World Wrestling Entertainment, Inc. Q2 2010 Earnings Call Transcript

World Wrestling Entertainment, Inc. Q2 2010 Earnings Call Transcript
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World Wrestling Entertainment, Inc. (WWE)

Q2 2010 Earnings Call

August 05, 2010 11:00 am ET

Executives

Michael Weitz - SVP, IR

Vince McMahon - Chairman and CEO

George Barrios - CFO

Donna Goldsmith - COO

Analysts

Richard Ingrassia - Roth Capital

Michael Kupinski - Noble Financial

Luke Shagets - Sterne, Agee

Presentation

Operator

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» World Wrestling Entertainment, Inc. Q1 2010 Earnings Call Transcript
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Good morning. My name is Casey, and I will be your conference operator today. At this time, I would like to welcome everyone to the WWE Second Quarter 2010 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator Instructions).

I would now like to turn the call over to your host Mr. Michael Weitz, SVP of Investor Relations. Sir, you may begin.

Michael Weitz

Thank you and good morning, everybody. We really appreciate you joining us this morning. Joining me for today's discussion are Vince McMahon, our Chairman and CEO; Donna Goldsmith, our Chief Operating Officer; and George Barrios, our Chief Financial Officer.

We issued our earnings releases earlier this morning and will be referencing a presentation as part of our discussion. To clarify our performance and shed light on trends in the business, these and other materials such as quarterly financial and metric schedules 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. These factors are described in our presentation and in our filings with the SEC.

Reconciliations for non-GAAP financial information discussed on this call can be found in our earnings release or on our website. Today, we'll review our financial results for the second quarter and we'll follow this review with a Q&A session.

At this time, it is my privilege to turn the call over to Vince.

Vince McMahon

Basically, we had a lousy quarter, and I think that it was sort of like a perfect storm, if you would, we had quite a number of negatives as it relates to the Icelandic volcano situation, which our troops were stranded over there for quite some time.

Notwithstanding that, another perfect storm as it relates to talent and intellectual property and the use of them at the end of WrestleMania, the remaining of those really our top talents, some of them retired, which one of them we knew was going to another we did not.

In addition to that there were considerable injuries that booked a number of our performers on the sideline as well, Undertaker, CM Punk, Shawn Michaels retired, Batista, unexpectedly, took a hiatus, Triple H injured. These are some of the stalwarts that we rely on.

These are some of the star, which that we are relying on to for pay-per-view numbers, rely on for live events, and that's really my major barometer in terms of where the business is going. All live events is for those pay-per-view numbers, because the pay-per-view is no different than really a live event that's simply televised.

So, those two are numbers that were indicative of the lousy quarter in terms of pay-per-view and the lack of attendance, but all of that of course relates to WWE not giving the public the performance in terms of attraction that they want to see.

And again, that's because of the perfect storm-type situation that we've never had in the business in terms of all of these talents leaving and injured all at the same time.

We did have a couple of strengths in terms of home video somewhat up. Our tour launch with Mattel, and Mattel as a partner is tremendous and we will continue to have very positive impacts.

International revenue was up as well. And generally speaking, notwithstanding the lousy quarter, we are extremely confident that the financial objectives we have stated before, our growth between 15% and 20% over the 2009-2012 period is very sound, so that's basically what I have. George?

George Barrios

Thanks, Vince. I would like to start by providing some additional perspective on our second quarter results. For the quarter, we reported significant declines in revenues and operating income as compared to the prior year quarter.

Our performance reflected the impact in timing of WrestleMania, which contributed approximately $32.2 million of revenue and $15 million of profit contribution to the second quarter last year. As a reminder, WrestleMania occurred in the first quarter of 2010.

To clarify trends in our business, I I'll discuss our performance on an adjusted basis, excluding the impact of WrestleMania. On such an adjusted basis, net income declined approximately $4 million with a 9% decline in profit contribution and revenues that were essentially flat to the second quarter last year.

Our performance fell below management expectations and prior year as trends weakened in the later part of the quarter. Although, ongoing economic difficulties likely played a part in our result, we believe that recent changes in our account base also impacted key operating metrics, particularly domestic pay-per-view buys and live event attendance. In fact, lower revenue from our pay-per-view business accounted for approximately two-thirds of the decline in adjusted earnings.

Increased profits in other businesses such as home video were offset by lower results in other areas. As such, the remainder of the decline can be attributed to $1 million in logistical costs associated with the Icelandic volcano, and a $3 million swing in other income, primarily due to the realization of foreign exchange losses in the current period as compared to realized gains in the prior year period. These factors more than offset improved efficiencies and reduced SG&A expenses in the quarter.

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