WWE Third Quarter Results: Revenues Down From 2011, Vince McMahon Comments

WWE sent out the following press release:

WWE today announced financial results for its third quarter ended September 30, 2012. Revenues totaled $104.2 million as compared to $108.5 million in the prior year quarter. Operating income was $5.0 million as compared to $15.9 million in the prior year quarter. Net income was $3.5 million, or $0.05 per share, as compared to $10.6 million, or $0.14 per share, in the prior year quarter. Excluding items that impacted comparability on a year-over-year basis, Adjusted Operating income was $7.1 million as compared to $21.0 million in the prior year quarter, and Adjusted Net income was $5.0 million, or $0.07 per share, as compared to $14.1 million, or $0.19 per share, in the prior year quarter. The decline in earnings, on both an "As Reported" and "Adjusted" basis, was driven by $6.6 million in incremental expenses from the return to a more normalized level of management incentive compensation in the current year quarter compared to a reduced level of management incentive compensation in the prior year quarter, a reduction in net home video revenue, and lower video game sales primarily from one fewer video game release in the current year quarter.

"In the third quarter, we continued to make important progress on our key strategic initiatives, expanding our content and distribution and enhancing our brand strength," stated Vince McMahon, Chairman and Chief Executive Officer. "The production and licensing of new programs, including a third hour of Raw, the WWE Main Event and WWE Saturday Morning Slam, as well as the development of online distribution on Hulu Plus exemplify our achievement of these goals. The performance of our new programs, which have attracted an average audience 14% to 50% higher than the viewership of the programs they replaced, demonstrate our ability to build consumer interest, which forms the foundation of our proposed WWE Network."

"Our fundamental operating metrics showed continued strength. Average attendance increased 6% at our live events in North America and Pay-Per-View buys increased 13% for the three comparable events in the quarter," added George Barrios, Chief Financial Officer. "While the quarter had an anticipated decline in earnings, based on our results to-date, we are raising our financial forecast for the full year. We expect that our 2012 earnings will be 15% to 25% above our 2011 net income and 10% to 15% above our 2011 EBITDA results, both on an 'as reported' basis."

Comparability of Results

Our current year quarter results included $2.1 million in network-related operating expenses. The prior year quarter results included a film impairment charge of $5.1 million. 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 items from our results.

Three Months Ended September 30, 2012 – Results by Region and Business Segment

Revenues declined 4% reflecting a $4.7 million reduction from outside North America. Revenues from North America were essentially flat to the prior year quarter as increases from our Live and Televised Entertainment segment were offset by declines in our Consumer Products and WWE Studios businesses. Revenues from outside North America declined 16% primarily due to a reduction in the EMEA region from changes in the number of live events and weekly telecasts, which impacted our Live and Televised Entertainment segment.

Live and Televised Entertainment

Revenues from our Live and Televised Entertainment businesses increased 1% to $79.0 million reflecting increased merchandise sales at our live events and incremental Pay-Per-View revenue from the strong performance of our SummerSlam event.

* Live Event revenues were $22.8 million as compared to $23.0 million in the prior year quarter as increases in average attendance and ticket prices at our events in domestic and international markets were offset by a reduction in the number and mix of international events.

- There were 77 total events, including 70 events in North America and 7 events in international markets, in the current quarter as compared to 79 events, including 64 events in North America and 15 events in international markets in the prior year quarter.

- North American events generated revenues of $17.0 million as compared to $14.2 million in the prior year quarter, with growth of $2.8 million reflecting increases in the number of events, average attendance and average realized ticket price. There were 6 additional events in the period, representing a 9% increase from the prior year quarter. Average attendance increased 6% to approximately 5,200 from 4,900 in the prior year quarter. In addition, the average ticket price for these events increased 3% to $42.73 from $41.34 in the prior year quarter.

- International events generated revenues of $5.8 million as compared to $8.8 million in the prior year quarter as the impact of fewer events in the period more than offset increases in average attendance and in the average realized ticket price. There were 8 fewer events in the period, representing a 53% decline from the prior year quarter. Average attendance increased 17% to approximately 8,400 from 7,200 in the prior year quarter. In addition, the average ticket price for these events increased 23% to $98.23 from $80.08 in the prior year quarter. The increases in both average attendance and average ticket price reflected, in part, changes in territory mix as events in the current year quarter were concentrated in cities with greater economic strength than in the prior year quarter.

* Pay-Per-View revenues were $16.3 million as compared to $15.8 million in the prior year quarter. Revenue increased 3% as a 13% increase in buys for our third quarter events was partially offset by the timing of buys for prior period events. The growth in buys for our current quarter events was predominantly due to our SummerSlam pay-per-view. Buys for that event increased 21% from the prior year quarter, demonstrating its creative strength and audience appeal. Offsetting this performance, buys for WrestleMania, a prior period event, declined 63,000 primarily due to timing. On a year-to-date basis, buys for this premiere event remained 8% above the prior year period.

* Television revenues were $34.0 million in both the current and prior year quarter. Incremental license fees from the production and distribution of new programs and contractual increases for our existing programs were offset by the timing and number of domestic SmackDown and international telecast weeks within our fiscal quarter (i.e., 13 telecast weeks compared to 14 in the prior year quarter), and by a reduction in sponsorship revenue related to our television assets. An additional hour of our weekly Raw program was licensed to USA Network and debuted on July 23, 2012.

* Venue Merchandise revenues were $4.5 million as compared to $3.6 million in the prior year quarter. The 25% increase was primarily due to a 26% increase in total domestic (U.S.) attendance. Domestic per capita merchandise sales increased 1% to $10.28 in the current year quarter.

Consumer Products

Revenues from our Consumer Products businesses decreased 20% to $15.8 million from $19.8 million in the prior year quarter, primarily due to a decline in Licensing revenue, with one fewer video game release in the current quarter.

* Home Video net revenues were $6.4 million as compared to $8.3 million in the prior year quarter. The 23% decline in revenue reflected a reduction in average unit price and an adjustment to our allowance for returns that were partially offset by an increase in shipments. Although shipments increased 36% to 933,100 units, a majority of this growth was derived from lower priced new release and catalog titles; the resulting change in product mix contributed to a 16% reduction in average price to $11.01. A $1.7 million adjustment to our allowance for returns was made to reflect lower sell-through rates, primarily from our prior period releases, and increased our reserve for returns to 50% of gross retail revenue as compared to 21% in the third quarter last year.

* Licensing revenues were $7.1 million as compared to $9.0 million in the prior year quarter. The 21% decline was primarily due to reduced sales of video game and novelty products. Royalties earned from the sale of video games declined by $1.2 million primarily from one fewer release, WWE All Stars, in the period. WWE All Stars was released in March 2011 and will not be refreshed in the current year. Shipments of our franchise video game, WWE' 12, also declined 5% in the quarter to 127,000 units, resulting in a 22% decline year-to-date. Royalties from the sale of toys, however, increased 16%, or $0.5 million, reflecting the introduction of our Brawlin' Buddies toy by Mattel with strong domestic retail support.

* Magazine publishing net revenues were $1.6 million as compared to $1.9 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 $7.5 million as compared to $6.9 million in the prior year quarter, representing a 9% increase.

* WWE.com revenues increased to $4.8 million from $3.7 million in the prior year quarter, primarily due to increased rights fees associated with the licensing of original short-form content to YouTube. The related programming agreement with YouTube commenced in February, 2012. Sales of online advertising were down slightly from the prior year quarter.

* WWEShop revenues declined to $2.7 million from $3.2 million in the prior year quarter primarily due to a 21% decline in the volume of online merchandise sales to approximately 54,000 orders. The average revenue per order increased 2% to $47.77.

WWE Studios

During the quarter, WWE Studios recognized revenue of $1.9 million as compared to $3.7 million in the prior year quarter, reflecting the timing of releases from our pre-2010 movie portfolio. There were three feature films released in the current quarter, Barricade, No Holds Barred, and The Day as compared to one release, Inside Out, in the prior year quarter. No Holds Barred was distributed as a remastered DVD edition of a 1989 theatrical release. The Day was distributed as a limited theatrical release. Revenue generated by this movie will be recognized as participation statements are received. As such, no revenues were recorded for this movie during the quarter. The quarter was characterized by a $4.6 million reduction in film losses as the prior year quarter included a $5.1 million impairment charge related to our self distributed films. Excluding the impact of that charge, WWE Studios' movie portfolio generated a loss of $1.5 million compared to an adjusted loss of $1.0 million in the prior year quarter.