WWE (NYSE: WWE) reported mixed results when it released its second quarter financials on July 25, 2019, for the period ended June 30, 2019. Revenues dropped 5% to $268.9 million, compared to $281.6 million in Q2 2018. Revenue declined in WWEs Media, Live Events and Consumer Products business segments. Operating income was $17.1 million, compared to $21.2 billion for the same period last year. WWEs operating margin dropped from 8% to 6%.

Consistent with company guidance, WWE Network had 1.69 million average paid subscribers at the end of the quarter, a 6% drop. For the third quarter, WWE estimates average paid subscribers of 1.53 million, a year-over-year decline of 8%. The company does not anticipate record subscriber numbers for the year.

In spite of these decreases, WWEs net income grew slightly to $10.4 million, or $0.11 per diluted share, compared to $10.0 million, or $0.11 per diluted share, in Q2 2018. Engagement also increased:

• Digital video views were up 17% to 9 billion.
• Hours of video watched increased 22% to 324 million hours on digital platforms.
• Social media followers grew 10% to more than 1.02 billion across platforms.

During the quarter, we made progress on key strategic initiatives, said Vince McMahon, Chairman and CEO, in a news release. We completed content distribution agreements in key international markets, prepared for the next phase of our WWE Network service, and achieved steady improvement in engagement metrics. As indicated previously, we remain excited about the future, particularly with our debut on Fox in October.

George Barrios, co-president of WWE, also commented on the companys quarterly financials.

In the quarter, our earnings exceeded guidance, however we anticipate a portion of this to reverse and we continue to target full-year Adjusted OIBDA of at least $200 million. The guidance presupposes the staging of a second large scale international event and the completion of a media rights deal in the MENA region. As we optimize near-term results, we will continue to focus on content creation, localization and digitization, including the evolution of our direct-to-consumer network, to drive long-term growth, Barrios said.

Other financial highlights from the quarter include:

• Adjusted OIBDA was $34.6 million, compared to $43.5 million, and adjusted OIBDA margin dropped from 15% to 13%.
• The companys effective tax rate dropped from 31% to 25%.
• Cash flows used in operating activities were $7.6 million, compared to $74.2 million.
• Free cash flow was $27.5 million, compared to $66.4 million.
• Cash, cash equivalents and short-term investments were $296 million.

Operational highlights include the following:

• Domestic TV ratings for Raw dropped 14% in Q1 but improved to a year-over-year decline of 11% in June.
• Domestic TV ratings for SmackDown dropped 13% in Q1 but improved to a 7% decline in June.
• WWE content consumption on AVOD platforms increased from 23% in Q1 to 28% in Q2.
• Average attendance at live events in North America, which had dropped 12% in Q1, improved to a 4% decline in June.

For the third quarter, WWE estimates adjusted OIBDA ranging from $17 million to $22 million. For the full year, the company is targeting total revenue in the $1 billion range and adjusted OIBDA of at least $200 million.

Insider Take:

To understand WWE, we have to look at more than what the numbers show. There are many moving parts, all of which impact the bottom line in some way. For example, last week, WWE Network started the transition to a new platform to give users a better experience. It will include new features, better searchability, free and premium tiers and localization for customers in different locales who speak different languages. Coupled with new content licensing agreements and a second large scale event in the MENA region, WWE has a lot of good things in the works.

Despite some blips, WWE still remains a solid company with diehard fans and a unique mix of products and services. The WWE Network, while struggling a bit with retention, still remains a solid niche streaming video service who will undoubtedly turn things around and learn from both its successes and mistakes.