Good afternoon, and thank you for joining the Endeavor First Quarter 2023 Results. My name is Kate, and I will be the moderator for today's call [Operator Instructions]. I would now like to pass the call over to our host, Head of Investor Relations, James Marsh. You may proceed..

Good afternoon and welcome to Endeavor's First Quarter 2023 Earnings Call. A short while ago, we issued a press release which you can view on our Investor Relations site, investor.endeavorco.com. A recording of this call will also be available via that site for at least 30 days.

Today, you will hear from Endeavor's CEO, Ari Emanuel; and CFO, Jason Lublin, before we open for questions. The purpose of this call is to provide you with information regarding the first quarter 2023 performance in addition to our financial outlook for the balance of the year.

I do want to remind everyone that the information discussed will include forward-looking statements and/or projections that involve risks, uncertainties and assumptions, as well as described in the Risk Factors section of our filings with the Securities and Exchange Commission, including our 10-Qs and 10-K.

If these risk or uncertainties ever materialize or any assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements and projections.

Forward-looking statements speak only as of the date they 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. This measure should not be considered in isolation from, or 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 in the non-GAAP financial information posted on our IR website. With that, I'll turn it over to Ari..

Chapter 4 and Scream VI, both of which featured WME 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 Writers Strike is likely to have an act 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.

Given 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..

paying down additional debt, buying back stocks and initiating a quarterly dividend. Following the closing of the IMG Academy sale, we intend to voluntarily pay down $50 million of debt and commenced repurchases of up to 300 million of our Class A common stock under an event-driven share repurchase announced earlier today.

We're also announcing our plan 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 on to our outlook for the remainder of 2023. We updated guidance to primarily reflect the expected sale of the IMG Academy.

Our revenue guidance range is now between $5.665 billion and $5.815 billion, which is $5.74 billion at the midpoint. And our adjusted EBITDA guidance range is now between $1.22 billion and $1.275 billion, which is $1.248 billion at the midpoint.

Our updated guidance does not include any potential impact from the writers strike as the scope and duration of the strike are currently unknown. We are working to size the potential impact as the situation develops, which we will look to incorporate into our guide when we report Q2.

We will not be providing free cash flow guidance for the remainder of 2023 in light of depending UFC, WWE and IMG Academy in 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 metric 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 of 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, James..

Thanks, Jason.

Kate, will you open it up for questions, please?.

[Operator Instructions] Our first question will be from the line of Ben Swinburne with Morgan Stanley..

Ari, just at a high level, can you just talk about why you think a dividend and a buyback makes sense for Endeavor and make sense at this stage in the company's growth? And I don't know if you guys want to talk about it, but how should we think about the growth in those two levers of shareholder value over time as they grow with 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 tell us exactly how much IMG Academy is coming out of the guidance, so we just know the impact from that?.

As you know, we've talked about this before. We've prioritized deleveraging since going public, taking it out from 8x to sub4. We now have with the sale, greater financial flexibility, having successfully reduced our leverage in the past and now with the sale of IMG Academy.

It gave 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 kind of -- we feel good about where the company is going, our strength and 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 brings us a new group of shareholders to look at the company. We'll continue to -- we're deleveraging with TKO, so we feel good about all 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..

And then Ben, as far as the guidance goes, if you look at our original guidance at the midpoint of EBITDA, we were at [$12.77] million and the midpoint of our current guidance of [$12.48] million. On the revenue, it was $5.9 billion, going to $5.74 million billion.

The primary driver there is we're removing the IMG Academy for the second half of the year based on a 6/30 close. So the primary difference in the guidance is effectively just taking the second half of the year out of our forecast on revenue and EBITDA for the Academy..

Our next question will be from the line of Stephen Laszczyk with Goldman Sachs..

Maybe for Ari on the writers strike. I was curious perhaps your perspective on where you think negotiations stand on both sides today. And any opinion you have on the chances and your view that the industry has come to some type of agreement in a reasonable amount of time.

And I know you mentioned you're digging into calling out the impact to your business, but at what point does the strike become meaningfully impactful to you in the broader industry? Is it a few weeks, a few months? I'd be curious on your take there..

First of all, you have to realize we completely support our clients in this situation. There's real issues that have to be addressed. We support our clients as they navigate these things. The duration is something I can't tell you because I've been through many strikes. Some last take less than 100 days, one before that was less.

But the issues as it relates to royalties, size of the writer's room, AI, there are six or seven issues surrounding it. I can't tell you if there is going to be an impact, what's the impact is from me because I just don't know the duration of the strike. We'll keep monitoring it. We're in conversations with our clients all the time.

But prior to prior strike, the difference here is besides those issues, you have three direct-to-consumer business that are pure plays and then you have three others in a major not that there's not other players, but you have the Disney that has a direct-to-consumer business plus they have the linear business, same thing with Comcast, same thing with Warner Bros, so that makes it a little bit more complex besides just the issues.

But we'll give you a better sense of it as the things progresses with our guidance coming to the next quarter..

And then maybe for Mark if he's on. If it's not, Ari, I was wondering if you more about the opportunity to bundle UFC and WWE content together? And why you think offering those two pieces, perhaps together as part of a bundle could drive increased value for content distributors either here in the U.S.

or in international markets?.

I'm actually -- to begin, 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 haven't really addressed that. We have a ways to go as it relates to getting approval from [DOJ] et cetera..

Our next question will be from the line of Doug Mitchelson with Credit Suisse..

For capital allocation, I'm curious how investors should think about what debt leverage you'd feel would be optimal for the company going forward? And Ari, I know you'll love this, but after us how did you to pay down debt and delever for -- since you've come public, you have a lot of excess capital in the next few years, and I appreciate the stock buyback of the dividend.

I'm just curious if you think there's sort of obvious other businesses that could fit well with either Endeavor or TKO out there that you've got your eye on? And just one more, Jason. I understand the impact from the deals on free cash flow.

Was operating free cash flow is operating free cash flow trending as expected for the year before the deals are considered? I understand why you want to pull the free cash flow guide. I just want to make the core operating free cash flow, whether that was on track or not..

On the first part of that question as far as where we are on our debt, we have stated publicly that we want to get to sub-4x, which as a stand-alone we are now. And we also mentioned pro forma for the TKO transaction, I think we'll be somewhere in the mid-2s from a leverage perspective.

So we're very happy with where we are from a leverage perspective and where the company sits right now. You want to talk about....

I don't talk about if there's any other transaction. We've got plenty of work to do to integrate TKO. So I'm not thinking about any of that..

And then the only thing I would say about the free cash flow, as we highlighted in Q1, our free cash flow for Q1 was $42 million in the quarter, up $122 million over the prior year. We noted that free cash flow in the first quarter is seasonally the lightest for the business. So we feel good about where we are on the cash flow perspective..

Our next question will be from the line of Bryan Kraft with Deutsche Bank..

I was wondering if you could in a more granular level about the opportunity you see with OpenBet.

I think investors understand it's an area of secular growth, but I think there's also a real lack of understanding out there around the breadth of OpenBet service offering, how it's differentiated from competitors, and what it's real revenue algorithm, if you will, looks like.

So just wondering if you could expand on that a bit and talk about that opportunity..

So as we've stated before, there's the data and the feed that sits within IMG ARENA, player authenticity content comes in and the technology underneath a lot of it is an OpenBet. They're a global company.

We've made deals 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. We've extended our contract with FanDuel. They're the premier player in the B2B space and the combination is very powerful. And it's a complete integrated service when it comes to the two services.

So there's the data and the stream going into the technical and kind of digital aspect of OpenBet. So -- and that gives us kind of a lot of leverage around the globe. So that's how we look at it..

Maybe just a follow-up on that.

I mean can you talk about what OpenBet does with FanDuel? What that relationship actually looks like?.

Well, it's all the underlying technology that enables them. What FanDuel really does is go after customers. We provide all the underlying technology to enable the service to function. From integrity services to content, meaning odd making, et cetera, for player wallets..

The next question will be from the line of Jessica Reif Ehrlich with Bank of America..

A couple of things. One, On Location. 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 you're gearing up for the Olympics in building the business.

But talk to 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 -- I didn't hear, I think Ari or Jason just said, like the timing for the regulatory process for WWE and UFC.

And then the last thing -- but the last thing is with the writers strike, I don't know what, I mean it feels like it might be lengthy.

Is there any way you can increase your sports output to take advantage of the lack of entertainment?.

And so as it relates to -- I'll take the last question and then we'll come back. There's going to be a lot more non-scripted, which has happened over many different strikes. So they have also a backlog of content on the scripted side.

So -- and we do x amount of events for UFC for PBR, et cetera, and our rights that we have out of IND that we sell globally. So -- but I think they'll be kind of -- they're going to go through their libraries of stuff that has already been shot and they're going to be doing non-scripted stuff probably more heavily.

And then maybe depending on the duration, go to international shows, South Korea, Germany, et cetera, to kind of bring them here.

So -- and then what was your other two questions?.

On Location, I think….

On Location and also the update on kind of the timing of the regulatory process for WWE and UFC..

Well, we're not sure about the timing of that. I don't have an update for you on that. And on the On Location, kind of is there any other thing -- any other product out there. Yes, there's a bunch of different events. We have our own events. So whether it be Barrett-Jackson, UFC, now WWE, New York Fashion Week, all those, Frieze.

And then, as you know, we have the Olympics and the Super Bowl. There's other ones that we're looking at trying to kind of bring into the fold on the representation side, but we have not included any of those right now..

And just a path to free cash flow on that one..

Well, I mean, the business -- on location side, we expect to be free -- working capital and free cash flow positive. I mean presales or the Olympic sales are going on now.

So depending on the timing of how those sales come in compared to some of the contractual obligation of payments we have over the course of the year, but certainly we expect to be free cash flow positive..

Remember, the Olympics is about one year, 1.5 years away..

But you're getting the cash now or soon..

We're starting….

Yes, we're starting to get the cash flow. We still also have some expenses related to 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..

Great, our next question. Any other questions Jessica or….

No, no..

The next question will be from the line of Tom Champion with Piper Sandler..

Very, very strong growth out of owned sports. I was just curious if there were any particular call-outs there? And would we expect growth to kind of add through the year, maybe as we digest the impact of the baseball divestiture.

And then maybe on OSP more broadly, just curious whether PBR and Europe Basketball remain as tight strategic fits just in light of the much larger TKO asset? Any thoughts there would be helpful..

So on UFC, I think it's 30 -- since 2021 -- I want to make sure I get this right, there's been 36 sellouts out of 38 events. Just a little miss in Brazil because there's a little political strike going on there in Kansas City. We just missed a complete sellout, but we've had record sale at, in the U.K., in Las Vegas, Perth.

So we feel very good about that business. And I think in Jason's opening remarks as it relates to PBR sales -- half of -- I don't know, 0.5 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 yes, I mean, everything is going as planned. And then when you think about it, the -- we have a Pay-Per-View, we have FIGHT PASS, the Bar business, both domestically and internationally. Those are the commercial Pay-Per-Views. So all in all, our sponsorship is going very well. So it's a wonderful segment both at PBR and UFC..

We talked specifically about increase in rights fees, sponsorship, commercial Pay-Per-View setting continue to say gate records internationally, domestically. So really getting strong revenue growth from all areas of that business..

Our next question is from the line of David Karnovsky with JPMorgan..

Ari, you mentioned theatrical in the recovering box office in your remarks. One of the potential points of upside, at least exhibitors highlight is more supply coming from streamers. I think what's less clear is how many or what types of films these services might bring to the market.

So interested to see if you have a view on what their thinking might be and how much lift that could provide to the market and ultimately, the talent demand..

Well, I mean, you have movies that are just right for streamers and then you have movies that are in theatrical window and then go to streamer. We've had a really nice performance in the last couple -- last two movies, one from Universal, one from Disney/Marvel. And before that, I think we went over the Lionsgate movie, et cetera.

So I think the theatrical business is back. We're seeing a lot more commercials on TV, whether it be during the NBA playoffs for a lot of movies right now coming out this summer. So that is a new segment for content that wasn't around during heavy COVID -- or 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/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..

The next question will be from the line of David Joyce with Seaport Research Partners..

After the IMG Academy deal is done, you already talked about capital allocation, but how else would you redeploy capital in the business? In terms of [EER] would you look to own more events or manage events? Do you have a preference on either in terms of the margin contribution? I was just wondering where -- 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 IMG Academy for $1.25 million, which is greater than half the value that we bought all of IMG. So there's a lot of -- and we sold Endeavor Content for $1 billion. So there's a lot of value back at post-TKO breakup.

There's a lot of value, I say $1 million -- $1.25 billion, excuse me. There's a lot of value back at EDR. I'm not going into our capital allocation, what else we're looking at. Of course, we said to you, we like to be in the ownership space. But right now, we've got to execute on what we've already bitten off here. So....

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..

Thanks, everyone, for joining us today..

That concludes the conference call. Thank you for your participation. You may now disconnect your lines..