WPT Enterprises, Inc. today announced financial results for the fourth
quarter and year ended December 31, 2006. Business highlights for
the quarter included delivery of four episodes of Season V of the
World Poker Tour® (WPT) television series, five episodes of Season
I of the Professional Poker Tour (PPT) television series and continued
progress in the development of the Company's new online poker room
and casino, which is scheduled to launch during the second quarter
of 2007.
Revenues increased 13% in the fourth quarter of 2006 to $5.9 million,
compared to $5.2 million in the same period in 2005. The increase
was primarily due to the delivery of five episodes of Season I of
the PPT television series in the fourth quarter of 2006 versus no
episodes of the PPT delivered in the same period in 2005, offset by
lower international television and product licensing revenues. The
Company reported a net loss for the quarter of $1.1 million, or $0.05
per fully-diluted share compared to a net loss of $1.4 million, or
$0.07 per fully-diluted share, in the 2005 period.
For the year ended December 31, 2006, revenues were $29.3 million, compared to $18.1 million in the year ended January 1, 2006, an increase of 62%. The increase is due primarily to the delivery of twenty-four episodes of Season I of the PPT television series versus no episodes of the PPT delivered in 2005, combined with the delivery of sixteen episodes of Season IV and five episodes of Season V of the WPT television series in fiscal 2006 (21 total episodes) compared to thirteen episodes of Season III and five episodes of Season IV in fiscal 2005 (18 total episodes).
Other increases in online gaming and event hosting and sponsorship were offset in part by a decline in product licensing revenue. The Company's net earnings for the year ended December 31, 2006, were $7.8 million, or $0.38 per fully-diluted share, compared to a net loss of $5.0 million, or $0.26 per fully-diluted share in the prior fiscal year. The primary reasons for the increase in earnings year-over-year were the significant increase in revenues and a $10.2 million realized gain (pre-tax) on the sale of PokerTek common stock, offset by approximately $3.6 million of share-based compensation expense resulting from the implementation of Statement of Financial Accounting Standards ("SFAS") No. 123R, Share-Based Payment-Revised 2004.
"During 2006, we further built the WPT brand and our business through a combination of forty-five delivered episodes of our WPT and PPT television shows and the expansion of our sponsorship roster for Season V of the WPT. Furthermore, during 2006, we created the framework for our future online gaming and internet businesses. We are excited about our prospects in the new year," said Steve Lipscomb, the Company's Chief Executive Officer.
"Worldwide participation in and enthusiasm for the sport of poker continues to grow, and WPT has built a strong brand, positioned at the epicenter of the sport. With the upcoming debut of our online internet gaming site in mid-2007, we hope to further capitalize on and monetize our brand awareness in overseas markets, which have been, and will likely continue to be, a large and lucrative market. While 2007 will be a year of strategic investment, we are confident that we have the strategic initiatives in place to drive long term growth and profitability, and provide increased long term value to our shareholders."
Domestic television license revenues were $3.4 million in the fourth quarter of 2006, a significant increase from $1.7 million in the fourth quarter of 2005. The increase was due to the delivery of five episodes of Season I of the PPT during the 2006 quarter compared to none in the prior year period. International television licensing revenues decreased to $0.8 million from $1.4 million a year ago due to fewer television distribution agreements in the marketplace.
Product licensing revenues were $0.9 million in the fourth quarter of 2006 compared to $1.3 million in the fourth quarter of 2005. The decrease was due primarily to lower license revenues from certain licensees, including US Playing Card and MDI during the fourth quarter. Online gaming generated revenues of $0.5 million in the fourth quarter of 2006 compared to $0.7 million in the fourth quarter of 2005. The decrease was a result of reduced marketing efforts in anticipation of the upcoming re-launch of the online gaming site later this year.
Cost of revenues increased slightly to $2.0 million in the fourth quarter of 2006 from $1.9 million in the fourth quarter of 2005. Overall gross margins were 66% in the fourth quarter of 2006, compared to 64% in the fourth quarter of 2005. Domestic television licensing margins were 62% in the fourth quarter of 2006 compared to 33% in the same period in 2005. The increase was primarily due to expensing PPT production costs during 2005 prior to reaching a distribution agreement with Travel Channel.
The increased margins were offset by online gaming margins of 34% in the fourth quarter of 2006 compared to 56% in the same period in 2005. The decrease was a result of an amendment of the agreement with the service provider that significantly increased the percentage of revenues paid to that party, which contributed to the lower margin.
Selling, general and administrative expenses decreased to $4.6 million in the fourth quarter of 2006 compared to $5.1 million in the fourth quarter of 2005. The decrease was primarily due to lower sales and marketing expenses as a result of reduced online gaming marketing efforts during our preparation for the re-launch of our online gaming site, offset by $0.6 million of share-based compensation expense resulting from the implementation of SFAS No. 123R. There was no share-based compensation expense related to employee and director stock options recognized during fiscal 2005, pursuant to the accounting guidance in effect during fiscal 2005.
The income tax provision of $4.4 million for 2006 primarily relates to the realized gain on the sale of PokerTek common stock.
At December 31, 2006, the Company had no debt, and total cash, cash equivalents and investments in marketable securities of approximately $39.6 million.
Future Broadcast Arrangements for Season VI of the World Poker Tour Television Series
The Travel Channel and the Company were unable to arrive at economic terms for the broadcast rights for Season VI of the WPT television series prior to the original option deadline of March 10, 2007, and have extended the option period to April 1, 2007, and continue to negotiate. Season V episodes are scheduled to begin broadcasting on the Travel Channel in April 2007.
2007 Outlook
For the first quarter of 2007, revenues are expected to be in the range of $4.5- $5.0 million. The Company expects to deliver five episodes of Season V of the WPT television series in the first quarter of 2007, with the remainder of Season V episodes to be delivered during the second and third quarters of 2007. The Company also continues to expect lower revenues and gross profits in online gaming during the first and second quarters of 2007 as a result of the increased percentage of online poker revenues it has agreed to pay to its current service provider for the remaining term of the agreement, as well as reduced marketing efforts in anticipation of the upcoming debut of the Company's online gaming site.
Regarding full year revenues, the Company expects:
- to deliver seventeen episodes of Season V and five episodes of Season VI of the WPT television series (assuming a distribution agreement is negotiated covering Season VI),
- no revenue for the PPT,
- to recognize host fee and sponsorship revenues as WPT episodes are aired during the second and third quarters of 2007,
- sponsorship revenue associated with the PartyGaming agreement to begin in the second half of 2007, and
- to debut the online gaming website in the middle of the year.
Regarding expenses, the Company expects year-over-year general and administrative costs to significantly ramp up beginning in the first quarter of 2007, as it increases headcount to support the re-launch of the online gaming website and build out the non-gaming aspects of Worldpokertour.com (e.g. WPT Academy). Year-over-year sales and marketing costs are projected to significantly increase during the second quarter of 2007 as the Company aggressively invests in marketing its online gaming business.