with expectations. The Companys movie releases since late 2012 are expected to generate an IRR of over 15%, which exceeds the Companys estimated cost of capital.
Corporate and Other
Corporate and Other expenses increased $5.3 million to $37.7 million from the prior year quarter. As defined, these expenses include corporate overhead and certain expenses related to sales, marketing, and talent development costs, which have not been allocated to specific segments. The increase in Corporate and Other expense during the quarter was driven by a $2.5 million increase in professional fees and increased staff-related expenses to support key business initiatives.
Operating Income Before Depreciation and Amortization (OIBDA)
OIBDA results declined to a loss of $7.2 million from income of $11.3 million in the prior year period. The $18.5 million decline was driven an $11.0 million decline in licensing profits stemming from the transition to a new video game partner, including contractual changes in the Company's video game licensing agreement and a $3.4 million benefit in the prior year quarter associated with the termination of our former video game licensing agreement with THQ. Additionally, the OIBDA decline reflected $8.6 million associated with WWE Network launch costs (customer service, programming and marketing), as well as a $5.3 million increase in Corporate & Other expenses to support key business objectives. The resulting decline in operating profits for the quarter was partially offset by improved performance from our WWE Studios and Home Entertainment businesses as described above. Based on the changes in the Companys overall results and business mix, the Company's OIBDA margin was (6)% in the current year quarter as compared to 9% in the prior year quarter.
On an adjusted basis, excluding the prior year quarter impact of film impairments and the video game transition, the OIBDA loss of $7.2 million compared to income of $12.6 million in the prior year quarter, and the current year quarters (6)% OIBDA margin compared to 10% in the prior year quarter. (See Schedules of Adjustments in Supplemental Information).
Depreciation and Amortization
Depreciation and amortization expense totaled $5.0 million for the current year quarter as compared to $5.2 million in the prior year quarter. Depreciation and amortization expense in both the current and prior year periods derived from investment in assets to support the Company's content initiatives, including efforts to launch WWE Network.
Investment Income, Interest and Other Expense, Net
Investment income, interest and other expense, net yielded $0.3 million compared to $1.3 million in the prior year quarter reflecting lower expenses related to state excise taxes and a reduction in losses incurred with the disposal of property and equipment as compared to the prior year quarter.
Effective tax rate
In the current year quarter, the effective tax rate was 36% as compared to 37% in the prior year quarter.
Cash Flows & Liquidity
Cash flows used in operating activities were $9.4 million in the current year quarter. The use of cash was driven by the Company's operating loss, including expenditures to launch WWE Network and associated content development, as well as spending to produce feature films.
Purchases of property and equipment and other assets declined by $0.7 million from the prior year period.
As of March 31, 2014, the Company held $87.3 million in cash and short-term investments and currently estimates debt capacity under the Companys revolving line of credit to be approximately $90 million.
Additional Information
Additional business metrics are made available to investors on a monthly basis on the corporate website – corporate.wwe.com. Note: As previously announced, WWE will host a conference call on May 1, 2014 at 11:00 a.m. ET to discuss the Company's earnings results for the first quarter of 2014. All interested parties are welcome to listen to a live web cast that will be hosted through the Companys web site at ir.corporate.wwe.com. Participants can access the conference call by dialing 1-800-697-5978 (US Toll Free) or 1-630-691-2750 using the passcode 7849998. Please reserve a line 10-15 minutes prior to the start time of the conference call.
The earnings release and presentation to be referenced during the call will be available at corporate.wwe.com. A replay of the call will be available approximately two hours after the conference call concludes and can be accessed on the Company's web site.