By Jason Powell, ProWrestling.net Editor (@prowrestlingnet)
WWE revealed its 2018 fourth quarter financial results on Thursday and issued the following press release.
WWE (NYSE: WWE) today announced financial results for its fourth quarter ended December 31, 2018.
“In 2018, WWE generated the highest level of revenue and earnings in the Company’s history by leveraging our brand strength to increase the monetization of our content worldwide,” stated Vince McMahon, Chairman and Chief Executive Officer. “Our long-term growth strategy will continue to focus on content creation, digitization and international development.”
George Barrios, WWE Co-President, added “We increased revenue by nearly $130 million, and achieved a record level of Adjusted OIBDA and network subscribers. We expect to balance 2019 revenue growth with investment in strategic areas that extend the moat around our business, enabling us to continue our business transformation and maximize shareholder value.”
Fourth-Quarter Consolidated Results
Revenues increased 29% to $272.5 million from the prior year quarter primarily driven by the increased monetization of content and, to a lesser extent, an $8.1 million favorable impact on licensing revenue due to the adoption of the new FASB standard for revenue recognition (ASC Topic 606).
Operating Income nearly doubled to $53.4 million from $27.0 million in the prior year quarter driven by increased profits from the Media segment. The Company’s Operating income margin increased to 20% from 13% in the prior year quarter.
Adjusted OIBDA (which excludes stock compensation) increased 57% to $64.4 million as compared to $41.0 million in the prior year quarter. The Company’s Adjusted OIBDA margin increased to 24% from 19%.
Net Income was $41.2 million, or $0.46 per diluted share, as compared to $4.8 million, or $0.06 per diluted share, in the fourth quarter of 2017. This increase was primarily driven by improved operating performance and the impact of a one-time charge of $11.3 million in the prior year quarter due to the re-measurement of our deferred tax assets as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), which was enacted in December 2017.
Effective Tax Rate declined to 23% from 80% in the prior year quarter, where the latter reflected the tax impact of the $11.3 million charge noted above. Additionally, the year-over-year decline in the effective tax rate reflected the impact of the Tax Act, which reduced the federal corporate income tax rate to 21% from 35%.
Cash flows generated by operating activities reached $65.2 million and Free Cash Flow totaled $54.3 million as compared to $55.6 million and $48.6 million, respectively, in the prior year quarter.4 The growth in both measures was primarily due to improved operating performance, partially offset by the timing of working capital.
Full Year 2018 Consolidated Results
For the twelve months ended December 31, 2018, revenues increased 16% to $930.2 million from $801.0 million primarily driven by growth in the Media segment. Operating income increased 51% to $114.5 million from $75.6 million, driven primarily by the growth in revenue (net of related operating expenses), which was partially offset by higher staff-related costs, including management incentive compensation and stock compensation resulting from improved operating performance and the rise in the Company’s stock price. Adjusted OIBDA increased 31% to $178.9 million from $136.1 million. Net income increased to $99.6 million ($1.12 per diluted share) from $32.6 million ($0.42 per diluted share) in the prior year period.
Cash flows generated by operating activities reached $186.7 million and Free Cash Flow totaled $154.4 million as compared to $96.6 million and $71.9 million, respectively, in the prior year period.4 The growth in both measures was primarily due to improved operating performance.
Cash, cash equivalents and short-term investments were approximately $360 million as of December 31, 2018, and the Company estimates debt capacity under its revolving line of credit of approximately $100 million.
The schedule below reflects WWE’s performance by operating segment (in millions):1
| Three Months Ended | Year Ended | |||||||||||||||||
|
December 31, |
December 31, | |||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||||
| Net Revenues: | ||||||||||||||||||
| Media | $ | 205.3 | $ | 146.4 | $ | 683.4 | $ | 535.6 | ||||||||||
| Live Events | 34.4 | 35.2 | 144.2 | 151.7 | ||||||||||||||
| Consumer Products | 32.8 | 30.0 | 102.6 | 113.7 | ||||||||||||||
| Total Net Revenues | $ | 272.5 | $ | 211.6 | $ | 930.2 | $ | 801.0 | ||||||||||
| Operating Income: | ||||||||||||||||||
| Media | $ | 65.9 | $ | 40.5 | $ | 173.1 | $ | 108.2 | ||||||||||
| Live Events | 1.4 | 0.8 | 16.6 | 24.7 | ||||||||||||||
| Consumer Products | 10.0 | 7.6 | 23.4 | 34.8 | ||||||||||||||
| Corporate | (23.9) | (21.9) | (98.6) | (92.1) | ||||||||||||||
| Total Operating Income | $ | 53.4 | $ | 27.0 | $ | 114.5 | $ | 75.6 | ||||||||||
| Adjusted OIBDA: | ||||||||||||||||||
| Media | $ | 72.1 | $ | 49.3 | $ | 210.6 | $ | 141.7 | ||||||||||
| Live Events | 2.0 | 1.3 | 20.5 | 27.1 | ||||||||||||||
| Consumer Products | 10.6 | 8.4 | 28.4 | 37.7 | ||||||||||||||
| Corporate | (20.3) | (18.0) | (80.6) | (70.4) | ||||||||||||||
| Total Adjusted OIBDA | $ | 64.4 | $ | 41.0 | $ | 178.9 | $ | 136.1 | ||||||||||
Basis of Presentation
For the fourth quarter of 2018, Net income included a net gain of $1.7 million primarily related to the recognition of an upward mark-to-market adjustment to a marketable equity investment which was recorded in Other income, net. For the twelve-month period ended December 31, 2018, Net income included a net gain of $0.9 million driven by the aforementioned adjustment to a marketable equity investment coupled with an upward adjustment of a nonmarketable equity investment during the third quarter. These increases were partially offset by impairment charges to write-off the carrying value of an equity investment. As the underlying market value of our marketable equity investment fluctuates, WWE is exposed to future earnings volatility to the extent WWE continues to hold this investment. A reconciliation of Net Income to Adjusted Net Income for the three and twelve-month periods ended December 31, 2018 and 2017 can be found in the supplemental schedule on page 15 of this release.
For the fourth quarter of 2017, Operating income included $1.5 million in film impairment charges. For the twelve months ended December 31, 2017, Operating income included $5.6 million in expenses primarily related to certain legal matters and other contractual obligations, and $4.7 million in film impairment charges. As these items impact the comparability of results on a year-over-year basis, they have been excluded from the Company’s 2017 Adjusted OIBDA. A reconciliation of 2018 Adjusted OIBDA to Operating income (GAAP) for the three and twelve-month periods ended December 31, 2018 can be found in the supplemental schedules on pages 16-17 of this release.
Results by Operating Segment
Media
Fourth-Quarter 2018
Revenues increased 40% to a quarterly record of $205.3 million, primarily due to the distribution of certain live, in-ring programming content in international markets as reflected in “Other,” which was partially offset by the timing and performance of the Company’s portfolio of movies. Additionally, the growth in Media revenue reflected the contractual escalation of core content rights fees, including license fees from the distribution of the Company’s flagship programs Rawand SmackDown, as well as increased sales of advertising and sponsorship across platforms and the continued growth of WWE Network that yielded a 7% increase in average paid subscribers to approximately 1.59 million.
| Three Months Ended | Year Ended | |||||||||||||||||
| December 31, | December 31, | |||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||||
| Revenues: | ||||||||||||||||||
| Network (including pay-per-view) | $ | 46.8 | $ | 44.9 | $ | 199.3 | $ | 190.6 | ||||||||||
| Core content rights fees 5 | 72.2 | 64.6 | 269.8 | 244.3 | ||||||||||||||
| Advertising and sponsorship | 22.8 | 16.3 | 69.6 | 51.8 | ||||||||||||||
| Other 6 | 63.5 | 20.6 | 144.7 | 48.9 | ||||||||||||||
| Total Revenues | $ | 205.3 | $ | 146.4 | $ | 683.4 | $ | 535.6 | ||||||||||
Operating income increased 63% to $65.9 million from $40.5 million in the prior year quarter primarily due to the growth in revenue (net of related operating expenses), partially offset by increased fixed costs including strategic investments and management incentive compensation from improved operating performance.
Adjusted OIBDA increased to $72.1 million from $49.3 million in the prior year quarter.
Key Highlights: During the quarter, Monday Night Raw and SmackDown Live remained the highest-rated programs on USA Network, which broadcast the 1,000th episode of SmackDown Live. The Company completed its eighth captivating season of Total Divas, with a ninth season planned in 2019, and announced new seasons of other popular series, including Total Bellas and Miz & Mrs. On its streaming service, WWE Network, pay-per-views and international specials remained significant drivers of viewer engagement. Among the network’s most viewed programs were its international pay-per-view events, Super Show-Down and Crown Jewel, its first all-women’s pay-per-view, Evolution, as well as NXT Takeover: WarGames II, and the newly launched weekly series, NXT UK. The Company added more than 100 hours of original content to WWE Network’s featured programming and nearly 450 hours of archival content, which resulted in an on-demand library of approximately 11,500 hours at quarter-end. For its social and digital platforms, the Company produced more than 160 hours of content, including the second season of Mixed Match Challenge on Facebook Watch.
Full Year 2018
Revenues increased by $147.8 million, or 28%, to $683.4 million in 2018 over the prior year, primarily driven by the $95.8 million increase of Other media revenues, due to the addition of certain live, in-ring programming content in international markets and, to a lesser extent, the debut of Mixed Match Challenge on Facebook Watch, which were partially offset by the underperformance of the Company’s portfolio of movies. Additional drivers of revenue growth included the increase in core content rights fees (up $25.5 million or 10%), increased sales in advertising and sponsorship (up $17.8 million or 34%) and the continued growth of WWE Network (up $9.2 million or 5%) subscription revenue, with average paid subscribers up 8% to 1.65 million over the prior year. Operating income increased 60% to $173.1 million, primarily due to the growth in revenue (net of related operating expenses), partially offset by increased fixed costs including strategic investments and management incentive compensation from improved operating performance. Adjusted OIBDA increased 49% to $210.6 million.
Live Events
Fourth-Quarter 2018
Revenues of $34.4 million were essentially flat to the prior year quarter as the favorable impact of the Company’s large-scale international events, including Crown Jewel and Super Show-Down (reflected in “Other”), was offset by the timing and ticket sales of events worldwide. The Company staged 14 fewer events in the quarter, in part, to accommodate these special shows.
- There were 87 total events (excluding NXT) in the current quarter, consisting of 64 events in North America and 23 events in international markets, as compared to 101 events in the prior year quarter, including 68 events in North America and 33 in international markets.
- North American ticket sales declined $1.1 million primarily due to the staging of four fewer events and a 7% decline in average attendance to 5,000. Partially offsetting these factors, the average ticket price increased 6% to $57.75 over the prior year quarter.
- International ticket sales (which exclude special international events) declined $6.2 million primarily due to the staging of 10 fewer events and a 12% decline in average ticket price to $64.93, which was partially offset by a 33% increase in average attendance to 6,900. The year-over-year changes in ticket prices and average attendance were due, in part, to changes in the mix of venues and territories.
| Three Months Ended | Year Ended | |||||||||||||||||
| December 31, | December 31, | |||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||||
| Revenues: | ||||||||||||||||||
| North American ticket sales | $ | 19.7 | $ | 20.8 | $ | 105.4 | $ | 112.0 | ||||||||||
| International ticket sales | 6.5 | 12.7 | 22.3 | 31.7 | ||||||||||||||
| Advertising and sponsorship | 0.6 | 0.5 | 2.1 | 2.0 | ||||||||||||||
| Other 7 | 7.6 | 1.2 | 14.4 | 6.0 | ||||||||||||||
| Total Revenues | $ | 34.4 | $ | 35.2 | $ | 144.2 | $ | 151.7 | ||||||||||
Operating income was $1.4 million as compared to $0.8 million in the prior year quarter, reflecting changes in the mix of events.
Adjusted OIBDA was $2.0 million as compared to $1.3 million in the prior year quarter.
Key Highlights: Highlighting the Company’s success in staging large-scale events for its global fanbase, WWE was named the “Best at Producing Live Event Spectacles” by SportsBusiness Journal, beating out the NFL, NBA, NHL, MLB and NASCAR among others. Furthering its success during the quarter, WWE held its first-ever all women’s pay-per-view, Evolution, in front of a sold-out crowd at Nassau Coliseum that trended #1 on Twitter for over two hours during the last game of the World Series and Sunday Night Football. Historic international events included Crown Jewel and WWE Super Show-Down, which was held before the largest audience outside the U.S. in the last 25 years. Emphasizing the importance of its international talent base, the Company held its first-ever talent tryouts in Germany, Chile and Saudi Arabia and, in January 2019, opened its first international performance center in the United Kingdom.
Full Year 2018
Revenues decreased by $7.5 million, or 5%, to $144.2 million in 2018 primarily due to the staging of 18 fewer events worldwide and lower attendance (based on capacity) at Royal Rumble, partially offset by the impact of the Company’s large-scale international events. Operating income decreased by $8.1 million to $16.6 million, driven by the decline in revenue, as well as increased fixed costs, including strategic investments and management incentive compensation. Adjusted OIBDA decreased by $6.6 million to $20.5 million.
Consumer Products
Fourth-Quarter 2018
Revenues increased 9% to $32.8 million from $30.0 million in the prior year quarter primarily due to the adoption of a new FASB standard for revenue recognition (ASC Topic 606) that favorably impacted licensing revenue by $8.1 million. Growth was partially offset by lower sales of merchandise at the Company’s e-commerce site, WWE Shop, and lower royalties from the sale of toy products. On a comparable basis, excluding the impact of ASC Topic 606 in Q4 2018, consumer product revenues declined 18% from the prior year quarter.
| Three Months Ended | Year Ended | |||||||||||||||||
| December 31, | December 31, | |||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||||
| Revenues: | ||||||||||||||||||
| Consumer product licensing | $ | 17.4 | $ | 11.3 | $ | 46.0 | $ | 52.1 | ||||||||||
| eCommerce | 11.6 | 14.3 | 34.9 | 37.8 | ||||||||||||||
| Venue merchandise | 3.8 | 4.4 | 21.7 | 23.8 | ||||||||||||||
| Total Revenues | $ | 32.8 | $ | 30.0 | $ | 102.6 | $ | 113.7 | ||||||||||
Operating income was $10.0 million as compared to $7.6 million in the prior year quarter reflecting the change in revenue.
Adjusted OIBDA was $10.6 million as compared to $8.4 million in the prior year quarter.
Key Highlights: In partnership with Mattel, WWE maintained its dominant position in the U.S. with the #1 action figure sold in 2018. During the quarter, the Company released its latest console game in the WWE franchise, WWE 2K19, which earned its highest Metacritic score since 2K began producing the game in 2013 and was nominated for “Fan Favorite Sports/Racing Game” at the Gamers’ Choice Awards. The Company also continued to increase the penetration of its mobile games with more than 100 million installs across its game portfolio, led by WWE Champions, which won a 2018 Webby People’s Voice Award, WWE Supercard and WWE Mayhem, which recently surpassed 17 million installs.
Full Year 2018
Revenues decreased by $11.1 million, or 10%, to $102.6 million in 2018 as compared to 2017, driven by lower royalties from the sale of toy products and lower sales of merchandise at the Company’s e-commerce site, WWE Shop, partially offset by higher sales of mobile video games. Operating income decreased by $11.4 million to $23.4 million, reflecting the change in revenue. Adjusted OIBDA decreased by $9.3 million to $28.4 million.
Financial Outlook 2019
In 2019, WWE management expects the Company to achieve another year of record revenue of approximately $1.0 billion and, as previously communicated, is targeting Adjusted OIBDA of at least $200 million, which would also be an all-time record (up at least 12% from Adjusted OIBDA of $178.9 million in 2018).8
Management believes that increasing fan engagement over the next few years can enhance WWE’s brand value and strengthen the Company’s ability to optimize the value of its content over the long-term. Given the potential magnitude of this opportunity and its importance to long-term growth, the Company plans to continue to invest in content, digitization and international development. Key areas of investment for 2019 include strengthening WWE’s talent base, delivering more localized content, developing the next iteration of the WWE Network service, and leveraging fan data to improve business performance. In 2019, management will continue to evaluate WWE’s financial performance and to balance current earnings with investments that strengthen engagement and drive long-term growth.
The Company previously discussed a step-up in capital expenditures to build out its content production infrastructure. That spending was delayed as WWE’s workplace strategy continued to evolve. Total capital expenditures are now estimated at $70 million to $90 million for 2019 with continued spending in 2020 above the historic range of approximately 4% to 7% of revenue. Management expects to provide further guidance when the related plans and timeline have been finalized.
First Quarter 2019 Business Outlook
For the first quarter 2019, the Company estimates Adjusted OIBDA of $9 million to $14 million.8 This range of results, as well as expected performance through the third quarter, represent year-over-year declines as higher content rights fees are more than offset by increases in fixed costs, including the timing of strategic investments. For the first quarter 2019, the Company also projects average paid subscribers to WWE Network of approximately 1.59 million.8
Achieving the targeted range of full year results assumes substantial revenue, which supports Adjusted OIBDA of at least $100 million in the fourth quarter. Importantly, the Company’s new content distribution agreements in the U.S., which become effective in that period, provide significant visibility into that expectation, and moreover, into the strong year-over-year growth that is anticipated in every quarter of 2020.
WWE is unable to provide a reconciliation of full year or first quarter guidance to GAAP measures as, at this time, WWE cannot accurately determine all of the adjustments that would be required.
Notes
|
(1) |
The definition of Adjusted OIBDA can be found in the Non-GAAP Measures section of the release on page 9. A reconciliation of three and twelve months ended December 31, 2018 and 2017 Operating Income to Adjusted OIBDA can be found in the Supplemental Information in this release on pages 16-17 | |
|
(2) |
Average paid subscribers are calculated based on the arithmetic daily mean over the relevant period, and may differ substantially from paid subscribers at the end of any period due to the timing of paid subscriber additions and losses | |
|
(3) |
Consumption includes videos viewed on third party (Facebook, YouTube, Twitter, Instagram, Snapchat, etc.) and WWE platforms (WWE.com and WWE App) | |
|
(4) |
A reconciliation of three and twelve months ended December 31, 2018 and 2017 Free Cash Flow to Net cash provided by operating activities can be found in the Supplemental Information in this release on page 18 | |
|
(5) |
Core content rights fees consist primarily of licensing revenues earned from the distribution of our flagship programs, Raw and SmackDown, through global broadcast, pay television and digital platforms | |
|
(6) |
Other forms of media monetization reflect revenues earned from the distribution of other content, including, but not limited to, certain live in-ring programming content in international markets, scripted, reality and other programming, theatrical and direct-to-home video releases | |
|
(7) |
Other Live Events includes revenue from the sale of travel packages associated with the Company’s live events, and commissions earned through secondary ticketing as well as revenue from events for which the Company receives a fixed fee | |
|
(8) |
The Company’s business model and expected results will continue to be subject to significant execution and other risks, including those risks outlined in the Company’s Form 10-K filing with the SEC |
Powell’s POV: McMahon, George Barrios, and Michelle Wilson will be co-hosting a conference call to discuss the fourth quarter earnings report today at 10:00 a.m. CT. I will provide live updates on the call, and then Jake Barnett and I will discuss the notables this afternoon during the member exclusive Dot Net Weekly audio show.
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