Live Nation Entertainment Inc (LYV) 2013 Q3 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 third 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 cause impact to 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 the earnings release. The release, reconciliations and other financial or statistical information to be discussed on this call can be found under the investor relations tab 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.

Good afternoon and welcome to our third-quarter conference call. We had the best quarter in the Company's history with record-setting revenue, AOI and free cash flow. This has been the best nine months of revenue and AOI ever for the Company.

In addition to the strong financial results, over the past quarter we have continued making progress on all our strategic growth drivers. Our core business model remains unchanged. The concert platform is the flywheel of our Company, and as we continue to grow attendance, that directly feeds the high-margin, on-site sponsorship and ticketing businesses.

In each of these businesses, we are generating increasing returns to scale and have now established the largest global platform in all businesses and are best positioned to maximize the return from each fan. And we have been extremely successful this year in attracting more fans to our shows with 45 million people attending concerts in the first nine months of the year, a 17% increase from 2012. We are building share, taking it from competitors and expanding the global pie, and as we have been equally strong in both US and international with growth this year.

Success has been consistent with increased attendance per show across our amphitheaters, arenas, festivals, theaters and clubs. We have had great success in growing new artists to established artists and all in between with seven of our top 10 tours led by young artists. And, all genres of music grew, led by country music, which has grown 47% through the first nine months of the year.

Our second strategic focus is continuing to deliver double-digit AOI growth in our high-margin sponsorship platform as we are seeing increased attraction to our live events as a means for brands to cut the clutter and reach target audiences. With our scale across all music segments, we have the ability to deliver over 45 million 18- to 54-year-old fans for the mainstream brands targeting a mass audience. We are also able to reach 20 million 18- to 34-year-olds with brands looking to reach that specific generation Y target. In addition, in North America via Ticketmaster, we reach 40 million 18- to 34-year-olds and 85 million 18- to 54-year-olds, providing even greater reach for our advertisers.

The third strategic priority is Ticketmaster's focus on deploying new products. Our key product launch this quarter was Ticketmaster resale, transparently presenting fans with all options, both primary and secondary, together on both our online and mobile platforms. Since this launch, we have activated 50 teams from the NFL, NBA and NHL and over 100 concerts with more than 1400 total events and sold over 750,000 tickets for these events. Early feedback reinforces the value proposition to fans, and what we are seeing so far is that when fans see both primary and secondary tickets together they are 60% more likely to buy a ticket of some sort and 10% more likely to buy a primary ticket as compared to just seeing primary ticket options.

So we are seeing not just price comparisons across secondary tickets, but increased transparency on high-price secondary tickets is driving increased conversion on our primary tickets. We will be in beta through the end of the year as we continue to roll out adoption across all our clients and implement all the insights from our A-B testing.

At this point, we have enough visibility to be confident that for the full year we will deliver planned growth in revenue, AOI, free cash flow and leverage free cash flow per share.

With that, I will turn it over to Joe Berchtold, our COO, to take you through more detailed divisional performance.

Thanks, Michael. First, concerts -- Live Nation Concerts revenue for the third quarter was up 21% and AOI improved by 44% versus 2012. The third-quarter performance was driven by a 27% increase in global attendance, growing by nearly 4.5 million fans to over 21 million for the quarter. As part of this, we have had a record 19 artists already play to more than 500,000 fans, led by pink, Pink, Rhianna, Maroon 5,Jason Aldean, and Luke Bryan.

Looking at our concerts business by market, first, the international markets increased attendance by 25% in the third quarter. Of this 1.3 million growth in fans, the greatest driver was our arena business, which added 900,000 fans through a 49% increase in show count and a 28% increase in per-show attendance. The other main growth driver was our 26 festivals, which added 500,000 fans.

In North America, attendance was up 27% or 3.2 million fans for the quarter, led by amphitheaters with over 2 million more fans from 100 more shows and an 18% increase in per-show attendance. Attendance was also up at festivals, arenas and stadiums for the quarter, all of which saw increased show count and the attendance per show to drive another 1 million fans to these shows.

More broadly, we have continued to execute on our global priority of building our festival portfolio, investing to launch 16 new festivals and buying festival platforms with brands we believe can be extended on both a regional and global basis. Year-to-date, we have had over 4 million fans attend 61 festivals and expect to end the year with over 20% attendance throughout the 69 festivals across 15 countries with 26 of these festivals new from last year.

We have also made good progress on our other global priority, building out the EDM segment. Investing in this space, we are increasing the number of EDM festivals this year to 18 from 10 last year and we expect to roughly double attendance over 2.5 million fans this year with about half of those fans coming to our festivals and the others attending arena, theater and club shows.

We are clearly setting up to have a record attendance this year. Our attendance through the third quarter plus sales for fourth-quarter shows to date totals over 53 million tickets, up about 10 million tickets from the same point in 2012. While this will decelerate some in the fourth quarter, we currently expect attendance growth of roughly 15% for the year and as a result roughly doubling our concert segment AOI.

Now turning to sponsorship and advertising business, for the third quarter revenue was up 15% and AOI was up 12%. Growth in the division has been consistent throughout the year and this quarter has continued its double digit AOI growth. Our greatest growth in the quarter continues to be online advertising, which grew revenue almost 40%. This growth has been led by our relaunch of LiveNation.com, which provides a more engaging site for our fans and generates higher CPM rates with substantially more rich content throughout the site. As a result, the site has increased total page views by 25% so far this year.

We see this trend towards richer content and associated higher CPMs continuing on the site as our content increase higher value programs such as the Ford Rider webisode series and the content for Jeep's 30 Miles of Freedom campaign. With our sponsorship and advertising business now more than 90% sold for the business, we expect to be on plan with low double-digit AOI growth for the division this year.

Next, Ticketmaster -- Ticketmaster had a 4% increase in global ticket sales in the third quarter, led by double-digit growth in the sports segment and over 1 million additional concert tickets sold. As a result, ticketing revenue was up 3%, though AOI was down 2% on a comparable basis largely because of the Olympics business last year.

Our largest initiative remains rebuilding our ticketing platform and our approach is heavily focused on enabling new features and releasing products along with the development cycle, which has been ongoing with our venue customers throughout this year, including reporting and inventory management products now adopted by over 65% and 20% of our US customers, respectively.

And now we are using the technology on the consumer side as well with the integrated inventory product being the first to use the platform's commerce engine and APIs. And on a broader level, we continue to be on plan to start converting our amphitheaters to the full product to late next year.

Last quarter, I indicated that as we continue rebuilding our technology platform at Ticketmaster, we are focused on three priorities this year. First, maintaining and extending our market leadership position, and through the first nine months we continued to deliver a net renewal rate of over 100% globally for the business. Second, growing our secondary business and deploying our Ticketmaster-integrated inventory product, as Michael gave you an update on how that is progressing.

Finally, we are focused on improving and expanding ticket buying and management on mobile devices. This quarter, we have again doubled the share of tickets via mobile in North America relative to last year with mobile accounting for 12% of overall ticket sales and 14% of concert ticket sales. With the new apps that we have in the pipeline for later this year, making it even easier to buy, transfer, sell and manage tickets, we expect this rapid shift by fans to mobile platforms to continue. And with these initiatives well in hand for the full year, we expect both Ticketmaster AOI and primary ticket volume to be roughly flat.

Finally, Artist Nation -- here, we believe that we have taken the steps necessary to position the division for more stable performance and long-term growth. At this point, we have all the core managers signed to long-term deals and have also seen that as we provide our managers and their artists with greater value from our concert, sponsorship and ticketing business, we are naturally seeing an increase in our share of touring business with these managers.

We have also streamlined the division, keeping it focused on the high-margin artist management business while moving some of the ancillary activities into the concert division where they more naturally belong. And with this restructuring now complete, we expect to start seeing growth in the business and we will be adding select managers whom we think will not only help build this division, but will feed directly into the success of our concert sponsorship and ticketing business.

Based on this, I think going forward we will start to see improvement on a comparables basis for the division.

I will now turn the call over to Kathy Willard to take you through more details on the financials.

Thanks, Joe, and good afternoon, everyone. I will provide highlights on our earnings and then more details on the balance sheet and cash flow for the third quarter and year to date.

First for the third quarter, revenue was $2.3 billion, up 15% over the same period in 2012 driven by concerts growth of 21% and sponsorship and advertising's increase of 15%. Adjusted operating income for the quarter grew 9% to $221 million as compared to $202 million in 2012 with concerts up 44% and sponsorship and advertising higher by 12%.

Operating income for the third quarter was $126 million compared to $105 million last year. This improvement came from our higher AOI, along with a $9 million additional gain on disposal of assets primarily related to the theater sale in May.

Net income for the quarter was $44 million compared to $58 million in 2012. Net income for the period would be $80 million, given our improved operating income and reduced interest expense, but we recorded debt extinguishment costs of $36 million in the quarter from our debt refinancing.

Revenue for the nine months was $4.9 billion, up 11% over the same period in 2012. The majority of this growth was in concerts, up 16%, and sponsorship and advertising was higher by 15% year-to-date.

Adjusted operating income for the nine months grew 9% to $434 million as compared to $397 million last year. Concerts AOI is up 66% of the first nine months from the strength in North America amphitheater shows and international arena and stadium shows.

Sponsorship and advertising's AOI grew 12% from increased online advertising and higher festival and other sponsorship activity globally. For the first nine months of 2013, our overall AOI margin was 9%, consistent with the prior year.

Operating income for the nine months was $191 million compared to $105 million last year from our higher AOI and the $43 million gain on disposal of assets in our concert segment. Net income for the nine months was $39 million compared to a net loss of $4 million in 2012, driven by our higher AOI.

Free cash flow was $167 million in the third quarter compared to $152 million last year with the improvement in AOI. And for the nine months this year, free cash flow was $283 million compared to $274 million in 2012, an increase over last year due to higher AOI and lower cash interest even with the impact of the tax refunds received in 2012.

Cash flow from operations was $265 million for the nine months as compared to $89 million last year with the increase driven by our higher AOI along with a $131 million improvement in working capital. As of September 30, we had total cash of $1.3 billion, which includes $510 million in ticketing client cash.

After deducting event-related cash for future shows, our free cash was $539 million. Free cash is up due to the sale of the New York theater and proceeds from stock option exercises during the year totaling approximately $140 million.

Total event-related deferred revenue was $313 million as of the end of September compared to $273 million in September of last year. The total capital expenditures for 2013 through the third quarter were $80 million with $38 million on maintenance items and $42 million on revenue-generating additions, including our ticketing re-platforming project.

We continue to expect that our total capital expenditures for 2013 will be approximately $120 million.

During the quarter, we refinanced our senior secured credit facility and added $200 million to our 7% notes to pay off our $250 million 8 1/8 notes. As a result, our cash interest cost will be reduced by approximately $12 million annually. We also reduced our covenants on the credit facility to a single leverage test, currently set at 5.25 times and stepping down over time. As of September 30 we are in compliance at under 3 1/2 times.

Our total debt was $1.8 billion as of September 30 and our weighted average cost of debt is 4.3%. During the quarter, we reclassified our convertible notes of $209 million net of discounts to current on the balance sheet, since they are puttable by the holders in July 2014. As Michael mentioned, we have had record results across our key financial metrics and expect to finish the year with solid growth.

In summary, our expectations for the full year are -- given the strength of the summer concert season, we expect concerts AOI this year to be roughly double 2012 with margin improvement. We continue to expect sponsorship and advertising to deliver low double-digit AOI growth with margin slightly down due to higher customer programs in the year. Ticketing's AOI and margins are expected to be essentially flat compared to last year, given investments in our ticketing platform and the 2012 Olympics activity last year.

Based on these divisional results, we expect to deliver high-single-digit growth in both revenue and AOI for the full Company and we continue to expect free cash flow as a percentage of AOI to be roughly in line with last year despite the cash tax refunds received in 2012, in line with our planned growth through 2015.

Thank you for joining us today for the overview of our great third-quarter results. We will now open up the call for questions, operator.

(Operator Instructions) Doug Arthur, Evercore.

I guess this is a question for Michael or Joe. Last year in the big third quarter, the concert segment had very strong revenues but less strong AOI results, which I think were actually down last year. So this year, you've got the leverage in the models. What changed? What are the key things that have changed? I know obviously getting margins up in the concert segment has been a big focus, but what was the key difference?

One of the successes we had this year is, one, it was spread globally. So last year, as you remember, we had a strong US but Europe was still struggling. So this year, having both Europe and America firing on all cylinders is a big piece of why the total pie has grown.

And number two is, we were very successful this year in our marketing and social marketing, etc., to drive per-show attendance. And as you know, in this business every ticket you sell for that current fixed basis, profit goes up. So having a higher per-show attendance is going to drive your profitability, and having Europe come back strong this year was a second piece and why the total pie is bigger this year.

Great. And just as a follow-up, the insomnia acquisition was -- well, the taking control of majority ownership was a significant revenue driver in the second quarter. It was not necessarily a significant earnings driver. Was that more accretive in the third quarter, or is that still a bit of a push in terms of bottom line impact?

Yes, it would be -- both revenue and AOI across our base would be a couple percentage points, so not significant in any sense.

Okay, thank you.

Rich Tullo, Albert Fried & Company.

Congratulations on a great result, stellar top-line results. I guess my big question here is as we look at 2014, how does Live Nation benefit from any of the quadrennial events such as Olympics, World Cup? I would assume that that would be on ticketing, but would there be any give-back on events, especially in Brazil?

No, you know, that wouldn't really affect our year next year. We are not active in Brazil or the winter Olympics in Russia in any significant manner to take any business away from that. So it won't be a factor in any sense next year for us, it will be business as usual across the globe for us in our 41 other markets.

And just a little quick one -- 40% growth on the interactive ad sales, is that from a base of about -- what base are we talking about there? Last I knew, it was about $56 million.

If you look, it's in -- it's in the release, but for the three months, it's growing from $14.6 million to $20.1 million, and over the nine months growing from $38 million to $49 million.

Okay, fair enough, thank you very much; I appreciate that.

Ben Mogil, Stifel.

Just I wanted to ask you a question on the primary-secondary interplay. In terms of either gross dollars or gross contribution in just dollars, forget about margin, if you sell a ticket on the secondary market, it's roughly the same as the primary market ticket pricing. Are your gross contributions about the same? Do you make more money on a primary or secondary? I'm looking at it after all the fees to the various rights holders are calculated.

Well, two things to look at. One, the secondary is incremental --

Sure.

So to date, it's -- a new dollar is a new dollar. And from my notes I just referenced earlier, the only concern that you would have is are you trading secondary dollars for primary dollars, and is there an economic downfall to either of that?

The good news to date is we are actually seeing increased primary conversion, which intuitively makes sense. Everywhere you shop, the more price comparisons you get, the better priced product will do better. So we are seeing an increase in primary.

But regardless of that transaction, a secondary or a primary is basically the same margin. Secondary is generally a much higher fee or slash revenue.

And I guess that is just because you are assuming that the secondary prices are, generally speaking, above the face value of the primary. Is that correct, in that view?

Yes. Given most of our clients and the way we operate have floors, we are not selling secondaries below primary of base, so obviously the high majority of a secondary sell is above face, which means the fee is higher.

With your -- do you have -- evidence showing that primary is in fact aided by this integration, are you saying the leagues somewhat more open now to letting those floors go, or is it still too early to make that sort of announcement?

Yes, we don't see that as a big hurdle right now. We think that at the end of the day, the great secondary business generally is driven by the hot teams, the hot concerts and the good seats. That's where the money is. If you are getting into selling the upper deck at a baseball game for $3, you are not doing it for margin; you are just doing it for attendance. So for our business, we will be happy to participate in the strong sales, good seats and let the brands protect their price integrity on the floor.

That's great. Thanks, Michael, for the color.

(Operator instructions).

All right, thank you, everybody.

And there are no further questions at this time (Operator Instructions). Actually, we do have one additional speaker, one additional question -- John Tinker, Maxim.

Hi, sorry, some technological problems at this end. You mentioned -- you have gone through some of the numbers on the different genres and pointed out how strong country music is. As you look at your portfolio, if you look at country and EDM, what is a way of thinking what the right share of these businesses should be?

Mr. Rapino, we are not hearing you at this moment. Can you pick up? Ladies and gentlemen, I believe our speaker may have disconnected.

Okay, next time.

All right, I'm going to go ahead and close out the conference call. Sorry about that, Mr. Tinker. Ladies and gentlemen, this concludes our Live Nation Entertainment third quarter 2013 earnings conference call.