Live Nation Entertainment Inc (LYV) 2012 Q4 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 fourth quarter and full-year 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 risk 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 risk 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 measures in their earnings release. 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 Michael Rapino, President and Chief Executive Officer of Live Nation Entertainment. Please go ahead.

Good afternoon and welcome to our fourth quarter and full-year 2012 conference call.

I am joined today by Joe Berchtold, our COO; and Kathy Willard, our CFO. Let me start with overall 2012 financial performance. We delivered revenue and AOI growth across our three core businesses of Concerts, Sponsorship and Ticketing. For the Company, revenue grew 8%, AOI was up 5% and free cash flow increased 36% for the year. Underlining the solid financial performance was growth in ticket sales and market share in both concerts and ticketing businesses, with global ticket sales for the year up 4% for concerts and 5% at Ticketmaster.

Our success in 2012 following our growth in 2011, is demonstrating the strength of our Live Entertainment platform and the resilience of the Live business. On a global basis, the industry grew and North America has bounced back from the economic slowdown of a few years ago. We continue to see strong fan demand and growth last year across concerts, sporting and family events. And our market research showing that 90% of fans who attended one of these events last year plan on going to the same or more events this year.

From both our results and what the fans are saying, Live Entertainment events continue to show they are inherently non-duplicatable, in high demand and globally transferable. Our business model is based on maximizing ticket sales in the broader ecosystem around the Live events. We grow the business by increasing our ticketing market share and driving these adjacent businesses.

As a result, we continue to see two core growth opportunities. Increasing our 400 million ticket base, which drives our entire vertical economics. We already have shown strong market positions in North America and Europe, and have shown over the past two years our ability to continue to grow market share in these markets. And we see further high growth opportunities and incremental ticket sales in EDM and Festivals, Secondary Ticket in Emerging Markets, three areas we will continue to focus on. The second key to building on our more than 400 million ticketing base is increasing conversion. We talked before about the 30% of fans that missed a show because they didn't hear about it and the number of tickets that go unsold for most shows. Increasing conversion is the most direct return on our Business. Adding one more ticket sale to the 200,000 events across Ticketmaster and Live Nation drops right to our bottom line.

As we indicated last fall, we've aligned our business again to five initiatives to deliver on these core opportunities of increasing market share and conversion. Our first objective is then to grow market share in concerts and ticketing by 5 million tickets through new organic events, global expansion and higher per event conversion. The second goal is to drive ticketing conversion per event by shifting our advertising from traditional to more efficient social and digital. Third, we want to grow our market share in Secondary, and we will achieve this through our new online mobile product launch this year. Our fourth initiative is to continue to grow our advertising base through higher audience and CPMs. And finally, reduce our ticketing costs by transitioning 400 million tickets onto our updated ticketing platform starting in 2014.

In 2012, we delivered on both market share and conversion objectives. And in 2013, after two years of investment in new technology, we will launch new products in the marketplace that will excel these results. And I am confident we are on track to deliver our three-year plan and I'm reaffirming our guidance of 30% to 35% AOI growth by 2015.

I'll now turn this over to Joe Berchtold, our COO, to take you through the performance of each of these initiatives across our business segments and our outlook for 2013.

Thanks, Michael.

First in concerts, Live Nation concerts revenue was up 10% in 2012, while adding 2 million fans, bringing us to 49 million attending our shows globally. Our AOI grew 4% for the year, but if AOI is adjusted for the $6.9 million of incremental marketing spend in the fourth quarter, specifically targeted at shows occurring in 2013, our AOI would have been up 26%.

Looking more specifically at what worked in 2012. First, we continue to have success with our North America amphitheaters. For the year we grew our show count by 12%, attendance by 15% and increased overall line of business contribution margin by 13%. Our continued development of newer acts for the amp is working with artists who had their first hit in the 2000s representing half of the top 10 amp tours last year including Jason Aldean, Drake and Big Time Rush.

Another high point for the year was our Festival business in general and EDM in particular. In 2012, global festival attendance increased 30% to 3.5 million attendees, and EDM doubled attendance across all of its shows with 1.4 million attendees. Our primary challenge last year was with our European Concerts business, which suffered from inconsistent fan demand, particularly in Southern Europe where we saw 15% decrease in attendance per show. And this decrease offset the benefit from our increased show count, which is why we ended with growth in attendance below our overall results.

An early look at 2013 indicates that our shows are off to a great start, with 9 million tickets sold as of December 31 for Live Nation concerts in 2013. This is a 58% increase over last year, and it's consistently strong across the globe with North America up 36% lead by One Direction and Maroon 5. And Europe up 80% driven notably by early sales of Bruce Springsteen and Rihanna. This increase in 2013 show sales is why we have the $6.9 million increase in fourth-quarter marketing spend, so that $6.9 million delivered about 3.5 incremental tickets relative to last year.

A bit more on Europe for 2013, ticket sales have continued strong since the first of the year with some particular highlights, including the Olympic Park in London. We put our first two shows, the Wireless Festival on sale last week, and sold-out over 100,000 tickets the first day of on sale for those two shows. Overall per Europe, concert ticket sales since the first of the year are up about 25% through February 18 with consistent performance across festivals, arenas and clubs. As a result, we remain optimistic we'll see real improvements in 2013 for Europe over the course of the year. And so, based on our sales to date and line up for this year, we expect concerts to deliver strong AOI growth in 2013.

Next, Ticketmaster. As Michael mentioned, global ticket sales were up 5% in 2012, driving revenue up 4% for ticketing, while AOI was up 6% despite increased investment in our technology replatforming projects and initiatives in mobile, social and secondary. Throughout last year we highlighted that for Ticketmaster there were two main objectives. First, maintaining a net renewal rate of over 100%, and second, making real progress on our technology replatforming project. By continuing to deliver a net renewal rate of over 100%, we're getting market validation that Ticketmaster is the most effective global ticketing distribution platform with its scale continuing to distance it from all other ticketing companies.

And then our replatforming project, we're now more than halfway through its development, and last year we delivered four products to over 1000 clients and we continue to be on schedule and on budget. Our investments in mobile continue to pay off as well, with 7% of North America tickets sold via mobile in the fourth quarter of 2012, up from 3% in the fourth quarter of 2011.

For 2013 shows, again we're off to a strong start. Through February 23, sales at Ticketmaster for shows in 2013 are up 10%, with an 11% increase in North America and 5% internationally. This number is certainly helped by the earlier on sales of a number of our concerts in the fourth quarter of 2012, as we discussed, but it also gives us comfort that the consumer demand for Live events remain solid, both North America and Internationally. The strength is also coming through in the Fan business to our online and mobile platforms which were collectively up 17% in North America for January this year versus January 2012. So now as we look at 2013 overall for Ticketmaster, we're expecting AOI to be roughly flat with ticketing growth and operating efficiency gains, offset by increased technology investments and not having the Olympics ticketing this year.

Turning to our Sponsorships and Advertising business. For the full year, revenue was up 7% and AOI was up 6%. On a constant currency basis, AOI was up 9%. And these results came close to what we had hoped for for the business for the year, with strong growth in our core Sponsorship business, with amphitheaters and festival sponsorship contribution margin up 12% as we continued to build new sponsorable products at these events, and our growth in online advertising coming in a bit short with 4% growth in contribution margin. This was below expectations as the deployment of our new ln.com site came a bit later in the fourth quarter than expected. And in 2013 then, we expect sponsorship to continue being one of our primary growth drivers with AOI increases consistent with the past few years.

Finally, Artist Nation. Artist Nation's revenue for the year was up 2%, and AOI for the year was $38 million, down $9 million, or 19% from last year. Adjusting for one-time items, AOI was $44 million, a decline of 8%. This drop in performance was driven by the results of our Management business where AOI fell by over 20% prior to the impact of any one-time cost.

As we look then at the impact of our December 31 transaction related to the departure of Irving Azoff, we had one-time hits to our AOI and net income with little go forward affect. First, the one-time impact we took a $5.5 million write-off that hit AOI for specific costs associated with the departure of 26 employees and 12 artists under management. These costs were a mix of severance and writing off contracts that run through 2013. Second, we had a no payout, which was an acceleration of payments that would have otherwise been made through 2013 that increased expense by $5.2 million. This hits our net income line, but not AOI and is simply a shift in timing between 2012 and 2013.

Finally, we had an impairment of $63 million for the Artist Management business. This impairment was determined by calculating the net present value of future cash flows expected from the Management business relative to the current book value for those businesses. This shortfall came about because this business is now expected to deliver less profit than was projected at the time of the Ticketmaster merger. We've also done a further assessment on the overall economics of our purchase of the final 25% of Front Line done in the first quarter of 2011, and we continue to expect the return on this investment above our cost of capital, due in part to the tax shield benefits of this purchase.

Looking forward, we believe there will be no material impact to our ongoing operating results. The 26 employees who departed were budgeted to deliver $10 million to $15 million of revenues for the Business through their management of 12 artists. At the same time, our budgeted costs for these employees and the management of those artists were expected to be a comparable amount. So as a result, we expect no material impact and for our 2013 AOI to be largely in line with 2012 profitability.

Going forward, we plan on maintaining Artist Nation as a distinct vision, with some simplification of focusing on artist management and merchandise. There are a handful of smaller businesses that will shift between divisions, but in aggregate will not have a major impact on divisional numbers.

So in summary, 2012 was our second successive year of delivering revenue, profit and cash flow growth for the business overall and across most of our divisions.

And with that, I will turn the call over to Kathy to take you through more details on our financials.

Thanks, Joe, and good afternoon, everyone.

For the 12 months ended December 31, we've delivered growth in revenue, AOI and free cash flow as Michael noted. I will now walk you through the key financial highlights for the quarter and the full year. For the fourth quarter, revenue was $1.4 billion, up 21% compared to 2011. Concerts revenue was up 32%, driven by higher global touring activity with Madonna and Lady Gaga both on tour compared to no global tours in the fourth quarter of last year. And ticketing revenue was up 6% from higher ticket sales and increased resale activity. Adjusted operating income was up for the fourth quarter to $63 million compared to $51 million last year, an increase of 23%.

Concerts AOI was up 9% compared to last year, or $3 million, due to improved North America results. Ticketing AOI increased 5%, or $3 million, due to higher ticket sales and resale activity. Artist Nation AOI was down $7 million in the quarter largely due to the $5.5 million of cost that Joe mentioned. And sponsorship and advertising AOI was up 4% with increased results from festivals and strategic sponsorship. For the quarter, we reported an operating loss of $126 million compared to a loss of $67 million last year, with the decline driven by the impairment of $63 million related to the intangible asset in the Artist Nation segment.

For the full year 2012, revenue was $5.8 billion, up 8% over 2011. On a constant currency basis, revenue increased 10%. Concerts revenue increased 10% compared to the prior year, with higher overall attendance, increased global touring activity, more amphitheater shows and international expansion in Australia and Asia. Ticketing revenue for the year increased 4%, as a result of higher ticket sales in North America and Europe, London Olympic fees and resale growth. And sponsorship and advertising revenue grew by 7%, driven by increased custom client branded events and festivals sponsorship along with online advertising growth.

Adjusted operating income for the year grew 5% to $459 million compared to $438 million in 2011. Joe has already detailed out the AOI changes by division. One other item to note is that overall, our AOI was reduced by $8 million year over year due to currency fluctuations across all the markets we serve. For the full year 2012, our [accrual] AOI margin is 7.9% which is slightly down from 2011's margin of 8.1%. Concerts margin is flat with the declines we saw in Europe affecting the North American growth.

Ticketings margin is slightly up. Sponsorship and advertising margin is down a little as we ramped up our digital sales force in 2012 in advance of the livenation.com relaunch. And Artist Nation is down due to the reduced performance of the Management business. For 2013, we currently expect margin improvement in concerts and Artist Nation with ticketing and sponsorship essentially flat, so we will see a slight uptick overall.

For the full year 2012, we had an operating loss of $22 million compared to operating income of $18 million last year. This decline was due to the $63 million intangible impairment charge in Artist Nation, although 2012 benefited from a $24 million reduction in stock-based compensation expense related to the 2011 Front Line buyout. Our net loss for the full year 2012 was $163 million, compared to a loss of $83 million in 2011. This decline was driven by the intangible impairment of $63 million, as well as the 2011 net benefit related to the Front Line buyout of $27 million. Without these one-time items in Artist Nation, our net loss for the year would have improved over last year by 13%.

For the quarter, free cash flow was $1 million compared to a loss of $20 million last year, with the improvement driven by higher AOI and lower interest expense. For the full year, free cash flow was $276 million versus $203 million last year. This 36% increase in 2012 is due to the improved AOI and cash tax benefit from the 2011 Front Line buyout. We are pleased with this growth, as our free cash flow to AOI ratio increased from 46% to 60% this year.

Cash flows from operations was $367 million for the year, up 59%, from $231 million in 2011. This improvement comes from higher deferred ticket sales for future shows, net of the increased prepaids costs for those events, a net increase of $100 million, client cash timing which drives an increase of $78 million, tax receivables, that we noted as outstanding at the end of 2011 that were collected in 2012, and higher operating results.

The free cash flow we generated in 2012 was used for revenue generating capital expenditures of $60 million including the ticketing replatforming, $67 million in payments related to acquisitions of businesses and other rights net of borrowing, debt principle payments of $37 million, and we had positive working capital in 2012. As of December 31, we had total cash of $1 billion, which includes $442 million in ticketing client cash and $219 million in net concert event-related cash. Our free cash was $340 million.

Our total capital expenditures for 2012 totaled $123 million. We spent approximately $63 million on maintenance expenditures and $60 million on revenue generating additions. The increase over last year's $112 million was driven by the cost for the ticketing re-platforming, along with other purchases of technology and venue equipment. We currently expect that our 2013 capital expenditures will be consistent with 2012.

Total deferred revenue was $402 million as of December 31, 2012, compared to $274 million in 2011, driven by higher concert ticket sales for 2013 events, which are up 58% compared to this time last year. This increase in deferred revenue improves our cash position, as well as gives us optimism towards ticket buying patterns for 2013. As of December 31, our total current and long-term debt including capital leases was $1.74 billion. Our weighted average cost of debt excluding debt discounts is 5.2%.

We continue to remain comfortably in compliance with our credit facility debt covenant requirements. As of December 31, our total debt to EBITDA ratio continues to be under 4 times versus the maximum of 4.5 times. And our interest coverage ratio of EBITDA to net interest expense was over 4.5 times versus the minimum ratio of 3 times.

We are pleased with the solid results our businesses delivered in 2012. Looking forward, 2013 will be a year focused on generating improved profitability, while continuing to invest in the future growth of our business through investments in our ticketing platform, as well as expansion in mobile, social and resale.

Thank you for joining us today for our fourth quarter and full-year 2012 update. And we will now open up the call for questions. Operator?

The question-and-answer question will be conducted electronically.

(Operator Instructions)

Ben Mogil, Stifel Nicolaus.

In terms of sponsorship bookings, can you give us a sense of where you are now say compared to this time last year both directionally and at a dollar figure up or down or percentage up or down?

Yes, this is Joe, Ben. I think that if you revert back to our belief that this year will be up consistent with the past couple years growth in AOI, then obviously at this point of the year, we've got enough between what we have booked and in the pipeline to give you that guidance.

Okay. Then on the long ratio of the 2015 guidance, when you look at that guidance and you talked a lot about at the liberty day of adding 5 million attendees per year largely through electronic dance, music and festivals, how much of that do you think you can do organically? How much of that do you think you need to do M&A for? What are the M&A multiples, and what's the M&A environment looking like from where you guys sit?

That's a quick question isn't it, Ben? First of all, we didn't say 5 million a year, we said 5 million over the three year--

Okay.

We were referring to. I think we're close to 2 million now of that 5 million, so we would hope that if you look at the 2 million out of the 5 million that we delivered, most of that's organic. Because the easiest and most effective way for us to get that 5 million is for Ticketmaster and Live Nation to sell a few more tickets to their current shows. Our first objective is always social media, mobile conversion, online conversion, sell more tickets to our current events to get close to that 5 million. So I would say a large majority of it will become -- should come organically through better sell through. Then opportunistically as we've done in the past, we'll find some tuck-in, bolt-on promoters or ticketing companies either in America or around the world if we think they're strategic to our growth. Always looking at our cost of capital in return on those.

Martin Pyykkonen, Wedge Partners.

Two things on concerts I was wondering looking at the numbers, number of tickets sold up 11%, concert revenue up 31% and ticket -- gross ticket value up just under 16% in the quarter, just for Q4. Can you talk to how much of that you think was from dynamic pricing and particularly pricing in front of the house getting the real premium that you deserve versus to what extent it was just bigger artists, bigger ticket prices as a result? Trying to get underneath a little bit to understand quantitatively how much dynamic pricing is helping?

Yes, Martin, this is Joe. I think first of all, looking at one quarter can be tough especially on Q4 for us. As Kathy indicated, we had some global tours out, those tend to be higher ticket prices so frankly, that will create some distortion just the nature of the tours particularly in the fourth quarter, more than any of our specific pricing initiatives. That said, I think as we've talked in the past, we've rolled out pretty aggressively our dynamic pricing in our amphitheaters and saw some nice return off of that through the second and third quarter, and we've seen even more success on what we call platinum pricing, which is where we start our pricing where we have a number of tickets in the front of the house that are at a premium price. No doubt that's delivering some real value to our concert business, frankly it's just coming through more in the second and third quarter.

I would say, Martin, just to add to that. I mean the important part for us because when the tide rises we will gain the most. The business in general over the last two years, every artist, every business manager, agent has just gotten smarter about pricing the house. I would say two years ago, everyone was slightly panicked about the economy was in a bit of a stalemate. I think today 80% to 90% of the dates we do, that conversation starts with either us or them initiating how do we scale the house more effectively, which really means how do we price the front of the house to meet the market and maybe reduce the prices in the back end. But every time an artist participates in that conversation, it's a higher revenue event for us. I think we've been the leaders obviously in the marketplace with our price master tool, getting over 1000 artists or 1000 shows working it through last year and I think it's becoming a pretty ingrained trend now in the business which will absolutely help our overall revenue growth.

Then a part B to that, I think Kathy mentioned the AOI margin should be up a little bit this year for the concert segment. Number one, is that -- did I get that accurately? How much of that would be from better, smarter pricing continuing ongoing improvements as opposed to something that's more cost driven? I think the quantity of guidance more directionally where that's going?

You have the stat correct, that's what we're saying, it'll be up slightly, and it is driven a lot by selling more tickets and better pricing on those tickets.

(Operator Instructions)

Doug Arthur, Evercore.

Yes, Kathy I wanted to -- I mean I know you're not going to give full-year guidance but you did -- I mean between you and Joe, you said ticketing, you're looking for flat based on the cost and the re-platforming continuing. Artist Nation I guess all else being equal, flat. So sponsorship, I mean yes it's grown at a nice clip but it seems like if you go back 1 year, 18 months ago, that you really felt that would be a long-term double-digit grower, so are you -- do you think you can get back there this year? Then I guess the balance of the upside would come from concert margins. Then Michael as a follow up, can you talk a little bit about some of the big tours that you expect out in '13, you mentioned a few, and you've made a number of announcements? So how does '13 shape up versus '12 on the big global tours?

The first half of the question, you got it right I mean I said on sponsorship that it would be consistent with the past few years, last year was 9% the year before that was 12%. So yes, we are talking double digit without giving you an exact number. Then the other comment was that we expect solid -- or expect strong growth in the concert business.

Yes, I would say, Doug, given what Joe has indicated already on our on sales year to date and the tickets sold through the pipe, it's always good to be starting the Q1 with wind at your back. We think the pipe looks very strong on a global basis for festivals, amps and the touring business. You've -- obviously I can only talk about the ones that have been announced but when you have a Justin Timberlake, Jay Z stadium tour, it's big business. It also a nice reaffirmation that there is life in young artists to take the spots of the other stadium acts. Beyonce sold out in seconds, Pink has been a phenomenal selling out around the world and over 60 dates in Australia alone. Rihanna has been up for sale and selling out very, very clean across the board on a global basis. Jimmy Buffett went up last week which was very strong. One D is strong, Maroon five.

Good point is all timing -- sorry I should mention country too, which is probably one of our biggest growth areas for '13. We sell a mega ticket which is a combination of a bunch of artists. We went on sale a few weeks ago with our mega ticket, and we would typically sell that mega ticket over about 20 million tickets on an annual basis, and we're already past that 20 million mark. You got the Jason Aldean, the Luke Bryan, so a huge line up in country. I think when you look at the whole, the nice part is whether it's a One D young act, whether it's a Jimmy Buffett, whether it's a Rihanna pop back or a country artist, and then I'm leaving the festival, the side which tend to be more electronic and younger, the portfolio looks very diverse and strong in all pockets. We expect a strong year in the concert division and that obviously means a strong year in the ticket part of the concert business also.

Just as follow up, I mean you had mentioned on the last call some potential rationalization of the festival business in Europe in particular I guess in Southern Europe, is that -- are your comments consistent with that occurring as well?

Yes, I mean it's early, the good news is most of our business in Europe tends to be around our festivals. We're fairly high concentrated in the north. For the south this year seems to be holding its own, we're going to the market much smarter this year, we're not taking the risks on a few festivals that we did last year. I think we'll manage the portfolio of Europe smartly this year and reduced any exposures in the south whether it turns around or not and focused on the high performance, less risky festivals of the north to deliver our total European targets.

We have no further questions. I will now turn the call back over to Mr. Rapino for closing remarks.

Thank you, everybody, for joining and we will talk to you after Q1.

Ladies and gentlemen, this concludes the Live Nation Entertainment fourth quarter and full-year 2012 earnings conference call.