DWA

Dreamworks Animation SKG, Inc. (DWA)

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DreamWorks Animation SKG Inc. (DWA)

Q2 2011 Earnings Call

July 26, 2011 4:30 pm ET

Executives

Rich Sullivan - Head of Corporate Finance

Jeffrey Katzenberg - CEO

Lew Coleman - President and CFO

Analysts

Barton Crockett - Lazard Capital Markets

David Miller - Caris & Company

James Marsh - Piper Jaffray

Jessica Reif Cohen - Merrill Lynch

Vasily Karasyov - Susquehanna

Ben Mogil - Stifel Nicolaus

Richard Greenfield - BTIG

Tony Wible - Janney Montgomery

Marla Backer - Hudson Square

Tuna Amobi - Standard & Poor's Equity Group

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the DreamWorks Animation earnings conference call. (Operator Instructions) As a reminder, this call is being recorded for replay and the replay will be available today after 7:00 pm Eastern Time through midnight on Tuesday, August 9. You may access the replay service at any time by dialing 1-800-475-6701 and entering the access code 208016. International participants, dial 320-365-3844 with the access code 208016.

I would now like to turn the conference over to your host, Rich Sullivan.

Rich Sullivan

Thank you. Good afternoon, everyone. Welcome to DreamWorks Animations second quarter 2011 earnings conference call. With me today is our Chief Executive Officer, Jeffrey Katzenberg; and our President and Chief Financial Officer, Lew Coleman.

This call will begin with a brief discussion of the quarterly financials disclosed in today's press release followed by an opportunity for you to ask questions. I'd like to remind everyone that the press release is available on our website at web address, www.dreamworksanimation.com.

Before we begin, we need to remind you that certain statements made on today's call may constitute forward-looking statements. Forward-looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the company's annual and quarterly reports as well as other filings with the SEC. I'd encourage all of you to review the risk factors listed in these documents. The company undertakes no obligation to update any of its forward-looking statement.

And with that, I'd like to now turn the call over to DreamWorks Animations' CEO, Jeffrey Katzenberg.

Jeffrey Katzenberg

Thanks, Rich, and good afternoon everyone. The big event for the company in the second quarter was Kung Fu Panda 2, which was released in the U.S. on May 26. It has grossed to date just over $160 million at the domestic box office. And while it didn't meet all of our expectations in the U.S. market, Kung Fu Panda is a blockbuster and has now exceeded over $600 million at the worldwide box office and is about to become the fourth highest grossing movie of the year on a global basis. And we still have the movie in wide release with Japan and Italy yet to open in August.

Kung Fu Panda had the largest ever opening for an animated movie in 40% of its overseas territory, and we've seen significant growth in a number of new markets including Russia, China and Brazil. In addition to international growth, Kung Fu Panda 2 benefited from 3D, which remains a very profitable investment for DreamWorks. 3D has contributed 60% of our international growth and domestically 45% even without an IMAX release. The 3D version of the movie was more enthusiastically received by our audiences, earning higher exit scores than the 2D version.

So Kung Fu Panda 2 was a creative success, and it will be a very solid profitable film for the company. Just as importantly, we believe Kung Fu Panda will continue to be a valuable franchise for many years to come. We look forward to launching Kung Fu Panda: Legends of Awesomeness this fall with our partners at Nickelodeon and our live Kung Fu Panda: Arena Spectacular next year.

Up next for us is a November release of Puss in Boots, starring Antonio Banderas, Salma Hayek, Zach Galifianakis, Billy Bob Thornton and Amy Sedaris. Also in the fourth quarter, we released Kung Fu Panda 2 into the home video market.

DreamWorks Animation remains well positioned for long-term success with a strong track record of profitable films, valuable IP with worldwide appeal, zero debt, a strong balance sheet and more and more exciting business opportunities to pursue in the feature.

With that, let me turn the call over to Lew who will take you through our quarterly results.

Lew Coleman

Thanks, Jeffrey, and good afternoon everyone. For the second quarter, the company reported total revenue of approximately $218 million, resulting in net income of $34 million or $0.40 per share on a fully diluted basis. Performance in the quarter resulted in year-over-year revenue growth of nearly 40%.

Taking a closer look at primary drivers of revenue for the quarter, Kung Fu Panda contributed revenue of approximately $56 million, primarily from worldwide box office as well as merchandising and licensing programs. Our fall 2010 release, Megamind, contributed revenue of approximately $20 million, primarily from home entertainment. Through the end of the quarter, the title reached an estimated 4.3 million net home entertainment units sold worldwide.

Shrek Forever After and How to Train Your Dragon contributed approximately $35 million and $41 million of revenue to the quarter respectively, primarily from domestic pay TV, the majority of expected international pay TV and home video. At end of the second quarter Shrek Forever After had reached an estimated $8.8 million and How to Train Your Dragon had reached an estimated $8.7 million net home entertainment units sold worldwide.

Our film catalog and other another items contributed approximately $67 million of revenue to the quarter.

Read the rest of this transcript for free on seekingalpha.com