Live Nation Entertainment Inc (LYV) 2007 Q3 法說會逐字稿

Good afternoon. My name is Larry, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Live Nation third quarter 2007 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS.)

Before we begin, Live Nation has asked me to remind you that this afternoon's call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ. Please refer to Live Nation's SEC filings for a description of risks and uncertainties that could impact the actual results.

Live Nation will also refer to some non-GAAP measures in this call. In accordance with SEC Regulation G, Live Nation has provided a full reconciliation for the most comparable GAAP measure in the earnings release on their website. The release, reconciliationS and other financial or statistical information to be discussed on this call can be found on livenation.com, under the "About Us" section.

It is now my please to turn the call over to Mr. Michael Rapino, Chief Executive Officer. Sir, you may begin your conference.

Thank you, today, for everyone joining the call. I'm joined by Kathy Willard, our CFO. I'll take you through our strategy and top-line performance and then turn it over to Kathy for a review of our financials.

We're excited about the financial results we have to share with you today. As we discussed at the beginning of the year, 2007 was going to be a soft touring year for concerts and arena shows and hard to replicate in 2007 on a comparable basis. Last year we had three major tours, and this year we have only one. Superstar tours tend to work on a three-year cycle, so we knew it was imperative to reverse the long decline in the North American Music business, to stabilize the core, and [claw] back the missing tour money in 2007.

We are proud to report that this year to date, on a pro forma basis, our adjusted OIBDAN is actually up by approximately $3 million versus 2006. This is despite our Global Artist touring division being down by $6 million on an actual basis.

A large portion of our success this year is a direct result of running North American Music better in 2007, which I'll expand on shortly. In addition, we expect to continue to see improvements into the fourth quarter, as some of the fixed-cost initiatives we put in place this year will benefit us as we move into a strong calendar concert in Q4 with such tours as The Police, Van Halen, Bruce Springsteen, Stevie Wonder, Jennifer Lopez and Marc Anthony, and Chris Brown, to name a few. We'll finish up the year for the rest of [us] in a strong concert environment.

We have outlined consistently that our three-year transformation has three planks to its execution. Fix the core North American Music business, build upon our core platform, and expand our core proposition into new revenue streams. I'll update you on each of these drivers.

Fixing our core North American Music operations has been imperative to driving the foundation of our business. Overall, the 2007 concert season so far has been one of the weakest in history. Our results were impacted by this weakness, as we only had one true global tour this year, and there is generally a weaker arena touring environment.

Despite this weakness, we are still able to improve our year-to-date North American Music results, driven by the success in our amphitheater operations. During 2007, our primary operational objective was to turn around our amphitheater business, which had been consistently declining for the last five years and is the bedrock to our North American operations, representing more than 50% of our total North American EBITDA before overhead.

As we have discussed with you before, amphitheaters, while fantastic venues at which to see a concert, have increasingly come under competitive pressure by an increasing number of arenas, casinos, and a reducing supply of artists that can fill these large venues.

Live Nation was formed through the acquisition of multiple individual promoters and venue operators. For years, these individual entrepreneurs who sold their companies to SFX or Clear Channel were more or less left to operate on their own and execute business on a fragmented, decentralized basis.

In order to address the amphitheater issue, we have to first address the underlying fundamental issue of creating alignment with our local promoters and their booking strategies. By establishing a music-only-related vision and a set of objectives during 2006, we aligned the majority of our local promoters towards one common corporate goal. These promoters have bought into our vision, with many having voluntarily given up their contractual cash bonuses in 2007 in favor of a stock-based compensation tied to EBITDA targets.

With agendas aligned, we developed a plan to improve amphitheater operations by establishing an amphitheater booking committee and a seven-rules-for-2007 strategy, focused on improving bookings and cost decisions. These results were tremendous, as we were able to increase amphitheater adjusted OIBDAN year to date on a pro forma basis by 30% on more than 10% reduced attendance by better buying and reduced spending.

In addition, we improved amphitheater EBITDA margins by about 3% in the year to date and quarter. This also helped to improve our overall North American Music margins over 1% in the quarter. In general, with the strong 2007 North American Music amphitheater results in hand, we plan to utilize our strategy and execute on improving the rest of our North American operations in 2008.

Part of fixing the core has been to realign our assets to maximize our music mission and divest of non-music assets. We're excited to finally announce that we have sold our 50% interest in Broadway in Chicago non-consolidated joint venture to James Nederlander, who owns a controlling interest in our joint venture partner in Broadway in Chicago, for a gross sale of $60 million. This transaction provides us with increased focus on our core music business, and we'll use these proceeds to reinvest in our core music business and/or repay debt.

Our second plank is building on our core proposition. Local sponsorship has always been a key driver of revenue for us. The issue and opportunity has been how do we turn our 1,000-plus smaller-venue-based deals into larger strategic relations that drive revenue at many levels? With the recent investments we have made in on-line customer database and artist products, we have now equipped all of our 200 sales professionals with a wider music-fan-specific platform to sell, which has increased our value and attractiveness to the sponsorship community.

We have been successful recently in up-tiering our sponsorship relations to create larger, more integrated relationships. We're able to provide these sponsors with access to our fan reach artist relationships, content and tickets, in addition to our in-venue proposition. We believe these types of deals will be the growth driver for us in the future, as our ability to provide precise and direct access to artists, music events and a unique fan base will provide a compelling medium for sponsors to reach their customers effectively.

One of the recent deals we have done is a unique deal with Rogers Communications in Canada, which provides for a Rogers Concert Series that will feature performances at the Molson Amphitheatre, Commodore Ballroom and other venues throughout Canada, special benefits for Rogers customers, including a preferred ticket program; and a distribution of the Live Nation channel on all live -- of all live performances across their wireless broadband and television platforms.

All aspects of our Company, from digital to venue, are encompassed in this relationship. We are excited that the investment we have made in our key Online and Live Nation divisions are beginning to pay off through these sponsorship relationships, and we expect more in the future.

The final prong in building long-term shareholder value is to leverage our core and expand our proposition into complementary new revenue lines. Expanding our core business is centered on maximizing and monetizing the two main benefits of our concert scale, our 35 million fans that attend the music shows and our 1,000 artists a year we deal with directly.

The first step in harnessing the 35 million fans was to establish a direct relationship with them through our online storefront, livenation.com. This summer we made another move to online e-commerce by stocking our website with exclusive premium and regular tickets, parking and VIP pass inventory for our registered ticket club members.

This initiative was extraordinarily successful, as we were able to sell over $3 million of inventory online, which had the impact of increasing our traffic year-to-date on our site by 58%. In addition, we were able to eliminate approximately 30 local sales positions, which will help our profitability in 2008.

The impact that this limited inventory had on our ability to drive traffic to our website, enhance show profitability and reduce our fixed costs makes us very bullish about our opportunity in 2009, when our contract with Ticketmaster expires for most of the North American venues.

Next year we plan on increasing revenue in our ticketing business. We expect to soon make an announcement regarding the path we plan to pursue with respect to ticketing, as our contract with Ticketmaster for the bulk of our North American venues expires at the end of 2008. Ticketing is key to our expansion strategy, as it brings the fans and artists together for the most important transaction in the music value chain, and it's something everyone wants to be part of. We're working on a music revolution, and the ticket is an integral part to it.

The final piece of expanding our relationship is expanding our relationship with those 1,000 artists a year that we have built long, deep relationships with. How do we maximize those relationships and expand them? We've been building the capabilities over the last two years to service artists beyond the concert promoter role. Our acquisition of Music Today, UltraStar, CPI, Anthill, and investments in online and sponsorship all provide the expertise to execute a wider service for the artist, rooted in a touring success.

Our building of capabilities came to a head with our announcement of Madonna, who has formed a 10-year music relationship with us. We believe that the announcement and others like it, such as the Radiohead and Eagles new distribution model for their music, mark a new beginning for the music business and an acceleration of our strategy to utilize our existing marketing distribution platform and artist relationships to expand into new revenue streams.

The whole way artists make their money has evolved, and Live Nation's position as the leader in live, which has become the artists' number one income driver, combined with our long history as the artists' transparent partner and our extensive global distribution marketing platform provides a compelling proposition in this changing environment.

Artists are increasingly looking for new ways to manage and maximize their diverse rights on a global basis, grow their fan basis and achieve a direct fan connection. As we are both a business-to-artist and business-to-fan company, we believe that we can uniquely provide that connection.

Live Nation's vast global distribution and marketing platform was built over more than a decade, with $3.5 billion invested. There are over 80 offices in 18 countries around the world, hundreds of seasoned marketing, promotion, and production personnel, a team of over 200 international, national and local sponsorship employees, over 160 venues, and access to 35 million fans that attend Live Nation shows every year.

Our Live Nation Artist Expansion Strategy proposes to be more effectively and efficiently use this network than it has in the past by providing artists with additional services that can be effectively executed over and sold to fans across our distribution platform.

We believe the fact that Madonna, one of the most influential artists and businesswomen in the world, would sign with us validates our strategy and the strength of our proposition. During 2007, we invested in our Artist Nation platform as we seek to grow this segment of our business by signing more artists.

In general, we feel we are on track to achieve our objectives by focusing on a (inaudible) platform and increased profit in 2009. We are well underway in fixing our core North American operation. We have added over 40 venues, expanded into three top international markets since the spin, and have divested a substantial portion of our non-core assets, and have accelerated our Live Nation Artist division by signing Madonna.

We are excited about our future, and we believe we are looking forward to a great three-year run as our concert business continues to grow and our touring business accelerates.

Kathy, I'm going to now turn it over to you.

Thank you, Michael, and good afternoon, everyone. For the third quarter of 2007, on a pro forma basis, which includes all of the acquisitions and divestitures completed through the end of the quarter, our adjusted OIBDAN was $95 million, representing a 6.3% margin. These results were a reduction on both the dollar and margin basis over 2006, as adjusted OIBDAN decreased by $4.8 million and margin decreased by 0.4%.

The decline in adjusted OIBDAN was driven primarily by a weaker 2007 concert season, including weaker North American arena events; timing of festivals and promotional activities between Q2 and Q3, the planned shutdown for expansion of our successful and profitable venue, The Point, in Ireland, global touring activity, which was less profitable than last year, and increased investment in the Live Nation Artist platform.

Year-to-date, on a pro forma basis, our adjusted OIBDAN was $158.7 million, an increase of $2.8 million versus last year's results of $155.9 million on fairly steady margins of 4.9% to 5%, which, as Michael explained earlier, was primarily the result of improved North American amphitheater operations, a huge accomplishment in the face of a weak 2007 concert season.

I'll now provide you with a quick overview of the main drivers in each of our segments. North American Music adjusted OIBDAN increased by $14.5 million, and margins improved by 1% for the third quarter. This improvement was primarily due to the operational improvements in our amphitheaters and due to the acquisition of House of Blues, offset by reduced profit from arena and third-party promoted events.

On a pro forma basis, North American Music adjusted OIBDAN increased by $5.1 million for the quarter and $3.7 million year-to-date, reflecting the strong accomplishments in the amphitheaters. This accomplishment is even more dramatic when you consider that we were able to achieve these results despite a significant decline in arena and third-party promoted event adjusted OIBDAN.

International Music adjusted OIBDAN for the three months decreased by $5.8 million, and margin decreased by 1.9%, due primarily to the timing of the UK Hyde Park Calling and Belgium Rock Rock Werchter Festival, which had more dates in Q2 versus Q3 as compared to last year, and due to our planned shutdown of our successful venue, The Point, which we are expanding and should reopen in 2009 in Ireland.

The decrease in adjusted OIBDAN was offset in part by the consolidation of AMG into our results during the third quarter. Year-to-date, however, which eliminates timing impacts, International Music adjusted OIBDAN increased by $2.3 million, while margin decreased only slightly by 0.9%. Part of the increase was due to our acquisitions of promoters in Spain and France and also due to AMG in the UK.

Global Artists adjusted OIBDAN decreased slightly by $26,000, while margin decreased by 1.6% to 3.5% for the quarter. This segment benefited from the acquisitions of CPI, Music Today and TRUNK, but this was offset by tours, which were less profitable this year versus last year, and due to an increased investment in our Artist Nation platform.

Year-to-date, however, Global Artists adjusted OIBDAN decreased by $6.1 million, due to a cyclically slower concert year. Global Digital adjusted OIBDAN increased by $934,000, due to increased ticket sales through our in-house ticketing platform and increased sponsorship. Global Theater adjusted OIBDAN increased by $4.3 million, due to strong results from our UK operations, which featured strong touring productions such as Wicked. This was offset by weaker operations from our North American theatrical presenting operations.

As you know, we announced today the sale of our interest in Broadway in Chicago for a gross sales price of $60 million. The financial results for this investment were not consolidated in our financial results, but contributed $6.9 million to our earnings from non-consolidated affiliates and generated $6 million of attributable adjusted OIBDAN in 2006.

Finally, our other operations adjusted OIBDAN decreased by $4.9 million, due primarily to the sale of parts of our sports representation business and the sale of Donington Park Racetrack in the UK.

Turning to some other financial metrics, capital expenditures were $27.5 million for the quarter. Of this amount, $9.9 million was associated with maintenance expenditures, and the remaining $17.6 million was from other revenue-generating projects at Live Nation, such as wiring our venues and the acquisition of an additional portion of the land on which we annually stage our Reading festival in the UK.

Free cash flow for the nine months ended September 30 was $63.5 million, compared to $48.6 million last year. This increase in free cash flow was driven by increased adjusted OIBDAN, reduced maintenance capital expenditures, and reduced cash taxes offset by increased interest expense.

As of September 30th, our reported cash balance was $351.3 million, and our debt and preferred stock totaled $813.4 million. We estimate our free cash balance -- that is, our total cash after excluding cash related to future shows -- was a negative ($15.9) million. Our free cash turned negative as we used excess cash to temporarily reduce our revolver balance and thereby reduce interest expense.

With that, I will open it up to questions. Operator?

(OPERATOR INSTRUCTIONS.) We'll pause for just a moment to compile the Q&A roster. Your first question comes from Mark Wienkes of Goldman Sachs.

Thank you. Good afternoon. So two quick questions. I guess with the concerts slate looking better in the fourth quarter of this year, what -- is there anything that stands in the way of achieving flat or higher EBITDA, I guess, in 4Q? I guess and then for '08, how do you think about the main drivers and the range of the opportunity for next year?

Hey, Mark. Thank you. As we stated -- and we feel good because we've been stating it since January, we knew that the hardest part about not having the tour shows as kind of the wind at your back was -- we knew clearly that we were going to have to really focus on running the business better and making up for that sizable difference that we won't achieve in 2007 touring comparable. But thankfully, the Q4 has turned out -- which is a bit unique because sometimes the Q4 is not your strongest quarter for activity. The arena business from the tours seem to be flowing fairly well right now. Hopefully we'll close all of those at the profitabilities we expected. So we think on terms of growing our businesses and finishing the year on our plan, we are exactly on plan. I think less -- we had always, though, built a plan that reduced our touring comparable number by a significant amount overall. That might be the one piece that's been underestimated in the street for the year but we have continually said out loud.

So the major tours, like The Police, Van Halen -- have they started to contributed to the Global Artist segment yet? Have they exceeded the bogey?

The Police does. I mean, the Van Halen isn't what we call a global tour of the U2, The Police, Madonna, because it's not a global, it's just a North American tour. So the ones that we refer to in Global touring are The Police, which are truly a 100-dates plus around the world, or the Madonnas or the U2s, the Coldplays, et cetera. This year, it's just The Police.

Got it. So then in the theater business, what's --? It sounds like the main consolidated Broadway Across America business is still left to sell. Is that accurate?

Yes, that's correct.

Okay. And what -- I guess is there any expectation as far as the timing on that and the consolidated EBITDA that it represents?

We hope to announce that soon, Mark.

Okay.

Mark, you did ask about 2008 drivers, and I'll help you out there. We believe that a lot of the investors for the last year have been talking about kind of show me the money, Rapino, in the North American business, and we're very proud that in a year where show count is down, and after five years of a decline, we have stopped that in the amphitheater business and will grow it substantially and end out throughout this year basically able to recapture all of the lost touring comparable money that we needed to do this year. So we think going forward in 2008, we think we continue -- will drive North American business organically and run it better. We're very happy that we affected the amphitheater business, which is 50% of the EBITDA, and we believe we have more cost initiatives to implement in North American to increase its margin and grow that business.

The sponsorship is, we think, a huge opportunity for us. We are really seeing the effects of talking to sponsors who are not looking at just an amphitheater venue deal. They're looking at us as a new company. They're looking at us with 27 million names in our database, a website that's working, artist products, MusicToday with over 400 websites. The conversations are very different now. If you remember, we had salespeople for the last four years running around selling a bit of a mixed bag. Do you want a theater? Do you want a venue? Do you want an amphitheater show or an exhibition? Now they're walking in on a very solidified, holistic experience, saying, "Do you want to reach a very coveted fan called the music fan? Do you want to reach them onsite? Online? Through a database? Direct? What rights do you want?" And [Russell Wallace] and [Simon Lewis], who head up that division, have had incredible meetings on that side of the business, and we think that's going to be continually one of our foundations to growth -- is leveraging up our existing relationships with corporate America into a much more strategic and medium-driven business. So Rogers being one, and you'll continue to see growth from our sponsorship division.

And I think the other driver is we know we're going to show you the Online business. This year, we're proving out to you that's it's a viable medium. People are coming to the store. We can sell directly to fans. They can find us. We know as we put more products up there this year, next year we will continue to drive revenue on the Online piece. And I think you're going to see some more activity on the International business expansion, and I think you'll see our Artist Nation division take the Madonna relationship and leverage that into some more relationships with high margin and long-term potential.

Great. So if you were to throw all that together into one big bucket in terms of -- is there a way to quantify the capital that was put to use that may have impacted EBITDA this quarter or the last six months, et cetera, that will help EBIT growth going forward? I guess is there -- do you have a ballpark estimate? What are you spending on new initiatives, I guess, that's -- ?

On reinvested EBITDA, you mean, or just the capital?

On capital put forth this year that would have impacted EBITDA so far this year, investments in new business lines.

Right. I'm looking for Lee Ann and Kathy to see if we have that.

Right. In the earnings release, Mark, you'll see that we've got a $10 million number that we've invested in Online and Global Artist in terms of losses since the beginning of '06.

EBITDA.

EBITDA.

Thank you very much.

I think that's key, Mark, because we've been trying to find the delicate balance in our transformation of providing EBITDA growth to the street -- and I'd like to remind everyone that we did take over -- it was at 136 and declining for five years. We've managed to grow that EBITDA and reverse that trend, but we very consciously have made decisions every year that we will invest in Online and Artist Nation infrastructure and sacrifice and reinvest some of that short-term EBITDA to maximize those divisions long-term, and we believe those are valuable investments going forward. And the pudding and how we run the business, we wanted to prove this year with the North American business on can we run it better while we're investing in the future potential.

Got it. Thank you for the detailed answers.

Your next question comes from John Blackledge of J.P. Morgan.

Thanks for taking my questions. Just a couple items. I apologize -- a kind of follow-up on one of Mark's questions. In the fourth quarter, would you expect the North American Music business to see the kind of margin uplift that it saw, the 100-basis point margin uplift that it saw in the third quarter? Do you see that kind of uplift, or is it flat? Is it not negative? And then secondly, on the International side in the fourth quarter, are there similar issues that are going to impact performance like we saw in the third quarter? And then lastly, something that's been talked about and investors talk about is the Aramark deal? What point in '08 is that up, and have you begun -- when do you begin renegotiating that deal? And if you could talk about any kind of upside that you guys could see later in '08 or '09 on that deal. Thank you.

Hi, John, it's Lee Ann. I'll take that first question on the Q3 versus the Q4. The margin uplift that we experienced in Q2 and Q3 is really related to the initiatives we undertook with our amphitheaters this summer, and so Q4 there really are no amphitheater shows because it's the winter quarter, so really the benefit we'll have that we alluded to in Q4 is that we just have some of these arena tours that are hitting in the fourth quarter with Van Halen and Trans-Siberian Orchestra and the likes that should be good for us in that quarter.

And our fixed cost initiatives [underlying[ that.

Right. We have -- through the year, we've put together some -- put out some fixed cost initiatives that haven't fully worked its way through during the year. And the second quarter you asked was about Q4 performance, and I didn't quite catch --

Let me answer the International, and you can go back. International does not have anywhere near the issues that North America has had. It has been growing substantially for the last five years, organically and through our expansion strategy. We purposely this year shut down The Point in Ireland. It is the greatest venue in Dublin. It contributes anywhere from $3 to $5 million historically a year in EBITDA, but we took the short-term approach to reinvest it in and open it up bigger and better in 2009. So we knew going into 2007 that we would have a lost EBITDA comparison on The Point and that we were going to continue to battle through that loss while running the business.

But the good news about North America -- International is we don't have any large declining issues that have to be turned around. Alan Ridgeway is back now, running International. It's continued to be lower talent costs, high opportunity market. We're exporting some more -- all of our Online business is now going to be rolled out across the globe. Basically, livenation.uk, .italy, .spain is all being rolled out. Simon Lewis is building up our sponsorship division. So International has not had the operational issues, and we don't foresee anything but continued growth.

The key to the whole foundation of this Company for the last five years and its underperformance can be attributed to one thing, called North American amphitheaters. They declined in the tens of millions of dollars over the last five years, so our paramount decision was can we stop the decline, reverse it and run it better, and we are very proud to have done that this summer. And now we believe it's only onward and upward in North America as we've realigned our complete Company mission around it. And now we'll layer on sponsorship, online, and the margin starts to increase, and the EBITDA will grow on top of that foundation. So that's the key to it all, because all of the initiatives can't grow. The challenge in North -- in our business for five years is anything good we did got wiped out by a continual bad year in our amphitheaters. And in my business -- in my EBITDA base, if I do something good and generate a $5 million uplift on a new program, you can lose -- we were losing $10 million a year in our amphitheaters in decline, so everything good got eaten up. So this year we are in the opposite. We've had a rough touring year, and we've been able to eat up and accelerate in our amphitheater North American business and prove that we can stabilize it and grow it.

Aramark -- big discussion for us -- huge part of the North American business on the venues. We have been out tendering that business, and we have had great conversations with Aramark and others, and we are very confident that we'll have an enhanced deal in place, whether it happens at the end of its deal or we accelerate that into 2008. We should have news about that in the next six months.

And I guess the other two points were what I -- we noted in our remarks. Year-to-date International is actually up, even though the quarter is down, and that's really driven by timing of some festivals and other promotional events. And then The Point shutdown alone impacted the quarter on a contribution margin basis by $3.5 million, so that's sizable for that venue.

Thank you very much. Appreciate it.

Your next question comes from David Kestenbaum of Morgan Joseph.

Okay, thanks. Michael, can you just talk about -- there's been a lot of concern on the stock, about the fact that the U.S. economy is slowing and just what kind of impact that could have on consumers. The concert business I guess took a hit the last time around, and I think there were some mistakes made in the industry. Can you just talk about what you see happening, if the economy does slow, to the business?

Yes. No, I appreciate that. If you look at history and the effect of the many recessions or when the economy has had some roadblocks in history, it hasn't had any material effect on the industry. You know, 2001, some recession issues at hand, box office has been up. I mean, if you look at the concert business for, what, 15 years straight, the business has grown, and over those 15 years we've had varying degrees of market blips and recessions and et cetera, so we have never had an impact, and we don't believe that it impacted. And it goes back to one philosophy, that the average consumer goes to 1.5 shows a year, so I don't -- that one show that you're going to go to for a year, which is a unique experience and unduplicatable -- if you want to go to a Van Halen show and you live in Cleveland and you may be cutting back on other things for that unique experience, you're going to save up that $79 and make it to that show. So I think the best answer to that is the history of the concert business for 15 years has continually grown year after year and not had any effect on the recessions.

Okay, thanks. And can you talk about IAC's plan to spin-off Ticketmaster? Does that come into your thinking at all? I mean, is there an opportunity as a self-standing Ticketmaster for you to do something maybe with that?

On that beautifully loaded question -- yes, let me go into that. No, it's news to me. I just read about it this week, and I have no insight into what they're up to, and we are continued partners with them until the end of 2008, and actually a year beyond that on House of Blues, so I assume we'll continue to have lots of conversations about how we can help each other grow our businesses.

Okay, thanks. And just one final thing. Last year, you reported $91.6 million of EBITDA on $1.3 billion of revenue. This year, I believe it's $95 million. Can you just reconcile that? I mean, I know there's a difference between pro forma and actual, but can you kind of just talk around those two numbers?

$91. -- you're talking about the total numbers?

Yes, for last year.

For the last year?

That was the reported number or the actual number for 3Q '06.

3Q '06, $92 million?

Yes.

And your question is we're reconciling it to --?

To the $95 million, because I mean, last year you didn't have the House of Blues in that number, right?

Oh, the $95 million is a pro forma number.

Okay.

$98 million is the actual number.

Okay.

Yes. If you go on our website, we have the statistical summary all posted, so it's all there.

Okay, thanks.

Your next question comes from David Joyce of Miller Tabak & Company.

Thanks. Could you just shed some more color on the Global Artist's divisional performance of the quarter? The revenue was up very strongly. Granted, there's the new CPI in there, even though operating income was light. What all drove the revenue growth there?

Global Artist, which is a combination of what we call Artist Nation and Global Touring has been a two-fold. One, on the Artist Nation, as you've seen, we've been clearly investing in our office and our skill set to be able to execute the Madonnas of the world and global tours, so we have consciously, again, invested in that division. The revenue on the Global Touring side -- we had acquired the remaining piece of CPI, which had what we would not classify as a global tour going forward, but it was a piece of business in Michael's world called Barbra Streisand in the European tour. It was a small European tour for Barbra Streisand, which had high revenues and not the expected profit that we were going to drive from that business. So we acquired that revenue, and going forward we wouldn't classify a small Europe run in that division going forward. And short of that, we had no Rolling Stones. Had a big Q4 last year, but not this year. And then The Police are in there, which are the bulk of the profitability of that touring division versus last year's Rolling Stones and Madonna and U2 and yes, those were the three.

Okay, great. That's all I had for now. Thanks.

Your next question comes from David -- I'm sorry, Jeff Shelton of Natixis.

Thanks. As you implement your amphitheater initiatives across the rest of the North American operations, what sort of margin expansion opportunities do you see? Where can you -- where is it now, and where can you get to, and sort of what is the low-hanging fruit? On the amphitheaters, it was eliminating concerts with less than 7,500 attendance. Is there anything like that in North America?? Most of what you spoke to before on sponsorships, et cetera, was sort of incremental top line growth.

Yes, I'll try to dissect that. I mean, the margin question is the loaded gun for us. We'd like to provide you closer guidance on that, but in our defense, we'd like to remind you it is so hard to move margin because of our flow-through revenue. So as you know, our $4 billion in revenue -- we're kind of like an advertising agency in many ways, 90% of that is flowing through to the artists, and our net fees, although look low on a margin basis, are actually not the true story. So in order to go from 4% to 5% margin, you have to affect a lot of revenue that is non-affectable, meaning the band is getting 90% of the revenue and we're really just getting the 10% slice of the pie, and then there we run it better.

So we're doing some work on how to better show you the true margins of what we, Management, are accountable for and how we're going to grow them, whether the margin is in North America or whether the margin is at the venues. So we're not giving that guidance yet, but we did believe that it was very important that we started to show you this year that the margins are going to get better this year in North America. Even as small as they do grow, those are big mountains to move to get margin growth in this business.

We -- so as far as how are we going to drive the business and continue to grow the margin or run it better, we said it in this note -- just the fundamental of the fruit from the tree that's going to start falling is we -- it sounds soft, but we actually have a really united -- decentralized, but united strategy now of how we're going to run North America. It's taken us 18 months to take the [theater] division out of North America, to take the exhibition division, to take the sports division, and we're really left standing with a 20-office North American Music Company, with proper presidents reporting in, with the proper strategy, with a proper finance team, proper goals, targets and compensation all floating up to a North American mission that we haven't had to date in this company, because we had seven missions in North America. So we think the idea that -- can we point all of our employees and all of our staff to run a better business if we give them better direction and incentivize them? Well, we took the hardest piece of the pie, called buying for amphitheaters, and the presidents in my organization did a fabulous job at running the costs better, running the business better.

So we think there are still some great cost opportunities. We have a high variable cost in this business. We spend over $1 billion a year on running the show, from catering to security guards to show costs. We're taking active centralization of our cost structure right now and -- small things, but how do we buy our garbage cans for 160 venues? Well, we bought them locally. We're centralizing everything we can for cost efficiencies on all of our purchasing and procurement of our goods, consolidating all of our fixed costs and how we buy computers. It was a very, very decentralized organization, and we believe that by running it centralized from an efficiency perspective on our fixed and variable costs, we have some upside there.

And then we think on the revenue side, we think there's great opportunity in just expanding our product proposition. We're out there testing gift cards right now in Costcos of the world. We're out there testing premium seats. We're out there this summer testing VIP parking, which we've never done before as a standalone product, and we sold it this summer. We never sold a party pass before, but we're doing it. We're going to sell boxes. If you want to buy a box for a one-night show you want to go to for a birthday party or a private party, we've got that. So we think there are great opportunities now that we're focusing not only on cost, but how do we create more products and experiences that we can sell directly to the consumer around the show. And this summer I think we continue to point to the online products we sold with success that will be the next level of revenue for us.

Second question. The -- as you ramp up Artist Nation, are you sort of at a run rate on the cost side now as to where you need to be to get that business up and running going into next year, or do you think there are going to be some incremental costs?

Costs in capital or operation?

Operational.

No. Michael Cohl is fairly staffed up and established, I mean, by the acquisitions of CPI and Music Today and Anthill and TRUNK and a couple others. We inherited some of the most amazing professionals and diverse executives in the business who have been very successful at their own piece of the pie. We've built an operating team above that so we can run it and finance it and manage it and point it properly, so that's been the cost to date. We're fairly well there. We're probably about 75% there in terms of the operation costs.

And last question, just a clarification. The gross sales price of $60 million for Broadway in Chicago -- you're receiving $60 million, or the $60 million represents 100% of the assets?

Oh, that's the purchase -- the gross purchase price for the 50% stake we have, so that's what we're receiving. We'll have some [season] expenses, but we'll also have a benefit of picking up some of the working capital that's left in the business.

So you sold it for roughly 10 times EBITDA.

That's right.

All right. And is that a ballpark number we should be looking at for the rest of the theater business?

I think each business is very different. You've got -- that business was a --

Top market, top venue.

Correct.

Okay.

We had all the venues in Chicago in top markets and downtown. We could probably do that, but we are selling this business because it's not a growth -- what we perceive as an easy growth business, so I think our Broadway Across America, which is a varying degree of assets from major markets to small markets, has a bit of a mixed use, so we'll --

And it's primarily not -- the other business is not a venue-based business. It's a presenting business.

Yes.

Thank you.

(OPERATOR INSTRUCTIONS.) Your next question is a follow-up question from Mark Wienkes of Goldman Sachs.

Just some model questions. The CapEx ramped up, it looks like, year-to-date to $67 million. Is there anything in particular going on there?

Well, you've got a couple of things on, with the House of Blues venue in Dallas, which was completed during the year. You've got The Point renovation, which we've talked about, and then just the wiring of the venues. Those are probably the biggest pieces. Our -- if you notice, our maintenance CapEx for the nine months compared to last year is actually down, so it's revenue generating. The other piece that we bought is that Reading land.

And Mark, we're very proud of that start. This year, we have really been focused on reducing our maintenance cap, meaning again, because our business has been decentralized, we used to ask all the regional venue owners every business quarter, "How much do you need," and $1 million a venue started to add up. This year, we are back to much more of a zero-based business that says we will invest where the opportunities are and where we can generate revenue. So this year would have been the first year where we have dramatically decreased maintenance capital and shifted that into revenue capital, and you'll see that trend continue forward.

Okay, good. And then Michael, you mentioned Motorsports is effectively being carved out on a reporting basis. I guess how is that business doing? Can you talk to the trends in that business? And then how do you think the value of that asset is maximized, meaning in your hands, somebody else's hands, or what needs to be done?

It is in Other, and we've been always clear that in our incredible attempt to be consistent and focused around music, Motorsports is the last one that hits that slate, only because -- every other business we've divested of we have believed is a low growth opportunity or a high CapEx opportunity and not synergistic with our strategy. Charlie Mancuso and the Motorsports division has continually had great growth opportunities at a very low CapEx platform, meaning we rolled out to international, to Europe last -- a couple of years ago, and just growing more and more. We think we can roll out to Mexico. We can roll out continually, and in that business, thankfully, the CapEx is about as big as a truck or a motorcycle, so incredible opportunities to grow it, so we'd like to maximize its growth potential. It's great cash flow and high margin for us, so as we continue to use that cash flow to invest in our business and maximize its growth, we'll wait until we figure out when would be a time to exit that business that works for our overall plan.

Is that the bulk of the Other segment, then? When you say high margin, I'm trying to figure out what the --

Yes.

Okay. And then one more, just for fun. Would it be fair to say that the biggest year-over-year improvement in EBITDA in your planning horizon for the plan (inaudible) will come in '09 with a better concert slate after you have a year of solid music results in North America next year and sponsorships built out and ticketing businesses rolling along, et cetera?

Yes, absolutely. I mean, and we hope we -- we've been trying to give a little bit of the business along the way, but we've been clear that the three-year transformation we started on January 1st, 2006 -- I didn't want anyone to get the impression, you know, come back on the day before to buy our stock because nothing is going to happen for three years. So we think there's -- in the transformation, we've gone from 136 to 150 EBITDA, and you'll see this year, obviously, higher than that with continued EBITDA year-after-year growth, and now already into year two some organic growth.

So we think we'll be able to give you some continual news, growth, and belief along the way, but we've always believed by 2009 the assets are fully aligned, the strategy is baked in the organization, the compensation is working and humming, and all of the online ticketing and Artist Nation products that we're building come to start delivering some real revenue and EBITDA at that point, which just adds what we call the triple-decker, the cake to our core concert business platform.

All right. Thank you again.

And your final question comes from Steven Pfeiffer of Wells Capital Management.

Hi, there. Let's see, I had a couple easy bookkeeping questions at the beginning. First off, what was the maintenance CapEx so far year-to-date?

It is -- hang on, I've got it right here. It is $30.7 million year-to-date.

$30.7 million. Okay.

Yes.

And so there's about 37, then, of growth CapEx on there. What sort of margins do you -- what sort of multiples do you expect to get off that growth CapEx?

We look at -- when we look at investing in our growth CapEx, we look to -- on a case-by-case basis, we look at an ROI for the project, so we'll look over the new building, we'll look over the term of the lease, and we'll look for, depending on what the project is and depending on what market, anywhere between 12% and 15% sort of return after tax over that life of the project.

Okay.

At a minimum.

At a minimum, correct. Right, at a minimum.

Okay. The $60 million proceeds you're getting for the sale -- you said that you're going to be using that to reinvest in the business as well as to pay down debt. Do you have a breakdown on that and the timeframe for which you'll be deciding that?

No.

No, continual -- as we've been talking about, it's just an incredible time in the industry right now and incredible opportunities, and we are very proud that over two years we have been building kind of the tank to go to war while a lot of others are deploying or debating what their vision will be. So we believe it's just -- it's all about moving fast and consistently right no. And we have a few more pieces of the pie that we'd like to complete, whether it's international expansion, whether it's another artist in Artist Nation, or some more ancillary product lines, so we'll be doing our best to look at those options which are best for the overall value.

And would it be fair to say, then, of the $60 million, you'd be happiest if you were able to reinvest the full $60 million, then?

Yes. At this point, absolutely.

Okay. What is your target debt level?

We're happy with where we are, right about here. I think that there are opportunities to go up or down, depending on our transition. We're really in a transition mode right now and are really looking first and foremost, as Michael said, to build the business and to get the assets platform that we want to get to, after which point we'll be focused more on the deleveraging concept. But we're okay with where we are.

Okay. Do you foresee any -- what is your target spend going forward as far as adding artists to your Artist Nation? And how much money do you expect -- could you foresee yourselves spending? I know you don't have specific artists out there, but can you give me a ballpark figure as to what you would say would be -- "Gosh, that's more than we would ever think we would spend," or, "We would hope to spend at least this amount"?

We are going to have -- we're going to have an Investor Day, and I'll talk about it in a minute. We need to do a much better job of taking you through the Madonna deal, because other than -- I think a lot of people who did a great job of trying to convince the world that we overpaid -- the Madonna deal, over a 10-year time period -- and let's just assume that somewhere in the $100 million range was even right -- that's a $10 million-a-year risk on a superstar artist like Madonna. We spend $1.5 billion a year on 1,000 artists, so kind of asking -- the Madonna $10 million a year is the least risky, highest margin, greatest opportunity I could find in life.

The challenge is how do we take the $1.5 billion that we're currently spending and producing somewhere at a 2% margin in North American into a high margin? So the Madonna deal -- I'm still amazed we didn't go up $5 that day, because that is the greatest testament to our -- that this platform works. Artists like Madonna don't go anywhere for the money. They go where they can win, and they came and believed that this platform we're building is going to be an incredible machine to maximize her global revenue. So the Madonna -- we hope we can do five of those tomorrow, and if $10 million a year for a superstar artist of that nature on a global basis was the risk we were taking, you would -- you as an investor would gladly have me reduce my $1.5 billion CapEx use, capital operating use, for the low margin business into that business. And we hope on our Investor Day on November 15th in New York we'll show everyone in a much longer format and take you through some mock deal points. We'll hope to explain to you why moving our artists and our scalable concert business into a longer-term relationship with the artist is an incredibly high margin opportunity with low risk. And when you get to cross collateralize time and product lines, that's the dream for us. So we'll take you through that and what our Artist Nation expectation is on that day in more detail.

So on that day, do you plan on giving ballpark figures as far as cash spend on it in the near term and the long term? Because while I agree with the math of $100 million over 10 years -- obviously, $10 million a year -- I don't think the actual cash outflows on that will match up to that sort of schedule, do they?

No, no. No, we're not -- I think on that day we'll prove to you that investing in an artist like that, which, as you said, a touring year is a different cash outlay than a non-touring year, but an investment in an artist over a 10-year period with all of those multiple revenue streams coming and going. Some years it's a tour, some years it's multiple music, it's sponsorship, it's T-shirt rights, it's DVD, it's broadcast, it's private shows. I think we'll prove to you that over time, when you have multiple revenue drivers around a single artist, that you can monetize, which are all higher margin than our current base -- that those kind of investments are very smart returns.

Being based on the West Coast, I'm not going to be local for the New York day in a week or so when that's going to happen. Will you be putting that information on your website?

Yes, it's on our website already. You can go on there and register for the conference.

Okay. Thank you.

Thank you.

Thank you. Thank you, everyone, and like we just mentioned, we will be having our Investor Day August 15th (sic), 10:00 a.m. at the Fillmore Irving Plaza in New York City. We'll have my full management team there. We'll have a four-hour session and hopefully take you through our core business called North American International Concerts and the growth potential there, as well as our two growth divisions, Online Ticketing and Artist Nation, and how we believe those two expansion strategies are natural outlays to our core business and why the three of them together will produce growth and shareholder value over the next few years in this changing market. Thank you, everyone.

This concludes today's Live Nation, Inc. quarter three earnings conference call. You may now disconnect, and have a wonderful day.