TKO Group Holdings, Inc. — Form 10-Q summary
Reporting period: Quarter and nine months ended September 30, 2023; unaudited. TKO completed the UFC–WWE combination on September 12, 2023. Accordingly, reported 2023 results include WWE only from September 12 onward, limiting comparison with 2022, which reflects UFC only. The company reports UFC and WWE as separate segments, plus Corporate.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $449.1 million | $340.7 million | $1,061.0 million | $868.4 million |
| Operating income | $93.8 million | $169.6 million | $383.8 million | $424.2 million |
| Net income | $22.0 million | $129.7 million | $191.8 million | $320.5 million |
| Adjusted EBITDA (non-GAAP) | $239.7 million | $190.5 million | $585.9 million | $488.0 million |
| Adjusted EBITDA margin | 53% | 56% | 55% | 56% |
Revenue rose 32% for the quarter and 22% year to date, reflecting UFC growth and WWE’s partial-period contribution. UFC revenue increased 17% in Q3 and 16% year to date; WWE contributed $51.5 million after closing. Higher UFC media-rights, live-event and sponsorship revenue supported growth. Consolidated net income fell as reported operating expenses and interest costs rose. Separately, net loss attributable to TKO Group Holdings, Inc. was $21.9 million for the period after the transaction (September 12–30), or $0.26 per Class A share; this parent-company measure is not equivalent to consolidated quarterly net income.
Q3 selling, general and administrative expense was $193.2 million, including $67.5 million of transaction-related costs and WWE’s $64.5 million of post-close SG&A, which included $31.6 million of restructuring charges. Net interest expense rose to $60.6 million in Q3 and $172.4 million for the nine months, mainly due to higher variable interest rates. UFC Adjusted EBITDA margin was 60% in Q3 and 61% year to date; WWE’s was 43% for its partial period.
Cash flow: Nine-month operating cash flow was $247.7 million, down from $376.8 million. Investing activities provided $47.6 million, including $381.2 million of cash acquired with WWE, partly offset by the $321.0 million deferred payment to former WWE shareholders. Financing activities used $285.3 million, including $260.5 million of distributions to Endeavor and affiliates and $24.5 million of debt repayment. Cash and cash equivalents were $188.6 million at September 30, 2023.
Debt and liquidity: Total debt carrying value was $2.75 billion (principal of $2.77 billion), primarily a floating-rate first-lien term loan due April 2026. The company had no revolving-credit borrowings, $205 million of stated revolver capacity and $10 million of letters of credit outstanding. A $4.2 million WWE convertible-note principal balance was due December 2023. Management said cash, operating cash flows and available borrowings should fund needs and commitments for at least 12 months, and expects to refinance term debt before 2026 maturity. The filing estimates that a 1 percentage-point increase in effective interest rates would add approximately $27 million to annual interest expense.
Total assets were $12.74 billion, including $7.64 billion of goodwill and $3.68 billion of intangible assets, largely reflecting the WWE acquisition. Total liabilities were $3.76 billion; stockholders’ equity and non-controlling interests totaled $8.96 billion. WWE’s purchase-price allocation remained preliminary; $5.04 billion of goodwill was assigned to WWE and is not tax deductible.
Material changes, outlook and risks
- Combination and integration: The acquisition was accounted for as a reverse acquisition, with TKO OpCo as accounting acquirer. The company incurred $82.5 million of transaction costs for the nine months. It began a cost-reduction and integration program, recording $31.6 million of restructuring charges, including $16.5 million of equity-based compensation.
- Outlook: The filing provides no numerical revenue or earnings guidance. Management expects available liquidity to cover at least the next 12 months and anticipates refinancing the 2026 term loan, while noting refinancing terms depend on company-specific and macroeconomic conditions. A one-time $3.86-per-share special dividend was paid September 29; future distributions are subject to board decisions, cash availability and debt restrictions.
- Distribution and business risks: The company depends on media and streaming partners and expects negotiations to renew or replace important WWE domestic Raw and NXT rights agreements before their expirations through 2024. SmackDown is expected to move from Fox to USA Network in October 2024. Competition, changing viewing habits, sponsorship demand and live-event execution may affect results.
- Legal and governance matters: UFC antitrust litigation includes a certified bout class, with trial scheduled for April 8, 2024; a Ninth Circuit appeal of class certification was denied November 1, 2023. WWE faces MLW litigation and may receive further inquiries related to the investigation of former WWE CEO Vincent McMahon. The filing also discloses a July 2023 federal search warrant and grand-jury subpoena served on Mr. McMahon; it states no charges had been brought. Endeavor controls approximately 51.9% of voting power and TKO OpCo’s economic interests, creating control and related-party risks.
- Other notable risks: Variable-rate debt, refinancing needs, integration execution, potential loss or repricing of media-rights agreements, and the UFC antitrust matters are significant exposures. The company reported disclosure controls effective at a reasonable-assurance level; internal controls were being redesigned and integrated following the transaction.
Important facts for investors to verify
- Separate UFC and WWE operating trends from acquisition effects, and compare results on a pro forma or full-period basis where appropriate.
- Track integration costs, restructuring, expected synergies and the final WWE purchase-price allocation, including goodwill and acquired intangible values.
- Review media-rights renewal outcomes, particularly WWE Raw and NXT domestic agreements, and the planned SmackDown distribution change.
- Monitor floating-rate interest expense, cash generation, debt maturities and the company’s ability to refinance before April 2026.
- Follow the UFC antitrust class action and WWE-related legal and investigative matters, including any change in estimated exposure or related costs.