TKO Group Holdings Inc

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the information set forth in our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report and with our audited financial statements and related notes included in our 2023 Annual Report. The historical financial data discussed below reflects our historical results of operations and financial position and relates to periods prior to the Transactions. As a result, the following discussion does not reflect the significant impact that such events will have on us. This discussion contains forward-looking statements based upon management’s current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various known and unknown factors, including those set forth under Part I, Item 1A. “Risk Factors” of our 2023 Annual Report or in other sections of the 2023 Annual Report and this Quarterly Report.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the information set forth in our unaudited consolidated financial statements and related notes included in this Quarterly Report and with our audited financial statements and related notes included in our 2023 Annual Report. The historical financial data discussed below reflects our historical results of operations and financial position and relates to periods prior to the Transactions. As a result, the following discussion does not reflect the significant impact that such events will have on us. This discussion contains forward-looking statements based upon management’s current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various known and unknown factors, including those set forth under Part I, Item 1A. “Risk Factors” of our 2023 Annual Report or in other sections of the 2023 Annual Report and this Quarterly Report.

Previous wording

The following is a discussion of our consolidated results of operations for the three months ended March 31, 2024 and 2023. This information is derived from our accompanying consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Current wording

The following is a discussion of our consolidated results of operations for the three and six months ended June 30, 2024 and 2023. This information is derived from our accompanying consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Previous wording

UFC revenue increased by $6.3 million, or 2%. This increase was primarily driven by $10.6 million of higher sponsorship revenue from new sponsors and increases in fees from renewals compared to the prior year period. Additionally, the increase in revenue was due to $3.9 million of greater live event revenue from having one incremental event as well as $1.4 million of increased consumer products licensing revenue from greater video game royalties. These increases were partially offset by $9.6 million of lower media rights and content revenue from holding one fewer numbered event, which more than offset revenue associated with holding two additional Fight Night events compared to the prior year period.

Current wording

UFC revenue increased by $89.2 million, or 29%. This increase was primarily driven by $38.9 million of higher media rights and content revenue from contractual escalations in domestic and international media rights agreements and an incremental numbered event as well as $36.7 million of higher live event revenue from greater site fees primarily from UFC 302 in Newark, New Jersey and a Fight Night event in Riyadh, Saudi Arabia and having one incremental numbered event in the current year period. Additionally, the increase in revenue was due to $15.5 million of higher sponsorship revenue from new sponsors and increases in fees from renewals compared to the prior year period.

Previous wording

WWE contributed revenue of $316.7 million for the three months ended March 31, 2024. This revenue was driven by $221.1 million of media rights and content primarily associated with domestic and international rights fees for WWE’s flagship programs, Raw, SmackDown and NXT, and premium live event programming, as well as $50.2 million of live events revenue which was primarily driven by hosting 47 events with live ticketed audiences. The contribution of revenue was also driven by

Current wording

WWE contributed revenue of $456.8 million for the three months ended June 30, 2024. This revenue was driven by $260.7 million of media rights and content primarily associated with domestic and international rights fees for WWE’s flagship programs, Raw, SmackDown and NXT, and premium live event programming, including WrestleMania XLevents, as well as

Previous wording

$31.6 million of consumer products licensing related to the sale of WWE-branded products and $13.8 million of sponsorship revenue from the sale of advertising.

Current wording

$144.1 million of live events revenue which was primarily driven by hosting 46 events with live ticketed audiences, including WrestleMania XLevents, as well as site fees associated with the Queen and King of the Ring premium live event in Saudi Arabia. The contribution of revenue was also driven by $27.3 million of consumer products licensing related to the sale of WWE-branded products and $24.7 million of sponsorship revenue from the sale of advertising.

Previous wording

UFC direct operating costs decreased by $6.9 million, or 8%. This decrease was primarily due to reduced costs of $6.3 million from lower production, marketing and athlete costs as well as a decline in direct costs of revenue due to having one fewer numbered event, which more than offset the costs associated with holding two additional Fight Night events compared to the prior year period.

Current wording

UFC direct operating costs increased by $36.8 million, or 44%. This increase was primarily due to higher costs of $34.3 million from production, marketing and athlete costs associated with having one incremental numbered event as compared to the prior period. Additionally, this increase was driven by higher athlete compensation as well as an increase in direct costs of revenue due to expenses related to the increase in revenue described above.

Previous wording

WWE contributed direct operating costs of $115.4 million for the three months ended March 31, 2024. These costs were primarily driven by talent and production-related costs associated with WWE’s premium live events and weekly television programming, and event-related costs associated with 47 live events during the period, as well as $6.0 million of charges associated with restructuring activities related to the Transactions.

Current wording

WWE contributed direct operating costs of $135.4 million for the three months ended June 30, 2024. These costs were primarily driven by talent- and production-related costs associated with WWE’s premium live events, including WrestleMania XLevents, and weekly television programming, and event-related costs associated with 46 live events during the period. These costs also include $6.7 million of equity-based compensation expense associated with certain services provided by an independent contractor as well as $1.3 million of charges associated with restructuring activities related to the Transactions.

Previous wording

Corporate direct operating costs increased by $3.3 million. This increase was primarily related to service fees paid to Endeavor for various operational functions that support revenue generating activities pursuant to the Services Agreement.

Current wording

Corporate direct operating costs increased by $4.8 million. This increase was primarily related to service fees paid to Endeavor for various operational functions that support revenue generating activities pursuant to the Services Agreement.

Previous wording

UFC selling, general and administrative expenses decreased by $2.7 million, or 7%. This decrease was primarily driven by lower travel expenses from holding one fewer numbered event and one fewer international event compared to the prior year period.

Current wording

UFC selling, general and administrative expenses decreased by $4.4 million, or 5%. This decrease was primarily driven by lower costs of personnel compared to the prior year period.

Previous wording

WWE contributed selling, general and administrative expenses of $88.1 million for the three months ended March 31, 2024. These expenses were primarily driven by cost of personnel, including $4.9 million of charges associated with restructuring activities related to the Transactions, as well as travel and other operating expenses.

Current wording

WWE contributed selling, general and administrative expenses of $198.4 million for the six months ended June 30, 2024. These expenses were primarily driven by the cost of personnel, including $6.7 million of charges associated with restructuring activities related to the Transactions, as well as travel and other operating expenses. These expenses also include an impairment charge of $24.3 million as a result of reducing the carrying value of WWE assets held for sale to their fair value less cost to sell.

Previous wording

Corporate selling, general and administrative expenses increased by $390.2 million. This increase was primarily due to higher legal costs of $341.8 million, including a legal settlement related to UFC antitrust lawsuits of $335.0 million, as well as $23.7 million of higher cost of personnel and other operating expenses, including TKO executive compensation and other public company expenses following the Transactions. The acquisition of WWE contributed $24.7 million of expenses to Corporate, which was primarily driven by personnel costs, including $0.7 million of charges associated with restructuring activities related to the Transactions, as well as other operating expenses.

Current wording

Corporate selling, general and administrative expenses increased by $450.7 million. This increase was primarily due to higher legal costs of $340.1 million, including a legal settlement related to UFC antitrust lawsuits of $335.0 million, as well as $53.9 million of higher cost of personnel and other operating expenses, including TKO executive compensation and other public company expenses following the Transactions. The acquisition of WWE contributed $56.7 million of expenses to Corporate, which was primarily driven by personnel costs, including $3.0 million of charges associated with restructuring activities related to the Transactions, as well as other operating expenses, including $5.3 million related to service fees paid to Endeavor.

Previous wording

Depreciation and amortization increased $91.9 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was primarily due to $91.8 million of expenses associated with the acquisition of WWE.

Current wording

Depreciation and amortization increased $88.9 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily due to $88.5 million of expenses associated with the acquisition of WWE.

Previous wording

Interest expense, net increased $10.6 million, or 20%, to $64.5 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was primarily driven by higher interest rates on variable rate debt slightly offset by lower indebtedness.

Current wording

Interest expense, net increased $7.8 million, or 13%, to $65.7 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily driven by higher interest rates on variable rate debt slightly offset by lower indebtedness.

Previous wording

For the three months ended March 31, 2024, TKO recorded a benefit from income taxes of $25.5 million compared to a provision of $3.6 million for the three months ended March 31, 2023. This change was primarily related to the legal settlement for UFC antitrust lawsuits of $335.0 million that resulted in a $39.6 million discrete tax benefit that was recognized in the current year period.

Current wording

For the six months ended June 30, 2024, TKO recorded a provision for income taxes of $14.1 million compared to a provision of $6.5 million for the six months ended June 30, 2023. This change was primarily related to the legal settlement for UFC antitrust lawsuits of $335.0 million that resulted in a $39.2 million discrete tax benefit that was recognized in the current year period.

Previous wording

Net (loss) income attributable to non-controlling interests was a loss of $145.7 million and income of $0.3 million for the three months ended March 31, 2024 and 2023, respectively. The change was primarily due to the change in the amount of report net loss for the three months ended March 31, 2024 as compared to the reported net income for the three months ended March 31, 2023 as well as the effect of the Transactions.

Current wording

Net income (loss) attributable to non-controlling interests was income of $91.6 million and $0.5 million for the three months ended June 30, 2024 and 2023, respectively. The change was primarily due to the change in the amount of reported net income for the three months ended June 30, 2024 as compared to the reported net income for the three months ended June 30, 2023 as well as the effect of the Transactions.

Previous wording

The following tables set forth Revenue and Adjusted EBITDA for each of our segments for the three months ended March 31, 2024 and 2023:

Current wording

The following tables set forth Revenue and Adjusted EBITDA for each of our segments for the three and six months ended June 30, 2024 and 2023:

Previous wording

The following table sets forth our UFC segment results for the three months ended March 31, 2024 and 2023:

Current wording

The following table sets forth our UFC segment results for the three and six months ended June 30, 2024 and 2023:

Previous wording

The following table sets forth our WWE segment results for the three months ended March 31, 2024:

Current wording

The following table sets forth our WWE segment results for the three and six months ended June 30, 2024:

Previous wording

The following table displays results for Corporate for the three months ended March 31, 2024 and 2023:

Current wording

The following table displays results for Corporate for the three and six months ended June 30, 2024 and 2023:

Previous wording

Adjusted EBITDA for the three months ended March 31, 2024 decreased by $39.4 million, or 288%, compared to the three months ended March 31, 2023. The acquisition of WWE contributed corporate expenses of $20.5 million, primarily driven by the cost of personnel and other general and administrative expenses. The remaining decrease of $18.9 million was driven by increases in cost of personnel, including TKO executive compensation following the Transactions, and other general and administrative expenses, including public company expenses following the Transactions.

Current wording

Adjusted EBITDA for the three months ended June 30, 2024 decreased by $47.7 million, or 327%, compared to the three months ended June 30, 2023. The acquisition of WWE contributed corporate expenses of $21.5 million, primarily driven by the cost of personnel and other general and administrative expenses, and $17.5 million was the result of increases in cost of personnel, including TKO executive compensation, and other public company expenses following the Transactions. The remaining decrease was due to $8.7 million of higher services fees paid to Endeavor.

Previous wording

(1)Equity-based compensation represents non-cash compensation expense for awards issued under Endeavor’s 2021 Plan subsequent to its April 28, 2021 IPO, for the Replacement Awards (as defined in Note 4, Acquisition of WWE, to our unaudited consolidated financial statements in the Quarterly Report) and for awards issued under the 2023 Incentive Award Plan. For the three months ended March 31, 2024, equity-based compensation includes $9.0 million of expense associated with certain services provided by an independent contractor in the WWE segment and $2.4 million of expense associated with accelerated vesting of the Replacement Awards related to the workforce reduction of certain employees in the WWE segment and Corporate.

Current wording

(1)Equity-based compensation represents non-cash compensation expense for awards issued under Endeavor’s 2021 Plan subsequent to its April 28, 2021 IPO, for the Replacement Awards (as defined in Note 4, Acquisition of WWE, to our unaudited consolidated financial statements included in this Quarterly Report) and for awards issued under the 2023 Incentive Award Plan. For the three and six months ended June 30, 2024, equity-based compensation includes $6.7 million and $15.7 million of expense, respectively, associated with certain services provided by an independent contractor in the WWE segment and $0.9 million and $3.3 million of expense, respectively, associated with accelerated vesting of the Replacement Awards related to the workforce reduction of certain employees in the WWE segment and Corporate.

Previous wording

(2)Includes certain costs of professional fees and bonuses related to the Transactions and payable contingent on the closing of the Transactions.

Current wording

(2)Includes (i) certain costs of professional fees and bonuses related to the Transactions and payable contingent on the closing of the Transactions and (ii) certain costs of professional advisors related to potential mergers and acquisitions.

Previous wording

(3)Includes costs related to certain litigation matters including antitrust lawsuits for UFC and WWE and matters where Mr. McMahon has agreed to make future payments to certain counterparties personally. For the three months ended March 31, 2024, these costs include the settlement of

Current wording

(3)Includes costs related to certain litigation matters including antitrust lawsuits for UFC and WWE and matters where Mr. McMahon has agreed to make future payments to certain counterparties personally. For the six months ended June 30, 2024, these costs include the settlement amount of $335.0 million regarding the UFC antitrust lawsuits, as described in Note 17, Commitments and Contingencies, to our unaudited consolidated financial statements included in this Quarterly Report.

Previous wording

(4)Includes costs resulting from the Company’s cost reduction program during the three months ended March 31, 2024, as described in Note 15, Restructuring Charges, to our unaudited consolidated financial statements in this Quarterly Report.

Current wording

(4)Includes costs resulting from the Company’s cost reduction program during the three and six months ended June 30, 2024, as described in Note 16, Restructuring Charges, to our unaudited consolidated financial statements in this Quarterly Report. Additionally, during the three and six months ended June 30, 2024, the Company recorded an impairment charge of $24.3 million as a result of reducing the carrying value of WWE assets held for sale to their fair value less cost to sell, as described in Note 6, Supplementary Data, to our unaudited consolidated financial statements included in this Quarterly Report.

Previous wording

Following a repricing under the Credit Facilities in January 2021, term loan borrowings under the Credit Facilities bore interest at a variable interest rate equal to either, at its option, adjusted LIBOR or the ABR plus, in each case, an applicable margin. LIBOR term loans accrue interest at a rate equal to an adjusted LIBOR plus 2.75%-3.00%, depending on the First Lien Leverage Ratio (as defined in the Credit Agreement), in each case with a LIBOR floor of 0.75%. ABR term loans accrue interest at a rate equal to (i) the highest of (a) the Federal Funds Effective Rate plus 0.5%, (b) the prime rate, (c) adjusted LIBOR for a one-month interest period plus 1.00% and (d) 1.75%, plus (ii) 1.75%-2.00%. In June 2023, the parties amended the terms of the First Lien Term Loan to replace the adjusted LIBOR reference rate with Term Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment (as defined in the Credit Agreement). The term loans under the Credit Facilities include 1% principal amortization payable in equal quarterly installments and mature on April 29, 2026.

Current wording

Following a repricing under the Credit Facilities in January 2021, term loan borrowings under the Credit Facilities bore interest at a variable interest rate equal to either, at its option, adjusted LIBOR or the ABR plus, in each case, an applicable margin. LIBOR term loans accrue interest at a rate equal to an adjusted LIBOR plus 2.75%-3.00%, depending on the First Lien Leverage Ratio (as defined in the Credit Agreement), in each case with a LIBOR floor of 0.75%. ABR term loans accrue interest at a rate equal to (i) the highest of

Previous wording

As of March 31, 2024, the Company had no borrowings outstanding under the Revolving Credit Facility and no outstanding letters of credit. In April 2024, the Company borrowed $150.0 million under the Revolving Credit Facility to fund certain share repurchases that occurred during the second quarter of 2024. In May 2024, the Company entered into an amendment to the Credit Agreement, which extended the Revolving Credit Facility’s maturity by twelve months to October 29, 2025.

Current wording

As of June 30, 2024, the Company had no borrowings outstanding under the Revolving Credit Facility and $10.0 million outstanding letters of credit. In April 2024, the Company borrowed $150.0 million under the Revolving Credit Facility to fund certain share repurchases that occurred during the second quarter of 2024. In June 2024, the Company fully repaid the $150.0 million outstanding. In May 2024, the Company entered into an amendment to the Credit Agreement, which extended the Revolving Credit Facility’s maturity by twelve months to October 29, 2025.

Previous wording

Operating activities decreased from $69.7 million of cash provided in the three months ended March 31, 2023 to $59.3 million of cash provided in the three months ended March 31, 2024. Cash provided in the three months ended March 31, 2024 was primarily due to a decrease in net income for the period of $337.4 million, which included certain non-cash items, including depreciation and amortization of $91.9 million and equity-based compensation of $24.4 million, partially offset by an increase in accrued and other liabilities of $283.3 million primarily due to the settlement of UFC antitrust lawsuits for $335.0 million and the timing of bonus payments.

Current wording

Operating activities increased from $180.7 million of cash provided in the six months ended June 30, 2023 to $290.0 million of cash provided in the six months ended June 30, 2024. Cash provided in the six months ended June 30, 2024 was primarily due to an increase in accounts payable and accrued liabilities of $331.3 million driven by the $335.0 million charge under the settlement agreement in the UFC antitrust lawsuits and the timing of bonus payments, partially offset by a decrease in net income for the period of $268.6 million, which included certain non-cash items, including depreciation and amortization of $180.8 million and equity-based compensation of $43.0 million.

Previous wording

Investing activities decreased from $4.6 million of cash used in the three months ended March 31, 2023 to $36.2 million of cash used in the three months ended March 31, 2024. Cash used in the three months ended March 31, 2024 primarily reflects payments for property, buildings and equipment and investments in affiliates. Cash used in the three months ended March 31, 2023 primarily reflects payments for property, buildings and equipment.

Current wording

Investing activities decreased from $9.2 million of cash used in the six months ended June 30, 2023 to $48.3 million of cash used in the six months ended June 30, 2024. Cash used in the six months ended June 30, 2024 primarily reflects payments for property, buildings and equipment and investments in affiliates. Cash used in the six months ended June 30, 2023 primarily reflects payments for property, buildings and equipment.

Previous wording

Financing activities decreased from $109.6 million of cash used in the three months ended March 31, 2023 to $10.6 million of cash used in the three months ended March 31, 2024. Cash used in the three months ended March 31, 2024 primarily reflects net payments on debt of $10.0 million. Cash used in the three months ended March 31, 2023 primarily reflects distributions to Endeavor and subsidiaries of $101.4 million and net payments on debt of $8.2 million.

Current wording

Financing activities decreased from $178.1 million of cash used in the six months ended June 30, 2023 to $199.3 million of cash used in the six months ended June 30, 2024. Cash used in the six months ended June 30, 2024 primarily reflects share repurchases of $165.0 million, net payments on debt of $22.0 million and distributions to Endeavor and its subsidiaries of $12.3 million. Cash used in the six months ended June 30, 2023 primarily reflects distributions to Endeavor and subsidiaries of $161.5 million and net payments on debt of $16.3 million.

Previous wording

TKO expects that its primary liquidity needs will be cash to (1) provide capital to facilitate organic growth of its business, (2) pay operating expenses, including cash compensation to its employees, athletes and talent, (3) fund capital expenditures, (4) pay interest and principal when due on the Credit Facilities, (5) pay income taxes, (6) reduce its outstanding indebtedness under the Credit Facilities, (7) fund the legal settlements described in Note 16, Commitments and Contingencies, to our unaudited consolidated financial statements included in this Quarterly Report, and (8) make distributions to members and, in accordance with the Company’s dividend policy, to TKO stockholders.

Current wording

TKO expects that its primary liquidity needs will be cash to (1) provide capital to facilitate organic growth of its business, (2) pay operating expenses, including cash compensation to its employees, athletes and talent, (3) fund capital expenditures and investments, (4) pay interest and principal when due on the Credit Facilities, (5) pay income taxes, (6) reduce its outstanding indebtedness under the Credit Facilities, (7) fund the legal settlements described in Note 17, Commitments and Contingencies, to our unaudited consolidated financial statements included in this Quarterly Report, and (8) make distributions to members and, in accordance with the Company’s cash management policy, to TKO stockholders.

Previous wording

For a description of our policies regarding our critical accounting estimates, see “Critical Accounting Estimates” in our 2023 Annual Report. During the three months ended March 31, 2024, there were no significant changes in our critical accounting policies and estimates or the application or the results of the application of those policies to our unaudited consolidated financial statements from those previously disclosed in the 2023 Annual Report.

Current wording

For a description of our policies regarding our critical accounting estimates, see “Critical Accounting Estimates” in our 2023 Annual Report. During the six months ended June 30, 2024, there were no significant changes in our critical accounting policies and estimates or the application or the results of the application of those policies to our unaudited consolidated financial statements from those previously disclosed in the 2023 Annual Report.