Live Nation Entertainment Inc (LYV) 2015 Q1 法說會逐字稿

Good afternoon. My name is Carrie Thieling and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Live Nation Entertainment first-quarter 2015 earnings conference call. Today's conference is being recorded.

(Operator Instructions)

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 related 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 Form 10-Ks, 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 released reconciliations and other financial or statistical information to be discussed on this call can be found under the Investor Relations tab on investors.livenationentertainment.com. It is now my pleasure to turn the call over to Michael Rapino, President and Chief Executive Officer of Live Nation Entertainment.

Thank you and welcome to our call. Live Nation continued growing its business in 2015, with first-quarter revenue up 4% on a constant currency basis, led by strong growth in our ticketing business. More importantly, four months into the year, we now have enough data and leading indicators to be confident that we remain on track to deliver our 2015 plan with continued top- and bottom-line growth, as we build our global market share in our core concerts, advertising, and ticketing businesses.

We have built the industry's most scalable and unparalleled live platform, bringing 400 million fans together for that magical two-hour event. Concerts remain a strong flywheel for our high-margin, on-site advertising and ticketing business, and this year, we expect to deliver record operating results by growing each of these businesses.

Starting with our concerts business, we now have sold approximately half of our projected tickets for the year, and through April, we are pacing 4% ahead of last year's ticket sales. We continue to be the world's leading promoter, with approximately 20 of the top 25 global tours, including U2, Maroon 5, Luke Bryan, Ariana Grande. Along with attendance growth, we are also expecting to grow on-site revenue this year, as our sales initiative focusing on the high-end fans continues to pay off.

At the same time, we are expanding our global footprint, most recently with the acquisition of the Bonnaroo Music Festival, which advances our position in the North American festival market. In 2012, we had none of the top five festivals and we now have four of the top five. Overall now, we have 68 festivals, with 5 million fans, making Live Nation the largest global festival producer.

Given their strong appeal with fans and artists, we see festivals as an important high-margin growth channel on a global basis, providing the most cost-effective platform for monetizing fans across advertising, on-site, and ticketing. Our Artist Nation division continues to attract new clients and continues to be a strong feeder to our core concert business.

In sponsorship and advertising business, we again grew at a double-digit pace, with over 20% growth in both revenue and AOI this quarter on a constant currency basis. Contracted net revenue was up 17% at the end of the quarter, and we have now sold 70% of our planned advertising for the year, putting us ahead of schedule. This gives us confidence that we will continue growing our AOI in advertising at double-digit rates.

Through the first part of the year, we have made great progress building our advertising scale, and for the first time, comScore has ranked us as the third largest music-focused advertising network in the United States, with over 60 million unique visitors each month. This firmly establishes Live Nation as one of the advertising platforms of choice in music, which we believe will now help accelerate our ad sales growth.

Our content strategy is also advancing with the renewal of our Live Nation Channel on Yahoo! Live, and also expanding into streaming of festivals on the channel. And we are on schedule to launch our Live Nation television channel with VICE later this summer.

We also are further building our base of major advertising clients, with a 10% increase in the number of companies that pay us over $1 million per year, and a corresponding 18% expected increase in revenue from these clients. With all these pieces coming together, Live Nation is better positioned than ever to continue building its advertising business.

Ticketmaster continues to build on its global leadership as a ticketing marketplace this quarter, benefiting from product improvements and increased conversion rates as we increased our global share with a 14% growth in site visits, driving an 8% increase in combined primary and secondary gross transaction value. As a result, during the quarter, we had three of the top ticket sales days in Ticketmaster's history.

We have deployed a number of product enhancements in our mobile business, improving the mobile responsiveness of our website, increasing the functionality to buy, transfer, resell, and enter the venues with our apps. As a result, we are rapidly growing our mobile business, with a 20% increase in mobile visits and a 35% increase in mobile ticket sales.

We are seeing rapid adoption of our mobile apps, up 43% for the first quarter over 2014 to over 17 million installs at the end of the first quarter this year. Looking ahead, we are optimistic that these trends will continue and accelerate as we improve our online mobile and API products to continue increasing the inventory of Ticketmaster's marketplace.

In summary, 2015 is shaping up to be another year of growth and record results for the Company, and we remain confident we will deliver the final year of our three-year plan. With strong leading indicators in concerts, advertising, and ticketing, operationally, we expect revenue and AOI growth in each of these businesses and overall for Live Nation this year.

And more fundamentally, we continue to see a wide set of both organic and acquisition opportunities to continue growing each of our businesses beyond 2015, directly building on the success we achieved to date. With that, I'll pass it over to my COO, Joe Berchtold, who will take you through some of the divisional details.

Thanks, Michael. Looking at our business segments, first, concerts, revenue for the quarter was flat on a constant currency basis and AOI was down due to a decline in attendance, which was expected coming off a high level of Q1 arena activity last year. Given Q1 is traditionally our slowest quarter in concerts, what matters most at this point of the year is our pipeline of shows and ticket sales for shows occurring this year.

Our show count for the year is tracking toward a mid-single-digit growth rate, led by double-digit growth in our arena shows. And as Michael said, ticket sales for shows occurring this year are up 4% through last Friday, setting us up for low to mid single-digit growth and attendance this year. Based on these indicators, we expect to deliver double-digit AOI growth in concerts for the year. At Artist Nation, AOI fell in Q1, but this swing reflects the fluctuations and timing inherent in the business and we continue to expect solid performance through the rest of the year, keep us largely aligned with last year's results.

Turning to our sponsorship and advertising business, revenue at constant currency grew by 22%, and AOI grew by 20% for the quarter. Online activity in North America was particularly strong, growing AOI 35% with major clients, including Pepsi, Hilton, Pennzoil, and Paramount Pictures. In our emerging markets, AOI more than doubled in the quarter, led by Thailand, Korea, and Australia. With this start to the year, along with the growth in contracted net revenue, we are confident we will grow sponsorship and advertising AOI by double-digits this year.

Finally, Ticketmaster. For the quarter, Ticketmaster revenue at constant currency was up 11% and AOI was up 16%. Primary ticketing GTV was up 4% for the quarter, led by strong concert ticket sales, which drove double-digit growth in March. In secondary ticketing, we are now active in 13 countries. We increased the number of events activated on TM+ by 150%, and as a result, drove secondary GTV up by 75% for the quarter.

Along with this ticketing growth, we continue to make progress on our cost reduction program and remain confident our operating costs per North America ticket in 2015 will be at least $0.35 lower than it was in 2012. So based on ticket sales at this point in the year, we expect to have low single-digit growth in primary ticketing and double-digit growth in secondary ticketing in 2015. With this ticketing volume, along with our cost reductions, we expect to deliver high single-digit AOI growth in ticketing for the year.

So in summary, four months into the year, we feel very good about delivering 2015 on plan. With regards to timing, looking at Q2, we expect AOI performance as a percentage of full-year AOI to be largely in line with 2014, which puts our overall AOI a bit more into the second half this year relative to last year. Finally, on FX impact during the first quarter, we saw revenue impacted by about 5% and AOI impacted by roughly 6%. I'll now turn the call over to Kathy Willard to go through more on our financial results.

Thanks, Joe, and good afternoon, everyone. Let me begin by summarizing our key financial highlights for the quarter. Revenue at constant currency is up 4% to $1.2 billion and flat as reported at $1.1 billion. AOI is $73.9 million at constant currency and $69.6 million as reported. Free cash flow is $24 million.

One of our most important leading financial indicators is our concerts-related deferred revenue, which is the monies we have received to date on tickets sold for events in the future at our owned or operated venues. At the end of the first quarter, this deferred revenue was $919 million, an increase of 4% over the balance in March of last year of $885 million. Overall, revenue for the first quarter was driven by growth in ticketing, with both primary and secondary delivering strong results year-over-year.

Concerts revenue was impacted in the quarter with a shift in arena activity, as compared to last year, as we discussed at year-end. The timing of concerts arena activity is also the main driver of our adjusted operating income results overall for the first quarter of 2015, as concerts AOI for the quarter was a loss of $12 million compared to a $3 million loss for the same period last year. And as Joe noted, both our ticketing and sponsorship and advertising businesses delivered higher AOI this quarter.

During the first quarter of 2015, we reported an operating loss of $24 million compared to a $12 million loss last year from our AOI results, including the $4 million impact to foreign exchange rate declines this year. Net loss for the quarter was $58 million versus a loss of $32 million last year, driven by a $21 million non-cash adjustment to certain working capital accounts, based on changes in exchange rates.

Free cash flow was $24 million this quarter compared to $35 million in the first quarter of 2014. This is due to our AOI results, along with a $7 million increase in maintenance capital expenditures associated with point-of-sale enhancements to our venues and timing of other spend this year.

Cash flow from operations was $343 million through March, and was impacted by higher payments for event-related expenses for shows later in the year as compared to last year. As of March 31, we had total cash of $1.6 billion. This includes $608 million in ticketing client cash and $638 million in net concert event related cash, driven by our higher deferred revenue. Our free cash was $360 million.

Our total capital expenditures for the first quarter were $26 million compared to $21 million last year. We spent $16 million on maintenance items and $10 million on revenue-generating additions. We expect that our total capital expenditures for 2015 will be in line with the guidance we have previously given, at approximately 2% of revenue.

As of March 31, our total current and long-term debt, including capital leases, was $2 billion. Our weighted average cost of debt is 4.3%. And our debt covenant currently requires a maximum leverage ratio of 5 times, and we're comfortably in compliance at below 4 times as of March.

For the full-year, we expect to drive growth operationally across each of our businesses, in both revenue and AOI, while continuing to invest in our long-term growth strategies. In summary, we currently expect AOI for the second quarter to be consistent with last year as a percentage of full-year AOI, with more of the growth in 2015 coming in the second half of the year, as Joe noted.

We expect to deliver double-digit growth in concerts AOI. The growth trend in sponsorship and advertising AOI is expected to continue and to deliver double-digit growth again in 2015. In ticketing, we expect high single-digit AOI growth overall for the year. Artist Nation AOI is anticipated to be in line with last year. Thank you for joining us today, and we will now open the call for questions. Operator?

(Operator Instructions)

Amy Yong, Macquarie Capital.

Thanks. Congratulations. I have a really quick question just on the acquisitions that you've been making, and perhaps how we should think about their accretion going forward. Just thinking about C3 and Bonnaroo, how do we think about the top- and bottom-line synergies on these two acquisitions alone?

And now that you have four out of the five tops brands in the US, should be expect more acquisitions internationally or perhaps other areas? If you could just help us think through geographic expansion, that would be great?

Thank you. This is Michael. Hi, Amy. In our investor presentations in the Liberty ones in the fall time, now at least for the three years, we've always put up this global festival slide where we've shown the top 20 festivals in the European market and in America, and we've been pretty clear that festivals are a high-margin, great channel to be in.

We currently have always had a very strong presence in Europe, been the leader in festivals, T in the Park and Reading and Leeds and Lowlands of Holland and the list goes on. We were a little underdeveloped in America, probably because a focused a little too long on our amphitheaters. So we, over the last three years, had a mission to make sure that we could fill that hole in an area where we had undeveloped market share, so Insomniac, C3, a bunch of organic festivals and country we've started, and now Bonnaroo.

We look at that festivals from an acquisition perspective. They are a tough business to organically get from zero to 80,000 people, like Bonnaroo. You can waste a lot of money and fail a few times trying to get that magic in a bottle. So we really look at the -- on a global basis, there is about 25, 30 festivals where they've just become iconic, Rockin Rio in Brazil, Fuji Festival in Fuji, and some of the ones we've acquired.

We are always on the look on any of these marquee global festivals. If we think that buying that festival is a better return on capital --we've been trying to start two or three of them and making our way to that level -- we know that buying these ones tend to be a better and shorter return on capital than trying to build them.

For us, when we take an asset like Bonnaroo or Electric Daisy, once we plug that into our ticketing platform, plug it into our Yahoo! platform like we just did an plugged in with one of the C3 festivals, and plug it into our advertising business, we've had great success taking those businesses and making them very accretive very fast and increasing the AOI in those businesses by bringing some scale and professional management and advertising to them and growing them at double-digit rates out of the first couple years.

We think we have a strong global portfolio. We'll be opportunistic if we think there's other ones available that we can add to our platform and if we think we can buy them and effectively add our synergies and make them instantly accretive acquisitions, we think those are good opportunities we will continue to pursue.

But we would not be as desperate as we were three years ago when we were sitting here with a very underdeveloped US platform, the sponsors and our Ticketmaster business were yelling that we needed to get into. So we are proud and happy with our current portfolio, and we find these very accretive acquisitions given that we get to scale them across our synergistic platforms.

Perfect. Then, Joe, just thinking about Ticketmaster a little bit more, as you start gaining share on the secondary side and start reaping some of the cost savings, how do we think about longer-term margins for that business?

Amy, sure. As we've talked, structurally and fundamentally, the secondary business has economics that are pretty consistent with the primary business. Obviously, when it's been on a lower scale, it's been working its way back up towards primary, but in that same range, I would say is how you should think about the secondary business as it gets to a level of scale.

Got it. And on the cost savings side?

Sure. On the cost savings side, that's largely associated with our primary ticketing platform, so it's really those tickets that the operating costs come out of.

Great. Thank you.

John Janedis, Jefferies.

Thank you. Can you guys talk a little bit more about sponsorships? Is the driver of growth digital or is it much broader, and are you anywhere near having any capacity issues?

Thanks, John. Our businesses, at the end of the day, has been an ad business that we continue to look at elevating our ad units. Originally, we were just an on-site sponsorship business. If you are a major advertiser and you wanted to touch consumers on-site, we were your best slot. Then we turned and built, as our scale delivered outside of amphitheaters and more globally, we started to develop a commerce and digital business.

At this current state, when we are talking to Madison Avenue, it's a couple combinations. First and foremost, we are just a great digital network to make it an advertising buy on if you want to reach this demo with our scale. We have lots of inventory available still. We look at all of our assets and [look] is still available and we have great runway ahead of us to continue to monetize a lot of unused ad units.

A lot of the ad units are also a combination of on-site and digital, where most of our bigger deals are holistic programs, where an advertiser is looking to launch a program, have a global or a large reach through our platform, but then really make it come to life like American Express does, by delivering absolute direct value to access to concerts to their customer. So we sell local, we sell regional, and we sell digital.

We are seeing, as everyone else is, we are very, very excited that our business is moving into mobile. We're keeping that audience, and like everyone else, are looking at all ways that mobile advertising will continue to be a big part of our next new ad unit. So we see lots of inventory available. We have now the reach on-site of over the 60 million customers that advertisers want to be associated with, and now with the 60 million plus on a digital basis, we are able to sell local sponsorship, national access, and digital reach programs with capacity left on all of those.

Thanks. And maybe separately, you touched on mobile. I was hoping to dig a little deeper in terms of the mobile app. How many more shows do app users attend compared to non-app users? Over time, can we see much of a margin benefit as a result?

John, this is Joe. We have not released any details on the specific segments of folks that we have in terms of how they do their purchasing, so I can't get into that right now. On the economics, our economics are the same whether somebody buys online or via app. Both of those are, obviously, lower cost than more direct methods of sale, but our economics are the same, service fees are the same, margin fees are the same.

Okay. Thank you.

John Tinker, Maxim Group.

Thanks. Two brief questions. One, could you just touch on Artist Nation and the increase in SG&A? Obviously there was a negative comp there, and talk about that a little? Secondly, in the fast-moving world of music streaming, can you just give us your views on where that's going and how you are involved, because you still have a relationship with Jay-Z but he's buying Tidal and exactly how you fit into that?

You are good, Tinker. We will stick to our knitting right now. We support Jay and all of our artists and any of their endeavors and we will do anything we can to help Jay succeed and those artists, but we think we have a great runway ahead of us, just doing exactly what our core business is. On a global basis, we have lots of opportunities to scale and continue to grow our concert business, new ticket markets, new ticket products, and then later on, the advertising on top of that.

We think that our best strategy is to use our resources to keep right down the fairway, continue to consolidate and organically grow our core business and we'll leave the streaming hardware to others right now and we'll worry about selling concert tickets. One of the advantages of Ticketmaster and our new platform we've been working on -- obviously, Ticketmaster Plus was the first new product we were able to introduce having a more robust platform.

But we do also look at a lot of these opportunities with Apple and others that we now have a platform with an API and an ability to distribute a buy button, so we look at some of these streaming sites just as great distribution outlets that we currently will either have an affiliate or a buy button strategy to increase our reach and increase our conversion. But not a core business that we would be looking to tackle at this point.

John, your first question on Artist Nation SG&A, that's really driven by, we've talked about the fact that we've been adding some key managers to the business, and so it's just timing of those costs coming in versus when the artist -- the activity is coming in from the artist in terms of commission.

Thank you.

David Joyce, Evercore ISI.

Thank you. I was wondering, on the sponsorship front, what portion is strategic at this point, meaning revenue that's likely straight-lined versus event-correlated, and how should we think about that trending as you expand your platform globally?

David, this is Joe. We talked at the end of year that roughly $200 million in revenue was coming from our largest relationships, which meant over $1 million per year in revenue from those relationships. Those relationships generally now stand the gamut.

As Michael was talking, as we take the combination of the 60 million fans that go to our shows and the 60 million uniques, so most of those folks are doing a combination of digital and traditional sponsorship. You can take from the magnitude of those relationships, there some steadiness to them, but certainly, it's not all contracted revenue with those folks.

Thanks. And on the ticketing front, how much of -- the margins were better than we thought this quarter -- how much of that is due to the replatforming expense savings that may be happening a little sooner than your year-end plan versus just your volumes increasing, so some real good operational leverage?

It was exactly both of those things, David. As I alluded to, we had a very good March, a little better than when we were sitting here talking to you at the end of the February, than we knew it was going to be, so there was some volume pick up there, relative to expectations. Yes, we're doing great on getting the cost savings, and that's in part why we are confident we'll have it fully in place this year.

Great. Thank you very much.

Ben Mogil, Stifel.

Hi, good afternoon. Thanks for taking my question. I want to follow up on Amy's question, and Michael, you were talking about the festival business, and your comment that you can burn through a lot of money trying to get a festival started, and we've certainly seen that.

When you look at festivals you've bought and when you look at festival business, in general, there's been some high-profile expansions where people went to a second weekend and that didn't work out or people took a festival that was in city A and moved it to city B and that didn't work out. Generally speaking, are you finding that people are too ambitious about their festival expansion? Are you finding that some festivals are one weekend is good enough? Curious your views on how scalable some festivals are?

There is no one way to answer here. Festivals range, there's small city ones up to big ones. They may look easy to replicate and grow, but it's not that simple. We look at festivals at the end of the day, there are hundreds of little festivals happening at all times that are generally a labor of love, not generally much of a real business. Our business, at the end of the day, on a global basis is we like those festivals with scale, 30,000 plus, obviously, because then they become truly advertising units and also most of where the talent leverage we have is on that end.

So, if anything, lots of people out there as festival producers, very few make it to the top of the Bonnaroo and the C3, Coachella and Insomniac level. We think those are the ones that we want to be participating in and provide us the best return on our capital, and we generally don't look to launch and take a lot of risk every year on launching a lot of them. We organically launch three or four every year in a very structured and risk adverse manner and seeing if we can self brew some of them.

But at this point, it's an expensive game to scale from scratch, and given we already own 60 for many years in our European platform, adding on a few quality high-profile ones in our US platform was just a continuation of a long strategy we started in Europe. I would not want to be sitting here today trying to figure out how to buy and/or build 60 festivals with over 5 million customers. That would be a very expensive proposition.

And going through the C3 deal and the Bonnaroo deal, do you see the M&A environment, because of the changes with AEG and what SFX is going through, its privatization, do you see the environment as a buyer, better, if you will?

We've built a fairly unique global business at this point. We tend not to chase deals. We tend, whether it's a management company, on the case of Super Fly, and their comment this week that they mentioned this week to the press, we tend to believe we are a place where an entrepreneur who maybe has already had some success, when looking at the scale that we can bring to their resources, can take Bonnaroo, C3, or Insomniac to new levels. We think we're in a unique class in that point. So whether it was Insomniac or C3 or Bonnaroo, I would say, I don't think in many cases there was much of a bidding war. Others were interested, but those founders believed that we probably could provide them the best opportunity to grow their businesses and using our assets.

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

Rich Tullo, Albert Fried & Company.

Hey, guys. Thank you for taking my question. Nice quarter. My question is, what percentage, or if you could provide a little color on the ads and sponsorships, is derived from the website and content deals versus what we would call traditional, if that exists, sponsorship in the concert business? And just a little follow-up on the VICE TV. Is that a YouTube channel or a traditional cable TV channel?

Rich, this is Joe. On the sponsorship versus online, we talked at the end of last year on those numbers. It was roughly two-thirds, call it sponsorship, traditional delivery, and about one-third of it was online, to give you the general mix. And in terms of the VICE channel, we have not announced exactly how that channel will be distributed, so those announcements will be coming up over the next month or so and it will be launched this summer.

And is there any way to provide a little color on the growth of the online product versus anything else, because I would suspect that, that is growing, excluding the lift from sponsorships, is growing quite fast?

I gave you my numbers that North America online was up about 35% AOI, so, yes, online is growing strongly. As Michael said, we've also built a network of over 60 million uniques, and that brings us into a whole nother class with Madison Avenue, as top three music-related sites, so we absolutely expect some good portion of our growth will be driven by the online this year.

Thank you.

And, ladies and gentlemen, this concludes the Live Nation Entertainment first-quarter 2015 earnings conference call. You may now disconnect.