WWE ANNOUNCES CHANGE TO IT’S FINANCIAL REPORTING
  • 02/08/2018 (2:50:58 pm)
  • Bob Mulrenin

Effective with Q1 2018 Results

STAMFORD, Conn.–(BUSINESS WIRE)– WWE (NYSE: WWE) today announced several changes to its financial reporting, which include a revised business segment structure and modification of its definition of Adjusted OIBDA. These measures are attributed to changes in the way management analyzes results and allocates resources as WWE continues to transform to a digital, direct-to-consumer business model. The revised approach is intended to make the Company’s business performance easier to evaluate and analyze, make its financial statements more informative, and present results in a more consistent manner to its media peers. In addition, the Company is highlighting the adoption of a new FASB standard for revenue recognition, as its implementation impacts the timing of quarterly results. The Company expects to report its financial performance reflective of these changes beginning with the announcement of first quarter 2018 results.

Business Segment Reporting

Over the past several years, WWE has executed a successful transformation of its business model, with an increasing share of revenue coming from the monetization of the Company’s video content across digital and direct-to-consumer platforms. Given this ongoing transformation, management has continued to evolve the way it analyzes business results and allocates resources. To reflect its revised perspective, the Company is implementing changes in the structure of its reported segments. As compared to the prior ten segment structure, the revised organization will be comprised of three operating segments: Media, Live Events, and Consumer Products as shown below:

               
Revised Segments       Key Sources of Revenue      
Media      

Production and monetization of content from across platforms, including:

  • Advertising, sponsorship, subscription and rights fees
  • Long-form and short-form programs
  • Distribution across WWE Network, pay television, digital/ social
    media and filmed entertainment outlets
     
Live Events      

Ticket sales of the Company’s global live events, including primary and
secondary distribution

     
Consumer Products      

Licensing royalties and direct sales of branded merchandise, including:

  • Video and mobile games, toys, apparel and other products
  • Sold at retail, online and at WWE venues
     
               

In conjunction with the change in reported segments, the Company plans to allocate certain costs that were previously included in the Company’s “Corporate & Other” segment, such as talent development and training, marketing, business strategy and data analytics, to the revised segments based on their share of total revenue. The rationale for allocating these costs is that they are more directly related to the production of content and products than other costs that support WWE’s operations, and can be more directly tied to the generation of revenue. The remainder of the Company’s prior “Corporate & Other” expenses, such as costs associated with finance, human resources, information technology, facilities and legal functions, are expected to be reported as “Corporate” expenses, which in aggregate are considered a reconciling item rather than a reported segment.

With the implementation of this revised reporting structure, management plans to provide greater visibility into its secular revenue streams, such as entertainment rights fees, advertising and sponsorship revenue. The Company believes that the revised presentation of results will be more informative to users of the Company’s financial statements and further that the revised structure and allocation of expenses will be more consistent with that of its media peers.

Adjusted OIBDA Definition

The Company evaluates the operating performance of its segments based on financial measures such as revenue, OIBDA and Adjusted OIBDA. The Company has previously identified OIBDA as its primary measure of performance, which it defines as operating income before depreciation and amortization (as defined, OIBDA includes amortization expenses directly related to the Company’s revenue generating activities including the production and delivery of media content). The Company has used this measure to assess its operating results, set goals for management, plan and forecast future periods, as well as to identify strategies to improve performance.

To further facilitate the analysis of the Company’s operating performance, the Company plans to change its primary measure of performance from OIBDA to Adjusted OIBDA, and to modify its definition of Adjusted OIBDA to exclude stock-based compensation expense, a non-cash expense that may vary from period to period with limited correlation to operating performance. The Company will continue to exclude certain impairment charges and other non-recurring material items from its definition of Adjusted OIBDA as these items also impact the comparability of results between periods.

The Company believes Adjusted OIBDA is relevant to users of its financial statements because it provides a meaningful representation of operating cash flows generated by WWE’s business segments and management believes it is a primary measure used by media investors, analysts and peers for purposes of valuation.

Adjusted OIBDA is a non-GAAP financial measure and may be different than similarly-titled non-GAAP financial measures used by other companies. WWE views operating income as the most directly comparable GAAP measure. Adjusted OIBDA should not be considered in isolation from, or as a substitute for, operating income or other GAAP measures, such as net income or operating cash flow, as an indicator of operating performance or liquidity.

In 2018, management expects the Company to achieve another year of record revenue and previously targeted Adjusted OIBDA of at least $115 million. Based on the Company’s revised definition of Adjusted OIBDA, which excludes projected stock compensation expense, this equates to an approximate 2018 Adjusted OIBDA target of at least $140 million.1

WWE does not provide a reconciliation of projected Adjusted OIBDA to Operating income (GAAP) for any future period as WWE cannot accurately determine the adjustments that would be required.

Revenue Recognition: Adoption of FASB Standard

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customer (Topic 606),” which WWE adopted as of January 1, 2018. The adoption of this guidance requires WWE to record revenue based on current period estimates rather than wait for statements that show actual results in a prior period. The revised approach is expected to have the most significant impact on WWE’s licensing and filmed entertainment businesses, where it shifts the timing of revenue. The Company anticipates changes in the quarterly timing of revenue, but does not expect a material impact on full-year results. Specifically, the Company estimates an $11 million to $13 million decline in licensing revenue from the first quarter 2017 to the first quarter 2018, and a comparable offsetting increase in the fourth quarter 2018.

Note

(1) The Company’s business model and expected results will continue to be subject to significant execution risks, including those risks outlined in the Company’s Form 10-K filing with the SEC.

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