Live Nation Entertainment Inc (LYV) 2015 Q4 法說會逐字稿

Good afternoon. My name is Angela and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Live Nation Entertainment fourth-quarter 2015 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 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 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 of the most comparable GAAP measure in their earnings release. The release conciliations 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 Financial Officer of Live Nation Entertainment.

Good afternoon and welcome to our fourth-quarter and full-year 2015 conference call.

2015 closed as a record year for Live Nation, driving both financial and operating results. Revenue AOI and free cash flow all grew 11% for the year, and delivered record ticket volume of 530 million tickets.

We continue to see the tremendous power of live events with strong global consumer demand. Live is truly a unique entertainment form that cannot be duplicated. It is elevated and not threatened by technology and is borderless. Fans around the world can now discover, follow, share, and embrace artists, creating even greater demand for live shows. We believe the live music sector will continue to have strong growth from years to come as fans globally drive demand, artists are motivated to tour and technology is driving awareness and conversion. We are seeing this come to life in our Live Nation Concert division which continued to grow its global market share, adding 5 million fans in 2015 for a total of over 63 million fans, while promoting 25,000 concerts, up 12% a year from last year.

We've built on our global leadership position in every part of the business with more fans in both North America and international, and across our full portfolio of arenas, amphitheaters, festivals, theaters and clubs.

The ongoing flow of new artists also continues to re-energize the business and in 2015, 13 of the top 20 selling arts were new from the previous year. We see growth continuing into 2016 and through February 19, ticket sales are up 5% year-on-year, driven by 18% growth in amphitheaters and 47% growth in stadiums. We are confident we will again see strong growth in fan demand across our business this year.

Our Live Nation advertising business grew 17% in 2015 at constant currency, increasing both on site and online advertising, as we grew our global sponsor base by 20% to almost 900 brands. Onsite advertising drove the majority of our growth for the year as we increased advertising per fan by 8% by continuing to develop new products for sponsors at our events.

With 63 million attendees, Live Nation provides brands an audience larger than the NFL, NBA or NHL for direct consumer engagement. And we continue to see brand shifting dollars onsite.

We also continued leveraging video content from our events, generating over 300 million views in 2015 on Live Nation Web and Apps and through our distribution partners at Yahoo!, SnapChat, YouTube and Apple. We expect continued advertising AOI growth at historic levels in 2016 with over 60% of our budgeted advertising for the year already sold and pacing ahead of last year at this time by double digits.

For the fifth straight year, Ticketmaster grew its ticketing volume and GTV by 12% at constant currency. Delivering over $25 billion in GTV, Ticketmaster continues to be one of the top global eCommerce sites operating in 23 countries.

In 2015, secondary ticketing continued to be a major focus, now operating in 13 countries and delivering 34% growth in GTV per year of $1.2 billion at constant currency.

As we focus on improving the fan buying experience, there continues to be a rapid shift to mobile devices as the preferred purchasing platform. At the end of 2015, over 21 million fans had downloaded one of our apps, a 37% increase over last year. This drove a 20% increase in mobile tickets for the year to 21% of total tickets.

Entering 2016, the Ticketmaster marketplace is better positioned than ever as the ticketing leader in 16 countries. We have grown our client base each year over the last five years and combining the primary and secondary marketplaces have substantially increased inventory available to fans and conversion by 38%.

We have heavily invested in online and mobile products to increase visits to our site and conversion and as a result, already in 2016, we have three days selling over 900,000 tickets, placing them among the top 15 days of all time, setting us up to deliver a robust growth in 2016.

As we look forward in 2016, all key indicators for each of our businesses are up on year-on-year through February pointed to continued strong growth in 2016. We plan on holding more concerts for more fans in more countries than ever before. We expect to sell more advertising both on site and online, and through continued product innovation with Ticketmaster, we plan on selling more tickets and driving increased conversion.

Over the last three years, we have grown AOI by 34% and free cash flow by 45%. We expect Live Nation to continue delivering this level of growth that we have demonstrated over the last several years. We see the global live sector continuing to be very robust from a supply and demand perspective. Combining the growing global industry and Live Nation's ability to grow its leadership position, we expect to continue driving long-term value for shareholders.

With that, I will turn it over to Joe, who will take you through additional details on each division.

Thanks Michael. Looking at our business segments, first concerts. For the full year, concert revenue was up 11% and AOI up 36%, both at constant currency. We grew attendance by 8% to a record 63 million fans, once again promoting 20 of the top 25 global tours, including U2, Madonna, One Direction, and Ariana Grande. And we've continued our global expansion with three new countries, including adding promoters in Germany, the second largest European concert market.

For the year, looking at the markets, in North America, we grew attendance by 9% to almost 44 million fans with show counts up 6% and attendance per show up 3%. And arena and amphitheater attendance were each up by over 1 million fans. Internationally, attendance was up 7% driven by arena attendance growing over 1 million fans.

Globally, we continued growing our festival portfolio, increasing attendance by 1.5 million to over 6 million for the year. Following our acquisition of Bonnaroo, we now own four of the top five festivals in North America.

In addition to growing global market share through more shows, more fans and more markets, in 2015, we increased our onsite fan monetization at amphitheaters and festivals by 6% to $19.50 per fan.

Looking specifically at the fourth quarter, concert revenue was up 17% and AOI up 30%, both at constant currency. These results were driven by a 15% increase in attendance to over 15 million fans, with a 13% increase in show count. Of this, North America attendance grew by 9% in the quarter, largely from festival and amphitheater activity, and international attendance was up 26% driven by arena activity.

As we move into 2016, through mid February, ticket sales are up, as Michael said, and our confirmed show pipeline for amphitheaters, arenas and stadiums is up 15%. And we already have two artists, Coldplay and Beyonce, that have each sold over 1 million tickets for tours this year.

At Artist Nation, revenue was up 13% at constant currency in 2015. Last year, we broadened our relationships with a great set of managers and artists and expanded into new business lines. Looking forward, we expect this business to continue feeding our concerts business and providing an important foundation of support for all our businesses.

Turning to our sponsorship and advertising business, sponsorship and advertising delivered 17% revenue and 15% AOI growth for the year at constant currency. And in the fourth quarter at constant currency, revenue was up 11% and AOI was flat as we compare the AOI to the fourth quarter 2014 when we had 24% year-on-year growth.

Finally, Ticketmaster. In 2015, ticketing revenue was up 10% while AOI was up 11% as we grew global GTV on fee-bearing tickets by 12%, all at constant currency.

Achieving these results at Ticketmaster came from delivering on three key drivers. First, increasing our ticket inventory, which was accomplished by maintaining our net renewal rate at over 100% for the sixth straight year and building our secondary marketplace with nearly double the number of events having integrated inventory.

Second, with improved products, we drove a 10% increase in site visits along with increased conversion from integrated inventory. This drove primary GTV growth of 10% for the year and secondary GTV growth of 34%, both at constant currency.

And finally, we delivered the $0.35 per ticket North America cost savings that we targeted.

For the fourth quarter, our GTV and revenue were both up 11% and AOI up 10% at constant currency.

So, in summary, in 2015, each of our core businesses grew revenue and AOI as we successfully delivered the final year of our three-year plan. Looking forward, in 2016, we expect to continue our growth with concerts, advertising, and ticketing leading indicators all strongly up, giving us confidence in our ability to continue growing our business at historical rates.

A few points of note. First, from a phasing standpoint, with our planned strong summer season across amphitheaters, arenas, and stadiums, we expect our AOI to be even more Q3-driven this year and a bit more Q2-driven as well. And on FX, we don't see a material impact on Q1 at this point.

I'll now turn the call over to Kathy to go through more on our financial results.

Thanks Joe, and good afternoon everyone. Starting with our results for the fourth quarter, revenue was $1.8 billion, up 15% from the fourth quarter of 2014, and AOI is $111 million, up 54% over last year, both at constant currency. As reported revenue is $1.7 billion and AOI is $101 million. Free cash flow is $10 million for the quarter.

All of our segments delivered revenue growth for the quarter. Concerts delivered the majority of the growth from higher festival and amphitheater activity in North America and increased arena activity internationally. Ticketing revenue was up due to both higher primary and secondary ticket volume.

Reported AOI for the fourth quarter was $101 million, up 40% from the fourth quarter last year. FX impact for the quarter reduced AOI by $10 million or 9%.

The majority of our AOI growth in the quarter came from the concerts and Artist Nation segments. Concerts improved from increased show activity, and Artist Nation AOI was driven by higher management commissions and increased profitability within new service lines.

Our operating loss in the fourth quarter was $34 million on a constant currency basis, up 17% compared to the normalized loss of $41 million last year that excluded non-cash charges of $146 million.

FX impact in the quarter increased the operating loss by $7 million to $41 million on a reported basis. Our net loss for the quarter was $71 million at constant currency, a 12% improvement from the normalized net loss last year of $81 million, again excluding non-cash charges. The FX impact for the fourth quarter increased the net loss by $7 million to $78 million on a reported basis.

Moving to the full-year results, revenue was $7.6 billion, AOI is $616 million and free cash flow is $362 million, each up 11% over last year at constant currency. As reported, revenue is $7.2 billion, AOI is $578 million, and free cash flow is $335 million.

For the full year, all of our segments delivered double-digit revenue growth. Concerts was the largest driver with growth in our North American arena, festival, and amphitheater results along with strong arena activity internationally. The other main driver of the increase was in ticketing with higher primary and resell ticket volume driven by more concerts and professional sporting events.

AOI for the full year was $578 million, as reported. FX impact for the year reduced AOI by $38 million or 6%. Sponsorship and advertising AOI grew 15% at constant currency from higher festival sponsorships and online advertising. Ticketing AOI was up 11% at constant currency driven by the growth in primary and secondary ticket sales. And concerts AOI was up 36% at constant currency from higher show activity.

Operating income at constant currency was $156 million for the full year, in line with normalized operating income of $161 million last year, excluding non-cash charges. FX impact for the year reduced the operating income by $25 million to $131 million on a reported basis for 2015.

Our net loss for the year was $13 million at constant currency. The FX impact for the year increased the net loss by $20 million to $33 million on a reported basis.

Free cash flow for the year is $362 million at constant currency, up 11% over last year, driven by our growth in AOI.

Moving to our key balance sheet items, as of December 31, we had total cash of $1.3 billion, including $549 million in ticketing client cash and $351 million in net concert event related cash with a free cash balance of $403 million. Cash flow from operations was $300 million for 2015, an increase of 8% compared to $277 million last year. Our total deferred revenue for future shows as of the end of 2015 was $553 million, up 19% over the $464 million at the end of 2014.

Our total capital expenditures for the year were $145 million with maintenance CapEx of $79 million and revenue-generating CapEx of $66 million. Going forward, we expect total capital expenditures to continue to be around 2% of revenue.

As of December 31, our total net debt was $2 billion and our weighted average cost of debt was 4.2%. Our debt covenant requires a maximum leverage ratio of 4.75 times, and we are comfortably in compliance with this.

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

(Operator Instructions). Amy Yong, Macquarie.

I have two questions, one on ticketing and one on ad sponsorship. So, StubHub has talked about growth slowing in 2016 and that probably bodes well for you. But can you give us some additional color on market share and progress in the secondary market? And then secondly, as you expand globally, how are your conversations changing with your sponsors and ad buyers?

I'll do the sponsorship, which is the easier one, and then we'll work into ticketing, which revolves around share. Our sponsorship business, we have, as we said, 900 sponsors -- our business of those 900 -- a majority of those are a local or a regional business. So when we open an office in South Africa, our first priority is to build a local sponsorship team to take advantage of the regional Coca-Cola or Audi dealership ad dollars who are usually the easiest and more likely to spend on an onsite regional basis.

So every time we open up a regional office, we get to enter a new business called the regional advertising business. And then the top 10% of our sponsors, the Citibanks, the American Expresses, the Pepsis of the world, the more times we walk into top kind of 15, 20 cities around the world, we start to be able to expand our US deal which started in American Express but then became a US Canada deal, then it became a US Canada and European deal, and now we've just added Australia to it. So as we build, we are able to attract those global brands and provide them a global footprint.

Most -- if you think about it, really the only other sport that can do that is kind of FIFA World Cup or the Olympics. Most everything else is a local business. So we do provide that brand like Anheuser-Busch, who we are talking to on a global basis, a global platform solution. And we see that as a big opportunity in how we will keep our double-digit growth.

On secondary --

On secondary, obviously it's a little bit of guesswork on the market share. I think our take would be that our market share is now in the 20s%. From StubHub's reported numbers, it seems like they are likely in the 50s%. It seems that we both grew in 2015 faster than overall market, so continue to build share. We remain very positive on our positioning and our ability to continue to drive our growth and share overall.

When you look at the asset base that we have, the partnerships with the teams and the leagues and the very rapid growth that we've seen on Ticketmaster with our integrated inventory, and now that we are in 13 countries and at varying levels of integration between the primary and secondary, I think we remain very positive about 2016 with that business.

Okay, great. Thank you.

Jason Bazinet, Citi.

I'm going to break the rules here a little bit, but maybe you'll indulge me, because I'm really asking you a question that's my job, not yours. I am perplexed by the way your stock has traded sort of over the last two months. I don't know you have any insight in terms of why you think the market is nervous about something, and if at all you think these results have sort of addressed whatever the buy-side's concerns may be.

I think there is a whole bunch of debate out there on what's happened the last couple of months in the market overall. So we certainly have felt it. We talk to our top shareholders, the long players. Our long shareholders seem to understand that are fundamental business is strong with great growth potential.

So we can't give you any perfect insight into what would have been the reason for any decline over the last couple of months. But as we say, we're just thrilled going into this quarter we were going to put down a record 2015 on our way to hopefully a record 2016. So, we have been public 10 years now and we've lived long enough to know that the stock price will follow the good results eventually in between the noise in the middle. So we are very confident. We've got a very strong business that we will continue to grow, put cash flow on the table and be a really good option for an investment in the entertainment or the music space.

Excellent. Thank you very much.

Ben Mogil, Stifel.

This is actually Kevin Lee for Ben. Thank you for taking the question. A few years ago, you gave multiple-year guidance and the drivers behind that. I'm not expecting this on this call, but when you look at the core engines of ticketing and sponsorship, I just want to dig a little deeper. What takes ticketing from, say, the current level to, say, $425 million or so of AOI? Is it more cost efficiency, more primary or secondary volume? And similarly, on sponsorship, what kind of gets it to the $325 million level? Is it more impressions, volume, or is it just moving up the rate card? Thank you.

I think we are doing a good job, at least in this call, of suggesting that we believe we hit -- we will repeat history in terms of our growth rate. So, if you looked at our stock over the last three years and what we have been able to do on a revenue and a cash flow perspective, we see no reason why we can't continue to grow this business at similar rates.

In order to grow, number one is we have an incredible unique business model at this point. With our scale leveraged across our flywheel, we are able to drive some more concerts, which drives a bigger audience, which drives more sponsors, which drives more ticketing fees. So, you're really starting to see the flywheel effect of our business.

So how will we grow ticketing? Both ways you mentioned. We will continue to be more efficient as our new and improved technology comes to life, and we get to retire our old platform and technology that was much more inefficient, so we will have a per-ticket savings. Over time, it will continue to drive our savings on that side.

But we still have Ticketmaster on a global basis, and one of the things we've done I think really well at Ticketmaster when we took over is to redefine our business. Ticketmaster was looked always at a very I think narrow perspective of the business called arenas in America. We look at ticketing on a global basis, so why we talk about being in 22 countries and growing that, why -- we are very excited on secondary to get way ahead of the curve on those other 12 markets outside of America. So we think we can grow the pie, we can grow our market share within secondary, and grow it on a global basis. We still think we have a lot of room whether it be in clubs and theaters with TicketWeb, one of our products, whether it's festivals with Front Gate, we still think we have room in a lot of the niches within the industry that we have currently or historically not served. So, we think we have lots of room to grow vertical and horizontal in ticketing as well as achieving costs through a more efficient platform.

Sponsorship, as I said, is kind of the bigger a platform it becomes on a global basis, the more people we put through the turnstiles, the more attractive we are to Madison Avenue. So, we are seeing -- we are able to increase our ad units, rate card as you said, take a local partner up to a regional partner or renew him at a higher rate, because we have better assets, both on site and online.

So when we look at sponsorship, it's somewhere in the $2 billion number is what the latest reports would say is spent on music in America out of the advertising budget, so we are still we would say dramatically under our market share. We could double our advertising business before we have to actually even get out of that kind of $2 billion that is dedicated by Madison Avenue to go spend on music onsite activation. So we still think there's a big pie available. The better our ad units and the better our positioning of our business is for Madison Avenue, we think we will continue to grow that business through rate card and through higher per-deal metrics.

David Joyce, Evercore ISI.

Thank you. I was hoping you could provide some more color on some recent transactions. In South Africa, how much business were you already flowing through there, and what does this new deal do for you? Is it solely promotions? I know you spoke earlier of the opportunity to open a sponsorship office. But if you could help us understand how -- what that does for your growth, that sort of thing.

And then secondly on the Sacramento markets, you acquired a property. I am not sure if it's actually a real estate deal but it's something that will be programmed or continue to be programmed like House of Blues. What does that do for you as opposed to a much bigger festival acquisition where you start to see positive results after a year? Thank you.

I'll work backwards. Sacramento, I was surprised how much press I did see on that one too, given the size of it. So that would have been our theater -- they must have very good PR people at the Ace of Spades that we're doing the deal with. So it's a theater club. We have theater and club division. We would book/manage over 100 theaters or clubs, kind of in the 1,000 to 3,000 range. It's a strong, strong category for us globally. And my team under Ron Bension is continually looking for theaters and clubs where we would be taking over booking to drive our business into. So that would be a small deal in relative terms to our business, but that 100-plus theaters and clubs which drives -- which is a great platform for us because it tends to be younger skewed, which means we get present to the Red Bulls and the young sponsors that are really looking for a very young demo, and it also drives our ticketing business. So, they are continually looking for opportunistic theater or clubs to manage and/or book in kind of a non-CapEx manner.

As far as South Africa, it continues to be our 41 countries and path we've been on. When you look around the world, there tends to be these markets like South Africa, Cape Town, where there may be an established promoter who really has a strong market share. He is the go-to kind of promoter or business for any artist that goes to South Africa. We've been working with Attie for years, and he has been our go-to promoter for years, so at a certain point, we have been talking about a deal where instead of spending Rihanna and selling off to Attie where he is monetizing all of the local business, you get to a point where our business is so scalable now on a global basis that when we move into markets like that and acquire and continue to consolidate kind of the global footprint, we then are our synergies of -- drive the local promoter, build our sponsor business and drive our ticketing economics make it very accretive for us.

South Africa, we don't think it's a short-term big business for us, but we think, over a long term over the next five years, we think it is a growth industry, one of those emerging markets that, again, if you are a 19-year-old fan in South Africa, Cape Town, right now, you are on YouTube and you're dying to see Rihanna or Beyonce. So the more and more we sit with these artists and talk about what's their global plans, the more and more they are now looking at places like South America and Asia and South Africa and Cape Town to add to their itinerary. And we want to be ahead of the curve on having our platform in place so we can monetize that content when it touches down.

Thank you.

John Tinker, Gabelli Brokerage Company.

Thanks, hi. Just a couple of quick questions. On the three-year guidance you hit, as you go forward, how important are acquisitions for you in order to hit sort of a double-digit AOI number as opposed to organic growth?

This is Joe. I think, if you look at our business model, we have always viewed tuck-in acquisitions as an integral part where we look to buy pieces that we can feed into the flywheel and add ticketing, add sponsorship, leverage up those. But really the foundation is organic. With the flywheel where it is now, it's now at a scale that we think we can drive very strong growth. And then, again, you're just looking for little pieces that you can build on top of. Like the one we were just talking about, when we bring ticketing, we bring sponsorship, and really put a lot of organic growth on top of the pieces that we put together.

And secondly, this may not be a totally fair question. Liberty Media is creating three tracking stops in the next couple of months. And their ownership in that stake in you will be kept in Liberty Media and Sirius and Atlanta Braves will be spun off. But you will also basically be with 20% of the Atlanta Braves. How do you think you fit into sort of the Liberty Media structure? And do you see any crossovers in any way with the Braves?

You led with I think it was an unfair question, is that how you (multiple speakers)

I was giving you an out.

You can ask them at the next Liberty investor dinner we go to. Listen, Liberty has been a great, solid shareholder for us. Greg and John and Mark Carleton have been very instrumental in playing along with our strategy. We've made them a lot of money since we merged businesses and we both have done very well together. And we would expect Liberty to be a long-term shareholder and a great contributor to our strategy. Where and how they do what with their tracking stocks, as you know, that's not important to me. What's important is that we deliver good returns to our shareholders and good things happen when that happens. And that's our focus and we will keep doing that for Liberty and others.

Thanks.

Rich Tullo, Albert Fried.

Thank you for taking my question. How should we be thinking about ticketing -- I mean concert growth in 2016? Are we talking about expanses on a percentage basis equivalent to what happened in 2015? And is there any areas in particular driving the growth? And on Latin America, is there anything to be concerned about given the geopolitical volatility in Brazil and Venezuela?

In terms of the 2016 outlook, I think a few of the things that we gave you were that year-to-date our sales are up 5% driven with very strong amphitheater up 18% and stadiums up 47%. And also that if you look at our pipeline of confirmed shows today versus the pipeline of confirmed shows across amphitheaters, arenas, and festivals a year ago at this time, that's up 15%. So both of those metrics are indicating that all of our core type of shows are looking up this year.

Stadium was a bit of a lighter year last year, so you are seeing a much higher percentage uptick this year than in the others, but every one of those numbers indicates continued strong growth. I don't think we are at a point where we are going to call exactness on that yet, but certainly looking good from where we are at.

In terms of Latin America, again, for us, this is a global portfolio of 40 countries and 25,000 concerts with 60 million fans. I think our experience is, in any given year, you will have economically, politically, a little bit on the margins of ups and downs, but nothing that we at all see would have any material impact on our business.

Excellent. Thank you very much.

Ladies and gentlemen, this concludes the Live Nation Entertainment fourth-quarter 2015 earnings conference call. We thank you for your participation.