Marvel Reports Q2 2007 EPS of $0.34 and Six Months 2007 EPS of $0.89
NEW YORK -- Aug. 7, 2007 -- Marvel Entertainment, Inc. (NYSE: MVL), a global character-based entertainment and licensing company, today reported operating results for the second quarter and six months ended June 30, 2007.
For Q2 2007, Marvel reported that net sales rose to $101.5 million and net income increased to $29.1 million, or $0.34 per diluted share, compared to net sales of $84.4 million and net income of $16.3 million, or $0.19 per diluted share, in Q2 2006. The year-over-year increases in net income and EPS are largely attributable to the strength of the Company's licensing operations, complemented by increased contributions from both toys and comic book publishing, all supported by the release of three Marvel character-based feature films in 2007.
Marvel Entertainment, Inc.
Segment Net Sales/Operating income
(in millions)
----------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
2007 2006 2007 2006
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Licensing: Net Sales $ 49.3 $ 33.9 $ 148.2 $ 73.5
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Operating Income 36.7 19.9 117.7 45.2
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Publishing: Net Sales 32.9 25.1 60.5 48.9
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Operating Income 14.7 10.4 26.2 19.3
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Toys: Net Sales 19.3 25.4 44.2 52.0
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Operating Income 10.7 3.3 26.0 7.3
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Film Production: Operating Costs (0.3) -- (3.3) (1.5)
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Corporate Overhead: (5.8) (7.1) (9.5) (11.7)
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TOTAL NET SALES $101.5 $ 84.4 $ 252.9 $ 174.4
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TOTAL OPERATING INCOME $ 56.0 $ 26.5 $ 157.1 $ 58.6
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Marvel's Chairman, Morton Handel, commented, "Marvel continued to achieve strong operating results across its businesses in Q2 2007, with improved operating profit contributions in all divisions. Through the first half of 2007, our Licensing segment has benefited from strong contributions related to Spider-Man 3 consumer merchandise licensing. The Publishing segment continues to benefit from strong sales related to the Civil War series, which is driving unit sales per title above historical levels while also helping Marvel to achieve higher operating margins in the division.
"In 2008, Marvel will release our first two self-produced films. Producing our own films positions Marvel to benefit from each film's profits as well as the related fees from merchandising. Principal photography was completed during the quarter for the first film, Iron Man, and it commenced on July 9th for the second film, The Incredible Hulk. Both films are slated for summer 2008 release with significant promotional and licensing support."
Second Quarter Segment Review:
-- Licensing Segment net sales grew 45% in Q2 2007 to $49.3 million, primarily due to strength in Marvel's Spider-Man merchandising joint venture (JV) with Sony and in domestic licensing. The Spider-Man JV had revenues of $18.2 million in Q2 2007 associated with the release of the Spider-Man 3 film in May 2007. Revenues from Marvel Studios decreased by $3.4 million due to large fees in Q2 2006 from licensed films.
Marvel Entertainment, Inc.
Licensing Sales by Division (Unaudited)
(in millions)
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Three Months Six Months
Ended Ended
6/30/07 6/30/06 6/30/07 6/30/06
---------------------------------------=======-=======-=======-=======
Domestic Consumer Products $16.8 $14.9 $ 44.0 $38.6
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International Consumer Products 10.8 11.4 22.1 23.5
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Spider-Man L.P. (Domestic and
International) 18.2 0.7 75.1 2.7
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Marvel Studios 3.5 6.9 7.0 8.7
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Total Licensing Segment $49.3 $33.9 $148.2 $73.5
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-- Marvel's Publishing Segment net sales increased $7.8 million or 31% to $32.9 million in Q2 2007 principally due to continued strength in Civil War and the Dark Tower publications in the Direct and Mass Market channels. Operating income in the publishing segment rose to $14.7 million with an operating margin of 45% in Q2 2007, compared to operating income of $10.4 million with an operating margin of 41% in the prior-year period. The improvement in operating margin principally reflects the benefit of operating leverage resulting from sales of high margin trade books.
-- Marvel reported Toy Segment revenues of $19.3 million in Q2 2007, a decrease from revenues of $25.4 million in Q2 2006. The decrease was primarily due to the transition from toys produced by Marvel in 2006 to toys principally produced by Hasbro, Marvel's master toy licensee, in 2007. Margins improved sharply in the Toy Segment in Q2 2007 to 55% from 13%, reflecting the higher-margin nature of license income recorded in 2007. This compares to Q2 2006 revenues, which were largely comprised of wholesale sales, subject to a corresponding cost-of-revenues expense.
-- Marvel reported Film Production segment operating costs of ($0.3 million) for Q2 2007, which reflect costs and overhead for personnel devoted to the Company's self-produced feature films. These costs were partially offset by a $1.0 million increase in the fair value of an interest rate cap associated with the Company's film finance facility, and a $0.7 million increase in the fair value of forward contracts for the Canadian dollar entered into in connection with future spending on The Incredible Hulk production being filmed in Canada. For Q2 2006, Film Production operating costs reflect SG&A expenses offset by a $1.0 million increase in the fair value of the film finance facility's interest rate cap.
Balance Sheet Update:
As of June 30, 2007, Marvel had cash and investments of $74 million (including $30 million in restricted cash) and no borrowings under its $100 million line of credit with HSBC Bank. During the second quarter of 2007, Marvel purchased approximately 2.3 million shares of its common stock, at an average price of $27.26, under its repurchase program.
Marvel Studios Entertainment Pipeline
(Development and release dates for licensed properties are controlled by studio partners)
Licensed Marvel Character Feature Film Line-Up
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Film/Character Studio/ Status
Distributor
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Ghost Rider Sony Released February 16, 2007
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Spider-Man 3 Sony Released May 4, 2007
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Fantastic Four: Rise of Fox Released June 15, 2007
the Silver Surfer
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Wolverine Fox Director engaged (1)
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Punisher 2 Lionsgate Director and lead actor
engaged (1)
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Film Projects Being Developed by Marvel - partial list
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Film/Character Studio Status
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Iron Man Marvel Completed principal photography;
May 2, 2008 release (1)
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The Incredible Hulk Marvel Commenced principal photography;
June 13, 2008 release (1)
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Ant-Man Marvel Writer and director engaged
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Captain America Marvel Writer engaged
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Nick Fury Marvel Writer engaged
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Thor Marvel Writer engaged
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The Avengers Marvel Writer engaged
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Marvel Character Animated TV Projects
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Character Studio Status
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Fantastic Four Moonscoop 26, 30 minute episodes; U.S.
SAS distribution on Cartoon Network
(France) started in September 2006;
relaunched in June 2007
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Spider-Man Sony In development; US distribution
agreement with Kids' WB
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Wolverine and the First Serve 26, 30 minute episodes in
X-Men Toonz development
(India)
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Iron Man Method Films 26, 30 minute episodes in
(France) development
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Marvel Character Animated Direct-to-DVD Projects
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Title Partner Status
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Doctor Strange Lionsgate August 14, 2007 release
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Teen Avengers Lionsgate Targeted July 2008 release
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Hulk Smash Lionsgate Targeted October 2008 release
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Marvel Character Live Stage Projects
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Project Producer Status
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Spider-Man the Hello In development/opening date
Musical Entertainment/David to be determined; Julie
Garfinkle, Martin Taymor director; music &
McCallum, lyrics by U2's Bono and
Marvel Entertainment, The Edge
SONY Pictures
Entertainment
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Marvel 2007 - 2008 Video Game Releases
(Release dates controlled by Publishing partner)
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Publisher Title Status
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Take-Two Ghost Rider Released Q1 2007
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Konami Marvel Vs. Card Game Released Q1 2007
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Activision Spider-Man 3 Released Q2 2007
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Take-Two Fantastic Four II Released Q2 2007
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Sega Iron Man Targeted 2008
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Sega The Incredible Hulk Targeted 2008
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(1) Represents a change from the previously supplied schedule
Financial Guidance:
Marvel reiterated its 2007 financial guidance for net sales, net income and diluted earnings per share, as reflected in the table below. A few key metrics for Marvel's 2007 guidance are also highlighted below.
Marvel Entertainment, Inc. - Financial Guidance
----------------------------------------------------------------------
(in millions, except per-share amounts) 2007 2006
Guidance (2) Actual
--------------------------------------------------------- ---------
Net sales $375 - $435 $352
--------------------------------------------------------- ---------
Net income $111 - $132 $59
--------------------------------------------------------- ---------
Diluted EPS $1.30 - $1.55 $0.67
--------------------------------------------------------- ---------
(2) As previously provided on February 26, 2007 and reiterated on May 8, 2007.
Consistent with its earlier guidance, the majority of Marvel's forecasted revenue and net income for 2007 has been recorded in the first half of the year.
Primary Financial Guidance Drivers for the Second Half of 2007:
-- Continued Spider-Man 3 movie merchandise licensing overages generated by the Spider-Man JV.
-- Marvel Studios revenues resulting from the box office performance and initial DVD/video sales for the Ghost Rider, Spider-Man 3 and Fantastic Four: Rise of the Silver Surfer feature films.
-- Toy license contributions related to Marvel's toy license agreement with Hasbro.
-- Strong growth in interactive revenues from license fees in excess of minimum guarantees.
-- Continued, top-line and bottom-line growth from the publishing division.
-- An estimated effective tax rate of 37-39% in 2007.
-- Marvel's guidance is based on a weighted average diluted share count of 84 million for 2007 and does not reflect any future share repurchase activity in 2007.
Marvel cautions investors that variations in the timing of licenses and entertainment events, the timing of their revenue recognition, and their level of success may result in variations and uncertainty in forecasting the Company's financial results. These factors could have a material impact on year-over-year and sequential quarterly results comparisons as well as Marvel's ability to achieve the financial performance included in its financial guidance.
About Marvel Entertainment, Inc.
With a library of over 5,000 high-profile characters built over more than sixty years of comic book publishing, Marvel Entertainment, Inc. is one of the world's most prominent character-based entertainment companies. Marvel utilizes its character franchises in licensing, entertainment (via Marvel Studios), publishing (via Marvel Comics) and toys, with emphasis on feature films, home DVD, consumer products, video games, action figures and role-playing toys, television and promotions. Marvel's strategy is to leverage its franchises in a growing array of opportunities around the world. For more information visit http://www.marvel.com.
