Sunday, April 29, 2012

This Day in Pixar History: Pixar Earnings Report

This is the time of year when most public companies release their first quarter earnings reports. As Pixar is owned by The Walt Disney Company the studio no longer has to release these reports. But I thought it would be fun to go back in time to when Pixar was a public company and see how their earnings and stock price did over time. Since Disney will be reporting their earnings within a week or so, I thought now would be a good time for the first of these posts. Then about every 3 months I will have a similar post to correspond to each quarter.

For this first post let's go back 16 years to the spring of 1996. The January through March period was Pixar's first full quarter as a public company. The company had their IPO on November 29, 1995, exactly one week after the theatrical release of Toy Story. The IPO price was $22/share and over the next few months the price went to almost $50 but spent most of the time close to the IPO price.

Revenue for the first quarter of 1996 totaled $8.3 million, an increase of 447% from the first quarter in 1995. The majority of the revenue, $6.5 million, was due to a licensing fee from Silicon Graphics (SGI) for the use of certain Pixar patents covering computer-generated photorealistic images.

Pixar made $911,000 from software licenses, primarily for RenderMan. They made another $785,000 from their animated television commercials. While this was a 49% increase from the previous year, they noted in their earnings report that commercial revenue would likely decrease or be completely eliminated as the studio focused more on animated feature films.

Now, one might think that since Toy Story had been released just a few weeks prior to the beginning of the quarter, and the fact that it was the highest grossing film of 1995 and made over $191 million domestically, that Pixar would show a significant amount of revenue from the film. In fact, total film revenues for the quarter was less than $100,000! According to the original agreement between Pixar and The Walt Disney Company, Disney was able to recoup all marketing and distribution costs before Pixar received any film revenue. According to the earnings report, Pixar expected film revenue to have a significant impact during the remainder of the year.

As for expenses, Pixar spent $1.1 million on R&D, primarily for RenderMan, Marionette and Ringmaster software, and for their interactive CD-ROM products. They also spent $447,000 on sales and marketing, and another $1.2 million on general and administrative (GA) expenses, which is basically salaries and other costs necessary to run the studio like rent, utilities and insurance. But it should be pointed out that GA expenses do NOT include salaries for the employees working on the films. As part of their agreement with Disney, expenses for developing and producing films were all reimbursed by Disney. So the GA expenses here were primarily for management and employees not directly involved in film production, plus the other items listed above.

Even without film revenue, Pixar had net income of $6.3 million or $0.13/share, compared to a loss in the previous year. All in all, not too bad for their first full quarter as a public company, although it should be noted the majority of income for this quarter came from the one-time patent licensing agreement with SGI. Any future film revenue would be dependent on Toy Story international releases and the home video release, which wouldn't occur until the end of 1996. We'll get all the details in about 3 months when I report on their second quarter of 1996 earnings.

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