Marvel Entertainment, Inc. (NYSE: MVL), a global character-based entertainment and licensing company, today reported operating results for its fourth quarter ended December 31, 2008 and record net sales, net income and earnings per share for the full year 2008. Marvel also today reiterated its financial guidance for 2009.
For Q4 2008, Marvel reported net sales of $224.3 million and net income of $63.0 million, or $0.80 per diluted share, compared to net sales of $109.3 million and net income of $27.6 million, or $0.35 per diluted share, in Q4 2007. The improvement reflects recognition of $135.5 million in film production segment revenues principally associated with the DVD performance of Marvelís Iron Man feature film. For the full year 2008, Marvel reported net sales of $676.2 million and net income of $205.5 million, or $2.61 per diluted share, compared to net sales of $485.8 million and net income of $139.8 million, or $1.70 per diluted share, in 2007. The revenue and net income growth principally reflects the contribution from Marvel Studios which released its first two feature films, Iron Man and The Incredible Hulk, in the summer of 2008.
(1) Effective January 1, 2008, revenue and operating income from Marvelís licensee, Hasbro, previously reported in the Toy segment is recorded within the Licensing segment and Marvelís in-licensed toy lines are aggregated with corporate overhead in ďAll Other,Ē reflecting Marvelís exit from the toy business during early 2008. Segment information for the prior-year periods has been reclassified accordingly.
Marvel's Chairman, Morton Handel, commented, "Our fourth quarter and full year results reflect the benefits derived from our strategy to produce our own feature films. In addition to providing a substantial contribution to our operating results, our 2008 theatrical releases have raised the level of global awareness for Marvel and two of our key brands. We look forward to further building awareness of our characters with an active slate of TV animation, including Wolverine and the X-Men currently airing on Nicktoons, Iron Man: Armored Adventures, launching soon on Nicktoons, The Spectacular Spider-Man which will begin airing on Disney XD in March and Marvel Super Hero Squad which debuts this fall on Cartoon Network.
ďUnderscoring the strength of our financial performance is the growing worldwide prominence of, and consumer affinity for, the Marvel brand as well as our character brands. Marvel is keenly focused on developing our brands and on the partners we choose to work with around the world. This focus affects our decision-making across all of our businesses and is critical to driving long-term consumer demand for Marvel branded products and entertainment.
ďA recent example of our partner focus was last weekís multi-year extension of our master toy license agreement with Hasbro, Inc. Hasbro has done a remarkable job with the Marvel Universe on a worldwide basis, and we are very pleased to extend our partnership with them.Ē
Fourth Quarter Segment Review:
- Q4 í08 Licensing Segment net sales were better than expected due to stronger than anticipated revenue from international licensing and Marvelís Spider-Man feature film merchandising joint venture, Spider-Man L.P. Nonetheless, as expected, Q4 í08 results were below the year ago period in which the May 2007 release of Spider-Man 3 provided greater benefit. Reflecting the revenue decline, Licensing Segment operating income declined to $36.9 million in Q4 2008 from $47.5 million in Q4 2007. Licensing Segment operating margin for Q4 2008 and Q4 2007 was 67% and 62%, respectively. Q4 2007 operating margin was reduced by a charge of $11.5 million associated with talent participations claimed due by Sony regarding the JV. In Q2 2008, the $11.5 million claim was reduced by $8.3 million after Sony revised the amounts claimed.
(1) Effective January 1, 2008, income from Marvelís toy licensee, Hasbro, Inc., is reflected within Marvelís Licensing segment in Domestic and International Consumer Products. The prior-year periods have been reclassified to reflect this treatment.
(2) Domestic Consumer Products includes substantially all of Marvelís global interactive licensing business.
- Marvelís Publishing Segment net sales increased 9%, or $2.8 million, to $33.1 million in Q4 2008 from $30.3 million in Q4 2007, principally reflecting a larger number of high profile titles being released in Q4 2008, as well as one extra week of sales in Q4 2008. Marvelís major publishing events in 2008 took place in the final three quarters of the year versus major publishing events in 2007 which took place in the first three quarters of the year. Q4 2008 operating income increased 6% to $13.0 million, an operating margin of 39%, compared to 41% in Q4 2007. The decrease in operating margin reflects investments being made in Marvelís digital media initiatives.
- Marvelís Film Production Segment recorded sales of $135.5 million in Q4 2008, primarily reflecting revenues related to the Iron Man DVD which was released September 30, 2008. Q4 2008 net sales also include Marvel producer fees for Iron Man and The Incredible Hulk. Against these revenues, Marvel amortized capitalized film production expenses of $68.9 million (based on Marvelís estimate of each filmís expected ďultimateĒ performance), contributing $62.1 million to operating income. In Q4 í07 there was no film production revenue, and there was an operating loss in the segment of $3.1 million, primarily reflecting non-capitalized film-production expenses.
- Under the category All Other, Marvel had operating losses of $4.9 million and $5.1 million in the Q4 2008 and Q4 2007 periods, respectively. All Other in Q4 2008 and Q4 2007, respectively, included $0.4 million and $2.9 million in revenue, and $0.3 million and $0.6 million in operating income related to the wind-down of Marvelís former toy operations, as well as corporate overhead of $7.2 million and $5.7 million, respectively.
Balance Sheet and Cash Use Update:
Marvel experienced strong cash collections in Q4 2008, principally related to licensing activity. As of December 31, 2008, Marvel had cash and equivalents and short-term investments of $182.0 million (including $43.6 million in restricted cash) and no outstanding borrowings under its $100 million line of credit with HSBC Bank. Marvelís aggregate outstanding film-related borrowings increased to $213 million at year end 2008, from $182 million at September 30, 2008, as Marvel borrowed $30.7 million to fund the film slateís liquidity reserve as required by the original financing agreements and for Q4 2008 interest expense paid in Q1 2009. Cash receipts related to Iron Man DVD revenues recorded in Q4 2008, were received in Q1 2009.
During Q4 2008, Marvel repurchased 20,499 shares of its common stock for a total of approximately $0.5 million ($24.80 per share). For the full year 2008, Marvel repurchased 434,708 shares for an aggregate of approximately $10.5 million, or approximately $24.05 per share. The Company has $121.1 million remaining under its share repurchase authorizations. Also during 2008 Marvel repurchased all of the $60 million in outstanding Mezzanine notes under its film slate facility. Marvelís repurchase of the entire Mezzanine tranche, which bears interest at LIBOR plus 7% and is the highest-cost piece of the film facility, significantly reduces future net interest expense.
2009 Financial Guidance:
Today Marvel reiterated the 2009 financial guidance that it initially provided on November 4, 2008. Marvelís 2009 financial guidance reflects the recognition of a modest portion of remaining Iron Man DVD revenue during the first half of the year with initial pay TV revenue expected in the second half of the year. Marvelís 2009 financial guidance also reflects the recognition of the majority of The Incredible Hulk DVD revenue during the first half of the year with initial pay TV revenue expected in the second half of the year. Marvel anticipates that Licensing segment revenue will decline in 2009, reflecting an approximately $50 million decrease in licensing revenue related to Spider-Man L.P. in 2009 versus 2008 and lower domestic and international licensing revenue as Marvel will not have any of its own film slate releases during the year. Further, 2008 licensing results included approximately $20 million in one-time gains from settlements. The low end of Marvelís 2009 financial guidance continues to reflect a discount of 10-15% related to the potential impact on Marvelís business of the global economic challenges.
Primary Assumptions for 2009 Financial Guidance:
- The Licensing segment is expected to contribute net sales of approximately $180 million - $200 million in 2009 with an operating margin of approximately 70 - 74%.
- The Film Production segment is expected to contribute revenues of approximately $120 million - $135 million in 2009 and to generate an operating margin of approximately 12% - 18%.
- The Publishing segment is expected to contribute net sales of approximately $115 million - $125 million in 2009, with an operating margin of approximately 31% - 35%, reflecting approximately $6 million in ongoing investments in digital media initiatives.
- Corporate overhead is expected to approximate $30 million in 2009, in line with 2008.
- Marvel anticipates an effective tax rate of 40.5% in 2009.
- Marvelís guidance is based on 78.9 million diluted shares for 2009 and does not reflect any future share repurchase activity.
Marvel cautions investors that variations in the timing of licenses and entertainment events, the timing of their revenue recognition, and their level of success result in variations and uncertainty in forecasting Marvelís financial results. These factors could have a material impact on year-over-year annual and sequential quarterly results comparisons as well as on Marvelís ability to achieve its financial guidance.
About Marvel Entertainment, Inc.
Marvel Entertainment, Inc. is one of the world's most prominent character-based entertainment companies, built on a proven library of over 5,000 characters featured in a variety of media over seventy years. Marvel utilizes its character franchises in licensing, entertainment (via Marvel Studios and Marvel Animation) and publishing (via Marvel Comics). Marvel's strategy is to leverage its franchises in a growing array of opportunities around the world, including feature films, consumer products, toys, video games, animated television, direct-to-DVD and online. For more information visit www.marvel.com.
Except for any historical information that they contain, the statements in this news release regarding Marvelís plans are forward-looking statements that are subject to certain risks and uncertainties, including exposure to the current economic recession, exposure to tightening credit markets, financial difficulties of Marvelís licensees, a decrease in the level of media exposure or popularity of Marvelís characters, changing consumer preferences, delays and cancellations of movies and television productions based on Marvel characters, and concentration of Marvelís toy licensing with one licensee.
In addition, the following factors, among others, could cause the financial performance of Marvelís film production operations to differ materially from that expressed in any forward-looking statements: (i) Marvel Studiosí potential inability to attract and retain creative talent, (ii) key film talentís potentially becoming incapacitated or suffering reputational damage, (iii) the potential lack of popularity of Marvelís films, (iv) the expense associated with producing films, (v) union activity or other events which could interrupt film production, including strikes by Hollywood writers, directors and actors, (vi) changes or disruptions in the way films are distributed, including a decline in the DVD market, (vii) piracy of films and related products, (viii) Marvel Studiosí dependence on a single distributor for its self-produced films, (ix) that Marvel will depend on its film distributors for information related to the accounting of film-production activities, (x) Marvelís potential inability to meet the conditions necessary for an initial funding of a film under Marvelís $525 million film slate facility, (xi) Marvelís potential inability to obtain financing to make more than four films if an interim asset test related to the economic performance of the film slate is not satisfied, (xii) cash flows from our films potentially being insufficient to pay our film facility interest costs, (xiii) fluctuations in reported income or loss related to the accounting of film-production activities and (xiv) a possible default by one of the lending banks in our film facility.
These and other risks and uncertainties are described in Marvelís filings with the Securities and Exchange Commission, including Marvelís Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Marvel assumes no obligation to publicly update or revise any forward-looking statements.