World Wrestling Entertainment, Inc. Class A

Hello and welcome to the webcast entitled WWE First Quarter Earnings. Today's call is being recorded. We have just a few announcements before we begin. First, please use the question mark icon in the upper right-hand corner of your web console for technical assistance. The option to enlarge slides is located to the right on your slides with the four arrows pointing in different directions. If you are listening through the phone line, you may ask a question verbally by pressing star then one on your touchstone phone. If you wish to be removed from the queue, please press star two. I will now turn the call over to Michael Weitz, SVP Financial Planning and Investor Relations. Please go ahead, Michael.

Thank you, Lauren, and good afternoon, everyone. Welcome to WWE's first quarter 2021 earnings conference call. Leading today's discussion are Vince McMahon, WWE's Chairman and CEO, Nick Kahn, WWE's President and Chief Revenue Officer, Stephanie McMahon, WWE's Chief Brand Officer, and Christina Salen, WWE's Chief Financial Officer. Their remarks will be followed by a Q&A session. We issued our first quarter earnings release this afternoon and have posted the release, our earnings presentation, and other supporting materials on our website. Today's discussion will include forward-looking statements. These statements reflect our current views, are based on various assumptions, and are subject to risks and uncertainties disclosed in our SEC filings. 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, Reconciliation of non-GAAP to GAAP information is set forth in our earnings release and presentation, which are available on our website. You should note that all comparisons are versus the year-ago quarter, unless otherwise described. Finally, as a reminder, today's conference call is being recorded, and the replay will be available on our website later this evening. At this time, it's my privilege to turn the call over to Vince. Thanks.

Thanks for joining us, everybody. Like every other form of entertainment or sport, we're coming out of COVID. At first, we were in survival mode, but we found a way. Once we felt secure, we then saw this as an opportunity to rethink the way we do business and open what I call the WWE treasure chest. The only way you can do that history. We have that team, a team that's innovative, a team that drives revenue and has reorganized our company in a far more efficient way to take advantage of new revenue streams, new online platforms, new consumer products, new content creation, and new opportunities to expand our media rights portfolio on a global basis. I'm always excited about our business. I don't think I've ever been as excited as I am now.

Thank you, Vince.

This is Nick Kahn. First of all, thank you everyone so much for calling in. It's going to be nice to speak with all of you again. Since our last earnings call, there have been significant developments in the media industry. We'd like to discuss them and how the economics of these deals signal to us a marketplace that continues to put premium on live content. Additionally, we'd like to outline a number of new revenue streams we've identified in the recent quarter. I will end by providing an update on our expanding original programming slate, as well as giving you an update on our return to live events and touring. Recent developments in media have been highlighted by the completion of new content distribution deals. First, as we discussed last earnings call, Amazon grabbed the Thursday night NFL package. Though we have no inside knowledge of this, we wouldn't be shocked if Amazon was negotiating now as we speak to get that package on its air exclusively early. In terms of leagues, both the NFL and NHL realized substantial increases in the rights fees for their license programs, demonstrating the continuing value of live content. The NFL saw a media rights increase of 79%, even as linear ratings went down a little bit in recent seasons. The NHL has already doubled its media rights AAV, having sold just over half of its package. In the case of the NHL, linear ratings are down about 25%. In this context, the NHL receives tremendous credit for already doubling its AAV from $200 million to $400 million with another package still available for sale in the marketplace. Our bet is that part of the package goes to a new suitor. These deals are indicative of where the media rights marketplace is and where it continues to head. One of the big takeaways to us, if you look at these packages, is that the overwhelming majority of the media networks are paying to license both the linear rights as well as streaming rights. The days of splitting those rights appear to be over for the moment. Look at the NFL, which often sets the standard in media rights negotiations. Each media partner outside of Amazon paid a multiple of what they were previously paying for the rights to show the games on linear or digital or both. It's clear to us that these companies view live rights as meaningful subscription and retention programming for their OTT services. We are confident that a robust marketplace with interested buyers across broadcast, cable, and OTT positions our rights portfolio for long-term growth. We had an early case study in WWE delivering audiences for our partners streaming services a little over two weeks ago when our premier event, WrestleMania, was distributed for the first time exclusively on Peacock in the United States. We were thrilled with the result, and our partners at Peacock were even happier. Stephanie will provide a more thorough update on these achievements from WrestleMania momentarily, But we couldn't be more pleased with the first event, the promotion from our partners at Fox and NBCU leading into it, and the number of conversations we have engaged in subsequent to the Peacock partnership announcement. And coming off of the subscriber and viewership success of WrestleMania that was delivered to Peacock, we're excited about possibly replicating the licensing of WWE's network to potential streaming partners in key international territories. It's a story we're sharing with the international community as we introduce WWE Network to potential partners across the globe. We look at the success that we're having with our Tencent deal in China. We've seen a 30x increase in views across all platforms in China since striking this deal, with 30% of that coming from the viewership on Tencent. We look at the success we continue to have in India and the United Kingdom, We're excited to replicate that and to grow it further. Of course, content rights are not our only revenue focus. We're always looking at new streams of revenue. On April 10th, our first day of WrestleMania, we dropped our first NFT featuring iconic moments from The Undertaker's legendary WWE career. Many of these sold out in seconds. We were thrilled with our first foray into the space. considering our vast library of wholly owned intellectual property. Look for more NFTs from us in the near future. In this quarter, we also made a key deal in the gambling space. Stephanie is going to provide background on that deal later as well. As we continue to expand WWE's brand beyond the ring, we remain focused on developing the slate of original programming from our WWE studio. We've sold a multi-episode anime series to Crunchyroll, which as all of you know is now owned by Sony. Young Rock, which we've talked about previously, chronicles the real-life journey of Dwayne Johnson from childhood to WWE legend and beyond. It debuted on NBC and it's doing significant business on NBC and with re-airs on USA and Peacock. And last Sunday, the Stone Cold Steve Austin documentary was the highest-rated biography in 16 years on A&E. Our other show on A&E that night, WWE's Most Wanted Treasures, retained 79% of that lead-in audience. There are seven more biographies featuring our superstars each Sunday for the next seven weeks. Again, all of these projects, from sitcom to unscripted, to documentary, to anime, are produced or co-produced by us via our studio. Last, as I mentioned earlier, stay tuned for our announcement showcasing our full-time return to live event touring. To provide further perspective on our progress, allow me to turn this call over to my colleague, Stephanie McMahon.

Thank you, Nick. This year's WrestleMania was historic for many reasons, attracting more than 50,000 fans representing full capacity for the two night event. I would be remiss if I didn't mention how amazing it felt to have the opportunity to stand on stage, look out at the faces in the audience and hear their cheers. From the superstars next to me, to the people in the crowd, to even maybe my father, Vince McMahon. there wasn't a dry eye as we all celebrated something much bigger than ourselves, the power of belonging. Last year's WrestleMania with no fans at our Performance Center, then back to Raymond James Stadium was a full circle moment, providing a sense of hope for the future, and where our signature, then, now, forever, became then, now, forever, together. It is because of this powerful fan base, what we call the WWE Universe, that we were able to achieve record-breaking performances across all of our platforms, including reaching new audiences through our domestic streaming partner and VCU's Peacock. In a whirlwind 52 days, we successfully launched our partnership with Peacock. With cross-functional task forces responsible for assimilating metadata, transporting and formatting our most viewed content, and creating marketing, direct-to-consumer campaigns, and one of the most comprehensive publicity plans we have ever had for WrestleMania. One executive at Peacock described our process as a best-in-class example for how partnerships should work. The result was the most viewed live event in Peacock's young history. The launch was supported by two integrated media campaigns executed across the Comcast, NBCU, Peacock, and WWE portfolios. WrestleMania media coverage increased 25% with over 500 individual news stories representing 1.2 billion media impressions. Creatively, everything kicked off the Friday before. with the WrestleMania edition of SmackDown on Fox, where Jey Uso won the esteemed Andre the Giant Battle Royal. Sasha Banks and Bianca Belair became the first African-American female superstars to main event WrestleMania. Pop star Bebe Rexha sang the national anthem, and hip hop star Wale rapped Biggie down to the ring. Grammy award-winning artist Bad Bunny and YouTube influencer Logan Paul found themselves getting in on the action inside the ring. Bad Bunny's performance received praise from ESPN, touting it as one of, if not the most impressive showing by a celebrity in the ring. And apparently a lot of people enjoyed seeing YouTube influencer Logan Paul get stunned as he trended number two on Twitter and generated nearly 100 million impressions on social media alone. WWE also secured a record 14 new and returning blue chip partners for WrestleMania. including Snickers as the presenting partner for the sixth consecutive year and presenting partner of the main event. Papa John's, Cricket Wireless, P&G's Old Spice, Credit One Bank, and DraftKings. DraftKings is now an official gaming partner of WWE, focusing on their signature free-to-play pools, which included placing some fun bets on main event matches in both nights of WrestleMania. Video views during WrestleMania week across digital and social platforms including YouTube, Facebook, and Instagram hit 1.1 billion. And 32 million hours of content were consumed representing a 14% and 9% increase respectively. WWE related content saw 115 million engagements. And WrestleMania was also the world's most social program both nights of the weekend. delivering 71 Twitter trends. As Nick mentioned, for the first time, we launched a series of NFTs featuring The Undertaker at record-breaking WrestleMania weekend e-commerce sales and record merchandise per capita sales in stadiums. We also held more than 10 community activations throughout the week, including collaborating with the mayor's office to customize our vaccination messaging for the local market, recognizing local community champions, teaming with Fox Sports to donate equipment to Special Olympics Florida, and working with various organizations, including Feeding Tampa Bay, to combat food and nutrition insecurity. On USA Network, the following night's RAW delivered its best performance in the 18 to 49 demo in over a year, and NXT's debut on its new night on Tuesday was up 29% in the 18 to 49 demo year over year. As we move towards our next streaming special, WrestleMania Backlash, on Sunday, May 16th, we are excited to build on our recent success, grow our audience through Peacock's enhanced reach, align with iconic franchises such as the Olympics and the Super Bowls, and continue to leverage Peacock's sales and promotional team. Additionally, key brand metrics in the first quarter are as follows. TV viewership continued to remain stable, maintaining a trend that began when we transitioned out of the Performance Center and invested in WWE Thunderdome at the end of August. From that time to the end of this quarter, Raw ratings have held steady and SmackDown ratings increased 9%. Notably, all Raw appearances featuring Bad Bunny, showed an increase of 31% in the Hispanic person's 18 to 34 demo. And Bad Bunny's total social impressions during the time of his storyline equaled nearly 700 million. Digital consumption increased 7% to 367 million hours. WWE's flagship YouTube channel crossed 75 million subscribers and is now the fourth most viewed YouTube channel in the world. WWE sales and sponsorship revenue increased 19% excluding the loss of a large-scale international event. As I mentioned on our last call, brands are looking for unique ways to reach their consumers. WWE is perfectly positioned to do just that with the ability to create customized content experiences and utilize WWE superstars that resonate with target audiences. For example, the creation of our digital content series Grit and Glory for GM's Chevy Silverado brand, and the creation of a new superstar, the Night Panther, and a first-ever campaign integration across multiple platforms to market the new scent from Old Spice. In our view, WWE is well-positioned to continue to elevate our brand, grow our business, and engage new and existing consumers across all media platforms. And now, I'll turn the call over to our CFO, Christina Salen.

Thank you, Stephanie, and hello to WWE shareholders. As Vince, Nick, and Stephanie highlighted, transitioning WWE Network to Peacock while launching WrestleMania with a live audience of 50,000 fans in attendance is a major accomplishment. I was awed by the flexibility, speed, and sheer brute force of will demonstrated by the WWE team. The innovative and entrepreneurial spirit on display was as strong as I've seen in my 25 plus years prior in the tech industry. Today, I'll discuss WWE's financial performance, which underscores that spirit. As a reminder, all comparisons are versus the year ago quarter, unless I say otherwise. In the first quarter, WWE continued to manage a challenging environment. Total WWE revenue was $263.5 million, a decline of 9% due to the cancellation of live events, including a large-scale international event, and the associated loss of merchandise sales, all due to COVID-19. Despite this decline, adjusted OIPDA grew 9%. to $83.9 million, reflecting the upfront recognition related to WWE's licensing agreement and a decline in operating expenses that resulted from the absence of live events. To review the first quarter performance in more detail, let's turn to slide three of the presentation, which shows revenue, operating income, and adjusted EBITDA contribution in five segments. Looking at the WWE media segment, Adjusted OIVDA was $107 million, growing 4%, as increased revenue and profits from WWE's licensing agreement with Peacock, as well as increased revenue from the escalation of domestic core content rights fees, more than offset the absence of a large-scale international event. During the quarter, we continued to produce Raw and SmackDown in our state-of-the-art environment, WWE Thunderdome, at Tropicana Field in St. Petersburg, Florida. While our operating results continue to be impacted by the year-over-year increase in production costs associated with bringing nearly 1,000 live virtual fans into our show, surrounded by pyrotechnics, laser displays, and drone cameras, we did achieve some efficiency quarter-over-quarter. With the April transition of WWE Thunderdome to Yingling Center in Tampa Bay, we expect this investment will continue through at least the second quarter as it elevates the level of excitement and brings our fans back into the show. Despite a challenging environment, WWE continues to produce a significant amount of content, nearly 650 hours in the quarter. across television, streaming, and social platforms. And, as Nick described, we continue to develop our slate of original programming from our WWE studio. Now let's turn to WWE's live event business on slide five of the presentation. Live events adjusted OIDA was a loss of $4.3 million due to a 97% decline in live event revenue. These declines were due to the loss of ticket revenue resulting from the cancellation of events. As we've said, we are delighted to have entertained ticketed fans and an audience of over 50,000 at WrestleMania a few weeks ago. We look forward to the highly anticipated return of regular ticketed events. However, predicting the pace of that return is challenging. And as of this moment, we do not anticipate staging such events until at least the second half of 2021. Looking at WWE's consumer product segment on slide six of the presentation, adjusted OIDA was $6.7 million, growing 76%, primarily due to higher royalties and profit from the sale of licensed video games, including strong sales from our mobile game portfolio. WWE also continued to introduce new products, leveraging its superstar talent brands and strong distribution partners. As examples of WWE's continuing commitment to product innovation, WWE released three new championship title belts and a suite of branded products to commemorate Stone Cold Steve Austin's 25 years with WWE. Also in the quarter, WWE continued to be the number one action figure sold at Walmart. where it continues to deliver exclusive products. Now let's turn to WWE's overall cash generation, as shown on slide seven of the presentation. In the first quarter, WWE generated approximately $54 million in free cash flow, which was down slightly. Improved operating performance and lower capital expenditures were offset by the timing of collections associated with network revenue. Notably, during the first quarter, we returned approximately $84 million of capital to shareholders, including $75 million in share repurchases and $9 million in dividends paid. To date, more than 158 million of stock has been repurchased, representing approximately 32% of the authorization under our $500 million repurchase program. As of March 31st, 2021, WWE held approximately $461 million in cash and short-term investments, which reflected the repayment of the remaining $100 million borrowed under WWE's revolving credit facility. Accordingly, WWE estimates debt capacity under the revolving line of credit of $200 million. And finally, a word on WWE's business outlook. Last quarter, WWE issued guidance for 2021 adjusted libida of 270, 305 million. This range of guidance reflects estimated revenue growth driven by the impact of the peacock transaction, the gradual ramp up of ticketed live events and large scale international events, and the escalation of core content rights fees, offset by increased personnel and television production expenses. Company is not changing full year guidance at this time. Guidance range is subject to risk over the remainder of the year, particularly related to the impact of ongoing COVID-19 restrictions on the company's ability to stage live events, including large-scale international events. Turning to WWE's capital expenditures, as we mentioned last quarter, We anticipate increased spending on the company's new headquarters as we restart this project in the second half of 2021. For 2021, we've estimated total capital expenditures of $65 to $85 million to begin construction, as well as to enhance WWE's technology infrastructure. We're in the process of reevaluating the headquarter project, and we'll provide further guidance on future capital expenditures when that work is completed. For the second quarter of 2021, we estimate adjusted EBITDA will decline as incremental profits from Peacock and the escalation of content rights fees are more than offset by increased production personnel and other operating costs. As a reminder, the year over year rise in television production costs reflects the impact of our investment in WWE Thunderdome relative to the lower cost of producing content from our training facility as we did exclusively in the second quarter of last year. As the timing and rate of returning ticketed audiences to WWE's live events remain subject to uncertainty, we are not reinstating more specific quarterly guidance at this time. In the first quarter, WWE generated solid financial results as we executed on key strategic objectives. As Vince, Nick, and Stephanie mentioned, we believe we can continue to innovate, enhancing our fan engagement, driving the value of our content, and developing new products and markets, as well as cultivating new partnerships. We look forward to sharing our progress on these initiatives with you all. That concludes our remarks, and I will turn it now back to Michael.

Thank you, Christina. Lauren, please open the lines for questions.

Thank you. And as a reminder, that is star one to ask a question and star two to remove yourself from the queue. Our first question comes from Curry Baker with Guggenheim Securities.

Hey, good afternoon, everyone. Thanks for the questions. My first one's on the sponsorship front for Nick. I think sponsorship's an area where WWE's historically under-monetized relative to other live sports. First, can you maybe talk about the inventory that's tied into the Peacock deal on the sponsorship side and the strategic upside you see partnering with NBCU's team there? And then secondly, more of a higher level look at sponsorship, can you maybe size the opportunity you see over the next couple years and take us through your strategy to more fully monetize that inventory?

Absolutely. Thanks for the question. I'm going to tag in Stephanie to help answer that question, and I'll supplement it if anything needs to be supplemented, if that's okay by you.

Great. So, Curry, thank you for the question. We absolutely see the same thing that you see, and there's tremendous potential and upside in terms of sponsorship, particularly as it relates to mirroring what has been so successful with the sports leagues. added on to our ability to create this custom content, all of our superstars who are influencers in and of themselves, and the fact that WWE owns all of our intellectual property, so there's an ease of engaging and doing business with us that doesn't exist in other leagues or entertainment media.

The second part of that, Curry, this is Nick, as it relates to the relationship with Peacock,

We're going to be selling it with them. So we're getting all of those ducks in a row. Obviously, launching the product on Peacock was the priority. Now that both sides are happy with that launch, the focus is on further monetizing it. So we're deep in those conversations now.

Okay, thanks. That's helpful. And then maybe just one final one on the ratings front, shifting focus a little bit. There's obviously pressure on the linear ratings for both RONs and SmackDown. Can you maybe talk to us about the lift you expect in the back half as you return to a more normal product with fans? We obviously saw a bit of a lift when you moved to the Thunderdome format last year. Is there any way to think about that? And then I guess secondarily, You know, is there anything you guys are doing new on the storyline front or from a talent perspective that you also think might re-energize the fan base and television ratings as we move through the rest of the year? Thanks.

We have a four-question limit for persons. I'm teasing you. Couple things how we look at ratings is how we think all the buyers look at ratings. It's the culmination of everything linear digital streaming numbers, etc Our numbers are robust It's no different than when we reference the NHL and NFL earlier or on the last call that we all had together There's a challenge in linear content for everybody eyeballs are going away from it think about how you watch your own content yourself and How often are you watching it on your phone? How often are you watching it on some sort of Apple TV-like device? It's easy. So we're there. When we launched the WWE Network in 2014, candidly, we saw that. When we did the Peacock deal a few months ago or finalized it, we saw it then as well. As it relates to live events, that always matters to us. The fans are our fourth wall, if you will. We know immediately from them what's working and what's not working. The Thunderdome was a phenomenal creation by the creative team here, but to get live fans back and to get our performers in front of them, we yearn for that as much as our performers do, and we think it's going to have a direct impact on all parts of our business in an overwhelmingly positive way. Okay, thanks for the question. Thank you for the 14 questions. Appreciate it.

Our next question comes from Brandon Ross with Light Shed Partners.

I think I need to amp up the number of questions I was going to ask to compete with Curry. So let's see. First, I wanted to get more color on the traction on Peacock, which, you know, from the sounds of it, appears to be expanding your reach. I think you said record viewership of WrestleMania. Any way you can size that for us compared to last year on the network?

Absolutely. Brandon, we know you always come in with 20 to 30 questions, so I'm sure it's going to be fun. We love it, and we thank you for that. So a couple things. Our partners at Peacock have asked us not to do that. What we can tell you is that, as you guys know in the content business, when you wake up on Monday morning after the two nights, as we did, to phone calls and emails from Peacock and NBCUniversal, it usually means they're thrilled. When you don't hear from them is when there's a problem. So fortunately for us, A great number of us here heard from them Sunday night, Monday morning, how thrilled they were with the content and how the content delivered for them. So we're excited about everything that can happen. And yes, expanding the fan base was one of the key reasons why we did that deal.

Awesome. And on NXT, just wanted to ask about the move of Knights. Strategically, how did you weigh the pluses and minuses of that move? I guess it appears that AEW is reaching record viewership probably because of the move. Was that in the consideration set? Do you think about them? Do you care?

Honestly, everything is competition for everything. So movies are our competition. People sitting and deciding just to text all night is our competition. All we're focused on is attracting eyeballs to our content. So part of the reason for the move to Tuesday night, the last time we were all here, we were specifically asked about, well, what about the NHL and the impact of Wednesday's with the NHL on your content, NXT on Wednesday nights in particular. It's our belief that NBC and the NHL are not going to continue to be in business together. That was our belief months ago. So that had absolutely nothing to do with our decision-making process. If you look at the efficiencies of Sunday night pay-per-views, Monday night Raw, and Tuesday night NXT, it made sense for us for myriad reasons to do consecutive nights. Obviously, Sunday night is a 15 to 20 time event, premium event, excuse me, premium event type of thing. But those efficiencies to us is what really drove it. We're pleased with the increase in NXT ratings and not focused on anyone other than ourselves.

Great. And then I guess you gave a little bit of your opinion on where the NHL rights might wind up. Talked about Amazon getting Thursday night earlier. Can you just broadly give us some color on what you're seeing out there in terms of other suitors in the digital universe besides Amazon's appetite for sports content? Are there a bunch of players? Is there real interest outside of Amazon?

We think Apple TV is readying for something. They've come close on a number of live events. They haven't decided to go all in yet. So we're looking to them to see what their moves are going to be. It's not just the digital companies, and I know your company yesterday, there was an article about a conference you guys were at where you said, hey, not you specifically, but one of your partners, hey, look at these big tech companies coming in. Those are the behemoths. We agree with you. To Disney's credit, to Comcast's credit, to the credit of others, They saw it, maybe a moment in time late, but they saw it. So we think there are going to be significant competitors for different premium content rights for everybody. And what we know is live matters, and that's what we do.

Great. Thank you so much.

Thank you.

We'll take our next question from Laura Martin with Needham & Company.

Hi there. Can you guys hear me okay?

Yes.

Okay, great. So maybe sticking to that one and building on that, maybe I have this wrong, but my understanding of the way your rights are currently structured is you can't actually sell anything to anybody, including Apple or Amazon, for three or four years. Do I have that wrong? Is there something you guys could actually monetize over the next three-year investor timeframe?

There's so much, and we appreciate you asking the question. Number one, it's part of the reason why our focus is so international-based right now. In terms of the existing content in the United States, yes, that is licensed through October of 2025 on Raw and SmackDown. In terms of new content, that is not. In terms of licensing that existing content in the WWE Network internationally, that is what we're deeply involved in right now. So a lot of upside in that, obviously. It's a good time, in our opinion, to be a seller of these rights, and we think the proof will be in the pudding on that in the not-too-distant future.

Okay, very helpful. Thank you. And then, Christina, maybe one for you. You're showing on slides, I can't even see, two maybe, that the EBITDA grew about 9%, but it feels like because we didn't have the Saudi events, and we estimate, you show the wide revenue there, We estimate it's got like 50% to 60% margins. Really, is the underlying operating power of these assets closer to a 23% growth, which mirrors your operating income, because we add back another $12 million for the lost Saudi event, which shouldn't really be what I would call a detriment to the operating cash flow power of these assets. Is that fair?

I think what to really understand in terms of what's driving our adjusted OIVDA growth of 9% is to understand the accounting recognition for the delivery of both content and subscribers in our Peacock deal. That's very high incremental margin revenue. And as we've discussed before, that was one time in the quarter. The live event portion, as we discussed, was down, revenue was down 97%, and we booked an adjusted EBITDA loss of $4.3 million. So it's not just the loss of a large international event, but it's the absence of all live events in the quarter that was a downdraft on adjusted EBITDA. Perfect.

That's super helpful. Thank you, Christina. You're welcome, Laura. That's it. Thanks. Our next question comes from Eric Katz with Wolf Research.

Hey, good afternoon, everyone. Thank you. I actually would like to piggyback a little bit off of Laura's question, maybe focusing more on expenses in the media segment. You know, I heard some of your comments around the moving pieces for OPEX, and I was hoping you could maybe unpack that a bit more for Q1 and into Q2. Because media costs were down about $15 million year over year, and I guess it's tough to reconcile the loss of the international event, adding Peacock. I think you had furloughed workers back, and now you're investing in Thunderdome. So I understand you're not quantifying, but is there anything you could maybe share qualitatively to think through the margins or flow through? Because I think the expectation is that on this beat, the full year guide maybe should have gone up.

Thanks, Eric. Yes, absolutely. We'll walk you through that. Again, to understand, I'll take the last question first. Why didn't we raise our guidance? It's really because the quarter performance was driven by the accounting for the PCOC transaction, the one-time accounting for the delivery of subscribers and the delivery of content. Indeed, there was very little licensing fee revenue related to PCOC in the quarter. because we delivered all of these assets on March 18th. So the licensing fee revenue in the quarter was really represented the last two weeks or so of March. When we move into second quarter, we'll see the first full quarter of PCOC licensing fee revenue, and we won't see the one-time valuation of our subscribers and content delivery. So that's the peacock portion of network and media. To understand the OPEX, you're absolutely right. What we've highlighted in our guidance is that increases in TV production and personnel are an important thing to consider when forecasting 2021 adjusted to EBITDA. Now, year over year in the first quarter, production expenses, as we discussed, TV production on a per episode basis, we discussed last quarter, we're up considerably, 30% year over year. What we're really excited about in the second quarter is while they're up, sorry, in the first quarter, while they're up year over year, Quarter over quarter, we were able to obtain certain efficiencies, really around our virtual fan technology, but also generally around operating expenses. And that's just a testament to us constantly learning, constantly innovating. And as we move into the second quarter of this year, we think, again, quarter over quarter per episode TV production costs will be down versus first quarter. But, and this is a big but, Eric, when you think of second quarter of 2021 versus second quarter of 2020, remember for the entirety of last year in the second quarter, we were in our training facility. And the per episode cost of our training facility, and remember that was the height of COVID. The per episode costs in our training facility were remarkably lower than even steady state pre-COVID levels. So really, second quarter is our toughest comparison from a production, TV production expense perspective. Does that help you draw the story throughout these two quarters, Erica?

Yes, it definitely helps. Okay. And maybe just a follow-up on the touring plans. I guess one thing we're trying to think through is as you guys begin to tour, I guess maybe in the second half, hopefully in the second half, would you continue to hold a residency while you sort of phase in touring? Is it sort of? you know, going right into 100%? I guess maybe the decision-making process on, you know, once you actually start touring, is it full bore or a phase-in?

We haven't yet decided what our touring plans will be for this summer, but we are very hopeful that we return to touring in the second half of this year. And our hope is that we go to full touring, not that we – that we have retained semi-permanent residency in one location and go half out, so to speak. Our guidance, just so you know Eric, assumes that we go full touring in the second half of this year, which is what we disclosed when we talked about our guidance back in February. So, you know, going half semi-permanent residency and half touring wouldn't be the most ideal situation from a financial perspective, but also, you know, really just from a fan engagement perspective. We're really looking forward to getting out on the road again.

Okay, great. Thank you.

Next question comes from David Karnofsky with JP Morgan.

All right, thank you. Nick, I just wanted to follow up on your commentary to one of Brandon's questions. You know, with the increased demand coming from streaming for live content, do you see this as sort of a rising tide lifts all boats situation? Or will some sports like the NFL or even yourself with Peacock disproportionately benefit from this dynamic? And if that is the case, what factors do you think determine success or not here?

Thanks, David. I think there's a couple things.

The newer content, I don't want to say the lower-tiered content, the newer content that's not as known as we believe our content to be or certainly the NFL's to be, there's only so much money to go around. So somebody's going to be left holding the bag. So if you look at college football, for example, the SEC's in great shape. The Big Ten is the next big rights package up. There's gonna be some challenges there, even though it's a major conference, because they didn't perform for part of this season. That always makes it tricky. If you look at all the conferences outside of that, I'd look for some sort of consolidation school-wise or conference-wise to happen. And you look at the other folks out there, some businesses are unfortunately going to go away. So the folks who have delivered eyeballs in the past are going to benefit from it. The folks who are trying to prove that they can deliver eyeballs, it's going to be challenging.

Great. It was really helpful, Collar. And then maybe just separate topic, you know, e-commerce has had four really strong quarters since the pandemic started. Just wondering how much you attribute that to a mix shift and then your merchandise is zero versus kind of actions you've taken to drive higher online sales. Just want to get a sense for, you know, how sustainable some of that strength in WWE shop is.

Thanks, Dave. I'll take that question.

I think that We've made a lot of effort to really take advantage of the trend and bring customers to WWE shops permanently. The first thing that comes to mind is title belts and the number of, we launched three new title belts just in this quarter, a similar number last quarter. What also comes to mind is the launch of Legends and creating products and merchandise for our fans who are so enthusiastic about historical WWE superstars. So we haven't just been sitting on our heels and letting this wave come to us. We've been doing a lot to get folks to come and stay.

I think I could add to that, if that's okay, David. The brick and mortar business, as we all know, has probably changed forever, or at least for the foreseeable future. The e-commerce business is going to continue to grow. One part of the brick and mortar business that we are bullish about is the live event business. where we do sell a lot of our merchandise, which we have not had in over a year. So if you look at e-commerce, if that stays robust, we believe that it will. And the return to live events where people can buy our product, we're quite bullish on it.

Great. Thank you.

Thank you.

Our next question comes from Ben Swinburne with Morgan Stanley.

Thanks, and congratulations on WrestleMania and executing on that. I'm sure that was a tremendous experience to be at, so congrats. Thank you. I wanted to ask, I promise I'll limit myself to two questions. One, I just wanted to ask Christina and Peacock, if at this point, or in the first quarter, did we see all the revenue recognition associated with the delivery of, I guess, what we would call one-time assets? Is that done, or is there more in Q2? And then I think it was Nick who mentioned NFTs in the prepared remarks. I know this is very early days, but could you just talk about what you think the opportunity is there, how meaningful that might be, and what you guys are doing to try to maximize that right now? I know it's early.

The short answer to your first question, Ben, is that yes, it's largely done. We'll recognize some one-time content around the delivery of marquee premiere shows like, for example, WrestleMania in the second quarter or SummerSlam in the third quarter, but those won't be anything like the size of what we recognized in the first quarter.

Ben, I can jump in on the second part of that. First, to your precursor statement on WrestleMania, we remain undefeated against the weather for our outdoor stadiums, minus a 10-minute delay on night one Saturday this year. But we were happy to do the event in Tampa and to deliver for our partners down there. In terms of the NFTs, if you look at what Vince set up with WWE years ago, to own all of the intellectual property, to own the overwhelming majority of the character rights. That business is going to be something that we are in long term. So we're excited to get our first one up for WrestleMania. I think our silver tier, there were 100 limited Undertaker cards. Those 100 cards, I believe, sold out in 35 seconds. So we want to make sure that we're there for our fans. These are the baseball cards of the digital world, as you know. So we're there. We're going to continue to be there. And we have a plan in place that we're really excited about.

Thank you.

Our next question comes from Vasily Karyasiov with Cannonball Research.

Thank you. Good afternoon. Before the pandemic, you talked about your plans to invest overseas into local content production, training centers, developing local talent, etc. So can I ask you to talk about whether your plans changed given the terms on which you renewed the international rights contracts, the impact of COVID, and what's going on with how your strategy is developing domestically in terms of licensing versus WWE Network. And then If you could talk a little bit about how we will see that flowing through the P&L, your international strategy. Thank you.

Sure. So the first part of that, Vasili, no, our plans have not changed. They've simply been delayed by COVID. So even during COVID, what we did with our partners, and we discussed this the last earnings call, we did a show for our partner, Sony, in India. featuring up-and-coming Indian talent against some of our current superstars. That product, which we called Superstar Spectacular, delivered a 5X rating compared to our normal high ratings in India. Again, based on talent that, candidly, we don't believe the Indian fans have heard of and that the American fans have not heard of yet. So we were thrilled to be able to pull that off. We did that one in Florida. As you know, very, very difficult with international travel right now. Very difficult to go to international builds right now in terms of performance centers. It's all still part of the plan, but like many things just paused by COVID and hopefully we're all out of it soon. Certainly seems like it's heading that way.

And to answer the modeling question, I think we're really fortunate in that we're international Without even trying and I personally need that sarcastically there's so much effort going around but it doesn't require a significant amount of capex or OpEx to take advantage of the global reach of WWE's brand and indeed the Demand for a global brand like WWE is so strong that we launched with partners Nick referenced our partner in India. We have partnership in the UK and And so we look around the world for those partners to help us deepen our relationship in specific regions and countries, and also help us co-invest smartly in local content, local talent, and local opportunities.

Thank you very much.

Our next question comes from David Beckel with Barenburg Capital Markets.

Hey, thanks so much for the question. Just wanted to touch back on Peacock and the sponsorship arrangement, acknowledging there's probably some parts of the deal you can't really talk too much about. But I'm curious if you can just fill us in on some of the broad strokes. Does the partnership, does that pertain mostly to new deals that have not yet been struck? And to what extent across your properties would the partnership apply? And then I have a follow-up.

Certainly, I'll take that, David. This is Stephanie. So in terms of sponsorship working with Peacock, basically anything that you'll see that'll air on Peacock in terms of sponsorship, we are working with them. There is a lot of white space, if you will, as was recognized, I think, in the first question around WrestleMania, around all of our major properties. And when you're dealing with teams who have regularly sold the likes of the Olympics and the Super Bowl, you're working with really top-notch teams who will provide us opportunities that we have not had in the past.

Great. Thanks for that, Keller. I appreciate it. And just more of a high-level one and actually sort of piggybacking on the last question. A question we get from investors a lot is sort of longer-term thinking, how you approach the investment process. Obviously, there are lots of areas you can invest in. And you also have a great degree of certainty on the top line. You know, two-thirds or more of your revenue is sort of contracting going forward. I'm just curious how you're thinking about the level of investment. Do you think about it as a percentage of revenue, incremental revenue over the coming years, or is it less structured than that?

Well, I think what you can appreciate about our business model, David, is in a normal – In a normal environment, we are a high incremental margin business, which throws off nice cash flow. And as we've discussed, all of these wonderful innovations just in the quarter, whether it was NFTs, the deal with DraftKings, the Peacock integration, none of it required any significant amount of OpEx or CapEx on our part. So when we think about new opportunities, It's not about us having to go out and build it so it can happen. It's about us going out and harvesting what's there or optimizing what's already there. It's not to say that there aren't opportunities to invest. We've highlighted, for example, that this coming year, 2021, we'll spend about somewhere between $60 to $85 million in CapEx Largely on a new HQ, which we've delayed now more than a year. It'll be two years delayed by the time we move in. And ongoing technology infrastructure improvements that you'd expect every couple of years at any innovative company. So we're really fortunate in our business model, which enables us to maximize the opportunities for the awesome WWE universe.

Thanks, Christina. For our analysts on the line and for Lauren, our operator, we're at the limit of this meeting. We have time for one more question. If we missed anybody, we're happy to follow up with you offline.

We'll take our next question from Stephen Cahal with Wells Fargo.

Thank you. Just a couple. Maybe first, Christina, on the guidance, just wondering, did the Peacock delivery you had in the first quarter outperform your full year expectations for Peacock-Oybadah, or was this just the timing of how it fell, you know, in sort of March versus April? And sort of the same question on NXT, you know, you've historically commented about a lot of the AAVs of these long-term big rights deals in the U.S. So just curious how the AAV of NXT performed or was contracted, you know, based on what you had sort of baked into the year for guidance. And then second question, just, you know, you made a comment about non-fungible tokens. Any idea how much exploration you've done into this? It's certainly a unique asset, as you say, for a public media company at WWE. And, you know, any stock with crypto gets a heck of a valuation these days. Thanks.

Thanks, Steve. I'll take the first part and I'll let Nick take the second part. And hopefully he won't say Bitcoin. Okay. Bitcoin bingo. What I would say is thank you so much for the question about timing. And I'll just underscore, you're absolutely right. There is no change with regard to the impact of PCOC in our guidance on a full year basis. We're really pulling forward a little bit of what we thought would hit in second quarter is hitting in first quarter. And that is exactly why we're not increasing guidance overall for the year. So, thank you for that question with regard to NXT. Yes, NXT was expected, obviously, because the contract was up and it is within our, our guidance range that we provided. So there's no, there's. We're really pleased with with with that result, but there's nothing to update with regard to guidance on that front.

And Steven, on the NFT part of that. I feel like at the start of the pandemic, we were neophytes, like I think most others were. And now I would put our level of knowledge as high as I would hope our knowledge of the media space is perceived. We know it, and it doesn't mean there's not a lot of room to continue to learn, just like with everything else that we do, but we're confident from where we sit on what we can deliver and what our audience is looking for.

Thank you. Thank you, everyone, for participating in the call today. We appreciate you listening. If you have any questions, please don't hesitate to contact me, Michael White, or Michael Guido. Thank you.

And that does conclude today's conference. We thank you for your participation. You may now disconnect.

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