TKO Group Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2024

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.

Overview

TKO is a premium sports and entertainment company which operates leading combat sports and sports entertainment brands. The Company monetizes its brands through four principal activities: Media rights and content, Live events, Sponsorship, and Consumer products licensing.

TKO was formed through the combination of Zuffa Parent, LLC (n/k/a TKO Operating Company, LLC) which owns and operates the Ultimate Fighting Championship (“UFC”), a preeminent combat sports brand and a subsidiary of Endeavor Group Holdings, Inc. (“Endeavor”), a global sports and entertainment company, and World Wrestling Entertainment, Inc. (n/k/a/ World Wrestling Entertainment, LLC) (“WWE”), a renowned sports entertainment business. The Transactions unite two complementary sports and sports entertainment brands in a single company supported by Endeavor’s capabilities in premium IP ownership, talent representation, live events and experiences. For additional information regarding the terms of the Transactions, see Note 4, Acquisition of WWE, to our unaudited consolidated financial statements included in this Quarterly Report.

Segments

As of September 30, 2024, we operated our business under two reportable segments, UFC and WWE. In addition, we also report results for the “Corporate” group, which incurs expenses that are not allocated to the business segments.

UFC

The UFC segment reflects the business operations of UFC. Revenue from our UFC segment principally consists of media rights fees associated with the distribution of its programming content; ticket sales and site fees associated with the business’s global live events; sponsorships; and consumer product licensing agreements of UFC-branded products.

WWE

The WWE segment reflects the business operations of WWE. Revenue from our WWE segment principally consists of media rights fees associated with the distribution of its programming content; ticket sales and site fees associated with the business’s global live events; sponsorships; and consumer product licensing agreements of WWE-branded products.

Corporate

Corporate reflects operations not allocated to the UFC or WWE segments and primarily consists of general and administrative expenses. These expenses relate largely to corporate activities, including information technology, facilities, legal, human resources, finance, accounting, treasury, investor relations, corporate communications, community relations and compensation to TKO’s management and board of directors, which support both reportable segments. Corporate expenses also include service fees paid by the Company to Endeavor under the Services Agreement, inclusive of fees paid for revenue producing services related to the segments.

Components of Our Operating Results

Revenue

TKO primarily generates revenue via domestic and international media rights fees, ticket sales and site fees at our live events, sponsorships, and consumer products licensing.

Direct Operating Costs

TKO’s direct operating costs primarily include costs associated with our athletes and talent, production, marketing, venue costs related to our live events, and commissions and direct costs with distributors, as well as certain service fees paid to Endeavor.

Selling, General and Administrative

TKO’s selling, general and administrative expenses primarily include personnel costs as well as rent, travel, professional service and legal costs, legal settlements and certain service fees paid to Endeavor.

Provision for Income Taxes

TKO Group Holdings, Inc. was incorporated as a Delaware corporation in March 2023. As the sole managing member of TKO OpCo, TKO Group Holdings, Inc. operates and controls all the business and affairs of UFC and WWE. TKO Group Holdings, Inc. is subject to corporate income taxes on its share of taxable income of TKO OpCo. TKO OpCo is treated as a partnership for U.S. federal income tax purposes and is therefore generally not subject to U.S. corporate income tax. TKO OpCo’s foreign subsidiaries are subject to entity-level taxes. TKO OpCo’s U.S. subsidiaries are subject to withholding taxes on sales in certain foreign jurisdictions which are included as a component of foreign current taxes. TKO OpCo is subject to entity-level income taxes in certain U.S. state and local jurisdictions.

RESULTS OF OPERATIONS

(dollars in millions, except where noted)

The following is a discussion of our consolidated results of operations for the three and nine months ended September 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”).

Revenue

Revenue increased by $232.1 million, or 52%, to $681.2 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

• UFC revenue decreased by $42.6 million, or 11%. This decrease was primarily driven by $50.4 million of lower media rights and content revenue from holding one less numbered event and two fewer Fight Night events in the current year period. This decrease in revenue was partially offset by $10.2 million of higher sponsorship revenue primarily driven by providing title partner status to UFC 306, as well as new sponsors and increases in fees from renewals compared to the prior year period.
• WWE contributed revenue of $326.3 million for the three months ended September 30, 2024 as compared to $51.6 million for the period from September 12, 2023 through September 30, 2023 following its acquisition. This incremental revenue was driven by $190.1 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 $45.7 million

of live events revenue which was primarily driven by hosting additional events with live ticketed audiences compared to the prior year period. The additional revenue was also due to $19.8 million of consumer products licensing related to the sale of WWE-branded products and $19.1 million of sponsorship revenue from the sale of advertising.

Revenue increased by $1,101.1 million, or 104%, to $2,162.1 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

• UFC revenue increased by $52.9 million, or 5%. This increase was primarily driven by $40.2 million of higher live event revenue due to an increase in gate revenue at our numbered events compared to the prior year period, as well as higher site fee revenues primarily from UFC 302 in Newark, New Jersey and Fight Night events in Riyadh, Saudi Arabia, and Abu Dhabi. Additionally, sponsorship revenue increased by $36.3 million driven by providing title partner status to UFC 306, as well as revenue from new sponsors and increases in fees from renewals compared to the prior year period. Media rights and content revenue decreased by $21.1 million due to the net impact of there being one less numbered event and one less Fight Night event in the current period, partially offset by contractual increases in our domestic and international rights fees agreements.
• WWE contributed revenue of $1,099.8 million for the nine months ended September 30, 2024 as compared to $51.6 million for the period from September 12, 2023 through September 30, 2023 following its acquisition. This incremental revenue was driven by $671.9 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 XL events, as well as $240.0 million of live events revenue which was primarily driven by hosting additional events with live ticketed audiences, including WrestleMania XL events, as well as site fees associated with certain international premium live events compared to the prior year period. The additional revenue was also due to $78.7 million of consumer products licensing related to the sale of WWE-branded products and $57.6 million of sponsorship revenue from the sale of advertising.

Direct Operating Costs

Direct operating costs increased by $76.8 million or 59% to $207.1 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

• UFC direct operating costs decreased by $2.9 million, or 2%. This decrease was primarily due to lower expenses from marketing, athlete costs, and direct costs of revenue resulting from having one less numbered event and two fewer Fight Night events in the current year period offset by increased production costs primarily for UFC 306, which was a marquee event at the Sphere in Las Vegas.
• WWE contributed direct operating costs of $87.4 million for the three months ended September 30, 2024 as compared to $12.6 million for the period from September 12, 2023 through September 30, 2023 following its acquisition. These incremental 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 additional live events during the period.
• Corporate direct operating costs increased by $4.9 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. The costs associated with WWE's portion of the service fees did not commence until March 2024.

Direct operating costs increased by $365.6 million or 121% to $667.9 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

• UFC direct operating costs increased by $27.0 million, or 9%. This increase was primarily due to higher costs of $26.8 million from higher athlete compensation, as well as increased production costs primarily for UFC 306, which was a marquee event at the Sphere in Las Vegas.
• WWE contributed direct operating costs of $338.2 million for the nine months ended September 30, 2024 as compared to $12.6 million for the period from September 12, 2023 through September 30, 2023 following its acquisition. These incremental costs were primarily driven by talent- and production-related costs associated with WWE’s premium live events, including WrestleMania XL events, and weekly television programming, and event-related costs associated with additional live events during the period. These costs also include $16.7 million of equity-based compensation expense associated with certain services provided by an independent contractor.
• Corporate direct operating costs increased by $13.0 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. The costs associated with WWE's portion of the service fees did not commence until March 2024.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $46.4 million, or 24%, to $239.6 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

• UFC selling, general and administrative expenses increased by $2.8 million, or 6%. This increase was primarily driven by higher costs of personnel compared to the prior year period.
• WWE contributed selling, general and administrative expenses of $73.4 million for the three months ended September 30, 2024 as compared to $45.5 million for the period from September 12, 2023 through September 30, 2023 following its acquisition. These incremental expenses were primarily driven by increased travel expenses of $14.7 million due to 33 additional live events in the current period. The current year period also includes $7.1 million of increased personnel costs and $6.1 million of increases in other operating expenses driven by the timing of the acquisition.
• Corporate selling, general and administrative expenses increased by $15.7 million. This increase was primarily due to higher legal costs of $41.2 million, including the legal settlement related to UFC antitrust lawsuits of $40.0 million, and $23.7 million of higher cost of personnel and other operating expenses, including TKO executive compensation and other public company expenses following the Transactions. These increases were partially offset by a decline of $56.6 million in merger and acquisition costs related primarily to the Transactions. The acquisition of WWE contributed $7.4 million of incremental expenses to Corporate primarily driven by $9.7 million of other operating expenses, including $4.2 million related to service fees paid to Endeavor, partially offset by a decline of $2.0 million in merger and acquisition costs related primarily to the Transactions.

Selling, general and administrative expenses increased by $691.1 million, or 221%, to $1,004.1 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

• UFC selling, general and administrative expenses increased by $12.6 million, or 10%. This increase was primarily driven by higher costs of personnel compared to the prior year period.
• WWE contributed selling, general and administrative expenses of $271.8 million for the nine months ended September 30, 2024 as compared to $45.5 million for the period from September 12, 2023 through September 30, 2023 following its acquisition. These incremental expenses were primarily driven by $111.0 million of increased personnel costs driven by the timing of the acquisition, including $6.7 million of charges associated with restructuring activities related to the Transactions, as well as $57.6 million of increased travel expenses due to 126 additional live events in the current period. The current year period also includes $31.9 million of other operating expenses driven by the timing of the acquisition and impairment charges of $25.8 million as a result of reducing the carrying value of WWE assets held for sale to their fair value less cost to sell.
• Corporate selling, general and administrative expenses increased by $452.2 million. This increase was primarily due to higher legal costs of $394.4 million, including the legal settlement related to UFC antitrust lawsuits of $375.0 million, as well as $62.9 million of higher cost of personnel and other operating expenses, including TKO executive compensation and other public company expenses following the Transactions. These increases were partially offset by a decrease in merger and acquisition costs of $69.3 million related primarily to the Transactions. The acquisition of WWE contributed $64.1 million of incremental expenses to Corporate, which was primarily driven by $22.0 million of increased personnel costs, including $3.0 million of charges associated with restructuring activities related to the Transactions, as well as $42.1 million of other operating expenses, including $9.5 million related to service fees paid to Endeavor.

Depreciation and Amortization

Depreciation and amortization increased $66.4 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily due to $66.5 million of expenses associated with the acquisition of WWE.

Depreciation and amortization increased $247.2 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily due to $246.8 million of incremental expenses associated with the acquisition of WWE.

Interest Expense, Net

Interest expense, net increased $2.1 million, or 3%, to $62.7 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily driven by higher interest rates on variable rate debt slightly offset by lower indebtedness.

Interest expense, net increased $20.5 million, or 12%, to $192.9 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily driven by higher interest rates on variable rate debt slightly offset by lower indebtedness.

Provision for Income Taxes

For the three months ended September 30, 2024, TKO recorded a provision for income taxes of $17.8 million compared to $11.2 million for the three months ended September 30, 2023. This increase was primarily due to the new corporate structure as a result of the Transactions.

For the nine months ended September 30, 2024, TKO recorded a provision for income taxes of $31.8 million compared to $17.7 million for the nine months ended September 30, 2023. This increase was primarily related to the new corporate structure as a result of the Transactions and the legal settlement for UFC antitrust lawsuits of $375.0 million that resulted in a $44.0 million discrete tax benefit that was recognized in the current year period.

Net Income (Loss) Attributable to Non-Controlling Interests

Net income (loss) attributable to non-controlling interests was income of $34.6 million and a loss of $22.5 million for the three months ended September 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 September 30, 2024 as compared to the reported net income for the three months ended September 30, 2023 as well as the effect of the Transactions.

Net income (loss) attributable to non-controlling interests was a loss of $19.5 million and a loss of $21.7 million for the nine months ended September 30, 2024 and 2023, respectively. The change was primarily due to the change in the amount of reported net loss for the nine months ended September 30, 2024 as compared to the reported net income for the nine months ended September 30, 2023 as well as the effect of the Transactions.

Segment Results of Operations

As of September 30, 2024, we classified our business into two reportable segments: UFC and WWE. Our chief operating decision maker evaluates the performance of our segments based on segment Revenue and segment Adjusted EBITDA. Management believes segment Adjusted EBITDA is indicative of operational performance and ongoing profitability, and Adjusted EBITDA is used to evaluate the operating performance of our segments and for planning and forecasting purposes, including the allocation of resources and capital. Segment operating results reflect earnings before corporate expenses. These segment results of operations should be read in conjunction with our discussion of the Company’s consolidated results of operations included above.

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

37

UFC

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

WWE

The following table sets forth our WWE segment results for the three and nine months ended September 30, 2024 and 2023:

38

Corporate

Corporate expenses relate largely to corporate activities, including information technology, facilities, legal, human resources, finance, accounting, treasury, investor relations, corporate communications, community relations and compensation to TKO’s management and board of directors, which support both reportable segments. Corporate expenses also include service fees paid by the Company to Endeavor related to corporate activities as well as revenue generating activities under the Services Agreement.

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

Adjusted EBITDA for the three months ended September 30, 2024 decreased by $40.3 million, or 196%, compared to the three months ended September 30, 2023. The acquisition of WWE contributed incremental corporate expenses of $11.9 million, primarily driven by the cost of personnel and other general and administrative expenses. The remaining decrease was attributable to $20.2 million resulting from increases in cost of personnel, including TKO executive compensation, and other public company expenses following the Transactions, as well as $8.2 million of higher services fees paid to Endeavor. The costs associated with WWE's portion of the service fees did not commence until March 2024.

Adjusted EBITDA for the nine months ended September 30, 2024 decreased by $127.4 million, or 261%, compared to the nine months ended September 30, 2023. The acquisition of WWE contributed incremental corporate expenses of $52.3 million, primarily driven by the cost of personnel and other general and administrative expenses. The remaining decrease was attributable to $54.2 million resulting from increases in cost of personnel, including TKO executive compensation, and other public company expenses following the Transactions, as well as $20.9 million of higher service fees paid to Endeavor. The costs associated with WWE's portion of the service fees did not commence until March 2024.

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA is a non-GAAP financial measure and is defined as net income, excluding income taxes, net interest expense, depreciation and amortization, equity-based compensation, merger and acquisition costs, certain legal costs, restructuring, severance and impairment charges, and certain other items when applicable. Adjusted EBITDA margin is a non-GAAP financial measure defined as Adjusted EBITDA divided by Revenue.

TKO management believes that Adjusted EBITDA and Adjusted EBITDA margin are useful to investors as these measures eliminate the significant level of non-cash depreciation and amortization expense that results from its capital investments and intangible assets, and improve comparability by eliminating the significant level of interest expense associated with TKO’s debt facilities, as well as income taxes which may not be comparable with other companies based on TKO’s tax and corporate structure.

Adjusted EBITDA and Adjusted EBITDA margin are used as the primary bases to evaluate TKO’s consolidated operating performance.

Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of TKO’s results as reported under GAAP. Some of these limitations are:

• they do not reflect every cash expenditure, future requirements for capital expenditures, or contractual commitments;
• Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on TKO’s debt;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and Adjusted EBITDA and Adjusted EBITDA margin do not reflect any cash requirement for such replacements or improvements; and
• they are not adjusted for all non-cash income or expense items that are reflected in TKO’s statements of cash flows.

TKO management compensates for these limitations by using Adjusted EBITDA and Adjusted EBITDA margin along with other comparative tools, together with GAAP measurements, to assist in the evaluation of TKO’s operating performance.

Adjusted EBITDA and Adjusted EBITDA margin should not be considered substitutes for the reported results prepared in accordance with GAAP and should not be considered in isolation or as alternatives to net income as indicators of TKO’s financial performance, as measures of discretionary cash available to it to invest in the growth of its business or as measures of cash that will be available to TKO to meet its obligations. Although TKO uses Adjusted EBITDA and Adjusted EBITDA margin as financial measures to assess the performance of its business, such use is limited because it does not include certain material costs necessary to operate TKO’s business. TKO’s presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed as indications that its future results will be unaffected by unusual or nonrecurring items. These non-GAAP financial measures, as determined and presented by TKO, may not be comparable to related or similarly titled measures reported by other companies. Set forth below are reconciliations of TKO’s most directly comparable financial measures calculated in accordance with GAAP to these non-GAAP financial measures on a consolidated basis.

Adjusted EBITDA and Adjusted EBITDA Margin

(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 nine months ended September 30, 2024, equity-based compensation includes $1.0 million and $16.7 million of expense, respectively, associated with certain services provided by an independent contractor in the WWE segment. Equity-based compensation also includes $3.3 million of expense during the nine months ended September 30, 2024 and $16.5 million of expense during the three and nine months ended September 30, 2023 associated with accelerated vesting of the Replacement Awards related to the workforce reduction of certain employees in the WWE segment and Corporate.

(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 other strategic transactions, primarily the Endeavor Asset Acquisition.

(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 and nine months ended September 30, 2024, these costs include settlement charges of $40.0 million and $375.0 million, respectively, regarding the UFC antitrust lawsuits, as described in Note 18, Commitments and Contingencies, to our unaudited consolidated financial statements included in this Quarterly Report.

(4) Includes costs resulting from the Company’s cost reduction program during the three and nine months ended September 30, 2024, as described in Note 16, Restructuring Charges, to our unaudited consolidated financial statements in this Quarterly Report. Additionally, during the three and nine months ended September 30, 2024, the Company recorded impairment charges of $1.5 million and $25.8 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.

Liquidity and Capital Resources

Sources and Uses of Cash

Cash flows from operations are used to fund TKO’s day-to-day operations, revenue-generating activities, and routine capital expenditures, as well as to service its long-term debt, and are expected to be used to fund our capital return programs.

Credit Facilities

As of September 30, 2024, there is currently outstanding an aggregate of $2.7 billion of first lien term loans under a credit agreement dated August 18, 2016 (as amended and/or restated, the “Credit Agreement”), by and among Zuffa Guarantor, LLC, UFC Holdings, LLC, as borrower, the lenders party hereto and Goldman Sachs Bank USA, as Administrative Agent, which was entered into in connection with the acquisition of Zuffa by EGH in 2016. The facilities under the Credit Agreement consist of (i) a first lien secured term loan (the “First Lien Term Loan”) and (ii) a secured revolving credit facility in an aggregate principal amount of $205.0 million, letters of credit in an aggregate face amount not in excess of $40.0 million and swingline loans in an aggregate principal amount not in excess of $15.0 million (collectively, the “Revolving Credit Facility”, and, together with the First Lien Term Loan, the “Credit

Facilities”). The Credit Facilities are secured by liens on substantially all of the assets of Zuffa Guarantor, LLC, UFC Holdings, LLC and certain subsidiaries thereof.

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.

As of September 30, 2024, the Company had the option to borrow incremental term loans in an aggregate amount equal to at least $455.0 million, subject to market demand, and may be able to borrow additional funds depending on its First Lien Leverage Ratio. The Credit Agreement includes certain mandatory prepayment provisions relating to, among other things, the incurrence of additional debt.

The Revolving Credit Facility has $205.0 million of total borrowing capacity and letter of credit and swingline loan sub-limits of up to $40.0 million and $15.0 million, respectively. Revolving loan borrowings under the Credit Facilities bear interest at a variable interest rate equal to either, at TKO’s option, adjusted LIBOR or ABR plus, in each case, an applicable margin. LIBOR revolving loans accrue interest at a rate equal to an adjusted LIBOR plus 3.50-4.00%, depending on the First Lien Leverage Ratio, in each case with a LIBOR floor of 0.00%. ABR revolving loans accrue interest at a rate equal to (i) the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) the prime rate, (c) adjusted LIBOR for a one-month interest period plus 1.00% and (d) 1.00%, plus (ii) 2.50-3.00%, depending on the First Lien Leverage Ratio. In April 2023, the parties amended the terms of the Revolving Credit Facility to replace adjusted LIBOR reference rate used for the facility with SOFR plus 2.75-3.00%. The Company pays a commitment fee of 0.25-0.50%, based on the First Lien Leverage Ratio and letter of credit fees of 0.125%.

As of September 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.

The Revolving Credit Facility is subject to a financial covenant if greater than 35% of the borrowing capacity of the Revolving Credit Facility (excluding cash collateralized letters of credit and non-cash collateralized letters of credit of up to $10.0 million) is utilized at the end of any fiscal quarter. This covenant was not applicable on September 30, 2024, as the Company had no borrowings outstanding under the Revolving Credit Facility.

The Credit Agreement contains certain restrictive covenants around indebtedness, liens, fundamental changes, guarantees, investments, asset sales and transactions with affiliates.

The borrower’s obligations under the Credit Facilities are guaranteed by certain of TKO OpCo’s indirect wholly owned domestic restricted subsidiaries, subject to certain exceptions.

The Credit Agreement contains specified restrictions on the ability to make distributions and other payments. These restrictions on dividends include exceptions for, among other things, (1) amounts necessary to make tax payments, (2) a limited annual amount for employee equity repurchases, (3) distributions required to fund certain parent entities, (4) other specific allowable situations and (5) a general restricted payment basket, which generally provides for no restrictions as long as the Total Leverage Ratio (as defined in the Credit Agreement) is less than 5.0x.

Other Debt

In October 2018, UFC entered into a $28.0 million Loan Agreement and a $12.0 million Loan Agreement in order to finance the purchase of a building and its adjacent land (the “Secured Commercial Loans”). The Secured Commercial Loans have identical terms except the $28.0 million Loan Agreement is secured by a deed of trust for UFC’s headquarters building and underlying land in Las Vegas and the $12.0 million Loan Agreement is secured by a deed of trust for the acquired building and its adjacent land, also located in Las Vegas. The Secured Commercial Loans bore interest at a rate of LIBOR + 1.62% (with a LIBOR floor of 0.88%). In May 2023, the parties amended the terms of the Secured Commercial Loans to replace the adjusted LIBOR reference rate with SOFR, and bear interest at a rate of SOFR plus 1.70%. Principal amortization of 4% is payable in monthly installments with any remaining balance payable on the final maturity date of November 1, 2028.

The applicable loan agreements each contain a financial covenant that requires UFC to maintain a Debt Service Coverage Ratio as defined in the applicable loan agreements of no more than 1.15-to-1 as measured on an annual basis (the “Secured Commercial Loan Covenant”). As of September 30, 2024, UFC was in compliance with the Secured Commercial Loan Covenant.

Capital Return Programs

On October 24, 2024, the Company announced that its board of directors has authorized a share repurchase program of up to $2.0 billion of its Class A common stock and the approval of a quarterly cash dividend program pursuant to which holders of TKO’s Class A common stock will receive their pro rata share of $75.0 million expected quarterly distributions to be made by TKO OpCo.

TKO will determine at its discretion the timing and the amount of any repurchases based on its evaluation of market conditions, share price, and other factors. Repurchases under the share repurchase program may be made in the open market, in privately negotiated transactions or otherwise, and TKO is not obligated to acquire any particular amount under the share repurchase program. The share repurchase program has no expiration, is expected to be completed within approximately three to four years and may be modified, suspended, or discontinued at any time.

TKO’s dividend will be paid quarterly to holders of TKO’s Class A common stock. TKO intends to begin making quarterly cash dividend payments on March 31, 2025. Future declarations of quarterly dividends are subject to the determination and discretion of TKO based on its consideration of various factors, such as its results of operations, financial condition, market conditions, earnings, cash flow requirements, restrictions in its debt agreements and legal requirements and other factors that TKO deems relevant.

Cash Flows Overview

Operating activities increased from $247.7 million of cash provided in the nine months ended September 30, 2023 to $526.6 million of cash provided in the nine months ended September 30, 2024. Cash provided in the nine months ended September 30, 2024 was primarily due to an increase in accounts payable and accrued liabilities of $344.3 million driven by the $375.0 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 $232.9 million, which included certain non-cash items, including depreciation and amortization of $247.2 million and equity-based compensation of $38.5 million.

Investing activities decreased from $47.6 million of cash provided in the nine months ended September 30, 2023 to $65.1 million of cash used in the nine months ended September 30, 2024. Cash used in the nine months ended September 30, 2024 primarily reflects payments for property, buildings and equipment of $54.6 million and investments in affiliates of $21.5 million, partially offset by infrastructure improvement incentives received of $11.0 million. Cash used in the nine months ended September 30, 2023 primarily reflects $381.2 million of cash acquired from WWE as part of the Transactions, partially offset by the payment of $321.0 million of deferred compensation in the form of a divided to former WWE shareholders and payments for property, buildings and equipment of $12.6 million.

Financing activities increased from $285.3 million of cash used in the nine months ended September 30, 2023 to $239.6 million of cash used in the nine months ended September 30, 2024. Cash used in the nine months ended September 30, 2024 primarily reflects share repurchases of $165.0 million, distributions to Endeavor and its subsidiaries of $41.8 million and net payments on debt of $33.5 million. Cash used in the nine months ended September 30, 2023 primarily reflects distributions to Endeavor and subsidiaries of $260.5 million and net payments on debt of $24.5 million.

Future Sources and Uses of Liquidity

TKO’s sources of liquidity are (1) cash on hand, (2) cash flows from operations and (3) available borrowings under the Credit Facilities (which borrowings would be subject to certain restrictive covenants contained therein). Based on its current expectations, TKO believes that these sources of liquidity will be sufficient to fund its working capital requirements and to meet its commitments, including long-term debt service, for at least the next 12 months.

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 18, Commitments and Contingencies, to our unaudited consolidated financial statements included in this Quarterly Report, (8) fund share repurchases as authorized by the Board and (9) make distributions to members and, in accordance with the Company’s cash management policy, to TKO stockholders, including the planned quarterly dividend when declared by the Board.

TKO expects to refinance the Credit Facilities prior to the maturity of the outstanding loans in 2026. It currently anticipates being able to secure funding for such refinancing at favorable terms; however, its ability to do so may be impacted by many factors, including TKO’s growth and other factors specific to its business as well as macro-economic factors beyond its control.

Recent Accounting Pronouncements

See Note 3, Recent Accounting Pronouncements, to our unaudited consolidated financial statements included in this Quarterly Report for further information on certain accounting standards that have been recently adopted or that have not yet been required to be implemented and may be applicable to our future operations.

Critical Accounting Estimates

For a description of our policies regarding our critical accounting estimates, see “Critical Accounting Estimates” in our 2023 Annual Report. During the nine months ended September 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.

TKO is exposed to market risks in the ordinary course of its business. Market risk represents the risk of loss that may impact TKO’s financial position due to adverse changes in financial market prices and rates.

Interest Rate Risk

Our exposure to changes in interest rates relates primarily to the floating interest component on our long-term debt. The Credit Facilities bear interest at floating rates and we regularly monitor and manage interest rate risks. Holding debt levels constant as of September 30, 2024, a 1% increase in the effective interest rates would have increased our annual interest expense by approximately $27 million.

Foreign Currency Risk

We have operations in several countries outside of the United States, and certain of our operations are conducted in foreign currencies, principally the British Pound and the Brazilian Real. The value of these currencies fluctuates relative to the U.S. dollar. These changes could adversely affect the U.S. dollar equivalent of TKO’s non-U.S. dollar revenue and operating costs and expenses and reduce international demand for its content and services, all of which could negatively affect TKO’s business, financial condition and results of operations in a given period or in specific territories.

Holding other variables constant (such as interest rates and debt levels), if the U.S. dollar appreciated by 10% against the foreign currencies used by TKO’s operations in the nine months ended September 30, 2024, revenues would have decreased by approximately $5.1 million and operating income would have decreased by approximately $0.3 million.

We regularly review our foreign exchange exposures that may have a material impact on our business and from time to time use foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of potential adverse fluctuations in foreign currency exchange rates arising from these exposures. TKO does not enter into foreign exchange contracts or other derivatives for speculative purposes.

Credit Risk

TKO maintains its cash and cash equivalents with various major banks and other high quality financial institutions, and its deposits at these institutions exceed insured limits. Market conditions can impact the viability of these institutions and the failure of any of the financial institutions where we maintain our cash and cash equivalents or any inability to access or delays in our ability to access our funds could adversely affect our business and financial position.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

The Company’s management has evaluated, with the participation of the Chief Executive Officer and the Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2024.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described as risk factors, any one or more of which could, directly or indirectly, cause our actual operating results and financial condition to vary materially from past, or anticipated future, operating results and financial condition. For a discussion of these potential risks and uncertainties, see Part I, Item 1A. "Risk Factors" in our 2023 Annual Report. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and the price of our common stock. Other than the risk factors set forth below, there have been no material changes in our risk factors to those included in our 2023 Annual Report.

We may fail to complete the Endeavor Asset Acquisition if certain required conditions, many of which are outside our control, are not satisfied.

The completion of the Endeavor Asset Acquisition is subject to various customary closing conditions, including, but not limited to, (i) the absence of any order, writ, judgment, injunction, decree, ruling, stipulation, directive, assessment, subpoena, verdict, determination or award issued, promulgated or entered, by or with any governmental entity that has the effect of making the Endeavor Asset Acquisition illegal or otherwise restraining or prohibiting the consummation of the Endeavor Asset Acquisition, (ii) subject to certain exceptions, the accuracy of the representations and warranties of the parties and (iii) compliance in all material respects by each party with its obligations under the transaction agreement. Despite the parties’ best efforts, we may not be able to satisfy or receive the various closing conditions and obtain the necessary approvals in a timely fashion or at all.

We may fail to realize the anticipated benefits of the Endeavor Asset Acquisition and may assume unanticipated liabilities.

The success of the Endeavor Asset Acquisition will depend on, among other things, our ability to integrate the transferred businesses in a manner that realizes the various benefits, growth opportunities and synergies that we have identified. Our ability to achieve the anticipated benefits of the Endeavor Asset Acquisition is subject to a number of risks and uncertainties.

Failure to complete the Endeavor Asset Acquisition could negatively impact our stock price, future business and financial results.

If the Endeavor Asset Acquisition is not completed, we will be subject to several risks, including the following:

• payment for certain costs relating to the Endeavor Asset Acquisition, whether or not the Endeavor Asset Acquisition is completed, such as legal, accounting, financial advisor and printing fees;
• negative reactions from the financial markets, including potential declines in the price of our Class A common stock due to the fact that current prices may reflect a market assumption that the Endeavor Asset Acquisition will be completed;
• diverted attention of our management to the Endeavor Asset Acquisition rather than to our operations and pursuit of other opportunities that could have been beneficial to us; and
• negative impact on our future growth plan, including with regard to potential acquisitions for which we may otherwise have been able to provide a stronger foundation.

The planned issuance of Class B common stock to the EDR Parties will dilute the percentage ownership interests of our other stockholders.

If the Endeavor Asset Acquisition is completed, the Company expects to issue approximately 26.1 million shares of Class B common stock to the EDR Parties, who currently beneficially hold approximately 53.4% of the Company’s total outstanding shares of common stock. The issuance of Class B common stock to the EDR Parties will cause a reduction in the relative percentage interest of the Company’s other current stockholders in the Company’s earnings, if any, voting power, and market capitalization. The issuance will result in (i) an approximate 6% reduction of equity ownership and (ii) an approximate 6% reduction in the total voting power of the Company’s Class A common stock.

We cannot guarantee we will conduct share repurchases or pay dividends in any specified amounts or particular frequency.

On October 24, 2024, we announced that our board of directors has authorized a share repurchase program of up to $2.0 billion of our Class A common stock. We will determine at our discretion the timing and the amount of any repurchases under the share repurchase program based on our evaluation of market conditions, share price, and other factors. Repurchases under the share repurchase program may be made in the open market, in privately negotiated transactions or otherwise. The program has no expiration date and we are not obligated to acquire any particular number or dollar value of shares thereunder. While we expect the share repurchase program to be completed within approximately three to four years, the program may not be fully implemented in that timeframe or at all. In addition, the program may be modified, suspended, or discontinued at any time. Repurchases under this authorization could affect our stock price and increase its volatility, and the existence of this authorization could cause our stock price to be higher than it would be in the absence of such authorization and could potentially reduce the market liquidity for our stock. There can be no assurance that any stock repurchases will enhance stockholder value because the market price of our Class A common stock may decline below the levels at which we repurchased shares of stock.

In addition, on October 24, 2024, we announced that our board of directors has approved a quarterly cash dividend program pursuant to which holders of our Class A common stock will receive their pro rata share of $75.0 million quarterly distributions to be made by TKO OpCo. We currently intend to begin making quarterly cash dividend payments on March 31, 2025, subject to satisfying applicable legal and contractual requirements. Future declarations of quarterly dividends are subject to our determination and discretion based on our consideration of various factors, such as our results of operations, financial condition, market conditions, earnings, cash flow requirements, restrictions in our debt agreements and legal requirements and other factors that we deems relevant. Our board may, at its discretion, decrease or entirely discontinue the dividend program at any time. We cannot provide any assurances that any such regular dividends will be paid in any specified amount or at any particular frequency, if at all.