Endeavor(US:EDR)2023-05-08 16:00Part I – FINANCIAL INFORMATION Financial Statements (Unaudited) Presents unaudited Q1 2023 financials, including key statements and notes on major strategic transactions Consolidated Balance Sheets Total assets reached $12.62 billion, with goodwill and long-term debt as major balance sheet components Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $12,619,690 | $12,503,842 | | Cash and cash equivalents | $718,658 | $767,828 | | Goodwill | $5,302,070 | $5,284,697 | | Intangible assets, net | $2,190,078 | $2,205,583 | | Total Liabilities | $9,222,726 | $9,197,270 | | Long-term debt | $5,062,508 | $5,080,237 | | Tax receivable agreement liability | $997,828 | $1,011,721 | | Total Shareholders' Equity | $3,142,725 | $3,053,493 | Consolidated Statements of Operations Q1 revenue grew to $1.60 billion, but net income fell sharply due to a prior-year one-time gain Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenue | $1,596,837 | $1,473,763 | | Operating Income | $136,591 | $173,915 | | Net Income | $36,255 | $517,666 | | Net Income attributable to EGH | $8,031 | $319,546 | | Diluted EPS | $0.03 | $1.16 | Consolidated Statements of Cash Flows Operating activities generated $96.7 million in cash, a reversal from the prior year's use of cash Consolidated Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $96,722 | $(58,098) | | Net cash (used in) provided by investing activities | $(74,120) | $544,739 | | Net cash used in financing activities | $(89,862) | $(19,143) | | (Decrease) increase in cash | $(59,730) | $496,553 | Notes to Consolidated Financial Statements Discloses a new segment, the UFC-WWE combination, the IMG Academy sale, and ongoing antitrust litigation - Effective January 1, 2023, the company created a fourth reportable segment, Sports Data & Technology, which includes IMG ARENA and the recently acquired OpenBet business107 - In April 2023, the company entered into an agreement to combine its UFC business with WWE to form a new publicly traded company, with Endeavor holding a 51% controlling interest117 - In April 2023, the company signed an agreement to sell IMG Academy for estimated cash proceeds of approximately $1.1 billion, with the closing expected in Q3 2023119 - Zuffa (UFC) is defending against five related class-action lawsuits alleging antitrust violations, with a new case filed in June 2021112 Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes Q1 2023 results, highlighting 8.4% revenue growth to $1.6 billion and segment performance Q1 2023 Revenue by Segment (in thousands) | Segment | Q1 2023 Revenue | Q1 2022 Revenue | % Change | | :--- | :--- | :--- | :--- | | Owned Sports Properties | $353,289 | $296,689 | 19.1% | | Events, Experiences & Rights | $800,786 | $780,935 | 2.5% | | Representation | $350,240 | $357,321 | (2.0%) | | Sports Data & Technology | $100,859 | $45,043 | 123.9% | | Total Revenue | $1,596,837 | $1,473,763 | 8.4% | - Consolidated Adjusted EBITDA for Q1 2023 was $306.4 million, compared to $314.4 million in Q1 2022189 - The company announced a new event-driven share repurchase authorization of up to $300 million and anticipates initiating quarterly cash dividends of up to $25 million219 Results of Operations Revenue grew 8.4%, but net income fell due to a prior-year asset sale and rising SG&A and interest costs - The decrease in net income was primarily driven by a $463.6 million gain on the sale of the restricted Endeavor Content business in Q1 2022, which was not repeated in 2023155 - Selling, general and administrative (SG&A) expenses increased by $129.0 million (23.9%), driven by higher personnel costs and recent acquisitions149 - Net interest expense increased by $25.8 million (43.6%) to $85.1 million, primarily due to higher interest rates on variable-rate debt152 Segment Results of Operations Owned Sports Properties led growth, while other segments saw mixed results in revenue and Adjusted EBITDA Adjusted EBITDA by Segment (in thousands) | Segment | Q1 2023 Adj. EBITDA | Q1 2022 Adj. EBITDA | % Change | | :--- | :--- | :--- | :--- | | Owned Sports Properties | $185,671 | $148,741 | 24.8% | | Events, Experiences & Rights | $107,991 | $126,001 | (14.3%) | | Representation | $84,206 | $101,705 | (17.2%) | | Sports Data & Technology | $4,472 | $6,482 | (31.0%) | | Corporate | $(75,948) | $(68,480) | (10.9%) | Liquidity and Capital Resources The company holds $5.1 billion in debt and plans to use future liquidity for growth, debt service, and capital returns - As of March 31, 2023, the company had an aggregate of $5.1 billion in outstanding indebtedness under its senior credit facilities195 - The company has a Tax Receivable Agreement (TRA) liability of $997.8 million as of March 31, 2023, related to tax benefits from its IPO and subsequent transactions223 - Future sources of liquidity include cash on hand, cash from operations, available borrowings, and expected proceeds from the sale of the IMG Academy business217 Quantitative and Qualitative Disclosures About Market Risk Primary market risks include interest rates, foreign currency, and credit, with quantified potential impacts - A 1% increase in effective interest rates on the unhedged portion of its long-term debt would increase annual interest expense by approximately $28 million227 - A 10% appreciation of the U.S. dollar against the foreign currencies used by operations in Q1 2023 would have decreased revenues by approximately $31.7 million230 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2023235 - No material changes in internal control over financial reporting occurred during the quarter236 Part II – OTHER INFORMATION Legal Proceedings Details various legal proceedings, with significant antitrust litigation against Zuffa (UFC) noted - The company is involved in various legal proceedings, with detailed descriptions provided in Note 16 of the financial statements237 - Key legal proceedings mentioned in Note 16 include five related class-action antitrust lawsuits filed against Zuffa (UFC) by former fighters112 Risk Factors Highlights new risks related to the proposed UFC-WWE combination and new capital return policies - The pendency of the proposed transaction to combine UFC and WWE could cause business disruptions, affecting relationships with customers, clients, partners, and employees239 - There is a risk that the WWE transaction may not be completed, which could lead to significant unrecoverable costs and negative market reactions241243 - The new $300 million stock repurchase authorization is event-driven and not guaranteed, and the planned quarterly dividend is also discretionary244245 Exhibits Lists all exhibits filed with the report, including the WWE transaction agreement and officer certifications - Key exhibits filed include the Transaction Agreement with WWE, amendments to credit facilities, and Sarbanes-Oxley Act certifications by the CEO and CFO246