Wanda Sports Q3 revenue up but €31.2m loss reported on higher costs

Wanda Sports Group, the owner of the Infront agency and Ironman business, among other interests in sport, has reported a third-quarter loss of €31.2m ($34m) due to a variety of fiscal costs, including those related to its initial public offering (IPO) on the Nasdaq stock exchange in July.

Total third-quarter revenues were €245.2m, an 8-per-cent year-on-year uplift, or 33-per-cent jump once the impact of “reimbursement revenue” was stripped out.

Improved revenues were driven by the rise in the number of mass participation events – from 102 to 120 – and the 37.5-per-cent increase in the number of gross-paid athletes taking part in events (from 448,000 to 616,000).

The loss reported today (Monday) compares to a €13.1m profit for the first nine months of 2018.

Wanda Sports Group ascribed the losses to “stock-based compensation expenses, the remaining IPO-related costs and the financing costs”.

Third-quarter adjusted Ebitda (earnings before interest, tax, depreciation and amortization) remained level at €39.3m.

Wanda Sports Group divides revenues into three core segments, namely Mass Participation, Spectator Sports and Digital, Production and Sports Solutions (DPSS).

Hengming Yang, chief executive at Wanda Sports, described the third-quarter operating results as “solid” and driven by “strong activity in our Spectator Sports segment, the addition of popular new events in our Mass Participation segment and our continued ability to leverage technology across our global platform to deliver a differentiated experience for our athletes, fans and partners”.

In the three months ending September 30, the Mass Participation sector delivered €113.4m in revenues, or 46 per cent of overall revenues. This represented a 14-per-cent rise on the segment revenue reported 12 months ago thanks to the increased number of events and race participants.

Third-quarter gross profit at the Mass Participation segment was €43.6m, a 15-per-cent year-on-year increase attributed chiefly to the larger number of events.

Spectator Sports generated €105.8m in third-quarter revenues (43 per cent of overall revenues), a year-on-year uplift of 80 per cent. The marked increase has been credited to the expansion of Wanda Sports Group’s summer sports portfolio, including the Fiba Basketball World Cup 2019, the FIM MXGP Motocross World Championship races (in the wake of Infront’s acquisition of Youthstream) and the CEV EuroVolley 2019.

The segment reported quarterly gross profit of €32.4m, a 9-per cent upturn that was “primarily due to a higher profit contribution” from the Motocross World Championship races.

Revenues at the DPSS segment were €26m (or 11 per cent of overall revenues), a 62-per-cent fall on the figure reported a year ago.

However, Wanda Sports Group said: “The decrease in revenue was due to the event cyclicality relating to the 2018 Fifa World Cup Russia. Excluding reimbursement revenue, DPSS revenue was €23.3m for the third quarter of 2019, approximately the same as the third quarter of 2018.”

Gross profit for the DPSS segment fell by 35 per cent to €8.8m given the effect of the (Infront-owned) Host Broadcast Services (HBS) contract for the 2018 Fifa World Cup on the figures reported 12 months ago.

Commenting on the results announced today, Brian Liao, Wanda Sports’ chief financial officer, stated: “Despite the cyclicality, we have delivered robust like-for-like revenue growth year-on-year, thanks to the expansion of our sports rights and event offerings in the third quarter. Our focus remains on reducing our debt, improving synergies across our group and taking full advantage of our asset light model and strong cash flow generation as we position Wanda Sports for long-term growth.”

Increased expenses, full-year outlook

Providing further detail on the heightened expenses and costs that prompted the €31.2m loss, Wanda Sports Group cited “finance costs” of €28.5m (compared to €9.8m in the third quarter of 2018). These were primarily due to “interest expense and make-whole amount during the period for the unsecured senior 364-day term loan facility which was entered in March 2019.”

A total of €53.3m in “personnel expenses” were filed in the third quarter, representing a 35-per-cent increase. These were “primarily driven by stock-based compensation incurred during the period for €21.7m, which reflected the impact of the IPO on the valuation awards and the acceleration of vesting on outstanding grants in our subsidiary businesses”.

Selling, office and administrative expenses rose from €11.7m in the third quarter of 2018 to €15m in the third quarter of 2019. The rise was largely down to expenses related to the (ultimately downsized) IPO, plus “higher third-party service fees” and “additional travelling expenses for various international events”.

Increased income tax expenses also took effect, rising from €3.8m to €10.3m, and in part due to additional tax expense arising from newly-acquired companies.

Looking ahead, Wanda Sports Group has forecast total fourth quarter revenue of between €245m and €260m, representing a year-on-year fall of anywhere between 1 and 7 per cent. Adjusted fourth-quarter Ebitda is expected to be in the range of €44m and €49m (a year-on-year drop of between 1 and 9 per cent).

Total full-year revenue is forecast to be in the range of €1.02bn and €1.035bn. This would equate to a year-on-year fall of between 8 and 10 per cent. However, when reimbursement revenue is excluded, the total revenue is predicted to rise between 8 and 10 per cent on 2018 figures.

Full-year adjusted Ebitda is expected to be in the range of €167m to €172m, representative of a fall of anywhere between 12 and 15 per cent.