TKO Group Holdings, Inc. (TKO) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings report shows strong financial performance with significant revenue and EBITDA growth. The new partnerships, especially with ESPN, and strategic decisions on content monetization are promising. The Q&A reveals confidence in ongoing negotiations and future growth opportunities, such as the boxing initiative. Despite some uncertainties in deal outcomes, the overall sentiment is positive.

Key Financial Performance

Revenue $1.308 billion, an increase of 10% year-over-year. The increase was driven by strong performance in UFC and WWE segments, particularly in live events and partnerships.

Adjusted EBITDA $526 million, an increase of 75% year-over-year. The growth was attributed to strong operating performance and benefits from initiatives implemented since the formation of the company.

Adjusted EBITDA Margin 40%, an increase from 25% in the prior year period. This reflects improved operational efficiency and revenue growth.

UFC Revenue $416 million, an increase of 5% year-over-year. Growth was driven by new partnerships and partnership renewals, as well as contractual escalation of media rights fees.

UFC Adjusted EBITDA $245 million, an increase of 6% year-over-year. The increase was due to higher revenue, partially offset by increased expenses.

UFC Partnerships and Marketing Revenue $86 million, an increase of 39% year-over-year. The growth was driven by new partnerships and renewals, including deals with Monster Energy and Meta.

UFC Live Events and Hospitality Revenue $59 million, a decrease of 15% year-over-year. The decline was due to lower side fee revenue, driven by the timing and mix of international events.

WWE Revenue $556 million, an increase of 22% year-over-year. Growth was driven by higher ticket sales revenue, increased site fee revenue, and strong partnerships.

WWE Adjusted EBITDA $330 million, an increase of 31% year-over-year. The increase was driven by higher revenue and improved operational efficiency.

WWE Live Events and Hospitality Revenue $186 million, an increase of 29% year-over-year. The growth was driven by higher ticket sales revenue and increased site fee revenue.

WWE Partnerships and Marketing Revenue $58 million, an increase of 136% year-over-year. The growth was driven by new partnerships and renewals, including record-setting deals surrounding premium live events.

WWE Media Rights, Production, and Content Revenue $279 million, an increase of 7% year-over-year. The growth was driven by the expansion of SmackDown to a 3-hour format and contractual escalation of media rights fees.

IMG Revenue $307 million, a decrease of 4% year-over-year. The decline was due to the loss of rights to the FA Cup, partially offset by new production agreements.

IMG Adjusted EBITDA $29 million, an increase of $120 million year-over-year. The improvement was due to a decrease in expenses, despite the decline in revenue.

Corporate and Other Revenue $45 million, an increase of 9% year-over-year. The growth was driven by management fees from Zuffa Boxing.

Free Cash Flow $375 million, with a conversion rate of 71%. This included the adverse impact of a $125 million payment related to the UFC antitrust settlement and a favorable impact of $165 million of prepayments related to On Location for the 2026 FIFA World Cup.

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Operating Highlights

ESPN domestic media rights deal for WWE: Secures a pivotal recurring revenue stream for years to come.

Netflix partnership for WWE: Raw has appeared on Netflix's top 10 shows for 30 straight weeks, totaling over 280 million view hours.

WWE's partnership with Netflix for WWE Unreal: Creating more opportunities for fans to engage with ancillary content.

Canelo Alvarez vs. Terrence Crawford fight: TKO will promote this major boxing event in September 2025.

UFC's Fight Night in Baku, Azerbaijan: First-ever event in this location, highlighting expansion into new markets.

Visit Qatar partnership for UFC: Hosting a fight in Doha, showcasing traction in site fee strategy.

WWE's international performance: WWE's PLEs made the top 10 list in 37 countries in the first 6 months of the Netflix partnership.

Revenue growth: Generated $1.308 billion in revenue, a 10% increase year-over-year.

Adjusted EBITDA growth: Achieved $526 million, a 75% increase year-over-year.

UFC partnerships: Partnerships and marketing revenue increased 39% to $86 million, driven by deals with Monster Energy and Meta.

WWE partnerships: Partnerships and marketing revenue increased 136% to $58 million, driven by new and renewed deals.

Share repurchase program: Planned commencement in Q3 2025 as part of capital return strategy.

Integration of IMG, On Location, and PBR: Achieved $15 million in in-year savings, targeting $40 million run rate by year-end 2026.

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Risk or Challenges

Live Events and Hospitality Revenue: UFC's live events and hospitality revenue decreased by 15% due to lower side fee revenue, driven by the timing and mix of international events. This reflects challenges in securing consistent revenue from site fees and international event scheduling.

IMG Segment Revenue: IMG segment revenue decreased by 4%, primarily due to the loss of rights to the FA Cup. This highlights risks associated with dependency on specific media rights agreements and the potential revenue volatility when such agreements are not renewed.

UFC Event Mix and Revenue: The mix of UFC events shifted, with fewer high-revenue-generating events (e.g., UFC 306 in 2024) expected in the second half of 2025. This could adversely impact media rights, live events, and partnership revenues.

WWE Attendance and Event Strategy: WWE's total attendance declined due to a strategic decision to host fewer non-televised events. While this may optimize profitability, it poses risks of reduced fan engagement and ticket revenue.

Production and Operating Costs: Increased production, marketing, and talent-related costs for both UFC and WWE events could pressure margins, especially if revenue growth does not keep pace with these rising expenses.

Corporate and Other Adjusted EBITDA: Corporate and Other adjusted EBITDA remains negative, though improved. This segment continues to be a drag on overall profitability, reflecting challenges in achieving cost efficiencies.

Economic Dependency on Partnerships: The company’s significant reliance on partnerships for revenue growth, such as deals with Meta, Monster Energy, and Wingstop, poses risks if these partnerships are not renewed or fail to deliver expected returns.

Regulatory and Legal Risks: The UFC antitrust settlement required a $125 million payment, highlighting potential legal and regulatory risks that could impact financial performance.

Media Rights Revenue: Media rights revenue is subject to fluctuations based on contractual escalations and event timing. For example, the WWE SmackDown format change to two hours will adversely impact quarterly media rights revenue.

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Guidance & Outlook

Revenue Guidance: The company has raised its full-year 2025 revenue guidance to $4.63 billion to $4.69 billion, reflecting strong operating performance at UFC and WWE and anticipated performance for the remainder of the year.

Adjusted EBITDA Guidance: The full-year 2025 adjusted EBITDA guidance has been increased to $1.54 billion to $1.56 billion, an increase of $135 million and $40 million, respectively, at the midpoint of the ranges compared to prior guidance.

Free Cash Flow Conversion: The company continues to target a full-year 2025 free cash flow conversion rate in excess of 60%, excluding approximately $300 million of nonrecurring amounts and restricted cash related to the 2026 FIFA World Cup.

UFC Events Outlook: The third quarter of 2025 is expected to include 10 UFC events, with 2 numbered events (fewer than the prior year) and 8 events with live audiences (an increase from 6 in the prior year).

WWE Events Outlook: The third quarter will include 3 main premium live events, comparable to the prior year, with the expansion of SummerSlam to 2 nights expected to positively impact media rights, live events, and partnerships revenue.

IMG Segment Outlook: Third-quarter revenue and adjusted EBITDA are expected to increase due to signature events like Wimbledon, the U.S. Open, the British Open, and the Ryder Cup, as well as services for the Canelo vs. Crawford event.

ESPN Media Rights Deal: A new 5-year media rights deal with ESPN for WWE premium live events is expected to generate revenue with annual escalators in line with industry standards.

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Shareholder Return Plan

Dividend Payment: On June 30, the company made its second quarterly cash dividend payment from TKO OpCo of approximately $75 million.

Share Repurchase Program: The company plans to commence its $2 billion share repurchase program in the third quarter of 2025, with timing and quantum subject to market conditions and related factors.

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Key Q&A

Q:Can you discuss the impact of moving WWE PLEs from Peacock to ESPN and the decision to have multiple partners for rights in different regions?

A:Management emphasized the benefits of not putting all eggs in one basket, balancing monetization with brand reach. They highlighted ESPN's unmatched linear platform, its ability to attract new subscribers, and its role in reducing churn. The deal is a 5-year agreement worth $1.625 billion, a significant step-up from the previous $900 million deal with Peacock. They also noted the opportunity for further monetization through retained rights like NXT PLEs and original programming.

Q:Why did you announce the WWE PLE deal before the UFC deal? Is the UFC deal proving more challenging?

A:Management stated that the UFC deal is not more challenging and that the timing of announcements is due to managing multiple properties simultaneously. They are in the home stretch of the UFC rights negotiations and emphasized their strategy of balancing monetization and reach.

Q:Why hold back non-PLE content, and does it belong with existing partners?

A:Management explained that holding back non-PLE content allows for more monetization opportunities. They aim to increase profitability and margins by selling NXT PLEs, reducing production obligations, and maximizing the market for documentaries and content archives.

Q:What is driving WWE's outperformance in 2025, and will this momentum continue?

A:The outperformance is driven by live events, IP, and partnerships, along with contractual increases in media rights. Management expects these tailwinds to continue but noted some event-specific factors that may not recur in the future. They highlighted strong operating margins for both UFC and WWE.

Q:What is the sponsorship opportunity for WWE, and how will ESPN's D2C platform impact it?

A:Management sees significant room for growth in sponsorships, especially with WWE's family-friendly programming. They believe ESPN's D2C platform will further enhance sponsorship opportunities and noted the success of their global partnerships division.

Q:What is the growth algorithm for TKO beyond the UFC media rights renewal?

A:Management highlighted multiple growth drivers, including integration of acquisitions, Netflix momentum, the launch of WWE PLEs on ESPN, and the development of boxing as a fourth major sports asset. They also emphasized their strong financial profile and margin expansion goals.

Q:Can you provide an update on the boxing initiative and its financial impact?

A:Management described boxing as a significant growth opportunity, with plans for a new JV and super fights. They expect to generate fees from promoting and managing these events, with no financial risk to TKO. They are also pursuing legislative changes to support their boxing initiatives.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing whether the outcomes of WWE and UFC deals influence each other, deferring the question to Disney executives. They also provided limited details on the financial contribution of the boxing initiative beyond general optimism.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call highlights strong financial metrics with raised revenue and EBITDA guidance, increased free cash flow, and positive strategic partnerships like the ESPN media rights deal. Despite a decrease in IMG revenue due to the absence of the Olympics, other segments show growth. The Q&A section reveals positive sentiment towards strategic partnerships and future growth opportunities in UFC and WWE. While there are concerns about specific financial details, the overall outlook and strategic plans suggest a positive stock price movement in the short term.

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Frequently Asked Questions

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