Earnings call transcript: Endeavor Group Q4 2024 sees strong Prime growth

Endeavor Group Holdings Inc . (NYSE:EDR), with a market capitalization of $14.43 billion, reported robust financial performance in its fourth-quarter earnings call, highlighting significant growth in its Prime subscription model. According to InvestingPro analysis, the company has demonstrated strong revenue growth of 41.66% over the last twelve months, despite trading at a high EBITDA multiple. The company’s shares rose by 2.06% in aftermarket trading, reflecting investor confidence in its ongoing transformation, though InvestingPro’s Fair Value analysis suggests the stock remains undervalued compared to its potential.

Key Takeaways

• Cash EBITDA increased by 40% year-over-year, reaching $124 million.
• Free cash flow surged 91% to $69 million, excluding non-prime working capital.
• Endeavor repurchased €40.1 million of treasury shares, enhancing shareholder value.
• Prime members now contribute 67% of group cash revenue.
• The company targets adding over 1 million new Prime members by FY 2026.

Company Performance

Endeavor Group’s focus on its Prime subscription model has yielded substantial growth in both financial performance and market presence. The company reported a 40% increase in cash EBITDA and a 91% rise in free cash flow, highlighting the effectiveness of its strategic initiatives. This performance is set against the backdrop of a competitive travel subscription market where Endeavor is increasingly gaining traction.

Financial Highlights

• Cash EBITDA: $124 million, up 40% year-over-year.
• Free cash flow: $69 million, up 91% year-over-year.
• Cash margin profit: Improved by 6 percentage points to 38%.
• Treasury shares repurchased: €40.1 million.

Market Reaction

Following the earnings announcement, Endeavor’s stock price increased by 2.06% in aftermarket trading, reaching $31.51. While the stock has experienced a significant 13.04% decline over the past week according to InvestingPro data, the longer-term picture shows a robust 29.65% return over the past year. The stock’s performance remains notable within its 52-week range, with a high of $35.99 and a low of $23.14. For deeper insights into EDR’s valuation and growth potential, investors can access comprehensive Pro Research Reports, available exclusively on InvestingPro, covering over 1,400 US stocks.

Outlook & Guidance

Endeavor has set ambitious targets for the coming years, aiming for over 1 million new Prime members by FY 2026 and projecting cash EBITDA between €215-220 million. InvestingPro analysis indicates the company maintains a FAIR overall financial health score, with particularly strong growth metrics. Operating with a moderate level of debt and maintaining profitability over the last twelve months, the company expects Prime membership to grow by more than 10% in FY 2027-2028, underscoring its commitment to expanding its subscription model. InvestingPro subscribers can access 6 additional key insights about EDR’s financial position and growth prospects.

Executive Commentary

CEO Dana emphasized the company’s transformative potential, stating, "EDU has huge potential and is delivering superior returns for shareholders and customers while transforming and really revolutionizing the industry." Financial Executive David Delythaga added, "There should be no dispute now that we are a subscription-based business and should be valued as such," highlighting the strategic shift towards a subscription model.

Risks and Challenges

• Market saturation in the travel subscription sector could limit growth.
• Economic downturns may affect discretionary spending on subscriptions.
• Competition from established travel and hospitality companies poses a threat.
• Changes in consumer travel behavior could impact subscription renewals.

Endeavor Group’s Q4 2024 earnings call underscores its successful execution of strategic initiatives and its strong position in the travel subscription market. With a focus on expanding its Prime membership, the company is poised for continued growth despite potential challenges.

Full transcript - Endeavor Group Holdings Inc (EDR) Q3 2025:

David de la Rolfe, Director of Investor Relations, Iridiums: Good morning, everyone, and thank you all for joining us today for our Q3 Fiscal Year twenty twenty five Results Presentation for the nine months ending thirty one December twenty twenty four. And David de la Rolfe, the Director of Investor Relations at Iridiums Alejo. As always, today’s presentation is certainly usual because of quarterly results, we only do a limited financial review. And you can find the results materials including the presentation and our results report in the Investor Relations section of our website. I will now pass you over to Inadam, our CEO, who will take you through the first part of the presentation.

Thank you, David.

Dana, CEO: And good morning, everyone, and thank you for joining us today. EDU continues to show very strong growth in Prime subscribers and cash margin profit margin continues to build as the maturity of Prime members increases. In fact, cash marginal profit margin for Prime in the last twelve months was up eight percentage points over last year and that brings it to 46% for the cash margin and profit margin for Prime. In addition, we added 305,000 subscribers in the third quarter of FY twenty twenty five. And today, we’re already above 7,000,000 members and on track to meet our self set targets for FY twenty twenty five.

Today, we’ll take you through the key points of our strong performance and this will include three things. First one is just discussion about the NEO results highlights. Second will be then a review of our strong nine month results in which the PRIME model continues to drive very strong growth for us. And then third, we’ll conclude today’s presentation with some closing remarks. If you can all turn now to Slide four, which is a summary of our performance for the first nine months of fiscal year FY 2025.

As mentioned, our profit margin has increased significantly due to the strength of our prime model and the increasing maturity of prime members. In turn, this has resulted in cash EBITDA growing 40% year on year and 70% versus the same quarter of the previous year. Some of the key highlights for today’s presentation are: First, in the nine months of FY 2025, the strength of the prime model drove significant growth and has guided improvements in profitability. Specifically, prime members grew 26% year on year reaching 6,800,000 members with net adds at 305,000. We are on track to reach our 3.5 old self imposed FY 2025 target of 7,250,000 members.

Also, cash margin profit for the nine months of FY 2025 was $2.00 $1,000,000 That’s up 27% year on year and the margin had a six percentage point improvement reaching 38%. That was 41% in the third quarter of FY twenty twenty five and this makes the progress towards our guidance of 42% to 43% the second half of fiscal year twenty twenty five. Cash EBITDA for the nine months of FY 2025 was $124,000,000 That’s up 40% year on year and cash EBITDA margin improved six percentage points versus the nine months of fiscal FY 2024. More importantly, free cash flow excluding the non prime working capital grew even more and was $69,000,000 in the nine months of FY 2025 versus $36,000,000 in the nine months of FY 2024. That’s a $33,000,000 improvement year on year and an increase of over 91% during that period.

As a result of the strong free cash flow, the company has already repurchased in the nine months of this fiscal year, EUR 40,100,000.0 of its treasury shares as part of our ongoing equity share buyback program for a total amount of around EUR 90,000,000. And we will continue to buy more, taking advantage of how undervalued we think our shares are. Second highlight is that the prime model continues to drive very strong growth. The growth in prime more than offsets the anticipated decline in the non prime side of the business and resulted in significant improvements in overall EU profitability. Prime cash revenue margin for the nine months of FY ’twenty five grew by 19%, following the strong growth in members and as guided partially offset by lower ARPU.

Prime cash marginal profit for the nine months of FY 2025 grew 43% and the margin had an eight percentage point improvement year on year. And also prime cash EBITDA for the nine months of FY 2025 grew even more as we started to leverage a more stable fixed cost base. Together with the strong pipeline growth, prime cash EBITDA grew 52% and the margin expanded by seven percentage points. Third highlight is our outlook. EDU is on track to meet the $180,000,000 cash EBITDA target and Prime member target of $7,250,000 We’re also on track to achieve our free cash flow excluding non prime working capital of over EUR 90,000,000, and that has more than doubled versus the fiscal year ’20 ’20 ’4.

All of this growth has been delivered despite many industry and other headwinds over the past three years. As guided in the first quarter of FY twenty twenty five, it’s important to highlight that we expect to see better year on year comparatives in the second half of the fiscal year as our member base continues to increase and the maturity of our Prime members grows. Year on year comparatives for the remaining of FY ’20 ’20 ’5 are expected to be as follows. Prime members in the second half of the fiscal year are expected to grow around 24% versus March 2024 and the cash marginal profit margins are expected to be around 42% to 43% in the second half, resulting in around 40% cash margin or profit margin for the group for the full year of FY 2025. Looking into the future, for FY 2026, we’ve made public at our Capital Markets Day three new targets.

The first one is Prime members, over 1,000,000 new members. Second is cash EBITDA in the range of $215,000,000 to $220,000,000 And the third is generation of free cash flow excluding non Prime working capital of over €120,000,000 And longer term, we’ve also said that Prime members will grow in excess of 10% in FY 2027 and 2028, which shows once again need to have strong fundamental growth potential beyond FY 2025 being significantly underpenetrated in main markets. In sum, Prime’s proven model continues to drive very strong revenue and profit growth and has delivered a significant uplift in profit margins. We believe we have the right model, the right people and the right structure to seize and deliver on the exciting shareholder value creating opportunities ahead of us. With that, now let me pass it over to David Delythaga, who will take you through some of the KPIs for our prime model and the strong growth and significant profit improvements in the first nine months of FY 2025.

David Delythaga, Financial Executive: Thank you, Dana. If you could all please turn to Slide six of the presentation, I will take you through Prime model. Adrian’s profitability was up significantly due to strong growth of Prime members in the year two plus and cash margin or profit margin for the Prime segment reached 46%. Cash EBITDA also rose significantly. In the third quarter of fiscal twenty twenty five, our last twelve months, prime cash margin or profit margin continued to advance.

It increased to 46% from 38% in the third quarter of fiscal twenty twenty four, an eight percentage points improvement. Group cash EBITDA over the last twelve months also improved substantially. In the third quarter of fiscal twenty twenty five, cash EBITDA margin reached 22% versus 17% in the third quarter of fiscal twenty twenty four. That’s an improvement of five percentage points. If you please turn to Slide seven, let me remind you that when looking at Prime versus Non Prime, we still think it makes more sense to look at our business on a last twelve month basis as Prime is an annual subscription business and the non Prime part is quite influenced by seasonality patterns.

Our KPIs reported today show strong growth and significant marginal profit uplift. As marginal profit was up 25% over the last twelve months as we have more year two plus members of Prime. Also Prime strong growth more than offset the anticipated and planned decline in the non Prime side of the business as we focus on Prime. We continue to be selective on how we spend marketing and we put more focus on prime products versus developing products and services for the non prime side of the business. As we discussed our first half results, in the third quarter of fiscal twenty twenty five, we have moved past the one year period of intermittent access to Ryanair, which had a meaningful impact on the non prime side of risks.

This has led to a reduced decline compared to previous quarters with the third quarter of fiscal twenty twenty five down only 6% compared to the third quarter of fiscal twenty twenty four. That’s a notable improvement from the 17% decline of the non prime side of the business in the first nine months. This evolution in the non prime side of the business contributed to a consolidated 10% increase in revenue margin and cash revenue margin in the third quarter of fiscal twenty twenty five compared to a 3% increase during the first nine months. This growth is encouraging, especially considering that the strong growth rates in the Prime business were previously offset by the challenges in the non Prime business partly due to the intermittent access to Rania. EDU is fundamentally a subscription business focused on travel.

Over the last twelve months, Prime has delivered 67% share of group cash revenue margin and 83% share of group cash marginal profit versus fifty eight and seventy one a year ago. There should be no dispute now that we are a subscription based business and should be valued as such. As we now have a much larger proportion of our Prime members who have renewed the subscription for a second year, third, fourth year, the level of profitability of Prime continuously improves. If you could all please turn to Slide eight of the presentation, I will take you through the financial results in more detail. In the nine months of fiscal twenty twenty five, we delivered a strong growth in cash EBITDA and substantial improvements in margin as the maturity of Prime members increases.

In the nine months of fiscal twenty twenty five, cash revenue margin was 3% higher than the nine months of fiscal twenty twenty four and up 10% in the quarter. Cash margin on profit and cash EBITDA improved by 2740% respectively between nine months of fiscal twenty twenty four and fiscal twenty twenty five. If we look at the comps quarter on quarter, cash margin and profit improved by 41% and cash EBITDA by 70%. Over the past year, our subscribers have grown by 26% to 6,800,000 and our ARPU was reduced by €5.5 As guided in the first quarter of fiscal twenty twenty five, we have given more discounts to our prime members as our algorithms indicate it is better for lifetime value. As a result of all the above, ARPU is expected to continue at around mid-70s for the remainder of the year.

Coming back to our nine month P and L, 70% of our cash revenue margin and 87% of our cash margin or profit in the first nine months are now from Prime members. As guided, profitability was up significantly due to strong growth of Prime members in year two plus Cash margin and profit margin increased to 38% or the nine months of fiscal twenty twenty five from thirty one percent in the nine months of fiscal twenty twenty four. That’s a six percentage points improvement and 41% in the third quarter of fiscal twenty twenty five, making good progress towards the guidance of the range of 42% to 43% for the second half of fiscal twenty twenty five. Cash EBITDA margin in the nine months of fiscal twenty twenty five also achieved very substantial improvement and is stood at 23% versus 17% in the nine months of fiscal twenty twenty four. Cash EBITDA stood at $124,000,000 in the nine months of fiscal twenty twenty five, up 40% year on year.

Please turn to Slide nine of the presentation. Revenue margin, excluding adjusted revenue items, was maintained in line with last year. The strong growth of prime revenue margin, which for the nine months of fiscal twenty twenty five grew by 18%, following the strong growth in members, was partially offset as guided by a lower ARPU. This strong growth in prime revenue margin as anticipated was partly offset by the non prime revenue margin, which decreased 17% versus the nine months of fiscal twenty twenty four. Following the switch of our customers from non prime to prime and more generally due to the focus on the prime side of the business.

Variable costs decreased by 5% in the nine months of fiscal twenty twenty five despite the higher revenue margin as an increasing maturity of Prime members reduces acquisition costs. Fixed costs increased by EUR 7,400,000.0, driven by higher personal costs and to a lesser extent higher IT costs. Now that we have reached our recruiting targets, fixed cost will grow less quickly than they did over the last two years. And as a result, we will see more leverage of our fixed cost for the rest of the fiscal year. As a result, adjusted EBITDA for the nine months of fiscal twenty twenty five was EUR 79,700,000.0 and that is EUR 123,700,000.0 including the full contribution of Prime from EUR 55,500,000.0 in the nine months of fiscal twenty twenty four.

Adjusted net income stood at EUR 14,500,000.0 in the nine months of fiscal twenty twenty five. Moving now to Slide 10, I will take you through the cash flow statement. We closed the nine months of fiscal twenty twenty five with a positive net cash from operating activities of 48,000,000 Net cash from operating activities decreased by SEK 14,500,000.0 versus the nine months of the previous year, while in the third quarter of fiscal twenty twenty five, we show a very meaningful improvement of SEK 32,500,000.0, which improves the cash flow year to date meaningfully, mainly reflecting first, the working capital improvements of SEK 18,200,000.0 from an outflow of SEK 26,000,000 in the third quarter of 24% to an outflow of only 7.9% in the third quarter of 25% driven by a higher increase in prime deferred revenue, higher hotel related working capital performance and improvement of average basket value in the third quarter of twenty twenty five versus the second quarter of twenty twenty five. And second, while in the nine months of 2025, we saw working capital outflow of 27.3% compared to an inflow of $5,600,000 in the nine months of $2,024,000,000 dollars This difference is primarily attributable to a substantial working capital outflow of $19,400,000 in the first half, contrasting with a $32,000,000 inflow in the first half of twenty twenty four, offset by the reversing trend previously described for the third quarter of fiscal twenty twenty five.

We still think that you should we see similar performance of the average market value in the second half of twenty twenty five to the way it was in fiscal twenty twenty four, this would result in neutral non prime working capital in fiscal twenty twenty five. We have ample liquidity and headroom to deliver our plans, a consequence of our strong business model, cash generation and active management. At the September 2024, the liquidity position was strong at EUR189 million. We have continued to invest in our business with EUR 41.6 million spent in the nine months of fiscal twenty twenty five, an increase of €5,600,000 as we capitalize our software. Cash used in financing amounted to €52,000,000 50 4 point 2 million euros sorry, compared to €17,900,000 in the nine months of fiscal twenty twenty four.

The variation of SEK 36,300,000.0 in financing activities mainly relates to the acquisition of treasury shares of SEK 40,000,000 during the nine months of fiscal twenty twenty five. I will now turn the presentation back to Dana to do some closing remarks.

Dana, CEO: Thank you, David. Please turn to Slide 11 of the presentation. Overall, we’re very confident that we’ll meet our self imposed FY twenty five targets of 7,250,000.00 prime numbers and cash EBITDA of €180,000,000 Furthermore, broadly, EDU has huge potential and is delivering superior returns for shareholders and customers while transforming and really revolutionizing the industry. Furthermore, we’re confident in the growth and profitability outlined in our FY 2025 and longer term guidance and also believe the company’s worth continues to be unrecognized and undervalued. As a result of this, and due to our strong liquidity and balance sheet, we will continue with our daily repurchase program and we will consider subsequent share buybacks as we continue to generate free cash flow on an ongoing basis.

David Delythaga, Financial Executive: Thank you, Dana. And with that, we’re going to start taking your questions. The first question comes from Francisco Ruiz, the analyst of BNP Paribas (OTC:BNPQY). It says, in order to reach your cash EBITDA target of EUR 180,000,000, you need a growth of more than 50% versus the fourth quarter. This also implies a peak increase in cash margin or profit margin of circa 45%.

Is it what you expect? Is the cash margin or profit margin at this level recurring? Look, I’m going to take this one. So following the guidance that we have given, direction we expect to end in a cash margin or profit margin of around 40% of the aggregate. So given the evolution and you’ve seen the significant progress that we’ve made throughout the year, first quarter and second quarter and third quarter, and third quarter you’re seeing a very important improvement in margins.

That trajectory is going to continue. We’re going to continue in the fourth quarter and is also going to be sustained by the increased amount of members of Prime that are in the year February and that’s what drives the margins. The next set of questions comes from Carlos Srivijo, the analyst of Banco Santander (BME:SAN). The first one says, you have seen an improvement in the average market value this quarter. Do you see it’s sustainable or it was some specific to the third quarter of twenty twenty five?

So it is seasonally normal that from September to December, the average basket value increases. We saw that in the last year. We’ve seen it in this year, but now I’m referring to ’23 and ’24, of course. So this has behaved, let’s say, in line with the past history in terms of seasonality. Considering a higher weighting of hotels in your bookings sorry, this is the second question of Marcos and other language I haven’t said.

Considering a higher weighting of hotels in your bookings, could we consider a different seasonality in working capital moving forward? Would it be correct to assume a better working capital than before in 3Q and 1Q and perhaps less positive one in 4Q? Hotel is a very good opportunity for our business. In terms of working capital, it is, of course, less important in size than it is for flights. It is gaining importance and it is somewhat changing the perspective.

So to remind people of the basics, when we sell a flight, we collect from the customer today, and on average, we pay to the airlines two weeks after. When we sell a hotel, in general, we collect from the customers today, and we actually send the money to the hotelier after the checking of the customer. So there’s a slightly different movement there. When we published September, we cleared up, I think, that in September there is a negative effect because we’ve been collecting money. And by September, all of the checkings for the summer period have happened in July, August, and September.

So there’s actually an outflow versus the past. That doesn’t happen in December where it is, let’s say, more of a stable situation. So in December, hotels is a positive contribution to working capital. For the quarter ended March, it depends. It really depends of when the Easter is happening.

This year, Easter is happening in April as opposed to March in the previous year. So from a working capital perspective, on the hotel side, it should help us in this year. In other years, it depends. Next (LON:NXT) set of questions comes from Nisla Nasr, the analyst of Deutsche Bank (ETR:DBKGn). I’m going to read them one by one again.

The first one says, reaching the 7,250,000.00 target implies adding around 407,000 net new prime members in the fourth quarter. What would drive the step up in the net additions after the 305,000 done in the Q3? Any specific regions you’re targeting more? What I said to this is, yes, your math is correct. And second, it is also correct that if you look at almost every year for the last two or three, there is a significant difference between the net adds that we do in the December quarter and the net adds we do in the March quarter because December is a low seasonality period.

And March is a high seasonality period. And we actually announced just two or three days ago that we had surpassed in the February the 7,000,000 mark. So we are on track to get to the 7.25. The second question from Deutsche Bank is how should we think of margin improvement from these levels in fiscal twenty twenty six? We expect that the cash and fee margin in fiscal twenty twenty six is going to continue to advance precisely because of the mechanics that I covered in the previous question from another analyst.

You’re going to have a continued increase in the percentage within prime of how many members are year two plus versus year one. And on the other hand, you’re going to have prime representing a higher share of the business versus not prime. Both of those mechanics push to higher market. We have, however, not given any specific guidance on margin, which we’re not going to give this year, but we stay by the guidance that we provided in our Investor Day in the month of January that we will reach a range of cash EBITDA from $215,000,000 to $220,000,000 and we will deliver one more million dollars prime of this when we end the year fiscal twenty twenty five. The third question from Deutsche Bank is, could you kindly remind us again what would be the working capital impact in fiscal twenty twenty five?

What is the non prime component within this versus prime? Assuming that we have flat gross sales and behavior of the basket size similar in seasonality than what we had last year in fiscal twenty twenty four, we should have by the end of the year a neutral working capital movement. The next set of questions comes from the analyst of CaixaBank, Guillermo Santayo. The first question has already been asked. It was about seasonality of cash and P margin.

And the second question, which is about the basket value in Q3 versus Q4, has also been answered. I’m going to move to the questions of, Gabriel Rodriguez, the analyst of Bestinberg. Looking ahead, do you foresee any threats that could impact your estimate of a stable prime ARPU of a range of 70% to 75%? ARPU is based on a last twelve months figure. So a good chunk of the ARPU fiscal twenty twenty five percent, at least for the first couple of quarters, is already in the ARPUs of today, and we’re already in that range.

So I would say that absolutely we’re going to be in that range for the beginning of the year. I don’t foresee any big changes in that respect. And we stand our guidance of a range of 7% to 75%. The second question of best in beer analyst is how has your company’s performance been in non client products? Is the Hotel segment evolving as expected?

It is. It is behaving in a very positive view. I encourage you and any other listeners to the call to refer to the materials that we included in our Investor Day presentation about our hotel product. It’s evolving very well in terms of attachment, in terms of conversion, in terms of the net promoter score of the product. We believe we have a very good high quality product and it’s being very well received by consumers and making progress.

Next set of questions, sorry, come from Bharat Nahak, the analyst from Cantor Fitzgerald. The first question is, do you some I don’t think there’s a word mentioned that I’m missing here, some initial data on the return of investment from any investments made to grow in newer regions and to penetrate further in existing regions? I think this one’s more for Dana.

Dana, CEO: Thanks, Devin. It’s really too early to say. We’ve just recently launched in a number of test markets and it’s really a test. It will take us time to gather all the data in those markets, we’ll then come back and we’ll really assess in terms of the results, the cost benefits of making further investments and upgrades in the different markets and then really prioritize which ones we really want to push first, second, third and fourth on that. So like I said, it’s too early to tell.

David Delythaga, Financial Executive: The second question from the same analyst is, have you had any success in converting previously churned Prime members back to members again? The background here is to grow your penetration in existing markets, you may encounter previously churned members. Could you share some data?

Dana, CEO: Yeah. Absolutely. So first of all, I just have to say that we don’t disclose churn like most B2C subscription based companies don’t. It’s highly confidential, sensitive, competitive intelligence. Having said with that, we do we in the Capital Markets Day, we did share that we actually had particularly for the year two plus, had seen a material increase in our ability to retain customers, which is very positive for it.

And we continue actually to, if I call it invest, meaning spend time, effort, energy, on this area to really continue to retain more and more of our customers, and including even if they’ve they’ve churned. Because, again, travel is a less frequent purchase. It’s not used again, being a leisure focused company, it’s not used on, let’s say, a daily or weekly basis, most people. So that, you absolutely do get back and we have a whole series of programs to encourage that as well. I’ll leave that to you.

David Delythaga, Financial Executive: Yes. The next question comes from Pratyush Ratovin from Power Wealth. And it says, can you reaffirm fiscal twenty twenty five free cash flow excluding non prime working capital of about EUR 90,000,000? Also could you roughly guide to what free cash flow looks like including non prime working capital for fiscal twenty twenty five? So to the first part of the question, yes, we reaffirm our guidance of the EUR 90,000,000.

To the second part of your question, there’s a little bit of uncertainty and that’s the reason that we use the metric that we use. But referring to my one of my previous answers today, should the behavior, the seasonal behavior of the basket size be similar to last year, we would envisage that for the aggregate of this year, the non prime working capital would be about neutral. So therefore, we would see a similar level, also $90,000,000,000 for the free cash flow including the non prime working capital. And we have no more questions at this point in time, so we’re going to close here for today. We remain available at the Investor Relations email address and our phone numbers that you all know very well if you have additional questions on the quarter.

And before we conclude the call, let me just inform you that on Thursday, May 29, it’s when we will be hosting our conference call for the full fiscal year 2025 results presentation. Thank you very much. Have a nice day.

Dana, CEO: Thank you.

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