Dreamworks Animation Skg Inc (NASDAQ:DWA) reported revenues for the quarter ended September 30, 2015 of $259.2 million, representing an increase of 43.3% from the same period in 2014. In addition, DWA reported adjusted(b) operating income of $26.8 million and adjusted(b) net income attributable to DWA of $1.4 million or $0.02 per share. Adjusted financial results exclude a $3.6 million pre-tax charge associated with the Company’s Restructuring Plan announced on January 22, 2015.

Including the impact of the previously announced Restructuring Plan, DWA reported operating income of $23.2 million and reported a net loss attributable to DWA of $(3.5) million, or $(0.04) per share for the quarter ended September 30, 2015.

“DreamWorks Animation delivered solid third quarter results, highlighted by strong top-line growth and meaningful segment gross profit across all of our businesses,” said Jeffrey Katzenberg, Chief Executive Officer of DreamWorks Animation. “While we still have considerable work ahead of us, I am proud of the team’s collective efforts and remain confident that we are well positioned to meet or even exceed our stated goals for the year while continuing to drive long term value for our stakeholders.”

Third Quarter Review:

DWA’s third quarter revenues of $259.2 million increased 43.3% versus the prior-year period driven by performance across all operating segments.

Revenues for the quarter ended September 30, 2015 from the Feature Film segment increased to $157.9 million, up from $142.4 million in the prior-year period. Segment gross profit decreased to $54.3 million compared to $64.3 million in the same period of last year, primarily due to contributions earned in the prior-year period in the worldwide theatrical market from How to Train Your Dragon 2, which was a higher margin title.

Home, which was released domestically on March 27, 2015 has reached $386 million at the worldwide box office.  The film contributed feature film segment revenue of $49.7 million in the quarter. Home was released in the digital market on June 26, 2015 and into the physical domestic home entertainment market on July 28, 2015.  The film reached an estimated 4.7 million home entertainment units through the end of the third quarter, net of actual and estimated future returns.

The Penguins of Madagascar contributed feature film segment revenue of $39.8 million in the quarter, primarily from domestic and international pay television. Through the end of the third quarter, the film reached an estimated 3.6 million home entertainment units sold worldwide, net of actual and estimated future returns.

How to Train Your Dragon 2 contributed feature film segment revenue of $7.4 million in the quarter, primarily from international pay television and home entertainment. The film reached an estimated 8.9 million home entertainment units sold worldwide through the end of the third quarter, net of actual and estimated future returns.

Mr. Peabody and Sherman contributed feature film segment revenue of $2.6 million in the quarter, primarily from home entertainment. The film reached an estimated 4.2 million home entertainment units sold worldwide through the end of the third quarter, net of actual and estimated future returns.

Library titles contributed feature film segment revenue of $58.4 million in the quarter. Library revenues in the current quarter were driven by worldwide television and home entertainment revenues for a number of titles including The Croods and Turbo.

Revenues for the quarter ended September 30, 2015 from the Television Series and Specials segment increased to $50.7 million, compared to $14.3 million during the prior-year period. The increase in revenues was attributable to a significantly higher number of episodes delivered under our episodic content licensing arrangements. Segment gross profit increased to $15.3 million in the current quarter, from $2.3 million in the same period of the prior year. The increase was primarily driven by higher revenues along with favorable amortization rates associated with our episodic series, partially offset by up-front marketing costs associated with the release of our new television series.

Revenues from the Consumer Products segment increased to $27.0 million in the third quarter, compared to $12.1 million in the same period last year. The increase was primarily due to revenues earned from new and extended location based entertainment license arrangements in the quarter, as well as merchandise licensing agreements related to intellectual property rights associated with characters from our feature films and episodic television series. Revenues also included contributions from merchandising and other licensing activities. Segment gross profit increased to $15.8 million from $4.2 million in the prior-year period, as revenues earned from location based entertainment license arrangements have lower associated costs.

Revenues for the quarter ended September 30, 2015 from the Company’s New Media segment were $20.7 million compared to $8.5 million during the three months ended September 30, 2014. This increase was primarily attributable to revenue generated from licensing and distribution of content and brand sponsorship arrangements. In the prior-year period, the Company reported certain advertising and talent management revenues in this segment on a “gross” basis rather than on a “net” basis.  For comparative purposes, if the New Media segment’s revenues had been reported on a “net” basis during the quarter ended September 30, 2014, revenues for the quarter ended September 30, 2015 would reflect an increase of 226% compared with the prior-year period. Segment gross profit, which is not affected by this item, increased to $10.9 million from $2.3 million in the prior-year period, primarily due to higher revenue contributions from licensed content and reduced amortization of intangible assets.

Revenues from All Other segments for the quarter ended September 30, 2015 were $2.9 million compared to $3.6 million in the prior-year period and gross profit was $2.4 million compared to a loss of $(1.1) million for the quarter ended September 30, 2014.

For the quarter ended September 30, 2015, DWA posted adjusted(b) operating income of $26.8 million. The increase in revenues and segment gross profit were partially offset by an increase in adjusted(b) general and administrative expenses. The increase in adjusted(b) general and administrative costs in the current quarter was primarily driven by a $15.4 million increase in incentive and stock-based compensation costs, which vary with changes in forecasts of the related performance metrics that will be achieved, as well as an increase of $5.1 million related to the growth and expansion of the AwesomenessTV business. These increases were partially offset by a decrease in salaries and benefits as a result of our 2015 Restructuring Plan. Lastly, for the quarter ended September 30, 2015, the amount of selling and marketing expenses not allocated to the operating segments but included in adjusted(b) operating income was $1.6 million. Operating income in the prior-year period included a $4.9 million benefit associated with a reduction in the fair value of the contingent consideration liability related to our acquisition of AwesomenessTV. Reported operating income for the quarter ended September 30, 2015, inclusive of restructuring-related charges, was $23.2 million.

Adjusted(b) net income attributable to DWA for the quarter ended September 30, 2015 was $1.4 million, or adjusted(b) income of $0.02 per share. Adjusted net income in the current quarter includes non-cash charges totaling $6.1 million in other expense, net, related to certain investments that were determined to not be recoverable.  Also, during the third quarter, the Company recorded a provision for income taxes of $2.5 million, or an effective rate of 20.3%.  When combined with an increase in income tax benefit payable to former stockholder of $13.8 million, it results in a combined effective tax rate of 133.1% for the quarter. Reported net loss attributable to DWA for the quarter ended September 30, 2015 was $(3.5) million, or $(0.04) per share.

Year to Date Review:

DWA’s revenues for the nine months ended September 30, 2015 increased 32.5% to $596.5 million compared to $450.4 million in the prior-year period. The increase was driven by year-over-year growth across all operating segments.

Revenues for the nine months ended September 30, 2015 from the Feature Film segment increased to $373.7 million, primarily due to higher revenue from prior-year theatrical releases and contributions from the library. Segment gross profit increased to $127.0 million for the nine months ended September 30, 2015 compared to $62.8 million in the prior-year period. In the first nine months of 2014, DWA recorded impairment charges totaling $58.8 million, which were primarily related to the theatrical release of Mr. Peabody and Sherman.

Revenues from the Television Series and Specials segment for the nine months ended September 30, 2015 increased 135.6% to $123.2 million, due to a significantly higher number of episodes delivered under our episodic content licensing arrangements. Segment gross profit also increased to $37.9 million in the first nine months of 2015, up from $9.2 million in the same period of the prior year. The increase was primarily driven by higher revenue and favorable amortization rates associated with our episodic series relative to the prior-year period, partially offset by up-front marketing costs associated with the launch of our new television series. In addition, gross profit for the nine months ended September 30, 2014 was negatively impacted by higher than expected returns of seasonal and newly-released home entertainment product, as well as increased selling costs related to our Classic Media properties.

Revenues from the Consumer Products segment in the first nine months of 2015 increased to $54.8 million, from $42.7 million in the prior-year period. The increase was primarily driven by revenues earned from new and extended location based entertainment license arrangements in the current year period. In addition, segment revenues for each of the nine-month periods ended September 30, 2015 and 2014 included revenue associated with merchandise licensing arrangements related to a variety of intellectual property rights associated with the characters from our feature films and episodic television series. For the nine months ended September 30, 2015, segment gross profit increased to $24.1 million, from $17.6 million in the prior-year period, as revenues related to location based entertainment license arrangements have lower associated costs.

Revenues for the nine months ended September 30, 2015 from the Company’s New Media segment increased to $39.8 million, from $24.1 million in the prior-year period. This increase was primarily attributable to revenue generated from brand sponsorship arrangements, licensing and distribution of content, as well as revenues generated by Big Frame, which was acquired in April 2014. In the prior-year period, the Company reported certain advertising and talent management revenues in this segment on a “gross” basis rather than on a “net” basis.  For comparative purposes, if the New Media segment’s revenues had been reported on a “net” basis during the nine months ended September 30, 2014, revenues for the nine months ended September 30, 2015 would reflect an increase of approximately 146% compared with the prior-year period. Segment gross profit for the first nine months of 2015, which is not affected by this item, was $20.5 million, compared to $4.7 million during the same period last year, primarily due to higher revenue contributions from licensing and distribution of content, brand sponsorship agreements and reduced amortization of intangible assets.

Revenues from All Other segments for the nine months ended September 30, 2015 were $5.0 million compared to $9.2 million in the prior-year period. Gross profit was $3.3 million compared to a loss of $(1.0) million for the nine months ended September 30, 2014.

For the nine months ended September 30, 2015, DWA posted adjusted(b) operating income of $22.4 million. The increase in revenues and segment gross profit was partially offset by an increase in adjusted(b) general and administrative expenses. The increase in adjusted(b) general and administrative costs in the current year was driven by a $15.4 million increase in costs incurred to support the growth and expansion of the AwesomenessTV business, as well as a $12.1 million increase in incentive and stock-based compensation costs, which vary with changes in forecasts of the related performance metrics that will be achieved. The remaining increase was primarily attributable to salary and benefit costs related to headcount for certain new business initiatives which were higher during the nine months ended September 30, 2015 as these costs did not begin to occur until the second half of 2014 due to timing of hiring. Lastly, for the nine months ended September 30, 2015, the amount of selling and marketing expenses not allocated to the operating segments but included in adjusted(b) operating income was $5.1 million. The reported operating loss for the nine months ended September 30, 2015, inclusive of restructuring-related charges was $(34.0) million. This compares to an operating loss of $(52.3) million in the prior-year period, which included a $9.7 million benefit associated with a reduction in the fair value of the contingent consideration liability related to our acquisition of ATV.

Adjusted(b) net loss attributable to DWA for the nine months ended September 30, 2015 was $(18.6) million, or an adjusted(b) loss of $(0.23) per share. Adjusted net loss reflects higher interest expense related to a lease financing obligation associated with the Company’s headquarters, as well as a decrease in the amount of interest that could be capitalized during the current year period. Adjusted net loss for the nine months ended September 30, 2015 also includes non-cash charges totaling $11.2 million in other expense, net that are attributable to certain investments that were deemed to not be recoverable. Additionally, during the nine months ended September 30, 2015, DWA recorded income tax expense of $27.5 million, which includes expense related to the Company’s tax sharing agreement with former stockholder. As a result, the Company had a combined effective tax rate of (38.6)% for the nine months ended September 30, 2015. Reported net loss attributable to DWA for the nine months ended September 30, 2015 was $(96.9) million, or $(1.13) per share.

For the nine months ended September 30, 2015, net cash used in operating activities was $(6.5) million, compared to net cash used in operating activities of $(140.6) million in the prior-year period. The main sources of cash during this period were How to Train Your Dragon 2’s worldwide home entertainment and international theatrical revenues, Home’s worldwide theatrical revenues, The Croods’ worldwide home entertainment revenues, revenues from licensing our episodic content, and to a lesser extent, the collection of worldwide theatrical, television and home entertainment revenues from our other films. In addition, cash used in operating activities during the nine months ended September 30, 2015 benefited from a higher amount of advances received for future deliveries of content when compared to the same period of the prior year. Cash used in operating activities for the nine months ended September 30, 2015 included $10.6 million related to incentive compensation payments, which decreased $23.4 million when compared to the amount paid during the nine months ended September 30, 2014as these cash payments primarily fluctuate based on our financial results. During the nine months ended September 30, 2015, we also made payments (net of refunds received) to an affiliate of a former stockholder related to tax benefits realized in 2014. The cash from operating activities was also partially offset by production spending for our films and television series, as well as participation and residual payments. Cash used in operating activities in the nine months ended September 30, 2015 included cash payments totaling $62.3 million related to the 2015 Restructuring Plan.

During the nine months ended September 30, 2015, DWA amended its $400 million revolving credit facility, increasing the size of the committed facility to $450 million and extending the term through February 2020. DWA also entered into an agreement to sell its campus located in Glendale, California for $185.0 million and concurrently leased it back from the purchaser. Proceeds from the sale were used to repay outstanding borrowings on the Company’s revolving credit facility and for general corporate purposes.

On July 21, 2015, the original purchaser of the campus resold it for a total sale price of $215.0 million. Pursuant to a sharing agreement between the Company and such original purchaser, the Company was entitled to receive 50% of any increase in value from the original sale price of $185.0 million, net of expenses. Accordingly, the Company received approximately $14.2 million from the original purchase following such resale.

As of September 30, 2015, DWA had $360.0 million of availability on its revolving credit facility and $88.9 million of cash and cash equivalents on hand, bringing the Company’s total available liquidity to approximately $450 million. (Original Source)

Shares of Dreamworks Animation closed today at $22.00, up $1.79 or 8.86%. DWA has a 1-year high of $29.75 and a 1-year low of $17.02. The stock’s 50-day moving average is $19.61 and its 200-day moving average is $23.17.

On the ratings front, Dreamworks Animation has been the subject of a number of recent research reports. In a report issued on November 2, Topeka analyst David Miller reiterated a Hold rating on DWA, with a price target of $19, which implies a downside of 5.8% from current levels. Separately, on October 30, Merrill Lynch’s Jessica Reif Cohen downgraded the stock to a Sell .

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, David Miller and Jessica Reif Cohen have a total average return of 16.1% and 9.1% respectively. Miller has a success rate of 65.0% and is ranked #103 out of 3824 analysts, while Cohen has a success rate of 68.6% and is ranked #814.

The street is mostly Bullish on DWA stock. Out of 4 analysts who cover the stock, 2 suggest a Buy rating , one suggests a Sell and one recommends to Hold the stock. The 12-month average price target assigned to the stock is $25.00, which represents a potential upside of 23.9% from where the stock is currently trading.

Dreamworks Animation SKG Inc creates and exploits family entertainment, including animated feature films, television series and specials, live entertainment properties and related consumer products.