WWE Reports 2011 Third Quarter Results - Details

WWE today announced financial results for its third quarter ending September 30, 2011. You can check out the full report by clicking here, here are highlights from the report:

Revenues totaled $108.5 million as compared to $109.6 million in the prior year quarter. Operating income was $15.9 million as compared to $20.3 million in the prior year quarter. Net income was $10.6 million, or $0.14 per share, as compared to $14.3 million, or $0.19 per share, in the prior year quarter. Impacting comparability of our year-over-year results were $5.1 million of film impairment charges in the current year quarter. Excluding the impact of the film impairments in the current quarter, Adjusted Operating income was $21.0 million as compared to $20.3 million in the prior year quarter. Adjusted Net income was $14.1 million, or $0.19 per share, as compared to $14.3 million, or $0.19 per share.

"In the third quarter, our results reflected the Company's continued focus on improving business results in a difficult environment"

"In the third quarter, our results reflected the Company's continued focus on improving business results in a difficult environment," stated Vince McMahon, Chairman and Chief Executive Officer. "Despite the challenging economic headwinds, both domestically and abroad, we generated increased profits across a majority of our businesses, with the main exception being our film business which we continue to monitor and refine to improve future performance. We believe the sluggish economy and our ongoing talent transition were important factors that affected the results of our other businesses. Based on our history of developing talent and creating content with broad appeal, we are confident we can address our creative challenges. Further, by taking advantage of our strategic opportunities, including the anticipated 2012 launch of a WWE network, we can achieve meaningful growth."

Comparability of Results

The current year quarter results included $5.1 million in film impairment charges related to our films Inside Out, The Chaperone, and Knucklehead. In order to facilitate an analysis of our financial results on a more comparable basis, where noted, we have adjusted our results to exclude these film impairment charges from our third quarter of 2011 results. Adjusted Operating income increased 3% to $21.0 million and Adjusted EBITDA increased 5% to $24.6 million. (See Schedules of Adjustments in Supplemental Information) Please note that our revised film strategy utilizing a self-distribution model also has an impact on the comparability of results but is not adjusted in the aforementioned schedules.

Three Months Ended September 30, 2011 ? Results by Business Segment

Total revenues declined 1% to $108.5 million driven primarily by declines in WWE Studios and Consumer Products, partially offset by Live and Televised Entertainment. Revenues from North America increased by 1%, led by growth in our Pay-Per-View and Home Video businesses. Revenues outside North America decreased 6%, primarily due to a decline in our Consumer Products segment, which was partially offset by an increase in Television rights revenue and favorable changes in foreign exchange rates.

Live and Televised Entertainment

Revenues from our Live and Televised Entertainment businesses were $78.1 million for the current year quarter as compared to $73.8 million in the prior year quarter, representing a 6% increase.

Live Event revenues were $23.0 million as compared to $22.8 million in the prior year quarter, reflecting an increase of 1%.

* There were 79 events, including 15 international events, during the current year quarter as compared to 78 events, including 16 international events, in the prior year quarter.

* North American events generated $14.2 million of revenues from 64 events as compared to $13.8 million from 62 events in the prior year quarter. North American average attendance decreased 6% to approximately 4,900 from 5,200 in the prior year quarter. The average ticket price for North American events was $41.34 in the current year quarter as compared to $41.07 in the prior year quarter.

* International events generated approximately $8.8 million of revenues from 15 events as compared to $9.0 million from 16 events in the prior year quarter. International average attendance increased 7% to approximately 7,200 from 6,700 in the prior year quarter. In addition, average ticket prices were $80.08 as compared to $86.07 in the prior year quarter, reflecting a 7% decrease, due in part to differences in territory mix that were partially offset by favorable changes in foreign exchange rates.

Pay-Per-View revenues were $15.8 million as compared to $13.6 million in the prior year quarter, reflecting the impact of buys associated with WrestleMania, a prior period event. There were 65,000 incremental buys for WrestleMania in the quarter, which has a higher retail price than our other events. Buys for the three comparable events in the current and prior year quarter, however, declined 4%, reflecting a 3% increase in domestic buys that was more than offset by a 14% decline in international buys.

Television Rights Fees revenues were $34.0 million as compared to $31.1 million in the prior year quarter. This increase was primarily due to improved terms and contractual increases from our existing programs, partially offset by the absence of rights fees for our NXT? and WWE Superstars programs.

Venue Merchandise revenues were $3.6 million as compared to $3.9 million in the prior year quarter, as the impact of a 12% decrease in total domestic (U.S.) attendance was partially offset by an 8% increase in domestic per capita merchandise sales to $10.18 in the current year quarter.

Consumer Products

Revenues from our Consumer Products businesses decreased 7% to $19.8 million from $21.4 million in the prior year quarter, primarily due to the performance of our Licensing business.

* Home Video net revenues were $8.3 million as compared to $7.2 million in the prior year quarter, a 15% increase driven by an adjustment to our allowance for returns and an increase in revenue per unit, partially offset by a 17% reduction in shipments to 686,000 units. The reduction in our allowance for returns reflected better than expected sell-through rates for titles released in prior quarters. Average prices increased 4% to $13.18 due to the timing of promotional activity and a reduction in manufacturer's discounts.

* Licensing revenues were $9.0 million as compared to $10.8 million in the prior year quarter as lower toy, collectible and apparel sales more than offset an increase in video game sales. Revenues related to toys declined 24%, or $0.9 million, reflecting a challenging retail environment for certain toy categories. Revenues from our collectible products declined due to a tough comparison to a successful product launch in the prior year. Revenue from video games, increased by approximately $1.1 million, led by sales of the WWE All Stars video game, which launched earlier this year. Unit shipments of our SmackDown vs. Raw video game decreased 59% to 135,000 units as compared to the prior year quarter.

* Magazine publishing net revenues were $1.9 million as compared to $2.6 million in the prior year quarter, reflecting lower newsstand sales in the current year quarter.

Digital Media

Revenues from our Digital Media related businesses were $6.9 million as compared to $6.8 million in the prior year quarter, representing a 1% increase.

* WWE.com revenues were $3.7 million as compared to $4.0 million in the prior year quarter, primarily reflecting a decline in mobile content revenues.

* WWEShop revenues were $3.2 million as compared to $2.8 million in the prior year quarter. This was driven by a 15% increase in the number of orders to approximately 68,000 and a 2% increase in average revenue per order to $46.94.

WWE Studios

During the quarter, we recorded revenue of $3.7 million as compared to $7.6 million in the prior year quarter, with the decline in revenue driven by the relative performance of our current film releases compared to the prior year quarter release. Film profits declined $5.5 million from the prior year quarter reflecting the performance of recent releases; i.e., Inside Out, The Chaperone, and Knucklehead. Lower home video sales than anticipated contributed to revised ultimate projections, which resulted in a $5.1 million impairment charge for these films. The decline in film profits also reflected lower receipts from our licensed films and the previously disclosed change in our distribution model for films. Under our self-distribution model, we record a film's advertising costs and distribution expenses in our results as incurred and recognize film receipts as earned.

Profit Contribution (Net revenues less cost of revenues)

Profit contribution decreased to $44.0 million in the current year quarter as compared to $47.8 million in the prior year quarter, reflecting a loss in our WWE Studios segment and lower Licensing profits. Gross profit contribution margin decreased to approximately 41% as compared to 44% in the prior year quarter, primarily driven by the performance of our film business, which reflected the recognition of film impairment charges. Excluding these charges, Adjusted Profit contribution increased to $49.1 million in the current year quarter as compared to $47.8 million in the prior year quarter and Adjusted profit margins increased to 45% as compared to 44% in the prior year quarter.

Selling, general and administrative expenses

SG&A expenses were $24.5 million for the current year quarter as compared to $24.3 million in the prior year quarter, led by increases in salary, severance and benefit costs, as well as higher legal and professional fees, in-part related to the anticipated launch of a WWE Network. These were partially offset by a reduction in accrued management incentive compensation.

Depreciation and amortization

Depreciation and amortization expense was $3.6 million for the current year quarter as compared to $3.2 million in the prior year quarter.

EBITDA

EBITDA was approximately $19.5 million in the current year quarter as compared to $23.5 million in the prior year quarter. The decrease was primarily driven by reduced profits from our film business. Adjusted EBITDA (excluding the film impairment charges in the current year quarter) increased 5% to $24.6 million in the current quarter as compared to $23.5 million in the prior year quarter.

Investment and Other (Expense) Income

Investment income was $0.5 million in both the current year quarter and prior year quarters. Other expense of $0.7 million, as compared to other income of $0.9 million in the prior year quarter, reflects foreign exchange losses of $0.4 million in the current year quarter as compared to foreign exchange gains of $0.9 million in the prior year quarter.

Effective tax rate

In the current year quarter, the effective tax rate was 32% as compared to 34% in the prior year quarter. The prior year rate was negatively impacted by a $0.4 million adjustment relating to differences between our tax returns as filed and our estimated tax provision.

Summary Results for the Nine Months Ended September 30, 2011

Total revenues through the nine months ended September 30, 2011 were $371.0 million as compared to $355.1 million in the prior year period. Operating income for the current year period was $50.1 million versus $67.8 million in the prior year period. Net income was $33.5 million, or $0.45 per share, as compared to $45.3 million, or $0.60 per share, in the prior year period. EBITDA was $61.0 million for the current nine month period as compared to $76.3 million in the prior year period. The current year period was impacted by $11.2 million in film impairment charges, while the prior year period reflected an infrastructure tax incentive which reduced depreciation and amortization expense by $1.6 million. Adjusting for these items, Adjusted Operating income for the current year period was $61.3 million versus $66.2 million in the prior year period. Adjusted Net Income was $41.1 million, or $0.55 per share, as compared to $44.4 million, or $0.59 per share, in the prior year period.

Nine Months Ended September 30, 2011 ? Results by Business Segment

Total revenues grew 4% to $371 million driven primarily by an increase in Live and Televised Entertainment, which occurred mostly in North America. Growth in North America also reflected increased revenue from Licensing (within our Consumer Products segment) and from WWE Studios. Revenues from outside North America were essentially flat as growth from Television and WWE Studios and an approximate $3 million favorable impact from changes in foreign exchange rates were offset by a decline in Consumer Products.

Live and Televised Entertainment

Revenues from our Live and Televised Entertainment businesses were $259.0 million for the current period as compared to $249.5 million in the prior year period, an increase of 4%.

Consumer Products

Revenues from our Consumer Products businesses were $76.2 million as compared to $75.4 million in the prior year, an increase of 1%.

Digital Media

Revenues from our Digital Media related businesses were $19.2 million as compared to $18.6 million in the prior year, an increase of 3%.

WWE Studios

During the current year period, WWE Studios recognized revenue of $16.6 million as compared to $11.6 million in the prior year period, with the growth in revenue driven by an increase in the number of film releases (3 in the current year period as compared to 1 in the prior year period). Lower than anticipated performance of several films contributed to revised ultimate projections, which resulted in $11.2 million of impairment charges. Film profits declined $14.6 million from the prior year period driven by the aforementioned impairment charges and the increased distribution expenses associated with the higher number of releases under our self-distribution model in the current period as compared to the prior year period.

Profit Contribution (Net revenues less cost of revenues)

Profit contribution decreased to $144.4 million in the current year period as compared to $156.6 million in the prior year period primarily driven by the performance of our WWE Studios business and the absence of domestic television rights fees for our NXT? and WWE Superstars programs. Adjusted Profit contribution (excluding the film impairment charges in the current year period) of $155.6 million was essentially flat to the prior year period as increased profits from Licensing and Pay-Per-View were offset by the absence of the domestic television rights fees as discussed above. Adjusted Profit contribution margin declined to approximately 42% as compared to 44% in the prior year period, primarily reflecting the resulting change in product mix.

Selling, general and administrative expenses

SG&A expenses were $83.4 million for the current year period as compared to $80.3 million in the prior year period, led by increases in salary, severance and benefit costs, as well as higher legal and professional fees, partially offset by a reduction in accrued management incentive compensation.

EBITDA

EBITDA for the current year period decreased to approximately $61.0 million as compared to $76.3 million in the prior year period, reflecting lower profit contribution and higher SG&A expenses as described above. Adjusted EBITDA (excluding the film impairment charges in the current year period) declined to $72.2 million from $76.3 million in the prior year period.

Investment and Other Income (Expense)

Investment and Other Income (Expense) was essentially unchanged from the prior year period.

Effective tax rate

The effective tax rate was 33% in both the current and prior year periods. The decrease in our current period tax rate from our anticipated rate of 35% was primarily due to a $0.6 million benefit relating to the shutdown of a Canadian subsidiary. Additionally, rates were positively impacted by the recognition of tax benefits previously unrecognized of $0.5 million and $1.3 million for the current year and prior year periods, respectively. These benefits were primarily a result of the statute of limitations expiring in jurisdictions where the Company had previously taken uncertain tax positions.

Cash Flows

Net cash provided by operating activities was $47.8 million for the nine months ended September 30, 2011 as compared to $27.9 million in the prior year period. This increase was primarily driven by the timing of feature film production activities.

On September 9th, 2011, WWE entered into a $200 million revolving credit agreement because we believed there was generally a favorable climate in the capital markets for loans of this type. While we do not have specific plans to borrow at this time, we have announced initiatives for which we may borrow going forward. These initiatives include, but are not limited to, the formation of a WWE television network and the expansion and update of our media center as well as initiatives associated with the execution of our strategy.

Devin Cutting contributed to this article.