Live Nation Entertainment Inc (LYV) 2012 Q1 法說會逐字稿

Good afternoon. My name is Carrie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Live Nation Entertainment first quarter 2012 earnings conference call. Today's conference is being recorded. 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 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, including statements relating to the Company's anticipated financial performance, business prospects, new developments, and similar matters. Please refer to Live Nation's SEC filings, including the risk factors and cautionary statements included in the Company's most recent filings on Forms 10-K, 10-Q, and 8-K for a description of risks and uncertainties that could impact the actual results.

Live Nation will also refer to some non-GAAP measures on this call. In accordance with SEC Regulation G, Live Nation has provided a full reconciliation for the most comparable GAAP measure in their earnings release. The release reconciliation 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. Irving Azoff, Live Nation Entertainment's Chairman of the Board.

Thank you, Operator. Welcome, everyone, to our first quarter 2012 earnings call. Joining me today, Michael Rapino, our CEO; and Kathy Willard, our CFO. I will begin the call with some brief comments, and then turned over to Michael, who will review our results for the quarter in more detail.

The global economic environment for discretionary consumer spending businesses remains difficult. Nevertheless, we continue to deliver improved results and make significant progress towards achieving the goals set following the merger of Live Nation and Ticketmaster in 2010. Touring activity during the first quarter is typically quiet. However, AOI for the quarter rose 7% on a 2% revenue increase. The concert performance and improvements to our ticketing platform, e-commerce capabilities, online advertising, and sponsorship businesses will be covered in more detail by Mike. The continuing enhancements to the Ticketmaster systems for our new dynamic pricing tools, live analytics, interactive seat maps, and improving technologies are being well-received by our clients and consumers.

In addition to my broader role at Live Nation, I continue to lead Artist Nation, including Front Line Management. Touring activity by our key artists during the first quarter was slower than last year, with limited to Van Halen, Jimmy Buffett, and Jason Aldean. Van Halen has extended their current tour with dates through the fall. Summer touring from key artists looks good. We continue our program of aggressive new artist signings, in securing merchandise and VIP ticketing rights of established stars, and even the new tween band sensation, One Direction.

Thank you, again, for your support. I look forward to updating you on our progress during our next earnings call. I'd like now to turn it over to Michael for his remarks. Thanks much.

Thank you, Irving.

We are off to a great start for the year and seeing some wind at our backs, with a strong fan demand. At Live Nation, we have sold 23% more concert tickets through April and 8% more at Ticketmaster. Sponsorship and Advertising is on track to deliver double-digit growth. As a result, we are on track to deliver both top-line and bottom-line growth in 2012. As we look beyond, we continue to see great growth opportunity. We have still a limited presence outside of North America and Europe. Markets that could generate 50% additional growth off our current base, with higher margins in North America. We have one of the most passionate consumer products, and yet 30% of fans still miss concerts because they didn't hear about the show. Social and mobile can go a long way in driving these sales. We have the greatest music sponsorship platform in the industry, just getting our fair share of spending would double this business.

Now, let's look our business units, and how they are advancing on this strategy in Q1. Live Nation continues to grow its global market share and profitability. Live Nation Concerts ticket sales were up 23% as we mentioned in the first quarter, up until April. Consistently strong, both in North America up 25% and International up 19%. Looking at these results by business lines, Festivals, a key focus for expansion and our highest margin concert product line is off to a strong start. In North America, we launched several new festivals. As a result, our North American festival sales are up over 30%, and European festival sales are up 20% through Europe.

Electronic music is a new and a big focus for us. With our acquisition today announced of Cream, we now have a strong portfolio making up our Electronic Nation, including Three Six Zero Management, Cream, and our existing tours and festivals. Cream already has festivals in nine countries with over 350,000 fans under its umbrella globally, and we intend to grow this further. At the same time, we continue to build organically with the new electronic festivals including I Love This City in San Francisco, Paradiso at the Gorge, World Electronic Festival in Toronto, and Ibiza 123 in Spain. Between our traditional and electronic festivals, this year we plan on producing 55 festivals, with over 3 million fans in attendance.

Our amphitheater business is also off to a great start, with ticket sales up over 50% for the first four months of the year. And, we expect to finish 2012 with attendance up double-digits and increased profitability. The growth will be driven by increased ticket sales coming from a diverse lineup, including artists such as Brad Paisley, Jason Aldean, One Direction and Big Time Rush, and fan favorites Dave Matthews and Jimmy Buffett. We are also rolling out our dynamic pricing to optimize ticket revenue for each of the shows. We already have over 175 shows confirmed and expect to utilize dynamic pricing in 50% of our amphitheater shows this summer. And, early reports continue to demonstrate the effectiveness of dynamic pricing, and we expect a 5% to 10% increase in revenue for the shows that use it.

Arenas and stadiums, coming off a strong 2011, are also up this year, 8% through April. This driven by another strong lineup including Madonna, Jay Z, Coldplay, Lady Gaga, Nickelback, Roger Waters, One Direction, and Drake. At both Live Nation and Ticketmaster, we continue to lead the industry with social engagement tools that drive fan awareness and sales. Last week we rolled out the Live Nation Concert Calendar Facebook app, with a complete set of features. This app helps consumers find shows, share with their friends, and get rewarded for being active fans.

While we continue to improve our current platform, we are actively evaluating opportunities to expand our business around the world. During the first quarter, we made great progress in our Pacific Rim strategy, including our new office in South Korea, a joint venture deal with Creativeman in Japan, and the acquisition of Coppel in Australia, that now gives us a cornerstone we need for the region to have scale and build out our sponsorship in ticketing businesses. Looking forward, we believe the countries -- there continues to be countries to explore such as Latin America, Eastern and Northern Europe, as we continue to evaluate opportunities.

Ticketmaster continues to lead the marketplace while improving its user experience. We achieved a net retention rate of over 100% again in the first quarter. Major clients we renewed or signed so far this year include Madison Square Gardens in New York, Barclays in Brooklyn, and at this point, I expect us to maintain a net renewal rate of at least 100% for the year. We continue to improve the user buying experience online and at mobile to drive cart conversion. Every 1% improvement in our cart conversion drives over $10 million increased AOI. Historically, Ticketmaster has been below best in class for e-commerce companies, but we see this as a major opportunity as we improve the user experience. As part of this, the roll out of interactive seat maps is core to enabling a better experience with fans; and therefore, improving cart conversion. In the first quarter, 44% of our events had interactive seat maps, up from 17% a year ago. We have been tracking the impact, and it's clearly helpful in lifting cart conversion.

In mobile, we are now seeing a meaningful shift to ticket sales to our app in mobile sites. For North America in the first-quarter, mobile ticket sales represented 5% of our total online ticket sales, up from 1% in the quarter last year. We expect this growth to continue globally through the year with broad rollouts planned for our Ticketmaster apps.

Our secondary business continues to be a growth driver. We had great success in the first quarter with both Barclays and Madison Square Gardens signing up for TicketsNow to be their official secondary ticketing partner. We also renewed our secondary deal with the NFL continuing to have TicketsNow to be the official secondary ticketing partner with the NFL Exchange. And through April, secondary ticket volume is up double-digits year-on-year.

Finally, we are driving growth in Live Nation through our high-margin Sponsorship and Advertising business. Sponsorship is on track to, again, deliver double-digit growth, with committed sponsorship as of the start of this month 10% ahead of last year. We have delivered similar strong performance of online advertising, growing over 20% in the first quarter, benefiting from our continued focus on creating attractive online ad units and the new sales team we put in place last year. Looking at the early success, we expect Sponsorship and Advertising to continue to be a strong growth area and deliver our double-digit AOI growth this year, again. Our vision is clear, expand our platform, sell more tickets by better serving and engaging the fans, and monetize this audience with the advertisers. With our strong 2012 lineup and fan demand, I expect we will deliver our planned growth and revenue AOI in cash flow for the year.

With that, I will turn it over to Kathy.

Thanks, Michael, and good afternoon, everyone. 2012 is off to a great start with the first quarter results, and we have again delivered growth in all of our key financial metrics -- revenue, adjusted operating income, operating income, and free cash flow.

Beginning in 2012, we have reduced our reportable segments from five to four. They are now Concerts, Ticketing, Artist Nation, and Sponsorship and Advertising. All online advertising and online sponsorship revenue from the previously reported e-commerce segment are now included in Sponsorship and Advertising, while all other activity for e-commerce has been allocated to the Ticketing segment. This change was made to adjust the segments to how we manage the operations of our four main businesses.

For the first quarter, revenue grew 2% to $868 million. Concerts revenue was flat year-over-year on slightly increased show count and attendance, due to fewer shows in stadiums and arenas as compared to last year. Ticketing revenue was up 3%, driven particularly by strength in ticket sales in Europe. As a note to this, we have seen through April and early May that international ticket sales are continuing to hold up and are doing even better in the second quarter with double-digit ticket sales growth in April for all Ticketmaster events, regardless of timing. Increased online advertising activity drove a 9% increase in Sponsorship and Advertising revenue during the quarter. Artist Nation revenue grew 13% over last year, due to 2011 acquisitions, along with higher management commissions and merchandise and VIP ticket sales. For the quarter, adjusted operating income increased 7% to $48 million, compared to last year's $45 million.

The Concerts division grew AOI year-over-year by 40%, driven by improved arena show results and increased show count. Ticketing increased the number of tickets sold by 6% in the quarter, but their AOI is down 14%, driven by higher Olympics fees earned last year and the planned increased costs related to investments including the ticketing replatform project. The increased fixed costs level is, as we have previously discussed, while we see quarter-to-quarter swing, for the year we currently expect a year-on-year increase of around $10 million. Sponsorship and Advertising AOI grew 13%, largely as a result of increased online advertising, along with sponsorship growth in Europe. As a result, AOI margins were up slightly in the quarter, driven by concerts and sponsorship margin improvements.

Our operating loss for the quarter was $43 million, compared to an operating loss $72 million last year. The reduced operating loss is primarily due to the increased AOI, along with $24 million of stock-based compensation incurred in the first quarter of 2011 from the acquisition of the remaining equity interest in Front Line. Overall, our net loss during the quarter was $69 million, compared to a net loss of $48 million in 2011. Last year, we also recognized a tax benefit of $51 million, also related to the Front Line acquisition, which reduced the first quarter 2011 net loss. On a comparable basis without these acquisition impacts, our overall net loss has improved 9%.

For the quarter, our free cash flow was $23 million, compared to a loss of $7 million in 2011. This increase in the quarter was driven by positive cash taxes from the collection of tax receivables from year end. As of March 31, we had total cash of $1.1 billion, which includes $422 million in ticketing client cash, with $264 million in free cash. Event-related deferred revenue was $613 million at March 31, compared to $573 million last year. This increase in deferred revenue is consistent with the 23% increase in concert ticket sales that Michael discussed.

Cash provided by operating activities was $265 million for the three months ended March 31, 2012, compared to $128 million for the first quarter of '11. This increase is driven by higher deferred revenue, net of an increase in prepaid show costs, collection of tax receivables, and a reduction in payments of liabilities during the period. The main difference between cash provided by operating activities and free cash flow in this quarter is the increase in net deferred revenue of $251 million. Since we defer our concert ticket revenue until the event occurs, and many of the event costs don't get paid until the show, free cash flow doesn't consider these proceeds until after the event date.

Currently, the combined CapEx during 2012 is expected to be approximately $125 million. Our historical CapEx spend of about $100 million is fairly evenly split between maintenance and growth CapEx. The $25 million incremental amount is for this year's portion of the cost related to the redesign and implementation of the Ticketmaster replatforming project we have discussed before. This multi-year project is nearing completion of the first year and is on time and on budget.

As of March 31, our total current and long-term debt, including capital leases, was $1.7 billion with nothing outstanding on our revolver. We made $7 million in net debt repayments in the quarter, and our weighted average cost of debt, excluding debt discounts and premiums, is 6%. We continue to remain comfortably in compliance with our debt covenant requirements under our credit facility. As of March 31, our total debt-to-EBITDA ratio was under 4 times, versus the maximum 4.5 times and our interest coverage ratio was over 4.4 times, versus the minimum ratio of 2.75 times.

Based on the results we delivered this quarter, we remain confident in our ability to deliver continued AOI and free cash flow growth in 2012. We are focused on our core profit drivers for the remainder of the year, specifically, continuing to build out our global concert position, which we currently expect to deliver a mid to high single-digit increase in attendance, with solid growth in AOI. The second and third quarters are the biggest for this segment, although timing of shows and overall volume can vary between these quarters year-over-year. This year, the third quarter looks particularly strong, as we will have Madonna and Lady Gaga playing 68 shows globally.

Two, investing in our Ticketmaster business to ensure that we remain the market leader in ticketing for venues and fans globally. We currently expect overall ticket sales to be slightly up in 2012, which we believe will drive growth in operating performance. We expect to reinvest this profit growth into the business through the Ticketmaster technology replatforming, along with other improvements we are making to our mobile, social, and online products. Lastly, we are on track to continue growing our Sponsorship and Advertising network, which we believe will again be one of our strongest growth drivers and is currently expected to deliver low double-digit growth in AOI.

Thank you for joining us today for our first quarter 2012 update, and we will now open up the call for questions, Operator.

Thank you.

(Operator Instructions)

David Joyce, Miller Tabak.

Housekeeping things to understand. One, on the free cash flow strength on the tax receivables, what was that related to that was building up? If you could just help us understand that a little bit more?

Yes, primarily, we talk about this at year-end, David, but it's primarily related to the Front Line acquisition and some benefits we got for carrying back against our NOL. So, that was the biggest piece of it.

Okay. Irving mentions some of the global economic issues. Is that primarily reflected on the international side because it looked like North America was still fairly strong?

Well, you know, I think -- I'm not sure if, Irving, you want to jump in; but generally, the concern is always we don't want to get too optimistic and ahead of ourselves. We are seeing great trends throughout the globe. Lady Gaga shows are selling out from Asia to Europe. We are having a strong year.

We are always looking, as everyone else is, to the economic challenges and seeing if they are affecting our business. Europe, which most people wonder about, has been very strong for us; it's why I referred to sales up 19%. Most of our business, well over 80% of our business, is in northern Europe. A very small percentage of our businesses in Spain and none of it in Greece.

Right now, we really haven't been affected by any of the global economic challenges. Northern Europe and Europe is ahead of last year, North America is ahead, and even our businesses in Asia and others are all strong. We are always looking, but right now we are confident that the industry, and our lineup, are going to have a strong year from a ticket sales perspective.

Thanks. Finally, if we could just understand some of the re-categorization. It looks like the ad revenue online that was shifted to the Sponsorship and Advertising level was almost all margin, whereas the other revenue had more expenses attached to it that went to the Ticketing side. If you could explain what moved around there, please?

That's correct. Basically, it's the online advertising piece that went into Sponsorship and Advertising, which is fairly high margin. The cost for most of the sellers were already in the Sponsorship division, so there wasn't a whole lot of direct cost transfer. And the rest of the business, which is the upsell, the fee per ticket, and then the cost to run the websites and all the online activities is the piece that shifted into Ticketing.

Great. Thank you very much.

Ben Mogil, Stifel Nicolaus.

When you talk about double-digit attendance growth in the North American amphitheaters, if you were to look on a per show basis, what kind of number would you be looking for? I'm trying to get a sense of show count as you head into the year.

As you know from the number right now, we are tracking incredibly ahead of last year at 50%. When it all shakes out over the summer, show-per-show, year-over-year, we would still expect on a per show basis our attendance to be up in the high single to double digits.

I'm guessing, Michael, it's too early to have any sense of what food and beverage looks like this year.

Yes, too early. The only window we get is from January to now in all of our theater, club, arena business in terms of what we are doing. All of those trends seem to be holding up year-over-year and ahead. So, we don't see anything that would alert us that the summer will be any different from the first four months. When consumers have showed up at the building, they were spending equally to last year.

Okay, thank you. Kathy, just one for you on the European situation. I know in the past, you always hedged your guarantees out of Europe, et cetera, and your anticipated cash flow. Have you done that by this time of year?

Yes, we haven't changed that process, so we continue on those artist contracts to absolutely hedge those for any unpaid amounts.

Okay. I think that's it for me. Thanks, guys.

John Tinker, Maxim.

Could you to just talk a little more about the secondary markets? Obviously, you mentioned you are working with the Garden, Barclays, NFL, and what size of shares do you think would be a good goal for you to shoot for that? Secondly, could you just touch base on where you are with AEG and the Staples Center, and who's managing that -- who is selling tickets for that still? Thank you.

Well, I will answer the Staples because it's the easiest. Ticketmaster still is the ticketing partner agent for the Staples Center. I guess at some point they may -- they will be shifted to their new platform, but as of now, we are still doing all of the business at that building.

As far as the secondary business, there's two ways to look at the secondary. The first and foremost for us is just to make sure we have as much content or tickets at our platform as possible. Any way we can leverage any of our existing Ticketmaster inventory, or Ticketmaster clients, and get that inventory at TicketsNow, that's our first step in competing against the market leader out there.

Whether it's Live Nation, whether it's Madison Square Garden, or the NFL, having any of that inventory exclusively, or first-come basis on our inventory, will help us drive our proposition.

Second, is to drive traffic to our TicketsNow website. Again, the way we can grow that business against the leader, and the easiest way we can grow it, is through the synergy of Ticketmaster. The traffic we have at Ticketmaster, anytime now you have a no tickets page found, if we can do it in a proper way where the consumer is fully aware and it is transparent, that is the secret sauce to delivering volume over to TicketsNow and driving our consumer business.

My team has worked hard this year and complied through all of the previous issues with the FCC and et cetera had -- FTC, and we think this year we will be able to drive a lot of traffic to TicketsNow from our main business sites. So, if we achieve both of those goals, increase our traffic this year, and increase our inventory, you've already seen from the first quarter, ticket sales volume is up double-digits for us.

We have a very, very aggressive goal and target over the next two years on how we think that business can chip away at the market leader from a AOI and a ticket allocation perspective.

Just one more, if I could. You exclude ticket sales for 2012 London Olympics. Can you just say how that's going, and how that goes through your P&L? Thank you.

The tickets sold for the Olympics were not reported as tickets. They were fees that we earned, and most of that, as you know, was earned last year.

Okay. So, you don't get any incremental revenues at all now?

We will. The majority of the -- remember, Ticketmaster counts the money when the sale is made, and Live Nation counts the money when the show happens. Olympics are only a Ticketmaster side of the equation. Most of the tickets were sold in 2011 for the Olympics. There is a on-sale starting this weekend and next. There will still be some tickets that are being sold in 2012, but the vast majority of the Olympic tickets were sold in 2011, and the recorded service fees were in the 2011 Q4 numbers.

Okay, thanks.

(Operator Instructions)

Bishop Cheen, Wells Fargo.

Hi, thanks for going over everything. Just looking real quick because I haven't seen the queue come across, it looks like the balance sheet and the layers of secured senior and total debt are pretty much the same as they were December 31. Is that the right impression?

That's correct.

Okay. Secondly, this is more of a bigger picture question. Because of the upgrade, for lack of a better word, the enhancement of state of the art for your ticketing platform, can you remind us again, that is a multi-year project? Or, when is there the inflection point that we would notice a substantial benefit flowing through the economics through Live Nation from that upgrade and enhancement?

Good question. I think there's two paths to where the benefits come. One is along the way, and then one is at the end from a more fixed cost perspective. The first and most important thing about replatforming our technology, while we are doing it, we are also able to use some of the features and functionalities that are being developed to launch during the three-year process, so the process started last year that we were going to upgrade our platform and our code.

Over those three years, we will be able to use some of that investment that comes to market. So, interactive seat maps, we are launching a new client portal to our customers this year. Historically, Ticketmaster had a green screen portal for our clients for 20 years. You can't survive in the future in that kind of technology. We are going to be launching is state of the art client portal this year for our customers. So, that's a benefit that is being built under the new platform that we can launch that feature and functionality now.

So over the three years, we will continually have features and functions, whether it's on the website, whether it's our API coming to life, or whether it's for our B2B that will help us, first and foremost, retain and acquire new customers. I think in a big picture, when we took this business over two years ago, the business had declined for five years, both from an AOI and from a net renewal process. In the last year and a half, we have reversed the AOI trend and grew the business in 2011.

More importantly, we have also reversed the renewal, and now we are looking somewhere at 100% renewal rate. We believe, first and foremost, for the customers in our venues, the fact that they know we are now investing and they are seeing some products come to life, is a big part of our sales proposition on why they are renewing. You are going to see an ongoing, strong renewal leadership position because we are upgrading on the go. So that's, first and foremost, maintain and grow our leadership position.

Over the three years, as we adopt the new platform and get it installed into our client base, the core main benefit of that platform is that it can operate at a much lower variable and fixed cost per ticket. Right now, we have a very old platform that requires a lot of variable and fixed costs to maintain and run. With a new web-based platform, we will be able to run that, remotely run it, reduce -- run it at a lower cost basis.

If you are selling well over 100 million tickets and you are able to run that business at a lower fixed and variable cost per ticket, we think that comes to life in year three. The ROI that is the total investment is $100 million over those years with a platform from a fixed and CapEx perspective, the return on that $100 million is close to a one- or two-year return based on your economics of running a lower, leaner machine against your core business. Regardless of any feature functionality, new business you've generated, your cost basis per ticket goes down.

Okay. So that means you're recapturing your investment between one and two years, depending, when you start the clock at the end of the third year?

Yes, I think you could make -- I think there's two business cases. If you did nothing for the next three years, where would your business have declined? What AOI would you have lost? Step one is, we have turned the declined and now have this business healthy, robust, and our clients, more importantly, now see that the vigor around the innovation and the technology we will deliver them is leading and world class. That's why I believe for three years we will continue to grow and maintain a strong core business renewal business. We will protect our current business.

Then step two, yes, if you looked at a two-year return going into the third year just operating your business off that new lower cost basis you have a one to two-year return on that capital.

Thank you for the primmer.

Rich Tullo, Albert Fried.

One question is, specifically, what kind of headwinds did you see from the truncated NBA season in the first quarter? Was it arena availability hard to come by? I've heard, anecdotally, from different venues that it was a challenge fitting in concerts, as well as games. Do you expect in the fourth quarter the comparables, in regards to the NBA and the arena availability, to improve since there will be no NBA lockout in the fourth quarter of this year?

Yes. In general, the lockout and the length of it and the grand picture was fairly non-affected to our bottom line. We lost some ticket sales, gained a few shows, a few concert shows where we had some fees on it. Then, business got back fairly quickly and ticket sales started again.

In a net overall, it was, I think at the time we somewhere -- it might have cost us $5 million in AOI to our bottom line at Ticketmaster for some lost ticket sales that weren't replaced by maybe concerts or other events. So, net year-over-year we might have a $5 million pickup in Q4 next year, if you wanted to do a straight apples-for-apples in terms of ticket sales to the shows.

Then, a follow-up. On the pacing of the incremental CapEx for Ticketmaster, is that going to flow evenly throughout the year? Or, is it more weighted in the first half?

Yes, for this year's piece, the $25 million, it should be fairly even throughout the year. Then, obviously, the project continues over the multi-years of the project because we are just finishing year one, and it's the three years of the full project.

Fair enough. Thank you very much.

And, there are no further questions.

(Operator Instructions)

All right, thank you.

All right, and this concludes the question-and-answer session. I will now turn the call back over to Mr. Rapino for closing.

Great. Thank you, everybody.

Ladies and gentlemen, this does conclude the Live Nation Entertainment first-quarter 2012 earnings conference call.