Kemo
07-26-2019, 05:07 AM
On Thursday, WWE reported its Q2 2019 financial results. Visit SeeingAlpha.com to read the full report. Below you can find highlights from the results, including quotes from WWE Chairman Vince McMahon and WWE’s adjusted financial outlook for the remainder of fiscal 2019.
Second Quarter 2019 Highlights
Revenues were $268.9 million as compared to $281.6 million in the prior year quarter
Operating income was $17.1 million; Adjusted OIBDA1 was $34.6 million, which exceeded the Company’s guidance
Announced content distribution deals with BT Sport in the U.K., Fox Sports in Latin America and PP Sports in China, providing strong platforms for reaching WWE audiences
WWE Network average paid subscribers2 were 1.69 million paid subscribers, consistent with the Company’s guidance
Digital video views increased 17% to 9.0 billion; hours consumed increased 22% to 324 million hours across digital platforms; and social media followers increased 10% to over 1.02 billion3
WWE Network
The Company initiated the transition of WWE Network to a new platform on July 24, which will provide users with a better experience, a more intuitive interface, and enhanced search functionality
The new platform enables the introduction of new features and experiences over time, including the addition of free and premium tiers as well as the localization of content in multiple languages
Produced more than 90 hours of original network content, including live in-ring programs and talent documentaries, such as The Shield’s Final Chapter and WWE 24: The Year of Ronda Rousey, respectively
STAMFORD, Conn.–(BUSINESS WIRE)– WWE (NYSE: WWE) today announced financial results for its second quarter ended June 30, 2019.
“During the quarter, we made progress on key strategic initiatives,” stated Vince McMahon, Chairman and Chief Executive Officer. “We completed content distribution agreements in key international markets, prepared for the next phase of our WWE Network service, and achieved steady improvement in engagement metrics. As indicated previously, we remain excited about the future, particularly with our debut on Fox in October.”
George Barrios, Co-President, added “In the quarter, our earnings exceeded guidance, however we anticipate a portion of this to reverse and we continue to target full-year Adjusted OIBDA of at least $200 million. The guidance presupposes the staging of a second large scale international event and the completion of a media rights deal in the MENA region. As we optimize near-term results, we will continue to focus on content creation, localization and digitization, including the evolution of our direct-to-consumer network, to drive long-term growth.”
Second-Quarter Consolidated Results
Revenues declined 5% to $268.9 million from $281.6 million in the prior year quarter with lower revenue from the Company’s Media, Live Events and Consumer Products business segments.
Operating Income decreased to $17.1 million from $21.2 million in the prior year quarter, reflecting the decline in revenue and the impact of certain strategic investments, as increases in other fixed costs were partially offset by a year-over-year reduction in accrued management incentive compensation. The Company’s Operating income margin declined to 6% from 8% in the prior year quarter.
Adjusted OIBDA (which excludes stock compensation) was $34.6 million as compared to $43.5 million and the Company’s Adjusted OIBDA margin was 13% as compared to 15% in the prior year quarter, respectively. The current period results exceeded guidance primarily due to enhanced revenue recognized in conjunction with the Company’s recent event in Saudi Arabia, which is expected to reverse in connection with an anticipated fourth quarter event in that country.
Net Income increased slightly to $10.4 million, or $0.11 per diluted share, from $10.0 million, or $0.11 per diluted share, in the second quarter of 2018, reflecting reduced losses on equity investments and a lower effective tax rate.
Effective Tax Rate declined to 25% from 31% in the prior year quarter.
Cash flows used in operating activities were $7.6 million as compared to $74.2 million of cash generated in the prior year quarter driven by unfavorable changes in working capital, which was primarily related to the timing of the Saudi event in June as the prior year event was held in April, as well as lower operating performance.
Free Cash Flow was a $27.5 million use of cash as compared to a $66.4 million source of cash in the second quarter of 2018 primarily driven by the change in operating cash flow and, to a lesser extent, a $12.1 million increase in capital expenditures primarily associated with the Company’s workspace plan.4
Cash, cash equivalents and short-term investments were $296 million as of June 30, 2019, and the Company estimates debt capacity under its revolving line of credit of approximately $200 million.
Second-Quarter Key Operating Metrics
During the first quarter 2019 earnings call, the Company discussed the absence of several talent and the belief that these absences had a negative impact on the Company’s engagement metrics. Since the end of April, the Company has achieved steady improvement in key measures.
Domestic TV ratings for Raw declined 14% in the first quarter 2019 from the prior year quarter but improved to a year-over-year decline of 11% in June. The improvement in June occurred despite a tough comparison to game 5 of the NBA championship on Monday, June 10. Similarly, domestic TV ratings for SmackDown declined 13% in the first quarter 2019, but improved to a decline of 7% in June, consistent with the ratings performance of the top 25 cable networks, which declined 7% during the month. Consumption of WWE content across digital AVOD platforms rose from a year-over-year increase of 23% in the first quarter to growth of 28% in June. Finally, average attendance at the Company’s live events in North America, which declined 12% in the first quarter, improved to a decline of 4% for the June period (and was only down 2% for the second quarter 2019).
The Company believes the favorable trends in engagement metrics stem from the emergence of new storylines and Superstars following a successful WrestleMania. Management remains excited about the debut of SmackDown Live on Fox in October. The debut will mark the first time WWE will be available live 52 weeks a year on a premier broadcast platform.
Results by Operating Segment
Media
Revenues decreased 3% to $197.0 million from $202.6 million in the prior year quarter, primarily due to the performance of WWE Network and the timing of episodic series (i.e., fewer episodes delivered) for programs, such as Total Bellas, as reflected in “Other.” These factors were partially offset by the contractual escalation of core content rights fees.
WWE Network’s average paid subscribers decreased 6% to approximately 1.69 million, which was consistent with the Company’s guidance. For the third quarter 2019, the Company projects average paid subscribers of approximately 1.53 million, representing a year-over-year decline of 8%.2,6Given the actual and projected subscriber declines, the Company does not expect to achieve record subscribers for the full year.
Operating income was $26.9 million as compared to $32.0 million in the prior year quarter primarily due to the reduction in revenue and the impact of certain strategic investments. Increases in other operating expenses were essentially offset by lower network programming expenses and a reduction in accrued management incentive compensation.
Adjusted OIBDA was $37.5 million as compared to $44.5 million in the prior year quarter.
Key Highlights: During the quarter, WWE made progress on critical strategic initiatives, completing content distribution agreements in key international markets and developing the foundation for the next iteration of its direct-to-consumer service, WWE Network. Specifically, the Company completed content distribution agreements with BT Sport in the U.K., Fox Sports in Latin America and PP Sports in China. Management believes these partners provide strong platforms for reaching WWE audiences. The Company also initiated the transition of WWE Network to a new platform on July 24, which will provide users with a better experience, a more intuitive interface, and enhanced search functionality. The new platform enables the introduction of new features and experiences over time, including the addition of free and premium tiers as well as the localization of content in multiple languages. The Company continued to produce the highest rated programs on USA Network, Monday Night Raw and SmackDown Live, while developing other new original programs across platforms. These included developing new seasons of Miz & Mrs. and Total Bellas for USA network and E!, respectively, a new series, Fight Like a Girl, for the mobile platform, Quibi, and a live action family movie, The Main Event, to premiere on Netflix in 2020.
Live Events
Revenues declined 7% to $48.8 million due to lower ticket sales at the Company’s international events, which reflected both the staging of fewer events and weaker performance.
There were 76 total events (excluding NXT) in the current quarter, consisting of 53 events in North America and 23 events in international markets, as compared to 90 events in the prior year quarter, including 61 events in North America and 29 in international markets.
North American ticket sales of $33.6 million were essentially unchanged from the prior year quarter. The average ticket price at these events increased 16% to $94.56 primarily due to changes in the mix of venues, but was offset by the staging of eight fewer events as the Company worked to optimize the profitability of its touring schedule. Average attendance declined 2% to approximately 5,800.
International live event revenue declined $4.0 million driven by the staging of six fewer events and a 14% reduction in average attendance to approximately 4,900. Partially offsetting these factors, the average ticket price increased 6% to $83.34.
Operating income declined to $12.4 million as compared to $13.4 million in the prior year quarter, primarily due to the reduction in international ticket sales (as described above).
Adjusted OIBDA was $13.3 million as compared to $14.7 million in the prior year quarter.
Key Highlights: During the quarter, WWE continued to demonstrate success in staging large-scale, action packed events for its fans, including WrestleMania, which attracted 82,265 fans to MetLife Stadium, and Super ShowDown in Jeddah, Saudi Arabia. Continuing efforts to strengthen WWE’s global talent base, the Company recently held its largest talent tryout in China with 40 athletes in attendance, and announced that it will return to China for a fourth straight year when WWE LIVE Shanghai comes to the Mercedes Benz Arena in September.
Consumer Products
Revenues decreased 13% to $23.1 million from $26.7 million in the prior year quarter primarily due to a decline in sales of merchandise at the Company’s e-commerce site, WWE Shop, lower royalties from the sale of toy products and, to a lesser extent, reduced sales of merchandise at live-event venues, where the latter can be attributed, in part, to the staging of fewer events (as described above).
Operating income increased 13% to $5.2 million from $4.6 million in the prior year quarter as the decline in revenue was more than offset by lower operating expenses, including a decrease in stock compensation expense.
Adjusted OIBDA was $6.2 million as compared to $6.9 million in the prior year quarter.
Key Highlights: During the quarter, the Company continued to expand its mobile game portfolio, launching WWE Universe with marquee publisher Glu Mobile, known for its popular Tap Sports Baseball game franchise. In addition to the launch of its new mobile game, WWE also continued to increase the penetration of its existing mobile games with nearly 115 million installs across its game portfolio, led by WWE Champions, as of quarter-end. In collaboration with Mattel, the Company secured premium merchandising space at Walmart and supported the placement with “Retailtainment” activities in 1,300 stores over a 4-week span. Additionally, the Company supported a Mattel social media influencer campaign generating kids-specific content on YouTube, that had a positive impact on the sell through of products featured in that content.
Third Quarter 2019 Business Outlook
For the third quarter 2019, the Company estimates Adjusted OIBDA of $17 million to $22 million.6 This range of results represents a year-over-year decline in Adjusted OIBDA primarily due to increases in fixed costs, including the impact of investment, as well as lower WWE Network subscription revenue, which more than offset the escalation of core content rights fees.
Financial Outlook 2019
The Company reiterated its full year guidance, which targets revenue of approximately $1 billion and Adjusted OIBDA of at least $200 million.6 This guidance assumes continued improvement in WWE’s engagement metrics, a second large scale event in the MENA region, and the completion of a media rights deal in the MENA region. The Company believes it has agreements in principle with the Saudi General Sports Authority on the broad terms for the latter two items; however, this understanding is nonbinding. It is possible that either or both of these business developments do not occur on expected terms and/ or that engagement does not improve as assumed. The Company has evaluated these potential outcomes and currently believes that the most likely downside to its Adjusted OIBDA would be approximately $10 million to $20 million below its current outlook.
The Company’s full year guidance reflects strong fourth quarter results with substantial revenue growth from both the Company’s new content distribution agreements in the U.S., which become effective in that period, and the aforementioned media rights deal in the MENA region.
WWE is unable to provide a reconciliation of third quarter or full year guidance to GAAP measures as, at this time, WWE cannot accurately determine all of the adjustments that would be required.
Second Quarter 2019 Highlights
Revenues were $268.9 million as compared to $281.6 million in the prior year quarter
Operating income was $17.1 million; Adjusted OIBDA1 was $34.6 million, which exceeded the Company’s guidance
Announced content distribution deals with BT Sport in the U.K., Fox Sports in Latin America and PP Sports in China, providing strong platforms for reaching WWE audiences
WWE Network average paid subscribers2 were 1.69 million paid subscribers, consistent with the Company’s guidance
Digital video views increased 17% to 9.0 billion; hours consumed increased 22% to 324 million hours across digital platforms; and social media followers increased 10% to over 1.02 billion3
WWE Network
The Company initiated the transition of WWE Network to a new platform on July 24, which will provide users with a better experience, a more intuitive interface, and enhanced search functionality
The new platform enables the introduction of new features and experiences over time, including the addition of free and premium tiers as well as the localization of content in multiple languages
Produced more than 90 hours of original network content, including live in-ring programs and talent documentaries, such as The Shield’s Final Chapter and WWE 24: The Year of Ronda Rousey, respectively
STAMFORD, Conn.–(BUSINESS WIRE)– WWE (NYSE: WWE) today announced financial results for its second quarter ended June 30, 2019.
“During the quarter, we made progress on key strategic initiatives,” stated Vince McMahon, Chairman and Chief Executive Officer. “We completed content distribution agreements in key international markets, prepared for the next phase of our WWE Network service, and achieved steady improvement in engagement metrics. As indicated previously, we remain excited about the future, particularly with our debut on Fox in October.”
George Barrios, Co-President, added “In the quarter, our earnings exceeded guidance, however we anticipate a portion of this to reverse and we continue to target full-year Adjusted OIBDA of at least $200 million. The guidance presupposes the staging of a second large scale international event and the completion of a media rights deal in the MENA region. As we optimize near-term results, we will continue to focus on content creation, localization and digitization, including the evolution of our direct-to-consumer network, to drive long-term growth.”
Second-Quarter Consolidated Results
Revenues declined 5% to $268.9 million from $281.6 million in the prior year quarter with lower revenue from the Company’s Media, Live Events and Consumer Products business segments.
Operating Income decreased to $17.1 million from $21.2 million in the prior year quarter, reflecting the decline in revenue and the impact of certain strategic investments, as increases in other fixed costs were partially offset by a year-over-year reduction in accrued management incentive compensation. The Company’s Operating income margin declined to 6% from 8% in the prior year quarter.
Adjusted OIBDA (which excludes stock compensation) was $34.6 million as compared to $43.5 million and the Company’s Adjusted OIBDA margin was 13% as compared to 15% in the prior year quarter, respectively. The current period results exceeded guidance primarily due to enhanced revenue recognized in conjunction with the Company’s recent event in Saudi Arabia, which is expected to reverse in connection with an anticipated fourth quarter event in that country.
Net Income increased slightly to $10.4 million, or $0.11 per diluted share, from $10.0 million, or $0.11 per diluted share, in the second quarter of 2018, reflecting reduced losses on equity investments and a lower effective tax rate.
Effective Tax Rate declined to 25% from 31% in the prior year quarter.
Cash flows used in operating activities were $7.6 million as compared to $74.2 million of cash generated in the prior year quarter driven by unfavorable changes in working capital, which was primarily related to the timing of the Saudi event in June as the prior year event was held in April, as well as lower operating performance.
Free Cash Flow was a $27.5 million use of cash as compared to a $66.4 million source of cash in the second quarter of 2018 primarily driven by the change in operating cash flow and, to a lesser extent, a $12.1 million increase in capital expenditures primarily associated with the Company’s workspace plan.4
Cash, cash equivalents and short-term investments were $296 million as of June 30, 2019, and the Company estimates debt capacity under its revolving line of credit of approximately $200 million.
Second-Quarter Key Operating Metrics
During the first quarter 2019 earnings call, the Company discussed the absence of several talent and the belief that these absences had a negative impact on the Company’s engagement metrics. Since the end of April, the Company has achieved steady improvement in key measures.
Domestic TV ratings for Raw declined 14% in the first quarter 2019 from the prior year quarter but improved to a year-over-year decline of 11% in June. The improvement in June occurred despite a tough comparison to game 5 of the NBA championship on Monday, June 10. Similarly, domestic TV ratings for SmackDown declined 13% in the first quarter 2019, but improved to a decline of 7% in June, consistent with the ratings performance of the top 25 cable networks, which declined 7% during the month. Consumption of WWE content across digital AVOD platforms rose from a year-over-year increase of 23% in the first quarter to growth of 28% in June. Finally, average attendance at the Company’s live events in North America, which declined 12% in the first quarter, improved to a decline of 4% for the June period (and was only down 2% for the second quarter 2019).
The Company believes the favorable trends in engagement metrics stem from the emergence of new storylines and Superstars following a successful WrestleMania. Management remains excited about the debut of SmackDown Live on Fox in October. The debut will mark the first time WWE will be available live 52 weeks a year on a premier broadcast platform.
Results by Operating Segment
Media
Revenues decreased 3% to $197.0 million from $202.6 million in the prior year quarter, primarily due to the performance of WWE Network and the timing of episodic series (i.e., fewer episodes delivered) for programs, such as Total Bellas, as reflected in “Other.” These factors were partially offset by the contractual escalation of core content rights fees.
WWE Network’s average paid subscribers decreased 6% to approximately 1.69 million, which was consistent with the Company’s guidance. For the third quarter 2019, the Company projects average paid subscribers of approximately 1.53 million, representing a year-over-year decline of 8%.2,6Given the actual and projected subscriber declines, the Company does not expect to achieve record subscribers for the full year.
Operating income was $26.9 million as compared to $32.0 million in the prior year quarter primarily due to the reduction in revenue and the impact of certain strategic investments. Increases in other operating expenses were essentially offset by lower network programming expenses and a reduction in accrued management incentive compensation.
Adjusted OIBDA was $37.5 million as compared to $44.5 million in the prior year quarter.
Key Highlights: During the quarter, WWE made progress on critical strategic initiatives, completing content distribution agreements in key international markets and developing the foundation for the next iteration of its direct-to-consumer service, WWE Network. Specifically, the Company completed content distribution agreements with BT Sport in the U.K., Fox Sports in Latin America and PP Sports in China. Management believes these partners provide strong platforms for reaching WWE audiences. The Company also initiated the transition of WWE Network to a new platform on July 24, which will provide users with a better experience, a more intuitive interface, and enhanced search functionality. The new platform enables the introduction of new features and experiences over time, including the addition of free and premium tiers as well as the localization of content in multiple languages. The Company continued to produce the highest rated programs on USA Network, Monday Night Raw and SmackDown Live, while developing other new original programs across platforms. These included developing new seasons of Miz & Mrs. and Total Bellas for USA network and E!, respectively, a new series, Fight Like a Girl, for the mobile platform, Quibi, and a live action family movie, The Main Event, to premiere on Netflix in 2020.
Live Events
Revenues declined 7% to $48.8 million due to lower ticket sales at the Company’s international events, which reflected both the staging of fewer events and weaker performance.
There were 76 total events (excluding NXT) in the current quarter, consisting of 53 events in North America and 23 events in international markets, as compared to 90 events in the prior year quarter, including 61 events in North America and 29 in international markets.
North American ticket sales of $33.6 million were essentially unchanged from the prior year quarter. The average ticket price at these events increased 16% to $94.56 primarily due to changes in the mix of venues, but was offset by the staging of eight fewer events as the Company worked to optimize the profitability of its touring schedule. Average attendance declined 2% to approximately 5,800.
International live event revenue declined $4.0 million driven by the staging of six fewer events and a 14% reduction in average attendance to approximately 4,900. Partially offsetting these factors, the average ticket price increased 6% to $83.34.
Operating income declined to $12.4 million as compared to $13.4 million in the prior year quarter, primarily due to the reduction in international ticket sales (as described above).
Adjusted OIBDA was $13.3 million as compared to $14.7 million in the prior year quarter.
Key Highlights: During the quarter, WWE continued to demonstrate success in staging large-scale, action packed events for its fans, including WrestleMania, which attracted 82,265 fans to MetLife Stadium, and Super ShowDown in Jeddah, Saudi Arabia. Continuing efforts to strengthen WWE’s global talent base, the Company recently held its largest talent tryout in China with 40 athletes in attendance, and announced that it will return to China for a fourth straight year when WWE LIVE Shanghai comes to the Mercedes Benz Arena in September.
Consumer Products
Revenues decreased 13% to $23.1 million from $26.7 million in the prior year quarter primarily due to a decline in sales of merchandise at the Company’s e-commerce site, WWE Shop, lower royalties from the sale of toy products and, to a lesser extent, reduced sales of merchandise at live-event venues, where the latter can be attributed, in part, to the staging of fewer events (as described above).
Operating income increased 13% to $5.2 million from $4.6 million in the prior year quarter as the decline in revenue was more than offset by lower operating expenses, including a decrease in stock compensation expense.
Adjusted OIBDA was $6.2 million as compared to $6.9 million in the prior year quarter.
Key Highlights: During the quarter, the Company continued to expand its mobile game portfolio, launching WWE Universe with marquee publisher Glu Mobile, known for its popular Tap Sports Baseball game franchise. In addition to the launch of its new mobile game, WWE also continued to increase the penetration of its existing mobile games with nearly 115 million installs across its game portfolio, led by WWE Champions, as of quarter-end. In collaboration with Mattel, the Company secured premium merchandising space at Walmart and supported the placement with “Retailtainment” activities in 1,300 stores over a 4-week span. Additionally, the Company supported a Mattel social media influencer campaign generating kids-specific content on YouTube, that had a positive impact on the sell through of products featured in that content.
Third Quarter 2019 Business Outlook
For the third quarter 2019, the Company estimates Adjusted OIBDA of $17 million to $22 million.6 This range of results represents a year-over-year decline in Adjusted OIBDA primarily due to increases in fixed costs, including the impact of investment, as well as lower WWE Network subscription revenue, which more than offset the escalation of core content rights fees.
Financial Outlook 2019
The Company reiterated its full year guidance, which targets revenue of approximately $1 billion and Adjusted OIBDA of at least $200 million.6 This guidance assumes continued improvement in WWE’s engagement metrics, a second large scale event in the MENA region, and the completion of a media rights deal in the MENA region. The Company believes it has agreements in principle with the Saudi General Sports Authority on the broad terms for the latter two items; however, this understanding is nonbinding. It is possible that either or both of these business developments do not occur on expected terms and/ or that engagement does not improve as assumed. The Company has evaluated these potential outcomes and currently believes that the most likely downside to its Adjusted OIBDA would be approximately $10 million to $20 million below its current outlook.
The Company’s full year guidance reflects strong fourth quarter results with substantial revenue growth from both the Company’s new content distribution agreements in the U.S., which become effective in that period, and the aforementioned media rights deal in the MENA region.
WWE is unable to provide a reconciliation of third quarter or full year guidance to GAAP measures as, at this time, WWE cannot accurately determine all of the adjustments that would be required.