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Text: Leading today's discussion are Vince McMahon, WWE's Chairman and CEO; Nick Khan, WWE's President and Chief Revenue Officer; Stephanie McMahon, WWE's Chief Brand Officer; and Kristina Salen, WWE's Chief Financial Officer.
Their remarks will be followed by a Q&A session.
Actual results may differ materially, and undue reliance should not be placed on them.
Additionally, the matters we will be discussing today may include non-GAAP financial measures.
You should note that all financial comparisons are versus the year ago quarter, unless otherwise described.
I'll talk some generalities here as weigh into the specifics later on Kristina and Stephanie and everyone.
But nonetheless, I think that I've never felt as confident as I currently do in terms of this -- of our new management.
It's really extraordinary what this has done for the entire business and other executives and much further below.
There's a new spirit, a new vibrance.
And I don't know if you find this anywhere, there's a view of optimism, not just for optimism stake, but when you look at where we're going to go in the future and use the resources that we have as well as other things like, this is a fun, exciting place to be.
And of course, that new management team is, as you mentioned, Nick Khan, who is the President and, of course, CRO, Kristina Salen, new CFO, was mentioned and, of course, other individuals that are here, that have been here before, they now feel the same way.
The interaction is reinvigorating, it really is.
And Stephanie, who's Head of Brand Management, does now have a enhancive position to enhance growth with Nick and others as well.
And there are many other things going on here.
But I just want to -- whether we're going through a whole bunch of numbers of stuff that you already have and going through the ThunderDome, COVID, and all those, I just want to say how I really feel about our new management team.
And quite frankly, that's all that I say.
As an introduction, I wanted to share some of my background and motivation with you, our analysts and investors.
As a co-head of television at Creative Artists Agency, otherwise known as CAA, I had the good fortune of working with some of the top talent in the media business as well as the Southeastern conference, Tiger Woods and Phil Mickelson and their teams and putting together the head-to-head event a match, top rank boxing and, of course, WWE.
I was a practicing litigator prior to that, and perhaps more importantly, as a student, I was an usher at Wrestlemania IX in my hometown of Las Vegas WWE Studios.
Let's talk about that first, if we could.
We're in development of various new content.
A few shows that were already announced and I'm going to announce to you here today that we happen to find really interesting.
Total Bellas, season six, premiering this November.
A&E, a show currently titled The Quest for Lost WWE Treasurers, hosted by Paul Livek, otherwise known as HHH; and Stephanie McMahon, our Chief Brand Officer, who you will be hearing from shortly.
This is a multi-episode order that will take viewers on the ultimate hunt to find some of WWE's most iconic, lost memorabilia.
This deal furthers our relationship with Hearst Communications through A&E.
A&E has also ordered additional episodes of our soon-to-be-released documentary series, which features stand-alone documentaries on legendary superstars like Stone Cold Steve Austin, The Ultimate Warrior and many others.
If you recall, the Andre the Giant documentary from 2018 was not only the highest-rated sports documentary on HBO in the last 15 years, but was the highest-rated documentary on HBO in the last 15 years.
Produced by WWE Studios in association with HBO Sports and executive producer, Bill Simmons, founder of The Ringer.
With that said, I'm happy to share with you that in a groundbreaking deal, we have sold a multipart documentary to Netflix on the life of none other than our very own Vince McMahon.
By groundbreaking, I mean one of the highest budgeted docs in Netflix's history.
Bill Simmons, as previously mentioned, will executive produce.
Chris Smith, the amazing Director of Netflix' Fyre Festival documentary will direct and produce alongside WWE Studios.
As I mentioned when I first joined the company, it's rare to have an opportunity to work at a company that's not only legendary in what it has already accomplished, but also uniquely poised to expand across all lines of business to maximize current opportunities and find new paths to higher growth.
This includes exploring an alternative strategic option for WWE Network, realizing greater economics from WWE's international markets and cultivating new business opportunities.
Let's discuss WWE Network for a moment.
Even with potential partners impacted by COVID-19, conversations have resumed for alternative strategic options to our current model.
We're currently unable to estimate when that alternative option will be completed, but we still believe in the potential for a transaction that enables WWE to reach a larger audience and realize a greater economic return.
In the interim, we continue to capitalize on the growth in digital consumption, promoting content sampling and subscription with a free version of WWE Network.
Since the pandemic began, WWE subscriptions are up.
Even with our marquee annual event WrestleMania being presented in a nontraditional way.
Notably, the third quarter marked an increase in network viewership and content consumption.
2.4 million total viewers watch content across all tiers, representing a 60% increase.
And those viewers watched 37 million hours of content, which was an 8% increase.
Perhaps more importantly, average paid subscribers to the network increased by 6% to $1.6 million.
To realize greater economics from WWE's international markets, we remain focused on developing localized content, which utilizes local talent and is produced in local language.
We're excited to now be working with our content partner in India, Sony, on a 2021 event that will primarily feature our developing Indian superstars.
That event will air in India on the Sony platforms and will also be distributed domestically in the United States.
We believe partnerships like this are the best way to build engagement and to maximize the value of content for our international distribution partners and our fans.
In the current environment, we expect to invest in international at a measured pace, balancing near-term results and long-term growth objectives.
WWE has demonstrated tremendous creativity in responding to today's unprecedented challenges.
And in our view, we are well positioned to leverage the value of live content and growth in digital consumption.
In this context, we believe WWE can develop new content in distribution platforms, introduce new products and increase our returns from international markets.
We look forward to sharing our progress on these objectives with you in the future.
Given the importance of WWE's brand strength for future success, I am pleased to introduce Forbes number two most influential marketing executive, Stephanie McMahon.
A lot of people ask me, what does a Chief Brand Officer really do.
And while every company is different, my role here is to expand and strengthen WWE's brand by amplifying our presence across all media platforms, deepening engagement with our fan base, creating value for partners and driving revenue.
Everything we do begins with what we call the WWE Universe, comprised of our fans, employees, partners and superstars.
We call it the WWE Universe because it is inclusive, like being a part of a giant community, which is especially important during times like these.
When the pandemic hit and sports leagues and content providers began to postpone and shut down, WWE became focused on not if, but how we were going to continue to deliver our in-ring content to our fans through our media partners.
We needed to provide relief for our audience and escape from their fear and uncertainty and do our best to deliver on our mission of putting smiles on faces.
So WWE did what we do best, we pivoted and began to innovate.
WrestleMania went from a sold-out Raymond James stadium in Tampa, Florida, with over 80,000 people to a two-night event at our performance center with no one in attendance.
Raw, Smackdown and NXT followed suit, and we began to test and learn in what was our new normal.
We experimented with audio techniques and cinematic style matches.
We started to bring in some of our developmental talent to serve as an audience through flexiglass, but it wasn't good enough.
After many months, we found a way to bring the spectacle back to WWE.
On August 21, we launched what we call WWE ThunderDome.
We returned to an arena setting and took up residency at the Amway Center in Orlando, Florida.
We partnered with the famous group to bring nearly 1,000 live virtual fans back to our show.
We're using pyrotechnics, laser displays, augmented reality and drone cameras in ways we never have before, making Raw and Smackdown feel alive again.
And we have seen a lift in the ratings of 6% for Raw and 12% for Smackdown as compared to the prior four weeks without fans.
Additionally, we made an investment in WWE's performance center, transforming the location into the capital wrestling center, a nod to my grandfather's organization and a new location to shoot in-ring content.
The CWC launched on October four for NXT's live special Takeover 31.
It's incredible to watch production teams from Orlando, Stanford and London, all working simultaneously connected through technology and innovation to create this show.
And as more and more people started to gravitate to streaming platforms, we adjusted our digital posting strategy to incorporate new original content, longer matches versus clips, and resurfaced high-performing historical content across YouTube, Facebook and WWE Network, resulting in increased digital views of 28% excluding the impact of geographical restrictions in India.
We recently surpassed 50 billion views on YouTube, making WWE the fifth most viewed YouTube channel in the world.
And we've partnered with new and upcoming platforms, most notably TikTok, where we are the second most popular sports brand behind the NBA.
In order to reach new audiences, we need to expand outside of our ecosystem.
In addition to some of the content Nick mentioned, we also have a pop culture strategy where we work to bring celebrities and influencers into our programming as well as casting our superstars outside of our programming.
Some recent integrations in the quarter included Adam Sandler, Chris Hemsworth, Ken Chong, and just this past Monday, Matthew McConagha was a guest in the ThunderDome on Raw.
Most importantly, we need a reason to keep our audience coming back for more.
In addition to compelling content, people want to invest their time and resources in a brand that has purpose and value.
WWE continued to support our community partners with the resources they needed to help them deliver on their mission.
We quickly transitioned from in-person events to virtual events, including hospital visits, career workshops through Zoom for Hire Heroes to support servicemen and women, virtual anti-bulling rallies with Boys & Girls Clubs of America and digital meet and greets for Wish kids through Make-a-Wish Foundation.
We also produced content to support physical and mental health for Special Olympics athletes as well as kid power-up videos for the launch of UNICEF's Kid Power at Home platform.
And during the month of September, we engaged our fan base, employees and superstars to raise money and awareness for pediatric cancer research through our partnerships with the V Foundation and Hyundai Hope On Wheels.
Speaking of partnerships as a final measurement of our brand strength, our advertising and sales revenue outpaced industry trends.
Top global brands continued to partner with WWE throughout the year even during the challenges with COVID, highlighted by companies such as Coca-Cola, Cricket Wireless, Hyundai, Mars, Microsoft Studios, Papa John's and Unilever.
And this month, we announced a major new partnership in the beer category with Constellation Brands, the largest beer import company in the United States, focusing on their Victoria, Corona and Modelo brands beginning next year.
In 2021 and beyond, we remain bullish about the opportunity to focus on long-term partnerships and capitalize on our unique ability to bring engagement, scale and reach with the ease of negotiating with one party, WWE.
Wow, I wouldn't want to follow that.
Today, I'll review WWE's financial performance, liquidity and capital structure and business outlook.
As a reminder, all comparisons are versus the year ago quarter, unless I say otherwise.
WWE generated third quarter revenue of $221.6 million, up 19% and adjusted OIBDA of $84.3 million, up more than 2 times, both were driven primarily by higher rights fees from U.S. distribution agreements.
Although government mandates continue to result in the cancellation of live events, WWE offset the absence of ticket sales with a reduction in event-related production expenses and other short-term cost savings.
During the quarter, WWE executed a reduction in force, resulting in severance expense of $5.5 million.
Given the nonrecurring nature of this expense, it has been excluded from adjusted OIBDA.
Looking at the WWE media segment, adjusted OIBDA increased approximately $60 million to $101.7 million, primarily due to higher domestic rights fees for Raw and Smackdown programs.
Despite a challenging environment, WWE continued to produce a significant amount of content, more than 550 hours of programming for television, streaming and social digital platforms.
As Stephanie mentioned, with the launch of WWE ThunderDome in August and the Capitol Wrestling Center in October, WWE continues to lead the sports and entertainment industry with innovative ways to safely recreate the interactive in-arena atmosphere that has been a staple of WWE events for decades.
This investment in a large-scale virtual experience brings a high level of production excitement and, most importantly, brings our fans back into the show.
Although third quarter ratings for Raw and Smackdown declined 29% and 2%, respectively, they showed improvement from July to September.
And they achieved this result despite unprecedented competition from the return of major sports, such as the NBA, NFL, MLB and including playoffs and Premier events, such as the Kentucky Derby and the Indy 500.
Meanwhile, while delivering Raw, Smackdown and NXT on television, WWE announced the continued second season of Miz & Mrs on USA Network and the sixth season of Total Bellas on E!
And reaching beyond television, WWE also produced original content for social and digital platforms.
In partnership with Hyundai, WWE launched DRIVE FOR BETTER series, which is posted on WWE's digital platform and Superstars social media channels.
And WWE debuted the podcast Uncool with Alexa Bliss, which is available on all major audio streaming services.
Adjusted OIBDA from live events declined by $1.2 million to a loss of $4.1 million due to a $22.5 million decline in live event revenue.
These declines were primarily due to the loss of ticket revenue resulting from the cancellation and/or relocation of events.
Until mid-March, WWE held arena and stadium-based events in front of ticketed audiences.
During the third quarter, however, WWE held no such events.
At this time, it is challenging to predict when ticketed live events will return, but our intention is to return as quickly and safely as possible.
Notably, the increase in e-commerce offset the absence of venue merchandise sales.
During the third quarter, WWE continued to introduce new products, expanded video game portfolio and develop partnerships across product categories.
The strong e-commerce business was driven by the release of six new title belts, including the Ric Flair Signature Series and by the launch of two targeted sites, WWE Legends and UpUpDownDown.
Licensing revenue reflected a 25% sales increase from the franchise game, WWE 2K20 and continue to benefit from the build-out of WWE's video game and toy portfolios.
WWE partnership partnered with Wargaming to launch World of Tanks: SummerSlam and with Take-Two to launch WWE 2K Battlegrounds.
WWE also partnered with Metal to release WWE Slambulance!
, which immediately became a top WWE product at Target and Amazon.
As of September 30, 2020, WWE held approximately $638 million in cash and short-term investments.
This includes $200 million borrowed under WWE's revolving credit facility to ensure the necessary capital to execute the company's strategy and deliver long-term value to our shareholders.
In the third quarter, WWE generated approximately $111 million in free cash flow, an increase of $127 million.
This increase was driven by improved working capital and the timing of collections associated with large-scale international events, stronger operating performance and, to a lesser extent, lower capital expenditures.
And finally, a word on WWE's business outlook.
The spread of COVID-19 and the related government mandates have directed WWE to cancel, postpone or relocate live events since mid-March.
WWE is continuing to adapt the business to the changing environment by investing to enhance content production value and deepen fan engagement, with examples of this being the creation of WWE ThunderDome and Capitol Wrestling Center.
With regard to fourth quarter performance, WWE anticipates that fourth quarter 2020 adjusted OIBDA will be below third quarter 2020 results.
WWE anticipates $40 million to $45 million in incremental fourth quarter expenses versus the third quarter.
This is due to $22 million to $27 million from, one, incremental production expenses associated with the creation of WWE ThunderDome and Capitol Wrestling Center; and two, incremental personnel expenses associated with employees returning from furlough.
Both of these are expected to continue in the coming year.
Also contributing to the incremental increase in expenses is that WWE booked $18 million in production incentives in the third quarter 2020.
This is typical timing for the incentives.
Additionally, fourth quarter 2020 adjusted OIBDA will likely be below fourth quarter 2019 results based on the absence of an event in Saudi Arabia, the absence of ticketed live events and, to a lesser degree, increases in other fixed costs.
WWE is currently developing its 2021 operating and financial plan and continues to evaluate the personnel requirements and potential investments needed to support WWE's long-term strategy.
Going forward, the potential impact of COVID-19 on WWE's business, which could be material, remains uncertain.
Based on the sustained economic uncertainties, WWE is not reinstating full year 2020 guidance at this time.
Given the lack of visibility, WWE did not buy back any stock in the third quarter under its $500 million stock repurchase program, but may resume activity on an opportunistic basis in the future.
WWE continues to have significant long-term opportunities.
As Nick stated, we believe WWE can develop new content and distribution platforms, introduce new products and increase returns from international markets, and we look forward to sharing progress on these strategies with you in the future.
Christy, we're ready now.

user
q3 revenue $221.6 million versus refinitiv ibes estimate of $222.3 million.
not reinstating guidance at this time.
world wrestling entertainment - qtrly wwe network average paid subscribers were 1.6 million, an increase of 6%.
anticipates $40 - $45 million in incremental q4 expenses (4q 2020 versus 3q 2020).
currently developing its 2021 annual operating and strategic plans.
remains challenging to quantify potential impact of covid-19 on its business.

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