Live Nation Entertainment Inc (LYV) 2010 Q1 法說會逐字稿

Good afternoon. At this time, I would like to welcome everyone to the Live Nation Entertainment first quarter 2010 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. Before we begin, Live Nation Entertainment 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 Entertainment's SEC filings for a description of risks and uncertainties that could impact the actual results. Live Nation Entertainment will also refer to some non-GAAP measures on this call. And according with SEC Regulation G, Live Nation Entertainment has provided a full reconciliation for the most comparable GAAP measures in this earnings release on their website. The release reconciliations and other financial or statistical information to be discussed on this call can be found on www.LiveNation.com/Investors. It is now my pleasure to turn the call over to Mr. Michael Rapino, Live Nation Entertainment's Chief Executive Officer.

Thank you. Good afternoon, everyone and welcome to our 2010 first quarter conference call. I'm joined today by our Executive Chairman Irving Azoff, and our CFO Kathy Willard. During the first quarter, we moved quickly on the integration of Live Nation and Ticketmaster businesses. We believe that the merger integration efforts are on track to achieve our estimated $40 million in 2010. We have made changes to our reportable segments, streamlined our operations structure and are ready to execute against our busy summer season. Our combined first quarter results were in line with our expectations and our key metrics indicate that we are on track to deliver our 2010 plan.

First quarter is historically our slowest period, but an important time to provide the window into how the full year will end up. Highlights of the first quarter include the growth of our sponsorship revenue as well as the increase in total fan spending. We recently took an important step to strengthen our balance sheet through our debt refinancing. The market responded positively to our offering and we were able to close that refinancing very quickly. We're happy to have that deal completed and Kathy will provide you with more details shortly.

Now, an update on our five core business lines. Global concerts, the 2010 global pipeline is robust and ticketings demand for our peak season remains strong. Major tours include U2, Roger Waters, the Eagles, Shakira, Sting, Rihanna, and Kings of Leon. Concerts produced nearly 4,500 concerts in the first quarter, potentially flat year-over-year. We had attendance of 6.8 million in the first quarter compared to 7.1 million in 2009, a decrease of 3%.

In North America, through May 1, our number of promoted shows is 4,000, basically flat to 2009. And as of May we have sold 11 million tickets for our 2010 event, down 12% from last year due to 70 less arena shows in the first quarter. Overall, we currently expect to sell approximately 30 million tickets in North America in 2010 compared to 28 million last year,a 7% increase, and we currently expect our North American show count to be flat. North America will be the engine of growth in 2010 with AOI expected to grow by approximately 10%.

Internationally, through May 1, our number of promoted shows is up 7%, and we have sold approximately 7.2 million tickets, down 25% from last year due to less stadium shows. Our international profit driver is festivals, which are off to another strong year and currently are outpacing last year's ticket sales. International came off a strong 2009 with almost 20% AOI growth. So coming off that expected -- exceptional year we expect 2010 AOI to come down year-over-year by 8%.

Overall we expect to sell 10 million tickets in international in 2010 compared to 11.6 million last year, a decline of 14% due to 32 less stadium shows, or 2 million tickets. We expect our overall show count to be down for the year as we move some lost profit exhibitions out of our current roster. We have currently expanded our global music footprint to the launch of a promotion business in Germany and Australia, two important and growing international markets.

Number two, our second most important division is ticketing. In North America, ticketing sales volume was down largely driven by reduced volume in both concerts, down 8%, and arts, down 11%. The lower concert volume was driven by lower arena and stadium sales. On a full year basis, we are currently anticipating North American ticketing sales to be down 6% in 2002 versus 2009, due to lower volume and three client losses. North American ticketing AOI is expected to be down approximately 10% year-over-year.

Internationally, for the first quarter we were down 14% in ticket sales. This reduction is mainly driven by Live Nation's UK concert tickets, moving CTS, and the significant first quarter in 2009 of U2 and Michael Jackson sales. The full year basis we are currently anticipating international sales to be down 1 million tickets, or 2% year-over-year. International ticketing, though, however will grow its AOI by approximately 30% primarily due to closure of its money-losing China operations.

E-commerce division, which houses our Ticketmaster.com and LiveNation.com, has strong on-line brands and continues to generate robust traffic with combined database of over 100 million names. We had 78.3 unique visitors in the first quarter across our combined business, 3.5% increase versus last year. Total gross value of tickets sold was $1.5 billion, a combined basis, which ranks us in the top five e-commerce sites globally. Our product focus for 2010 is to continue to rollout our successful seat maps. In first quarter, e-commerce generated $11.5 million in on-line advertising, up seven times over 2009. We expect e-commerce AOI to outpace last year due to its on-line growth.

Sponsorship continues to be strong, with over 375 sponsors as of March 31, recognized $21 million in total revenue versus $19 million or up 10% year-over-year. Through May 1, our contracted sponsorship revenue for the year is up 8%. Also through May 1, we have contracted 791 sponsor deals versus 612 at the beginning of May 2009, 29% growth. International sponsorship, after growing 30% in 2009 is posed to grow another 15% in 2010 with the strong international sales. We expect global sponsorship AOI to grow approximately 10% in 2010.

Artist management. Irving will comment on this business in a few moments. In conclusion, we feel we're off to a great start in 2010. The key highlights being the success we have integrated in our businesses, streamlining our cost structure and improving our balance sheet. Our core concert and ticketing businesses are entering the busiest time of the year. Our show count and ticket sales globally remain on track to achieve our 2010 plan. With that, I will turn it over to Irving who will comment on Artist Nation, and discuss Live Nation's progressive integration.

Thank you, Michael. I will now give you an Artist Nation update. Artist Nation includes our artist management and artist services businesses. Businesses we provide include our global artist merchandise business, artist sponsorship, artist web stores, artist e-commerce fulfillment, EIT ticketing, artist tour creative and artist digital marketing. Our goal is to provide artists with world-class services through this portfolio of businesses.

In the first quarter, we focused on integrating various businesses from Ticketmaster, Front Line, and Live Nation under one platform that we are now going to call Artist Nation. The main driver of Artist Nation is our Front Line artist management business, which is the largest management Company in the world representing over 200 artists and growing. In the first quarter, we opened our Europe office in London headed by Roger Ames with the goal of adding international-based artists to our roster and investing in management companies worldwide.

2010 is looking to be a strong year for Front Line with a dynamic list of artists on cycle, including the Eagles, Jimmy Buffet, the Glee tour, Kesha, Brooks and Dunn, New Kids On The Block, Christina Aguilera, Aerosmith, Kid Rock, Kings of Leon, Neil Diamond and John Mayer, to name a few. Artist Nation's total revenue and net income were below last year primarily due to timing of major artists touring schedules at our various management units. The key artists' tours in quarter one 2010 were limited to John Mayer and Jimmy Buffet whereas quarter one 2009 saw significant early year touring activities from the Eagles, Fleetwood Mac, and New Kids On The Block. Quarter one is a traditionally slow touring period.

Merchandise business in the first quarter of 2010 was strong, with tour business from AC/DC, Black-Eyed Peas, and Depeche Mode. And retail in e-commerce business also held up well in soft retail markets. Overall, we are confident that Artist Nation is on track with the delivery of 2010 plan, and continue to expand as one of the high-growth potential units within Live Nation Entertainment. Overall, Michael and I are pleased with our quarter one integration efforts throughout the entire Company and feel we've set up the proper organization to drive accountability and results.

I continue to drive day-to-day Artist Nation results by working with Michael on securing the overall strategic direction of Live Nation entertainment. After 60 days, post-closing we're more confident than ever that Live Nation entertainment has a unique business model to service artists and fans, and will drive great shareholder returns as we execute and expand our business. With that, let me turn the call over to our CFO, Kathy Willard.

Thank you, Irving. Good afternoon, everyone. Before turning to our results, I want to take a moment to discuss the changes to our segments. Following the merger with Ticketmaster, we reorganized our segments based on the way we now view the business. As a result, we changed our reportable segments to concerts, Artist Nation, ticketing, sponsorships and e-commerce. You will see these new segments reflected in our first quarter filings.

The concert segment includes the promotion of live music events globally and the operation of our own operated venue. This is essentially what used to be North American music and international music except we have now carved out sponsorships to a separate category. The Artist Nation segment provides management services to artists and also includes the other artist services businesses from Live Nation and Ticketmaster including merchandise, artist fan sites, and VIP tickets.

The ticketing segment includes the Company's ticketing operations that provide ticketing software and services to clients. The sponsorship segment includes our global strategic sponsorship program as well as the national and local sponsorship, essentially all sponsorship programs except for on-line advertising. The e-commerce segment provides on-line access to fans for ticket sales and music event information and is responsible for the Company's primary website LiveNation.com and Ticketmaster.com. E-commerce receives a fee for any tickets sold on the Internet from the ticket service charges and also records all on-line advertising, including up-sell revenue.

Now I will review our reported results for Live Nation Entertainment, which include Ticketmaster from the first date after the closing of the merger, or January 26 through March 31. First quarter revenue was $723 million, up 49% compared to last year, with the growth driven by increases in ticketing and Artist Nation, following the incorporation of Ticketmaster results. Adjusted operating income was $1.4 million for the first quarter of 2010, up from last year, due to an increase of $53.2 million in ticketing, Artist Nation, e-commerce, and corporate, primarily driven by the incorporation of Ticketmaster results after the completion of the merger.

Our operating loss of $103.5 million in the first quarter represents an increased loss of $15.2 million, primarily driven by increased acquisition expenses including merger-related severances, higher non-cash compensation expense due to vesting accelerations on several equity grants, and a collectability reserve of $13.4 million on certain artist advances, all partially offset by the incremental results of Ticketmaster operations that are now part of our business. For better comparability, we've also provided a combined financial summary, which includes the results of Ticketmaster operations from the first day after the merger through March 31, for each of 2010 and 2009.

If you are comparing our numbers, as reported for last year on a combined basis and the numbers we are now reporting for 2010, the largest differences are driven by the period prior to the merger date from January 1 to January 25, in 2010 that we are not including in our reported numbers, along with the $13.4 million artist advance reserve discussed previously. On a combined basis total revenue in the first quarter of $723 million compares to $776 million in the first quarter last year. The decline was primarily due to decreased revenues in our ticketing segment, as a result of fewer tickets sold during the quarter compared to last year, driven by a decrease in large tours on sale in 2010.

Adjusted operating income in the first quarter of $1.4 million compares to $9.2 million in the first quarter of 2009 on a combined basis. This decrease year-over-year is driven primarily by the $13.4 million artist advanced reserve, recorded in the concert segment. Our operating loss of $103.5 million during the first quarter compares to an operating loss of $67 million during the first quarter of 2009. This increased operating loss was driven by increased acquisition expenses including merger-related severances of $8.5 million, $13.5 million in higher non-cash compensation expense driven by vesting acceleration, and the collectability reserve in concert of $13.4 million.

Turning to the balance sheet, at March 31, we had total cash of $825 million and free cash of $163 million. Free cash flow from the first quarter was a negative $36 million compared to a negative $58 million last year with the improvement primarily due to the higher adjusted operating income in the quarter. As of March 31, our total long-term debt including our outstanding redeemable preferred stock was $1.57 billion. We completed the refinancing of our debt last week by entering into a new $1.2 billion senior secured credit facility consisting of $900 million of term loans and a $300 million revolving credit facility. We also sold at par $250 million of 8.125% senior notes due 2018.

The proceeds from this refinancing were primarily used to replace Ticketmaster's and Live Nation's existing senior secured credit facilities. We will also convert our existing preferred stock to the right to receive a cash payment, pay-related fees and expenses, and we will use the remainder for general corporate purposes. The revolving credit facility is completely undrawn other than outstanding letters of credit. We are extremely pleased to have quickly completed the refinancing at what appears to have been an ideal time in the debt market.

Our capital structure has been simplified so that we no longer have to maintain the separate silos, with separate borrowers, and all of the operational complexities that resulted from that structure. In addition to providing substantial liquidity to meet our expected capital requirements for the foreseeable future. The refinancing also allowed us to simplify our corporate structure through the merger of Ticketmaster Entertainment LLC up and into Live Nation Entertainment, which will also give us cash tax savings, immediately improving our free cash flow. Our debt covenants have been reduced from 6 to 2 under the new credit facility with a maximum total leverage ratio of 4.9 times, subject to step-downs over time, and a minimum interest coverage ratio of 2.5 times.

We currently expect capital expenditures to be approximately $100 million for 2010 with approximately one-half of that expected to be spent on maintenance capital projects. As a combined Company, approximately 25% of our operations are international. With that comes the risk of currency fluctuations, which are even more pronounced in today's market. We hedge our exposure to currency fluctuation impact on AOI by hedging significant artist contracts, in which the artist will be paid in a currency other than that in which the tickets are being sold, and by hedging a portion of our projected non-US AOI in certain cases.

Based on the current market conditions, we will continue to monitor our FX exposure and will selectively hedge our earnings throughout the upcoming quarters. In closing, we believe we continue to remain in line with the adjusted operating income target for the full year that we gave on the year-end call. Essentially flat to slightly down as compared to the combined $444 million of AOI reported in 2009. We will now open up the call for questions.

(Operator Instructions) Your first question comes from the line of David Kestenbaum with Morgan Joseph.

Okay, thank you. First on capex, you said half is maintenance so half must be growth. Can you just talk about what that $50 million of growth is going to be spent on?

We've got several projects out there. A lot of them are in the ticketing software, then there's a few smaller building expansions, but nothing individually that's significant, David.

So you're not rebuilding like the O2, like did you a few years, or anything like that?

That's correct, we're not.

Doing some on-site stuff. A lot of the -- whether it's a [vendeen] or better POS, so a lot of projects like that. $2 million projects of upgrades to drive whether it's on-site or on-line.

Okay. Can you talk about, a few years ago, I guess, the growth story in Ticketmaster was internationally. Sounds like you're pulling back from China. Can you talk about where those other opportunities lie?

We still think international is a growth bed for both concerts and ticketing. We had to right-size China, but short of that we still think that there's more opportunity than ever. And an example would be Australia, where we are in ticketing and now we've launched a concert division there. So we know when we have the two sister companies in one market, we can gain some efficiencies and drive some revenue. We've got a few in Europe we're looking at right now. So we still think great opportunity internationally to grow concerts and ticketing.

Two different ways to expand internationally on concerts. One of the advantages we're having now versus years ago. We expanded both into France, Germany, and Australia without acquiring an existing promoter. We were able to launch a Live Nation outlet based on the amount of global content we have and to be able to empower some employees who can set up shop and drive business.

Real significant there in terms of our ability to expand without capex. And then, ticketing, it's still fragmented internationally and country by country, there's some one or two ticketing platforms. And we're looking in a lot of European and onward countries that have some opportunities.

Finally on the lawsuit with CTS Eventim. Can you talk about what obligations you believe you have under the agreement at this point?

Well, as you know, because Eventim has chosen the arbitration route, we're not really going to get into it on this phone call other than to say we're confident in our position. We wanted our deal on the spirit of agreement, even though we believe they have failed to deliver and breached their agreement. We're going to let the rest of that play out in the proper forum.

Okay, thank you.

Your next question comes from the line of Ben Mogil with Thomas Weisel.

Hi, good morning -- good afternoon. Thanks for taking the call. First question, are you able to give us pro forma numbers as of January 1 for the merged density as if you had owned Ticketmaster on January 1, adjusting for (inaudible) and everything else?

Well, I mean, there was the information in the 8-K. That's probably your best source for that, Ben.

Okay. On the ticketing side, are events that are now ticketed by -- sorry, is the Live Nation event now ticketed by Ticketmaster, is that showing up in your ticketing segment or your concert segment?

Well, the event itself is in concert. The part of the service charge that the promoter gets is in concerts, then the service charge that the ticketing service company gets is in ticketing.

Okay. So you're treating it as if it were a third-party event, effectively.

Yes. It's the same thing we did last year.

Okay. Fair enough. I was just trying to get a handle on that. On the severance side in the quarter, were your severance costs greater than your cost savings?

Yes, because in order to achieve those synergies a lot of those savings are coming from people costs. And so we terminated a significant number of people through today, so we've taken the severance accrual, then those savings will come in over time from the salary savings.

Okay, and then lastly --

Ben, to give you simple math. If you think we're going to spend $15 million on severances in total possibly, and gain $40 million in savings, most of those savings are through fixed. So, we'll take the first 15 short-term hit to gain a 2011 annual $40 million upside.

Sure, absolutely. That's great, thanks. Then I think, last question was more of a longer term one. Michael, I guess you guys are gearing up for -- can you hear me okay?

Yes.

I guess you guys are gearing up for the fall sponsorship environment. Can you talk about, even preliminarily when you talk to agencies or other major sponsors? What the feedback's been so far?

Well, as I said in the earnings call last time, we've missed the 2011 usual upfront period. But, as you can tell from this earnings release, we're very, very optimistic and thrilled that sponsorship in Q1 delivered the numbers it did. We came off a very strong 2009, even though the rest of the market cratered. We grew 30% internationally, and it looks like we're going to be up on that number this year. And North America is growing.

So I would say to you my sales staff would tell you that the new combined product platform that they're selling is getting incredible traction, or even getting some current sales. And we would expect sponsorship to be one of our strongest continued growth drivers. On a separate front, on the e-online advertising part, that's probably where we've noticed the most dramatic change, in that a year ago both of us at Ticketmaster and Live Nation were selling it in a very unsophisticated one-off basis.

Now that we have a fully assembled on-line advertising team, we are in the heart of Madison Avenue receiving ten to 15 months RFPs of substance every month now. So we've noticed the on-line element we have now really legitimized, and we are a great 19 ,or 18-to-34 year old on-line audience for some major brands, and we think that's going to continue to have tremendous growth.

Last one, and I will cede the floor. Should we be looking at this $13.4 million reversal in terms of artist guarantees that you think will not be monetizable? Are these basically some of the residuals write-offs, if you will, the 360 deals that have web-based reworked?

That's correct, non-tour rights.

And in this quarter, do you think there's more -- you obviously have looked at all the rights that you've gotten. Is there more left to do or is this the bulk of what you think is out there still?

This is based on current projections of how those businesses are going to do.

Okay. Great, thank you very much.

Your next question comes from the line of Jessica Reif Cohen with Bank of America.

Okay, thank you. It's Jessica Reif Cohen from BofA Merrill Lynch. Irving, I had a question for you. You mentioned 200 artists. And I was just wondering, is there any capacity constraint at all? And how should we think about how you approach artists? Is there an ideal profile? Are you trying to get developing artists or established artists? How should we thinking about the business is going?

Jessica, I'm going to have to do my best Irving stand-in. He's on a plane to New York right now so he pre-recorded his part. But I would just tell that you on his roster and his strategy that we're continually looking at -- his current roster has a very wide spectrum from the young artist to the very established. So whether it's Kesha, who's on his roster, who is exploding, or the Eagles, who are -- continue to do what they do for our business.

We would be looking at all and every artist that we think have fabulous potential to sell tickets and sell albums. And there would be no retainer or governor on that strategy, and there would be a long list of artists and managers in the queue, and we would expect that to continue to grow.

Thanks, Michael.

Thank you.

Your next question comes from the line of Oscar Olivas with Wells Capital Management.

Hi there, this is actually Steve Pfeiffer. I just had a question for you on CTS. As I understand that you can't make projections on them. I'm just trying to get a handle on some of the numbers that have been thrown around there. If I understand correctly, they have been asking for their fee to be stretched among all tickets that are done there. I understand their fee is $0.40 a ticket. Is that correct?

We have only said less than $1.

So, less than $1. Okay. And how many tickets is that total number?

You can look at -- 10 million plus tickets we sold in Live Nation CTS system.

So last year you sold 10 million tickets and whatever fee that was in your numbers last year.

That's correct.

And if they are -- are they attempting to extract that number across all numbers of tickets sold by Ticketmaster.

We would -- I think it's fairly public what they're up to. It looks like they're trying to stretch some of that, that we believe is the contract, yes.

Okay. And how many tickets did Ticketmaster sell that did not have that fee in last year?

Well, I know you want to do some math, and I'm hesitant to do it to you, because it's just, to us, an empty claim.

I totally understand, and I agree with you. I'm just trying to put a total this is the maximum size it could possibly be number out there.

We sold over 100 million and 140 million tickets last year.

Okay, thank you.

(Operator Instructions) Your next question comes from the line of Tuna Amobi.

Hi,good afternoon. Just wanted to get some update on secondary ticking, how much of that, perhaps, was included? And if you can provide some updates on what you are doing in that segment and how you think that could ramp up.

We have a company called TicketsNow, which is the main driver of our strategy to date. We currently are not having success in that division. We would have a division -- a company called TicketsNow that is making some where in the $1 million to 2 million a year range. Used to make somewhere around $15 million, but the minute we had to unlink from our website that business over the last year has deteriorated. So we're looking at strategic options for that division.

We also happen to have some contracts with the NFL and others that are run through that division, which are extremely heavy, weighted rights deals. So current our secondary division is losing us money, and we're working hard right now to reevaluate strategic options on TicketsNow and what we're going do in the future. The our fundamental belief at Ticketmaster Live Nation is the answer to grow our business is less about trying to make $5 or $6 million in service fees off secondaries. And much more important to figure out how to capture that billion dollars in up-sells on the face value of the tickets.

So whether it's seat maps, dynamic pricing, or just convincing the band that the front row is worth $400, not $100. We're noticing a great reception by artists worldwide who would like to capture more of the upside, and our first goal is to figure out how to price the house right. If we do that, that would be the biggest way we would grow our gross revenue versus any secondary strategy that was just capturing the fee side of the business.

That's very interesting color there. It sounds like a little bit different tune from what you were saying prior to the merger. Are you suggesting that you're throwing in the towel essentially on the secondary market, longer term?

Yeah, I don't know who said what before, but, no, we believe right now that the first and foremost, our job is to whether it's at Ticketmaster or at Live Nation is to sell the ticket at the right price to capture greatest value for the rights holder of that ticket. That's our fundamental business. We do that better, every business line succeeds.

As far as a pure secondary strategy, right now we are, as I said, looking at options at TicketsNow. And is it a salvageable business or is it a business we don't think we can effectively be in business in on that side? So we'll update you as we solve that problem.

And at this time there are no further questions. Are there any closing remarks?

No. Thank you, everybody.

This concludes today's conference. You may now disconnect.