Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Endeavor First Quarter 2022 Results Conference Call. [Operator Instructions]. James Marsh, Senior Vice President, Investor Relations, you may begin your conference..

Good afternoon, and welcome to Endeavour's First Quarter 2022 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'll hear from Endeavour's CEO, Ariel Emanuel; and CFO, Jason Lublin, before we open for questions. The purpose of this call is to provide you with information regarding our first quarter 2022 performance, in addition to our financial outlook for the balance of the year.

I do want to remind everyone that that the information discussed will include forward-looking statements and/or projections that involve risks, uncertainties and assumptions 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 for any assumptions proven correct, our results may differ materially those expressed or implied by such forward-looking statements and projections.

Forward-looking statements speak only as of the date they are 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. These measures 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 our reported results can be found in our press release issued today as well as on our IR site. With that, I will turn it over to Ari..

Winning Time. Endeavor content was the studio behind HBO's Tokyo Vice. Through IMG, we also produced ancillary sports solving 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 in 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's 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.

2022'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. We also have the visibility into content spend at least through 2023 in 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 on premium content.

Original feature films, docuseries, scripted non-scripted television all drive subscriber growth, as they have for Netflix for a decade and are currently doing for the likes of Disney+, Paramount+, 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 feel great about where we sit relative to the secular tailwind in all of our businesses. Bottom line is that we had a great performance this quarter.

We've continued to beat and raise guidance for the past 4 quarters, and we're well-positioned for strong long-term growth. With that, I'll turn it over to Jason..

Thanks, Ari, and good afternoon, everyone. I'll start by walking 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 impacted 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 $314.4 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 without paying restrictions.

At UFC, one fewer pay-per-view event scheduled in the current year quarter, which was solely calendar related was offset by greater sponsorship licensing, commercial pay-per-view and advance-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 costs at Diamond Baseball Holdings.

At UFC, all pay-per-view events sold out and the first quarter featured several record-breaking events, including the highest-grossing Fight Night in UFC history at London's O2 arena and the highest-grossing U.S. Fight Night in history in Columbus, Ohio. Commercial pay-per-view also saw significant gains when compared to Q1 2021 as well as Q1 2019.

Additionally, we continued our positive trend in international media rights, most notably signing a multiyear deal with Discovery+ in the Netherlands and Eurosport in Spain. We also recently announced a deal with CJ E&M in South Korea, which we closed in Q1.

In aggregate, the annual average value of all international rights deals closed in Q2 of 2021 is in excess of 100% over prior deals. At PBR, revenue growth more than doubled in the quarter as we broke 10 all-time gross sale records with 7 sold-out shows. Now turning to events, experiences and rights.

The segment recorded revenue of $825.8 million in the quarter, up $286.2 million or 53%. And adjusted EBITDA of $132.5 million, up $93.4 million or nearly 240%. We saw strong performance from on-locations 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 NCAA March Madness.

Our Events business also benefited from the stronger turn to in-person events, including Frieze LA, the Miami Open, which had record-breaking attendance and the introduction of new events like our inaugural Mint Collective Sports Event in Las Vegas. Moving on to our Representation segment.

Revenue was $357.3 million, an increase of $108.4 million or 44%, while adjusted EBITDA was $101.7 million, up $40.2 million or 65%. The Representation segments had 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 WME, WME Sports and our fashion talent businesses such as IMG Models and The Wall Group, saw 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 were approximately $2 billion at quarter end, resulting in $3.6 billion in net debt. We're on track to achieve our self-correct net leverage target. Moving on to our outlook for the remainder of 2022.

We are raising our revenue range between $5.235 billion and $5.475 billion. In addition, we are raising our adjusted EBITDA range to between $1.1 billion and $1.15 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 tailwinds we realized in the first quarter.

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. [Operator Instructions]. And with that, Emma, we'll take our first question..

[Operator Instructions]. Your first question today comes from the line of Ben Swinburne with Morgan Stanley..

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 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's some concerns that half the business is Netflix or half the business is TV. So it would be great to hear more about that business from a breadth point of view. And whether you're seeing platforms like Apple or Amazon lean in maybe while Netflix may be revisiting its spending plans.

And I was just wondering if Jason could update us on cash conversion for the year because that's another topic among investors..

Great. Thanks, Ben. Ari will take the content trend question, and I'll have -- Jason jump in on diversification as well as the other question..

Thanks, Ben. Well, 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.

As we just saw between Disney, Peacock, Paramount, HBO Max and Discovery, and we're not talking about Amazon and Apple and Netflix, that was over 20 million subs, all driven by content that they have on their systems. Some are talking about SVOD, some are talking about adding AVODs. So as I said before, in that space, we're distribution agnostic.

So wherever the spend is going and we believe the spend is going up, not down because we believe Apple and Amazon are pushing in, also moving into sports is very good. As Jason mentioned in his opening statement, our revenue in the Representation business increased 24% compared to 2019.

And as you think about -- we think about the content business in a broader sense than just the streaming business. So from our perspective, there's -- we have -- I think the number is on total between broadcast, cable, which is basic and premium, we have 372 shows on streaming on a collective basis between scripted and non-scripted.

There's over a year basis, 411 shows, a total of 783. So we're very diversified there. That being said, our podcasting business is up 3x from 2021. Our sports betting business is up significantly. And so we feel good about where we sit in all these businesses.

I haven't even mentioned our -- in the 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 is coming.

And the last thing I would like to say to you, there are a lot -- I mean, TV shows take between 6 months and a year to -- from start to finish, movies are 18 months, sometimes 2 years. They're already locked in through 2023, and sometimes into the beginning of 2024. So the bottom line is, as I said, we are the proxy for content spend.

It isn't decreasing because that's how on the premium side, they get some. They're all in the process of -- they've made these bets about being in the SVOD services and they're continuing to spend, but they also have to defend the legacy business. And content is spreading out to podcast and, et cetera. With that, I'll turn it over to Jason..

Ben, to speak to the point on exposure, really, it's about diversification. And we're not relying on any one distribution partner. In Q1 2022, our revenue from our 3 largest SVOD buyers in the aggregate, represented less than 2% of our overall company revenue for the quarter. Yes.

On free cash flow, I would 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..

Your next question comes from the line of Bryan Kraft with Deutsche Bank..

I wanted to ask you a UFC question. One of the questions we're asked regularly is how UFC fighter compensation measures up to other sports. And the comparisons tend to be made mostly to major team sports like NFL or NBA.

So my question is, is that the right comparison? Have you looked at it relative to other professional sports besides the major team sports? And if so, how do you see UFC measuring up?.

Thank you, Bryan. Yes. Look, we agree there has been a lot of comparisons drawn to team sports such as the NFL and NBA, we actually -- we don't think that is the right comparison for the UFC. We think the right comparison is to other individual sports such as PGA Tour, F1, NASCAR and ATP.

And if you look at those athletes and what they're paid, as a relative percentage of revenue for those leagues, it's right in line where the UFC is with their athlete compensation. I would also point out that the fighter comp CAGR since 2005 has been 26%, while the revenue CAGR for that period has been 21%.

So the fighter comp CAGR has been outpacing the CAGR of revenue for the entire company. And that's before we talk about other ancillary ways that our fighters are earning money through sponsorship and other consumer product deals. So in summation here, we believe we can continue to invest in our fighters without risk to the margins of our business..

Your next question comes from the line of Stephen Laszczyk with Goldman Sachs..

There's been a fair amount of concern on the economic front as well, particularly as it relates to the consumer and the live event space.

I was curious if you guys have seen any noticeable change in the demand backdrop for live events, either the ones that you host or represent over the last month or so? And then maybe related that for GSM, you touched on it briefly, but could you talk maybe some more about the macro or reopening assumptions embedded in your updated guidance?.

Sure. Thanks, Stephen. Ari will take the first question on consumer and then Jason will jump in on the guidance..

Thanks, Stephen. Well, there's no indication in our business that the consumer is weak. First -- in the first quarter, we sold out every pay-per-view event. UFC saw an increase of 40% year-over-year. Out-of-town fans actually coming and traveling to our events.

If you look at the Miami Open, which just happened, it was the biggest Miami Open 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 business. We just acquired the Madrid Open. In our 10 days, we had over 200,000 people attend that.

Even Live Nation talks about in their earnings report, bookings are up over 40%. If you just look at this past weekend, Formula One had 85,000 people attend. We sold out our UFC pay-per-view event. Disney had their Marvel movie do over $450 million 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 in the pipeline. Concert bookings for the fall are pacing way ahead of pre-pandemic levels. Our Academy business, which is consumer-facing businesses have record enrollment levels. Our NCSA recruiting business has the most active users ever.

And on the corporate side, we're seeing equal interest on -- equal on brand spend. At UFC, through Q1 on a contracted basis, we've already surpassed 2021 sponsorship sales, same at PBR. And at 160over90, we're outpacing 2021 through our first quarter. And I think that just underscores the value of having a diversified business and platform.

As far as guidance, what we say, look, we updated our guidance, and that's 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 tailwinds we're seeing in the first quarter and the sectors that we operate in..

Your next question comes from the line of David Karnovsky with JPMorgan..

I wanted to see if you could update your outlook for your marketing business in 160over90. I know that was a segment negatively impacted by COVID, especially in the experiential side.

So just wondering what type of demand you're seeing there right now from brands?.

We're seeing -- as Jason just went over on our sponsorship side and our 160over90 sites, we're seeing great demand from corporations to have experiential moments throughout our events. So from our perspective, it's -- demand is really high. The 160over90 business is growing substantially.

And our sponsorship across the platform is on par or higher than it was in 2021..

Okay. And then you noted some recent UFC international deals. I was wondering if you could provide an update on the rights negotiations in Brazil. I think you've been on with combat for 10 years.

Are you seeing incremental interest as you go to market? And how do you think about potentially launching something like FIGHT PASS in the region?.

Well, -- as I said to you, I think Jason in his opening statements talked about the CJ deal, we talked about the Netherlands deal. We talked about our percentage above 100%. We're in conversations in Brazil right now with the incumbent and many others, Global being the incumbent. We do have FIGHT PASS and we have optionality down there.

And when things come clear as it relates to that specific region, we'll give you an update..

Your next question comes from the line of John Hodulik with UBS..

Some real strength in the Events business. And I guess, similar to what you've been asked in the past, would you guys say you're up to full strength at post-COVID here? It sounds like from, 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 -- as we go through the year from further reopening in Europe or in Asia? And maybe how much exposure you have to that? And then along with that, was the -- I know you guys had the Super Bowl on location in the quarter.

But did that represent sort of an outsized sort of benefit in the quarter to the EBITDA number you guys posted?.

Thanks, John. I'll let Jason take that. So..

Yes. Look, we're certainly seeing, as I already mentioned, in Miami Open, in Madrid, record attendance at our events. I would definitely say we saw upside in the events over the balance of the year, they're going to be coming to -- returning to full capacity.

On exposure, I would say that the one area we probably have a little bit of exposure is China and what's going on in China and some of that that we have in the Q4 in China. And if those materialize, we'll certainly update, but that's really where we see some potential exposure on Events for the balance of the year.

And as far as allocation goes, '21, we did not have a full capacity Super Bowl. So this is the first time, if you're comparing a year-over-year from '22 to '21 that you have a full capacity Super Bowl in the on-location business compared to last year.

So it is a big increase from the amount of tickets and events that we've been -- we're able to put on in '22 versus '21..

Yes. I guess, Jason, what I was getting at is the -- you had a big quarter in that segment and especially at the EBITDA line. I mean is this a good run rate as we -- there's, I guess, pluses and minuses. The minus might be two role comes out. But pluses might be that you have further reopening in Europe and maybe over time in Asia.

I mean, at this level of EBITDA, is that sort of the kind of level we should be using as a base going forward?.

Yes. I would say two things. As we look at the E&R segment, I think it's also important to realize that it's not just an events business in that segment, right? We have our media rights business. We have our IMG Arena business. We also have our Academy business in that segment.

So all those businesses are making up that segment and specifically on the events side, I don't think -- you can't use Q1 as a run rate, I would say, for events because we have some of our bigger events that happened in that quarter in Q1. So there's a lot of seasonality in that business, given the timing of events and when they happen..

Your next question comes from the line of Meghan Durkin with Credit Suisse..

So you mentioned TikTok, Ari. I was just wondering if you could talk about there on the payment landscape in general and 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 of 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?.

Could you just repeat the second question, Meghan, you're breaking up there slightly..

The AAV on the UFC 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 Ari jump in on the TikTok one and then Jason can talk about AAV..

Well, on the TikTok one, all I can say is we have a significant amount of influencers add in the representation side. We move them across the platform. Sometimes they do book, sometime they do sponsorship, et cetera. It's an unbelievable platform to break people and then we move them across in our architecture across the platform.

So as [indiscernible] is a perfect example. She started there. She did a movie on Netflix. So that's a very good base of operations to 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 AAV go, some of the new deals we've done have been -- have raised that AAV average up, which particularly the Discovery+ deal in Netherlands, the Eurosport deal in Spain, and the CJ E&M deal in South Korea. So just -- we had some great success on those media rights deals that has brought the AAV up since last time we spoke..

Your next question comes from the line of Tom Champion with Piper Sandler..

This is Jim on for Tom. So for Jason, I guess, if we look at Q1's contribution for revenue and EBITDA as a percent of total for '22 relative to pre-COVID, the business looks to be off to a pretty strong start.

I guess 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..

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. So we look at this business on an annual basis, and that's how we give our guidance, and 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..

Your next question comes from the line of David Joyce with Barclays..

On the sports betting side, granted you haven't closed on OpenBet yet.

But what are the competitive forces that you're seeing for IMG Arena and what you'll have with OpenBet? And how are you addressing them? And are there regions globally that are going to be stronger in providing growth for you? I was just wondering if you could fill us out on the strategy there? And then secondly, just on the debt question.

On that $5.7 billion, how much of that is fixed? What should we be thinking about your leverage in this increasing interest rate environment?.

Thanks, David. Jason, take those..

Yes, I'll start with the debt side of the question. Roughly 23% of our debt is fixed, roughly $1.5 billion in interest rate swaps. So that's how much is fixed. And we continue to evaluate opportunities to further replace a portion of variable rates of fixed rates, if it makes sense.

In addition to what I would say on our -- where we are in debt, 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-4x on a net basis by year-end 2022.

As far as OpenBet goes, what we're in a regulatory process, is waiting to get approval but we're extremely excited about the opportunity in that space. As we're a B2B player there.

And as new regions and new markets open up, it's a great opportunity for us to supply our technology and content solutions and then being able to integrate that with IMG Arena and have a full product offering makes us what we believe a one-of-a-kind player in the space. And both of those businesses are EBITDA-positive.

We focus on making money in both those businesses and have been EBITD-A-Positive for quite some time..

Here's all I'll say about OpenBet and IMG Arena. The regions that are -- that we have a lot of opportunity U.S., Japan, Brazil. Remember also in that business, we're on the supply side. So we're not having to pay to gather customers.

We're a B2B player there with the underlying technology across the platform between the 470-plus bookings and also the platforms like FanDuel and DraftKings. We don't have their same economics. We're on the supply side of our technology. And so those deals are between 3 and 5 years. So we feel very good about where we sit.

And there's also, as Jason said in his opening remarks, there's $100 million of revenue synergies between the 2 business. So it's a great opportunity for us..

Your last question today comes from the line of Jason Bazinet with Citi..

I was just looking at your numbers now they stacked up against the consensus. And one of the numbers that jumped out was noncontrolling interest, $198 million, which is almost, I think, 40% of the net income.

I know there's a lot of moving parts that had happened on that line with the acquisitions that you guys have done, but -- do you mind just unpacking that a bit, just so we can get our forecast correct and adjust our EBIT EBITDA appropriately?.

Yes. Look, it's due to the FC structure, but we're happy to follow up with you off-line on that and then get into the detail on that with you..

Guys, before we kind of sign off here, and I just want to say one thing to you guys. As I said, across our platform, we're on the supply side of this conversation. We don't see any reduction in content spend. We don't see any reduction in our betting business. The consumer is very strong, and our own sports properties, we feel very good about right now.

And that's why we kind of 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..