TKO Group Holdings Inc (TKO) 2005 Q3 法說會逐字稿

Good day. All sites are online in a listen-only mode. Please note this call may be recorded. At this time I'd like to turn the program over to your moderator, Mr. Wayne Rappaport. Please go ahead, sir.

Thank you. Welcome to World Wrestling Entertainment's third quarter conference call. My name is Wayne Rappaport, Director of Planning and Analysis at WWE. Here with me today are Linda McMahon, our CEO, and Michael Sileck, our CFO. Unfortunately, Linda overnight has developed laryngitis, and although here, will not be speaking. She had some prepared remarks that Mike will read. We issued our earnings release earlier this morning and will be referencing the presentation as part of our discussion. Both are available on our corporate website at corporate.wwe.com.

We will be making several forward-looking statements today as part of our discussion. These statements are based on management's estimates, actual results may differ due to numerous factors as called out on page 1 of the presentation, and in our earnings release. Today we will review our operating highlights and third quarter results followed by a Q&A session. At this time, I would like to turn it over to Mike.

Thank you, Wayne. And good morning, everyone. I want to first apologize on Linda's behalf. It's unfortunate that she has developed a case of laryngitis overnight, but she is with us here physically, and will be whispering things throughout the call.

I am pleased to say that we had another great quarter. Our financial performance was outstanding and our key drivers continued to surpass our expectations. We believe that this performance was in part impacted by our highly successful move to the USA Network, and the excitement and buzz it has generated. We look forward to this excitement and buzz continuing into our fourth quarter, and intensifying as we promote WrestleMania 22, our sold out premier event in Chicago, on April 2nd. The overall live event business has been trending upward since the fourth quarter of the last fiscal year. In the quarter we completed our largest international tour to date. A 15-event tour through Europe. Over 110,000 fans attended the tour in 5 countries, culminating with 2 TV events produced in the UK. The success of this tour demonstrated our continued strength abroad. Our increased touring has supported international growth in the other areas of our business, such as pay-per-view and Branded Merchandise.

Our domestic events performed well in the third quarter. Our North American attendance continues to trend upward in 2006, with average attendance up 30% from the prior-year quarter, and up nearly 20% for the first 9 months of the fiscal year. The positive trend in live event attendance is demonstrated by the success of our recent non-televised event at Nassau Coliseum area on Long Island. The event sold out with over 14,000 in paid attendance. Pay-per-view buys have outpaced last year. Excluding the additional pay-per-view event in the quarter, buys were up 6%. The buys for Taboo Tuesday, which aired in the second quarter of fiscal 2005 and the third quarter in fiscal 2006 increased by 24% over last year.

RAW's ratings continue at their high levels, with a weekly audience of approximately 5.5 million viewers, up 20% since leaving Spike TV. RAW's consistently strong performance on basic cable helped established USA Network as the top rated basic entertainment network for the fourth quarter of calendar 2005. SmackDown! is seen by approximately 4.8 million viewers weekly, and remains one of the top rated programs for males 18 to 34 and Hispanic households. Since SmackDown! moved to Friday night, UPN's Friday night viewership is up by approximately 95%. We are also currently in negotiations with UPN for a SmackDown! contract renewal, and will have more information once the negotiations are concluded.

Branded Merchandise revenues continue to grow dramatically. This segment had its highest grossing quarter in the history of the Company. Home video revenues more than tripled from the prior-year quarter, due to the strong performance of the newly released Bret Hart DVD, which sold 178,000 units. Additionally, prior period releases continue to perform well. Tombstone, the History of the Undertaker, released in the second quarter, has sold nearly 217,000 units, making it our number 1 selling non-pay-per-view DVD title of all time. WrestleMania 21, with over 250,000 units sold to date, has become our highest selling DVD ever. WrestleMania, the Complete Anthology box set, a 21 disk volume covering all 213 WrestleMania matches, has sold over 20,000 units to date.

On the licensing front, the SmackDown! versus RAW 2006 video game for the Sony PlayStation 2 and PSP console has sold approximately 2.5 million units worldwide in the quarter. And we are very proud of the numerous awards that this game has won. In the quarter, orders for our Internet-based storefront, WWE Shop, are 2.5 times higher than the prior year, growing from 36,000 orders to 93,000 orders. On December 7th, we ran a special promotion that led to the highest sales day ever, with 7,400 orders taken and generating over $600,000 in revenue. Quite a performance.

As we refine and execute our digital strategy, we are looking forward to significant increases in revenue from our website, which we believe has tremendous growth potential. For the quarter, we averaged 13.5 million unique visitors and 47 million video streams per month, up from 9 million unique visitors and 35 million video streams per month last quarter. As discussed last quarter, we are in the process of implementing a targeted strategy to leverage and monetize our high level of Internet traffic and emerging trends in technology convergence. While we are just getting started with this initiative, our Internet -based operations, including e-commerce and advertising sales, generated nearly 9 million in revenue, up 105% from the prior year quarter.

I'm happy to report that we have targeted release dates from both our films, See No Evil starring WWE superstar Kane, and distributed by Lions Gate, is currently targeted for release on May 19th. Lions Gate has really gotten behind this film. The trailer for See No Evil was shown with the movie Hostile, which was the number 1 film in the U.S. in the week it premiered. And also our trailer appears on the SAW II DVD. Both of these films are distributed by Lions Gate. The Marine, starring John Cena, and distributed by Fox, is targeted for release on September 29th. We are in preproduction of the film The Condemned, a new film starring Stone Cold Steve Austin, with an anticipated budget of $20 million. Production is slated to begin in the spring. As part of our normal course of business, we are constantly evaluating new scripts for future film projects, and are in discussions with different parties on various projects. I will provide further information in the future if we choose to move forward on any additional projects. Now, this concludes Linda's prepared remarks.

Let me now give you -- walk you through the detailed financial information. As mentioned, our results for the third quarter were ahead of plan, with most of our key drivers improving over the prior-year quarter. Our revenues for the quarter were $103 million as compared to $83 million in the prior year. An increase of approximately 25%. This growth is even more impressive when you consider the fact that we lost approximately $8 million in advertising revenue in the quarter as a result of our new TV deal with USA Network, that began in October. Operating income was $21 million this quarter versus $12 million last year. The increase in operating income is due to increased revenues in the high margin home video and licensing businesses, and a 2.5 times improvement in sales orders from our Internet-based merchandise storefront WWEShop.com. Also included in operating income for the quarter is approximately $1.6 million in profit from our 1 additional pay-per-view event.

Page 5 of our presentation lists revenues and profit contribution by business unit, as compared to the prior year. Revenues from live events increased by $7 million, due primarily to the timing of our international tours. This quarter's results reflect 19 international events, as compared to only 1 in last year's quarter. This increase is simply a matter of timing, as our full-year plan currently anticipates approximately 52 international events, 3 more than last year.

It is also interesting to note that we recently implemented a strategy to lower our risk profile when we tour internationally in new markets. In January we completed a 3-event tour through Mexico that drew over 40,000 fans. The deal was structured as a buyout, where the local promoter took all the risk, and guaranteed WWE a fixed amount. Strategic buyout deals like this one allow us to tour internationally in untested markets, virtually risk-free. As we continue to expand internationally and venture into new markets, we expect to structure more of these types of deals. Our North American events continue to outperform the prior year, with an average attendance of 5,200 in the quarter as compared to 4,000 last year. A 30% increase.

Revenue per event increased to 186,000 from 145,000 in the prior year's quarter. There were 53 North American events in the quarter, versus 76 in the prior-year quarter. This decrease was the result of the expanded international tour schedule. We intend to finish the year with between 245 and 255 North American events, versus 275 events last year. Pay-per-view revenues for the quarter, excluding the additional pay-per-view event, were up slightly from last year. The additional event, Taboo Tuesday, generated 3.2 million in revenue in the quarter. The 1.1 million buys for the 3 events that aired in both this quarter and the year-ago-quarter, namely Survivor Series, Armageddon and New Years Revolution, were up 6% compared to the prior year. Taboo Tuesday generated over 215,000 buys, which was up 24% from last year, when it aired in the second quarter. Of the 12 pay-per-view events held in the first 9 months of fiscal 2006, 10 have exceeded the buys recorded in fiscal 2005. As pointed out on the last call, our average revenue per buy is lower this year, as a greater percentage of our buys are coming from international sources, which command a lower price per buy. International buys currently comprise 36% of total buys, as compared to 28% in the prior year. International growth continues to be driven by the United Kingdom, Italian, and Australian markets.

Television rights fees increased by approximately $1 million over last year, due primarily to increased fees from India, Japan, South Korea, and Italy. Our Branded Merchandise segment continues to deliver impressive results, with revenue increasing almost 70% compared to the year-ago quarter. These results are driven in large part by our home video business, where revenue increased by more than 3 times the prior-year quarter. This reflects an increase of over 400,000 units sold over last year, due to the strong performance of new releases, such as Bret Hart's DVD, and continued strong performance from prior-period releases, including Tombstone, History of the Undertaker, which sold another 60,000 units this quarter, and WrestleMania, the Complete Anthology box set, which sold over 20,000 units to date. Also, the increase in the number of multidisk titles released, including the Anthology box set, Bret Hart's DVD and the Undertaker's DVD, resulted in an increase in our average sales price for DVDs of $4 per unit as compared to the prior year, to bring the average price to approximately $16 for the quarter.

Revenues from the sale of our merchandise increased by approximately 5 million, or 120%, to $9.5 million. The bulk of this increase relates to our internet-based storefront WWEShop.com, where orders processed were 250% higher than the previous year's quarter. Along with the large volume increase, the average sales per order increased by approximately $13, now driving the average sales per order to $62.

Our profit contribution margin for the quarter was 45% compared to 46% in the prior year, a decrease of 1% versus Q3 of '05. This slight decrease reflects a change in revenue mix resulting from the absence of revenue from the high margin ad sales business. SG&A expenses were $22 million in the current quarter, essentially flat compared to last year. EBITDA for the quarter was 23 million versus 15 million in the prior year, an increase of 51%. Page 12 of our presentation provides the details of this increase. As is our practice, page 13 shows a normalized EBITDA, adjusting for those items we consider to be unusual. There are no such items in the current quarter.

It should also be noted that in the quarter, our effective tax rate has increased from last year. The prior-year's quarter included a tax benefit relative to our former entertainment complex, The World, resulting in a 28% effective tax rate. This quarter includes an additional tax provision for state and local taxes related to an audit of prior fiscal year, driving the effective tax rate for the quarter to 43%. We anticipate the full tax year rate to be approximately 38%. Page 15 of the presentation contains our balance sheet, which has not changed significantly since April 30th, 2005. On January 27th, we held $278 million in cash and short-term investments, up from 258 million at fiscal year-end, with virtually no debt. It is also noteworthy that the current quarter's cash balance has not changed since last quarter, demonstrating that in the quarter, the business was able to fund the increased dividend, without impacting its cash reserve.

We have recorded $34 million in feature film production assets for the 2 films currently in post-production. These assets will be amortized on a pro rata basis, as revenues are recognized in accordance with GAAP. As we have stated in past calls, we do not anticipate seeing any revenues from these projects until fiscal 2007. For the quarter, we generated $9.5 million of free cash flow, as compared to $7.6 million in the year-ago quarter. During this quarter, we spent about $1 million on the production of our 2 feature films, as compared to $15 million in the prior year.

The Company's outlook for fiscal 2006 is shown on page 16 of our presentation. Given our year-to-date results, we have increased anticipated total revenues to a range of 385 to $395 million. EBITDA is currently anticipated to be 70 to 73 million, income from continuing operations between 42 and 44 million, and fully diluted earnings per share from continuing operations of from $0.60 to $0.62. We have continued to assume in our full-year forecast that the elimination of ad sales from RAW will result in approximately $19 million in lower revenues, and $12 million in lower profit contribution, relative to last fiscal year. We are assuming modest growth in our other businesses, and intend to invest several million dollars in the Internet and other growth initiatives. It should also be noted that the Company has traditionally been conservative in its forecast, given the hit-driven nature of our businesses. That concludes this portion of the call. And I will now turn it back to Wayne.

At this point, I'd like to open the call to questions.

[OPERATOR INSTRUCTIONS] Michael Kelman, Susquehanna Business Group.

Thanks. That's Susquehanna Financial Group. It looks like home video revenue has been accelerating in each of the last 3 quarters. And I'd like to get a better sense of the sustainability of that revenue. So maybe you can talk about some of your upcoming releases in the fourth quarter and into fiscal 2007. As well, any other initiatives that you may be working on, in order to continue to fuel this growth.

Sure, Mike. As you have correctly noted, this segment of our business has been doing very well for us, and has been increasing. As we've said in the past, there is a bit of a hit-driven nature to this -- to this piece of the business. We have been very -- we've been very pleased with the results thus far. Every time we think we've had a terrific quarter, we seem to beat it the next one. So that momentum is continuing. Looking at the current fourth quarter, the one product that is out and is selling well, is our Blood Sport DVD, which involves the ECW. It's part of our ECW franchise, and that is selling quite well early in the quarter. And we look for that to continue to do well. As well as Bret Hitman Hart did well in the quarter, and we think that also will continue to move well.

As we looked to the next year, we're currently in development of our schedule, and are in conversations with our distribution partner, Sony, to come up with optimal release. And we will be talking about that in the upcoming months. But a couple of things to think about will be, of course, the release of WrestleMania 22, after that event. As we -- as I will remind you, WrestleMania 21 has sold about 250,000 units, which is a record for us. So we are -- we anticipate that WrestleMania 22 set will also do very well. We're looking at our project with Dusty Rhodes, sort of a name from the past. And also a project involving Hulk Hogan. So those are some of the things that are on the slate coming up, and we hope that the -- and anticipate that the momentum that we've been seeing will continue.

Great. Thanks, guys.

Alan Gould, Natexis Bleichroeder.

Thank you. I assume that you're going to be on NBC in a couple of weeks at prime time. Are you willing to venture to guess what impact that might have on the pay-per-view buy rate of WrestleMania 22? And secondly Mike, you're saying the full year tax rate's going to be 38%. It looks like for the 9 months you're at like, 40%. What -- is the fourth quarter going to be that low?

Yes. Let me take the first one. As you did mention, we are going to have a return to NBC for a Saturday Night Main Event. We are -- we anticipate being in prime time on that, at least from 8:00 to 10:00 on March 18th. We -- this is sort of a throwback. We've done this in years past, and I think the -- I think it really demonstrates the increasing popularity of our unique form of entertainment. The fact that NBC wants to partner with us and put us on in prime time is really a compliment, we feel. And, of course, that show is strategically placed, in anticipation of our upcoming WrestleMania 22 extravaganza. So we think it's one more piece of sort of the marketing and promotion machine, Alan, that we have out there, that will hopefully drive buys for WrestleMania 22 to our highest levels ever. But we certainly feel it's a very good development, and again, speaks to the current strength of our brand.

Do you think that WrestleMania 22 will have greater buys than 21 because of this?

We anticipate -- our goal is to have more buys in WrestleMania 22 than in WrestleMania 21, due somewhat in part to the Saturday Night Main Event, but also due to the overall popularity of the brand, and our continued increased distribution internationally. Relative to the tax rate, we feel as though the 38% is really our normalized tax rate for the year.

James Clement, Sidoti & Co.

Good Morning. Mike, I'm wondering if I could ask you just a couple of timing questions. I think this came up last year. I think that the WrestleMania 21 DVD last year was actually released in the first fiscal quarter of this year, versus the prior year it was in the fourth quarter. Do you expect to see some of the DVD sales at the tail end of the fourth quarter this year, or will it be all first quarter fiscal '07?

Yes, Jamie. Because of the timing of it, it will all be fiscal 2007, when that DVD hits the market.

Okay. And just a follow-up question, something you just said a moment ago. In terms of the international distribution of WrestleMania this year, I can't recall and I don't know if it was disclosed, the number of buys that you got from the UK last year. But I do remember that the price point in the UK was at a lower level than what we see in the US. Any change on that front this year?

The number of buys was in the -- was approximately 150,000, sort of in that range. And you're right, the price points are lower internationally, and specifically in the UK they are lower. We anticipate -- hopefully we'll grow in the UK in terms of number of buys. The price points, we think will remain consistent.

Okay. Okay. And final question. I think that one of the things that you all have said for a year or perhaps more, is that getting out on the road and doing your national live shows, hopefully that would be able to drive your merchandising business, among other things. Can you give us a sense -- and I don't know if you guys break this out internally, but, whether it's WWEShop zone orders shipped abroad, or some kind of metric. Can you give us a sense of how international merchandise sales are doing?

Yes. Some of that is really reflected in our licensing businesses. Because as you know, we don't really sell -- we license out -- we generate our monies from licensing of that product, we don't actually ship -- .

Sure.

-- the products themselves. And the licensing business grew. It was up about -- year-on-year the business was up about 20% or so. And I think -- and much of that came from toys, and also from our video game licensing. So if you think about what is really influencing internationally, most of that is the toy business, and that has been growing pretty significantly, and continues to grow. Italy has been a hot market for us, as we've talked about in the past. And that continues -- that continues to do very well. And we're also starting to see growth throughout the UK as our brand gets stronger, and as we -- as you know, as we continue to do our tours, and really put the product out there for the fans to see and touch.

Okay. And just last final thing. You will -- you will have a second Backlash in fiscal 2006, correct?

That's correct.

Okay. Great. Thank you very much.

Robert Routh, Jefferies & Co.

Yes. Thank you very much. And congratulations on what seems as though you guys have really turned things around, which is great. A few quick questions. First, on the last call you mentioned about you guys are doing a capital structure review. And even with the increase in the dividend, you still maintain a very hefty cash balance. And I'm just curious as to whether or not you were still considering doing something with that, in order to lower your overall cost of capital. Because right now your cost of capital is your cost of equity, which obviously reduces your net present value for the stock. And second, we've been hearing a few stories about the potential that you're about to sign a Video On Demand deal with Comcast. I'm wondering if you can comment on whether or not there's any truth to that. And if so, what the extent of that may or may not be, and how soon we could see something along those lines. And, also, you mentioned on the last call that you were looking at a few libraries. Curious as to what the status of those -- of those negotiations are. And on the acquisition front, whether or not you've added anything, or whether or not there's anything in the pipeline on the acquisition front to increase your library of proprietary content?

Okay, Robert. I'll go in the order that you gave them. Talking about our capital structure. You know, it's a funny thing. We just can't seem to get out of the way of the money right now. And I know that's a bad problem to have. But listen, in all seriousness, we -- the business is growing faster than we even had anticipated. Whether that will continue or not, remains to be seen. We took a very -- what we feel to be a very aggressive step in the last quarter, when we increased and doubled the dividend. And as you know, it's a very hefty and very strong yield now, relative to the stock. Over time will we review that capital structure? Absolutely. To do it a month after we just did a full review, is a bit hasty, I think. So I think at this point, we'll continue to -- hope -- we will continue to perform well, the businesses hopefully will continue to perform well. And if this trend continues, then we'll continue to -- then we'll reevaluate sort of what the appropriate capital structure is. But at this point, let's kind of see how the business continues to evolve.

Relative to our Video On Demand deal. We are -- as we've said, we hope to conclude negotiations with a couple of the big players in the cable industry, and Comcast is certainly one of them. I'm not going to comment on the specific discussions we're having. But we are in the -- we are having conversations with them and others. And hopefully, it will conclude in a timely manner. But that's about all I can say on that one. And then regarding the library, we did just acquire in Florida, Championship Library, and the value on that is around $1 million, which is kind of the value that we've talked about in the past.

Okay. Great.

Just -- sorry. And Linda was just pointing out -- thank you, Linda. That all of that library includes some footage regarding Dusty Rhodes. So that will be very helpful to add that library into our vault, if you will.

Okay. Great. And just 1 quick follow-up, and I know you probably can't say too much about it. I'm just wondering if you can give us any update whatsoever with respect to the [Reiko] suit with JAKKS Pacific and THQ, and kind of where that stands. If there's anything you can say at all about that. And then again, congratulations on a great quarter.

Great. No. Thank you. The only thing I can say, is that we did have some oral arguments in the quarter regarding that specific lawsuit. The judge has not given any ruling after those oral arguments. So at this point, we really have nothing new to report.

Okay. Great. Thank you very much.

Dennis McAlpine, McAlpine Associates.

Thank you. And Linda, I think this is the first time since I've known you, that you've been speechless. So I know it must be serious. I hope you get better soon.

Thanks.

With regard to the movie distribution deal. Can you give any details on that? For example, does it include the DVD sales, subsequently? Are they -- you putting up the P&A money? Do you keep ownership, that sort of thing? Second, would you talk about the carriage of 24/7, how that's working out? And then on the pay-per-view, would you comment on which ones of the events in the third quarter were RAW versus SmackDown!? And how that is tying in with the television ratings?

Yes. Very good. Again, in the order that you gave them, regarding the movie. The distribution deals are such that the revenues to the Company do include the DVD rights. So that would come to us. The P&A regarding -- related to these films is covered by our distribution partner. And then the ownership of the negative, does reside with the Company, with WWE. So that gives you some parameters on that.

Now, does that mean that you're going to do the DVD, or will the distributor do it? And you just get a piece of it?

It goes directly [inaudible] distribution [inaudible].

Okay. Yes, the revenues derived from the DVD sales go into the revenue pool.

Okay.

[inaudible] Okay? And then regarding our 24/7 carriage, we have just -- we have done some interesting deals in the quarter, and I think we put out a press release regarding our hotel deal. We actually now have distribution throughout a significant number of hotel rooms throughout the country, with -- in addition to that, we also have cruise ship distribution. So for those fans that are on a cruise, they can get their WWE fix at that point as well. So we're trying to do some unique things regarding that sort of carriage. In addition, we have signed up some smaller systems in the quarter. Not of any significance, but again it's adding some continued heft to that distribution. And I think the next important point in this rollout will be, as I referenced earlier, when we are able to get our deals done with 2 of the big MSOs out there, namely Time Warner and Comcast. And we're having conversations with both of them as we speak. So the distribution -- oh, and in addition to that. Sorry.

Internationally, we are pushing for distribution as well, and we have signed a deal with Sky Italia for a 18-month deal for the 24/7 product. And actually there is -- on the international front beyond Sky Italia, there's a lot of interest in other parts of the world for this product. So we think this is a new kind of wedge, if you will, for us to get into some of these markets. So it's positive from that standpoint. And then regarding pay-per-view. SmackDown! versus RAW, the Survivor Series was a joint event. Armageddon was a RAW event. New Years Revolution was a SmackDown! event. So those are -- then Taboo Tuesday is a combined event.

Good. Thank you.

John Horner, Goldman Sachs Equity.

3 quick questions. Number 1, for this year's WrestleMania, are there any new territories internationally that will have access to buying that on a pay-per-view basis, that did not have access to it last year? Number 2 -- and in particular with regards to Italy, was that a territory last year where you guys had -- where there was access? Secondly, under digital initiatives, those are significant numbers in terms of growth in absolute terms on the video streaming. Can you just maybe frame a little bit how you are starting to think about monetization of those streams? And then thirdly, just going back to the international opportunity, obviously it sounds like your penetration rates in Italy, UK and Australia are increasing. What are the next sort of wave of territories where you think you may be able, over time, to make some significant inroads? It sounds like you've had some nice success in Mexico, and John Cena was well-received on his recent promotional trip to India. I'm just kind of wondering if there are sort of a group of countries that you think might be the next wave, over time? Thanks.

Okay. Let me start with WrestleMania. There will be no new territories that WrestleMania 22 will be distributed to. As you pointed out, Italy was included last year in the distribution. So there will be no new territories to speak of. Okay? Relative to our digital initiatives, yes, you correctly point out the streaming volume that we are experiencing at the site, is really just tremendous. You -- we said it was tremendous last quarter, and then we grew it by about another 10 million a month, in terms of the number of streams, which is even more spectacular. And really starts -- when you are pushing 50 million streams a month, that really starts putting you in very kind of elite category with some other websites. You know, again, AOL will do just under 100 million I'm told, so you're starting to get into some pretty good company there. So the question is, how do we make money on that, right?

And as we've said -- as we said last call, we are in the process of building up our infrastructure, so that we can monetize those eyeballs. We feel very proud that we are able to bring that level of eyeballs. I think that's a significant accomplishment. And, frankly, if I were to say which is the harder task, I think getting the eyeballs is a much harder task, than it will be to turn those eyeballs into dollars. We'll see if that holds true or not, but I really think that's the situation. So we continue to hire around that initiative, and then that hiring will continue for the foreseeable future. We are just getting organized in terms of putting sales tools and sales information in place. And, again, that will continue. So hopefully, as the quarters click on, you will see the volumes either stay the same, or continue to grow on the streaming side. But certainly we anticipate the revenue will start to grow even more quickly in the coming quarters.

Great. Just on the next sort of wave of international -- .

Oh, yes. Sorry. The third question, right. Regarding international opportunities. We really -- we did a great -- we did some really good work here in the last quarter, where we had senior management from our international team come to Stanford, and sit with senior management here, and really strategize as to how approach and face the international market. And the outcome of that -- of those meetings was really a prioritization of what markets to go after. Spain is a market that we think is very ripe with opportunity for us. And, there's a lot of reasons why that is. We think we're underdistributed there currently, and we think also our licensing partners are ready to go in that market. So there's a lot of things that kind of line up for that to be a good market for us. We think we can improve -- while we have deals in Japan, we think that that's an area that we're underutilizing and underserving, and that's another kind of territory that will go in terms of a higher priority for us. And then regarding the rest of Europe, we really hope to fill in both on a Western -- from the rest of Eastern Europe, but also start to approach the -- fill in the rest of Eastern Europe, and then also approach Western Europe, in terms of additional penetration. So we're trying to be very thoughtful, in terms of what areas we go after. And also then be able to focus our resources against those significant opportunities.

Great. Thank you and congratulations on your results.

[OPERATOR INSTRUCTIONS] [Faraouk Hassan], Eaglerock Capital.

Hi, guys. It's actually Nayar Chabercoli. Congratulations on the quarter. It's great. Good job. A couple of questions, most of them were asked. Can you just break out the economics of the video game business and the -- any math or attributes that we can sort of hang on to there?

The -- well, the math regarding the -- we take a license fee for those games. You know, we are obviously not in the license -- we are not in the video game business per se in terms of the creation and manufacture of those games. We get a licensee royalty in the 10 to 12% range. And that's kind of the economics of it. We -- the video game business is at an interesting point. Because of the change in platforms that we will be experiencing, as you move to the X Box 360, PlayStation 3 will be coming out in the foreseeable future. And when you have those sort of new consoles coming online, it can disrupt the flow and creation of new video games. But for the moment, I'll tell you, our RAW SmackDown! 2006 on the PS -- on the PlayStation 2 platform, is just doing really terrific business. So that's question will be how will these platforms kind of transition over the next 12 to 18 months?

And how long -- what's the term of your contract with Sony? Have you disclosed that?

It's in place for the next approximately 12 months.

12 months. Okay. And have you disclosed what terrific means, in terms of scope? Have you broken out any numbers there?

We reported in the speech 2.5 million units sold worldwide.

Sorry, right. 2.5 million units sold in the quarter. Which I think, if you -- if you look at in the business, that ranks -- that's a very strong performance in that category.

That's great. Thanks. Let me just ask on a separate subject. Not to be too anecdotal. But I couldn't help but to notice Stacey Keebler's success on the television show. Can you just talk a little bit about the nature of the contract that she has with you, and whether you're intending to give her greater exposure in the upcoming live and pay-per-view event?

Look. We were thrilled with Stacey's performance. She did a great job, and I think she really represented WWE very well. And we tried to put as much support behind her as we could on our website, et cetera. And also in the shows -- in our TV shows we had mentioned for her in little segments. So she's a -- she's now becoming a star, right. A creative a star. And our contract with her goes through the summer. And at that point, we are in the midst of continuing conversations with her. And we are hopeful that we are able to continue to do business with her. We think she's a terrific talent.

Can you just talk about whether you're planning to feature her on any upcoming events? She's pretty hot right now.

At this point because of -- she's actually been away for a bit, as she's been focusing on Dancing with the Stars. So over time, she'll be written back into some of the story lines, but nothing imminent at this point.

Okay. Last question, and I'll pass the baton. You've mentioned EBITDA guidance. By the way, we appreciate all the transparency. Can you just help us, based on what you know right now for movies and other expenditures and so on, can you help us get to a bottom line sort of cash number for 2007, off the EBITDA number?

We're going through that, our process now for 2007.

I'm sorry. Just a little trouble hearing you.

I'm sorry. We're going through our process right now for 2007, and coming up with our hurdles and with our targets. So it's a bit premature to kind of put that out at this point. Hopefully, on the next call we'll be able to shed some light on it.

Okay. Great. Thank you very much.

I show no further questions at this time.

Okay. Very good.

Thank you all.

I want to thank you all for your time this morning. And, again, our -- we hope that Linda's voice repairs soon, which we are confident it will. And sorry you only had me to listen to today. But we appreciate your time, and we appreciate your support. Have a good day.

This concludes today's teleconference. Thank you for your participation, and have a great day.