索尼 (SONY) 2012 Q1 法說會逐字稿

Good afternoon and welcome to the MGM's quarterly results conference call. All participants will be a listen-only mode. (Operator Instructions). After today's presentation there will be an opportunity to ask questions. Please note this event is being recorded.

And I would now like to turn the conference over to Scott Packman. Please go ahead.

Thank you, operator, and thank you to everyone on the line for joining our call today to discuss MGM's financial results for the quarter ended March 31, 2012.

Leading today's call will be CEO Gary Barber and Chief Financial Officer Dene Stratton. We also have in the room with us CEO Roger Birnbaum; Ken Schapiro, our Chief Operating Officer; and Cheryl Rodman, our Deputy General Counsel. After Gary and Dene complete their prepared remarks, we'll be happy to take your questions.

Before turning things over to Gary, there are several items I need to cover. First, today's call is being conducted in accordance with the terms of the Stockholders Agreement dated December 20, 2010. If you are not a stockholder of MGM, then you should not be on this call.

Under the terms of that agreement, MGM is required to provide financial performance information and conduct stockholder conference calls to its stockholders on a quarterly and annual basis. We've posted our first quarter financial report on the secure data site for stockholders at approximately 4PM Pacific Time yesterday evening. If you are a stockholder and not registered on the secure data site, or if you had difficulty accessing the financial information on the site, please e-mail stockholderrelations@MGM.com.

As you may be aware, our Stockholders Agreement requires us to make certain financial information probably available on MGM's website or otherwise on a quarterly and annual basis. For the 2012 first quarter, we will make available the financial information we released yesterday evening as well as an audio file of today's conference call on our corporate website at www.MGM.com. This information will be posted shortly after the conclusion of this conference call.

Additionally, during today's call we will refer to certain non-GAAP financial measures including operating income before depreciation and amortization, or OIBDA, and adjusted OIBDA. Please refer to the financial information we posted last night for the definitions and reconciliations of these measures to their comparable GAAP measures.

Finally, I would like to remind you that this conference call may contain forward-looking statements. Forward-looking statements are statements that address results or developments that will occur or are expected to occur in the future. These statements involve risks and uncertainties, and actual results may vary materially. I refer you to the forward-looking statement, Safe Harbor, included in our financial report for important risk and other factors that you should consider when evaluating this information.

Forward-looking statements made during this call speak only as of the date hereof, and MGM undertakes no obligation to update such statements to reflect future events or circumstances.

With that, I'll now turn the call over to Gary Barber.

Thank you, Scott, and good morning, everyone. MGM had a strong first quarter. Our results are better than we expected when we spoke with you on our last earnings call.

We generated $179 million in revenue, down only 9% over the 2011 first quarter. The decline reflects a lack of new release content moving through first cycle distribution windows, but was less than anticipated due to the strength of our television sales for library content. We delivered $75 million in adjusted OIBDA, up 9% over prior year, and $23 million in net income, which represents growth of 8%.

We also generated positive cash flow from operations of $14 million while beginning the significant investments in our content pipeline that we talked about on our last call. This performance continues to demonstrate that MGM is operating efficiently while executing on its strategic initiatives.

In addition to generating significant revenue from television sales of our post first cycle content, we are benefiting from the substantial operating expense reductions implemented through our restructuring and continuing this year.

Our G&A in the quarter was down 21% compared with last year's first quarter. In addition to the solid results, we continued to execute on our business strategy and financial objectives.

During the quarter, we repaid in full the $312 million balance on our term loan as part of our move to a new credit facility. While this payment reduced our cash balance, we now have in place a $500 million revolver at LIBOR plus 3.25%, which remains undrawn and fully available to us. The move significantly enhances our capital flexibility and does so at an attractive interest rate.

As I have discussed before, MGM is well positioned and to take advantage of the growth in digital distribution. Our strategy is to continue to effectively capitalize on emerging opportunities with digital providers worldwide.

A recent example is a deal that we announced with Google last month. Under this agreement, we will make over 600 MGM titles available for rent on YouTube and Google Play. These library films will announce the monetized through rental transactions facilitated by Google on computers and Android-powered mobile devices, as well as on Google TV.

The deal is nonexclusive and continues our goal of expanding the availability of our content to meet consumers' desire to freely choose what, when, where, and how they want to view our films. The Google agreement is a great example of the types of partnerships and ventures we are exploring, and we continue to speak with a variety of parties about additional opportunities.

As we look ahead to the rest of 2012, we continue to be excited about our film and television content slate. As you all know, 21 Jump Street was released during the first quarter and the latest box office exceeds $135 million, well above our expectations prior to release. Sony has begun work on a sequel in which we have the right to participate.

We have two films scheduled for release this summer -- G.I. Joe Retaliation on June 29 and Hope Springs on August 10. Next up after that is Skyfall on October 26 internationally and November 9 domestically, and then the first of the two Hobbit pictures, An Unexpected Journey on December 14. These films were recently previewed at CinemaCon to a good response. We remain very positive about our overall slate.

We have entered preproduction on two more films on our slate, Carrie and Robocop, which we expect to release in the first and third quarters of 2013, respectively. Robocop, as we highlighted on our last call, is being produced under our co-financing partnership with Sony. Carrie is being produced in partnership with Screen Gems and is currently expected to be released March 15, 2013. The film stars Chloe Grace Moretz and Julianne Moore, and will be directed by Boys Don't Cry's Kimberly Peirce.

In television we have entered preproduction on the TV series the Vikings, set to premiere on the History Channel in 2013. In the meantime, we are looking forward to the second season of Teen Wolf, our original series on MTV, which will air in June. We also have numerous TV projects in active stages of development.

With all of this activity under way, it should be clear that we are now in full swing on the production and development of feature film and television content and our various co-financing partnerships. This fact has begun to be reflected in our financial results and will continue to be throughout the year and going forward.

Dene will walk you through the details, but suffice to say we're very pleased with the position we're in as content moves through the production process. Our feature film slate in particular provides significant opportunity to grow our first cycle revenue pipeline. And both the films and TV series will help to refresh our library and enhance its value.

Over the past 15 months, we have put attractive television output deals in place around the world. And as you have seen today and in recent periods, we are also adding license deals with popular digital platforms here in the US and internationally. We believe all of this activity will contribute to MGM's expected strong financial performance beginning late this year, and sustaining into the future as we maintain a steady pipeline of fresh film and television content.

Thank you for your time this morning and I'll now turn the call over to Dene for the financial discussion.

Thank you, Gary and good morning, everyone. MGM had a solid financial performance in the first quarter. Overall results were better than planned as we start to see the benefits of our licensing initiatives. Our financial position remains strong, our production activity is increasing, and we will benefit from significant new releases in the fourth quarter.

Looking at our results -- revenue for the first quarter of 2012 totaled $179 million, driven primarily by worldwide content licensing revenue. As Gary indicated, a revenue decline was anticipated given the lack of new release content moving through the first cycle distribution windows. But that decline was less than we anticipated, due to solid growth in television sales. We also benefited from an earlier-than-planned closing of one of our output deals.

In March, we released 21 Jump Street through our co-financing partner, Sony. As a reminder, our financial results do not include any related theatrical revenue or key expensed from minority-owned, co-financed films. We will record gross revenue and expenses related to distribution rights that we control, as well as net revenue from windows we do not control, only after our partners recoup their expenses.

Adjusted OIBDA was $75 million, an increase of 9%, and operating income totaled $45 million, up 13% over the prior year's quarter. These improvements were driven by lower G&A and other expenses. G&A expense decreased 21% year over year, reflecting the cost reduction initiatives we implemented last year, and our ongoing focus on running a lean, efficient business.

Excluding stock-based compensation, incentive plan, and nonrecurring restructuring-related expenses, our G&A totaled $16.9 million in the first quarter, down 22% from $21.7 million a year ago. Please note that restructuring-related expenses in the 2012 period were de minimis.

Pretax income was $40 million, and net income $23 million. We recorded an income tax provision of $17 million in the quarter. However, that provision is largely non-cash as we continued to benefit from roughly $1.1 billion in federal NOLs and $700 million in California state NOLs.

Operating cash flow for the quarter was $14 million. A decrease from last year's first quarter is attributable to lower first-cycle distribution proceeds ahead of our new film slate entering its revenue cycle, and a $91 million increase in net additions to film and television inventory costs.

The increase in additions to film costs included the majority of a one-time payment to acquire our co-financing partner's rights to a portfolio of previously released films including Quantum of Solace and Casino Royale. The balance of this payment reduced accrued participants' share liabilities on the balance sheet.

Looking at the balance sheet, we entered the quarter with $203 million of cash. As I discussed on our last call and as Gary alluded to, on February 6 we closed on our new credit facility consisting of a $500 million revolver at a interest rate of LIBOR plus 3.25%, which is substantially lower than our prior effective rate. At close, we paid down our $312 million term loan under the prior facility. The revolver remains undrawn.

Turning to our expectations for 2012, our outlook remains unchanged from what we shared with you on the call in March. To recap, 2012 is our first year with a full feature film release slate, and we expect to grow revenues significantly for the year as a result of fourth quarter franchise film releases.

We had limited new release activity during our restructuring process, and the first three quarters of 2012 will not benefit from significant first cycle film and television revenue. Additionally, revenue in the second and third quarters may be below the first quarter due to the early closing of certain television sales agreements in Q1.

For features released in the first three quarters of 2012, we will not recognize gross revenue in distribution windows that we don't control, such as theatrical and home entertainment, as we own 50% or less of the films. We will recognize net revenue as earned. However, in Q4 we expect to recognize significant theatrical revenue on our franchise releases, Skyfall and The Hobbit, which should drive material revenue growth in that period.

As we make investments in marketing costs for new releases, adjusted OIBDA is expected to decline in 2012 but remain significant significantly positive. In 2013 the outlook for this metric is to return to significant growth as we benefit from new release activity.

With respect to cash flow, for the full year we expect to show a net use of cash at the operating level which will easily be funded through our available liquidity. This will include cash investments in new content of approximately $200 million to $250 million.

We will also be incurring significant cash P&A costs for the fourth quarter release, Skyfall. As our investment in new content levels out in 2013, operating cash flow is also expected to return to significant growth.

In summary, we had a solid first quarter with the results benefiting from the significant restructuring initiatives we executed on in 2011. We are executing well against our operating plan, and we are in good financial position as we ramp investment in our content slate.

That concludes our prepared remarks and we will now open the call for questions.

(Operator Instructions). [Ben Wanger, Talek Investments].

I typically ask this question on each call about library cash flow, and I know the answer is that you won't give us any color around it, nor whether it is tracking in line with the projections. But given what you guys are able to do with your television licensing, can we at least assume that library cash flow is growing at this point?

As we've discussed before, I think our answer will be pretty much the same, except we do look at the business in totality. And I think it's safe to say that we have stabilized the library and new content has really refreshed the library and enabled us to stabilize the library.

Okay, thanks.

Tasha Sullivan, Franklin Templeton Investments.

I have a question on 21 Jump Street and The Girl with the Dragon Tattoo. Just wondering when you'll start seeing the benefits from those; is it not -- it's not going to happen in the second or third quarter? Or I guess timing, and is -- which windows are you guys getting there?

I'm going to let Dene answer that for you.

Sure, absolutely. So as you know, we don't recognize gross revenue. We recognize net revenue after our partner recoups costs. We will see a little bit of revenue in Q2 through Q4 on those films. Then later as the windows we control kick in, we'll see larger revenue then.

Okay. And then in terms of -- I have a couple of other questions that aren't really related to the quarter. Have you guys looked at any partnership opportunities in China? And also, can you comment on the HD channel sale rumors that circulated last month?

I missed the last part of that question, but (technical difficulty) spoke about generally, we continually evaluate opportunities in light of what we believe is in the best interests of the Company. But we don't have any comment today on any specific opportunities or transactions.

Okay, is that regarding China? Or the second one was on the HD channel sale rumors that were circulating last month.

It applies to both. We continue evaluating all of our assets along with the opportunities that go along with that. And we will consider the allocation of our resources in the future, but we don't have any updates today to share with you.

Okay, thanks. And then just one last one, if I may. On your streaming opportunities, when are you guys clear to do a deal of your own with Netflix in the US? Is the EPIX deal up soon and does that have anything to do with it? Or can you go forward?

You talked in the Analyst Day in November about how you guys can benefit from slicing and dicing the different windows, making them shorter. And I'm just wondering what progress you're making on that front.

Well, we do have a deal with EPIX, but that's for a select number of titles. So we are able and we do license with Netflix independently of our deal with EPIX. So we continue to take advantage of the marketplace where we have the titles on a nonexclusive basis.

As you know, the EPIX deal, the Netflix part of the EPIX deal was exclusive for the first two years. So we continuously explore opportunities in the [Asphalt] platform with multiple players in the US and abroad.

Okay, thank you.

[Peter Corey], Cooperstown Capital Management.

Just was wondering if you could provide a little more detail on the revenue streams you're entitled to in movies where you are a partner, such as the Dragon Tattoo and Jump Street. And just remind us what revenue you get with those partnerships.

And then also maybe for movies that you control, the Hobbit and Skyfall, what revenue you'll be receiving -- is there a short way to re-educate us on those revenue streams?

Yes, absolutely. So, basically, on minority-owned films where we've got a maturity distribution partner in windows that they control, usually starting out with theatrical through home entertainment, they record revenue.

We don't until revenue pays back various participations and fees and P&A recoupment. And so we actually recognize net revenue. That usually doesn't come in for a few months after the film is released.

Having said that, we usually own and control some television rights, especially international television rights, in many of these deals. There, we recognize revenue [gross]. And so you actually see a little bit of a pop in our revenue from those films when the TV windows kick in.

And as far as Bond and Hobbit, you were asking that question, it's -- the similar applies. On Bond we will recognize all of the revenue, as we are the majority partner in that asset. And for the Hobbit, we are partners with New Line Warner Bros., and internationally we will record those revenues as we control the distribution rights internationally.

And just one last thing, I've detailed it out usually in the financials in our critical accounting policy. So if you go back and have a look at that, I think it will explain it in some detail.

Okay, thank you. And was Dragon Tattoo -- I know critically it was well-received and box office might have been slightly below your expectations, I think you said on the last call, but it seems like that should have done enough to make money. So that will that be accretive? And then the same with 21 Jump Street -- it seems like eventually you should see some benefit from that, given the success of that that had at the box office.

As we spoke about on the first quarter, we did speak about Girl with the Dragon Tattoo and it is performing now in line with our expectations. And so under GAAP, we continue to evaluate the carrying value of those assets and The Girl with the Dragon Tattoo is appropriately carried.

As far as 21 Jump Street, we will see a benefit from the successful results. To date we are over now $135 million domestically and over $60 million foreign, so we are over $185 million worldwide, which puts us in profit substantially on that picture.

Okay, great. And then really quickly, last one, any comment on corporate strategy in terms of returning the value to shareholders, listing of the shares or other strategic options? Is that something you guys are considering? Is that something that might happen in 2012?

And are you thinking of -- there are some obviously big events down the road this year in terms of releases that might be a strong catalyst for such an event. Can you give any comments on what your thoughts are regarding that?

Yes, we definitely continue to evaluate the opportunities in line with what we believe is in the best interest of the Company, and with these big items that you mentioned coming down the road. However, we do not comment on specific opportunities or transactions at this stage, thank you.

Okay, thanks.

(Operator Instructions). Having no questions at this time, this concludes our question-and-answer session. I would like to turn the conference over to Gary Barber for any closing remarks.

Thank you, operator, and thank you everyone, again, for joining our call today. I want to close the call by saying that I feel very good about our start to the year. We are performing ahead of our plans and all of us on the team here are excited about what lies ahead.

We have four films coming out for the remainder of 2012; most importantly, our two largest franchises, Bond and Hobbit, in the fourth quarter. A lot of hard work has been done to put the team, the strategy, and the financial structure in place to drive MGM forward and we are ready to capitalize.

We look forward to keeping you posted on our progress. Have a great day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.