Q1 2022 Endeavor Group Holdings Inc Earnings Call
Buried in accordance with GAAP.
Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our press release issued today as well as on our IR site.
That I will turn it over to Ari. Thanks.
Thanks James.
Looking back at our first year as a public company I think a lot about the conversations we had with our various stakeholders at the time of our IPO. We fielded many questions about the future of premium content and the increased value of sports rights. The speed of recovery of live event and the expansion of sports betting globally and throughout the United States since.
Then we've seen those secular content trends play out and we've capitalized at every turn we've continued 2021 strong growth into this first quarter posting revenues up 38% adjusted EBITDA up 58% year over year and raised our guidance for the fourth quarter in a row.
These results were driven by the continued strong performance of our own sports properties further return to full capacity live event and a representation businesses ability to fulfill the need for content from all legacy and newer platforms.
We believe this is a direct result of the unique position endeavor occupied on the supply side of the content ecosystem.
Founded this company 27 years ago in response to the Internet's disruption of the content distribution model.
The content business is incredibly dynamic driven by the expansion of distribution, which drives demand for sports and entertainment content.
We benefited from this dynamic environment as it places a greater premium on talent brands and IP.
Whether that's legacy players like Warner Brothers Discovery, and NBC, Universal who expanded their distribution channels or newer entrants like Apple Roku channel and Tictoc their value proposition is defined by the content they put on their services.
And as you've heard me say before this presents a tremendous opportunity for us as we are distribution agnostic.
As both distribution and the definition of content continues to expand beyond TV AD sales to New Orleans like podcast in digital and a newer to our benefit because of the diversity and global scale of our portfolio.
Whether that's through our ownership of sports properties like UFC and PBR, a representation of more than 7000 clients our role as a supplier and the expanding sports betting ecosystem for our portfolio of more than 1700 annual live events and experiences.
On the event side, we've seen outsized demand globally UFC sold out every pay per view event last year and throughout the first quarter.
<unk> hosted its largest <unk> to date, the Miami opened its greatest attendance in its history.
Super Bowl 56 became Onload patient single largest hospitality available upon and the Madrid open, which we recently acquired attracted more than 200000 fans over the 10 days in April and May.
We're also responding to the demand for greater fan engagement and complement to live events.
By way of our sports data business IMG arena with.
Which similarly benefits from being on the supply side of the sports betting value chain.
Building on our strong roots in basketball golf tennis hockey in MMA IMT Arena is now expanding into soccer, adding 19 European League to its portfolio.
Folio in the first quarter.
In addition to the value of having this large and diverse portfolio, we benefit from our long standing relationships with buyers, which are reinforced by the volume and variety of our businesses. For example, if you look at Warner Brothers Discovery.
William Morris client with the lead actor in the record breaking Batman, where Morris was responsible for the popular HBO Max show Euphoria, and Lakers series winning time.
Ill endeavor content was the studio behind Hbo's Tokyo device.
Through IMG, we also produce ancillary sports programming for discovery and we've done a series of sports rights deals with them ranging from the U S Open European cycling and most recently for discovery plus to become the new home of the UFC and the Netherlands with that I'll leave you with our view on the state of the premium.
Content business for the past few weeks there has been a lot of conversation around the future of content. Following Netflix subscriber performance this quarter from where endeavour sits on the supply side of the content ecosystem, we simply do not see content spend reducing.
2020, two's content spend is set to be the highest on record.
With Netflix itself pointing to an increase in spending to $20 billion with its eye towards higher quality programming.
Okay.
We also have the visibility into content spend at least through 2023 and that many productions and orders are locked in at the end of the day for platforms to gain and maintain customers. They have to spend that premium content original feature films stock U series scripted non scripted television.
All drive subscriber growth as they have for Netflix for decades and are currently doing for the likes of Disney plus Paramount plus Roku HBO Max and Peacock.
Which have recently reported adding tens of millions of subscribers, given where we sit on the supply side of that content.
You can think of us as the ultimate proxy for content growth.
Beyond premium content, we will feel great about where we sit relative to the secular tailwind in all of our businesses.
Bottom line is we had a great performance. This quarter, we've continued to beat and raise guidance for the past four quarters, and we're well positioned for strong long term growth.
With that I'll turn it over to Jason.
Thanks, Lori and good afternoon, everyone.
I'll start by walking you through our financial results for the first quarter.
I'll also provide you some color around what we're seeing in each of our operating segments.
All comparisons will be to the COVID-19 impact that the first quarter of 2021.
For the quarter ended March 31, 2022, we generated $1 473 billion in consolidated revenue up.
$404 million or 38%.
Adjusted EBITDA for the quarter was $344 million up $115 million or 58%.
Now I'll briefly walk you through each of our segments.
Our own sports property segment generated revenue of $296 7 million in the first quarter up $13 2 million or 5%.
While the segment's adjusted EBITDA for the quarter was $148 7 million up $3 2 million or 2%.
Increase in revenue was driven by a greater number of PBR graphs without restrictions.
Keith one fewer pay per view events scheduled in the current year quarter, which was solely calendar related was offset by greater sponsorship licensing commercial pay per view event related revenue.
Year over year adjusted EBITDA growth in this segment was impacted by the UFC calendar shift as well as $8 million of off season operating cost at Diamond <unk> Holdings.
UFC all pay per view event sold out in the first quarter featured several record breaking events.
The highest grossing five night and UFC history at London's O two arena.
The highest growth of U S. Neither in history in Columbus, Ohio.
Commercial pay per view also saw significant gains when compared to Q1 2021 as well as Q1 2019. Additionally.
Additionally, we continued our positive trend in the international media rights.
Most notably timing a multiyear deal with discovery costs in the Netherlands, and Eurosport in Spain.
We also recently announced a deal with CJ <unk> in South Korea, which we closed in Q1.
In aggregate the annual average value of all international rights deals closed since Q2 of 2021 is in excess of 100% over prior deals at.
At PBR revenue growth more than doubled in the quarter of the broker 10, all time gross sales record with 7% sold out shows now turning to events experiences and rates. The segment recorded revenue of $825 8 million in the quarter up $286 2 million or <unk> 53.
Percent.
And adjusted EBITDA of $132 5 billion up $93 4 million or nearly 240% we.
We saw strong performance from <unk> premium hospitality offerings across events in the quarter.
This includes the NFL postseason and Super Bowl 56.
The College football Bowl season, and a portion of NCWA March madness.
Our events business also benefited from the strong return to in person events.
Rooting freeze no way, the Miami open, which had record breaking attendance and the introduction of new events like our inaugural myths collective sports event in Las Vegas.
Moving onto our representation segment.
Revenue was $350 to $7 3 million, an increase of $108 4 million or 44%.
While adjusted EBITDA was $101 7 million up $42 million or 65%.
The representation of segments saw growth across the board driven by increased brand marketing spend and continued strong demand for our talent, including the return of live entertainment.
More specifically, our core talent representation business, which includes WMA WMA sports and our fashion talent businesses, such as IMG models in the Walker chalk collective revenue increased 24% in the first quarter compared to Q1 2019.
As it relates to our capital structure, we ended the quarter with $5 7 billion in long term debt.
Cash balances, including cash from the sale of the restricted portion of endeavor content, where approximately $2 billion at quarter end <unk>.
Resulting in $3 6 billion and net debt.
We are on track to achieve our sub Flores net leverage target.
Moving onto our outlook for the remainder of 2022.
We are raising our revenue range between 5335, and five $4 75 billion.
In addition, we are raising our adjusted EBITDA range to between one one and $1 one 5 billion.
The midpoint of our updated range represents 28% year over year adjusted EBITDA growth our updated guidance reflects the strong underlying fundamentals and diversity of our business, our outperformance year to date and our confidence for the balance of the year given the tier ones, we realized in the first quarter <unk>.
Despite some macro risk factors, we feel great about our overall position in the sports and entertainment ecosystem and our ability to continue to deliver strong results.
With that I'll turn it back to James.
Thanks, Jason and thank you all for joining us today to help make our Q&A session more effective of our help direct questions. Please limit yourself to one question. So that everyone has the time to ask a question and with that we will take our first question.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Thank you.
Your first question today comes from the line of Ben Swinburne with Morgan Stanley . Your line is now open.
Thanks, Good afternoon.
James I'd love to hear from the team a little more on the content spending debate that the market is clearly focused on.
And maybe when we could hear a little bit about the talent business and how diversified it is across customers or platforms and different parts of the media ecosystem. I think maybe there is some concerns that half the business is netflix or half the business is TV. So it would be great to hear more about that that business from a breath point of view.
Youre seeing platforms, like Apple or Amazon lean and maybe wall.
Netflix maybe.
Revisiting it spending plans and I was just wondering if Jason could update us on cash conversion for the year. So that's another.
Topic among investors.
Great. Thanks, Ben.
The content trend question and ill have.
Jason jump in on diversification as well.
Question. Thanks, Pat.
From where we sit we don't see any reduction in the content spend.
Each platform is going to have their own strategy to drive long term value and increase their viewership.
We just saw between.
Disney Peacock, Paramount HBO, Max and discovery, and we're not talking about Amazon and Apple or Netflix.
That was over 20 million subs all driven.
By contact that they have on their systems.
Some are talking about as far as some are talking about adding a box.
So.
As I said before in that space, where distribution agnostic so wherever the spend is going.
We believe the spend is going up not down because we believe apple.
Amazon are pushing in also moving into sports.
Good as Jason mentioned in his opening statement, our revenue and the representation business increased 24% compared to 2019.
And if you think about.
We think about the content business.
Broader sense and then just the streaming business.
So from our perspective.
<unk>.
We have I think the number is.
On total between broadcast cable, which is basic and premium.
372 shows on streaming on a collective basis between scripted and unscripted.
Over a year basis 411 shows a total of 783.
Very diversified that being said.
Our podcast business is up three <unk> from 2021, our sports betting business.
It is up significantly.
And so.
We feel good about where we sit in all of these business I haven't even mentioned our content business, our lecture business our comedy touring business et cetera. So there is no indication across any of the platforms that their content spend and the last thing I would like to say to you there.
TV shows take between six months and a year to from start to finish movies are 18 months, sometimes two years.
Already locked in through 2023.
At the beginning of 2024, so the bottom line is as I said, we are as a proxy for content spend it isn't decreasing because thats how on the premium side, they get subs theyre all in the process.
They make these bets about being in the <unk> services and they are continuing to spend and they also had to defend the legacy business and content is spreading out to podcasts and et cetera, with that I'll turn it over to Jason Hey events.
Speak to the point that exposure really it's about diversification.
Not rely on any one distribution partner <unk>.
Q1, 2022, our revenue from our three largest satisfied buyers in the aggregate represented less than 2% of our overall company revenue for the quarter.
Okay.
That's helpful. Thank you, yes on a free cash flow.
Let's say we have targeted.
To get to a 50% free cash flow conversion, we are well on our way there and expect to generate meaningful cash flow this year.
Thanks, guys.
Next question operator.
Your next question comes from the line of Bryan Kraft with Deutsche Bank. Your line is now open.
Hi, Good afternoon I wanted to ask you UFC question. One of the questions were asked regularly is how UFC fighter compensation measures up to other sports and the comparisons tend to be made mostly two major team sports like the NFL NBA. So my question is is that the right comparison have you looked at it relative to other.
Sessional sports Besides the major team sports and if so how do you see you have Steve measuring up thank you.
Yes, Thanks, Brian .
Yes, we have.
There has been a lot of comparisons drawn to sports such as the NFL and NBA. We actually we don't think that is the right comparison for the USA.
We think the right comparison is two other individuals' parts.
Tour F. One NASCAR in ATP and if you look at those athletes on what they are paid as a relative percentage of revenue for those leads it's right in line, where the UFC as with our athlete compensation.
I would also point out that the.
Spider Cop CAGR since 2005 has been 26% while the revenue CAGR for that period has been 21%. So the fiber caulk CAGR has been outpacing the CAGR of revenue for the entire company.
Before we talk about other ancillary ways that our fighters are earning money through sponsorship and other consumer product deals.
No.
So imation here, we believe we can continue to invest in our fighters without risks or the margins of our business.
Okay, great very helpful. Thank you.
Thanks, Brian next question.
Your next question comes from the line of Stephen <unk> with Goldman Sachs. Your line is now open.
Great. Thank you for taking the question Theres been a fair amount of concern on the economic front as well, particularly as it relates to the consumer in the live events space. I was curious if you guys had seen noticeable change in the demand backdrop for lives with either the ones that you heard a story about NIM over the last month or so and then maybe related to that.
Proper gene from briefly but could you talk maybe more about the macro or reopening assumptions embedded within your updated guidance. Thank you.
Sure. Thanks, Stephen I'll take the first question on consumer and then Jason will jump in on the guidance. Thanks Steven.
There is no indication in our business that the consumers week.
Okay.
In the first quarter, we sold out every pay per view UFC saw an increase of 40%.
Year over year.
Out of town fans actually coming in traveling to our events.
If you look at.
The Miami opened which just happened.
Miami opened we've ever had as it relates to attendance.
On location, which I said before.
It was the largest Super Bowl that we've had in that in that business.
We just acquired the Madrid open and are 10 days, we had over 200000 people attend that even live nation talks about in their earnings report bookings are up over 40%.
You just look at this past weekend.
Formula one had.
85000 people attend we sold out our UFC pay per view event.
Disney had their Marvel movie to over 450.
<unk> million dollars.
Globally, you had all the NHL and NBA games.
So we're seeing none.
Of the kind of.
Consumer.
Restrictions happening and we actually only we look into the future and where it's going we feel very positive about where that's going right. Now so we don't see any weakness.
I would also add on the consumer side.
For our upcoming events, we see great demand as well on the pipeline.
Concert bookings for the fall are Rfps and way ahead of pre pandemic levels, Our academy business, which is consumer facing businesses that record enrollment levels around CSA recruiting business has the most active users. However.
And on the corporate side, we are seeing.
Interest upon grant equal on brand spend.
As you will see through Q1 on a contracted basis, we've already surpassed 2021 sponsorship sales, saying that PBR and it takes over 98.
Do you think 2021 through our first quarter.
Thats, just underscores the value of having a diversified business platform.
As far as guidance.
We updated our guidance and Thats really based on the underlying fundamentals of our business, our outperformance year to date, and our confidence and visibility into our business for the balance of the year.
And the tailwind we're seeing in the first quarter in the sectors that we operate in.
Alright, great. Thank you.
And our next question please.
Your next question comes from the line of David Karnofsky with J P. Morgan. Your line is now open.
Alright. Thank you I wanted to see if you could update your outlook for your marketing business and 160 over 90.
What was the segment negatively impacted by Covid, especially in the experiential side. So just wondering what type of demand youre seeing there right now from Brian .
What we're seeing is Jason just went over on our sponsorship side in our 160 over 90 side, we're seeing great demand from corporations to have experiential moments throughout our our event.
So from our perspective it's.
Demand is really high.
160 over 90 business is growing substantially.
And our our sponsorship across the platform.
As on power or higher than it was in 2021.
Okay.
Some recent Youll see international deal I was wondering if you could provide an update on the rights negotiations in Brazil, I think you've been on with the Mana for 10 years are you seeing incremental interest as you go to market.
Think about potentially launching something like slide pass it in region.
Well.
As I said team.
I think Jason in his opening statement talked about the CJ deal, we talked about the Netherlands deal, we talked up our percentage of above 100%.
We're in conversations in Brazil, right now with the incumbent and many others global being the incumbent we.
We do have quite passing we have optionality down there and.
And when things come clear as it relates to that specific region will give you an update.
Great. Thank you thanks, David.
Your next question. Your next question comes from the line of John Hodulik with UBS. Your line is now open.
John Thanks for the question Hey, guys. Thanks for the question.
Some real strength in the events business and I guess similar to what you're going to ask in the past.
Would you guys say you are up to full strength post COVID-19 here. It sounds like obviously everything we're seeing in the U S. That this represents a sort of a full quarterly run rate, but is there additional upside maybe on that as we go through the year from for the reopening in May.
In Europe or in Asia, and maybe how much exposure you have to that and then along with that.
I know you guys had the Super Bowl and on location.
The quarter, what did that represent sort of an outsized sort of benefit in the quarter to this to this EBITDA number you guys posted.
Thanks, John I'll, let Jason take that sure.
We're certainly seeing is as already mentioned on Miami opened a record record attendance at our events.
I would definitely say, we saw upside in the events over the balance of the year, if theyre going to be coming to returning so too.
Full capacity on exposure.
I would say that the one area, we probably have a little bit exposure is China, and what's going on in China, and some events that we have in the Q4 in China.
If those materialize, we'll certainly we'll certainly update but.
That's really where we see some potential exposure on events for the balance of the balance of the year.
And as far as allocation goes.
'twenty one we did not have a full capacity Super Bowl. So this is the first time, if youre comparing our year over year from 'twenty two to 'twenty, one that you'll have a full capacity Super Bowl and the application business compared to last year. So.
It is a big increase from the amount of tickets and events that we've been if we're able to put on in 'twenty two versus 21.
Yes, I guess, what I'm getting at is you had a big big quarter in that segment.
So at the EBITDA line I mean is this a good run rate is.
Pluses and minuses the mind this might be to rule comes out.
The pluses might be that.
Further reopening.
In Europe , and maybe over time in Asia.
But at this level of EBITDA.
What kind of level, we should be using as a base going forward.
Yes, I would say two things as we look at the E&S segment I think it's also important to realize that it's not just an events business in that segment right. We have a media rights business, where Brian to your arena business. We also have our <unk>.
<unk> business in that segment. So all of those businesses are making up that segment, specifically on the event side.
I don't think you can.
Q1 is at run rate I would say for events, because we have some of our bigger events that happened in that in that quarter. In Q1. So there's a lot of seasonality in that business, given the timing of events and when they happen.
Got it thanks for the color.
Our next question Eric.
Your next question comes from the line of Meghan Durkin with Credit Suisse. Your line is now open.
Hi, Thanks, guys.
So you mentioned tuck <unk> I was just wondering if you could talk about their impact on the entertainment landscape in general in your business and as they begin to add new monetization elements, how will that impact your talent business and then Jason I just I think the last time, you gave us the AAV and the deals on the international side.
It was around 90% so it looks like it accelerated can you give a little color on what happened there.
Yes.
Could you repeat the second question about anywhere breaking up there slightly.
D a.
<unk> international deals accelerated between last quarter and this quarter from the comments you've made before I was just wondering if there was like an underpriced market or what happened there got it so I'll, let art jump in on the top line and then Jason could talk about AAV.
Tick tack one on <unk>.
A significant amount of influencers and the representation side, we move them across the platform, sometimes they do book Samsung sponsorship.
Sponsorship et cetera, it's an unbelievable platform to break people and then we move them across our architecture across the platform.
So as <unk> is a perfect example, she started there she did a movie on Netflix. So that's a very good base of operation is find new talent for us.
And we have an unbelievable relationship. We also have a UFC deal with there and they want more stuff from us so.
As far as the some of the new deals we've done it.
We have raised that AAV average up which particularly the discovery question on Netherlands, The Eurosport deal in Spain, and the T. J <unk> MD on South Korea.
Just.
Had some great success.
On those media rights deals upfront that has brought the AAV ups since last time, we spoke.
Okay.
Alright, Thanks, Greg.
Your next question comes from the line of Tom Champion with Piper Sandler Your line is now open.
Hi, Tom Jim on for Tom Thanks for taking the question.
So for for Jason I guess, if we look at Q1's contribution for revenue and EBITDA as a percent of total for 'twenty two rare.
Relative to pre Covid.
The business looks to be off to a pretty strong start.
What are the biggest things we should keep in mind in terms of seasonality as we model the rest of the year.
Great. Thanks for the question Jim.
Okay.
Really probably the biggest thing is the timing of some of our bigger events and when they take place over the course of the year.
When we look at this business on an annual basis and that's how we keep our guidance when we do that because of the seasonality we have in our business but.
We are off to a great start and feel really good about where we're guiding for the year.
Great. Thanks, Thanks, Jamie.
Next question please.
Your next question comes from the line of David Joyce with Barclays. Your line is now open.
Thank you on the sports betting side.
Granted you haven't closed on open.
But what are the.
Competitive forces that Youre seeing for AMG arena, what you'll have with open pits and how are you addressing them.
There are there regions.
Globally that are going to be stronger and providing growth for you I was just wondering if you could.
The sort of settled on the strategy there and.
And then secondly, just on the debt question.
That's $5 7 billion how much of that.
As fixed what should we be thinking about your leverage in this increasing interest rate environment. Thank you.
Okay. Thanks, David of Jason take those yeah, I'll start with I'll start with the debt side of that question.
Yes, roughly 23% of our debt is fixed or roughly $1 5 billion in interest rate swaps. So.
That is how much.
Continue to evaluate opportunities to further replace a portion of variable rates with fixed rates if it makes sense.
Additionally, what I would say on our where we arent.
We are we are expecting at year end.
Based on what we're expecting for our free cash flow conversion for the year as well as our updated guidance, we are expecting to be sub four times on a net debt basis.
Year end 2022.
As far as the open viscose.
We're in a regulatory process units waiting to get approval, but we're extremely excited about the opportunity in that space. We're BBB player there in new regions or new markets open up.
It's a great opportunity for us to acquire technology and content solutions, and then being able to integrate that with IMG arena and have a full products.
Offering makes us what we believe are one of a kind of player in the space.
And both of those businesses are EBITDA positive, we focus on making money.
And both of those businesses and have been EBITDA positive for quite some time here as I'll say about open back and IMT arena the regions that are there.
We have a lot of opportunity U S. Japan, Brazil remember also on that business or on the supply side. So we're not having to pay to gather customers or.
BW player there, where the underlying technology across the platform between the 470 plus bookings.
And also the platform like Pandora and tracking so we don't have their same economics on the supply side of our technology and so those deals are.
I mean, three and five years, so we feel very good about where we sit.
And there is also as Jason said in his opening remarks, there is a $100 million of revenue.
Revenue synergies between the two businesses so.
It's a great opportunity for us alright, Thanks, David next.
Next question.
Your last question today comes from the line of Jason Bazinet with Citi. Your line is now open.
Just looking at your numbers and how they stack up against the consensus and one of the numbers that jumped out.
With noncontrolling interest of $190 million.
Which is almost I think 40% of the net income I know theres a lot of moving parts that have happened on that line. The acquisitions that you guys have done but.
You mind, just unpacking that a bit just so we can learn.
Forecast, correct and adjust our EV to EBITDA.
Yes.
The FC structure, but we're happy to follow up with you offline on that and then get into the detail on that with you.
Okay great.
Hey, guys before we kind of sign off here I just wanted to say one thing to you guys as I said across our platform. We are on the supply side of this conversation we don't see any reduction in content spend we don't see any reduction in our bedding business. The consumer is very strong.
And in our own sports properties, we feel very good about right now and Thats why we kind of we have great visibility because of our contracted relationship across our platform about our business and the balance of the year and that's why we've raised guidance for the end of the year and with that I'll just say thanks for all your questions. We really appreciate it.
Thanks very much.
This concludes today's conference call. Thank you for attending you may now disconnect.
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