TKO Reports Third Quarter 2023 Results For WWE & UFC

07/11/2023 22:12

TKO announced its earnings report for the third quarter of 2023 today, which includes WWE and UFC. You can check out the official announcement below:

TKO Reports Third Quarter 2023 Results

11/07/2023

TKO Transaction Highlights

On September 12, 2023, Endeavor and WWEclosed the transaction to combine UFC and WWE to form a new, publicly listed company, TKO Group Holdings, Inc.

On September 13, 2023, the Company declared a special one-time cash dividend of $3.86 per share of Class A common stock, which was paid on September 29, 2023
Third Quarter 2023 Financial Highlights

Revenue of $449.1 million

Net income of $22.0 million

Adjusted EBITDA1 of $239.7 million

These results cover the period from July 1, 2023 through September 30, 2023 for UFC and the period from September 12, 2023 through September 30, 2023 for WWE
Third Quarter 2023 Operational Highlights and Recent Developments

UFC held 13 events that consistently delivered strong viewership and attendance and set several all-time records for gross revenue at the respective arenas

WWE entering into a five-year domestic media rights agreement with NBCUniversal for SmackDown beginning in October 2024

WrestleMania 40, to be held at Lincoln Financial Field in Philadelphia in April 2024, sold more than 90,000 tickets in one day when it went on sale, breaking the record for all-time gate set at WrestleMania 39

In October, UFC completed a multi-year sponsorship agreement, UFC's biggest ever in the aggregate including cash and marketing assets, with AB InBev to become the exclusive "Official Global Beer Partner of UFC" effective January 1, 2024

In October, UFC agreed to an expansion of its presence in the Middle East North Africa (MENA) region with the extension of its partnership with the Department of Culture and Tourism – Abu Dhabi to continue to host numbered events through 2028 and an agreement to bring up to 3 Fight Nights to the region annually, including its first event in Saudi Arabia in March 2024

NEW YORK–(BUSINESS WIRE)– TKO Group Holdings, Inc. (NYSE: TKO) today announced financial results for its third quarter ended September 30, 2023. The reported results presented in this earnings release cover the period from July 1, 2023 through September 30, 2023 for Ultimate Fighting Championship ("UFC") and the period from September 12, 2023 through September 30, 2023 for World Wrestling Entertainment, Inc. ("WWE").

“Since launching TKO on September 12th, our teams at WWE, UFC, and Endeavor have been focused on integration and executing our strategy,” said Ariel Emanuel, CEO of TKO. “This includes identifying cost synergies at the high end of the range we guided, bringing events to new international markets including Saudi Arabia and Australia, delivering media rights increases for WWE, and closing the largest global partnership deal ever for UFC with AB InBev. We remain bullish about TKO’s ability to accelerate growth and unlock long-term value for shareholders.”

Third-Quarter Consolidated Results

Revenue increased 32%, or $108.4 million, to $449.1 million, due to an increase of $56.8 million at UFC and the contribution of $51.6 million of revenue at WWE associated with the period from September 12, 2023 through September 30, 2023.

UFC's revenue was $397.5 million. WWE's revenue for the period from September 12, 2023 through September 30, 2023 was $51.6 million. WWE's combined revenue for the period from July 1, 2023 through September 30, 2023 was $287.3 million.

Net Income was $22.0 million, a decrease from $129.7 million, primarily reflecting the increase in revenue offset by an increase in operating expenses. The increase in operating expenses primarily reflected an increase in selling, general and administrative expenses of $136.7 million, including professional fees and bonuses related to the TKO transaction and charges associated with restructuring activities. To a lesser extent, higher interest expense and depreciation and amortization also contributed to the decrease in net income.

Adjusted EBITDA 1 increased 26%, or $49.2 million, to $239.7 million, due to an increase of $33.8 million at UFC and the contribution of $22.0 million of Adjusted EBITDA at WWE associated with the period from September 12, 2023 through September 30, 2023 partially offset by an increase of $6.6 million in corporate expenses.

UFC's Adjusted EBITDA was $238.3 million. WWE's Adjusted EBITDA for the period from September 12, 2023 through September 30, 2023 was $22.0 million. WWE's combined Adjusted EBITDA for the period from July 1, 2023 through September 30, 2023 was $102.0 million. Corporate Adjusted EBITDA for the period from September 12, 2023 through September 30, 2023 was ($20.6) million. Corporate combined Adjusted EBITDA for the period from July 1, 2023 through September 30, 2023 was ($42.1) million.

Cash flows generated by operating activities were $67.0 million, a decrease of $71.3 million from $138.3 million, primarily due to lower net income.

Free Cash Flow2 was $63.6 million, a decrease of $72.5 million from $136.1 million, primarily due to the decrease in cash flows generated by operating activities.

Cash and cash equivalents were $188.6 million as of September 30, 2023. Gross debt was $2.773 billion as of September 30, 2023.

Results by Operating Segment 3

The schedule below reflects TKO's performance by operating segment:

Third-Quarter 2023

Revenue increased 17%, or $56.8 million, to $397.5 million, primarily driven by a $31.2 million increase in media rights and content fees, a $12.7 million increase in live events revenue and a $12.2 million increase in sponsorship revenue. The increase in media rights and content fees was primarily related to higher domestic and international rights fees as well as two additional Fight Night events in the third quarter of 2023 as compared to the prior year period. The increase in live events revenue was primarily related to one additional event with a live audience and higher site fees. The increase in sponsorship revenue was primarily related to new sponsors and increases in fees from renewals.

Adjusted EBITDA increased 17%, or $33.8 million, to $238.3 million, as the increase in revenue (as described above) was partially offset by an increase in expenses. The increase in expenses primarily reflected an increase of $18.1 million in direct operating costs. The increase in direct operating costs was primarily due to an increase in athlete costs from different matchups as well as higher production, marketing and venue costs due to two additional Fight Night Events and two additional international events in the third quarter of 2023 as compared to the prior year period.

Adjusted EBITDA margin remained flat at 60%.

WWE

Third-Quarter 2023

Revenue was $51.6 million for the period from September 12, 2023 through September 30, 2023.

Including WWE activity for the period from July 1, 2023 through September 11, 2023, revenue was $287.3 million, as compared to $304.6 million for the period from July 1, 2022 through September 30, 2022. The decrease of 6%, or $17.3 million, was primarily due to lower consumer products licensing revenue and lower media rights and content revenue partially offset by an increase in live events revenue. The decline in consumer products licensing revenue was due to the absence of revenue recorded in the prior year period related to certain licensing agreements with minimum guarantees. The decrease in media rights and content fees was primarily related to the timing of the delivery of third-party original programming and flagship weekly programming, which more than offset the contractual escalation of media rights fees for WWE's flagship weekly programming, Raw and SmackDown, and premium live events.

ncluding WWE activity for the period from July 1, 2023 through September 11, 2023, Adjusted EBITDA was $102.0 million, as compared to $122.5 million for the period from July 1, 2022 through September 30, 2022. The decrease of 17%, or $20.5 million, was primarily due to the decline in revenue (as described above). Expenses were relatively flat as an increase in content creation costs was substantially offset by lower expenses related to the timing of third-party original programming.

Adjusted EBITDA margin was 43% for the period from September 12, 2023 through September 30, 2023. For the period from July 1 through September 30 in 2023 and 2022, Adjusted EBITDA margin decreased to 36% from 40%.

TKO Transaction

As previously disclosed, on September 12, 2023, Endeavor Group Holdings Inc. ("Endeavor") and World Wrestling Entertainment, LLC ("WWE") closed the transaction to combine the Ultimate Fighting Championship ("UFC") and WWE to form a new, publicly listed company, TKO Group Holdings, Inc. ("TKO"). For the three and nine months ended September 30, 2023, the Company's consolidated pre-tax results included $67.5 million and $82.5 million, respectively, of merger and acquisition related costs. For the three and nine months ended September 30, 2023, the Company's consolidated pre-tax results for both periods also included $31.6 million (inclusive of $16.5 million of equity-based compensation expense) of restructuring, severance and impairment costs resulting from the Company's cost reduction program, which was implemented to realize synergy opportunities and integrate the combined operations of WWE and UFC.

Return of Capital to Shareholders

As previously disclosed, on September 13, 2023, the Company announced the declaration of a special one-time cash dividend of $3.86 per share of Class A common stock, pursuant to the terms of the TKO transaction agreement. The dividend, which totaled approximately $321 million, was paid on September 29, 2023 to Class A common stockholders of record as of September 22, 2023.

Notes

The definition of Adjusted EBITDA can be found in the Non-GAAP Financial Measures section of the release on page 6. A reconciliation of Net Income to Adjusted EBITDA for the three and nine-month periods ended September 30, 2023 and 2022 can be found in the Supplemental Information in this release on page 13.
The definition of Free Cash Flow can be found in the Non-GAAP Financial Measures section of the release on page 6. A reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow for the three and nine-month periods ended September 30, 2023 and 2022 can be found in the Supplemental Information in this release on page 14.
An explanation of the basis of presentation can be found in this release on page 7.
Non-GAAP Financial Measures

The Company refers to certain financial measures that are not recognized under United States generally accepted accounting principles ("GAAP"). This press release includes financial measures that are not calculated in accordance with GAAP, including Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow. Please see the definitions below and the reconciliation tables included in this release for additional information and a reconciliation of the Non-GAAP financial measures to the most comparable GAAP financial measures.

The Company definesAdjusted EBITDA as net income excluding income taxes, net interest expense, depreciation and amortization, equity-based compensation, merger and acquisition costs, certain legal costs, restructuring, severance and impairment charges, and certain other items when applicable. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by Revenue.

TKO management believes that Adjusted EBITDA is useful to investors as it eliminates the significant level of non-cash depreciation and amortization expense that results from its capital investments and intangible assets, and improves comparability by eliminating the significant level of interest expense associated with TKO's debt facilities, as well as income taxes which may not be comparable with other companies based on TKO's tax and corporate structure. Adjusted EBITDA and Adjusted EBITDA margin are used as the primary bases to evaluate TKO's consolidated operating performance.

Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of TKO's results as reported under GAAP. Some of these limitations are:

they do not reflect every cash expenditure, future requirements for capital expenditures, or contractual commitments;
Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on TKO's debt;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and Adjusted EBITDA and Adjusted EBITDA margin do not reflect any cash requirement for such replacements or improvements; and
they are not adjusted for all non-cash income or expense items that are reflected in TKO's statements of cash flows.
TKO management compensates for these limitations by using Adjusted EBITDA and Adjusted EBITDA margin along with other comparative tools, together with GAAP measurements, to assist in the evaluation of TKO's operating performance.

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