Okay, good morning. My name is Daniel Kerven. I'm part of JP Morgan's European Media research team. We're very pleased to have Universal Music with us in Boston today for the first time, and to welcome Matt Ellis, CFO.
Thank you. Great to be here.
We've got a lot to get through, we're gonna get straight into it. Matt, Q1 streaming growth was only 8% despite the initial benefits of Streaming 2.0 due to a 2% headwind from lower stream share. What gives you the confidence that your share should stabilize across the rest of this year?
Yeah. Yeah, good to be here with everyone today. As you think about the subscription revenue growth, I think it's worth putting in context, over the last couple of years, we've averaged almost 9% growth. We continue to see very strong growth there. As you say, in the first quarter, we saw about a 2-point headwind from market share. Just to put that in context, over the last three years, we've had nine out of the top 10 artists every year over a three-year period. One of the things that culminated it is our total market share last year was the highest it had been in over a decade. We come in the year from a very high point there.
We had a lower release schedule than in some quarters during the 1st quarter, and that drove the 2-point reduction. It's worth reiterating, obviously, that catalog makes up the majority of our revenue, which is why even with a low slate that we still saw, you know, a market leading market share in the quarter. We're very encouraged by the release slate from our artists that we've seen already in the second quarter here, including last week when, you know, we had thee new albums from Drake come all at once. We've got more new releases coming in. Obviously, we'll get a partial quarter impact of those in Q2.
As you think about the trajectory from Q1 to Q2, we'll see those start to phase in and start to get the benefit, and then we'll see that momentum build through the rest of the year. You know, continue to be very excited about where we're positioned in the industry and the great work that the artists and songwriters that we partner with continue to do.
You've spoken to a 3% contribution to growth from pricing in Q1 as the first DSPs migrated to Streaming 2.0 deals. How would you expect that pricing contribution to develop in Q2 and into the second half?
Yeah. Yeah, it's really fun being in 2026 now and talking about the actual price increases coming through, whereas we spent a lot of time last year talking about we'd signed these deals and the pricing would kick in ahead of us. We're now at that point where we're seeing that happen. We've had three deals that we signed over the course of the last year and a bit. You know, one of those kicked in at the beginning of the quarter. The other two kicked in as the quarter went on. Glad to see that impact in 1Q and knowing that we've got the full effect of each of those, you know, now starting to show up in the remainder of the year.
excited to see that. you know, we expect to continue to sign Streaming 2.0 deals with, you know, various DSPs around the world.
While it's hard to be specific on the exact timing of the Streaming 2.0 step-ups in the per-subscriber minimums, should we expect them to underpin the high single-digit price rises over 2 years?
Yeah
that was implied by your Capital Markets Day guidance?
It's worth just specifying when we gave the Capital Markets Day guidance, the 8%-10%, the breakout that we gave at the time. We said roughly half, 4%-5%, related to continued growth in subscribers and the other half, 4%-5%, from pricing actions. The subscriber piece, the 4%-5%, was the net impact of continued high single-digit growth in the number of subscribers, but more of that growth coming from low ARPU markets. On the pricing side, that 4%-5% we said would be a combination of two things. One would be an increase in the minimum per-subscriber numbers or what's often called wholesale rates, and then also the impact of more tiering being introduced into subscription revenue products.
You know, that's how you get to the 4.5% on each side. You know, it's really good to see how things have been playing out since we said that at Capital Markets Day, clear line of sight against each of those vectors that get you to the 8%-10%.
Moving to, ad-funded streaming, Warner saw 11% ad growth in Q1 versus your 1%. Could you talk about the challenges to your near-term ad-funded growth? In the medium term, should we expect ad-funded royalties to grow more in line with the digital economy?
We certainly are very optimistic about the opportunities in the ad funding side. In fact, we were the first company to monetize that when we did our first deal with Meta back in 2017, 2018 time period. It's a space that we have been involved in for, you know, close to a decade now, how music gets monetized in that space. Obviously, it's an area that continues to evolve, to move towards short-form and so on, the monetization models have to adjust there as well. We continue to believe it'll be an important part of our revenue stream going forward.
Merchandising has been a drag on margins over the past year. Could you explain the challenges that you faced in that space and how you're fixing them? Also, remind us of the wider benefits that merchandising brings to your offer?
Yeah. Maybe I'll start with the second part of that question 'cause I think it's, you know, the why are we in the space and, you know, what you really have is a situation where artists continue want to have methods to deepen their relationship with fans, and fans want to, you know, continue to show their engagement with the artist, their fandom, et cetera. There's demand here from both sides, and we feel that playing in the merchandise space is an important part of, you know, how the industry continues to develop, and a role that we play as an artist continues to develop their brand. There's a lot going on in that space. We're very happy with seeing where some of the top line growth is pointing and the opportunities there.
Now what we're looking at is, okay, on the margin side, obviously, it's not where we would like it to be today. You know, there's some operational areas that we are looking at that will address the margin in there. It's a lot easier to think about improving the margin when you see a segment that's got the type of top-line potential that we've talked about and we're seeing show up in the numbers. You know, we'll get the, we'll get to the operational side, and we'll like the margin in that business as well as the revenue growth over time.
Downtown is a lower margin business, and we have a dilutive mix effect on the group margin into Q1 of next year. Could you discuss the benefits that Downtown brings to UMG?
Yeah
What synergies you'd expect from bringing Downtown's distribution in-house, and what ROIC are you targeting in the medium term?
Yeah. As you look at Downtown, I think it's, you know, worthwhile just building on some of the comments that Lucian Grainge had made on our last earnings call that, you know, a few years back, the company saw that there was, you know, very much growing space of the market that we didn't have the representation in that you would expect Universal Music Group to have. We took some, you know, pieces where we were playing in that space, but across different parts of the business, pulled them together, and formed what we called Virgin Music Group.
Bringing Downtown in puts us in a position where we now have the scale to be a very clear number 2 in that space and really have a set of products in that area supporting independent labels and artists, a full portfolio of products to really serve that community, which is a fast-growing part of the overall industry. You know, just like we talked about with merchandise, we look across the industry, we say, "Where are things growing? Do we have the assets to play there? Let's make sure that we are participating in those growth areas." Downtown was a way for us to really accelerate our growth in that space. We now feel like we go to market with a complete suite of offerings for that community.
In terms of the return, certainly we're driving, you know, EUR 15 million-EUR 20 million of synergies over the next couple of years. The team's already got good line of sight to delivering those. I'm excited to see how the integration's going so far. You know, we continue to see a, you know, a mid-teens type of IRR for that investment as we deliver those integration benefits over time.
Margins have increased from 14% in 2014 to 22%, but were flat last year despite cost savings. Could you explain what factors weighed on the margin in 2025?
Yeah. Yeah. We spend a lot of time on this question. Overall margin was flat last year. When you break out the individual pieces, you see the benefit of operating leverage. That then gets offset by the different growth rates of different businesses. You know, first of all, Recorded Music, our largest segment, in totality, had flat margin last year. On our last earnings call, we broke that out between the Virgin component, which is growing faster than the total. When you look at the rest of Recorded Music, it grew 20 basis points last year. Within that 20 basis points growth last year, we had physical grow at a faster rate, and that's the lower margin business.
You can clearly see the operating leverage in there, being offset by mix effect towards physical and towards the Virgin Music Group business, giving you that overall flat number, but operating leverage in there. Publishing grew 20 basis points last year as well. As we continue to grow our core businesses, we see the margins expand on a line of business by line of business standpoint. Then when you add it up, you get that mix effect as well. Overall, growing EBITDA, and will continue to do so.
Investors are concerned about the gross margin erosion that you've seen in recent years. How would you split that erosion between business mix, higher royalties to artists, and increased investment in advances to new artists and into emerging markets which would help drive future growth?
Great question. As you think about the gross margin, again, there's a mix effect in there. In addition to the pieces that I mentioned, one other piece, as our publishing segment has grown a little faster than the Recorded Music segment, as you think about the gross margin construct within the publishing business, although at the EBITDA margin line, you end up with something that doesn't look too dissimilar from Recorded Music. It has a lot less of the expenses between the gross margin, the EBITDA. It starts with a lower gross margin. As it grows in the mix, as it has over the last couple of years, it has an effect there. Continue to see operating leverage in there, but there's a mix effect to the gross margin line.
You mentioned advances, we've had a lot of questions about that. That's why we broke out at year-end an analysis that showed that advances have grown, gross advances have grown by 8% over the past 6 years, but total revenue's grown at 10%, and EBITDA has grown at 14%. Advances, we see them as a working capital investment, and they are exactly what they say. They're an advance to the artist on their future earnings. As the total music industry has grown, it's not surprising that advances have grown as well.
You know, in terms of how we look at them, you know, not only do we get to recover them against the future works that that artist produces, we also get to cover them against the catalog we have of prior work from that artist too. It's a, you know, it's not surprising they're growing. The fact that they're growing is a reflection of the health of the music business, you know, we continue to look to deepen the relationship with our artists and the success that they've delivered.
Your Capital Markets Day guidance was for 7%+ organic growth and for 10%+ EBITDA growth, which suggested margin expansion but made provision for lower margins if you were successful in driving faster growth from your lower-margin activities. Does the modest change in overall business mix post-Downtown change that base algorithm, potentially with faster revenue and EBITDA growth, but with less scope for margin expansion?
I think what you see us do is be very focused on delivering growth that drives long-term value, and we will continue to focus on delivering long-term value. As I think about the near term, certainly there's a mix effect. At the time we did Capital Markets Day, you know, Virgin has certainly grown faster, especially with the addition of Downtown, that's in there. We will be very continue to focus on driving revenue and EBITDA more so than just worried about the short-term margin impact. Over time, as we continue to grow each of those businesses, and viewing it from a return on investment standpoint and the IRR they create, we think that drives the maximum long-term value for all our shareholders.
Warner's margin is going up, in part because it has lost lower-margin activities, while your margin has been constrained by your success in winning some of that lower-margin business. Warner is setting, is targeting a high 20s margin in the medium term. Is that also a realistic target for UMG?
I'm not gonna comment on any other company. We're focused on what we're doing at Universal Music. As I kinda hinted at in my last answer, our focus is on how do we continue to drive the best performance in the industry, the leading revenue, the leading EBITDA numbers. If that means that we happen to be in a wider area of businesses, including merchandise, including the artist and label services business, including expanding in a lot of high-potential markets that others may be having lowering their presence in, then we're absolutely gonna do that if it drives long-term value. That is ultimately always our focus, is driving that long-term value generation, as opposed to a short-term margin target.
Moving to Concord. You currently do most of the digital and physical distribution of Concord, and I would guess it's one of your most important external relationships. BMG is acquiring Concord. What would be the impact of BMG taking at least the digital distribution in-house?
Yeah, look, we've had relationships with both Concord and BMG for many, many years, you know, very constructive relationships with both of them. I'm not gonna speculate on exactly how those things will play out after that transaction closes, I would imagine we will continue to have, you know, solid relationships with both of them as we go forward. Too soon to speculate on the specifics of what that might be.
Okay. Let's move to, catalog investment. Could you talk about your approach to catalog investment, explain why it's attractive, why you are the best buyer, and what is the returns profile?
We view catalog as another form of M&A. In terms of why it's attractive to us, I think it's the core of what we do, right? It's not some new adjacency we're trying to expand into. It is acquiring music rights and creating the most value for them. That's at the very heart of what we do and what we've done for, you know, such a long time now. It's very consistent with our overall business. Why are we an attractive buyer? There's really, I'd say, two reasons. One, with the market knowledge, the data, the analytics we have, we understand the value of any piece of catalog better than anyone else.
Secondly, when an artist is choosing to sell, the vast majority of them care about how that catalog is gonna be treated over time. You know, that's one of the things with our relationship with artists over the years, they know that UMG is somebody they can trust their catalog with. You know, it's something we look at from a return standpoint. There's catalog deals that make sense for us to do, and we're very happy to do them, but we're also disciplined in how we think about investment in catalog, just like we are about any other investment area.
Were some analysts wrong to characterize catalog investment as some sort of maintenance CapEx that you have to do to maintain your organic growth?
Yeah. Look, it's purely discretionary whether we go ahead and invest in catalog. We are always happy for the opportunity to deepen the relationship with a lot of artists by engaging in catalog purchases. It absolutely is a growth investment. We view it as M&A. In fact, some of the things that get classified as M&A, you know, an acquisition of the equity interest in a company, is essentially a catalog purchase. That's the vast majority of the assets in some of the high potential markets we've invested in. It's been structured as an M&A deal, but in the vast majority of what we're buying is actually catalog. You know, we look at catalog as an investment that continues to grow the business.
I think investors should think of it that way as well.
With the support of shareholders, Sony and Bertelsmann have been a lot more active in catalog acquisitions. Does the perhaps lack of investor understanding, and in some areas support, for catalog acquisitions put you at a competitive disadvantage?
Absolutely not. I think we have very strong support from investors in the investments that we make. We continue to be very disciplined in how we look at the investments we make, but also think about catalog as part of the portfolio of our investments. We're investing in catalog. We're investing in artist and label services, as we've seen with Downtown. We're invested in high potential markets as we continue to see the growth globally of music generation. Our catalog spending is part of that overall investment spend, and we look at it on that portfolio basis. Every item that we invest in is done with a degree of with a strong degree of financial discipline and looking at where we think we'll generate returns.
if I can see if you could just touch briefly on your relationship with Chord. The benefits that brings to your catalog acquisitions.
Yeah. Chord is a great vehicle for us to invest in a lot of the catalog transactions that are out there. The pace, obviously, of investment in the catalog space over the past five, 10 years has grown rapidly, and it gives us a very capital efficient way to participate in that while allowing us space to continue to invest in the other areas I mentioned. We get the opportunity to partner with Chord. We preserve some of our capital for other activities, but we also get to administer and distribute that catalog that comes in through the Chord vehicle.
Now, moving to cash conversion, there has been concern about the cash conversion being weak in 2025 and 2026 as a result of investment in advances in CapEx and buildings. Is the market wrong to extrapolate from what we would see as an elevated cash gap? Could you remind us as to why advances are, in fact, a very good thing?
Obviously, the advances I mentioned earlier, we see them as working capital. They don't necessarily move as much of a straight line as the revenue line. There's some more variability in the timing of advances, depending on when we structure new deals with especially some of the larger artists that we have very, you know, strong and long relationships with. You know, we're glad that we are able to continue our relationship with those artists as they continue to put great work out there. We saw an uptick last year. You know, there might be something similar this year. We'll see exactly the timing of those deals get done.
As I mentioned earlier, advances are working capital, and the gross advances have actually been growing, you know, at a slightly lower rate than our revenues have. We'll continue to expect that continue. You know, we also mentioned that the cash flow this year, we've got a couple of real estate projects that create some additional lumpiness as we go through. You know, the important thing is the business continues to be a very strong generator of cash. It allows us to invest in advances, to maintain relationships with our key artists and bring new artists into the fold.
It allows us to invest in our expansion areas, such as the high potential markets, continue to grow our artist and label services, to grow our super fan initiatives, including merchandise, et cetera, and position ourselves to not just run the existing business, but create long-term value over time and continue to be the leading company in the music space.
With regard to the issue of disclosure, why not give organic growth, which would address concerns that your growth is dependent on M&A and catalog acquisitions?
Hopefully with some of the comments we made at year-end, we mentioned that of our growth last year, about one point of it came from M&A last year. That starts to give a little more insight into the fact that the vast majority of the growth was definitely organic and continues to be so. In terms of overall disclosure, what you've seen over the past, you know, couple of earnings releases now, we've continued to add to the disclosures.
We continue to listen to investors and the areas where they'd like to see additional items. Where we think it makes sense to improve the understanding of the business and do it in a way that doesn't create competitive issues as well, you know, we continue to listen to that feedback. You should expect us to continue to look at making sure that we're being as responsive as we can be.
As part of that improving disclosure, you've broken out Virgin's contribution. Virgin really tells, only tells investors a small part of the admin and distribution story and its impact on growth and margins. Why not break out the overall distribution for Recorded Music and admin for publishing?
As we do that, you know, certainly heard that question a few times. Part of the answer is, as you dig into it and you look further into it's not necessarily just always clear black and white between what's a distribution deal, what's not a distribution deal. You know, we've attempted by breaking the Virgin piece out to give people insight into that. We'll continue to find the right ways to put data out there that helps people understand the business in more detail, but only if we think it does so and doesn't create actually more confusion in itself. We'll continue to look at the right ways there.
You know, our deals, there's a wide range of them, and being very specific about what's a certain type deal versus another, there's a lot of gray in that, you know, we have a vast array of different deal types. All of them allow us to continue to generate value across the industry.
What are your latest views on a U.S. listing?
Yeah, look, certainly at this point in time, earlier this year, the board looked at it, felt like there was too much dislocation in the valuation and the marketplace for it to make sense. You know, the board's gonna continue to look at, you know, the right time to do a U.S. listing. When there's something to update, we'll look forward to doing so.
With regard to your balance sheet and use of cash.
Yes
Could it make sense to have a target leverage or a target leverage range to give you some flexibility?
Yeah, look, I think we've been clear that we think a strong balance sheet is important for us in our industry. We specified that our current credit rating is important to us. You know, so that gives some ballpark in terms of where we think we could be. I don't think it's necessarily appropriate at this point in time to give a specific leverage target. We'll continue to return cash to shareholders when it makes sense. We announced our first buyback a couple of months ago. Then obviously on our last earnings call, we added an extension to that as well.
Excited about how we're thinking about managing the balance sheet, but continue to believe that having the flexibility to take advantage of opportunities when they come along is also important to us.
Right. Well, finally, wanna finish on what we see as a transformational positive for music and for UMG, which is AI. You may have seen that we now have such conviction in the AI story that we're adding AI premium to our valuation of UMG. Could you perhaps talk about partly you could touch on why AI isn't a threat, but could you focus on the opportunity for new and existing DSPs to license content for AI derivatives, which will transform the user experience, drive volumes, pricing, ARPU, and UMG's market share, and explain how you're leveraging your content to ensure that the emerging business models can only ever be incremental for UMG and your artists and songwriters.
Yeah. Yeah. It's interesting how the narrative has moved over the last few months on this. I think when there's a number of proof points that show that, you know, AI that isn't based off of something created by an artist is not what a consumer's looking for. A number of proof points around this. You know, we had some of the DSPs, I think Deezer has been a leader in it, but they've seen the same data as every other DSP that, you know, the actual listenership of pure AI-generated music is less than 1%, and some part of that is actually fraudulent, so real listenership is, like, an even smaller percentage of that. In addition to that, you know, we showed the top 10 AI-generated songs last year.
The number one didn't even crack the top 7,000 songs last year. The number 10 couldn't crack the top 92,000 songs. Nobody's listening to this. Just another proof point, if all of this AI music was creating listenership, our market share last year, as I said earlier, was the highest it's been in over a decade, which would have been difficult to do if listenership was being diverted. You know, you've got all those proof points out there now, and all the various surveys that say the same things. Artists want, sorry, consumers want to listen to music created by human artists. They want to interact with it. Do they want to interact with it? Do they wanna speed it up, slow it down?
If you look at the music that's on a number of, you know, social media posts, it's already getting sped up, slowed down, other things. The tools around that are increasing rapidly, and it's gonna give DSPs, whether it's existing DSPs or new DSPs, the opportunity to put new tools in the hands of consumers who are showing a desire to play around with the music, but to play around with the music that was created by their favorite artist, not something that was created by a machine. That puts us in a position where, you know, our artists should get to participate in this, and that's part of our, you know, artist-centric principles that we've spoken about throughout, Streaming 2.0. As we move into the AI age, that's part of it.
You can see tools that are going to get built that will allow a consumer to speed up, slow down, mash different things together, but have that in a contained way. Then, you know, those tools will be available. I spoke earlier about how our revenue increase was, you know, partly from the wholesale price increase, but partly through tiering. A big piece of that tiering looking forward is probably access to these AI tools that will allow consumers to do that and continue to deepen the interaction with their favorite pieces of music. We're incredibly excited about the positives of AI coming into the music space. The empirical evidence is out there now that just computer-generated music isn't what consumers are looking for. They want to interact with the music from their favorite artist.
The tools are coming out there, and then we'll see the monetization, which would be another key part of the continued growth in the industry.
Fantastic. I think we have come to an end. I've come to end of my questions.
Okay.
I think we are pretty much at the end of the schedule. I don't know if you have any closing remarks?
No. Look, we are very excited where we are. We've, you know, had continued growth in the industry now for well over a decade. When we look forward to where the industry is and where we are as a company, the portfolio of businesses that we have, how they're growing, and the, you know, we talked about the different growth vectors and our participation in each of those, having the discipline to invest in those in a way that generates a return, very excited about the future as we look ahead here.
Fantastic. Thank you very much for being with us today, and thank you for joining us.
Thank you.
[Break]
Good morning, and welcome to JP Morgan's 54th Annual Technology, Media, and Communications Conference. My name is Harlan Sur. I'm the U.S. Semiconductor and Semiconductor Capital Equipment Analyst for the firm. Also with me today is Mayur Ramdhani. He helps us cover our small to midcap semiconductor franchise. Very pleased to have Inder Singh, Chief Financial Officer, Chief Operating Officer of IonQ here with us today. Inder will kick us off with a brief overview of IonQ. It's been a pretty earning season, so I've asked him to also give us just a brief overview of the March quarter, June quarter outlook, and then we can go ahead and kick off the Q&A. Inder, thank you for joining us today. Let me turn it over to you.
Thank you, Harlan. Pleasure to be with you today, and Mayur, thanks as well. I've been with IonQ as a board member originally when I was still CFO of Arm and had sold Arm to NVIDIA, and we were in the waiting period for approvals, which of course never came. During that period, I joined the company's board as the first independent director, and then basically watched it grow from almost zero revenue to last year's $130 million, and then joined late last year around September, once we had appointed a new CEO to help him execute on a platform strategy. It's been a pleasure to watch the company go from being a lab experiment maybe in 2021 to being commercially deployed more and more.
As Harlan noted, we had a strong year last year, $130 million.
Strong growth year on year. Guided this year for a top limit of EUR 270 million in revenue. The company has a track record of beating and/or raising over the last five years, and we hope to keep that model going over time. We provided the guidance to indicate that we were gonna again double year on year at the midpoint of the guidance this year with strong organic growth, meaning our computing business, which was really the primary driver for the first few years, continues to power the top line. In the coming years, we're going to roll out the rest of our platform business, which includes sensing, it includes atomic clocks, it includes the ability to secure networks against quantum, et cetera, et cetera. A portfolio story very much.
We also indicated that we have strong RPOs, which are a measure of future revenue, EUR 470 million. Feeling pretty good about where we are and looking really to invest in the ecosystem around us to make sure that quantum can continue growing. With my CFO hat on, it's obvious things. With a COO hat on, it's making sure we have the manufacturing, the supply chain, the IT, the procurement, the supply chain security as well, all of the things that are needed to scale the company. Those are sort of the opening comments. I know you have a number of questions you may wanna try to get into here. Happy to try to address as many of those.
Yeah, no, appreciate you participating today. The team has advocated that trapped ion systems, your architecture of choice, offers superior fidelity connectivity versus other alternatives, and there are three or four other alternatives out there, as most of you probably know. As the industry moves towards what we call more fault-tolerant quantum computing platforms, like how confident is the team that trapped ion will remain competitive from a scaling, manufacturability, and overall, you know, simplicity relative to the complexity, simplicity of the platform itself?
Yeah, that's a terrific question. As we looked at the company about two years ago, the company was still using lasers to control these ion traps.
Ion traps have a natural advantage over other modalities. They begin with less errors. They begin with higher fidelity. They begin with higher coherence. These are all some of the drivers of compute power over time, and also they enable computing at scale if you can get the right number of logical qubits. About two years ago, we learned that using lasers is great up to a point. You can scale up to a point. You can scale up to maybe 100, 200 qubits before the machine becomes too big, too expensive, too bulky, requires too much maintenance, too much downtime.
That learning curve that we went through, and we now have our 5th generation machine rolling out, is what was behind our acquisition of Oxford Ionics, which puts us onto a semiconductor roadmap, a much more proven modality that exists today, 30 years of history, 30 years of scaling, 30 years of knowing how to scale something from a few bits to 1 billion bits and more. AMD, NVIDIA, obviously all of them leverage that. Now we are also. Going forward, our intent is to use a semiconductor roadmap beginning with our 256-qubit machine which we are developing already, and our 10,000 qubit machine, which we've begun to turn our attention to. As we look at the ability to deliver what we call time to solution, which is really what matters.
Right
How quickly can you get to useful answers? We've proven through a paper that we've published on our website that you can all see that for many practical things, ion traps offer you the best path to that, and if you have enough qubits, logical qubits, you can do some pretty amazing things. We sit at a crossroads here where we are now moving from laser-based systems and Tempo, which we're in the market with right now, is our last laser-based system. It's 100 qubits. The 256 qubits we've started development on already. On the last quarter, we announced we had successfully gone through developing a prototype, and now we're building the system around it.
We have a clear road path, I think, to being able to scale to 10K, 20K, and even 1 million Q by 2030.
I do think it is a big differentiator for the IonQ team, the optical/laser-based control approach to your, I think, innovative, electronic/RF, control-based opportunity. We'll get into that a little bit later. Going back to the earlier, my earlier comment, which is that, you know, there's multi sort of modalities that exist now for enabling sort of quantum computing architectures. Do you expect a future where there will be multiple modalities that exist, superconducting, trapped ion, photonic-based, quantum computing for different workloads? Or do you think that, you know, the industry consolidates to sort of one or two sort of modalities given the compute-related applications that are required?
Yeah, terrific questions. I think there are a number of modalities in the market already. There are a number of companies that are either using ion trap, as you mentioned.
Right.
Superconducting is another very popular one. There's photonics, there's neutral atom, and so on. Multiple modalities. Usually, what you find is over time in industry, I've lived through a few industries-
That's right.
in technology, you end up consolidating around a few. I expect there'll be a few. I don't think there's one, right? I think ion trap definitely starts with an advantage, is there. I think superconducting with names like IBM and others behind it probably is also there. As for the others, I think they have more development work to do. These two are furthest along. Ion trap for sure, because we've been investing in it for five years now, and then superconducting, as I say, as well. We are preparing for a multimodal world in the future. Five years from now, absolutely, there should be a heterogeneous environment. Our networking capability, which we're unique in being able to connect quantum with quantum, connects an ion trap to another modality.
Our ability to secure against quantum is also agnostic of the platform itself. We're preparing for that. We think ion trap will play a key role. The other modalities may play a different role.
As we going back to the differentiation that you guys have brought into the portfolio with the acquisition of Oxford Ionics and this whole notion of how do we control the qubits, right? Trapped ion historically, you've used sort of light/laser-based techniques to control the qubits. You guys have, with Oxford Ionics, have brought this very elegant, I think very simplified sort of electronic means to control the qubits where, like you said, you're leveraging like classical semiconductor-based existing very mature semiconductor technologies, right?
As you move from your current platform, which is Tempo, which is still optical-based, laser-based, to your next generation 256 physical qubit platform where you will be integrating your new electronic control architecture, what are the key milestones that we should look for between now and expected sort of 2020 timeframe for your next generation solution? What are some of the milestones? What are you looking for in terms of bringing this solution to the market? Gate fidelity, reliability, uptime, calibration, packaging yield, manufacturability, what are some of these metrics?
Yeah, fantastic question. We've begun to reveal some of those milestones already. The last two earnings calls, we've talked about the fact that even while we're putting the Tempo system into the market, and that's gonna drive the majority of our revenue in computing this year, we've already developed the 256 qubit prototype. Already developed.
It's gone through tape-out A, B, and C, and D is now complete as well. It's got feature-rich ability at this point. We are now surrounding it with the rest of the system. The chip is about the size of your thumbnail. The machine itself is much bigger, of course. All of it has to come together and work together. There's a compiler that has to be part of it. There's other electronics that have to be part of it. All of that is now being put together into multiple prototypes for the rest of this year. Each quarter, we'll be telling you how we're doing. Last two quarters, we've been ahead of schedule. What we thought we would take nine months to do has been done in just a few.
We're working with a fab here in the United States that allows us to accelerate our roadmap, unlike some of the fabs we were looking at overseas previously. Not only is it secure from a U.S. government standpoint in terms of supply chain, and the government feels comfortable with it, potentially being a customer in the future, but also it gives us the ability to do parallel prototyping, not just one at a time. To, you know, to your point, the ability to get from 100 qubit-.
Right
laser-based system to a 256 qubit electronic control system is already there. It's already on a chip, to go from 256 to 10K is the next milestone that we'll be talking more and more about. The ability to have electronic control means fewer lasers.
Yeah.
Fewer lasers means lower cost. Fewer laser means less complexity, less downtime, less bill of materials cost. As the machine becomes more powerful, it becomes simpler and potentially cheaper. Over time, our strategy with our five-year roadmap that we've also laid out is to make our machines modular, so that after the 10,000 qubit machine, which we've already started work on, you start to do modular upgrades. You don't have to replace the machine anymore. You do swap outs of a few modules within the machine, and the system stays intact. You get customer stickiness that way. Our customers benefit from lower total cost of ownership. Our machines don't require being operated at 0 kelvin or close to that. We don't have to have dilution refrigerators, helium access, et cetera, et cetera. There's some advantages.
The cost of buying the machine and then operating the machine, which is really what a customer looks at, TCO, much, much lower. Modular upgrade strategy makes it stickier with a customer because we forward deploy engineers and app developers to make our machine become part of the customer's revenue stream, not just their cost equation.
Yeah, before we go into some of the forward roadmaps, you have already gone through one transition, right? You're focusing on your fifth generation Tempo platform, moving to, we've been talking about your next generation 256 qubit platform. Going from 5th generation to 6th generation, just help us understand like the scale of applications from your customer's perspective, and complexities that you've been able to unlock for your customers in making that move from fifth generation to sixth generation.
Yeah, terrific question. I mean, in terms of classical computing, when we think about increasing the number of bits in a processor, for example, the amount of level 1 cache, things like that, there are a few things that actually drive up computing power, but it's still Moore's Law. It's basically doubling over time and lowering cost over time. It's exponential growth in computing power. It's 2 to the power of N, not 2 times N. When you go from 100 to 256, you basically have exponential increases in computing power. You just have to make sure that you are able to do that in a manufacturable way.
sustainable way, which we're doing. Also you have to make sure there are algorithms and applications ready to take.
Right
advantage of it. We've already done a lot of proof of concepts with our older generation machines, things around life sciences like protein folding, things around drug discovery, accelerating drug discovery, for example, in partnership with NVIDIA. A number of things that you can do with fewer qubits, with 256 you unlock so much more. You can just think with 10,000 qubits, it's a leap up.
Yeah
in the ability
Yes
to get to fault tolerance.
Beyond your 256, 6th generation system, I think on the last earnings call, you guys said you guys are already pre-selling some of these platforms right now. The team is already starting to focus its sights executing on your next, next generation platform, which is your 10,000 qubit solution. That's a pretty significant jump. What underpins the team's convictions you can deliver that step change, and which are sort of the leading indicators, KPIs, that would signal to us that the team continues to be on track to execute that?
Yeah, absolutely. As we have turned our eye to the 10-K, we've not taken our eye.
Right
256, of course. As we've turned our eye to that, it's around multiplexing. Something that the semiconductor industry knows how to do very well. It's leveraging a CMOS environment to actually scale from 256 up to 10K.
Yes.
Very proven path over decades, we're following that path. To your point earlier, which was really important, we're using mature nodes. We don't have to be 3 nanometer or 2 nanometer e ver. We're talking about things that are 128, maybe going to half that as we go to shrinking die size over time, never having to need those advanced nodes, which means fully depreciated plant and therefore lower cost for us over time as well. The milestones will be very similar. It'll be the ability to demonstrate that we can have a prototype of a 10 K, that'll be step 1, to have multiple iterations of that to work out the yield over time, of course, and then to build a system around that, just as we're doing with 5 generations' experience of building systems for 256.
Yeah I think the way that you described it is 256 to 10,000, that's classical leveraging semiconductor expertise. As we all know, covering semiconductor companies, you know, the circuit complexity will become, it's probably still monolithic, kind of chip-focused. If we think about your roadmap now to 2 million physical qubits in that sort of 2030 timeframe, I think you guys have articulated a number of different potential strategies, right? It could be multi-chip, it could be still kind of very much monolithic chip, sort of focused. Help us understand for the 2 million physical qubits, 2030 timeframe, how much of what remains is still sort of fundamental science/innovation versus engineering and scaling work that's largely de-risked, that can take advantage of either your semiconductor expertise or your optical networking expertise?
What are the additional technologies or breakthroughs that are still required to achieve that and so on?
Yeah. A lot of the science breakthroughs that were needed are behind us at this point. Now it's about engineering and manufacturability. The last remaining milestone in the science breakthroughs was getting to four nines. We did that, 99.99% fidelity, which means the lowest possible error rate, which means basically it's on par with classical computing at that point. We have to maintain something close to that as we scale. The engineering part of it is around a chiplet strategy, moving beyond multiplexing.
Yes
scaling up, and at some point, maybe even going beyond 2 million physical qubits. We would use interconnects and things like that if we needed. The team feels very confident about even getting to the 2 million. To be candid, at 2 million with 80,000 logical qubits, you can do some.
Yes
impossible things in very, very short periods of time. We feel confident that we are executing the roadmap. What I like is that we're ahead of schedule. We're ahead of schedule on the 256 development, and now we're ahead of schedule and actually starting to think about the engineering design of the 10,000- qubit system. I'm not predicting anything yet. There's always things to do, but working with SkyWater, which is our foundry here in the U.S., we've had very good success in being able to demonstrate that you can make a chip-based ion trap system and scale it. 256 is far more than anyone else has been able to do so far. For sure, using electronic controls, we're unique, and we think that over time, that will be a natural advantage in terms of cost coming either further down, and either we pass that to our customers.
Right
Keep some of that ourselves. That's a decision still to be made.
You know, this sector is somewhat very highly technical. We hear terms often being used, highest fidelity, sort of physical qubit, physical gates. The bottom line is the end game is to build a compute system that is fully fault-tolerant, right? And the team did put out a blueprint for that, right? You call that your walking cat architecture. Spend a few, you know, minutes sort of talking about fault-tolerant quantum computing and what it means for IonQ. It also appears that as a part of this fault-tolerant sort of roadmap, right, you are potentially moving towards what we call a QCCD-like architecture, shuttling ions into dedicated zones for computation.
Maybe you can also sort of talk a little bit about that as well.
Yeah. The ability to do any-to-any connections is also quite unique to ion traps.
It's harder to do with the other modalities. If you have 10,000 or 20,000 or 200,000, being able to entangle ions that are not physically next to each other.
Right
Being able to do that in this cat state that you talked about, which is part of our walking cat architecture, is unique because that operates in a way where you can not disturb the quantum entanglement, still be able to look for errors, and be able to correct those errors. That is a fault-tolerant machine.
Yeah.
We think when we are at the 10,000 and beyond, we can start thinking about fault tolerance, which is why we published this paper called The Walking Cat Architecture. It's a cute name. It's named after Schrödinger's cat. It's about 100 pages, it's not a light read. You can have an AI agent summarize it for you and make it easier to understand. Essentially it involves modularity. It involves making sure that we have manufacturability as we do this. It involves making sure that we have a compiler system and a microarchitecture, all that come together. It's all published.
Not only are we talking about the ion trap, not only are we talking about the number of qubits going to 10,000, we're talking about a fault-tolerant machine, which essentially, if you think what that is, it's a self-healing machine. If it finds an error, it corrects the error itself without intervention, and that's what you need for industrial scale.
Just kind of pivoting to business strategy, you're pursuing computing, networking, and sensing simultaneously, often with different technologies. How are you integrating these into a unified platform, you know, from a hardware, software, and go-to-market perspective? Can you share perhaps a few concrete examples of applications where these capabilities work together?
Yeah, great question. Again, the company's unique in terms of the platform it's put together, which includes the ability to network machines together. Going back to my days at Cisco Systems and learning that you need to be platform agnostic, connect everything to everything, our approach to networking is exactly that. We've demonstrated from a technology standpoint, and now from a deployment standpoint in a number of countries we've announced, that we can deploy the network irrespective of the compute platform, and even if you don't have a compute platform. We've also demonstrated the ability to secure against what quantum computers will be able to do one day, which everyone calls Q-day. The ability to break encryption, which is, you probably have been reading and I've been obviously tracking, is getting closer and closer and closer.
Even a year ago, people were saying it's 20 years away. Now, Google and others are saying it's a few years away. It's a question of whether it's a few years or less.
We're preparing for our customers to be quantum secure and have quantum computing at the same time. We're also preparing for the ability to provide networks and sensing PNT networks that are jam-proof in an environment where you have GPS being spoofed and jammed every day as we've seen. That platform or that suite of products that we bring, some people start with one thing and go to another. Some people start with two things. Some people start with more than one thing. We have the ability under one roof now to have a customer start their journey by buying the network first and then the computer or vice versa, or in the case of like a customer, QuantumBasel, buy a computer and the next generation and the next generation and the next generation.
That's a huge lock-in for us over time.
Yeah.
It gives us visibility through the RPOs that we've talked about to be able to serve those customers over time, having EUR 3 billion of cash available also helps as well in terms of our ability to invest for the long term.
Before I wanna make sure that we address any questions in the audience. If you do have a question, feel free to raise your hand. We'll get a mic. Please wait for the mic to come to you if you have any questions. We've got a question right here in the middle here.
Thank you. Putting your COO hat on, in the topic of supply chain vulnerability and quantum technologies as a sovereign technology, how are you building your roadmap for a shifting regulatory landscape?
Yeah, terrific question. Thank you for that. The fact that we are developing a roadmap that I think is without parallel, with all due humility, the ability to have 10K and have 20K in the timeframe we're talking about means that you, we will create machines that can do amazingly great things that classical just can't do, and amazingly bad things potentially at the same time as well. It's important for us to have, therefore, to your point, not only a secure supply chain in terms of availability, right, but also in terms of provenance of the components, the manufacturing being secure itself. We were asked by certain national security customers to have that in place before they start to even think about deploying some of the things that we have for those types of applications.
We were looking just like every other company in quantum is, which foundry do you use? How do you scale? Can they move fast enough? Is it secure? I'm not gonna name any particular ones. You can probably figure those out yourself. Most of the foundries that are out there are for semiconductors. They don't have experience with quantum. What I was finding with my COO hat on as I negotiated with some of these foundries was they were amazed by how much volume we were predicting we would need and how quickly we would need it. They were struggling with their own parent company to be able to justify funding that part of for quantum alone.
They're asking for things like revenue share and stuff, and I said, you know, over my dead body. We started looking at a U.S. Foundry at that time as an alternative, turned out to be SkyWater. SkyWater brings with it the highest level of military security for many of the applications that they already do for the government. We felt comfortable having them manufacture for us because we could look at provenance, we could look at making sure that the people that would work on our machines in terms of developing the chip itself, we would have clear line of sight that there's no embedded malware. As you know, in semiconductors, there are things called secure enclaves. They're not always secure. Those are the things that we can now focus on.
Surety of supply and security of supply for our compute platform in particular is something that we took very seriously because we figured might as well do that now rather than having to do that later. It'll be very hard to change foundries two years from now versus today. We're starting our chip roadmap entirely in the SkyWater Foundry, to your point. The need for sovereign ownership of machines is something also we're seeing. Every country that I've spoken with, that Niccolo, our CEO, has spoken with or our sales team, is looking for a machine to be owned by them, right? Which is why we're selling more and more systems.
They're happy to get cloud access to learn, to understand how quantum works to train people. For hybrid workloads, which we're seeing more and more of, every country is saying, Next to my AI factory, next to my GPU cluster, I want a QPU, and I wanna be able to do hybrid computing. For that, I need access to the machine itself, not cloud access. There are certain things you can do just fine on the cloud. There are many more things you can do if you own the machine. We've moved very much into providing those machines. To your question, though, which is a good one, you know, I come from semiconductors most recently and other areas, we recognize that when we have a 10,000, 20,000 and beyond, we may be not allowed to sell those machines to certain countries.
We're operating already as if we have export controls.
Yeah. Right.
I wouldn't wanna promise something to a customer and say, buy our 256, and not be able to sell them a 10K next or a 20K next. Thank you for the question.
Any other questions? Oh, we've got one up here.
Thank you. Could you give us a sense of how important software and algorithms are for your competitive moat here?
Hugely important. Obviously, the question around algorithms and software, and that's not lost on us for sure. We have one of the largest application development teams, if not the largest in the world, that we've built and are building. We've identified about half a dozen areas and markets like life sciences, material science, financial services, that we will develop algorithms for ourselves, and then others that we will do it through partnerships. Protein folding, things like that, we will do with someone else perhaps. Drug discovery, we'll do for someone else perhaps. Whereas in material science and battery chemistry and things like that, we might develop that ourselves. You can't do everything, but we are investing in the ecosystem at the same time as we're investing in our products.
One of the stats I read this, just this morning actually, was a research study that came out today, and I was, like, really surprised. In the world, it said there are only 5,000 quantum engineers. Sounds like a lot, but not really. There are a lot of quantum physicists, not many quantum engineers. What do we need at this stage? Both. Physicists, of course, but much more quantum engineers. We've started investing in universities, certain universities, not everyone, right, where quantum engineering, we think, can be something really big, where they can have our machine, train engineers on our machine, you can see the benefit, and then graduate as quantum engineers. 5,000 hopefully becomes 10,000 and much more.
If you think of all the companies in this space and you think about even the Googles and the Microsofts all having quantum folks, they all need engineers at some point. You know, fortunately, they're not building machines, that's not their business model. IBM is, of course. We wanna do something that helps the entire industry and us, and one way to do that is to have people able to develop quantum algorithms. If you think about the iPhone and the App Store as the example that I try to use, if we're building more and more powerful iPhones, we are building the App Store that goes with it at the same time. Some that we will have ourselves, some that we will curate that to work on our machine. Thanks for the question.
Any other questions? We've got one right there.
Great, great insights. Thank you. Two questions. First of all, in terms of, obviously you've heard Quantinuum is going public. They're also in the trapped ion modality. Would love to understand from your perspectives where you think IonQ is going to be differentiating. Then you were talking about various modalities. Google, a couple months ago announced that they were working on, I wouldn't say necessarily abandoning their superconducting program, but moving towards neutral atoms as an alternative, obviously scalability was one part of that. Would love to get your comments and perspectives on those 2 points.
Yes. I mean, I look, I, as I mentioned earlier, I think, I would love for all these modalities to really have a market in the future, you know, let's say five years out, right? I'd love for all of them to coexist. I think the reality is probably some of them have more science breakthroughs to do than others that will just take a little bit longer to get there. That's not a knock on any modality. I mean, I'm an engineer, so, like, every engineer thinks they're doing the best thing at the right time and all of them are as well. To your point, Quantinuum is also an ion trap company. In the U.S., I know of ourselves and th em, and I wish them well.
I do think that we need to have a number of really successful companies three to five years out for this to become an industry. I'd love for them to do the same investments we're doing in the ecosystem. We're just ahead in terms of the 5th generation, the 6th generation, the 7th generation, and selling at scale and manufacturing at scale. We'd love to see all of these actually take off. As I said earlier, I think two are already, you know, on the trajectory. Superconducting, yes, ion trap, yes. Neutral atom has certain advantages, and I'll let those companies speak for themselves. Some of them are here today. Of course, photonics over long distances offers lots of promise, still has some science breakthroughs.
You know, having light travel and be entangled over very long distances is a non-trivial matter. You know, the networking that we have, the security that we have, the sensing that we have, is meeting customer needs today, which is flowing through our revenue stream right now. As I said, we're investing in making sure there's actually an ecosystem. That's how companies always need that ecosystem for success. This is a nascent industry. We draw AI engineers from the trillion-dollar tech companies. They choose to come to work with us because they think they're gonna build the most cutting-edge, bleeding-edge applications that can't be simulated in a classical environment. I'm not saying QPUs will replace GPUs. People would love for me to say that. I'm not saying that. I think it'll be a hybrid world.
I come from a CPU company, Arm. There are still more CPUs than GPUs, believe it or not, they all coexist together. I think that every modality begins with some benefits and some disadvantages. Ion traps begin with probably more advantages, and our founder 30 years ago, whether lucky or smart, chose ion trap, allowing us to be able to be where we are today. We are a merchant supplier. In fact, we sell components to the other quantum computing companies. They don't talk about it. We don't talk about it. Some of the things that they require for their machines, not all of them, some of them, their machines wouldn't work with our components. We want all of them to succeed, actually. The competition to me is not any of them, candidly.
I think the competition is probably a sovereign nation on the other side of the planet, maybe a few of them, trying to get to the same Q-day that this country is racing to as well.
Great. Well, we're just about out of time. Inder, thank you for your participation today. Look forward to monitoring the progress of the team as the year unfolds. Thank you very much.
Thanks for having us.
Yeah. Thank you.
Pleasure.
All right. Nice to talk to you all today. I'm [ZachJackowski] . [I'm the General Manager at Atlas, Bo ston Dynamics]. I'm going to kick off our presentation to you today with a little bit about the product. Here we go. Last I talked to the public was at CES when we unveiled our new productized version of Atlas. This robot was a blank sheet redesign. Mostly what we had to show you at CES was our previous generation of the robot doing real factory work and a static display of the new robot. The Boston Dynamics team has been hard at work over the past six months, putting this new robot through its paces. I'm really excited about it. This is the best robot we've ever built, and it's also the simplest robot we've ever built.
Rather than bore you with text, this is a video we just put out this morning at 8 A.M. This is Atlas doing real work. This is Atlas exercising a reinforcement learned full body controller that's capable of lifting and maneuvering, not just the robot itself, but, you know, heavy consequential objects, the kind that you see in real work. Yeah, the inspiration behind this video was the old trope of robot bring me a beer. Instead of bringing the engineer a beer, it brings them the whole fridge. Here we go. We have a bunch of specifications about this robot here. I'll tell you, the specifications make this robot the best humanoid product in the world.
The thing that I'm most excited about is the thing that the rest of the team is going to be talking to you about today, which is the structural strength of the Hyundai Motor Group and the Boston Dynamics partnership. Nobody in the world has better control over supply chains. We have access to, you know, a just a mind-boggling amount of data throughout the factory network and Hyundai Motor Group. Nobody is ready or more ready to take on the hard work that's going to be involved in building a new kind of supply chain and deployment pipeline for a new class of product. Yeah, Hyundai is an amazing company, yet they make millions of cars. They make the factories that make the cars. They captain the ships that move the cars.
They even make the steel that goes into the ships and the cars. It's just phenomenal. Without further ado, I'd like to introduce the Vice Chair of Hyundai Motor Group, Jaehoon Chang.
Yes, indeed, we make everything. Good morning. Good morning, everyone. [Foreign language]. I'm Jaehoon Chang, the Vice Chair of the Hyundai Motor Group. Thank you. Thank you for having us today. We are excited. We are excited to share Boston Dynamics and the Hyundai Motor Group, the broader vision for our robotics initiative, how we want to create the value across the robotics ecosystem, and how we will scale up globally. Now let me start with the vision. The Hyundai Motor Group's growth path has been quite straightforward, as shown by our expansion of the production capacity. During the last two decades, we have doubled all the production capacity. It's about manufacturing scalability, how we can scale the data, and of course, how we can scale all the manufacturing capacity. This is not done by us alone.
We are actually partnering with the leading global tech companies such as the Google DeepMind, NVIDIA, to build a scalable ecosystem that combines hardware and software with a clearly defined data pipeline, and to roll this out from regional validation to global implementation. This means that Boston Dynamics and the Hyundai Motor Group will deliver on end-to-end the robotics industrial platform, a collaborative platform that connects R&D to manufacturing, software development, and the customer experience for a new industry. Hyundai Motor Group has continuously expanded this platform with each shift in the industrial paradigm, from internal combustion engines to electrification, from manufacturing to software integration, and now into physical AI and the robotics. We are advancing robotics not simply to add a new product category. The robot vision we present at CES this year is partnering with human progress.
Robots should be partners that enable people to work more safely, productively, and creatively, expanding human potential through physical AI. The robotics value chain. To realize the robotics vision, technology alone is not enough. It requires real systems for the mass production, organizations to operate them, and the capability to scale globally. Hyundai Motor Group has 72 affiliates and 330,000 employees worldwide, produced 7.5 million cars last year and now targeting 9 million units by year 2030. These numbers present more than the scale. They are the foundation that enable us to apply new technologies in real industrial settings, validate them, and to scale them into production. Now we stand at another important turning point. We are moving beyond the role of automotive manufacturer and towards the building of physical AI ecosystem.
At the center of this execution is the collective strength of Hyundai Motor Group affiliates. Hyundai Mobis strengthen our core robotics component capabilities. Hyundai AutoEver advance our digital operational systems. Hyundai Glovis brings the supply chain mastery. We are combining all of this with Boston Dynamics' world-leading robot technology and global AI partnerships. The result is clear. We accumulate our own data and IP, positioning Hyundai Motor Group as the market leader in the physical AI era. Hyundai Motor Group robotics ecosystem is anchored by two strategic hubs. First is the U.S., where Boston Dynamics support technology, AI-friendly policy environment, customer feedback, and real-world validation come together. Second, is Korea. Where technologies are translated into optimized product configurations through manufacturing know-how for scalable deployment. The flow between these two hubs is clear.
Innovation and validations in the U.S. lead to the rapid productization in Korea, which then connects to the global expansion. Recently, the U.S. has identified advanced manufacturing, AI, robotics, supply chain resilience, and energy infrastructure as key national priorities. Our previously announced investments in the U.S., which is about $26 billion, is not simply about expanding the production capacity. It's a strategic investment aiming at the building and the foundation for the growth of robotics and the physical AI industries in the U.S. In this sense, U.S. is not just a large market, but a stretched base where the robotics industry can grow within a supportive institutional and industrial environment. We are not a company that simply present or showcase robots. We are a company that turns robotics into real industry through an end-to-end industrialization platform.
At the heart of this vision is Boston Dynamics, led by the CEO, Amanda McMaster. Please join in welcoming her to the stage. Thank you.
Hi, everyone. I'm Amanda McMaster. I'm the Interim CEO at Boston Dynamics, and I've also been the company's CFO for the past six years. I wanna thank JP Morgan for having us here today. I'm excited to be talking with all of you. I'm gonna try to shed some light on the way we're thinking about the state of the robotics industry today, where we see it going in the near future, and what you should be looking for as more and more players continue to jump into this industry. Humanoid robots are having a moment. It's all anyone seems to wanna talk about these days. Every week it seems like a new company is dropping a social media post, you know, showing what appears to be some pretty amazing capabilities.
AI has made it possible for impressive demos to happen faster than ever, you're starting to see more robots move out of the labs into the real world. Companies are making all kinds of bold claims that right around the corner, humanoids will be doing everything from building our cars, to serving us popcorn, to doing our dishes, or maybe they'll just dance and do some kung fu. I don't know. The messages are a little mixed at the moment. Before I throw stones from our glass house, Boston Dynamics has absolutely contributed to this hype cycle with videos like this. This is Atlas, our humanoid robot, showing some pretty amazing capabilities in the form of gymnastics.
As amazing as videos like these are, it's also totally fair to ask, when am I going to see a humanoid robot doing something that's actually useful? How are investors supposed to sort the signal from all of the noise? Today, I wanna take you through our perspective on answering that question. The good news is that we agree with most of the industry. The future we all dreamed of as children, where robots were doing really meaningful tasks in our daily life, is actually going to happen. The bad news is, depending on your position, we don't agree with most of the industry on the timeline, and we're a little skeptical that they're going to be walking into your living room next year. At Boston Dynamics, we're starting in the industrial world for some very pragmatic reasons. These are highly repeatable environments with clearly defined tasks.
An automotive plant or a warehouse looks pretty much the same anywhere you go in the world. That's not true of kitchens and living rooms. Industrial customers understand the ROI needs, and they have the capital to scale. Once we've deployed broadly in the industrial world, you'll start to see these robots move into the service industry, things like retail, restaurants, commercial offices, hospitals, schools, and home deliveries. Finally, we'll get to a point where a generalist robot can effectively work in your home. We're only at the very beginning of that journey today. Boston Dynamics believes we're differentiated in four major categories. We think companies that excel in these four categories will be most successful in this emerging industry. First, performance. The robot has to work, it has to be reliable, and it has to be safe.
We learned that with Spot, the lab is a very different environment than the real world. We track something called intervention rates for our robots. Today, Spot's intervention rate is up to about 3,000 hours, which is only a few times per year. Reliability drives usage rates. Today we're running over 1 million inspections per quarter. There's no other mobile robot on the planet being used as much. Robots are only used at these rates if they provide real value to customers. We now have thousands of Spot robots walking around industrial sites inspecting facilities and equipment for more than 500 customers across 40 countries in a myriad of industries. Our robots are doing thermal, visual, and vibration inspections. They're moving packages into warehouses, all enabled by AI, all centralized and streamlined on our Orbit AI software platform.
In each of these industries, like semiconductors, for example, we're working with marquee brands who are leaders in their fields. They've adopted mobile robots because we've proven we can generate an ROI in under two years. We have a fully staffed deployment, service, and support infrastructure built behind it. You can't just buy a robot and hit go. The reality is it takes a full integration team working hand-in-hand with customers to provide real ROI. At our semiconductor customers, for example, we're performing security and safety patrols with thousands of inspection points, as well as inspecting the key equipment. We're focusing on helping our customers avoid equipment downtime, saving energy and time. Next, let's talk about the AI layer. We're experiencing a paradigm shift in physical AI.
Impressive behaviors that once required months of painstaking coding, are taking a couple of days with advanced RL and simulation technologies. We now use real humans doing real work to show our robots what we want them to perform. We don't code robots anymore. Now we teach them. Unfortunately, we have to teach them everything. LLMs exploded on the scene a few years ago, and they were amazingly intelligent because they were given the entire internet scale of data as their training set. This level of scale doesn't exist for humanoid robots today in the physical world. They don't know how much objects weigh, how much grip force to apply, or whether something is solid, bendable, or breakable. We need to build an internet scale dataset for physical work.
We're uniquely positioned as the only company already collecting data at hundreds of customer sites today, and we're partnering with Google DeepMind and Hyundai Motor Group to collect even more. Together, we'll build a vision-language action model that allows robots to autonomously perform almost any physical task at human equivalency or better. Let's talk more about these partnerships. Hyundai will serve as our first application area for Atlas, so we're training it on automotive tasks today like you see here. We're building a new Robot Metaplant Application Center that will open this summer. We'll use this facility to train Atlas robots on real-world automotive tasks. We're also excited about our partnership with Google DeepMind, the world's premier AI lab, where we'll also be training new datasets for Atlas.
I want to take a moment to explain the different layers of what's happening with our AI powering Atlas, because it's very easy to get confused when we talk about robot brains. A common misconception is that companies like Google DeepMind build the brains for the robot. The robot itself is just the chassis. That's not really accurate. A better way to think about this is that the robot actually has two brains. The AI layer that Google DeepMind is contributing helps the robot understand and interpret things it's seeing in the real world. Think of it as the brain that controls a robot's sense of recognition and reasoning to give it a semantic understanding of the world. Here at Boston Dynamics, we're also building an AI layer that's equally important. The brain that serves like the physical brain.
That's what actually allows a robot to take action, meaning the brain that controls its ability to move around, grasp objects, and physically make changes in its environment. Humanoids like Atlas require 2 different levels of highly intricate AI brains working together to be effective. Between our partnerships with both Hyundai Motor Group and Google DeepMind, we're uniquely positioned to harness meaningful AI at scale. We're already starting deploying Atlas at DeepMind, and we'll be sending rest of our Atlas production units to HMG this summer. Next, we'll start expanding to additional customers. Finally, we're building Atlas with scalability in mind. On the robot itself, we've simplified the design for cost competitiveness and manufacturability. Almost all major components of Atlas are field replaceable, and we've reduced the number of actuator types from 8 in the prototype body to two in the production version.
Hyundai Mobis will be supplying all of our actuators, keeping with our theme of vertically integrating whenever possible. We're leveraging HMG supply chain and purchasing power as we scale, already seeing 60%-80% cost reductions on key components. HMG will serve as Atlas' first customer and also help us build volume. Hyundai has already announced plans to deploy tens of thousands of robots in its operations. We're partnering to build a massive new factory that will be capable of producing 30,000 units annually. All of our production Atlas units are being deployed between Hyundai and Google DeepMind for 2026, we're gonna start to offer Atlas to Spot and Stretch customers in 2027. We're well-positioned to scale very quickly, with HMG behind us, we're really excited to launch this industry.
With that, I want to pass it over to EVP and Head of Global Strategy for Hyundai Motor Group, Heung Soo Kim.
Thank you, Amanda. My name is Heung Soo Kim, Head of Global Strategy Office at Hyundai Motor Group. I'm really pleased and thrilled to be here to explain how we'll concretely put our vision into execution. We believe the robotics strategy is not simply just an introduction of future strategy. As Vice Chair Jaehoon Chang already mentioned, our focus is on industrializing robotics. I will walk you through how we move forward in this journey. The true competitiveness advantage we are targeting is execution at scale. There are three core pillars: real-world validation, value chain integration, and scalable deployment. First, real-world validation. We deploy our robots on Hyundai Motor Company and Kia's manufacturing sites and verify use cases. We gather real-world operational data, and we check and enhance robot applicability in real production environments. Next, value chain integration.
We combine Boston Dynamics' world-best technology with the Hyundai Motor Group's robotics ecosystem, including Hyundai and Kia's manufacturing network, Hyundai Mobis component technology, Hyundai Glovis SCM and logistics capabilities, and Hyundai AutoEver's system integration competences. Through this, we transform robots into scalable industrial products. Based on a dual hub in the United States and in South Korea, we connect production, validation, data, supply chain, AI infrastructure, and market applications. This will further enhance our capabilities for execution at scale. Now let me walk you through the Hyundai Motor Group's robotics value chain that makes this possible. We don't see robotics as just a new business opportunity. We see it as a strategic platform that expands Hyundai Motor Group's core competencies. We are integrating our capabilities across robotics technology, manufacturing, components, logistics, and system integration into one robotics ecosystem. This is Hyundai Motor Group's robotics value chain.
Hyundai Motor Company and Kia. These companies are where our robots are deployed and proven. We directly provide the manufacturing data and operational know-how to the robotics ecosystem. This enables us to move at a global scale in a standardized way. We deploy our humanoid to sequencing work first, then quickly expand to more complicated assembly lines. We are projecting over 25,000 units across Hyundai and Kia's global plants as a starting point. This will serve as a foundation for further expansion to group affiliates and adjacent industries. Hyundai Mobis is responsible for core robotics components such as actuators. Leveraging the accumulated technology, SCM operation, quality management in the automotive, Hyundai Mobis will internalize core robotics components technology and contribute to the competitive advantage, including performance, cost, and quality. Hyundai Glovis serve as the supply chain management backbone of our robotics strategy.
It covers the entire procurement, production, sales, logistics. Also, Hyundai Glovis will provide logistics testbed for our robot products, utilizing its global facilities, starting from our EV plant site in Savannah. The data accumulated here will further accelerate the robot application to other logistics areas. Hyundai AutoEver. Based on its deep expertise in system integration in various manufacturing environments, Hyundai AutoEver will provide end-to-end robot SI capabilities, including robot deployment, integration, operation, and maintenance. More important part is data collection and management. Hyundai AutoEver will play a key role for the data-enabled robot intelligence improvement and smart factory optimization. This is our data-driven system integration library. We are deploying this integrated value chain first and at the greatest scale in the U.S. Let me walk you through. We have three pillars for this initiative. RA, Robotics in America, is our robot mass production facility.
RMAC, Robot Metap lant Application Center, is robot training and application hub. We have key component manufacturing facilities, starting with actuator. These are not separate investments. This is our integrated investment to build a localized robotics value chain in the United States. With RA, we combine already established robot-friendly engineering and with the concept of robot by robot production. We are targeting 30,000 units per year as an initial capacity, starting production in 2028. We are planning most advanced flexible manufacturing platform for various robot products, maximizing Hyundai Motor Group's outstanding manufacturing technology and our partner network. RMAC. RMAC is a robot training and application hub enabling rapid iteration of testing, refinement, validation, and retraining nearby the actual robot deployment site. RMAC is also the data hub. RMAC plays a middle point between real-world data generation and AI training.
Starting operation this summer under Boston Dynamics, RMAC will play a crucial role in robotics AI, collecting over millions of hours of real-world data. Hyundai Mobis will establish a dedicated actuator production facility near RA in the United States. It will start operation in 2028 with the initial capacity of approximately 350,000 units per year. This will complete end-to-end core component value chain from development to manufacturing. Through this, we will build robotics component ecosystem and cluster in the United States. The initiatives I explained so far is about the vertical integration of robotics in Hyundai Motor Group, from technology all the way down to system integration. Based on this strong foundation and proven use cases, we are proactively exploring to other industries. This is horizontal expansion. This will be backed up by our execution-oriented capabilities and global network at scale.
Vertical integration and horizontal expansion are the key for our execution at scale. We are focusing on building up this strategic structure. As all elements work organically within a single structure with active leverage of Hyundai Motor Group's scale and our localization strategy in the United States, it will enable consistent and differentiated execution. This is why we are uniquely positioned to lead the robotics industry. Thank you.
Hi. Thank you very much. How would you compare your products and strategy to that of Tesla's Optimus?
It's a, it's a kind of expansive question. I think we're executing a more focused strategy on, yeah, how do we bring real return on investment to customers sooner. You can see, you know, Atlas is more clearly designed directly for manufacturing applications, and our go-to-market strategy early on is pretty focused on that pressure point. Obviously we'll expand from there. You know, our goal is the TAM of all of human manual labor in the world. This is a hard thing we're doing, and I think it's really important that we stay focused on that pressure point to try to drive, you know, real returns and real customer success as soon as possible.
Hi. Thanks for the presentation. Quick question is on the partnership between Hyundai and Boston Dynamics. What type of partnership is it in the IP side and then also the financial side?
Sure. It's multifaceted as we went through today, right? Hyundai is a majority investor. It's also going to be a customer. It's a customer today for our Spot pro-product. It will be a large-scale Atlas customer. It will also be utilizing supply chain and the manufacturing capabilities to produce our robots at scale. It's a robust partnership. Hyundai AutoEver That will be as part of the ecosystem, will be the SI that we work with to do all the system integration across both captive and non-captive customers.
Just to add, to comment on that. The Hyundai Motor Group wide, we have aspiration that for the transformation to the next business is AI, very important. Well, that's why we're working on very hard on the autonomous vehicles, robotics as well. Yeah, on the other side is robotics, where we can see the synergy collaboration together. That's one part of the building the foundation between those two. Going further, another aspiration is the energy that we are working on. Yeah, you know, the group wide, we provide from the energy EPC utilization. It's a cross-specialty focus on the renewable energy. That's another part that we can demonstrate later apart. Thank you.
Thank you. Can you describe the relationship with Google DeepMind, and particularly the flow of data and how that is shared? In other words, if Atlas is collecting data, does Google have access to that for their models and potentially the ability to use for other projects?
Sure. You can think of the partnership with DeepMind as having two sides. One is a research partnership, so our teams are pretty closely integrated, doing research on frontier vision-language action models and such. The second side is the data side. We're working with Google to go collect the world's, you know, largest, most diverse humanoid real work dataset. That's an activity that we're ramping up now. What will be happening is we will be taking hundreds of Atlas robots all over the U.S. to collect data that will feed this model training. Yeah, Google DeepMind and Boston Dynamics both have access to that data.
Mike, could you deconstruct sort of the revenue model? Clearly the unit sales are one part, but I assume there's a broader revenue model here underneath the entire business.
Yeah. We have multiple revenue streams. We started this with Spot. There is, you know, obviously hardware, software, and then we have our service and support and our integration layers. Think of this very much as a solution. And as we're looking forward for our Atlas deployments, we're going through the process of evaluating a robot as a service model to allow for, like, easier deployment with our customers, different creative solutions for financing. Okay. I think that concludes today's session. Thank you all for coming. Thank you.
[Break]
Should we go? Okay. All right, we'll get started. Happy to have back at the conference from TKO Group, Mark Shapiro, President and COO. Mark, thanks so much for being back here.
Thanks for having me, David.
Mark, earlier this year you termed 2026 as a year of execution. In that context, can you speak to where your highest priorities are at the moment?
I think just consistent with what we've said on our, on our earnings and our forecast and guidance coming into the year, this is a high-quality execution story. We are singularly focused on operational execution, and we've got a full plate. Not too much, but we have certainly a full menu of offerings that we are uniquely focused on as we head into the midpoint of our year. First and foremost is, of course, our distribution deals as most know, we have our second year of our deal with Raw, with Netflix. We have our WWE PLEs now with ESPN, and obviously, we've kicked off a successful partnership, initially successful with UFC and Zuffa Boxing with Paramount+ and the myriad of offerings across the CBS PeaceGuy platforms.
Distribution, making sure that that's, you know, hitting on all cylinders, production quality, the marketing behind that, the earned media that we gain from the potpourri of platforms that UFC has, engagement, making sure the cards are up to standard and getting the draws that we would hope they would, the marketing power ESPN brings to the table, making certain we're maximizing that. Then you go to global partnerships next. I think we've given guidance of to 2030 that we would do EUR 1.2 billion. By the way, a contributor to that is some of the ad inventory we will soon be selling related to the UFC deal, so, and other offerings.
Specifically, that will be a big bellwether for us, and we're feeling good about that, trying to surround ourselves with the right brands and the right earned media vis-à-vis the marketing power those brands bring to the table. Third would be live events. I'll tell you, David, even at earnings time, a lot of question, rightly so, but a lot of question given what's going on in the Middle East and just around the world at would we see a fall off? Would we see a tick back, if you will? We're seeing no consumer pullback whatsoever. In fact, just post our earnings, our UFC 328, which was in New Jersey, not only sold out, but this was the third straight year, so it wasn't like it was new to the party. It wasn't a big, new glitzy event.
The third year we had a UFC-numbered event in New Jersey, we set the record at the gate. That just gives you an idea how strong and robust it has been, and we're thrilled to see that. That dovetails with our FIP strategy, our financial incentive package strategy, which again, on the guidance, we've said we'll do EUR 380 million-EUR 420 million by 2030. This year we're doing a little over EUR 300, we have three WWE events are normalized. It would be $240 million, all systems go on that front, we can talk about that strategy certainly later.
As you move around the rest of the business at TKO, Zuffa Boxing is a big growth opportunity for us and organic growth opportunity. We're in line with our plan. We're in line with our forecast. It's already profitable, albeit we don't consolidate, but largely because we've done two big media deals, one with Paramount for the boxing and then of course with Sky as well. Boxing is off and running, and Dana White is signing a whole bunch of fighters. On the allocation front, you know, the experiential business is still very strong right now. We've got the World Cup just about upon us here.
Despite what's going on overseas and a little bit of anti-American sentiment, we're ahead of plan there. We've already guided to approximately $75 million in EBITDA for that, our World Cup event, and we're on track for that. I would tell you, the L.A. Olympics, I mean, these are, this will be his going out party, meaning President Trump, but they are, we're really bullish about the opportunity there. I mean, we're over $250 million right now at this point already in hospitality, experiential hospitality sales packages, and we're two years away. Finally, UFC 250, June 14th at the White House, all eyes upon that, and really everybody we have across the board is working on putting that together.
Yeah. Mark, that was a great overview. We're gonna get into a lot of that. Maybe I'll start with this. I asked you a version of this question a year ago. When you look at WWE and UFC at the current moment, how do you gauge the properties on factors like fan engagement, star power, cultural resonance, and how much higher do you see the ceiling for their popularity both in the U.S. and abroad?
Yeah, good question because engagement is very much the name of the game for certainly for us, but I would argue for any content property out there. Of course, it's a clouded environment, and it's very fragmented. Look, for us, we sit squarely at the center of sports and entertainment and that overall ecosystem. That's where we are. We stand out because we're year-round. We happen to own the league. You're not going through a lot of webs to get decisions made or to innovate. We're scalable. We're global. We're young. We're diverse. We have high engagement, which builds over the course of the night across our cards, and we're always building. We don't rest on our laurels. We don't rely on past champions. We're always building new stars.
In fact, in the WWE, we've actually added some cards for NXT because we think we have a couple of stars that are about to pop, and we wanna give them more stage time, if you will. I would also tell you that at TKO, we institutionalize events built on scarcity and durable repricing power. I would say, finally, when you just overall look at where content is, experiences, events, and folks that are lining up, consumers that are lining up to see them, AI is here and now, right?
As the adoption of AI further increases, what you will see initially is a real boost in digital, I would say solo digital consumption. As that progresses, ultimately, that will strengthen the need and strengthen the demand for physical aggregation, which is consumers, families, fans that want to get out. They're inside the room all day. They're on a screen. They're working. They're also more efficient, and when they have that opportunity to now get out into what is an extended weekend, they're going to jump on it. That's why you see today, even in this economy with the affordability crunch and what's going on from a geopolitical perspective, retail sales are strong, and not just with us. You saw with Live Nation and The Walt Disney Company, no consumer pullback.
Just staying on the, on that macro macro backdrop, interesting moment, right? On the one hand, you have the conflict in the Middle East that's lifting energy prices. It's complicating events in the region. Other hand, right, all the beneficial kinda long-term trends you talked about driving the demand for experiences. How do you kind of account for those crosscurrents in your outlook?
Yeah, look, we have six events in the second half of the year across Zuffa Boxing and UFC and WWE that are in that Middle East region. That you're talking about. I would just tell you. We're all systems go. In fact, we announced a UFC fight night just this morning that we're adding to Abu Dhabi. What's happening is as we have our virtual meetings with our partners in Saudi and our partners in Abu Dhabi specifically, they want more events.
This whole fiasco isn't over yet. Nobody can really prognosticate when it's going to be over, if it's going to be over. I mean, look how long the Ukraine-Russia saga has dragged on, much longer than anybody thinks. That region in particular is very focused on showing the world they're still open for business, right? They might not be able to get a vessel out of the strait, but they are open for business. They want more events. They want music.
They want comedy. Of course, headlined by they want more sports. They're bullish to put them on. Our Royal Rumble in January, albeit that was before the whole saga and the Iran conflict, big sellout show. We already have meaningful fan bases there, David.
Right.
They're passionate fan bases, and they've signaled to their governments that they want more. You know, we're first in line for many of these countries.
Great. Let's get into UFC. With Paramount's guidance, you made a big change to your domestic distribution, removing the transactional paywall for your biggest events. For certain fights, you've also extended distribution into broadcast with CBS. Mark, what's the impact of this wider reach to date, both with fans and then your various stakeholders?
We're checking all the boxes as it relates to Paramount. They have been a really superb partner, which says even more when you realize that ESPN was the greatest of great partners. Paramount has picked up on that, and they have built off of that. You saw the, obviously the Paramount earnings call and David Ellison talk about the success they're having with the UFC, not just in terms of subscriber sign-ups, acquisition, also on the retention side, and I would say most meaningfully in the ancillary program, where millions of minutes are being watched, vis-à-vis the UFC, and it's our storytelling, right? It's a lot of our long-form programming, not just the fights themselves. That's a harbinger of what's to come. We're much younger than anything they put on there.
We're certainly much younger than CBS. We've benefited from the fact that they're using all of their platforms not just to market us, but if you look at CBS and the way we've popped when we've had a few of our prelims or undercard fights on the CBS platform as a simulcast. That's been a good story as well, and I will tell you, I'm really excited. I should say, we're really excited by what is ahead, and that is when they close, when and if they close their Warner Brothers deal.
Right
At this point, everything looks thumbs up, and I think it should happen, by the way. We're gonna benefit from that. We have an opportunity to have UFC and Zuffa Boxing not just on the Paramount networks as you know them now, but TNT, which is known as a sports network, CBS, which is known as a sports network, HBO, which has historically been a big boxing network, and then you throw Bleacher Report in there.
Right.
Not to mention, if you really pay attention to what they're doing from a marketing standpoint and the way they're distributing content, they have all kinds of partnerships with YouTube, and we will benefit from that as well.
Maybe following up on the numbered fights, has there been any concern from you or Dana that, you know, removing what was previously an $80 pay-per-view fee, essentially making the price of those fights equal to the price of a fight night, does that remove any signal to the fan about the uniqueness of those cards?
Absolutely not.
Okay.
Keep in mind, when we have our, what is normally a monthly numbered event, and we have 13 a year of them, so I'd say roughly, every month, these cards have championship fights on the card. The Fight N ights don't have championship cards. When you look at the marketing spend and the power, the number of GRPs that they put behind marketing those numbered events, you can tell this is something different.
Right.
This is a must-see event. Not concerned about that at all. I would just tell you that getting out of the pay-per-view business. There's a time and place for it, and it's how the UFC was built, and it made a lot of sense, and it was a big winner for many, many years. We're past that. We want our content to be accessible to the broadest audience possible. Not having that big pay-per-view price allows us the opportunity to do just that. They see the promotion. They feel the weight of the marketing. They see the match-ups. Hopefully, they have a rooting interest, or they're just a casual fan that wants to sample. They know where to go, and they can get at a very affordable price, even in this economy.
Maybe just staying on distribution. In any given year, you have a number of your UFC international media rights coming due. Can you speak broadly to the market opportunity there and kinda how you approach selling the Fight Nights and the numbered events abroad?
Yes, international also is strong. I would tell you that we signed China earlier this year with Migu. We actually, in the fourth quarter, we resigned in Australia and New Zealand. We're getting healthy increases, albeit much smaller EUR, David, than what we get in our domestic deals. Right now, we're just about finalizing Spain, Belgium, Netherlands, and Scandinavia, with Canada on the horizon. We're seeing 40%-50% increases in the AAV on these deals. Again, smaller dollars, much smaller dollars, but nonetheless, it's a good trend.
Are you finding any particular distribution in those markets, or it's all market by market basis?
It is market by market.
Yeah.
By the way, some markets are linear still, and some are linear and digital simulcast, and some are just digital only. Streaming is what I mean to say there. At the same time, on some of these markets, we're just selling the numbered events, and then some of these markets we're just selling the Fight Nights and the library. It could be a mishmash combination. Different strokes for different folks, different checkbooks out there, different appetites. Again, you know, we're a young sport. You know, we haven't been around 100 years like Major League Baseball. We are still very much in the fan base building mode.
Got it. You touched upon this earlier, but when TKO reached agreements with UFC on Paramount, and I think this applies to WWE on ESPN, but a highlighted key negotiated benefit was advertising inventory for the company on live streams. Maybe can you just speak to how you're executing against that to date?
Yeah, we're in the process, we're actually in the latter stages of hiring, adding on, bolting on to our team experts that sell media. It's a different sell than selling sponsorship, global partnerships, even really than selling digital. We've built up our team, frankly, a lot of names from my past at ESPN, and I think some of the best in class that are out there today from a streaming perspective. We will begin to start offering packages of inventory that have, of course, signage and have, of course, integration, have broadcast integration, very different in arena, outside the arena, retail marks, et cetera, but also include actual media. Now, we don't wanna get in the way of Paramount, right?
Right.
They paid a lot of money, made a big investment in the UFC, and they're out there selling those packages. We're not going to compete with them, but we're working, I would say, in tandem on various categories of where we're going to sell or where they're going to sell or where we can play kind of the B train to their A locomotive.
Got it. Just staying on partnerships and marketing. TKO, as you noted, has provided a goal of $1 .2 billion in revenue by 2030. You ended 2025 at $4 75 million around there. Just help bridge those two figures, how you think about the biggest opportunities, including items like new inventory, new sponsors, new categories.
It's a mix. It will always be that. We have categories that peel off year by year that we renew at big increases given where we are versus where we were. Keep in mind, just on the UFC alone, we're in 170 countries, there's global opportunities as well. We also have new categories that we're finding all the time and kinda beating our chest about our creativity in finding those categories. We're also, as I mentioned with the media, we have more inventory. We have a really diverse portfolio of inventory to sell. You have some advertisers coming to the table that are just looking for digital media buys. You have some that are still looking for linear broadcast.
You have some that really want that experiential activation, and some are all of the above. I think we're benefiting, you know, on all fronts. Obviously, this is an ambitious guide to get to the $1.2 billion in 2030. We feel great about it. To your point, you know, we did approximately $475 million last year just on the UFC and WWE. Remember, the $1.2 billion is for all the TKO. $475 million just on UFC and WWE. That was ahead of our $450 million plan that we had stated publicly.
Right. You highlighted earlier UFC Freedom 250. That event less than four weeks away now. I guess besides the incredible image of an octagon placed on the White House lawn, what should we all be looking forward to from the weekend?
Yeah, I will tell you, as I mentioned on the earnings call, we will be meaningfully higher on the spend for Q2, which is where, of course, the June 14th event takes place. That's really due to the fact that it's just blown up, right? It's the festival that's going to be happening adjacent on the Ellipse has gotten bigger. Zac Brown is playing there. The whole festivalization of the event. We've added a fight to put seven on the card up from six. We'll still have what we guided to, which was a $30 million loss, which is just a one-time, but the expenses will be up meaningfully. It's going to be a show, right? It's Flag Day. It's the President's birthday.
He's one of the biggest, not just, by the way, UFC fans. He's a major WWE fan. He's in the Hall of Fame, actually, at the WWE. You know, he's very much behind this. We're working hand in glove with the administration. We're two weeks away from being basically on site to get the build up in time for the June 14th event. We're having all kinds of client events and dinners and activations. As you can imagine, all of our global partners want to come to the event, and we aim to please.
Got it.
This is a international event. I mean, this is the true event where we're going to be having news outlets cover the event, not just the sports media. It's, it should be very exciting. About 4,000 people will be there. 1,100 will be military guests, friends and family. Then between us and the White House, which mainly means the White House, there will be another 2,900 guests.
For WWE and UFC, you noted earlier financial incentive payments as a growing revenue line, target of around $400 million by 2030. Maybe just expand on how you plan to develop the model and then how you weigh the offsets to the FIPs, like sometimes doing events in smaller regions.
Yeah, look, it's, frankly, there's not a lot of science to the weight part of the question. Keep this in mind. I mean, you're always balancing in this business, even what cities we choose to go to, even if there wasn't financial incentive packages. You're always balancing what's best for the brand, what's best to serve our current audience, what's best to grow our future audience and expand our audience, and then of course, who's at the table with what kind of financial incentive package. I think as part of this, it's important to understand the thesis behind our financial incentive package strategy, which is pretty clear-cut.
We have premium content that is in demand. As such, there needs to be government and private financial incentives that reflect the economic and cultural impact we bring to these cities and regions, that's where the rubber meets the road. That's where the conversations take place. I would tell you that it's very robust right now, the marketplace. You know, every time we do a big deal, we announce it. You saw we announced a big deal in Arizona, where we'll be bringing seven events over the course, multi-year, multi events. We also have Philadelphia, which we just announced with Governor Josh Shapiro. We haven't been to Philadelphia in a while, and that's a good deal for us. Of course, you know, we just announced our Baku, Azerbaijan.
You see the stretch from Philly to Baku.
Yes.
The line is long. Even our current partners, as evidenced by our announcement this morning. I mean, Abu Dhabi already has a lot of UFC, but here they are looking for more. Saudi already has a lot of WWE, and here they are looking for more. It's a robust marketplace. Our premium content is in demand. We have a number of different geographies that wanna play. We are not out there maximizing the market in terms of dollars. That will never be the case. We will do always what's best for the product, what's best for the brand, and at the same time try to balance the economic impact we'd like to have on our balance sheet.
With WWE, I think Backlash was your seventh PLE on ESPN Unlimited.
Can you just speak to the evolution of the product, since you launched with WrestleMania and what it's meant to have WWE integrated with that ESPN brand that I know you know very well?
Yeah. I think the marketing that ESPN has put behind the WWE is beyond anyone's imagination, and that's certainly where we stand. I mean to sit there on a Friday, even a Thursday, and see all the promotion, all the content, all the interviews across First Take, which is the show with Stephen A. Smith, highly rated. Get Up, which is hosted by Mike Greenberg, highly rated. The Pat McAfee Show, he's goes on for two hours. Obviously, he's a commentator on WWE events, so it makes a lot of sense. It's very authentic, it's very seamless, and then he goes and does another hour on YouTube. It's just incredible the amount of weight they're putting behind this, and obviously we are a major tenant and anchor of their ESPN Unlimited strategy.
They have now closed many of their deals with their platform providers. I think we're waiting on YouTube TV, which is an important one because a lot of Gen Z is watching through YouTube TV. I know certainly my sons are. I'd like to see that deal get done, and I think they're going to get it done fairly soon and make a big announcement out of it, and that will just play to our favor. They'll have all their deals done, Then it just becomes a education process and how easy it is to sign up for ESPN Unlimited, especially if you already have a deal with a satellite provider or a cable provider where you can just authenticate and not have to pay any more money incremental.
I, that's going to be a great story for us, ESPN's going to get take-up because their roster, meaning their portfolio of content, is so extraordinary, now they have MLB.TV on there as well, if you want all your regional games from an MLB perspective, you get it all at ESPN. I mean, it's really a great value play. It's just going to take some time to get the kind of take-up that they would expect and we would expect.
Before we pivot, I wanna ask about the domestic media rights market. Lot of eyes on the NFL, whether they enter the market early. There's a significant implication for properties coming after MLB.
Right
NHL. You go further down the line, NXT, SmackDown. This is my really early question about how you're thinking about the rights landscape.
Well, look, we've got, you know, $15 billion of deals that are contracted for the next 5-7 years. Recurring high-margin revenue that is locked in place. There's all kinds of opportunities, ancillary programming, or maybe you're adding fights or different events to any of those sides, not to mention some of the other TKO stuff like Zuffa Boxing or like PBR, which is a winner for us as well. You're always looking to be creative on that front. We're locked and loaded. Nonetheless, we pay attention to it, especially as budgets get constrained or get expanded in the case of Netflix ever since they got out of the WBD pursuit. You know, we look to take advantage of that marketplace.
If the NFL, which is the best sports and entertainment property in the entire world, goes out there and ends up renewing their deals across the board, surely that's going to take some money out of the system. I believe that would probably affect other tier B or tier C properties. The premium inventory, the premium content that draws the big eyeballs, that gets the major engagement, if you keep investing in that and those kind of properties, I mean, from an investor standpoint and as a content creator, us, meaning TKO, investing in those properties, not taking it for granted that we already have deals locked up, then you're going to be in good shape.
Okay. Maybe just one last one on UFC/WWE before we pivot. This last weekend, we saw on Netflix, they staged a fight between Ronda Rousey, Gina Carano. I think it was reported that that was pitched to UFC. Just maybe kind of help us understand why ultimately that wasn't the right fit for you.
Yes, that's a good question, and obviously a timely question. Look, it was pitched to us beforehand, and we did turn it down. That's to take nothing away from Netflix. First of all, they're a great partner, and clearly they know what they're doing across the board in every genre right now. You don't get to, you know, 300 million or 350 million subs for nothing. Their content offering is unique and really, really distinct and kinda has something for everyone. They're in the big event business. They've been very clear about that.
Yeah.
They're not looking necessarily to buy out leagues. That's why they did the Major League Baseball opener. That's why they do the Home Run Derby. That's why they just did a five-game package with the NFL. They want big spectacle events. They saw this as a big spectacle event. We're in the true MMA business on a meaningful, consistent basis. When we looked at this potential matchup, keep in mind that there's a real art and skill to matchmaking, right? When you ask Hunter Campbell and Dana White what they think about that matchup prior to the fight happening, the answers we got back, and I mean Ari Emanuel and myself, was, that fight will be over in 20 seconds. They were off by a few seconds.
Yeah, three.
I don't believe that a fight like that, just the way it played out, is really good for MMA because especially because it's Netflix, and they have such an incredible global audience, and it's a massive audience. It's a highly engaged audience that is going to sample, depending on what comes up on the front page with Netflix. For them to then go to that fight and then think that's what MMA is, I don't believe is good for the sport long term. We saw it that way and decided to pass on it. Taking nothing away from the legend, obviously, that Ronda Rousey is and the win that she got, and I guarantee incredible viewership numbers that Netflix will soon report. For us, it was more of a stunt than a meaningful MMA event.
Got it. Maybe pivoting. Zuffa Boxing launched earlier this year. It has distribution on Paramount+. Starting a league is never easy. We saw that recently with LIV Golf. Mark, you've seen a number of startup leagues come and go over the years, right? What kinda gives you confidence in Zuffa?
Well, look, as I mentioned earlier, we're ahead of our internal forecast. It's already profitable. We have tremendous partners in Saudi that are very aggressive. I mean, they would like to see us, you know, we reported we'll do 16 or 17 events. They would like to see us ramp that up. Of course, you've seen how active they've been in the super fight space.
Yeah
which is, like Canelo-Crawford, which we put on. You know, we did the media deal, and we worked on sponsorship with them, and we also produced the event, and we also promoted the event. They like to see more of those matchups, and they wanna use those matchups to drive Zuffa Boxing. We're just in a good place. We've already signed over 100 fighters. As I mentioned, we have our deal with Peacock, which is multi-year. We have our deal with Sky, and of course, U.K. is a huge market for boxing. We're in the space of building firm value, and as we hit certain milestones, we earn into more equity, and we're just about to earn into our second tranche of equity. Boxing is ripe for this.
I mean, it just, it's really ripe for this opportunity. It's been just too scattered, too messed up, too much corruption, too many promoters, too many sanctioning bodies. Just hard as a fan, I begrudge no one their livelihood, but too hard for the fan to be able to follow and make sense of it, not to mention to actually create superstars and household names like, dating myself growing up, with Sugar Ray Leonard. We need more of that.
Yeah.
That's what Dana White and Nick Khan are setting out to do with Zuffa Boxing, and we have a ready, willing, and aim partner to stay behind them. Really optimistic about this opportunity, especially because we're in a place, even though we remind them, the street, that this is a year of execution, we're in a place where we're constantly being asked, what's next? What are you gonna buy? What are you going to acquire? What else is out there? We're not hunting for anything. Instead, we have it right here, homegrown in boxing, Zuffa Boxing.
Got it. You talked earlier about the World Cup and On Location. Maybe just, you know, with that event a month away, speak to how demand's shaping up and the learnings you've gotten from that and Milan as you eye L.A. in 2028.
Yeah, Milan was a terrific event. Look, I wish that they had all their facilities.
Yeah
built a little earlier because I think they could have done even better on ticket sales and experiential hospitality. Nonetheless, it was an extraordinary Olympics. Extraordinary performance from the U.S. as well, and that always helps because Americans travel to Olympic Games consistently. When they're there, they spend in a big way. Milan was a tremendous event. Milan itself was incredible. Cortina and the village and what they offered there was a sight to see, and that bodes well for what's to come in L.A. Always good to get it back on U.S. soil, that will be a real win for us. The World Cup itself, I mean, you can't get better. Mexico, North America, crazy volume of actual soccer or football fans, we will take full advantage of it.
All the trends are there, and David, if you can have these kinds of trends with the geopolitical issues we're seeing from a macro perspective, that just gives you great enthusiasm and confidence for what's to come with L.A., and we're out of the gate strong and much more to come because as you know, L.A. 2028, they've just been teasing some ticket sales is what I'd call it, right? They haven't put big allotments out there yet. The big stuff is still way in front of us.
Got it. All right, we have about a minute, but your guidance for the year includes 600 basis points of margin expansion. Mark, you get this one often, but as you execute across these growth initiatives, how do you think about managing that expense base long term?
Yeah, look, we are, highly focused from the, you know, the start to finish, from the top of the house to the bottom of the house, on margin accretion. To your point, at the midpoint of our guidance has us up 600 basis points to a 40% margin, and at the same time we are, you know, very focused on those FIPs. Build value, make the product better, more great storylines, good rivalries, good stars, and you're gonna be able to sell those FIPs. Keep in mind, the TAM is 500 events a year. It's not just the numbered events at UFC or the PLEs at WWE. It's the Fight Nights, or it's the PBR, it's Zuffa Boxing, it's Raw, it's SmackDown, it's NXT. There's a lot to sell.
We think there's ample opportunity for more margin accretion specifically in the next two to three years. At the same time, we're very lean on the cost structure. You have to balance being lean with investing in your product. We will always invest in our product. We are doing just that. As it relates to fighter pay or relates to superstar pay, we are uniquely, I would say, uniquely focused on it and looking at every opportunity to provide more capital for those investments and also from an ancillary perspective, seeing that our partners, global partners, and some of our geographic partners are focused on our fighter pay and our superstars as well.
That's a good note to end on. Thanks, Mark.
Thank you, David.
Great.