Hello, everyone. Thank you for attending today's TKO third quarter 2023 earnings call. My name is Sierra, and I will be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Seth Zaslow, Head of Investor Relations with TKO. Please proceed.

Good afternoon, and welcome to TKO's third quarter 2023 earnings call. A short while ago, we issued a press release, which you can view on our Investor Relations website. A recording of this call will also be available via our website for at least 30 days. Joining me on today's call are Ari Emanuel, TKO's Chief Executive Officer; Mark Shapiro, our President and COO; and Andrew Schleimer, our CFO. After prepared remarks from Ari and Andrew, we'll open the call for questions. The purpose of this call is to provide you with information regarding our third quarter 2023 performance. I do want to remind everyone that the information discussed will include forward-looking statements and/or projections that involve risks, uncertainties and assumptions. Please see our filings with the Securities and Exchange Commission for further detail. If these risks or uncertainties were to materialize or any assumptions prove incorrect, our results may differ materially from those expressed or implied on this call. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them 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 can be found in our press release issued today as well as the information posted on our IR website. With that, I'll now turn the call over to Ari.

Thanks, Seth, and good afternoon, everyone. Welcome to TKO's first earnings call. Since launching TKO on September 12, our teams at WWE, UFC and Endeavor have been focused on integration and executing our strategy. 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 SmackDown and NXT and closing the largest global partnership deal ever for UFC with AB InBev. Before Andrew provides a financial update, I'd like to reiterate why we're so bullish about TKO and highlight the progress we're making to accelerate growth and unlock long-term value for shareholders. TKO brings together 2 leading pure play sports and entertainment companies that are uniquely positioned to capitalize on the ongoing demand for premium content and live events. While UFC and WWE's iconic brands remain distinct, we know we can capitalize on their similarities as just a few examples. Both UFC and WWE are in season year round with live events and premium content that reached more than a combined 1 billion fans globally. Our content is an antidote for churn. Both UFC and WWE have large, young and diverse fan bases who are deeply engaged across linear, digital and social channels, video games and sports betting. Both properties are tailor-made for all levers of the sports ecosystem. In addition to our high-margin U.S. domestic media distribution deals, UFC and WWE have enormous upside for growth internationally, especially when powered by the scale and leverage of the media group at IMG inside Endeavor. As we've articulated since April, the strategic and financial rationale of this transaction is underpinned by the vast array of potential revenue synergies we expect as we bring these 2 businesses together and activate the Endeavor…

Thanks, Ari, and good afternoon, everyone. Before I discuss our results, I want to share a couple of updates on our integration and how we will report our financials. As Ari highlighted, we're very excited about bringing the UFC and WWE businesses under one roof. These businesses are highly complementary, well-positioned for success and are both delivering strong financial results. Combining these 2 iconic brands and leveraging the capabilities of Endeavor will only make them stronger. Recently, we've been hard at work integrating the businesses and beginning to realize the revenue and cost synergies that we've been discussing with investors since we announced the deal back in April. Further to Ari's remarks, on the revenue side, we've realized a number of early meaningful wins in media rights with renewals for SmackDown and NXT and sponsorship with AB InBev. Our extension with DCT in Abu Dhabi and first ever live event deal for UFC with the Kingdom of Saudi Arabia demonstrate the ever-increasing global demand for our products. With that, I want to further emphasize the importance of these site fee deals to our business, which as previously articulated, is an area of major strategic focus and one of the levers that will continue to pull to drive growth. In addition to the 2 Middle East examples, we will also realize the single highest site fee in WWE's history with WWE Elimination Chamber in Perth, Australia in February 2024, a deal done in collaboration with UFC and Endeavor's government relations teams. I would also like to provide some additional detail on the cost side. We're performing a detailed review to identify cost savings opportunities across all of TKO. We're focused on areas such as IT, marketing, finance, human resources and legal. In addition, we're looking at overlapping personnel and revenue-generating areas…

Thanks, Andrew. Operator, we're ready to open the call for questions.

[Operator Instructions] Our first question today comes from Ben Swinburne with Morgan Stanley.

I want to come back to why you put these 2 companies together and some of the comments you made about free cash flow conversion and sort of the unique properties of this company, which is contracted revenues and high free cash flow generation. So with all that, one thing you guys obviously need to think about and are thinking about is the right leverage level for this new company. So could you spend a minute just talking about what you think makes sense for TKO? And even if you're not want to put a number on it, can you talk about the relative attractiveness of dividends, buybacks and M&A as you look at running this company over the next couple of years?

Ben, as we mentioned in our prepared remarks, it's too early to discuss specific plans with regard to TKO's capital allocation philosophy right now. TKO has a strong financial profile, growing revenues, healthy margins, strong free cash flow generation, manageable net debt position, which will present us with the various opportunities on the allocation of our capital into the future. And as you can hear from Andrew and myself, we're really focused on TKO's integration with [indiscernible]. Maybe Andrew can kind of follow-up with some of the other questions you had.

Yes. Look, I think we can talk about the industrial logic and strategic rationale for the transaction. Obviously, that is sound. And we did put some statistics out there, Ben, when we first announced the deal. But look, further to Ari's remarks and in line with my prepared remarks, we expect to provide an update on our plans with more specificity, excuse me, on our next earnings call in February, tethered to our full year outlook, first time giving guidance for full year 2024. That being said, that does not preclude us from being opportunistic between now and then, particularly given the relatively undervalued nature of our stock right now. And obviously, as Ari articulated, as I articulated, as Mark articulated, when we meet with folks, sell-side and buy-side, this is a meaningfully high cash flow generative business. And we remain committed to evaluating all those alternatives that are available to us, share repurchases, repayment of debt and our laser focus on the return of capital to shareholders, all through a lens of maximizing shareholder value.

Ben, it's Mark. I would just say, as you can imagine, I mean, that's why it's the first question here. This is the most popular question that 3 of us are asked, frankly, on a daily basis. We have to remind folks sometimes we're in the quiet period. But as Andrew and Ari have articulated, I mean, we are uniquely and keenly aware of the strong free cash flow conversion we're going to have with these 2 properties. I mean, UFC is up there near 60% these days. Obviously, that won't be where it sits forever. It will be around 50% where we'd been historically. And WWE is going to quickly get into the 40% to 50% once we get done with our cost synergies and some of the revenue synergies that we will talk about. Obviously, our Budweiser deal on the UFC side was big and high and a lot of conversion there, and we're going to have similar deals on the WWE side. So we're just early innings here. We don't have a plan to articulate today and lay out. But as Andrew said, you can expect we're focused on it. We're in conversations with the Board, and we'll be back to you in February with a specific plan. In the meantime, we will be opportunistic along the way.

Our next question comes from Brandon Ross with LightShed Partners.

So you've got a really nice increase on the NXT deal, but there's still a lot of investor concern about the state of sports rights licensing. What gives you guys confidence that the rights environment is going to improve in the coming year? And then how does this impact your strategy around Raw? And then anything, of course, that you could tell us on the latest on the Raw negotiations that you highlighted in the prepared is welcome.

So let me just first start with ratings update, which I think the first thing that you have to think about when you do this. Viewership and ratings for WWE content is very strong, and there's a lot of momentum. SmackDown, up 19% in the key demo compared to broadcast down 11%, Raw, up 2% compared to cable down 11%. NXT up 39% compared to cable down 11%. TKO WWE content, there's no churn in the content we have. That's one of the big issues for all the SVODs and the cable companies, et cetera. We've year-round content for both UFC and WWE. And we are scheduling flexibility regarding day, time and urgency and consistency of our content is appealing and it's an attractive viewership. And as I said, there's no real churn in the content. On SmackDown renewal, we're very pleased with the agreement. We delivered healthy 40% increase. WWE will produce 4 prime time specials per year that will air on NBC. First time WWE will air on a network prime time. It's a strong deal we feel good about, the continued relationship with NBC, who is also owner of the WWE network, current deal probably expires I think its March '26. And the fact that you may or may not remember, 40% of the market was not live, now will be all live. On the NXT renewal, very pleased with that agreement, strong deal. 70% healthy increase. CW become a new home. It's the first time NXT will air on a broadcast network. CW is a major network, reaches 100% of the U.S. households. And as you may or may not know, NXT plays an important role in developing talent for WWE. Nearly 90% of the participants in last year's WrestleMania were developed under the NXT banner. And as it relates to Raw renewal, we're having really productive conversations with multiple parties regarding Raw. We expect a robust process with Raw. We're very comfortable with Raw's position. And we're going to be patient, measured, calculated in our approach, no specific timeline regarding the announcement, exactly what we did with the UFC. So we feel really good about the situation that we're in. And so that's we're at.

Yes. So on the second part of your question, Brandon, on the just overall state of sports rights, I really love when you bring this up as if there's an issue going on out there. Let's just kind of underscore what's been happening in the last few months. And last time I checked, the Xfinity series went for a monster number on CW. Good for them, good programming. They're adding to their portfolio of sports rights properties like the ACC, LIV, et cetera. And now of course, they've got the late great NXT. The NBA is having a robust process. They have an exclusive negotiating period until April with their current partners, but everybody's lined up to get a piece of the NBA. So Adam's in a good position there. Netflix is about to launch the Netflix Cup. So anybody had questions about is Netflix going live and sports rights, et cetera, they're just dipping their toe in the water, and you can expect that's going to open up down the road. And as you know, there was an extra NFL playoff game, if you will, that Peacock took off the table for a massive number. So the state of sports rights and the dollars being spent on sports rights remains in a very strong, robust position. And to Ari's point, we're in the middle of this. It is strong and robust for us. 2, Raw is a very healthy property, not only ratings up, it's got a lot of equity to it. It's got longevity, it's got brand affinity, it's got super fandom. And we're going to take our time with this. We have until next October, we can flip the switch just to remind you because we do all the production so we can literally move from one network to a new partner overnight. And the last thing I would say, just on Ari's point, which Ari often talks about the antidote to churn, any points to these 2 properties, I think objectively, frankly, because we are year-round and we are premium. But keep in mind that we have a lot of urgency to our sports properties. When there is a PLE going on at WWE or WrestleMania, it's just a trigger to get folks to sign up for [ selves ]. And the same can be said for UFC. When we have a number of events every month, it's a trigger when folks want to see those prelims on ESPN+ to sign up for ESPN+. That's driving subscriber count for all those partners. And as they move to go direct-to-consumer, like ESPN's going to do in the next 2 years, they reported it themselves, they're going to want year-round premium and urgency. And we're standing in a good position, and we're going to be patient to maximize our rights fee and our marketing partner for the next deal.

And then maybe just…

We cut him off. Brandon, are you there?

Apologies. It appears Mr. Brandon's line did drop from the call for some reason. So we will move to the next question. Next question comes from Curry Baker with Guggenheim.

Could you update us on how the integration is going so far? And maybe more specifically on the revenue synergy front? Could you drill down on the largest areas of opportunity that you see maybe help us frame in aggregate where you think the revenue synergies could ultimately go? And any initial thoughts on timing? It seems like you're off to a nice start with the UFC Saudi announcement.

Here's what I would say, integration is going well. It's early days, but we're really pleased with how the teams are coming together and the opportunities that we're identifying to enhance the growth profile and the profitability of both companies, both on the cost side and on the revenue side.

Yes. And Curry, let me hit the cost side first, and then we'll pivot to the revenue side, as we've discussed and to reiterate in both Ari and my prepared remarks. We expect to achieve the upper end of the previously announced range of $50 million to $100 million in cost synergies. And we got started over the summer. We got deeper into this after we closed in September, really no stone left unturned here. And we feel good guiding to the upper end of that range. We're looking at all areas. And that's prior to really combining these business and seeing efficiencies from the operations of this business going forward. So we're going to quickly pivot on the cost side to see as we can get some more -- that being said, of that range, we expect to realize roughly 70% of -- 75%, excuse me, of those synergies in 2024. Those will be reflected in our full year guide. We'll move back and front of you in February. And the balance, 25% balance of those will impact 2025. On the revenue side, look, we think, as we've stated time and time again, there are many attractive revenue synergies in connection with this transaction, many of which you've got the taste of some deals that we've announced to date, whether it'd be [indiscernible] sponsorship side, DCT extension as well as the Saudi deal on the live events and site fee side. We discussed NXP, SmackDown and how we're well-positioned for Raw. And then a lot of this doesn't happen candidly without us leveraging and having tentacles into the Endeavor Flywheel, which we're spending a lot of time with our parent company and partners to extract as much value as we probably can.

Yes. Curry, I'll just say that, obviously, our AB deal is a best-in-class deal, and we're right out of the gate with that, and we expect to mimic that in several categories on both sides of the fence with WWE and TKO -- excuse me, in UFC. We've already, between Lawrence Epstein run the day-to-day of the UFC and [ Connor ] run the day-to-day of the WWE. They've already integrated our partnerships team. So we're already out on the street in some cases, selling both properties together and where we have unsold category on one end, but not the other, of course, selling those individually to the 2 brands where it makes sense. I think from a live event perspective as well, Andrew touched on, but beyond the site fees, we're kind of setting the table. So you see [indiscernible] building a point, a date for Perth, which is a place that Lawrence and Dana White, the UFC have been going for such a long time. So we come in and we lay the foundation, we lay local sponsorship opportunities. We festivalize it with WME and the Endeavor network and then WWE comes right behind in the pipeline with their own events. We already have the blueprint working. And you can expect to see that in other cities. You have the UFC, obviously, now doing it in Saudi, which will be a great story but also in China. We'll be later on in Shanghai for UFC, and we're already looking at what's going to be our next China date, which we haven't been through in a long time on the WWE. Beyond that, we've got dynamic ticket pricing happening across the Board, which is a capability we have at our location at Endeavor and now WWE is tapping into that, the way the UFC has. And of course, rounded out hospitality, on location sell hospitality and experiential ticketing for both properties. And frankly, we're seeing record numbers out of the gate, especially for WrestleMania 40. So revenue synergies, no surprise to anybody. We're pretty bullish. I mean, that ultimately was the recipe for the merging of these 2 properties.

And the only other thing I would add to that, all the things that Mark just stated are very high-margin businesses, which will increase the numbers as it relates to the WWE and UFC for our free cash flow conversion.

The next question comes from Ryan Gravett with UBS.

You touched on this a bit in your prepared remarks, but just curious how you see the competitive landscape evolving in the MMA space over the next few years following the minority investment that the PFL received? And I guess, just more broadly, how you're thinking about balancing margin expansion and reinvestments at the UFC from here?

Well, I would just say the following. Competition is not new for the UFC or the WWE. MMA is probably the fastest growing sport and we're encouraged by the increased interest and rising tides lift all boats in my opinion. So we don't see this as a zero-sum game. It's not only competition, we don't have any -- not only do we have competition with other MMA or wrestling organizations. Football -- college football, there's a lot of competition out there. We have a strong -- at UFC, we have a strong stable fighters, over 600 in total. I think UFC is where fighters want to come and want to be. And as I discussed in my prepared remarks, we feel good about the future of our relationship with Saudi. As one example, we recently announced that we bring UFC Fight Night to Riyadh in March 2024, clear indication that Saudi's very high intentions to grow its relationship with UFC. So that's the kind of our feeling about it.

Yes. Look, the investment at SRJ made in PFL, we look it to our advantage. We have no issue with Bellator, PFL, we have major league, to Ari's point, competition is good. Not only do we have over 600 fighters, we have the premier fighters. I mean, ultimately, you're trying to get to the UFC, which is akin to the XFL trying to ultimately get their players into the NFL. I mean, that's a -- yes we are. Those are pipeline and feeder properties. In fact, we're supportive of them being on ESPN. PFL has been on ESPN. We were totally supportive of that deal. And the Saudi experience should prove out well for us. And I think, prove something to every investor on this call because when it first came out, it was a lot of what's going on, they're coming after us, they're going to take fighters out, they're going to increase fighter pay, UFC is in trouble. And then quickly on the heels of that, we announced our deal. So good for them. Saudi Arabia is being very aggressive in bringing events to the Kingdom. They're in discussions on the WTA Finals for tennis. They're looking obviously at motorsports. There's rumors about their potential investment in F1. All kinds of stuff that are out there right now, all we know is they want more MMA, which is great for us. And the more they have, the more it's really just going to serve as an appetizer to what will be the meal, which is UFC.

Operator, let's take one last question.

Our last question today will come from David Karnovsky with JPMorgan.

Curious to know how you think about incremental sponsorship opportunities at WWE either inventory or assets that you think had been underutilized, like the ring for instance? And then since coming public, you discussed the idea of super days or super weekends, UFC plus WWE. I'm interested how many of these events do you think are realistic given the calendar? And then how do they factor into your overall strategy for growing site fees?

Here's what I would say to you, Vince has been very open to before he was clean in the ring and around. He's now very open into increasing the inventory that we can work with, like we increased the inventory at UFC. Very happy about that. We think there's huge opportunities around the stadium. So that's a good sign. And we are starting in some territories, looking at a Friday night, Saturday night and a Monday night for both WWE, UFC and WWE again. That will give us an indication of our ability to kind of put that on. Once we can prove that model, I think we can take it globally and really move it domestically pretty easily.

And David, we're never going to -- just going forward, just an alert for everybody. We're never going to come out specifically and talk about open categories, who are negotiating with, who's open. Frankly, we've got too many competitors out there now not just in our space, but overall, as Ari mentioned, in just the sports marketplace. So it's robust. We're being aggressive. We've got a best-in-class team, and we'll talk about each of the deals as they ultimately come to fruition, but we're not going to give anybody our playbook at this time.

But I'll just reemphasize there's a ton of inventory now that Vince and team are opening up at the WWE for us.

Thank you, everyone, for joining us on today's call. Operator, you can now conclude the call.

That will now conclude today's conference call. Thank you all for your participation. You may now disconnect your line.