WWE Q3 Earnings Call Recap: Vince McMahon Praises New Management, New A&E Show Announced, Content Licensing Being Discussed

WWE held their Q3 financial earnings call on Thursday featuring Vince McMahon, WWE President Nick Khan, new CFO Christina Salen and more. You can check out a recap below:

* Vince McMahon says he’s never felt as confident as he currently does about the new management and feels a lot of optimism, saying there’s a new spirit and vibrance. He says looking at the future, it’s a “fun and exciting” place to be and puts over president Nick Khan, new CFO Christina Salen and other individuals who have been here like Stephanie McMahon who is now head of the position to enhance growth. He said he just wanted to really let us know how he feels about the new management.

* Nick Khan then takes over and shares some of his background with the call of the co-head of CAA where he worked with top talent in entertainment, golf, boxing, and WWE. He was a practicing lawyer before that and notes he was an usher as a student for WrestleMania IX.

* Regarding WWE Studios they have a lot of project in the works: Total Bellas season six premiering in November, a new show currently titled The Quest For Lost WWE Treasures which will be hosted by Triple H and Stephanie McMahon. The show will “take viewers on the ultimate hunt” to find lost WWE memorabilia. It will be on A&E, who have ordered additional episodes of their Biography documentaries which will release soon. He references the Andre the Giant documentary on HBO and touts its success as a WWE Studios and HBO Sports production. He also announces a groundbreaking deal on a multi-part documentary on Netflix on Vince McMahon that is one of the highest-budgeted documentaries in Netflix history. Bill Simmons will executive produce and Fyre Festival director Nick Smith will helm and produce alongside WWE Studios. He puts over WWE as a company ready to grow across all lines of opportunities.

* Moving onto WWE Network, Khan says that conversations have resumed for alternative strategic options to the current model. They can’t estimate when it will be completed, but they believe in the potential for a transaction to reach a larger audience. In the interim they’re still capitalizing in the grown of digital consumption and notes that since the pandemic began, WWE subscriptions are up even with WrestleMania being presented non-traditionally. Q3 saw an increase in network viewership with 2.4 million watching content across all tiers, a 60% increase, with 37 million hours of content (8% increase). Average paid subscribers was up 6% to 1.6 million.

* They’re focused on developing localized content for international markets and are now working with Sony in India on a 2021 event that will primarily features Indian superstars and air both domestically in the US and in India via Sony. They expect to invest internationally at a measured pace.

* Khan says WWE has demonstrated creativity in adapting to the pandemic and are in a position to leverage their live content and grown in digital consumption. They believe WWE can develop new content and distribution platforms, expand into new markets and increase returns from international markets. They look forward to sharing their progress on them in the future.

* Khan introduces Stephanie McMahon, who says she gets asked what a CBO does. She says her role is to expand and strengthen WWE’s presence across media platforms, deepen engagement in the fan base, create value for partners and drive revenue. It all begins with the WWE Universe, and they call it that because it’s being inclusive in a giant community. She talks about how they talked about how they were going to continue delivering content to provide relief for audience and deliver on their mission: smiles on faces. They pivoted and began to innovate with WrestleMania’s change and Raw, Smackdown, and NXT following suit. She talks about cinematic matches, bringing in the developmental talent as audiences behind plexiglass and finally WWE ThunderDome. She says it brought over 1,000 live fans back and utilized other technology which energized the show and led to a 6% ratings bump for Raw and 12% for Smackdown compared to the four weeks before fans. They also turned the PC into the Capitol Wrestling Center and brought back NXT UK at BT Sports. She puts over the production teams across the ocean working together, and says they adjusted their strategy for new content, longer matches vs. clips, and focus on YouTube, Facebook and WWE Network which led to a 28& increase in digital views. They have over 50 billion YouTube views and have the second largest presence for sports behind the NBA.

* She says they need to expand outside the ecosystem and talks about bringing pop culture stars into the ecosystem like Adam Sandler, Chris Hemsworth, Ken Jeong, and Matthew McConaughey. She says they need a reason to keep audience coming back, and points out how they’re still doing their WWE Community work through virtual content (Make-A-Wish, anti-bullying, etc). She says they’re outpacing other shows with sponsorships during the pandemic and highlights their new partnership with Constellation Brands, the largest beer company in the US. She says they remain bullish on their ability to focus on long-term partnerships.

* Salen is on to talk about the financials of the quarter. Q3 revenue was $221.6 million, up 19%, and adjusted OBIDA of $84.3 million, upo more than two times thanks to higher rights fees. WWE offset the absence of ticket sales and had a reduction of force with a severance expense of $5.5 million. Adjusted OBIDA increased about $60 million to $100.7 million primarily due to higher domestic rights fees for Raw and Smackdown. She says that WWE produced over 550 hours of programming despite their challenges. She puts over ThunderDome and the Capital Wrestling Center. She says that Q3 ratings were down year to year, but up from July to September despite the return of major sports. She talks about the return of Miz & Mrs and Total Bellas, as well as their digital series and podcasts.

* As live events, adjusted OBIDA declined to a loss of $4.1 million due to a $22.1 million drop in live revenue due to the pandemic. The intention is to return to live events as quickly and safely as possible, but no announcement on when.

* Consumer product adjusted OBIDA increased $1.6 million to $5.6 million due to higher merchandise sales as well as higher video game and toys sales. The e-commerce bump offset the loss of live event merch sales. She highlights the release of new title belts, the WWE Legends and UpUpDownDown shop sites, and says that licensing revenue had a 25% sales increase from WWE 2K20 and highlights the World of Tanks partnership and WWE Battlegrounds, as well as WWE Slambulance.

* Regarding the capitol structure, WWE had $638 million in cash and short-term investments as of September 30th including $200 million borrowed. In Q3, they generated about $111 million in free cash flow, up $27 million.

* Finally, the business outlook. WWE has cancelled live events and is continuing to adapt with ThunderDome and the CWC and regarding Q4 performance, they expect it to be below Q3’s number with $40 million to $45 million in incremental expenses due to the creation of ThunderDome and the CWC as well as employees returning from furlough, all of which will continue in early 2021. Additionally, it will be below Q4 2019 results due to no live events in Saudi Arabia or elsewhere. They’re currently developing their 2021 operating plan and going forward, COVID-19 remains uncertain but could be material. They are not reinstating full-year 2020 guidance and has not bought back any stock but may resume activity in the future.

* It’s now question time. First is a question about the ratings and any concrete plans to improve them, and whether it hurts TV rights if they stay where they’re at. Vince says ratings are what they are and are one of their many measurements. Vince says looking holistically across platforms, they have more fans than ever and their audience is bigger than just television and you can’t just lean on “ratings are down.” Raw and Smackdown are the mothership, and they’re never off the air, and while you can say that they’re down in the ratings, but the overall viewpoint is different. They’re doing what they can to get ratings up and points out ThunderDome, better writing, better execution. He says it’s pretty basic.

Khan takes over and says linear television has lost viewers but overall viewership hasn’t. Overall content consumption is up considerably, and they’re confident that TV rights will go up. He touts the fact that WWE’s rating beat the Stanley Cup and LA Lakers games.

* Asked about TV rights in Middle East and North Africa, Vince says they’re still negotiating those. It will happen, but he doesn’t want to put a timeline on it.

* Asked about potential changes to the Network, he said they’re considering all options outside of a sale of the network, so licensing is something that they’re looking at both domestically and globally. They are doing a lot to localize content to develop local content internationally as well.

* A question was asked about the viewership on the free version of the network, and Khan said that some of the hours he mentioned is due to the free tier which has led to some subscribers. There aren’t current plans for advertising but that could always change. Stephanie McMahon said that they’re testing technology to potentially bring ads in at some point if they decide to do so.

* Asked about how much confidence they have in their current cost structures, Salen said that they’re waiting mostly on live return, but also they they have employees on furlough, which qualifies as a short term cut. They’re working on their 2021 financial plan but those are things they’re looking for. Regarding international deals, he said that they’re looking for the right talent that will resonate in India and the cost structure that will work for them and Sony.

* The next question for Khan was about his thoughts on ratings on a whole: WWE, sports and how they may need to adapt. He said that traditional conglomerates are all getting there in structural changes and putting content first, putting it where consumers can best access it like Disney launching Disney+ to compete with Netflix. He points out NBCUniversal doing the same and their most important focus is making sure current partners are happy, then looking to the future and being prepped for a potential streaming-first world if that happens.

* Asked about growing international rights, Khan said they Amazon has an appetite for sports like NFL and the like, notes that Netflix could conceivably test to go live at some point. He says they’re all getting there and WWE will be there with them. As Peacock’s growth becomes more of a priority for NBCUniversal things are going there in terms of live.

* Salen was asked about the operating expenses and noted that some of that is furloughed employees, the majority to all of which should be back by the end of the year. She said when live events it may bring in less money due to limited capacity but will still have expenses.

* It was acknowledged that ratings have held consistent after the ThunderDome, and that includes October.

* Asked about a possible Saudi Arabia show, Salen said that they are working on the focus for next year, and will talk about it on the Q4 earnings call. Asked about their future in ThunderDome, Salen they will be in something like the Amway Center in for the foreseeable future, likely into 2021 and they have a lot of places to go.

* The caller asked more about their 2021 plans and Salen said again they’re still going through that.

* Asked about NXT’s ratings holding up well and when the deal with USA lasts, Khan praised NXT for last night’s ratings and said they’ve seen an increase in subscribers even with the USA Network deal for NXT. They don’t comment on contract lengths, but said it’s a long enough deal to grow NXT.

* Asked about what’s working for NXT that isn’t for Raw or Smackdown, Khan said that WWE TV seems to be working across the board and pointed out again that they feel good about the product.

* Asked about what he and leadership need or want to see before allowing fans back in, and he said the was part of the conference call with sports leaders talking to Trump, and that was the extent of his involvement. He said that when COVID-19 lets up and it’s safe to return, they will and that’s all he can say.

* That’s all they had time for.