迪士尼 (DIS) 2005 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and please continue to hold. Pixar Animation Studios Second Quarter 2005 Earnings Conference Call will be underway in just about 2 minutes. So once again, we do thank you for your patience. We ask that you please stand by.

Ladies and gentlemen, thank you very much for standing by. We do appreciate your patience, today. And good afternoon! Welcome to Pixar Animation Studios Second Quarter 2005 Earnings Conference Call. [operator instructions]

As a reminder, ladies and gentlemen, today’s conference is being recorded today, Thursday August the 4th 2005, for replay purposes. The replay information will be announced at the conclusion of today’s earnings call.

So with that being said, let’s get right to the second quarter agenda. With us today, we have Pixar Animation Studios Chairman and CEO, Mr. Steve Jobs. And here with our opening remarks is EVP and CFO, Mr. Simon Bax. Please go ahead, sir.

Good afternoon, and thank you for joining us for Pixar’s 2005 Second-Quarter Earnings Conference Call. Before I begin today’s discussion of our financial results, I need to remind you that some of the statements made throughout the course of this presentation are forward-looking. And it is possible that actual results will differ materially.

Among the factors that could cause these results to differ are the timing and amount of worldwide revenues and distribution costs related to our films. And the timing, accuracy and amount of information received from Disney and other sources to determine revenues and associated gross profits.

These forward-looking statements should not be relied upon as representing our views, as of any subsequent date. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date they were made.

Additional information concerning these and other factors that could cause results to differ is contained in our 2004 Form 10K, our 2005 First Quarter Form 10Q, and our other filings with the SEC.

I would now like to turn to our financial results.

For the second quarter, ended July 2, 2005, our revenues were $26.4 million. Net income was $12.7 million. And diluted EPS were $0.10 -- which was in line with our updated guidance of June 30th.

These results compared to revenues of $66.3 million, net income of $37.4 million, and diluted EPS of $0.32 in the second quarter of 2004.

For the 6-months ended July 2nd 2005, our revenues were $187.7 million, net income was $94.6 million, and diluted EPS were $0.77. These results compared to revenues of $120.1 million, net income of $64.1 million, and diluted EPS of $0.55 in the first 6 months of 2004.

In the second quarter, “The Incredibles,” contributed $2.2 million of revenues. This includes consumer products and pay-per-view revenues, as well as a reduction to our home video revenues. The reduction resulted from increases to our domestic and international reserve for returns, based on the most-current information from Disney.

As of the end of the second quarter, we have recognized total worldwide sales of 27.1 million units of, “The Incredibles.” Comprised of 16.7 million domestic, and 10.4 million international units. This equates to gross wholesale revenues before distribution fees of over $450 million, recognized to date.

Although unit sales for “The Incredibles,” are approximately 10% less than “Monsters,” after its first 2 quarters of release, the average wholesale price to date is approximately $2 higher. As a result, wholesale revenues are tracking at similar levels to “Monsters,” for the equivalent period of its home video cycle.

Domestically, the 16.7 million units reflect a reduction of around 1 million units from sales recognized through the end of the first quarter. The international figure of 10.4 million units represents an increase of 4.7 million over the prior quarter.

We have now completed the film’s initial home-video release in all key international markets. Overall, the release has been very successful. But there have been a few markets where sales have fallen below expectations. Particularly, France -- released on May 24th, and Japan -- released on June 15th.

Currently, sales in these two markets, in total, are approximately 600,000 units below our original forecast. Although unit sales in both markets are tracking very closely to those of “Monsters.”

Our expectations were higher for these two territories, because in France, “The Incredibles,” enjoyed a higher box office than “Monsters,” and in Japan, Disney has reduced the average retail price of DVDs since the release of, “Monsters.” For the remainder of the year, we’re not anticipating any material worldwide shipments of “The Incredibles.”

Revenues from “Finding Nemo,” during the second quarter, were $7.7 million -- primarily from consumer products. Our library titles generated revenues of $13.5 million in the second quarter, and software licensing revenues were approximately $3 million. Operating expenses in the second quarter were 7.8 million. Other income was $5.8 million, and our tax rate was at 37%.

At the end of the quarter, cash and investments were over $900 million. And our accounts receivable were $150 million -- the majority of which reflects cash due from Disney for our share of film revenues.

Other sources of cash this quarter were software revenues, interest income, and proceeds from stock-option exercises, which were partially offset by film production costs and tax payments.

Capitalized film costs were $147 million versus $140 million at the end of 2004 -- reflecting production spending on our current film projects, offset by film amortization of $31 million.

Looking ahead to the third quarter, we are projecting earnings per diluted share of between $0.08 and $0.12. We expect our results in the quarter to be driven by the domestic pay-TV debut of “The Incredibles,” as well as the 10th anniversary domestic re-release of the “Toy Story,” DVD on September 6th 2005.

Under the terms of the Feature Film Agreement for “Toy Story,” film revenues from the re-release will not be split evenly with Disney. Based on initial sales projections from Disney, we’re currently estimating the “Toy Story,” re-release to contribute approximately $0.02 in diluted EPS to our third-quarter 2005 results.

In the fourth quarter, we expect our results to be driven by domestic network television licensing for “Finding Nemo.” The domestic DVD re-release of “Toy Story II,” on December 26th, and the International DDD re-releases of “Toy Story,” and “Toy Story II,” in November and December. We’ll talk more about these events on our next call.

With that, I would now like to turn the discussion over to Steve, who is joining the call from Tokyo.

Thanks, Simon. To put our last quarter’s results in perspective, we should remember that the $6 million shortfall in earnings was small, in comparison with our overall business. And that it was magnified in importance by the fact that we were in a quarter that falls between major releases. Overall, we’re still ahead of our first-half guidance by $0.15. Or, over 20%. And “The Incredibles” DVD is far and away the highest-selling DVD of the year, so far -- selling over 27 million units, worldwide.

It may be useful to compare the performance of “The Incredibles,” to that of, “Monsters, Inc.” -- our most-recent film before “The Incredibles,” that was released theatrically during the same holiday season window.

Domestically, the box-office of “The Incredibles,” was just 2% higher than, “Monsters, Inc.” And home-video revenues after the first 2 quarters were identical.

Internationally, “The Incredibles,” box-office was 27% higher than that of, “Monsters, Inc.” But home-video revenues after the first 2 quarters were only 10% higher.

So, “The Incredibles,” performed exactly the same as, “Monsters, Inc.,” domestically. But internationally, though it performed better in both box-office and home-video revenues, it performed less better in home-video revenues than it did in box-office.

Each film performs differently -- particularly when it’s being released in over 50 different territories across the globe. But no matter how you look at it, it’s still our highest-grossing holiday film, to date.

I’d now like to speak for a moment about, “Cars.” “Cars” is almost done. It is a very, very strong film. And I think it’s going to be quite well-received. We’ll all know this-coming June.

The Disney Pixar marketing machine is gearing up for the most comprehensive marketing campaign yet, for a Pixar film -- which we’ll discuss on our next call. There is no doubt in my mind that “Cars” is going to be one of our strongest films, to date. And I’m not sure I’ve ever seen John Lassiter more excited than he is, right now -- in the home stretch of making this remarkable film.

On or before our next conference call, we hope to announce our slate of upcoming films that we have green-lit for release, post-“Cars,” and post- our current Disney deal. We’re very excited about all of them. And we’re very excited about the fact that these films get us to our long-stated goal of releasing one film a year.

As far as a future distribution deal is concerned, we are now engaged with Disney, trying to figure out if “Cars,” will be our last movie together, or the beginning of a new, longer-term partnership between our studios. The discussions so far have been very productive, and professional. And as I have said before, I like the two principal players from Disney -- Bob Iger and Dick Cook, a lot.

I am cautiously optimistic, but there are still several hurdles to cross before we will know if a deal will happen or not. However, given that we plan to release our first post-current Disney deal film in the summer of 2007, we want a new deal in place with our chosen studio by the end of this year.

So until then, Simon and I would like to try to answer any questions you may have.

q-and-a

Indeed, and thank you very much for that update, Mr. Jobs. Ladies and gentlemen, as you just heard, if you do have any questions or comments, we invite you to queue up at this point. [operator instructions]

Lowell Singer, SG Cowan.

Thanks. Simon, for you -- can you talk a little bit about what your expectations are for ultimate unit sales on “The Incredibles,” and also what the impact would be on ultimates for future films? Are you still comfortable with whatever internal functions you had before you released, “The Incredibles?” And Steve -- can you just talk a little bit about the importance of the marketing partnership that Disney had with McDonalds for your films, and with DreamWorks signing a deal with McDonalds? A -- does that rule out a potential Pixar deal with McDonalds? And B -- if it does, does that matter? Thanks.

Lowell, let me answer your questions. No. We don't believe that the performance of the “The Incredibles,” has any sort of bearing on our future films. Each film is a different entity, and we’re very confident about the likely performance of our future films. So I don’t think there’s any change, there.

In terms of “The Incredibles,” we’re 2 quarters into a film. The ultimates are based on 10-year revenues. We look at our ultimates, obviously, on a regular basis. But there’s no significant change as a result of “The Incredibles” performance.

And for “The Incredibles,” itself. Have you -- presumably, you’ve taken down your ultimates, some.

Well, in terms of what I was saying on the call, our revenues are at similar levels to “Monsters,” and that’s made up of our unit sales being around 10% less than, “Monsters.” But our average wholesale price-to-date is currently $2 above where we were with “Monsters.” So if you’re using, “Monsters,” as a guide, we’re currently tracking to, “Monsters.”

Lowell, this is Steve. I hope that every film we release in the future in the holiday window performs as well as, “The Incredibles.” We could be so lucky.

As far as the McDonald’s relationship goes, we have had discussions with McDonalds. I believe we were the first folks that they came and talked to. Those discussions are continuing, but we have nothing to announce with McDonalds, at this time. I think the marketing that they’ve done in the past has certainly provided a lot of free Happy Meal toys out there, which has made a lot of kids happy -- and a lot of toy manufacturers not so happy. So there is value in it.

But there are also some concerns, as our society becomes more conscious of some of the implications of fast food. We’ve discussed some of those concerns with McDonalds, and we continue to have ongoing discussions with them.

Anthony DiClemente, Lehman Brothers.

I was wondering if you could talk a little bit more about the sell-through and why internationally, it wasn’t quite as good as expectations. I know that every sale performs differently, but as you compare it to, “Monsters, Inc.,” over the time period where DVD penetration presumably had only grown in France and Japan, I’m just wondering if you could give us any more color. Was it the marketing spend in those territories? Perhaps piracy? Thank you.

Let me take that one. Internationally, as I said, DVD-penetration doesn’t make a huge difference, to us. People were buying VHS units before they were buying DVD units. So there may be a difference, in terms of the average wholesale price that you realize on those sales, but there’s not a significant difference in terms of the market -- for us, as a result in market penetration of DVDs increasing.

I think in terms of -- as I said -- in France, we were actually performing and we were tracking pretty much where we were with, “Monsters.” The box-office was stronger than “Monsters.” So our expectations were a little higher.

In Japan, the actual box-office for, “The Incredibles,” was lower than, “Monsters.” But the average wholesale price of, “The Incredibles,” is around 2,800 yen -- which was down from about 3,800 yen from when “Monsters,” was released. But there again, we’re tracking on a very similar unit level.

So yes, that’s come in below our expectations, but as I said, at a very similar level to where, “Monsters,” was.

Did you have any follow-up questions, Mr. DiClemente?

No. Thank you.

Michael Savner, Banc of America Securities.

Just 2 questions. 1 -- Simon -- when you say you don't expect any meaningful shipments for “Incredible” units for the duration of the year -- well, first, I want to make sure I understood you correctly. Then, if that is right, does that mean that we should assume you probably won’t be recognizing any revenue for home-video of “The Incredibles,” for the duration of the year?

Then secondly, more macro… Just thinking about the “Toy Story,” re-release. Can you just kind of take us through what the marketing plan is? Maybe how much, broadly, you would spend on the marketing for that re-release? Whether it’s print-only or you would be buying TV time? Just so we can get a sense of the cost side of the equation for that re-release. Thanks.

Yes. We don't expect any material shipments. So, yes. There will be some shipments for “The Incredibles,” worldwide for the remainder of the year. But it’s now being released in all the major markets. So there’s not… I just wanted to make it clear to people that there weren’t going to be any significant shipments in the third and fourth quarter.

In terms of “Toy Story,” release or re-release, “Toy Story,” has been available on DVD before. And it actually hasn’t been on moratorium a long time. But it is the 10th anniversary, and it’s coming up to our 20th anniversary. I know we wanted to make sure, and Disney wanted to make sure that a really great copy of the DVD was available. And all of our films will be available during the 20th anniversary year.

There is some television advertising planned for the marketing, but clearly not on the scale of one of our new films.

But to the first question, Simon. Do you not expect any material revenue, then, for the duration of the year on, “The Incredibles?”

Yes. That’s right.

Okay. I’m just trying to be clear. Thank you.

Richard Greenfield, Fulcrum Global Partners.

Hi. Could you comment on the domestic number that you had to adjust downward for home videos for, “The Incredibles?” What did Pixar or Disney do wrong, in forecasting returns last quarter? And does it speak to a larger problem of the overall being disadvantaged after the first couple of weeks of release, when you’re not controlling your distribution, and your distributor is putting out a tremendous number of other titles that might be displacing your shelf-presence in a catalogue phase? Thanks.

I don’t think we did anything “wrong.” We worked with Disney in terms of looking at what the appropriate reserve levels are, based on the information that we have available. And there was certainly nothing that we did “wrong,” in regard to that.

In terms of not controlling distribution, again, we’re looking at and saying, “Well, we’ve sold 27 million units on a worldwide basis. Which is, by far, the biggest-selling DVD of the year. So, again, I don’t think we feel like we’ve been negatively impacted by not controlling distribution. We work very closely with Disney and have a good relationship at the moment, on the distribution.

Rather than, “did wrong,” what do you think contributed to the higher return levels in the US -- versus what you had been expecting?

I don’t think we’re in a position to really comment on that. There’s lots of speculation, but I don’t think we have anything to really add.

I think the only thing I would say is that, again, the effect of Disney and Pixar guessing wrong on this was actually not giant. It just was magnified in its importance, by the fact that it occurred in a quarter where we don’t have major earnings from a theatrical release or a home video release. As we pointed out, if you look at the first half of the year, taken in total, this kind of a course correction wouldn’t have been material. So I think you have to look at this as being really magnified in materiality by the timing of it. Maybe not so large in its overall scope, relative to the incredible success of this DVD.

Kathy Styponias, Prudential.

Two questions, as well. Simon, I just want to make sure I understand you correctly, as it relates to your ultimates, for both, “The Incredibles,” and for future films. I know you’re saying that it’s tracking in line with “Monsters,” but it also sounds like you are using a lower unit number and a higher price point than “Monsters.” I guess -- 1 -- is that correct?

2 -- are you basically assuming that the lower unit number in “Incredibles,” is unique to “Incredibles,” and therefore, you’re using potentially higher unit numbers for film ultimates for future films? Or are you making the same adjustment to those estimates?

Then -- 3 -- could you talk a little bit about your library sales and what you’re seeing with respect to either returns or to sell through, with respect to your library sales? Is it as-expected, better or worse? Thanks.

Let me take those in order. For, “Monsters,” yes. You’re correct. What we’re saying is that our revenues are tracking to “Monsters”-level performance. Which is fewer units, but at a higher average wholesale price. In terms of lower units for future films -- no. We look at each film that we have as a distinct entity. And then we come up with ultimates, based on those films. So it’s very early for “Cars.” We haven’t released the film, yet. But there’s no significant change in what our expectations would be.

And in terms of library sales, we haven’t seen any material changes to our library sales. There are no material returns on our library titles. They’re performing pretty much to our expectations, at the moment.

William Drewry, Credit Suisse First Boston.

First off, just wondering, Simon. What might be an expectation for unit sales on the “Toy Story,” DVD? I was just wondering if you knew how many DVD units, the “Toy Story,” had previously sold, history-to-date. Then for Steve, just wondering on your discussions with Disney that are ongoing. If a sequel production in your reconsideration of participating in the sequels that they’ve notified you that they intend to make, factor in in either your decision or their decision, in terms of wanting to do a deal.

Should I take the first part? In terms of “Toy Story,” DVD units, it’s been, actually, available -- I think now 3 times, before. Total unit sales, I believe, are about 3 million units for “Toy Story,” on DVD. But obviously, there’s a very significant number of VHS units that have already been sold.

What I wanted to do was give a sort of earnings guidance for, “Toy Story,” rather than getting into projected unit sales. I’ll let Steve answer the question on sequels.

In terms of our discussions with Disney, we’re not going to make any comments on any particulars about that. Including anything related to sequels. We are just having some very productive discussions, and they’re wide-ranging. So we’ll see where they go.

Could I just ask you then… I mean I think previously, sequels were not of interest, from your viewpoint, for the Company -- as far as strategic direction. Could I just ask is it possible that you would revisit that outlook?

I think that anything’s possible, and when we have something to announce either way, we’ll let you know.

Steve Lidberg, Pacific Crest Securities.

A couple of questions. First of all, I was wondering, looking back at “The Incredibles.” Do you think the older demographic of the film, or the film that it attracted, had any impact on the eventual sale of DVDs? Also, with regard to the ’07 film -- can you give us an update on the production of that film? And lastly, what was the impact of foreign currency? Thanks.

Steve, would you?

I can take the ’07 film, if you’d like.

Okay. Would you do that, and I’ll take the rest.

We’re not really discussing our films beyond, “Cars,” yet. But as I mentioned -- on or before the next earnings call, we’re hoping to unveil the slate of films that we are working on. Post-“Cars.” We’re super-excited about them. Our ’07 film is -- I think it’ll be dynamite. I’m sorry to ask you for a little more patience on that, but we’d rather talk about more than one at once. And we would rather unveil them to you in a slightly more theatrical way, if you’ll give us the license to do that.

And in terms of the other two parts of the questions. I don’t think there’s anything that we can say about it attracting an older demographic. Clearly, it was a PG film rather than a G film, but I don’t know that that made any difference.

In terms of FX, the Euro has obviously come down in the last… from when we had the theatrical release. But there’s not been a significant change as a result of foreign currency metrics.

With that, Mr. Jobs -- Mr. Bax -- I’ll turn the call back to you for any closing remarks.

Thank you all for joining us on this call. I don’t know if you have anything to add, Steve.

You know, we’re working really hard. I don’t think we’ve ever been as excited about the future of the Company as we are, right now. So we’ll have some fun stuff to talk about on the next call.

Thank you very much. Ladies and gentlemen, your host is making this call available for digitized replay for one week, all the way through August 11th of 2005 at midnight. To access AT&T’s Executive Replay Service, dial 800.475.6701, and at the voice prompt, enter today’s conference ID of 789073. Internationally, please dial 320.365.3844 -- again with the conference ID of 789073. That does conclude our earnings call for this second quarter. Thank you very much for your participation, as well as for using AT&T’s Executive Teleconference Service. You may now disconnect.