TKO Group Holdings Inc (TKO) 2020 Q1 法說會逐字稿

Hello, and welcome to the webcast entitled WWE first quarter earnings. We have just a few announcements before we begin. (Operator Instructions) Today's call is being recorded. I will now turn the call over to Michael Weitz, SVP, Financial Planning and Investor Relations. Please go ahead, Michael.

Thank you, and good afternoon, everyone. Welcome to our first quarter 2020 Earnings Conference Call. Leading today's discussion are Vince McMahon, our Chairman and CEO; as well as Frank Riddick, our Interim Chief Financial Officer. Their remarks will be followed by a Q&A session.

We issued our first quarter earnings release earlier this afternoon and have posted the release, our earnings presentation and other supporting materials on our website, corporate.wwe.com/investors.

Today's discussion will include forward-looking statements. These forward-looking 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.

Finally, as a reminder, today's conference call is being recorded, and the replay will be available on our website later today.

At this time, it's my privilege to turn the call over to Vince.

Thank you, Mike. Good afternoon, everyone. As you obviously know, our Q1 performance, it was pretty strong. We exceeded our rescinded guidance in a pretty challenging environment. COVID-19 has had a limited really financial impact on us because it was only like 2 or 3 weeks. It was negative, but it was only a couple of weeks really. But we've adapted our business model to produce content in new ways and reduce our costs as well. We will continue to produce compelling content to provide obviously a diversion and -- of everyone. Generally speaking, we're very family-oriented. We think that's going to help us considerably. And along those lines, we -- in terms of consumption of our programming, there are so many different ways obviously of doing it, and we do that in every conceivable medium, whether or not it's television straight off, whether or not it's digital or social. So we're there.

On the -- as far as television is concerned, Raw and SmackDown. On Raw, we're off considerably. On SmackDown, we're pretty much even as where we started January 1. And it's interesting to look at, okay, what happened once we went to in assets -- our studio, which is our performance center. And there really wasn't -- especially with SmackDown, there really wasn't that much difference in terms of where we were and in terms of where we are now. It's a challenging environment, obviously. So it's -- but nonetheless, you have to take advantage of that challenging environment and somehow make it as -- obviously as good as you can or make it special. So we've done certain things we're going to do more of, for instance, getting out of that environment and doing in assets -- many movies and assets like we did at WrestleMania and many other personality profiles that we can do a whole lot better and well.

Digital and social was way up for the quarter, which is certainly a great barometer as well as television ratings and everything else are. Our digital video views increased 25% over the quarter to 9.6 billion hours consumed, an increase of about 15%, 344 million across digital and social media platforms. I don't know any other property that can do anything like that. And again, that plus everything else we're doing in terms of Raw, SmackDown, NXT, all of that is what makes this big wheel go around the course.

In addition to that, WrestleMania, I know it's out of the quarter, but WrestleMania gives you some idea of the culmination of where all of this can lead. And WrestleMania was off the chart. We had viewership records with more than 967 million video views across our digital and social platforms. That's up 20% from the previous year. It was the most social event in our history with more than 13.8 million social media interactions on Facebook, Instagram and Twitter. And on the network, we -- over the course of the weekend is what we do when we look at it, subscriber additions were the highest in history. Our total subscribers reached 2.1 million. So WrestleMania was a huge success for us over a Saturday and a Sunday night. Obviously, we are now living in an evolving environment. We've implicated to some very short-form costs. As of late, cash flow improvement actions. And as we announced on April 15, for instance, we -- cost reductions include decreasing executive/Board member comp, operating expenses, talent costs, third-party stuff, consulting expenses, furloughing -- and then furloughing, of course, our employees.

So we're getting ready for what's to come, what's the new normal, which quite frankly I'm not so sure. I know anyone else knows what is the new normal. But we are very, very flexible. And obviously, we can adapt so quickly to just reading the tea leaves of what you can do safely and what the government tells you can do and what your audience wants. So there are a lot of factors going into what the new normal is going to be. But our growth prospects remain strong all the way across the board. But we think obviously that I think most of you agree with live sports rights over the long term are very, very healthy in terms of rights fees and things of that nature. We just have to get back to what is it that we're doing here in our country and open it back up in some capacity. And then what's that going to look like 3 months, 6 months, 2 years, we're not so sure. But we're going to be ready for it and be flexible.

So with that in mind, Frank, take it away.

Thanks, Vince. There are several key topics we'd like to review today, including a discussion of our financial performance, recent actions we've taken to address the COVID-19 impacts on our business and our business outlook.

We generated record first quarter revenue of $291 million and adjusted OIBDA of $77 million, which exceeded our rescinded guidance of $60 million to $65 million. Based on accelerated cost reduction efforts, COVID-19 had a limited impact on our financial performance. Although government mandates resulted in the cancellation of live events, we were able to offset the loss of ticket and merchandise sales by producing content from our training facility and significantly lowering our production and other costs.

During the quarter, strong revenue growth from our new U.S. distribution agreements and the timing of our Super ShowDown event in Saudi Arabia were partially offset by year-over-year increases in fixed costs to support the creation of content and lower results across our live event and consumer products businesses.

As we produce content in new ways, we also developed new creative opportunities to promote our brands. This included extending our partnership with Fox Sports to offer 22 hours of content on successive Tuesday nights on FS1; collaborating with ESPN to air historic WrestleMania events; and granting free access to WWE's Network -- WWE Network's library of content for a limited time. Importantly, we adapted our business to continue to safely stage and bring performances, produce other content for our global markets and multiple distribution channels as well as to market our brands.

During the week leading up to and including our 2-day WrestleMania event, we set viewership records with more than 967 million video views across digital and social platforms. It is also the most social event in our history with more than 13.8 million social media interactions. And the network's weekend subscriber additions were the highest adds in our history, bringing our total subscribers to 2.1 million, 5% above prior year. The record-breaking engagement generated by WrestleMania is a testament to our creativity in these unprecedented times.

Our ongoing efforts to strengthen our brand and customer engagement were evident during the quarter. Of note, SmackDown television viewership increased 16% and was essentially unchanged after mid-March when we begin to perform our events without attendees.

Raw's viewership in the quarter declined 16% from the prior year quarter but outpaced USA Network, which experienced a 29% decline. Average attendance at our live events in North America increased 33%, excluding the late March events, as compared to an 11% decline in the first quarter last year.

Consumption of WWE content on digital platforms such as YouTube and Facebook increased 15% to 344 million hours and digital video views increased 25% to 9.6 billion.

To review our business performance in the quarter, let's turn to Page 4 of our presentation, which shows the revenue, operating income and adjusted OIBDA contribution by segment as compared to the prior year. Looking at our media segment, adjusted OIBDA increased $74.1 million. Revenue growth driven by the escalation of domestic rights fees for our Raw and SmackDown programs and the favorable timing of our Super ShowDown event was partially offset by a year over -- an increase in content-related production expenses. WWE network's average paid subscribers decreased 8% from the prior year quarter to approximately 1.46 million. We continue to believe in the viability of alternative strategic options for WWE Network. Our confidence is based on our discussions with multiple potential partners and consideration of broader media industry factors such as the evolution of new streaming services and the increasing value of live sports content. As our potential partners have been impacted by COVID-19, these discussions have been extended. Currently, we're unable to estimate when an alternative option will be complete but still believe the potential for a transformative transaction is possible.

During the quarter, we made important progress on other strategic initiatives that have extended the reach of our brands. Specifically, we completed multiyear distribution agreements with Sony Pictures Networks in India and DAZN in Germany. We partnered with Netflix to launch a new original series, The Big Show Show, and a feature film, The Main Event, both of which ranked among Netflix' top 10 most viewed programs during their premier week, in the second week of April. We also finished the second season of Miz & Mrs. on USA Network; premiered the fifth season of Total Bellas on E! earlier this month; and launched a new series, Fight Like a Girl, on Quibi.

Turning to our live event business as shown on Page 6 of our presentation. Adjusted OIBDA from our live events declined $3.4 million, primarily due to the government-mandated cancellation and/or relocation of events. Although our live event revenue reflected 49 fewer North American events in the quarter, the majority of this change derived from efforts to optimize our touring schedule, which had a limited impact on adjusted OIBDA. Until mid-March, we were able to hold arena- and stadium-based events in front of ticketed audiences. During the quarter, we continued to successfully stage large-scale events for our fans, including Royal Rumble before a capacity crowd of more than 42,000 in Houston and Super ShowDown in Saudi Arabia.

In our Consumer Products segment, adjusted OIBDA declined $2.2 million reflecting lower royalties from the sale of toys and video games at retail as well as lower sales of merchandise, both online and at our venues. During the quarter, we continued to support new products while driving growth from our mobile game portfolio. In partnership with Unilever, we launched our Superstar Ice Cream Sandwiches to grocery stores nationwide and released 3 new replica title belts on our e-commerce platform, WWE Shop. Notably, our mobile games, WWE SuperCard and WWE Champions, both generated more than 10% revenue growth from the prior year quarter.

Page 8 of our presentation shows selected elements of our capital structure. As of March 31, we held approximately $292 million in cash and short-term investments. Additionally, subsequent to quarter end, we drew $200 million from our revolving credit facility. Accordingly, we now have approximately $500 million in cash and short-term investments to ensure we have the necessary resources to execute our strategy and deliver long-term value to our shareholders.

In the first quarter, we generated approximately $58 million in free cash flow as compared to a $10 million use of cash in the first quarter last year. The increase was driven by improved operating performance and, to a lesser extent, reduced payout of management incentive comp and lower capital expenditures.

Turning now to COVID-19 actions and business outlook. The spread of COVID-19 and related government mandates have impacted our business as we have been directed to cancel, postpone or relocate our live events since mid-March. To date, we've been able to substantially offset the loss of ticket and merchandise sales at our live events by reducing operating expenses across all areas of our business. These efforts were highlighted by the introduction of a new model for producing content.

We believe, however, that the potential impact of COVID-19 may not be limited to the sale of live event tickets and merchandise, and the adverse impacts on other areas of our operation are not known at this time. To mitigate the potential risk to our financial performance, we evaluated our operations and developed extensive contingency plans. This resulted in the implementation of various short-term cost reduction and cash flow improvement actions. These precautionary measures include reducing executive and Board member compensation; decreasing operating expense; cutting third-party staffing, consulting and talent expenses; and a reduction of head count by way of a furlough. The decision to furlough rather than permanently reduce head count reflects the fact that we believe these reductions will be temporary in nature. Notably, the reductions of employee compensation and head count resulted in estimated savings of $4 million per month.

To enhance our liquidity, we've deferred spending on the company's new headquarters, directly reducing 200 -- 2020 capital expenditures by approximately $140 million. For 2020, we now estimate total capital expenditures of $40 million to $50 million compared to our previous guidance of $180 million to $220 million.

As additional precautionary measures, we have also temporarily suspended the repurchase of stock under our $500 million program and drew $200 million from our revolving credit facility after quarter end. As such, we believe we have sufficient cash liquidity totaling approximately $500 million to manage the challenge ahead.

We remain unable to quantify the potential impact of COVID-19 on our business going forward, but the financial impact to the company may be material. Accordingly, we previously withdrew our full year 2020 guidance and, based on sustained economic uncertainties, are not reinstating guidance at this time. While our financial performance to date has been strong, the ongoing and uncertain impact of COVID-19 on our business has required us to take quick short-term actions to strengthen our financial performance and capital resources. We continue to believe that our growth prospects remain strong, and that WWE is well positioned to take full advantage of the changing media landscape and the rising value of live sports content over the longer term. Looking ahead, this also includes capitalizing on the growth of media and entertainment in international markets, growing our sponsorship business and leveraging increasing digitization to expand and engage our audience.

Previously, we committed to providing a comprehensive perspective on our road map for creating shareholder value, which we expected to communicate in the first quarter of this year. However, given the uncertainties of the impact of COVID-19 on our business, our focus on developing actions to address these impacts and the difficulty in planning an effective event in this environment, we've postponed this communication and look forward to speaking or meeting with you at an appropriate time.

This concludes this portion of our call, and I'll now turn it back to Michael.

Thank you, Frank. Jenny, we're ready for questions. Please open the line.

(Operator Instructions) We will go first to Curry Baker of Guggenheim Securities.

I've got one, I think, for Vince, and then another follow-up. Ratings for both Raw and SmackDown have appeared soft here the past couple of weeks, which is a bit surprising since you guys are basically the only live sports content on television. Do you have any idea why this is the case? And could you maybe discuss some of the steps you're taking to reverse this?

Sure. In terms of the why, it goes back to the product itself. We are the only, you're right, sports environment at the moment. And -- but again, it's a different feel completely than in front of a live audience. We were the first "sports" to have interaction with live audiences. Many, many years ago, it was yay, boo, and that's the first interaction. And we don't have that now, but we're doing really well, I think beyond anyone's expectations actually, by doing the show without an audience. And everything we do is about the audience and how they react and the way you read them and upon -- and what have you that they all have by coming to a WWE event. So that's really, I think, why. And we need to be able to figure out ways, which we are, in that we will hear the performers putting the bad mouth on each other and so forth, which you never hear before. Minimize some of the more creative words, we'll say.

But nonetheless, there are advantages. And we can go outside of the environment, too. So we don't just stay there for 2 or 3 matches. You need some relief there, in one form or another, we're figuring that out as well. A lot of things to figure out in this sort of environment. What can you do and what resonates and things of that nature. So it's really -- it's brand-new for us and for anyone. So there's no audience, and it's a different show, a completely different show. And I think we're going to get there with -- we may be able to take this negative and already turn it into somewhat of a positive as far as ratings and what have you are concerned. SmackDown, there's virtually been no change, very little. Raw has suffered but not necessarily because of the environment. It suffered because we bring in a lot of new talent into Raw, and it takes a while to get these new talents over. We no longer have Brock Lesnar, obviously, but we have a new champion and a lot of new performers coming in too at Raw. It takes a while. So that's the reason and how you use those performers in this story or that story or what have you. So with new talent, it's just going to take a little while. I'm convinced though that Raw's ratings are going to bounce back considerably.

Okay. That's helpful. And then maybe just switching gears a bit. Can you guys provide any update on the MENA deal with Saudi Arabia? Is there any -- is there still an agreement in principle? Do you guys have any better sense in terms of time line? Or is there any kind of additional color you can provide at all there?

Do you want to take that, Frank?

No. You take it Vince.

No, you take it. As far as Saudi is concerned, there is -- they want to have -- I'll get back to your question in a second, but they would love to have another huge event, WrestleMania-type event. We normally have 2 per year in Saudi. They of course are under the same constraints as we are here in the United States and everyone else is in this pandemic. So they are not too sure they're going to be able to give us the okay to perform in November or December. They really want us to because it represents a big, huge turn in what's allowed, what's not allowed as far as live event is concerned. So -- but the good part about that is if in fact we don't perform, we'll just tackle on that event on the backside of our contract. So we're not going to lose the money.

And again, this -- everyone is having to deal with this pandemic in one way or another. But we're fortunate that we would just move another event on the other side of our 10-year agreement. As far as the MENA rights is concerned, we're still working on those. Sometimes things move very slowly. And that's one of those things. We thought we would have our MENA rights done by now for sure. We don't. And there's some degree of uncertainty as to when that's going to happen.

And we'll hear next from Vasily Karasyov of Cannonball Research.

I had one clarification and one question. Can you please clarify if the core content rights revenue this -- in the first quarter included Indian -- new Indian deal terms? Or is it still the old terms of the Indian TV rights deal? And then the question is about advertising and sponsorship. We saw a nice acceleration in the quarter in growth. I was wondering what kind of trends you saw in the second half of March and you're seeing now there. And also, maybe you can help us understand what proportion of this revenue is sort of longer-term sponsorship contracts versus spot-driven revenue.

So no, the first quarter had India at the old deal terms. And then your question about sponsorship, we saw in the quarter a good performance there. Some of the trends that we're now seeing in advertising as we get into the second quarter, we did not experience in the first quarter. Currently, while we're adding to the corporate sponsorship elements, and we did have a very successful WrestleMania, those sponsorships were tied to that event, for the most part, we have seen some growth in overall corporate sponsorships. But to date, most of our revenue there is more transactional in nature.

And when will we see the new terms of the Indian deal flowing through the P&L? Is it fair to expect that in Q2?

Yes.

And we'll go next to Eric Katz of Wolfe Research.

So I think what some of us is trying to do is also reconcile your prior OIBDA guide of $300 million to $350 million for 2020 with stronger results. Understanding you pulled that guide, but that came before some of the cost-cutting actions you've announced with the COVID-19 impact. So it seems like, from the prior guide, that a large portion of your new TV rights revenue was going to be reinvested in the business. And ultimately, it sounds like you now have a lot of cushion to either harvest those revenues by pulling back on those investments. So I'm curious if you can maybe talk through some of the originally planned investments versus what you now plan on moving forward within this environment. What are sort of the must-haves or -- versus the nice-to-haves?

Michael, do you want to cover that?

Sure. I think, first of all, Eric, it's a little bit of a misnomer, in past calls and follow-up, we've tried to go through pretty extensively what the different sources of expense growth were year-over-year. So we had expense growth related to the content changes in the business, related to Raw -- particularly SmackDown, sorry, and the new distribution on Fox. So we have increases in costs associated with essentially how we're delivering content is kind of bucket one. Bucket two was related to incentive comp. And you know last year, we accrued a lower amount of incentive comp based on the performance of the company. And also, we had some -- what you're getting at, I believe, is we also had some carryover or full year annualization of some investment that we made going into -- or at the end of 2019, and the annualization is significant when you look at the full year.

And what I would point out is that the mode that we've been in this year has been heavily focused on thinking about how to reduce costs, strengthen our financial performance and align our investment with the current environment. So the content and creative investments that we made last year have been both pulled back significantly. And we'll be very thoughtful as we move forward and think about the future about how to invest. But I'd say right now, the balance of how we're thinking about the business is very focused in terms of aligning the business with reducing costs and keeping focused on having strong financials for the current times.

Okay. To be clear, that sounds like there is quite a bit of whatever you guys are budgeting for 2020 that you can flex back on, is that correct?

Of the buckets that I talked about, there are things that we could flex back on, that's correct.

Okay. All right. And then separately, I guess -- I mean look, clearly, Florida has deemed this an essential business here. If there's a scenario where they do a 180 and production unfortunately get shut down, can you talk a little bit about maybe backup plans to continue filming? Do you have other locations available?

Yes, we do. A number of them -- a number of states that would welcome us.

We'll hear next from David Karnovsky of JPMorgan.

I guess, Vince, just to follow up on that point but asked another way, is there any potential to move tapings over to Full Sail at some point where you could maybe shoot with a live audience albeit with some social distancing in place, but at least you would have that audience interaction at some point?

Yes, we could. Well, again, we're just waiting for the okay to do that like everyone else is. I don't know what live audience is going to mean anymore. Obviously, there's a huge need and want by our audience to want to be there live, live. And again, I don't know whether it's 6-feet apart or whether or not everyone has been tested before they come in, which you might be able to do in a smaller arena-type thing. If anyone knows how to do it in a safe and exciting way, it would be us. Chances are we'll be the first ones to do it, pretty much like we're the first ones to do everything else.

Okay. And then just regarding a deal with a third party for the network content. And just to be clear, I mean, is the main headwind here that potential partners don't really want to kind of make any agreement in the current environment? Or do you sense a need by the potential partners to maybe fully reevaluate how they might be licensing WWE programming? And has the current crisis maybe changed your thinking at all on how you want to distribute some of this?

Well, the main issue has been they just have their own issues to deal with in trying to respond to COVID-19. We haven't heard that they don't have a lack of interest in the property. That's not the case. I think we're excited about the performance of the network in this environment. I think it only enhances the value of it and gives us more options. But we're still pursuing a strategic transaction.

And I guess maybe just a follow-up on that point. I mean in absence of that strategic transaction, would you ever consider any other changes to the network such as different pricing tiers or maybe asking subs to commit to some number of months?

I think we would consider anything that would optimize the value of it. We have some of those things -- we've also look at some of those specific things. And we have a plan for the network in absence of doing a deal this year or having it delayed. So we continue to be, in this environment, pretty excited by the response we've gotten. And then if there are things we can do to add value to that, we will.

And I think maybe the COVID-19 stuff caught everybody with their pants down. We had a number of individuals that are very interested in our network. And of course -- and just when you think you're getting close, the bottom fell out. We're very close with a number of individuals that really want our network. On the other hand, we're continuing to invest in it with a free tier. We are going to do any number of improvements and what have you and different marketing for it. So it's a complete go from the standpoint of not doing anything with anyone else just doing it right here. And if something happens with someone else after this COVID-19 is over and they look at our balance sheet, et cetera, then that will happen too.

And we'll go next to Ben Swinburne of Morgan Stanley.

Vince, I know it's been, I guess, a month or so, 1.5 months under this COVID situation you've been running the company. But I'm just wondering if you have any early ideas and early thoughts on how this may change how you run the business, how you approach the product and how we might want to think about how WWE looks operationally, financially on the other side of this because obviously it's forcing a lot of kind of forced experiments, like you mentioned WrestleMania. I don't know if you had 1 or 2 things you would highlight today that you think we should be thinking about as you sort of work through this experience.

Well, firstly, I don't know that we're going to be in the "live event business" as we were before. I think no one can predict what's going to happen here. We're ready if it's allowed. But I think that's one of the things that going forward, I think it's going to take a while for consumers to want to come out and put 70,000 people in MetLife Stadium, 5,000 people in an arena. I think there's a different learned behavior that people have now in terms of the consumer. And we need -- if anyone can figure it out, we will. So we -- again, we're highly adaptable as you've seen through the years. And whatever happens, we're there. And I think it's going to be more content-oriented, heavily marketed in terms of -- not live events, but more in terms of programming and social and digital media, which are way up. There are a lot of things we can do there. So it's a creative environment is the way I look at it. And obviously, it's not a problem. It's an opportunity, right? But it really is.

Yes. And just a follow-up. You guys talked a lot about Raw and SmackDown and what you're doing there. Is there any risk that we need to be thinking about that your broadcast partners say this isn't the product that I agreed to pay for because there isn't a live audience? I realize they're probably thrilled that they've got anything. But you mentioned it's a different product before so just curious if we need to think about that potential with your partners.

Yes. Our partners obviously are not doing as well as they would like to, nor are we. But as far as the content is concerned, they totally get that it's not our fault. It's not anyone's fault that you're not performing in front of a live audience. But they've lauded what we're doing because, again, as you just said, there's nothing out there now. We're live sometimes. We're taped sometimes, and we have a lot of a really good relationship with both partners. And they have our backs as we do theirs.

And our next question comes from Eric Handler of MKM Partners.

A couple of clarifications. Hoping you can -- want to give a little bit more perspective. First, with your WrestleMania -- or your post WrestleMania WWE Network subs of 2.1 million members, are those all paid? Or does that include free subs as well?

That includes free subs.

That includes free subs. Are you willing to give what the number is just on a paid perspective?

No, not right now. We're not.

Okay. And then secondly, understanding that visibility is very limited and makes sense to withdraw guidance, just wondering if you'd be willing to sort of give a little bit of perspective on 2Q. All things remaining equal right now, considering you didn't have a WrestleMania in front of fans, that historically that has cost you about 15 to -- or that represents about $15 million to $20 million of EBITDA. If you look at where last year was and then you take out all the live events, is it proper to think that 2Q should be profitable?

Yes. I believe based on the cost reductions -- again, we're not in a position right now to give guidance mainly because of uncertainty on the revenue side. But if you assumed everything else equal, based on the cost reductions, yes, it should be profitable.

Okay. And then, well, let me see if I can push it one step further. When you look at all things -- assuming that you have a second Saudi Arabian event this year, and at some point later this year, we start seeing live events come back, do you still feel you're on a path for a record adjusted OIBDA year?

I really don't want to -- again, I think we're not in the position to give guidance on the full year right now because -- and if we were, we would have given it publicly. So I think we'd like to defer on that, see a few more cards here on how things actually play out in the next month or so as it looks like the economy may reopen and we see how it affects our business and so forth and so on. I just think it's too early to kind of go out on a limb.

And our next question comes from Laura Martin of Needham.

Vince, so you're exactly the guy I want as head of a production company right now. So globally, Netflix said the only 2 companies producing content in the world are Iceland and Korea, except you're still producing content. So my question to you, sort of following up on an earlier, is if you think there's going to be more digital, more stay at home, and it's going to take longer for consumers to go back into venue, 5,000, 70-person (sic) [70,000-person] venue, ultimate -- in your mind, from what you know today from doing a bunch of live events in this new reality, the new, new, is your cost structure lower? Or said another way, is your cash flow higher in that world? Think 2022, 2 years from now, when COVID is clearly behind us because we've cured it or fixed it or whatever. What do you think?

My crystal ball is just as cloudy as anyone else's is. Again, I think we're going to do adapt very quickly whichever way this goes. We're there, Laura, we just -- we need to be flexible. We are. And I'd rather not comment on what I think the future really holds for the country, but I just know that we're going to do well.

Okay. All right. Fair enough. And in subs, you are up twofold at Netflix over expectations. And here, you had record sub growth. Do you think that is COVID-dependent? Or do you think your new content can hold on to those new subs that you've garnered in this April COVID lockdown period?

I think new content is always a driver in terms of stimulating interest and what have you. Obviously, everyone is pretty much starved for new content. It could very well be that you're tired of watching Netflix and you want to see strong men running around in their underwear. So I think that we have a product that's very unique. And it will always be that way. And that's really a big-time advantage that we have over any other form of show business or sport. It's -- there's nothing like this. It's just a question of where you want to go with it, how creative, and we're going to -- again, wherever there's a need, we'll go there.

We'll go to our next question from Ray Stochel of Consumer Edge Research.

Is there a good way to think about the net impact of the change to Raw and SmackDown pre and post COVID-19 on a per-show OIBDA basis? So if I think about the benefits that you would get on the cost side from having it just be in Orlando at your performance center relative to the loss of live event attendance and the loss of live event merchandise spend.

Well, I think that obviously the cost is nowhere near the differential in terms of a live event in an arena and what we're doing in the performance center. We hardly have to change anything. The trans are in 1 location. The stage is in one location. So there's not much at all moving anything in or moving anything out. So I'd say it was a lot of money. So you can look at it that way. But at the same time, our audience -- we need an audience. Everyone does, too. But it's the interaction that we draw from the audience in terms of they're having fun and we're having fun performing for them. So there's -- it's always a -- you don't want to just continue to produce, for sure, even though it will cost you less. You don't want to continue to produce in a studio environment, I'll call it, as compared to what you could do. It's certainly more costly. I want it remote, no doubt about that. But you get a lot of, I guess, maybe intangibles. You get a lot of things that -- in a live audience, obviously, merchandising, yada yada. But nonetheless, our performers -- I have to give kudos to all of our performers who are working so hard. And when you're in the ring and you normally are playing off of a live audience and there is no one there, it's different. But our performers are stepping it up and really, really working hard. And we're trying to produce a great product given the consideration of where we are.

And we'll go to our next question from Alan Gould of Loop Capital.

I've got a few questions. First, Frank, you've got 4 to 5 big international deals done, everything but the Mid East deal. Would you be able to quantify for us the delta of the 4 deals? How much of an increase you've got the new deals versus the old?

Michael, I don't think we've disclosed the specifics of the deals, particularly internationally. We've given high-level looks at the total revenue of content but not by deal, not by region.

That's correct.

Even aggregating the 4 of them?

Michael?

Not at this time, Alan.

Okay. The second, timing of the free tier on the WWE Network.

Current thinking is sometime in the fourth quarter. I mean we already try -- put it out around WrestleMania. We'll -- in terms of the -- putting it out there with a revenue model that we might use with it sometime in the fourth quarter, I think, is the current plan.

Okay. Vince, any guess when you'll have your next live event? I know the theaters are talking about late June or early July. We'll see if they open up or don't at that time. But any idea -- any guess when you'll be able to have your own next live event?

No, not really. We have holds on buildings naturally, but it's more a revolving-type thing. I have no idea, quite frankly. I know people are itching to get out of the house and come see our product, for sure. But I don't know when it's going to be allowed. I don't know what it's going to look like when it is allowed. I don't think anyone does. So right now, we're just taking it month by month as we continue to push it further out every month in terms of when we're going to do this thing. So I really have no crystal ball at all.

And we'll go to our next question from Jason Bazinet of Citi.

I have a high-level question. Some of the actions that you've taken regarding like the drawdown on the revolver and the lack of buybacks and the reduction in sort of your CapEx guidance, it all sort of -- for a company that doesn't have a lot of debt, it seems like a lot of aggressive actions candidly to me. And so it makes me think that maybe I'm underestimating the quantum of the cash burn or -- that you guys are anticipating through the balance of the year. Or there's some sort of exogenous risk that you guys see outside of the live events and consumer products degradation, which I think is sort of obvious. So can you provide color on either of those 2 fronts? I just don't know if you guys are a very risk-averse company or if there's something more dour that's about ready to happen. Any color there.

So I think, overall, we are concerned about the uncertainty of the impacts of additional government regulations or changes in societal behavior around COVID and how long it will last. So we wanted to be -- since we don't know that, we felt like we needed to be -- it may be overly cautious, if you will, or overly conservative to try to make sure that we have adequate financial resources to adapt the business however it needed to be adapted and whatever opportunities might put themselves in front of us and so ended up, I would say, maybe in an abundance of caution. Because if you look at the cash flow in the first quarter with the changes that we've made in capital spending going forward, we don't see anything right now that would -- results in a huge use of cash. But we don't know what the outlook -- we don't know what the market is going to look like or the performance is going to look like in the next few quarters because we don't know what the impact of COVID is going to be. As soon as we know that, we'll have a better idea of how to model it. So we've been very cautious.

And the old expression of cash is king. Again, we have no debt. We're not looking, as Frank said, to buy some crazy something. We're just making certain that we are being conservative and, as Frank said, maybe overly cautious, that's what it is.

And moving on, we'll go to a question from Steven Cahall of Wells Fargo.

First off, looks like in the slide deck that your paid subs on WrestleMania were down a little bit. And then you were up including the free subs at about 476,000. Just wondering if you could talk about what you did on the promotional side to drive that delta and if there's anything we should read into the modest decline in paid subs on WrestleMania.

Michael, do you want to handle that one?

Well, there were a lot of creative things that we did to drive the growth around WrestleMania. If you think about it, we expanded access to the free tier. We partnered with Fox and ESPN. One of the interesting things, we gave content to Fox, which is Royal Rumble, it was one of -- it was the #1 program across all sports nets, gave content to ESPN in terms of WrestleMania airing. They were #2 across all the sports nets. So really important developments there. And I say all the things that we're doing to build the brand and gain exposure, which includes delivering programs like The Big Big Show and events on Netflix and Fight Like a Girl on Quibi, all contributed to how we built the brand importantly around WrestleMania.

Okay. And then, Vince, could you maybe talk a little bit about talent morale? Some of the other sports leagues, they've been shut down, I think, in part because players and unions have wanted safety restrictions or testing in place before they get back on the field or on the court. Can you just touch on how your talent is responding to production and also how you're thinking about access to testing and if you've had any insight there and how that might impact your ability to continue producing content?

As far as testing is concerned, we do everything imaginable. You can't even come on the premises if, in fact, you have a fever obviously. We have this whole form you have to fill out, and you have to do it every week in terms of whether or not you've been exposed, yada, yada. It's a whole long form. So we're doing everything we can for safety and making sure the environment is as good as it possibly can be. Not only monitoring our talent but our employees as well, anyone who's at the training facility. And we're very careful as to how many people were in and out at one time. We put our talent in a sequestered hotel when they're here. We're performing in small groups in terms of waves as far as in-the-ring is concerned. We change the turnbuckles and the ropes and all that kind of stuff between matches. We sort of have a pandemic cleaning, I guess, you would say, on a very frequent basis, the Clorox 360 stuff. We have something additional as well. And Paul Levesque is on the call. Paul, tell us what that new stuff you did was. What's that?

So it's a company called Allied BioScience that we work through. They have a spray that is -- there's a process which makes it cling to surfaces, and that -- the surface, once it's coated with this, it lasts for 90 to 120 days. And it acts like a -- sort of how it was explained to me, it acts like a sword that punctures the cell wall of the virus or what causes the virus and kills it on contact, and that lasts for 190 days -- I mean 90 to 120 days. And it lasts through even the other cleaning and various levels of everything we're doing. So we've coated our facilities, performance centers, all our warehouses, even our production trucks with all of that, in addition to what Vince said is that the level of cleaning every single usage and cleaning between everything. And we're taking every precaution that we have been advised is a best practice to take and then some.

And then again, as -- when these testings come along, you can do this, you can do that, when they become more prevalent and hopefully more accurate, we'll be right there with the first. Our only natural resource obviously is talent. And our talent have taken this as a challenge and have taken this almost as a duty, which has always happened with us. And they realize that people are sitting at homes, they're bored, and the fact that we can bring families together, we can entertain them like no one else is going to entertain them. So I think that they look at this as a challenge, and they've really risen to the occasion. It's amazing actually. And there are a few that are unable to come down due to certain exist things -- certain things that exist.

But nonetheless, by and large, I mean, kudos to them. They're very, very special people. They're extraordinary athletes. They love to give. That's what this business is about. That's why they got into it, is to give and perform for the audience. There's no live audience to do that with, another kudos to them because you have to think about that, and when you're in the ring as if the live audience is responding or you're an extra. So all in all, I'm so proud of them.

And we'll go to our next question from John Belton of Evercore.

I just wanted to ask about the DAZN deal. Any more insight you can share there. It looks like you licensed them some digital rights in Germany, Austria, Switzerland. I know they have been buying up rights across more of Europe. Anything in your existing broadcast contract that would prevent you from licensing digital rights in other markets? And did you discuss with DAZN about expanding the deal beyond Germany? And then I have one additional one on CapEx after that.

Michael, do you want to talk about DAZN?

Jay can talk about DAZN if he's on the call right now.

Jay is not on the call, Vince. But I would offer a few key points. As our pay TV provider, DAZN is a very sports-centric partner. They carry the NBA, NFL, Champions League. So they're a terrific partner to work with us. And you have to remember that in the same country, we work with ProSieben. So they act like dual partners: one covering pay TV, the other covering free TV. So that's the context that I'd like to add around DAZN.

Got it. And just one additional one on CapEx. So I think your prior guidance was that capital intensity would moderate by 2022. Should we assume that this is -- that basically this project gets pushed out a year now and capital intensity now moderates in 2023?

Yes. So it will be pushed out at least 6 months. So it will probably extend into 2023, the spending. It will just be moved out.

And we'll go to our next question from Mike Hickey of Benchmark Company.

Congrats on the quarter. Just a couple. I guess the first on economic, unemployment here is staggering. Just curious when you talk to your fan base, if you have sort of a perspective on your fans' relative exposure, call it, to the current economic and employment downturn?

Well, yes -- go ahead.

I mean we don't -- so we don't have the details of that in granular form of how more exposed our fan base may be to unemployment and things like that. Historically, our business has not been all that sensitive to economic downturns. But this is unprecedented times. And as we've talked about consumer behavior, sociology may be more important than economics in determining what fans ultimately do. I don't know if you have anything to add to that, Vince.

Well, just our fans are very robust. If we said we're going to play in Madison Square Garden, it'd be sold out immediately. Again, under the old format, which we know is never going to get back or will take a long time, our fans are like any conceivable way they can consume a product, they will. I think that, and as Frank just mentioned, historically -- because we can change prices when you think about it's going to be a new normal, all right, so when you go to an arena, are they going to charge you the same amount of rent? Probably not because you're going to have to attract an audience. And they have to come down and whatever those prices are for rent and everything else. Likewise, as a producer, you need to lower your cost as well of the ticket because things are going to get -- they're bad. Hopefully, not going to get worse, but they might. So we need to adapt to all of that marketability and give them what they want. But it's -- I don't think anyone has a crystal ball on this.

I guess the difference maybe here in terms of your ability to sort of handle what could be a huge recession would be the exposure to the network. I mean do you have any sense when you sort of survey your fans that their willingness to pay for the network -- they're unemployed, obviously, that's -- you're seeing a lot of cord cutting, et cetera. Just how big of -- is that sort of the biggest economic concern, I guess, you would have on your business?

That may be one of them. But again, we don't know -- we're just ready for action. Whatever is coming at us, we want to be ready for it. I don't think anyone is -- again, has a crystal ball. But wherever it goes, we're going to be flexible enough to go there too and adapt to it.

Okay. Last question for me. The -- you have an annual wrestling game. Is that in your budget this year?

What's in the budget?

The 2K21 WWE Game or Take-Two, is that in your budget this year?

Frank, if you can handle that one.

Yes. No, there's not going to be a launch of the game this year.

(Operator Instructions) And currently, there are no other questions in the queue.

Okay.

Thank you very much for joining us.

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And again, that does conclude the call. We'd like to thank everyone for your participation. You may now disconnect.