Revenues from the Company’s Media Division increased 8% to $250.4 million primarily driven by the launch and ramp up of WWE Network subscribers and subscription revenue and, to a lesser extent, increased television revenue. Revenue growth was partially offset by lower pay-per-view (included in the Network segment) and Digital Media revenue as the Company’s video content became available on WWE Network. Additionally, the decline in Digital Media revenue reflected lower advertising across various platforms.
Live Events
Live Event revenues were $83.8 million as compared to $87.7 million in the prior year period primarily due to lower attendance at WrestleMania (because of stadium configuration) and the staging of 10 fewer international events.
Consumer Products Division
Revenues from Consumer Products businesses were $57.7 million for the current year period as compared to $61.9 million in the prior year period, representing a decrease of 7%. The decrease was primarily driven by the transition to a new video game partner, Take-Two Interactive, lower sales and contractual changes in the Company’s video game licensing agreement. Partially offsetting this decline was increased revenue from WWEShop, which benefited from mobile shop optimization and a new distribution model in the U.K. utilizing Amazon.
WWE Studios
WWE Studios revenue increased to $8.0 million from $5.8 million in the prior year period primarily due to the strong performance of The Call, which was released theatrically in March 2013. WWE Studios’ movie portfolio generated income of $0.9 million compared to a loss of $12.8 million in the prior year quarter, which included $11.7 million in film impairment charges. Excluding the impact of prior-year film impairment charges, WWE Studios generated income of $0.9 million compared to an adjusted loss of $1.1 million.
Corporate and Other
Corporate and Other expenses increased $20.8 million to $116.2 million from the prior year period. As defined, these expenses include corporate G&A expenses as well as sales, marketing, and talent development costs, which cannot be allocated to specific segments. The increase in Corporate and Other expense during the period included $2.1 million in severance and related restructuring charges. Excluding the impact of restructuring, the $18.7 million increase supported the expansion of the Company’s international infrastructure, talent development and brand marketing.
Operating Income Before Depreciation and Amortization (OIBDA)
OIBDA results declined to a loss of $19.1 million as compared to income of $35.9 million in the prior year period. The OIBDA decline was primarily due to lower profits from the Network segment as WWE Network continued to develop scale, investments to support key content and brand initiatives, and a reduction in Licensing profits stemming from the transition to a new video game partner. The ramp up of WWE Network resulted in a $29.2 million reduction in Network segment OIBDA as the growth in subscribers and subscription revenue was more than offset by the loss of pay-per-view revenue and increased programming, marketing, and customer service costs. Investment in WWE’s content and brand initiatives resulted in a $20.8 million increase in Corporate and Other expenses (as described above). The reduction in licensing profits reflected contractual changes in the Company’s video game licensing agreement and a benefit in the prior year period associated with the transition from THQ to Take-Two Interactive. These factors were partially offset by improved film performance. Based on the impact of increased investment and resulting changes in business mix, the Company’s OIBDA margin was (5)% in the first nine months of 2014 as compared to 9% in the prior year period. Excluding the impact of film impairments, video game transition and restructuring related expenses, Adjusted OIBDA resulted in a loss of $16.7 million in the period as compared to income of $44.2 million in the prior year period, and the Adjusted OIBDA margin was (4)% in the current period as compared to 11% in the prior year period. (See Schedules of Adjustments in Supplemental Information).
Depreciation and amortization
Depreciation and amortization expense totaled $20.6 million for the current year period as compared to $17.8 million in the prior year period. Depreciation and amortization expense in both the current and prior year periods derived from investment in assets to support the Company’s content initiatives, including efforts to launch WWE Network. The current year includes a charge of $1.8 million to write down certain assets associated with the Company’s gamification initiative and a charge of $1.6 million to adjust the carrying value of the old Corporate Aircraft to the estimate of its fair value, in conjunction with the sale of this asset.
Investment Income, Interest and Other Expense, Net
Investment income, interest and other expense, net yielded an expense of $6.1 million compared to an expense of $1.6 million in the prior year period. The current year period reflects an impairment of an equity investment of $4.0 million and lower investment income than the prior year period.
Effective tax rate
In the current year period, the effective tax rate was 38% as compared to 36% in the prior year period. The effective tax rate in the current year period approximates the Company’s expected effective tax rate. The current year includes a tax benefit associated with the Company’s operating loss. The Company believes it will be able to utilize these benefits in future periods.
Cash Flows & Liquidity
Cash flows used in operating activities were $5.2 million in the first nine months of 2014. The use of cash was driven by the Company’s operating losses well as spending to produce feature films.
Purchases of property and equipment and other assets declined by $9.1 million from the prior year period.
As of September 30, 2014, the Company held $68.7 million in cash and short-term investments and currently estimates debt capacity under the Company’s revolving line of credit to be approximately $150.0 million.
In October 2014, the Company received a $50 million advance payment associated with a recently executed television distribution agreement. The payment is not included in the cash balances or cash flow (above), but will be reflected in the Company’s fourth quarter financial statements as deferred income. The advance will be recognized as revenue as earned over the term of the agreement.
Nick was born and raised in Detroit, Michigan, and lived there until the age of 18, when he decided to pack his flack jacket and move to New York City.
