Q1 2023 Endeavor Group Holdings Inc Earnings Call
Record auction sales.
The history channel carried primetime coverage of the event and we pulled in over 300000 in attendance.
Now I'll share additional highlights from the quarter.
Growth in our own sports property segment continued to highlight the strong demand for premium sports content and live experiences.
Five out of six UFC events in Q1 sold out and three set highest grossing event records.
PBR had its best start to the year in the sports three decade history.
In Q1 <unk> tours featured 24 sold out performances 26 event paid attendance records and 31 event revenue records.
PBR also signed multiple sponsorship extension.
Our events experiences and REIT segment further benefited from continued strength across owned events and demand for sports rights.
Ami opened achieved record attendance and on location curated premium hospitality experiences for 13 College football Bowl games.
In addition, <unk> was named the official production partner for Major League soccer and will produce all coverage for apples MLS season pass featuring more than 500 games throughout the season and extensive studio coverage. This is one of our largest production deals to date in terms of prestige and scale cementing <unk> reputation as a center of.
Excellence for production.
Also in Q1, IMG renewed and expanded its more than 50 year partnership with the RNA to build and further develop their commercial program.
Q1 also marks the first time, we are breaking out our new sports data and technology segment.
In the quarter IMG Arena distributed the official sports data and streaming rights for the Miami opened the Indian Wells open and the start of the MLS season.
Open debt executed eight new partner launches in Q1, including extending its bedding and platform technology to Massachusetts with fan dual as well as launching in Ohio with both fan dual and Betfred opened <unk> also launched a new long term digital partnership with <unk>, a leading gaming company in Greece, helping strengthen open debt position in one of the most <unk>.
Thomas and European regions.
In our representation segment IMG licensing delivered brand deals and collaborations for clients, including GAAP, Dolly Parton, Millie, Bobby Brown, Jeep Goodyear Fortnite and the NFL.
The Division was also ranked the number one licensing agency in the world by license global for the fifth year in a row.
WMA recorded strong bookings globally across its music touring business heading into festival season, and comedy is experiencing a renaissance.
Standup greats like WMA clients, Adam Sandler and Ricky Gervais announced returns to the comedy circuit and the spectacular duo of Amy Poehler, and Tina Fey announced their first ever tour, which is selling out at every stop across the country.
Despite spending tightening among buyers and brands prolific and premium creators like WMA clients, Tyler Perry and <expletive> Wolf continued to draw competitive bids.
And there is no question theatrical as coming back two.
2023 Global box office revenue projections have risen to an estimated $32 billion.
As one of many proof points, we saw franchise opening records in March for sequels, John Wick Chapter four and screen six both of which feature WMA clients in key roles.
All positive momentum as we head into memorial day in the summer box office season.
As we look ahead at 2023, we remain confident in our strategy and our ability to execute over the long run.
While the writer's strike is likely to have an impact on our representation segment. If it carries on for any great length.
The depth of that impact will be determined by several factors that we will quantify over the term of the work stoppage gives.
Given the diversification of endeavor, we remain well positioned to continue capitalizing on the most resilient secular trends benefiting premium content and live events.
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.
Then provide some color around what we're seeing in each of our operating segments.
All comparisons will be to the first quarter of 2022.
For the quarter ended March 31, 2023, we generated $1 $5 97 billion of consolidated revenue up $123 1 million or eight 4% over the prior year.
Adjusted EBITDA for the quarter was $306 4 million down $8 1 million or two 6% from the prior year, which was consistent with our expectations.
Free cash flow was $42 million in the quarter up $122 million over the prior year.
First quarter free cash flow is seasonally the lightest primarily due to the timing of the majority of bonus payments and a reduction in deferred revenue for several of our large events and hospitality offerings now.
Now I will walk you through each of our segments, including our new sports data and technology.
Our <unk> property segment generated revenue of $353 3 million in the first quarter.
Up $56 6 million or 19%.
The segment's adjusted EBITDA for the quarter was $185 7 million up $36 9 million or 25%.
As a reminder, the prior year quarter included $8 million of operating cost at Diamond Baseball Holdings, which was sold in September of 2022.
Revenue growth in this segment was driven primarily by increases in media right fees sponsorship commercial pay per view and.
Event related revenue at USC.
Most notably due to additional pay per view event in the quarter.
As well as additional events with live audiences.
<unk> also contributed to segment revenue growth driven by higher ticket sales from increased attendance as well as revenue growth from the team serves.
At <unk>, we continue to deliver more record breaking events across the globe UFC 280, foreign currency was Australia, its highest grossing event of any kind.
<unk> hundred 85 in Las Vegas, with UFC, the highest growth in commercial pay per view event within the past 12 months.
Additionally, UFC 286 in London was the highest grossing event in the <unk> Arena history.
Also in the quarter, we signed several new long term broadcast partnerships.
These include RMC sport, covering in France, Monaco, and French overseas territories.
<unk> media for Turkey, Iceland, and Baltic countries and you next in Japan.
The increase in our aggregate AAV remains approximately 100% over prior deals since we began tracking in Q2 of 2021.
As already mentioned at PBR, which had 31 event revenue records, including 24 sold out performances.
Over the course of the quarter.
<unk> events also drew more than 5 million fans to venues across the U S.
We signed several partnership extensions, including with Lucas oil MGM Kubota and Sonic.
For <unk> team series, we also inked partnerships with ebay motors and overall the industry's peak automotive products.
Turning now to events experiences in rates.
The segment reported revenue of $808 million in the quarter up $19 9 million or two 5% in.
And adjusted EBITDA of $108 million down $18 million or 14, 3%, which was in line with our expectations and consistent with the cadence and our plan for full year 2023.
Revenue growth was driven by heightened demand for events, most notably the Miami open freezer OE.
And the inclusion of Barrett Jackson.
Growth was also driven by increases in media right fees at RMG media as well as increased enrollment at <unk> Academy.
Revenue growth was partially offset by the discontinuation of annual cases music Festival business in Mexico, which accounted for $75 million in the prior year quarter.
Segment adjusted EBITDA for the quarter was affected by.
The challenging Super Bowl comparison, largely due to difference in match ups and location versus last year's record setting events.
On location to ongoing and increasing Iot investment, which began in the second half of last year, which includes cost for personnel marketing and technology related costs and the discontinuation of on locations Music Festival business in Mexico as mentioned earlier.
We remain excited about the potential returns on our Iot investment, which we continue to believe could be a multiple of nine figure profit opportunity across the three Olympic game.
And as already said, we recently announced an agreement to sell <unk> Academy in an all cash deal, reflecting an enterprise value of $1 billion to $5 billion.
We expect the transaction to close at the end of Q2 or the beginning of Q3 this year.
I will address our planned use of proceeds from this transaction later in my remarks.
Moving onto our representation segment revenue was $350 2 million, a decrease of $7 1 million or 2% adjusted.
Adjusted EBITDA was $84 2 million down $17 5 million or 17%.
The decrease in segment revenue was primarily attributable to a $14 million of revenue recorded in the prior year quarter from the restricted endeavor content business, which was sold in January 2022.
Segment revenue was also impacted by a decrease at our marketing and experiential business due to the disposition of certain contracts in the quarter.
Partially offset by an increase in revenue at WMA, driven by TV music and fashion.
Segment, adjusted EBITDA was affected by higher cost of personnel at WMA with.
We view this as an important investments to drive continued long term growth across a range of talent categories.
Turning to our new sports data and technology segment.
Revenue was $100 9 million, an increase of $55 8 million or 124% adjusted.
Adjusted EBITDA was $4 $5 million down $2 million or 31%.
Growth in this segment revenue was attributed to the addition of open bed, which we acquired in September 2022, as well as growth at our IMG Arena business.
Segment, adjusted EBITDA, which benefited from the inclusion of open debt was more than offset by a $22 million increase in data content IMG arena.
Including approximately $10 million of costs that were incurred in advance of the sales cycle.
These new data cost created a temporary pressure on segment margins, which we anticipated and we expect to monetize these data rates in the future.
As mentioned on last quarter's earnings call. This is consistent with the segment being back half loaded and building largely sequentially as the year progresses.
Moving onto our capital structure.
We ended the quarter with $5 $2 billion of debt and $718 7 million of cash.
<unk> and $4 $5 billion in net debt.
Our net leverage was 388 times at quarter end.
As previously articulated we expect net leverage to meaningfully decrease by year end following the IMG Academy sale and the expected close of the UFC WWE transaction.
Now, let's discuss our capital allocation strategy.
Since going public in April 2021, we prioritize deleveraging.
Having successfully reduced net leverage we are now shifting our focus to have greater financial flexibility.
We plan to deploy capital across three areas in short order paint.
Paying down additional debt buying.
Buying back stock and initiating a quarterly dividend.
Following the closing of the IMG Academy sale, we intend to voluntarily pay down $50 million of debt and commence repurchases of up to $300 million of our class a common stock.
<unk> and event driven share repurchase announced earlier today.
We're also announcing our plans to start issuing quarterly dividend to holders of our class a common stock and our other equity holders and endeavor operating company in an amount up to $25 million per quarter.
Moving onto our outlook for the remainder of 2023.
Our updated guidance primarily reflects the expected sale of the IMG Academy.
Our revenue guidance range is now between five six to six 5 billion and $5 eight $1 5 billion.
Which is 574 billion at the midpoint.
And our adjusted EBITDA guidance range is now between 122 billion and $1 $2 75 billion, which is 124 $8 billion at the midpoint.
Our updated guidance does not include any potential impact from the writers' strike at.
That's the scope and duration of this trial are currently unknown.
We are working to size the potential impact as the situation develops which we will look to incorporate into our guide and when we report Q2.
We will not be providing free cash flow guidance for the remainder of 2023, and why does dependent UFC WWE <unk> and IMG Academy transactions.
These transactions provide challenges in forecasting our free cash flow metric this year, given the uncertainty with respect to the specific timing and closing of both as well as the treatment of certain costs related to them under GAAP.
Included in operating cash flow, our transaction fees and expenses for both deals as well as cash taxes related to the sale of IMG Academy, which are currently estimated to be approximately $200 million.
For the avoidance of doubt proceeds received are not included.
Given these factors we do not believe the metrics in 2023 is representative of a normalized level of free cash flow for this collection of assets.
That said, we plan to address the metric in 2024 following the closure of both.
Looking ahead at the year, we remain focused on executing our strategy and are encouraged by our increased opportunity to create shareholder value.
With that I'll turn it back to you Jay.
Thanks, Jason K III open it up for questions. Please.
Absolutely we will now begin the question and answer session. If you would like to ask a question. Please press star followed by a one on your telephone keypad.
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Our first question will be from the line of Ben Swinburne with Morgan Stanley . Your line is now open.
Thanks, Good afternoon guys.
Alright, just at a high level can you just talk about why you think a dividend and a buyback makes sense for endeavour and makes sense at this stage in the company's growth.
I don't know if you guys would want to talk about it but how should we think about the growth in those those two levers of shareholder value over time as they grow the business or any framework you might want to illustrate for US and then just a housekeeping one Jason I don't know if you'll give it to us, but I think I have to ask can you can you tell us exactly how much IMG Academy is coming out of the guidance.
No the impact from that.
Thanks, a lot.
So thanks, Matt for the question.
As you know we've talked about this before we prioritize deleveraging since going public taking out from eight times to sub four.
We now have with the sale greater financial flexibility, having successfully reduced our leverage in the past and now with the sale of IMT Academy.
Yes.
Give us an opportunity to create a recurring return of capital to our shareholders and we thought that was important.
We did this while still being able to pursue opportunities to grow our company.
And we're at.
Or kind of.
We feel good about where the company is growing our strengthen our balance sheet and our ability to generate free cash flow. So.
We thought it was the right time.
It's a onetime event with the buyback the dividend.
<unk> brings us a new group of.
Shareholders to look at the company.
We will continue deleveraging with TKO so we feel good about all of that and we thought it was the right time to do it size in the future, we're not going to discuss right now.
Got it okay.
Great and then as far as the guidance goes if you looked at our original guidance at the midpoint on EBITDA, we are at $12, 77% at the midpoint of our current guidance of 12 48 and.
And on the revenue was $5 9 billion growing at 574 billion. The primary driver. There is we are removing the IMG Academy for the second half of the year based on a 630 close.
The primary difference in the guidance is effectively just taking.
The second half of the year out of our out of our forecast on revenue and EBITDA for the Academy.
Okay.
Thanks, guys.
Thanks, Brian .
I wanted to ask question.
Our next question will be from the line of Stephen <unk> with Goldman Sachs.
Your line is now open.
Great. Thanks, Good afternoon, maybe for <unk> on the radio shrank I was curious.
Perhaps your perspective on where you think negotiating negotiation stand on both sides today.
Opinions you have on the chances in your view that the industry would come to some type of agreement and a reasonable amount of time and I know you mentioned youre digging into calling out the impact to your business, but at what point does this strike become meaningfully impactful to you in the broader industry is that a few weeks or few months be curious on your take there.
Well. Thanks for the question first of all you have to realize we completely support our clients in this situation.
There's real issues.
And I have to be addressed we support our clients as they navigate these things.
Sure.
The duration is something I can't tell you because I've been through many strikes some Alaska ranked last and 108, one before that was less.
But the issues as it relates to royalties.
Size of the writers room.
There are six or seven issues surrounding it.
I can't tell you.
There is going to be an impact what's the impact for me because I just don't know.
Duration of the strike will keep we're monitoring or in conversations with our clients all the time.
But.
Prior to prior strike the difference here is the size of those issues.
Yes, three direct to consumer business. There are pure plays and then you have three others in a major way not that there's not other players but.
You have Disney that has a direct to consumer business plus they have their linear business same thing with Comcast same thing with Warner Brothers show.
<unk>.
That makes it a little bit more complex besides just the issues but.
We'll give you a better sense of it at things progresses with our guidance.
Export.
Okay.
Great. Thanks for that and then maybe for Mark if he's on if not Ari I was wondering if you could talk more about the opportunity to bundle USC and WWE content together and why you think offering those two pieces.
Perhaps together as part of a bundled could drive increased value for our content distributors either here in the U S or in international markets. Thank you.
I'm actually began and that's not what I'm thinking about so I'm thinking about right now just kind of the integration as it relates to the cost side.
So.
Havent really addressed that and we have a ways to go as it relates to getting approval from Doj, etc.
Thanks, Steven next question operator.
Thank you.
Our next question will be from the line of Doug Mitchelson with Credit Suisse. Your line is now open.
Oh, thanks, so much.
For capital allocation I'm curious how investors should think about what leverage you feel would be optimal for the company going forward in.
And already I know Youll love this but after.
How did you to pay down debt and de lever for since you've come public you have a lot of excess capital over the next few years and I appreciate the stock buyback or the dividend I'm. Just curious if you think there's sort of obvious.
Other businesses that could fit well with either endeavor TKO out there that you've got your eye on.
And just one more Jason I understand the impact from the deals that free cash flow.
It was operating free cash flow is operating free cash flow trending as expected for the year before the deals are considered understand why you want to call the free cash flow guidance when I make the core operating free cash flow whether that was on track or not thank you. So much.
Yes.
On the first part of that question as far as where we are honored that we had stated publicly that we wanted to get the sub four times, which is a standalone. We are we are now.
And we also have mentioned pro forma for the TKO transaction I think we'll be somewhere in the mid twos from a leverage perspective. So we're very happy with where we are from a leverage perspective, and where the company sits right now.
No.
I don't talk about if there's any sort of transaction, we have plenty of work to do to integrate TKL. So I'm not thinking about any of that.
And then the only thing.
Say about the free cash flow as we highlighted in Q1 <unk> for Q1 was $42 million in the quarter up $120 million to $122 million over the prior year.
We noted that free cash flow in the first quarter is seasonally the lightest.
For the business so.
<unk>.
We feel good about where we were in a cash flow perspective.
Got it thanks, so much.
Thank you next question operator.
Our next question will be from the line of Bryan Kraft with Deutsche Bank. Your line is now open.
Hi, good afternoon. Thanks for taking the question I was wondering if you could talk at a more granular level about the opportunity you see with open that I think investors understand its an area of secular growth, but I think there's also a real lack of understanding out there around the breadth of open that service offering how it is.
Differentiated from competitors and what its real revenue algorithm, if you will looks like so.
Wondering if you could expand on that a bit and talk about that opportunity. Thanks.
Yeah no problem. So thanks for the call. Let me. Thank you for the question so.
As we stated at the data and the feedback.
Within AMG arena.
A player authenticity.
Content comes in in the technology underneath a lot of it is an open debt.
They're a global.
Company.
Made yields not only in Washington D C, Wisconsin, Maryland as states continue to open but we've also made big deals now with them.
In Greece.
<unk> our contract with <unk>.
Premier player in the <unk> space and the combination is very powerful so.
And it's a complete integrated service when it comes to the two services. So there is the.
The data in the stream going into the technical and kind of digital aspect of open debt, so and that gives us kind of a lot of leverage around the around the globe. So that's how we look at it.
Thanks, Alright, maybe just as a follow up on that I mean can you talk about.
What opened that does with sandal like what that relationship actually it looks like.
Well, it's all of the underlying technology that enables them with tangible really does it go after.
Customers.
We provide all the underlying technology to enable the service to function.
Okay.
Got it okay. Thank you very much.
Integrity services.
To content, meaning at making et cetera to player wallets.
Okay.
Got it thank you.
Thank you operator next question.
The next question will be from the line of Jessica Reif Ehrlich with Bank of America. Your line is now open.
Thanks couple of things one on location can.
Can you talk about kind of the cadence of the path to free cash flow right now I guess, it's a use of cash as youre gearing up for the Olympics and building the business, but it's not the ticket sales start to come in at the end of this year.
Are there other events that can and should be added to that business any color would be great and then on.
Didn't hear I think alright, Jason just said.
The timing for the regulatory process.
WWE and UFC and then the last thing sorry, but the last thing is.
With the writers strike.
But I don't know what you mean.
It feels like it might be lumpy is there any way you can increase your.
Sports output to take advantage of a lack of entertainment.
Okay.
So as it relates to I'll take the last question and I will come back.
There's going to be a lot more non scripted which has happened over many different strikes.
So they have also backlog a banner of content on the scripted side.
No.
<unk>.
We do we do X amount of events for UFC for PV.
PBR et cetera, and our rights that we have out of IMD that we sell globally.
But I think.
They're going to go through their libraries of stuff that has already been shot and theyre going to be doing non scripted stuff.
Probably more heavily and then may be depending on the duration go to international shows.
South Korea, Germany, et cetera to kind of bring them.
Here.
And then what was your other two questions.
On location and also the update on kind of like timing of the regulatory process for.
WWE in USA.
Well, we're not sure about the timing of that.
Don't have an update for you on that.
On the location.
Kind of is there any other thing any other product out there.
Yes, there is there's a bunch of different events, we have our own events. So that it would be Barrett Jackson UFC now.
WWE near.
New York Fashion week, all those free.
And then we have the Olympics and the Super Bowl and Theres other ones.
We're looking at trying to kind of.
Bring into the fold on the representation side, but we have not.
Included in any of those right now.
And just the path to free cash flow on that one.
Well I mean, the business on a location side.
We expect to be free network ZEVALIN in free cash flow positive I mean.
Pre sales of the Olympic sales are going on now so depending on the.
The timing of how those sales come in compare to some of the <unk>.
Contractual obligation of payments we have.
Over the course of the year, but certainly expect to be free cash flow positive and remember the Olympics in about a year year and a half away.
Right, but you are getting the cash now or soon.
We're starting we're starting to we're starting to get the cash, but we still also have some expenses related to.
Seven.
Some fixed costs that we have.
Related to that business as well so as we get closer and sales continue to ramp we'll get more free cash flow positive.
Thank you Gregg next question any other questions you just heard.
No no.
Great. Thank you.
Next question please.
The next question will be from the line of Tom Champion with Piper Sandler. Your line is now open.
Hi, good afternoon.
Yes.
Very very strong growth out of own sports was just curious if there are any particular callouts there and when would we expect.
Growth to kind of.
Through the year, maybe as we digest the impact of.
The baseball divestiture.
And then maybe on OSP more broadly just curious whether.
PBR in Euro basketball remain.
As tight strategic fits just in light of the much larger teekay.
<unk> asset any any thoughts there would be helpful. Thank you.
Thanks, Tom.
On <unk> I think it's.
30, <unk> since 2021, I want to make sure I get this right. There's been 36 sellouts 38 events.
<unk>.
Just a little Miss in Brazil, because it was a little political strife going on there in Kansas City, we just missed a complete but.
But we've had record sales in the U K.
In Las Vegas, Perth so.
So we feel very good about that business and I think in Jason's opening remarks as it relates to PBR.
<unk>.
Uh huh.
Half of them.
Half a million people came to our events, that's going extremely well we've added the team series, which is going very well.
So we feel very good about our own sports properties and how that is performing.
And so yeah I mean.
Everything is going as planned and then when we think about it.
The.
We have a pay per view fight past.
<unk>.
The bar business, both domestically and internationally.
Although the commercial pay per views so all in all our sponsorship.
Very well so it's a.
Wonderful segment, both at PBR, and you'll see we talked specifically about the increase in <unk>.
<unk> fees sponsorship commercial pay per view setting continue to say gave records internationally domestically, so really gaining strong revenue growth from all areas of that business.
Okay. Thanks.
Thanks, Tom got it thank you.
Great next question please.
Thank you. Our next question is from the line of David Karnofsky with Jpmorgan. Your line is now open.
Alright. Thank you are you mentioned theatrical and the recovering box office in your remarks.
One of the potential points of upside at least exhibitors highlight is is more supply coming from streamers, I think whats less clear.
How many or what types of films DS services might bring to the market. So interested to see if you have a view on what theyre thinking might be and how much lift that could provide to the market and ultimately the talent demand. Thanks.
Well I mean, you have movies that are just right for streamers and then you have movies that are.
And theatrical window and then go to streamer, we've had really nice performance in the last couple.
Two movies.
One from Universal won some business slash Marvel.
And before that I think we went over to Lionsgate movie et cetera. So I think the theatrical business is back we're seeing a lot more commercials on TV or whether it be different.
During the NBA playoffs four.
A lot of movies right now coming out this summer.
So.
That's a.
As a new segment for more.
For content that wasn't around during a heavy coat.
In the height of Covid, So and then the streamers are still.
Heavily weighted in movies and television whether it be Apple doing ghosted.
Air at.
MGM such Amazon, So we feel very good about where the content spend is and the diversity of it.
Between the traditional businesses, whether it be network business, whether it be theatrical or on the direct to consumer space.
Okay.
Okay. Thanks, David.
Next question please.
The next question will be from the line of David Joyce with Seaport Research Partners. Your line is now open.
Thank you after the IMG Academy deal is done and you've already talked about capital allocation, but how else would you redeploy capital in the business.
In terms of.
EUR would you look to.
One more events or manage Vince do you have.
Preference on either in terms of the margin contribution I was just wondering where what.
What works for your business model relative to your cost of capital.
Yes, the only thing I would like to say just to remind everybody. So we sold <unk> academy for $1 million to $5 million, which is greater than half the cost and the value that we bought.
All of IMTT, So theres a lot of and we sold in Denver content per $1 billion. So theres a lot of value back at par.
Post <unk>, there's a lot of value.
That's 8 million $1, two 5 billion excuse me.
There's a lot of value back at Edr.
Going into our capital allocation what else. We're looking at of course, we said to you.
We like we like to be in the ownership space right now.
We got to execute on what we've already.
Bitten off here so.
Alright, thank you.
Thanks, David.
Thank you.
There are currently no additional questions registered at this time, so I will pass the call back over to the management team for closing remarks.
Great. Thanks, everyone for joining us today.
Okay.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.
Joining us today.
Okay.