World Wrestling Entertainment Inc (WWE) 2001 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the World Wrestling Entertainment fourth-quarter 2002 earnings release conference call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Mr. Tom Gibbons. Sir, the floor is yours.

Thank you, operator, and welcome, everyone, to WWE's fourth-quarter conference call and webcast. This is Tom Gibbons, vice president of investor relations. Joining me on the call this morning are Linda McMahon, chief executive officer, and Auguste Liguori, chief financial officer. As you know, we issued fourth-quarter - our fourth-quarter press release this morning and if you have not received a copy, you can download one from our corporate website, www.WWEcorpBIS.com. Please note that we are also what, if anything, our conference call on this website. We'll follow the same format as in prior quarters. Linda will begin the call with a general overview of the quarter and then update you on some of the initiatives that we are currently undertaking. Auguste will then discuss the fourth-quarter financial results in detail and then talk briefly about our guidance for the current fiscal year. At the conclusion of the prepared remarks, we will open it up to questions. I'd like to first begin today by saying that our discussion may include forward-looking statements that are subject to various risks, factors, and uncertainties, particularly those described in WWE's filings with the SEC. Actual results could differ materially from those currently anticipated. with that being said, I will now turn the call over to Linda McMahon.

Thanks, Tom. Good morning, everyone, and thank you for joining us today. As you know, we issued our fourth-quarter earnings release this morning. We had a very good quarter, especially in an environment that was challenging for most media and entertainment companies but as I've always stated, one of the hallmarks of our company is our ability to respond to change. During the past few months, we have made some significant strides in this regard, with the implementation of our new strategic initiatives. Specifically, our brand extension and international expansion efforts. This will be a gradual process as there will definitely be some adjustments along the way, as we determine the optimal creative formula. As in all forms of entertainment, determining the optimal creative formula is not an exact science and there are a lot of variables in play. We often introduce new story lines and talent. Some work and some don't. There are times when this process takes longer than we anticipate, but in the end, we have a proven track record of success. As many of you know, this past May, we changed our name to World Wrestling Entertainment, Inc. Our new name puts the emphasis on E for entertainment, which is what our company does best. With the name change, we now have a global identity that is distinctive, unencumbered and supports our U.S. and international growth plans and our brand extension initiatives. Relative to our brand extension, to further expand our creative efforts, we created two separate brands under the WWE umbrella. Raw and Smackdown. We now deliver two unique story lines with two distinct groups of talents to our fans around the world. This effectively doubles the content we're delivering to our fans. Our new program lineup consists of Sunday night heat, velocity and confidential, as well our new syndicated promises, bottom line and after-burn, which allows us to further develop separate and distinct identities, talent for our Raw and Smackdown brands. The introduce of new talent into our story lines has infused new blood into our creative mix. We now have an increased talent pool that translates to additional revenue streams. In other words, more pay purview events, more live events, more international tours, more branded merchandise and more television programming with newly developing stars. It is also a major impetus behind our international expansion plans. Turning to our international business for a minute, we continue to make excellent progress here. Given our strong television penetration around the world, live event touring was the next logical step. Our initial Asian and European tours were a huge success for the company as we performed to sellout audiences. Building upon this, our aggressive global expansion tour includes an event scheduled for this summer in Australia. More than 50,000 fans hold tickets for this event, which is a sellout for Melbourne's colonial stadium. We recently announced new consumer product licensing, DVD and live sponsorship arrangements. In Japan, we have retained sports marketing Japan as our agent to develop consumer product licensing N Europe, the copyright promotions licensing group will be our agent handling licenses for consumer products in the United Kingdom, Ireland and the channel islands. We enclosed three agreements for Australia. Both in Australia and in New Zealand. Chock records has been appointed the exclusive home video and DVD licensee. Victoria Major Events company, a group responsible for bringing live events to Melbourne will be a sponsor in Melbourne as well as Xbox. We are off to a great start. Our success thus far has surpassed our expectations and validates our assertions that the potential in the international markets will provide an attractive boost to our revenues. We expect to begin to see the benefits of the sale of our branded merchandise in the next 6 to 9 months as our new licensees build inventory in the marketplace. In addition, we expect to increase, again, our international tours from 4 this year to 6 to 8 for next year. I would like to turn your attention to the key drivers of our business. We have always stated the key drivers of our business, namely, live event attendance, pay purview buys and television ratings, are the barometers that we look at to gauge the health of our business. While our drivers have softened over the last year, we are continuing to generate considerable revenues from our loyal fan base. Our mission in the brand extension is to further drive the casual fan back into our followed and we bring the addition of our creative efforts will prove to be successful over and over again. Our television ratings have decreased reflecting the increased competition for eyeballs across all programming. The number of people within our target demographic are spending less time watching television and more time on other activities such as playing video games. Additionally, the proliferation of reality-based television series and the increase in the number of new episodes in some of the established television programs have also been a factor. Increased competition from new television programs, such as the Osbornes, Fear Factor, Sponge Bob Square Pants and Dog Eat Dog as well as Survivor have pulled away some of our key demos and while there's been some softness in television ratings, our flagship programs, Raw and Smackdown, continue to hold their leadership position. It is also important to keep in mind that our programming (inaudible) for male teen and young adult demographics. Raw on TNN remains the highest rated regularly scheduled program on basic cable television and Smackdown on UPN is consistently the top rated program on network television among male teens on Thursday nights. We continue to fine-tune our creative and in doing so, we expect to see a concurrent increase in ratings. We believe that the introduction of new talent and the creative boost in producing two separate programs will translate into higher ratings as we develop compelling story lines and reinvigorate the demand. In summary, while we did have a good quarter, we believe there is more room for improvement and growth, both in our core business and beyond. As you can see, we are moving along on a number of new fronts that will leverage the popularity of the WWE brand, our talent and our unique and creative story lines. Since this is a talent driven business, we believe we can build on the popularity of our talent and bolster our current programming. As we work - as we are at work on the creative side of our business throughout the year, we will simultaneously be focusing on improving our overall profitability. I'd like now, if I may, to turn things over to Auguste to take you through the precise financials.

Thanks, Linda. I'd like to walk you through the financials and give you some color as to what's behind the numbers. After I'm finished, we will open it up to Q and A. Engine total revenues for the quarter increased 4% to 135.9 million compared to the fourth quarter last year, as increases in our live and tell advised business were able to more than offset a decline in our branded merchandise businesses. Live and tell advised revenues, which represented about 77% of total revenues increased 6% to 105 million. As far as live events are concerned, revenues were 27.9 million, or 8% above last year. There were 78 events, including three international events during the quarter. This compares to 59 events during the same period last year. Attendance for the quarter was approximately 693,000, which included attendance of about 38,400 from our international live event tour. This compares to attendance of 695,000 in the prior year quarter. As planned, we increased the number of events with the launch of our brand extension, and we are now playing smaller markets that we have not played in several years. Coupled with some softness in our overall attendance, 9 average attendance per event was 8,900 for this quarter versus 11,800 last year. the company enjoyed its highest grossing event ever, wrestle mania 18, with attendance of 68,237 or approximately $3.9 million. This event established a new attendance and box office record at the Toronto sky dome. Although attendance declined slightly, the average price per ticket increased 10% to when $37.91 for the quarter. Pay purview revenues for the quarter were 40.6 million as compared to 39.3 million in the prior year quarter. the number of domestic buys was at about 2.4 million versus 2.3 million last year, or a 4% increase. Prior period buys were 400,000, versus 300,000 last year, and we did about a hundred thousand buys from our fanatic series in both quarters. Our estimates for wrestle mania 18 pay purview buys are in line with last year's record results of approximately 1 million buys. Commencing with our April pay purview backlash, the price of our pay purview programs increased from 29.95 to 34.95, while wrestle mania will remain at 39.95. Looking forward, the launch of our brand extension and international expansion strategies has opened the doors for additional pay purviews. For the quarter, our revenues for - from television rights fees increased 17%, principally due to the growth in international rights fees. Rights fees for our tough enough television series and other television specials. We produced two television specials this year, namely, deaf a sex on the beach and history of wrestle mania. Based on our initial success, we plan to do more of this type of programming in the future. Working off the success of tough enough 1 and 2, we signed on to produce tough enough 3, with MTV. For those of you who are unfamiliar with this program, it was the number one rated program on cable among persons 12 to 34 on Thursday night. Advertising revenues of 21 point 9 million for the quarter were essentially the same, as compared to the prior-year quarter. This, once again, demonstrates the strength of our brand in the down market and the success in delivering key male demos that the advertisers seek. Separately, we've enjoyed a very successful up front this year. We'll report on those results during our first-quarter conference call. Branded merchandise revenues decreased 3% to 30.9 million. The market for branded merchandise is still weak, although there are some pockets of strength in the DVDs and the video games. Merchandise revenues were about 8.8 million, as compared to 78.5 million in the prior year. Included in the 8.8 million was 6.6 million from merchandise sold at venues and 2.2 million from our shop zone website and catalog. the increase in venue sales was due to our higher per caps in the quarter of $9.47 as compared to $9.09 last year. Publishing revenues increased 5%, to 5.9 million, primarily due to the increase in the number of special magazine titles and increases in cover prices of war magazine and deaf a 2002 magazine. Licensing revenues were 5.6 million in the quarter as compared to 7.5 million in the prior-year quarter. As - an increase in video game revenues was I don't have set by lower sales of our books in the quarter. Video game revenues increased by 83% to 1.6 million in the current quarter, primarily due to Xbox video game, WWE, which sold the most units for any Xbox third-party software in its first weeks of launch. Our video revenues increased 4.9 million due to an 8 6% increase in the number of home video units sold, principally attributable to the shift in the DVD formats. DVD accounted for 49% of the current quarter unit sales, versus 13% in the prior year quarter. This trend should continue as the popularity of the DVD format expands. the media revenues increased 13% to 1.2 million, and the world revenues were 3.8 million for the quarter, as compared to 4.4 million last year. the company has re-branded this venue and has expanded into new areas such as rock concerts and corporate hospitality events. May of 2002, metropolitan entertainment was contracted to be the exclusive producer of all concerts and comedy acts at the world. Our club, the world, has become increasingly popular as indicative of our other revenue opportunities that we can develop at this venue. Total profit contribution for the quarter was 59.5 million as compared to 55.7 million for the prior-year quarter. Total profit contribution margin increased to 44%, up from 43% last year. the profit contribution margin for the live and tell advised business was approximately 44% versus 45% in the fourth quarter of last year. Profit contribution margin for the branded merchandise business was 44%, as compared to 35% during the same period last year. In the fourth quarter 2001, the company recorded additional inventory and return reserves which impacted the margins in our branded merchandise business segment. SG and A expenses for the quarter increased 5% to 31.1 million as compared to 29.6 million last year. This increase was primarily due to costs associated with the company's name change as well as the increased costs at the - increased expenses at the world. These increases were slightly offset by lower professional fees. EBITDA grew to 28.5 million versus 26.1 million last year. Income from continuing operations was 16 million, and EPS from continuing operations was 22 cents per share versus 17 million and 23 cents per share respectively in the same period last year, primarily due to higher depreciation and lower interest income for the year. We have essentially completed the shutdown of the XFL. There are still a few minor points yet to be resolved. We should not see any further adjustments in subsequent periods. for the year, net revenues were 425 million versus 456 million, or a 7% decrease from the prior year. While there has been some softness in our drivers and our costs have expanded, we finished the year with EBITDA of 55.2 million versus 92.9 million in the prior year. Free cash flow for the year was approximately 23 million. And as Linda indicated, the company is continuing to review its continuing operations in all of its operation - investments in its operations. For the year, and from the balance sheet point of view for the year, we finished roughly with about 487 million in total assets, with approximately 294 million in cash and short-term investments, 64 million in receivables. Our long-term debt was 10 million, and our total shareholders' equity was approximately 390 million. Our capital expenditures for the year were about $19 million. As we indicated in our press release, we have put forth some guidance for fiscal 2003. We've assumed the same level of television ratings and pay purview buys. Attendance is projected to increase to the number - to increase in the number of events, and we are using a lower average attendance per event in our projections. the full-year impact of our price increases in pay purview are also a factor in our assumptions, and as Linda pointed out, we have a very strong and loyal core fan base who continue to watch our television programs, attend our live events, and purchase our branded merchandise. The launch of our brand extension and the growth of our international business is designed to capture more of the casual fan. As always, and as mentioned earlier, we are reviewing our continuing investment in our operations, and as we move forward to maximize our profitability. We have provided additional details on our website, as Tom pointed out. At this point, I'd like to open it up for questions.

Thank you. The floor is now open for questions. If you do have a question or comment, please press 1 followed by 4 on your touch-tone phones. If you're on a speakerphone, we ask that you please pick up your handset to minimize any background noise and if at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Once again, ladies and gentlemen, if you do have a question or comment, please press 1, followed by 4, on your touch-tone phone. and our first question is coming from Mr. Jeff Hoskins of Gerard Klauer Mattison. Sir, your line is live. If you're on a speakerphone, please pick up your handset to pose your question.

Can you hear me now.

Yeah.

Okay. Congratulations on a great quarter, guys. Well done.

Thanks.

I wanted to ask you a question. You talked a little bit about the ratings on Raw and Smackdown but can you talk a little bit maybe just in general terms on your level of satisfaction with the new shows?

the new shows - let me just clarify one thing. The new shows are new titles and new content, in the new hours, so that we're all clear that we have revitalized some of our shows. On Saturday night on TNN we now have velocity followed by confidential. Confidential has been - has been getting great reviews for us. In fact, I think we increased our ratings the first week by about 53%, and bumped up the male viewing audience during that time as well. Prior to that, we've had a block on, you know, from 10:00 to 12:00 on sat night, and that was a - the excess program, and that was not doing as well. So these two new programs, I think, are - are really doing well for us. We're pleased, and TNN is certainly pleased as well that we, you know, have changed that format. In fact, with now the addition of those two programs and as well as heat, which is on MTV, Raw and those three programs on the, you know, cable prime time rankers, Raw is number one and those three programs, heat, velocity, and tough enough, are like No. 14. So we're - we're right in there in the marketplace. We're pleased with the new formats. and then the other programs that are in syndication are recap and magazine shows which then give the audience a bit more flavor for both Raw and for Smackdown, as each of those individual programs, you know, cover those particular either cable or broadcast programs for the week. So we're pleased with that. It seems to be going well for us, and as usual, we're always tweaking our content to provide our fans with more information. They like to be on the inside.

Great. And just one question on capex for 2002, if I may. $15 million, is that - are there any projects that you can identify for us that make that up?

Jeff, did you mean for fiscal 2003?

Excuse me. Fiscal 2003, yeah, Auguste.

We have some of those projects. Some of them relate to our IT projects. Some of them - and some relate to some of our expansions in our production facilities and finishing off some of the expenditures in our world operation.

Okay. Thanks a lot.

Thanks, Jeff.

Thank you. Our next question is coming from Paul Molson of Business Capital Management.

Hello?

Hi, Paul.

Hi. How are you doing. Linda, I have a question for you. You mentioned that the ratings were down because of competition on other networks. Let me ask you this: How much do you think is due to the actual story lines that have been turning people off, the fact that the writing team has been hot-shotting the angles, making changing them from week to week, where you have major story lines being dropped, and what effect do you think having Austin no longer with the company temporarily or permanent is going to have an effect, going forward? I have another question after you're done.

Okay. Paul, you're obviously a fan. Or at least a viewer.

I've been a viewer and a fan for well over 20 years.

First of all, we would stand up straight and tall and say that the first obligation we have to our fans is through our writing and our creativity. We have taken a particular course in, you know, expanding the two brands and to voting story lines and content on Monday night for Raw and a particular talent group and the same thing on Thursday, with the Smackdown show. We expected, when we did that, to take a half step backwards. We were not surprised to see some decline in the ratings with that, as we get those talents organized and working together, as we also create better story lines with longer story a. I think your point is very well taken. Those are all the things that we're working on. When we bought WCW and integrated those talents into our brand, it wasn't as simple as we thought and we believe that this tactic with the brand extension - and as I mentioned earlier - will add, you know, eventually - it already has added more live events because now we have a Raw tour and a Smackdown tour, but eventually we will add, you know, more pay purview, and I know I'm going on a bit, but the brand extension also gives us the opportunity to tour more internationally. For instance, last May when we were in Europe, we had the Raw tour. When we go back in October, we'll have the Smackdown tour. If we didn't have the two separate shows and brands at this point, we wouldn't be able make those international jumps like we're doing now.

Okay. Going back to attendance for a second, would you say that your large growth right now rests overseas because attendance at the stateside shows has not been good. I believe it's to the point now where you're not even selling out Raw and Smackdown tapings. And some of the house shows, I know, have played to well less than capacity. So would you say going forward, you're going to concentrate more on having the international shows?

Not more. Not more of a concentration but we will increase the number of international shows. But we will not decrease the number of our domestic shows. In fact, we've already increased those. I do think that the softening in ratings does translate into, you know, the softening at live events. If you have, you know, fewer eyeballs watching. Hey, we're all about presenting to the public and the fans what they want to see. Sometimes we're great at it. Sometimes we're right on. And sometimes, you know, if you're writing 52 weeks a year, you can't hit the button every time.

Of course, of course.

We do have a proven track record of success for over now about three generations so we're confident that our programming will be more creative and inventive, even in a very competitive marketplace, so we know that we are always capable of adjusting and retooling and reinventing ourselves, and it's all about, you know, building new characters and personalities. You asked about stone cold. You know, when stone cold was injured a couple of years ago and was out for eight months, everyone wondered, well, who was going to take his place. Well, there was this young and upcoming star called The Rock. The Rock came in and clearly took his place now. So now the conversation is well, now, The Rock is doing movies so who is going to come in and take his place. Well, we've got this really bright and up and coming star, you know, Brock less inner. Those are just small examples of a very deep talent roster with a lot of talented people, you know, HHH, Undertaker that's really a staple with us. You know, Chris Jericho, Ron Van Damme. All of these are really talented performers. Booker T is just an exceptional fellow who is coming along very well. So it's always about building new talent and we're always doing that with our training camps, et cetera. So stone cold has, I think, a short-term impact. Not a long-term impact. The ratings were not, you know, affected by his absence. Clearly it's a loss when you have a popular star like that, but it's short-term.

I do have - regarding the progression of other stars, you know, I know I may be getting a little bit too much into fan dome where it's not really going to count on the business. I would like to ask you about that but I don't know if you would think that's appropriate right here and now, in terms of you mentioned these ear people, the Undertaker who has been around for well over, I believe it's 12 years now and then there's the reputation of having the glass ceiling in the WWF where other wrestlers can't get pushed, which like I don't know it's going to be broken, but right now, there's no one really to step in that void right now. Yes, you're trying to push Brock less inner, yes, you're trying to push Booker T, but there really is no one there to take over the void. Like you said, Rock is going to be going for movies. HHH has not been drawing that well. So, you know, at what level will these people really get a full frontal push to help fill the void?

Well, Paul, you really are into fan dome at this point.

Right. That's what I thought.

But, you know, we're no different, you know, with a coach with a new team that puts in a new quarterback. You just have to have time to play on the field and gel with the team. With that experience and the creativity comes building the fans. It took us about two-and-a-half years to build The Rock, so I think - I think we're on the right track of knowing and having the right formula. It just takes some time to do it.

Thank you very much.

Thank you, Paul.

Thank you. Our next question is coming from Dennis MAC Alpine of MAC Alpine associates.

Good morning. Would you - as a follow-up to that, I gather we can assume, then, that The Rock and stone cold are essentially gone as far as the television shows?

No, no, no. Not The Rock. Stone cold is - he is on a suspension at this particular point for his conduct. The Rock is, you know, splitting time between careers of movie world as well as WWE. Now, that has also a positive impact on WWE. He will be, again in August and September, filming a new movie, El Dorado, which again we are the executive producers of and participant not only with an executive producer's fee but also in profit participation on gross, so with The Rock being out on the one hand, we still have, you know, a driver of revenues and brand extension and growth by having one of our superstars into a different medium. Also, The Rock, you know, will be in and out during our television programming, and will be written into the story line, you know, where appropriate. So The Rock is still very much a part of who we are and what we're about. I think it's interesting, if you say okay, well, The Rock was out, maybe that had something to do with some decline in revenues. If you want to see exactly what a driver is with the popularity of the Rock outside of our own programming, we have two of our shows on in Mexico City. The largest viewing internationally of scorpion king happened in Mexico City which absolutely blew us away that there were that many screens in Mexico city to view scorpion king and we are now going to have a tour in Mexico city on September 28th is not only did Rock being in Scorpion King also help drive our brand but also opened a couple of doors for us now to be in the 20,000 capacity stadium. I think it's (inaudible) if you'll forgive my pronunciation in Spanish. So brand extension, brand rub, growth of our superstars outside of our own medium is positive for us.

Can you comment as to what the - the total take for the WWE was from Scorpion King?

It hasn't been finalized yet except for our executive producer's fee which was $2 million. But there will - there's a participation in the gross now, as we've gone over certain thresholds, but that won't be settled out for a while.

Okay. And then in your expectations for next year, you talked about advertising revenues of about 75 million, which would be down, I guess, about 10% from last year. In view of your comment on the up front being strong, how did - how do you get from one to the other?

We've been particularly conservative, Dennis, given some softness in the ratings to projects, I think, what's a reasonable expectation in the advertising marketplace. We did have a very good up front. We reached the levels that we expected to reach, which is good, and I think, you know, our programming last year in the worst advertising market where, you know, some advertising dollars were off 15, 20, 25 percent and more, you know, we were down about 7%. So as the market and the advertising comes back strong, we can expect to go 25 to 30% above where we were, so we - you know, we projected conservatively based on holding ratings where they are now and I think that's a realistic approach. I have to tell you I expect to beat that and I hope to.

But you did, as far as the up front goes, sell at the same ratings as you had for the last year?

No. We didn't sell at the same ratings. We adjusted our ratings and sold our up front what we believe to be will be a very realistic stretch for us this year.

Okay. Thank you.

Thank you, Dennis.

Thank you. Our next question is coming from Mario Cabelli of Marathon partners.

Hi.

Hi, Mario.

I'm wondering, have you been pleased with the restructuring you announced in November? Have you been getting the improved efficiencies that were announced in the press release with the smaller workforce? Thanks.

the answer is yes and no. We accomplished what we had opened with that restructuring. I am not - I am not pleased at this particular point with, you know, total SG and A, and that is something that we will be working on throughout this year.

Thank you.

I'd like to remind our audience for any further questions or comments, to please press 1 followed by 4 on your touch-tone phones at this time.

Once again, ladies and gentlemen, for any further questions or comments, please press 1, followed by 4, on your touch-tone phones. Ma'am, there appears to be no further questions in our queue at this time. Do you have any closing comments or remarks?

I would just like to thank everyone for participating with us this morning. We are - we are really focusing and concentrating on our creative and our programming, and as always, looking to focus on our - you know, our operations and maximizing our profitability. We have some challenges and opportunities ahead of us this year, and we will rise to the occasion on both.

I just want to - this is Tom Gibbons again. I just want to thank everyone for joining us this morning, and I want to remind you once again that we do have more detailed guidance on our corporate website, WWW.WWEcorpBIS.com. With that being said, I want to thank you and we'll see you again next quarter.

Thank you, ladies and gentlemen, for your participation. This does conclude this morning's teleconference. You may disconnect your lines at this time and have a wonderful day.