Endeavor Group Holdings, Inc. (NYSE:EDR) Q3 2023 Earnings Call Transcript November 8, 2023
Endeavor Group Holdings, Inc. beats earnings expectations. Reported EPS is $0.34, expectations were $0.27.
Operator: Hello and welcome to the Endeavor’s Third Quarter 2023 Results Call. My name is Lauren, and I will be coordinating your call today. There will be an opportunity for questions at the end of the presentation. [Operator Instructions] I will now hand you over to your host, James Marsh, Head of Investor Relations to begin. Please go ahead.
James Marsh: Good afternoon and welcome to Endeavor’s third quarter 2023 earnings call. A short while ago, we issued a press release, which you can view on our Investor Relations site, investor.endeavorco.com. A recording of this call will also be available via that site for at least 30 days. Today, you will hear from Endeavor’s CEO, Ari Emanuel, and CFO, Jason Lublin, before President and COO, Mark Shapiro joins us for Q&A. The purpose of this call is to provide you with information regarding our third quarter 2023 performance. Commentary related to WWE’s business and financial results in the context of Endeavor’s results reflect WWE’s performance for the period from September 12 through September 30. I do want to remind everyone that the information discussed will include forward-looking statements and/or projections that involve risks, uncertainties and assumptions, as well as described in the risk factors section of our filings with the Securities and Exchange Commission, including our 10-Qs and 10-K.
If these risks or uncertainties ever materialize or any assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements and projections. Forward-looking statements speak only as of the date they were made and we undertake no obligation to update them publicly in light of new information or future events except as legally required. Our commentary today will also include non-GAAP financial measures, which we believe provide an additional tool for investors to use in evaluating ongoing operating results and trends. This measure should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics for all of our reported results can be found in our press release issued today as well as in the non-GAAP financial information posted on our IR website.
With that, I’ll turn it over to our CEO, Ari Emanuel.
Ari Emanuel: Thanks, James, and good afternoon everyone. This quarter’s results reflect Endeavor’s leading position in the sports and entertainment marketplace even and especially as market dynamics evolve. To share just a few examples, we launched TKO and immediately delivered domestic media rights increases, a record-breaking global marketing partnership and new international events with sizeable site fees. Also in the quarter, we announced IMGs exclusive agreement with the NFL to manage its media rights in more than 30 markets, commenced Endeavor share repurchase program and initiated quarterly cash dividend payments. Before I discuss these and other highlights from the quarter in greater detail, I’d like to acknowledge the announcement we made last month about Endeavor’s review of strategic alternatives.
Given the continued dislocation between our public market value and the intrinsic value of Endeavor’s underlying assets, we believe an evaluation of strategic alternatives is a prudent approach to ensure we are maximizing value for our shareholders. We will update the market if and when there’s anything further to share. Turning now to the quarter, I’ll start with our Owned Sports Properties segment, which includes TKO. Over just the first frame of our integration efforts, UFC and WWE have set live event records, announced international expansion plans, increased media rights fees and confirmed a significant new global partnership. UFC had six live event sellouts in the quarter and WWE set multiple records for premium live events, Money in the Bank, SummerSlam and Payback.
In the Middle East, UFC announced the extension of its long standing partnership with the Department of Culture and Tourism, Abu Dhabi to continue hosting one numbered event there each year and up to three fight nights in the region. Additionally, UFC will debut a first ever Fight Night in Saudi Arabia next March as part of Riyadh season, a clear indication that Saudi Arabia has every intention of growing its relationship with the UFC despite assumptions made about their recent investment in the Professional Fighters League. Similarly, WWE announced new International Premium live events for 2024, one in Berlin and one in Perth, as part of a Tourism Western Australia partnership that includes the company’s largest ever site fee. On the U.S. domestic front, WWE announced yesterday that NXT will make its broadcast television debut beginning October 2024 on The CW Network.
That deal represents a 70% AAV increase and demonstrates strong demand for WWE content which should serve as an encouraging sign to our investor base vis-à-vis our Monday Night Raw discussions which are quite active at the moment with multiple linear and streaming partners. The NXT deal comes on the heels of a new five-year partnership with NBC Universal to bring Smackdown back to USA Network beginning next year. That agreement represents a 40% AAV increase and includes four annual prime time specials that will air on NBC, marking the first time WWE will air on the network in prime time. We are also leveraging the full Endeavor flywheel to bring new global partnership opportunities to TKO. AB InBev just announced a significant multiyear deal with UFC to become its official global beer partner beginning in 2024.
The deal is UFCs biggest ever in the aggregate including cash and marketing assets. In addition to TKO, the Owned Sports Properties segment includes results from Professional Bull Riders. PBR’s Second Team Series season began in July and averaged more than 1,000,000 total viewers on broadcast partner CBS and had similarly robust attendance at its live events. In our Events, Experiences and Rights segment, as mentioned, IMG’s Media Group announced an exclusive agreement with the NFL to manage the league’s media rights in more than 30 markets across Asia and Europe beginning next year. This NFL deal represents the latest in a series of ways Endeavor is integral to the NFL ecosystem across commercial areas including licensing, digital marketing, premium hospitality and experiences, player representation and marketing on behalf of NFL teams and sponsors.
Also in the quarter, Frieze bolstered its U.S. presence with acquisitions of the Armory Show in New York and Expo Chicago, two of the longest running art fairs in the U.S., and completed a successful second edition of Free Seoul in South Korea with 120 galleries and 70,000 visitors. And on location, momentum going into Super Bowl LVIII is strong. By the end of the quarter we’d already sold more On Location packages than ever before at that point in the sales cycle. Also On Location’s premium hospitality for WWE Money in the Bank in London became its highest grossing non-WrestleMania event ever and UFC 293 in Sydney drove the highest year-to-date UFC VIP revenue. Both events are examples of ways the Endeavor flywheel supports TKO’s growth and our testament to the demand we are seeing for sports events and premium experiences across our platform.
Pivoting to our Representation segment, notwithstanding impact from the strikes, performance during the quarter was buoyed by the Endeavor flywheel and the diversified business we’ve grown at WME. In music, WME had a successful festival season in the quarter and increased our industry leading market share in the country music category. Our investment in sports is also continuing to pay off. WME Sports struck record-breaking deals this year with their deals, Bengals quarterback Joe Burrow became the highest paid player in NFL history and 49ers defensive lineman Nick Bosa became the highest paid defensive player ever. WME Sports has already negotiated more than $1 billion in football contracts this season with more than $700 million in guarantees.
IMG’s industry leading licensing team continued to deliver first of their kind deals in the quarter, including a partnership between Macy’s and Gap that will see 250 Macy’s stores across the country debut Gap pop-ups within their footprint. And activating a crucial part of the Endeavor flywheel 160/90, together with WME and Endeavor’s Talent Ventures team, incubated and launched WME client Snoop Dogg’s Dr. Bombay Ice Cream. The product debuted in more than 3500 Walmart locations nationwide. Turning next to our Sports Data and Technology segment, following OpenBet’s successful launch with OPAP in Greece, we have been pursuing opportunities in additional emerging markets. In the quarter, OpenBet signed a new partnership with Play7 to enter Brazil’s sports betting market.
We see significant opportunity ahead in Brazil and OpenBet is well positioned to capitalize on the market’s highly anticipated opening to regulated sports betting and potentially other digital gaming products. With that, I’ll turn things over to Jason.
Jason Lublin: Thanks, Ari, and good morning, everyone. I’ll start by walking you through our financial results for the third quarter. I’ll then provide you some color around what we’re seeing in each of our operating segments. All comparisons will be to the third quarter of 2022. For the quarter ended September 30, 2023, we generated $1.344 billion in consolidated revenue, up $123 million or 10.1%. Net loss of the quarter was $116 million compared to net loss of $12.5 million a year ago. The change in net loss was largely driven by increased transaction related expenses associated with the TKO transaction. Adjusted EBITDA for the quarter was $311.6 million, up $8.5 million or 2.8%. Now I’ll walk you through each of our segments.
Our Owned Sports Properties segment generated revenue of $479.7 million in the quarter, up $77.5 million or 19.3%, while the segment’s adjusted EBITDA for the quarter was $237.4 million, up $41.7 million or 21.3%. Revenue growth in the segment was primarily driven by increases at UFC due to higher media rights and content fees from increases in contractual revenues, as well as higher renewals, as well as two additional Fight Nights events compared to the prior year quarter. Segment revenue growth was also driven by higher live event revenue and sponsorships at UFC in addition to higher site fees from multiyear partnerships. The WWE acquisition also contributed $52 million of revenue for the post-closing period of September 12 through September 30.
As a reminder, the prior year quarter included $33 million of revenue related to Diamond Baseball Holdings which we sold in September 2022. PBR also hosted 19 series events in the quarter which drove a 26% increase in attendance over comparative events in 2022. Now turning to Events, Experiences & Rights. The segment recorded revenue of $367.1 million, down $27.1 million or 7%. Segment adjusted EBITDA was $29.8 million, down $15.7 million or 34.4%. The prior year quarter included $72 million of revenue from IMG Academy which we sold this past June. The decrease in segment revenue was partially offset by increases in media production revenue at IMGs media business from new contracts including Major League Soccer, as well as media production for certain biannual and quadrennial events including the Ryder Cup and Rugby World Cup, which did not occur in 2022.
Increased revenue related to On Locations, premium hospitality at the Ryder Cup, live event revenue primarily driven by new events such as Barrett-Jackson New Orleans and our acquisition of the Armory Show Art Fair in July of this year. Segment adjusted EBITDA for the quarter was primarily adversely affected by the sale of IMG Academy, On Locations ongoing IOC investment which began in the third quarter of last year and is inclusive of personnel, marketing and technology costs and decreases at Endeavor streaming. Moving on to our Representation segment, revenue was $385.6 million, down $2.7 million. Segment revenue was impacted by a $29 million decrease at the agency, primarily driven by the impact of the WGA and SAG-AFTRA strikes, partially offset by growth in the sports and music divisions.
This decrease was further offset by content delivery within our non-scripted production business as well as increases at 160/90 and IMG’s licensing business. WME Sports closed record-breaking NFL and NBA player deals and WME’s music touring business had a strong quarter driven by continued demand for live music. More than 200 WME clients performed across festivals including Coachella, Lollapalooza, Glastonbury and the CMA Fest in Nashville. In the third quarter, segment adjusted EBITDA was $96.3 million, down $36.6 million or 27.5% primarily related to the adverse impact from both strikes. Related to the estimated impact of the strikes, we previously estimated the impact of the strikes would adversely affect our Representation revenue by up to $25 million per month on average relative to our forecast at the time.
In the quarter, our agency performed better than expected, primarily due to overall deals being suspended at a slower rate than anticipated, profit participations and outperformance in areas previously mentioned such as sports and music. As a result, the strike impact adversely affected our agency revenues in the range of $40 million to $50 million in the quarter. Looking to the fourth quarter, we expect the originally estimated impact of the strikes to continue based on the lagging effect of the WGA strikes, the ongoing SAG-AFTRA strike, as well as the time needed to meaningfully ramp production. Now turning to our Sports Data & Technology segment. Revenue was $124.8 million, up $78.1 million, while adjusted EBITDA was $24 million, up $19.8 million.
Growth in this segment revenue was attributed to the addition of OpenBet, which we acquired in September of 2022, as well as growth in betting and data and streaming at IMG ARENA across a widening portfolio. For Wimbledon IMG ARENA delivered data feeds to more than 250 sports books covering 651 matches. IMG ARENA also entered a multiyear partnership with Conference USA to become the week’s official data rights collector for football and men and women’s basketball. Moving on to our capital structure, we ended the quarter with $5.05 billion in debt and $1.34 billion in cash resulting in $3.74 billion in net debt. Our net leverage was 3.22 times at quarter end. As a recognition of our deleveraging progress and close of the TKO transaction, S&P Global Ratings recently upgraded our parent issuer credit rating inclusive of the UFC Credit Group to BB minus from B Plus.
In conclusion, given Endeavor’s previously announced review of strategic alternatives, we are tabling discussions related to capital allocation and annual guidance at this time. With that, I’ll hand it over to James.
James Marsh: Thanks, Jason. Operator, can we open up for questions now?
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Q&A Session
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Operator: Thank you. [Operator Instructions] Our first question comes from [indiscernible] with Evercore ISI. [Indiscernible] Please go ahead.
Unidentified Analyst: Good morning and thanks for taking my questions, two if I could, one on the strike and one on the health of the consumer. So first on the strike, I know nothing is certain, but it does seem like we’re getting closer to a resolution hopefully by Thanksgiving as opposed to the dispute extending into December or 2024. Jason, I know you talked a bit about the expectations for Q4, but can you help us think about the shape of the eventual recovery to your Representation business and maybe Hollywood overall once things are hopefully resolved? It seems like there there’s a lot of pent up demand for things to pick up day one. But I was wondering what kind of impediments there might be to getting the machine fully up and running and when we might get there?
Is this a mid-2024 event for example? And second, Ari I know you called out the strength you’re seeing across it seems like effectively all of your events, but is there anything more you can share about the health of the consumer that you’re seeing? It seems like you’ve been largely insulated so far, but we are seeing more and more cracks in the system in different industries. So we’d appreciate any added perspectives. Thank you.
Ari Emanuel: So on the first question, I’ll take it. This is Ari. Thanks for your question. It takes you’ll probably see going into the first quarter the ramp up of things that were shut down because of the strikes. So the things that were closed would have 19 days, 30 days, whatever amount they’ll pick up. Hopefully the strike ends in the next couple days. They’ll prep again and then go to the beginning of the year. The rest of the new stuff, and I agree with you, there’s tons of pent up demand, a lot of stuff on the on the runway that will get going, probably, I’m saying April-ish May because you remember you have to have two to three months of prep and then you can start doing the productions both on the movie and television side. So that’s kind of the timeline to all of that. I think Mark will hit the consumer.
Mark Shapiro: Yes. Hey, [indiscernible], how are you? Too bad. Ari and I thought we were going to wake up this morning and this strike would be over. I’m sure David is also thinking the same thing on his call. Let’s hope by the time we get to Disney that’s the case for everybody’s sake. On the general health of the consumer, look, you kind of answered it. I don’t want to hex anything here. But the bottom line is, we seem to be somewhat insulated and our peers so far are reporting that they are somewhat insulated, right. I mean, Disney is going to go later today, but up till now, they’re kind of forecasting $10 billion in profit this year for their theme park. So everybody’s talking about ticket prices being so high. In the summer the crowds where supposedly lower.
Meanwhile, they are up 5X from a decade ago. Live Nation, of course the other day just had their strongest quarter ever. They’re on pace for record revenue in 2023. They’re reporting record attendance. And then you kind of move over to our source if you will and we’ve got record attendance and ticket for caps at multiple events ranging pretty broadly from WWE to UFC to PBR all the way to Frieze, which is our art fair that, you know, we hold in in London and we hold in Korea and just been a good story for us. So we’re not really seeing any slowdown. And then probably preempting another question, when you look at the Olympics in the state of On Location and keep in mind what we sell there are mainly travel packages. Some of the consumer that wants to go to Paris to go to multiple games, they need help with hotel, they want experiences and often airfare is a part of that.
