WWE Releases 2019 Fourth Quarter Earnings Report

February 6, 2020 0 By Tim Jarrell

Today WWE put out their fourth Quarter earnings for 2019 and also gave some projections for 2020 as well.

Fourth Quarter 2019 Highlights

Revenues increased 18% to $322.8 million, which was the highest quarterly revenue in WWE history

Operating income increased 87% to $99.8 million

Adjusted OIBDA increased 67% to a quarterly record of $107.6 million

Full Year 2019 Highlights

Revenues reached $960.4 million, the highest in the Company’s history

Operating income was $116.5 million

Adjusted OIBDA of $180.0 million represented record performance for the third consecutive year

SmackDown successfully transitioned to FOX Broadcast, where viewership increased by 20% over the prior year fourth quarter, and NXT extended its reach, airing live on USA Network for the first time

WWE completed content distribution agreements with BT Sport and ViacomCBS’ Channel 5 in the U.K., Fox Sports in Latin America, PP Sports in China and SuperSport in Africa, providing strong platforms for reaching WWE audiences in these regions

Digital engagement continued to grow with video views up 10% to 34.5 billion and hours consumed up 7% to nearly 1.3 billion across digital and social media platforms

Return of capital to shareholders totaled a record $120.8 million in 2019

Full Year 2020 Business Outlook

Management believes that WWE is well positioned to take advantage of significant growth opportunities. The Company is pursuing several strategic initiatives that could increase the monetization of its content in 2020 and/ or subsequent years. These include distribution of content in the Middle East and India as well as the evaluation of strategic alternatives for the Company’s direct-to-consumer service, WWE Network. At this time, the outcome of these initiatives is subject to considerable uncertainty. Excluding the potential impact of these initiatives, the Company estimates it can achieve 2020 Adjusted OIBDA of $250 – $300 million. Management believes it has the potential to exceed this range, but is unable to provide additional guidance at this time.

STAMFORD, Conn.–(BUSINESS WIRE)– WWE (NYSE: WWE) today announced financial results for its fourth quarter and year ended December 31, 2019.

“During the fourth quarter, we expanded the reach of WWE’s live programming and further engaged with diverse audiences across platforms and formats,” said Vince McMahon, WWE Chairman & Chief Executive Officer. “We believe the value of live sports will continue to increase, particularly in today’s evolving media landscape, and we are well positioned to take advantage of this trend to maximize the value of our content.”

“For the year, we achieved record revenue and Adjusted OIBDA. However, with the delay in completing a Middle East distribution agreement as well as lower business performance than anticipated, our results were at the low-end of guidance,” added Frank Riddick, interim Chief Financial Officer. “As we work to strengthen engagement in 2020, we are pursuing several strategic initiatives that could increase the monetization of our content, including the distribution of content in the Middle East and India as well as strategic alternatives for our direct-to-consumer service, WWE Network. Excluding the potential impact of these initiatives, we expect significant revenue growth based on the full year impact of our new content distribution agreements in the U.S. and anticipate Adjusted OIBDA of $250 to $300 million. Management believes it has the potential to exceed this range, but is unable to provide additional guidance at this time.”

Fourth-Quarter Consolidated Results

Revenues increased 18% to $322.8 million from the prior year quarter as increased revenue in the Media segment, primarily driven by the monetization of core content, was partially offset by lower revenue from the Company’s Live Events segment.

Operating Income increased 87% to $99.8 million driven by increased profits from the Media segment. The Company’s Operating income margin increased to 31% from 20% in the prior year quarter.

Adjusted OIBDA (which excludes stock compensation) increased 67% to $107.6 million as compared to $64.4 million in the prior year quarter. The Company’s Adjusted OIBDA margin increased to 33% from 24% in the prior year quarter.

Net Income was $69.3 million, or $0.78 per diluted share, as compared to $41.2 million, or $0.46 per diluted share, in the fourth quarter of 2018. This increase was primarily driven by improved operating performance, partially offset by the impact of the finance lease related to the Company’s new headquarters.5

Effective Tax Rate increased to 26% from 23% in the prior year quarter.

Cash flows generated by operating activities increased to $119.4 million as compared to $65.2 million in the prior year quarter driven by improved operating performance and the favorable timing of working capital.

Free Cash Flow totaled $106.6 million as compared to $54.3 million in the fourth quarter of 2018 primarily driven by the change in operating cash flow.

The Company returned $84.2 million to shareholders in the fourth quarter 2019, including $75.0 million in share repurchases and $9.2 million in dividends paid. Under the Company’s existing stock repurchase program nearly 1.3 million shares were repurchased at an average price of $58.78 per share.

Full Year 2019 Consolidated Results

For the twelve months ended December 31, 2019, revenues increased 3% to $960.4 million from $930.2 million driven primarily by the escalation of core content rights fees in the Media segment. The growth was partially offset by lower live event ticket sales (56 fewer events and lower average attendance), a decline in WWE Network subscription revenue, the absence of Mixed Match Challenge on Facebook Watch, as well as lower consumer product sales across distribution channels. Operating income increased to $116.5 million from $114.5 million as the growth in revenue and reduced management incentive compensation associated with the Company’s full year performance was partially offset by increases in other fixed costs, including the impact of certain strategic investments to support content creation.

Adjusted OIBDA (which excludes stock compensation) increased to $180.0 million.

Net income decreased to $77.1 million ($0.85 per diluted share) from $99.6 million ($1.12 per diluted share) in the prior year primarily due to the impact of the finance lease related to the Company’s new headquarters, as well as a higher effective tax rate in the current year.

Effective Tax Rate increased to 19% from 6% in the prior year, where the current year reflected $9.4 million of excess tax benefits related to the Company’s share-based compensation awards at vesting, as compared to a $22.5 million of benefits in the prior year. This tax benefit is driven by the increase in the Company’s stock price between the original grant date of the awards and their subsequent vesting date in the third quarter of the respective year. Excluding this discrete tax item, our effective tax rate was 29% in the current year as compared to 27% in the prior year.

Cash flows generated by operating activities were $121.7 million as compared to $186.7 million in the prior year driven by unfavorable changes in working capital primarily related to our fourth quarter event in Saudi Arabia and the payment of the prior year’s accrued management incentive compensation.

Free Cash Flow totaled $52.6 million as compared to $154.4 million in the prior year period driven by the change in operating cash flow and an increase in capital expenditures primarily associated with the Company’s workspace plan.

Cash, cash equivalents and short-term investments were approximately $250 million as of December 31, 2019, and the Company estimates debt capacity under its revolving line of credit of approximately $200 million.

The Company returned $120.8 million to shareholders in 2019, including $83.4 million in share repurchases and $37.4 million in dividends paid. Under the Company’s existing stock repurchase program nearly 1.4 million shares were repurchased at an average price of $59.67 per share.

Results by Operating Segment

Media

Fourth-Quarter 2019

Revenues increased 29% to a quarterly record of $264.6 million, primarily due to the escalation of domestic rights fees for the Company’s flagship programs Raw and SmackDown, partially offset by the absence of Mixed Match Challenge on Facebook Watch as reflected in “Other” and the decline in WWE Network subscription revenue.

WWE Network’s average paid subscribers decreased 10% to approximately 1.42 million, primarily due to the impact of lower subscriber additions earlier in the year. For the first quarter 2020, the Company projects average paid subscribers will increase on a sequential basis to approximately 1.47 million.

Operating income increased 74% to $114.6 million from $65.9 million in the prior year quarter primarily due to the growth in revenue, which was partially offset by an increase in content-related expenses.

Adjusted OIBDA increased 62% to $116.6 million from $72.1 million in the prior year quarter.

Key Highlights: During the quarter, WWE continued to make progress on strategic initiatives, leveraging platforms and partners to expand the reach of its brand and talent. The Company successfully transitioned SmackDown to Fox Broadcast, where viewership increased by 20% over the prior year period, maintained the highest-rated program on USA Network with Monday Night Raw and increased its live, in-ring television programming schedule to seven hours with the airing of NXT on USA Network. With the exception of Monday Night Football, Monday Night Raw and Friday Night SmackDown were the #1 rated Monday-night cable and Friday-night broadcast programs, respectively, among the coveted adults 18-49 demographic in the quarter. The Company completed content distribution agreements with free-to-air partner Viacom CBS’ Channel 5 in the U.K. and SuperSport in Africa, the latter of which represented a multi-year extension and included a dedicated WWE channel on DStv. The Company also premiered the second season of Miz & Mrs (January 2020) on USA Network and announced a fifth season of Total Bellas to air on E! beginning on April 9. Moreover, WWE continued to develop new original content across platforms. On WWE Network, the “Stone Cold” Steve Austin: The Broken Skull Sessions series, featuring conversations with WWE Superstars and celebrity guests, premiered immediately following Survivor Series (November 24). For its social and digital platforms, new podcasts After The Bell and The New Day: Feel the Power debuted on October 30 and December 2, respectively.

Full Year 2019

Revenues increased by $59.7 million, or 9%, to $743.1 million primarily due to the contractual escalation of core rights fees for the Company’s flagship programs Raw and SmackDown. This revenue growth was partially offset by a decline in WWE Network subscription revenue that reflected a 6% decline in average paid subscribers to 1.55 million, as well as a decline in “Other” media revenues with the absence of Mixed Match Challenge on Facebook Watch. Operating income increased 10% to $190.8 million, primarily due to the growth in revenue, which was partially offset by increased content-related expenses. Adjusted OIBDA increased 6% to $224.1 million.

Live Events

Fourth-Quarter 2019

Revenues declined to $27.4 million from $34.4 million in the prior year quarter due to the absence of Super Show-Down, a large-scale event in Australia (reflected in “Other”), as well as lower ticket sales at the Company’s North America events, the latter of which was driven by the staging of fewer events.

There were 70 total events (excluding NXT) in the current quarter, consisting of 50 events in North America and 20 events in international markets, as compared to 87 events in the prior year quarter, including 64 events in North America and 23 in international markets.

North American ticket sales declined $1.9 million due to the impact of staging 14 fewer events as the Company optimized its touring schedule. The decline was partially offset by a 15% increase in average attendance to approximately 5,800. The average ticket price of $57.13 was essentially unchanged from the prior year quarter.

International ticket sales (which exclude special international events) increased to $7.0 million from $6.5 million primarily due to a 30% increase in average ticket price to $84.26, which was partially offset by a decline in average attendance to approximately 4,100 and the staging of 3 fewer events. The year-over-year changes in ticket prices and average attendance were due, in part, to changes in the mix of venues and territories.

Operating income reflected a loss of $1.0 million as compared to income of $1.4 million in the prior year quarter, primarily due to the absence of Super Show-Down.

Adjusted OIBDA reflected a loss of $1.8 million as compared to income of $2.0 million in the prior year quarter.

Key Highlights: During the quarter, WWE continued to captivate global audiences with the successful staging of action-packed live events worldwide. WWE held its second large-scale event of the year in Saudi Arabia, Crown Jewel, at King Fahd International Stadium in Riyadh, where the Company made history with the first-ever women’s match in that country. Building on the success of its live events in Saudi Arabia, WWE announced an expansion of its partnership with the Saudi General Entertainment Authority to hold a second annual large-scale event in Saudi Arabia through 2027. The Company also announced plans to return to South Africa for a four-day event tour in the spring of 2020, the first such tour in South Africa since 2018. Domestically, Survivor Series anchored a four-day weekend, which attracted nearly 40,000 fans to the Allstate Arena in Chicago.

Full Year 2019

Revenues decreased 13%, to $125.6 million primarily due to lower ticket sales, driven by the staging of 56 fewer events worldwide and lower average attendance, as well as the absence of Super Show-Down, a large-scale event in Australia. Partially offsetting these factors, the average ticket price in North America increased 6% to $64.21. Operating income decreased by $8.9 million to $7.7 million primarily driven by the decline in revenue. Adjusted OIBDA decreased by $11.1 million to $9.4 million.

Consumer Products

Fourth-Quarter 2019

Revenues decreased to $30.8 million from $32.8 million in the prior year quarter primarily due to lower video game royalties, which were driven by the Company’s franchise console game WWE 2K20.

Operating income was $12.8 million as compared to $10.0 million in the prior year quarter as the decline in revenue was more than offset by lower operating expenses.

Adjusted OIBDA was $12.3 million as compared to $10.6 million in the prior year quarter.

Key Highlights: During the quarter, WWE continued to drive growth from its portfolio of mobile games and to develop other new, innovative product categories. WWE increased the penetration of its mobile games reaching nearly 125 million installs across its game portfolio, led by WWE Champions, which experienced the greatest fourth-quarter revenue growth in the game’s history (up approximately 11% over the prior year quarter). Expanding the Company’s licensing partnerships, WWE entered into agreements with Bluberi to develop a WWE-inspired slot machine and Good Humor to re-release WWE ice cream sandwiches inspired by the original retro ice cream bar.

Full Year 2019

Revenues decreased by $10.9 million, or 11%, to $91.7 million reflecting lower sales of consumer products across distribution channels, including lower royalties from the sale of the Company’s console video games. Operating income increased by $3.0 million to $26.4 million as the decline in revenue was more than offset by lower operating expenses, including lower variable costs and a decrease in management incentive compensation. Adjusted OIBDA of $28.5 million was essentially unchanged from the prior year.

Full Year 2020 Business Outlook

Management believes that WWE is well positioned to take advantage of significant growth opportunities, including the rising value of live sports content, the growth of media and entertainment in international markets, and the development and/or expansion of other businesses, such as WWE Network. In 2020, the Company believes that escalation of rights fees will provide contractual revenue growth of approximately $185 million, and that this growth will be partially offset by an increase in operating expenses associated with developing new sources of revenue, the full-year impact of 2019 investments to support the creation of content, the reset of performance-based management incentive compensation, and the annual rise of staff costs. The Company is pursuing several strategic initiatives that could increase the monetization of its content in 2020 and/ or subsequent years. These include distribution of content in the Middle East and India as well as the evaluation of strategic alternatives for the Company’s direct-to-consumer service, WWE Network. At this time, the outcome of these initiatives is subject to considerable uncertainty. Excluding the potential impact of these initiatives, management estimates the Company will achieve 2020 Adjusted OIBDA of $250 – $300 million. Management believes it has the potential to exceed this range, but is unable to provide additional guidance at this time.

The Company previously discussed a step-up in capital expenditures in conjunction with its workplace strategy. For 2020, the Company estimates total capital expenditures of $180 – $220 million, which includes approximately $130 – $160 million to buildout its new headquarter facility and strengthen its enterprise technology infrastructure; and for 2021, the Company estimates total capital expenditures of $120 – $140 million, including approximately $80 – $100 million to complete construction. The Company expects total capital expenditures will return to approximately 5% of revenue by 2022, which is in line with the historic range of approximately 4% to 7% of revenue and are predominantly to maintain existing infrastructure.

First Quarter 2020 Business Outlook

The Company estimates first quarter 2020 Adjusted OIBDA of $60 to $65 million, which represents approximately five times the Adjusted OIBDA results achieved in the prior year quarter. The estimate reflects substantial revenue growth from the Company’s new content distribution agreements in the U.S., which became effective in the fourth quarter 2019, and the staging of a large-scale event in Riyadh, Saudi Arabia (for which the comparable event occurred in the second quarter of 2019). The Company also anticipates that the first quarter growth will be partially offset by an increase in operating expenses associated with new distribution agreements and reflecting the full-year impact of 2019 investments to support the creation of content. The former includes higher costs to accommodate the production of SmackDown broadcast live on Friday nights (four rather than one day following Raw), and to produce an additional hour of the NXT program on Wednesday nights.

WWE is unable to provide a reconciliation of full year or first quarter guidance to GAAP measures as, at this time, WWE cannot accurately determine all of the adjustments that would be required.

Strategy and Financial Perspective: 2020 and Beyond

As part of the Company’s Q3 earnings communication, management indicated that it expected to provide in-depth perspective on its approach to creating shareholder value in mid-to-late February following the announcement of its 2019 results. The Company is in the process of negotiating its core content agreements in MENA and India as well as exploring strategic options for its direct-to-consumer service, WWE Network, all of which could materially impact results in 2020 and subsequent years. As such, the Company is targeting to communicate its long-term strategy and perspective on value creation by the end of the first quarter.