Live Nation Entertainment Inc (LYV) 2013 Q2 法說會逐字稿

Good afternoon. My name is Carrie, and I will be our conference facilitator today.

At this time I would like to welcome everyone to the Live Nation Entertainment second-quarter 2013 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 measures 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. Michael Rapino, President and Chief Executive Officer of Live Nation Entertainment.

Good afternoon, and welcome to our second-quarter conference call. We had great results for our second quarter with all our core businesses performing well, setting us up for what looks to be a record summer.

Starting with top line, our revenue is up 8% for the quarter, driven by growth in our concert division. Looking broadly at consumer demand for concerts, we have seen double-digit growth in concerts for both Live Nation and Ticketmaster on a global basis, reconfirming the quality of live artists on the supply side and strong fan desire to attend live shows with the top entertainment option. At the same time, we continue to build share with ticket sales for our concerts up 26% through June. We're also continuing to drive AOI growth at even faster rates in revenue. AOI was up 10% in the quarter and free cash flow was also up for the quarter along with higher free cash on our balance sheet.

As I did last quarter, let me give you an update on the five strategic drivers that we believe will deliver our 2015 AOI and cash targets. First, growing market share in concerts and tickets by 5 million tickets. As you can tell from my opening comments, this is shaping up to be our strongest concert season ever. We have already had 2 million more fans at our shows this summer than last June at this time, with double-digit growth expected for the year across festivals, amphitheaters and arenas. We are seeing this growth from both the artist and fan side with show count growth from clubs, amphitheaters and arenas while also increasing the attendance per show at all of our venues. As a result, I expect us to achieve our 5 million incremental fans by 2014.

In addition to this organic growth, we also continue to look for strategic acquisitions and partnerships that can expand our platform. In this quarter, we closed on Insomniac, the world's largest electronic dance company, and expanded into Hong Kong and Singapore, key markets for our Asian footprint.

Our second priority is to increase event awareness and ticket conversion, driven by shifting and tripling spend in social and digital channels by 2015 to over 35% of our ad budget. In the first half of this year, we have increased our attendance per show across arenas, stadiums and amphitheaters, and I believe these shows are benefiting as we shift from spending on broad media to increasing our spend on artist specific social channels, targeted, data driven direct marketing. In 2013, we have increased the spend to 25% of our total ad spend and are on the path to our 35% goal.

Third, deliver double-digit growth in our sponsorship and advertising business. This business continues to deliver consistent double-digit growth, fueled by the overall growth of our concert platforms, continued strong double-digit growth of our online advertising units and additional global strategic sponsors who are attracted to the scale and scope of our global platform.

Fourth, we will triple market share in our secondary business. As I have discussed in the past, we see secondary ticketing as one of our greatest growth opportunities. There's a $4 billion market in the US alone, and we have a very low market share. We are highly confident that bringing primary and secondary together on one secure, transparent platform, that in collaboration with content owners and venues, we can build a product which will create great value for fans.

We launched Ticketmaster Plus in beta a few weeks back with a handful of shows and plan on spending much of the remainder of this year working with teams, venues and content owners to drive adoption. As a result, we expect to continue building share in secondary through this year and then accelerate our share growth in 2014 as TM+ is fully in place.

And finally, we will reduce ticketing costs by $0.35 per ticket in North America through our replatforming project. While the immediate focus is on delivering better products at Ticketmaster for both fans and venue partners, we remain confident that our cost reductions will be delivered in 2015 as planned.

In summary, our strong performance in the first quarter continued and accelerated across all our core businesses in the second quarter. We have now seen enough concert ticket sales, sponsorship commitments and Ticketmaster sales to be confident that this revenue and AOI growth will continue in the second half of the year and we will deliver the full 2013 in-line with our three year plan.

With that, I will turn it over to Joe Berchtold, our COO, to take you through an update on the divisional performance.

Thanks, Michael.

First, concerts. Live Nation concerts revenue for the second quarter was up 11%, and AOI improved by 18% versus 2012. The second-quarter performance was driven by an 8% increase in global attendance with a 4% increase in attendance per show. As Michael noted, concert ticket sales for all shows this year are up 26% from this point last year with 23 million tickets already sold for shows in the second half, compared to 15 million at the end of June in 2012, a 50% increase.

Taking this by market, first our international markets increased attendance by 23% in the second quarter. This was driven by strong stadium tours for Bruce Springsteen, Vasco Rossi and Depeche Mode across Europe in the quarter. Going into the second half, we expect continued solid attendance growth led by our arena business. This is highlighted by our Pink tour in Australia with 42 shows for over 500,000 fans along with Fleetwood Mac, Bruno Mars and Rihanna, all leading major international tours.

In North America, attendance was flat for the quarter with strong growth in festivals offset by fewer arena and stadium shows. As we head into the third quarter though, we see very strong growth in both the amphitheater and arena businesses with show count attendance per show up. At this point, we have already had nine artists sell over 500,000 tickets for our arena and amp tours in 2013 led by Maroon 5, Beyonce, Kid Rock, One Direction, Luke Bryan and Jason Aldean.

As we have discussed, our other global priority is festivals, and this year we expect to grow our festival base by over 20% to more than 4 million fans attending 67 festivals across 15 countries. We continue to see strength in our traditional rock and pop based festivals in Europe, new success with country festivals such as Faster Horses and Watershed in the US and a growing base of EDM festivals.

On the EDM side, we expect to more than double our attendance this year with over 2.5 million fans projected to attend our events. This growth comes as we hold 17 festivals across the US and Europe, expanding our HARD and Cream brands and building on our Insomniac partnership.

The other profit lever we continue to focus on is revenue optimization for our shows. This year we expect almost every tour and festival to provide some form of platinum ticketing opportunity as we continue to extract greater value from those fans who want to pay for the premium experience while at the same time, we're using value channels to make sure we are appropriately filling the house.

In conjunction with these products, we also continue to deploy our pricing tools, both to make sure we effectively price at the on-sale and also to dynamically adjust pricing along the way. Based on our first-half performance, ticket volume already sold for the second half, and the strength of our revenue optimization programs, we are now confident we will delivered double-digit growth in attendance at our concerts this year which will drive substantial growth in concerts' AOI.

Now turning to our sponsorship and advertising business, for the second quarter, revenue was up 16% and AOI was up 10%. Our performance was delivered by a combination of continued double-digit growth in our North America online advertising and adding additional strategic sponsors to North America and globally. The online advertising business has grown over 20% this quarter as we have rolled out an improved LiveNation.com site, driving a 10% increase in site visits and therefore, greater advertising opportunities. Our ability to more effectively integrate content with the site has enabled deals with advertisers such as Kraft, Toyota and Pennzoil as they look for new ways to engage with our fan base.

On a global basis, we continue to attract major brands to our platform including Rdio signing up in the quarter to sponsor several festivals in North America and Yahoo stepping in as the lead sponsor for our Wireless festival in the UK. Also, our EDM business, now at the scale of 17 festivals, is a tremendous new asset in our portfolio and is already driving incremental growth with sponsors looking to connect with its core youth market. At this point, between our first-half AOI growth and book of business that has already been sold for the year, we expect continued consistent growth in sponsorship and advertising AOI for the full year.

Next, Ticketmaster. For the quarter, ticketing revenue is up 3% and AOI increased 9%. The growth was driven by a 2% increase in global ticket sales, benefiting from the very strong sales for Live Nation Concerts' shows, along with a 35% increase in secondary gross transaction value. As we continue through the year of rebuilding our technology platform at Ticketmaster, we remain focused on three key areas for 2013. First, we will continue defending our market position, maintaining our leadership as the top band destination for ticketing and through the first six months of the year, we have delivered a net renewal of over 100%.

Second, growing our secondary business and deploying TM+ to set the stage for further growth in 2014. Michael gave you the update on our TM+ product rollout, but I also want to highlight the team and league exchanges that we have in place of the NFL, NBA and NHL are growing rapidly themselves, up 29% through the first half of the year and further accelerating into July as the NFL exchange is launched for the upcoming season.

And third, we are focused on improving and expanding ticket buying and management on mobile devices. We continue to see that mobile is where ticketing is headed and have again doubled the volume of global media tickets purchased in the second quarter relative to the second quarter of 2012 with mobile accounting for 8% of global ticket sales in the second quarter. We see this growth continuing at a rapid rate, helped by a new Ticketmaster app which will allow ticket buyers to seamlessly purchase, transfer and sell tickets, while also expanding the locations at which fans can have their tickets on mobile devices and scan them directly at the door.

Given our expectations of flat to slightly increased ticket sales and increased secondary GTV along with continued investments in our replatforming, mobile and secondary technology, we continue to expect Ticketmaster AOI will be roughly flat for the full-year.

Finally, Artist Nation. This year is a transition year for Artist Nation. The business has been in decline for the past several years, and we're taken a number of steps this year to stabilize it and reset the platform for more solid performance and growth going forward. Our focus now for the division is its core artist management activity which represents about 70% of the division's AOI and generates a 20% plus margin. On a like to like basis, the AOI for this business is stable for the first half versus last year.

At this point, we have re-signed all the managers we see as the foundation for the business, and we are now working with them to grow by attracting new managers to their teams and more effectively leveraging our sponsorship, concert and data analytics businesses. Given this, as we look to the full year, we expect results to stay on trend with what we saw in the first half, both in terms of the stability of the management business and overall AOI generated by the division.

With that, I will turn the call over to our CFO, Kathy Willard, to take you through more details on our financials.

Thanks, Joe and good afternoon, everyone.

I will now provide more details about our results for the second quarter and year to date and then discuss the rest of 2013. For the second quarter, revenue was $1.7 billion, up 8% over the same period in 2012. This growth was driven by concert improvement of 11% from increased shows and attendance in Europe, as well as higher activity in other global markets including Australia and new revenue from acquisitions.

Adjusted operating income for the second quarter grew 10% to $160 million as compared to $146 million in 2012. All of our core segments contributed to this increase. Concerts AOI increased 18% from higher show count and attendance in Europe and Australia. Ticketing AOI for the quarter was up 9% from growth in international ticketing markets, including the UK, Ireland and Australia. Sponsorship and advertising AOI grew 10% from higher online advertising along with new sponsors.

Operating income for the quarter was $98 million compared to $43 million last year. This improvement came from our higher AOI as well as a $30 million gain on disposal of assets in our concert segment during the quarter. This gain is from the sale of our New York theater where we netted $22 million and also from insurance proceeds relating to the rebuild of Jones Beach in New York that was damaged by Hurricane Sandy last year.

Net income for the quarter was $58 million compared to $8 million in 2012. Year to date, revenue was $2.6 billion, up 8% over the same period in 2012. Concerts again was the main driver of this growth with an increase of 12% over last year due to higher show count and attendance internationally, revenue from acquisitions and higher global touring activity. Sponsorship and advertising was up 14% year to date with an increase in online advertising sales of 23% along with growth from new or expanded sponsorship agreements.

Adjusted operating income for the six-months grew 10% to $213 million as compared to $194 million last year. This AOI growth has been driven organically throughout the business, with acquisitions having no meaningful contribution. Concerts AOI more than doubled in the first six months from the strength in international shows along with a higher global touring activity year-to-date. Sponsorship and advertising grew 12% from their increased sales. And although ticketing AOI was up for the quarter, the six-month results are down 5% because of the absence of the Olympics activity we had in 2012 along with the continued spend on the replatforming project and other ticketing products.

Artist Nation AOI is down $4 million compared to last year, and that is partially offset by the lower cost in corporate due to the reorganization in this division at the end of 2012. For the six months of 2013, our overall AOI margin was 8%, which is consistent with the prior year. Operating income year to date was $65 million compared to zero in the prior year. This improvement came from our higher AOI as well as the gain on disposal of assets discussed above, which is $34 million for the six months. In addition, depreciation and amortization was lower by $9 million.

Net income for the six months was a loss of $5 million compared to a loss of $61 million in 2012. Free cash flow was $102 million in the second quarter compared to $99 million last year due to the AOI improvement. And for the six months, free cash flow was $116 million in 2013 compared to $123 million in 2012. This slight decline is due to the tax refunds we received last year.

Cash flow from operations was $380 million for the six months, up 23% over last year. As of June 30, we had total cash of $1.4 billion which includes $479 million in ticketing client cash and $575 million in net concert event related cash. Our free cash was $331 million. Total event related deferred revenue was $868 million as of the end of June compared to $707 million in 2012 as our ticket sales for 2013 concerts continue to be strong with sales up 26% through June as compared to this time last year. With the momentum in ticket sales that we saw at the end of last year continuing during 2013, we have strong confidence that we will have substantial growth in overall ticket sales for the year in concerts.

Total capital expenditures for 2013 through the second quarter were $55 million. We spent $27 million on maintenance items and $28 million on revenue generating additions, including our ticket replatforming project. This spend is slightly lower than last year's $59 million, but we continue to expect that our total capital expenditures for 2013 will be approximately $120 million.

As of June 30, our total debt was $1.7 billion. Our weighted average cost of debt excluding debt discounts is 5.3%. We continue to remain comfortably in compliance with our credit facility debt covenant requirements. As of June 30, our total debt to EBITDA ratio was under 3.75 times versus the maximum of 4.5 times, and our interest coverage ratio of EBITDA to net interest expense was over 5 times versus a minimum ratio of 3 times. We continue to monitor the credit markets and consider alternatives to take advantage of the favorable interest-rate environment in both the senior debt and high yield markets to potentially extend our maturities and improve the terms of our agreement. To that end, in the coming days we plan to launch a refinancing of our senior secured credit facility.

Overall, we are very pleased with our results for the first six months of 2013. As we move into the back half of the year, we continue to focus on driving profitability while investing in the future growth of the business through our ticketing platform project along with continued investments in resale, social and mobile technology. We remain confident in our growth expectations for the year.

In summary, we continue to expect to deliver substantial growth in concerts AOI in 2013. We expect sponsorship and advertising to deliver low double-digit AOI growth, and we expect ticketing's AOI to be essentially flat to last year due to the loss of the 2012 Olympics earnings and continued investments in our ticketing product improvements. As a result, we currently expect margin improvements for the year in concerts, while our ticketing and sponsorship and advertising segments margins will remain essentially flat to 2012.

On free cash flow, we expect cash taxes of approximately $45 million to be paid in 2013 with the increase driven by the tax refunds received in 2012, along with improved AOI this year in tax paying jurisdictions. Despite this cash tax increase, we currently expect free cash flow as a percentage of AOI to be consistent with last year based on our planned improvements in operations.

Thank you for joining us today. And we will now open up the call for questions. Operator?

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

(Operator Instructions)

John Tinker with Maxim Group.

Thank you. Terrific quarter. Could you just -- you mentioned some areas were growing organically, there were some acquisitions in others. As we try and figure out your growth rate, how should we think about the size of acquisitions on that? Thanks.

John, you are a little muffled there, but I think you're asking about acquisitions versus organic in general you are talking? Are you talking on revenue ticket count? What parameters are you talking there?

Well, you've been making them on the [fans] with international acquisitions, and trying to figure how much of those helps your growth rate in terms of what is organic and what is acquisition driven.

Got it. I think in general, if you look in 2013, things like Hong Kong, Singapore are small acquisitions, are just basically hirings. 2013, generally 100% of our AOI is organic. We have not added anything incremental from an acquisition perspective at this point. We really haven't made any acquisitions over the last year of substance. Most of the expansions are low-cost entries. Insomniac is one we did acquire, but we did not have any of those effects on their business in the last quarter since we closed late.

You mentioned that you still have a low share in the secondary ticket marketing business that you were quantifying about $4 billion. As you go out two or three years and the new technology kicks in, the rebuilt Ticketmaster, what might be a kind of number we could start thinking about? Is it possible to quantify that yet?

We're not going to give you hard guidance on that, but we say triple, and we're somewhere, I think in some of our presentations we showed you with our current NFL exchange in TicketsNow and other fragmented pieces we have somewhere in the low-digits. We expect that we should be able to capture 20% to 30% of the secondary business over time.

Thanks, great quarter.

Doug Arthur with Evercore.

Yes, looking at the metrics on the concert business, certainly, one of a big upside surprises in the quarter was international, both in terms of the number of events, attendance was up huge, and US North America a little more flat. But as you go into the seasonally important third quarter and you look -- you've already talked about the ticket sales. How do those two, in terms of number of events and estimated attendance, how does that look big picture for North America versus international third quarter year-over-year?

Let me back you up, I want to make sure we get the credit here. A year ago we talked about some changes in management over in Europe, and it was the focus for us to get the right leadership on the concert side that John Reid put in place. And he has done a fabulous job of rallying the troops, making sure we buy smarter, sell more tickets, get rid of the risk in the portfolio, some of the festivals and events and some of the markets like Spain and that that were not performing.

A lot of it has to do with the execution of the team. When you look at a macros perspective, I think we've alluded to it, North America is going to have a very strong year as we finish Q3 in the amphitheaters. I think as the year, on a holistic perspective, North America is going to have an out of the park summer and Europe will have continued year over year growth. But North America will be the star of the two when the season is over, but international has, as you've seen bounced back and we will hold that bounce for most of the year.

Yes, because as a follow-up Michael, you have talked about culling the number of festivals in Europe, at least you talked about that last year after the third quarter. Is that going to impact international at all in Q3?

No, the ones we canceled, we have either added a better one or more importantly, just focused on the great stars that we have. When you have festivals like Reading and Leeds and Download and T in the Park, some of the, let's call them the Coachellas of Europe, you're much better off spending a few extra dollars and time figuring out how to send more tickets and sponsorship to that than driving some of the riskier ones. So, we think overall, our festivals will be stronger with the current portfolio and there will be no effect from the ones we canceled on a total basis.

Okay, and then just finally then, the margin on the concert business in the second quarter. It is a record for a second quarter as far back as my numbers go. There may have been a higher number somewhere farther back, but the margin improvement in the concert segment, which is a big source of leverage for you, seems to be -- have great momentum right now. That's always a little tricky in the big third quarter, but any thoughts on guidance there?

I think as we've said, we do expect to see margin expansion in the concerts business over the course of this year in totality, as you said, a lot of it driven by Q2 and even more in Q3. Particularly off of what Michael said in terms of having not just indeed strong performance internationally, but having North America come along similarly in Q3.

Okay great, thank you.

(Operator Instructions)

Martin Pyykkonen with Wedge Partners.

Thanks. Two questions, one on the EDM opportunity. You mentioned the 17 festivals across US and Europe, and I know this is still early and it's a relatively new burgeoning segment, but any comment you can make in terms of how much runway headroom is still out there to add festivals without saturating the market or getting diminishing returns? Just curious, your best guesstimate, if you will, on that.

A then secondly, I know this is a long way off, but last year coming into the deep fall winter turned out to be a pretty good period relatively speaking, and I'm wondering if you have any read on that based on who you are talking to, what artist maybe, thinking of that and as a part beat of that, as I was mentioned about the Garden reopens in full force. I know it's been open in the winter the last couple of years, and then you've got the new venue of the LA Forum which, for better or worse, MSG certainly looks at that as a new additive venue. Not displacing business from the Staples Center, I'm just curious if you agree with that and if you see the opportunity to fulfill a pretty strong pipeline of artists in there. I know the Eagles start out, looking beyond that.

All right, that's a handful. I'll start with, EDM has a great global runway. We are nowhere near saturation. This is the music of today's youth. There is are some great festivals out there, in Vegas and New York and et cetera. But huge, huge global demand.

You look at things like markets like the markets like Canada, Montréal, Vancouver, Toronto don't even have EDM event of this scale yet. Lots of smaller ones, but not scalable yet. So, we look at Latin America, Europe, Asia, huge opportunity. We have had a flurry of opportunities and calls from around the world with people very interested to launch a HARD, Creamfields or Insomniac branded event. We think we are at the start of the runway.

We think we have by far the most cohesive, best management team in the world running it with James Barton from Creamfields, Pasquale from Insomniac and Gary Richards from HARD. So, we are not looking to have 10 or 12 companies running our strategy. We're looking for a small handful of what we think are the strong brands that have global expansion. The second piece of that runway that is just ready to explode is, it has really not been broken by mainstream Madison Avenue yet, so again, my sponsorship team would tell me when they are out talking to the CMOs, one of the biggest questions they get is, how to get into EDM, how do we get to that youth market? So, we think sponsorship has a huge opportunity. And we think ultimately, the other piece that we'll bring to the equation as our new platform comes to life is most of EDM is not ticketed by Ticketmaster, it is ticketed by more small independent sites. And we think as we build out a proper EDM white label opportunity for all of our businesses, we will gain market share on the ticketing side. We think it's a big leg in the stool, has huge opportunity all the way around.

As far as next year, too early to tell, usually wouldn't know this time of year. Other than the obvious big, big stars that may be talking about a big cycle next year, but too early to tell with the lineup will be. But we have no fear that there will be a bunch of artists on the road next year and the pipe will be full, so that does not scare us at all.

As far as the Forum in LA, we are excited about it. We think it's a great historic venue. We think it will be a fabulous concert venue. And we think it might expand the market in LA, given it will have no sports teams. So, you are going to have a lot of availabilities for artists to start doing two, three, four nights in a market like LA, We are thrilled to be the ticketing partner with MSG and we are thrilled to be their largest supplier of content working with Irving and Jim Dolan and Hank and the team on both MSG and the Forum. We think it's a good move for them, and we are happy to be in partnership with them on it.

Just to clarify what I think you said, on the sponsorship and advertising revenue as we see it reported, it is pretty negligible to what you have actually gotten in that revenue line item from EDM at this point, but again, a lot of upside on runway?

Yes. But we would be -- less than 1% of our sponsorship revenue might be EDM [reloaded], if that. So, huge runway.

Okay, thanks.

And there are no further questions in the queue. I will turn the call back over to Mr. Rapino over closing remarks.

All right, thank you, everybody, have a great summer, and we will talk on Q3.

Ladies and gentlemen, this concludes the Live Nation Entertainment second quarter 2013 earnings conference call.