UPDATED: DreamWorks Animation shares are down nearly 3.5% in post market trading after the company reported that, with costs of a previously announced restructuring factored in, it recorded a bigger loss than the Street expected for Q2.
The studio had a net loss of $38.58 million, down from a $15.39 million loss in the same quarter last year, on revenues of $170.78 million, up nearly 40%. The top line was better than the $166.70 million that analysts predicted — largely reflecting the success of its late March release, Home. Yet the loss at 45 cents a share contrasts with projections for a 26 cent deficit.
The company says that the $20.9 million restructuring charge added 25 cents to its per share loss, while a tax adjustment added 7 cents, Without them, the loss would have just been 13 cents a share.
“Our second quarter financial results were solid, highlighted by the theatrical success of Home and the rapid expansion of our Television and New Media businesses,” CEO Jeff Katzenberg says. “The appetite for premium content across platforms continues to grow both domestically and internationally, and it’s clear DreamWorks Animation is well-positioned to capitalize on the growing demand.”
Investors are eager to see how DWA fares following this year’s restructuring which cut about 500 employees and reduced productions from three releases a year to two. The belt tightening pleased those who feared that, after a string of costly writedowns, DWA might not have enough cash. Others countered that it’s hard to make great content on the cheap.
Consumer Products was supposed to be one of the growth opportunities. But the unit’s revenues decreased from $18.5M in last year’s Q2 to $12.7M. What’s more, DWA execs said they no longer anticipate reaching their growth goals previously laid out to investors and expect CP revenues to be relatively flat going forward. Why? There was a confluence of things affecting it, they said, including being a bit too ambitious in their projections. Also, the merchandise and licensing revenue based on features was less than anticipated. In 2014, the CP segment benefited from How to Train Your Dragon 2.
While it’s on a learning curve, the company believes that CP may enjoy an uptick with the upcoming feature Trolls in the fall.
The last film the company released via 20th Century Fox was Home which ended up making $386M worldwide on a production budget of what was reported being $135M (not including prints and advertising costs). Home contributed $23.9M in revenue for the quarter. Results for video sales from the family film were also reported to be an estimate 0.1M home entertainment transactions worldwide. Animated properties tend to fare quite well in that home video ancillary market. Home has been a digital conversion home run for them, according to DWA.
The Penguins of Madagascar contributed $8.3M to the quarterly revenue, mostly from that lucrative home video market. The animated film “reached an estimated 3.5M units sold worldwide, net of actual and estimated future returns,” according to DWA. Meanwhile, How to Train Your Dragon 2 made up $17.9M in the quarter, mainly from the pay television market and the estimate on the home entertainment market was 8.6M units sold. Mr. Peabody and Sherman contributed $8.4M from international pay TV market and about 4M estimated home entertainment units sold.
DreamWorks Animation’s next big movie is the third installment in the company’s popular franchise Kung Fu Panda 3 which bows January 29 next year, followed later in the year by Trolls. Kung Fu Panda 3 will bow in China also on Jan. 29th. They have three Chinese partners in that country and whether they might do an IPO is still undetermined and would rely on their partners of when/if the right time is to do so.
The DWA Library brought in feature film revenue of $28.3M for the quarter so the margin will move around based on the titles (Penguins is a lower margin title).
Another bright spot for DWA was their television unit which increased a big 91.3% from last year to $72.5M in revenues with gross profit increasing to $22.6M (up $7M for the same period last year). Revenues more than doubled to $55M, driven by new content and brand integration. They warned, however, to expect the revenue to decline in the 3rd Quarter because of a number of issues in the international marketplace. The television unit’s Netflix deal ends in 2017 but DWA expects to continue providing content and will feed Netflix if so needed. Would they build their own direct-to-consumer family centric content business? Premature, DWA says.
DWA executives said they are currently focused on meeting obligations to Netflix and broadcasters throughout the world. They are developing a number of new shows and the licensing of the shows.
Katzenberg did not serve up many details of AwesomenessTV’s contributions to the upcoming Verizon wireless streaming service but said that later this summer we will start seeing some content via Verizon’s streaming video service Go 90.
Revenues from the company’s New Media segment increased from $15.6M to $19.1M from 2014. The increase, DWA said, was primarily due to revenue generated from new licensing deals as well as from those generated by Big Frame.
DWA posted an operating loss of $4.4M. And in the quarter, it said that it amended its $400M revolving credit facility to $450M and extended the term of that through Feb. 2020.
Contributing: David Lieberman