Live Nation Entertainment, Inc.

Good day everyone, my name is Hector and I will be your conference operator on today's call. At this time, I would like to welcome everyone to Live Nation Entertainment's second quarter 2021 earnings conference call. Today's conference is being recorded. Following management's prepared remarks, we will open the call for Q&A. Instructions will be given at that time. Before we begin, Live Nation has asked me to remind you that this afternoon's call will contain certain forward-looking statements that are subject to risk and uncertainties that could cause actual results to differ, including statements 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 risk and uncertainties that could impact the actual results. Live Nation will also refer to some non-GAAP measures on this call. In accordance with the SEC Regulation G, Live Nation has provided definitions of these measures and a full reconciliation to the most comparable GAAP measures in their earnings release or website supplement, which also contains other financial or statistical information to be discussed on this call. The release reconciliation and website supplement can be found under the Financial Information section on Live Nation's website at investors.livenationentertainment.com. It is now my pleasure to turn the conference over to Michael Rapinoe, President and Chief Executive Officer of Live Nation Entertainment. Please go ahead, sir.

Good afternoon, and thank you for joining us. As communities reopen, we're seeing the pent-up demand for live events play out as artists and fans are eager to reconnect in person. In the U.S. and U.K., we're seeing strong ticket sales and the restart of our concerts and festivals highlighted over the past weekends by Lollapalooza and Rolling Loud in the US and Latitude in the UK, hosting three quarters of a million fans combined. With vaccine rollouts increasing throughout Canada and Europe, we expect additional markets to open up broadly in the coming months. And momentum for the return of Vive has been building every month, with ticket sales and concert attendance pacing faster than expected underscoring the strength and resilience of the concert business and live events in general. This progress, combined with our cost discipline, has enabled us to deliver positive AOI for the second quarter, well ahead of where we thought we would be for this quarter. We expect to see further ramp-up accelerate for the rest of the year, with all segments returning to AOI profitability for the second half of the year, setting us up for a full-scale 2022. As we put more shows on sale for this year and next, ticket sales are the best early indicator for concerts and our overall business. To that end, June was Ticketmaster North America's fourth best month in history for transacted ticket volume. This was driven in part by our U.S. concert division putting the highest number of shows on sale ever during a single month, 50% more than the next highest mark back in 2019. In concerts, our recovery this summer continued to be led by our outdoor events at our festivals and amphitheaters. We expect to have over 6 million fans attend our festivals during the second half of the year, with about two-thirds of our festivals increasing their attendance compared to 2019. Most of our major festivals sold out in record time, while average ticket prices have been 10% higher than 2019. And while still early, and our amphitheater shows over the past few weeks we have delivered strong double-digit increase in average per-fan revenue and on-site spending versus 2019. Looking forward to 2022 and now 2023, all our leading indicators continue to point to a roaring era for concerts and other live events. Starting with our concerts division, every major venue type, arenas, amphitheaters, and stadiums have pipelines indicating double-digit growth and our show count in ticket sales relative to 2019 levels. In some cases, our pipeline is so strong, we are extending our planning into 2023 and even beginning to discuss tours that extend into 2024. At the same time, Ticketmaster's leading-edge technology continues to attract new clients, adding 11 million net new fee-bearing tickets so far this year, already surpassing any previous full-year growth. As a result, Ticketmaster is set to benefit in 2022 from both increased Live Nation concert ticket sales as well as additional sales from new clients. In our sponsorship business, our brand partners have maintained and grown their interest in live events, with contracted sponsorship up double digits for 2022 from where we were at this point in 2019 for 2022. As our revenue is rebounding, we continue to evolve our business to maximize opportunities in the global recovery and strengthen our flywheel. We have structurally reduced our cost basis by $200 million, making us more nimble in converting more of our revenue to AOI. We have integrated our Ticketmaster team globally, enabling us to work toward a global product roadmap that will both reduce our costs and increase our flexibility and speed to deploy new client tools and improve our marketplace experience. And we continue to build our direct-to-consumer business with initiatives ranging from streaming concerts to NFTs to artist merchandise, bringing more value to artists and deepening fan relationships. These enhancements, combined with our strongest supply and demand dynamics our industry has ever seen, are fueling our core flywheel strategy and setting us up for multiple years of growth with attendance, revenue, and AOI. And with that, I'll let Joe take you through more details of our results.

Thanks, Michael, and good afternoon, everyone. As we've done over the past year, we've added some tables at the back of our earnings release that reconcile in more detail some of the numbers I will refer to today. In the second quarter, our AOI was positive for the first time since the start of the pandemic, as the US, by far our largest market, accelerated its reopening, also driving our revenue to the highest level since the first quarter of last year. As a result, our contribution margin ramped up faster than expected, particularly in ticketing. Even with the increased activity, our monthly gross burn for the first half of the year was lower than the monthly burn during the last three quarters of 2020 due to our structural cost savings and continued cost discipline. As a result, we remain confident that actions taken to reduce cash burn and increase liquidity will provide us with the runway we need that shows return. And as we move toward reopening in more markets, we continue to balance the strong cost and cash management with making the necessary investments to grow the business. While we expect to generate positive AOI overall and for each segment for the second half of the year, we will also reduce costs this year by over $800 million and reduce cash spend by $1.5 billion relative to pre-pandemic plans. Looking at our Q2 results, Revenue for the quarter was $576 million compared to $74 million in the second quarter of 2020 for growth of over half a billion dollars. All three of our business segments more than doubled their revenues from last year. Our AOI for the quarter was $10 million compared to a loss of $432 million for the second quarter of 2020. Our Q2 2021 AOI consisted of $351 million of contribution margin which included $364 million from operations along with various one-time items including gains from insurance recoveries and government support and losses from ticketing service fee refunds paid out. This was then offset by $341 million in operational fixed costs. Getting into our business segments a bit deeper, starting with ticketing, which was the primary driver of our results this quarter, Contribution margin for the quarter was $204 million, or nearly 60% of our total contribution margin, delivering $99 million in AOI. Ticketing revenue for the quarter was $244 million, or just over 40% of our total revenue for the quarter. Each month of the quarter, Ticketmaster had progressively stronger results, culminating with June being Ticketmaster North America's fourth best month ever for transacted ticket volume. In general, North America drove much of this resurgence, accounting for over 75% of total transacted tickets in the quarter, as compared to approximately two-thirds of transacted tickets for 2019. Concert tickets drove much of this activity, and as a result, the top 10 artists sold over $513 million in GTV during the second quarter this year, compared to $329 million in the second quarter of 2019. Secondary ticketing has similarly rebounded. Our June GTV was only 8% below June of 2019. That trend has continued into the third quarter, with July 12th marking the highest resale GTV day in our history, driven by the US Open, along with strong NBA, NFL, and concert resale volumes. These results in ticketing are a leading indicator to our concerts business. For the second quarter, Our concert's AOI loss of $84 million was an improvement of $127 million relative to Q2 last year, and our revenue was up $145 million relative to Q2 last year, as we promoted nearly 1,700 shows for 1.3 million fans during the quarter. More importantly, these ticket sales drove our event-related deferred revenue up to $2.1 billion representing a pipeline of future activity even higher than the $1.6 billion we had at the end of the second quarter in 2019. In part, this event-related deferred revenue is associated with over 25 million tickets we have sold for our concerts in the second half of this year, along with also being part of the 14 million tickets that we have already sold for concerts in 2022. which reflects strong double-digit growth in our 2022 pipeline for show count and fans relative to 2019. Sponsorship and advertising then naturally flow from our ticketing and concert platforms. Our sponsorship and advertising AOI for the quarter was $13 million and revenue was $45 million, with the bulk of our activity tied to our ticketing platform and concert presales. We continue to find brands are committed to maintaining or increasing their spend with Five Nation to reach our music fans and other live event audiences. And during the quarter, we added several long-term strategic partners, including Allegiant Air, Adobe, and Cinch, in the airline, technology, and auto sectors, respectively. And more broadly, we expect our sponsorship and advertising full-scale activity to return somewhere between ticketing and concerts timing. Most importantly, As we look out at our 2022 pipeline, confirmed activity is pacing well ahead of where we were in 2019 at this point, and with many multi-year contracts on the books, we are lining up to be growing this business in 2022 and beyond. Looking at free cash and liquidity, as of June 30th, we had total cash of $4 billion, including $1.1 billion in ticketing client cash and $1.8 billion in net concert event related cash, leaving free cash of $1.1 billion. This was flat relative to our first quarter reported number. Our free cash, along with $971 million of available debt capacity, gives us $2.1 billion in readily available liquidity, up from $1.6 billion at the end of 2020, and steady with our Q1 ending liquidity. Benefiting our free cash position in the second quarter was $161 million in favorable timing, largely the result of classification of our event-related deferred revenue between short term and long term. Our total free cash usage in the quarter was $163 million, or $54 million per month, which included $115 million per month of operational burn, up from $100 million per month in the first quarter, as furloughed employees returned to prepare for our reopening, and we reinstated full pay for most employees. Plus another $58 million per month of non-operational cash costs, including investment in capital expenditures, acquisitions, and artist and ticket client advances, to give us $173 million average per month in gross burn. And in Q2, we had $119 million average per month cash contribution margin, double our Q1 average. Turning to other balance sheet items, more on deferred revenue. At the end of the second quarter, event-related deferred revenue for shows that will play in the next 12 months was $2.1 billion, up from $1.5 billion at the end of the first quarter. Ticket sales in the second quarter were nearly $900 million, while refunds totaled $100 million, and a shift of deferred revenue from short-term to long-term for shows that were rescheduled into the back half of 2022 totaled $150 million. This long-term deferred revenue will then largely shift back to short-term during Q3 and Q4, reversing the timing benefit and free cash this quarter. Our total capital expenditures were $52 million for the first six months, with $38 million spent on revenue generating items. As markets have reopened faster than expected, we will similarly be accelerating some of our investments to take advantage of additional opportunities this year and into 2022. As a result, we now expect total capital expenditures for 2021 to be approximately $170 million, with over 60% of this spend going into revenue generating CapEx projects. Our total debt as of June 30th was $5.3 billion, and our weighted average cost of debt was 4.4%, with about 90% of that debt at a fixed rate. Finally, looking forward, as Michael said, we continue to expect concerts to scale further in the second half of this year in key markets, notably outdoor and led by the US and UK. With this activity, we will continue to ramp up our operations, enabling Ticketmaster to run its on-sales, the Concerts Division to book and market 2022 tours, and sponsorship staff to support delivery for brands on-site and online. Given the COVID issues in our key markets appear to be short-term at this point, we continue to expect 2022 activity and results to exceed 2019 levels with continued growth opportunities from there. With that, let me open the call for questions. Operator?

Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question comes from the line of David Karnofsky with J.P. Morgan. Please proceed with your question.

All right. Thank you. You know, just with COVID kind of being what it is at the moment with the Delta variant, can you just maybe talk through how you're thinking about navigating some of the challenges that might come up in the next, you know, month or two, you know, like changing health mandates, shifts in demand, you know, any hesitation or concerns on the part of the artists?

Sure, David, this is Joe. I think what we're seeing is a shift to increasing requirements for entry of either vaccinated or tested or fully vaccinated. We had that at Lollapalooza over the last weekend, very successfully done. Over 90% of the people were fully vaccinated, which I think was a great signal in terms of people's commitment and support of being vaccinated in order to go to these shows. So my expectation is that we will see that continue, whether at the artist level, at the city level, like New York just announced, or other large crowds. Frankly, Lollapalooza certainly went above and beyond what was happening at baseball games in Chicago. And similarly, I think in other markets, we're going above what others are doing. So we'll continue to focus on that. I think the great news is, At this point, the discussion is around what are the requirements to hold the events, what do we need to see in terms of vaccinations and testing, not hearing discussions certainly in the U.S. or the U.K. about impacting those shows to any scale.

I know you just restarted at the AMTS and the festivals, but any early insights into fan behavior so far? You mentioned per caps were up at the AMTS. Is there any additional color you can provide and what's driving that? And then maybe with digital ticketing, any learnings from having that tech rolled out at scale across your own music venue footprint? Thanks.

At this point, we've probably done about 50 amp shows that we've gotten the data on in time for today's call. And as we said, all of that looks to be continuing to trend up. People are buying more food and beverage. We're selling more VIP packages, more upsells. So in general, the pocketbooks are open. I think it's premature to get any real specific inferences, and I think it's also just it's a little bit early to get the specific impact of digital ticketing. We believe that eliminating friction always helps commerce, but we probably won't have the data on that until our next call.

Thank you.

Your next question comes from the line of Steven Lazachick with Goldman Sachs. Please proceed with your question.

Hey, great. Thank you. On the 2022 concert pipeline being up double digits versus 2019, I was wondering if you could give us a sense on how much of the pipeline is for sale today or sold today versus how much is still to come. And then as you maybe look out over the next few quarters, how much headroom do you think is left to grow the concert slate in 2022, given some of the scheduling and health constraints you're working with. Any commentary there would be helpful.

So I'll start, Joe, and then you, Joe. Most of our 2022 new tours wouldn't be on sale yet. Most of what you see on sale is what would have been rescheduled from 21 are already on sale. So we have a large on-sale slate planned between now and end of the year for most of the big global tours that will go out in 22. And we're not, you know, we're very content with our 22 lineup right now. We're talking mostly about what to add now into 23 and 24. So that idea that it's just one year of bigness isn't really true. We've got three, four years here of strong demand that we're going to smooth out over the time. so everyone can get the right markets and the right Friday nights and the right dates. So we see a good few-year run with all this pent-up inventory.

Got it. Thanks. That's helpful. And then on the Ticketmaster side, you mentioned you added $11 million net new fee-bearing tickets year-to-date. I think that was up from around $5 million last quarter. I was wondering if you could talk a little bit about who you're winning this ticket business from. Is it certain types of venues, leagues, teams? Maybe some of the things that's resonating with your pitch with these potential ticketing partners. Thank you.

Yeah, it's really happening on a global basis. We're seeing it in the U.S., we're seeing it in Europe, we're seeing it in Asia. We put out various releases in terms of as we've been picking up some clients. But I wouldn't say that there's one market or one type of client in particular. It's pretty broad. I do think what's resonating is we've been very loud in terms of are declaring the extent to which we're continuing to invest in ticketing, in the shift to digital ticketing, and the benefit that that's going to be giving to the teams, the venues, and the customers. And that seems to be working with the clients we're talking to.

Great. Thank you.

Your next question comes from the line of John Janidis with Wolf Research. Please proceed with your question.

Thanks. I just had two questions. One was with the expectations for the touring super cycle over the next two to three years, can you talk about how you're thinking about the demand side in terms of fans, and do you assume sellouts through the cycle are at pre-pandemic levels or maybe higher or lower? And then on the ticketing margin side, there was a lift there. Is that a chunk of the $200 million in cost savings kicking in, and is something close to that level of new normal, or are there any items to call out?

I'll do demand side. I think from the data we're seeing so far, everything we seem to be putting on sale is doing better than pre-pandemic. So demand seems to be pent up. Most of what we see going up for 22 is great quality tours and artists. So we would expect, as we've seen over the last 10 years, demand overall for live on a global basis has continually been growing and We like to always point out we think that the product is still underpriced, given all of the secondary business. So this is still an attractive night out for a fan. And now that artists are traveling more around the world, the fan base has grown for live as a functional entertainment item. So we think global demand will continue to have double-digit growth as an industry for many years to come as the global landscape continues to grow.

And then, John, on the TM margin, I mean, clearly I spoke in my comments that we're looking this year that we're going to be reducing our total cost structure by about $800 million relative to where we were pre-pandemic. And the $200 million structural savings is a subset of that. So what we're navigating this year is the pace at which we bring back some of the costs versus the pace at which we ramp up activity. And it's not going to be totally linear we had a great month of June in TM and we're finally getting back to scale there and we expect to have nice scale with Ticketmaster in the second half but the first part of the year was lower scale so overall yeah we expect margins to improve because a large chunk of that 200 million is going to come out of Ticketmaster and that would just naturally flow into a margin I wouldn't try to overly analyze the single quarter, and let's get you a few more quarters at more traditional scale with more traditional costs and staffing over the next six months.

That's helpful. Thanks, Joe.

Your next question comes from the line of Brandon Ross with LightShed Partners. Please proceed with your question.

Thanks. A couple of questions ago, the conversation centered around ticketing wins and press releases for you guys. And I thought one of the more interesting developments in the quarter was the extension and expansion of your relationship with ASM for two reasons. One is that ASM is obviously half AEG and it didn't go to access. But more so, that Ticketmaster could sell tickets for Live Nation-promoted shows in the other ASM venues. And the North American ticket model has been exclusive for as long as I can remember, at least. Is this a sign of change in the future? Do you think that exclusivity model is here to stay, or do you think, depending on event types, the promoter will ultimately control the ticket.

Yeah, I think the exclusive approach has worked well for the venues and the ecosystem is a large part of how the venues get funded and how the venues then make the rental costs approachable for promoters and artists. So it's an ecosystem that's worked well in the U.S., and the Ticketmaster, as you know, has been a very large source of funding and the profit stream for the venues. I wouldn't read too much into this. If you look at ASM's scale, that's not a common, typical scale in terms of the number of buildings they have. It's also a fairly unique situation where you have somebody who owns buildings who's saying, we're going to let you bring in Ticketmaster regardless of of the situation and they control both sides of that decision-making. Um, it's not something that we are looking to do or that we see as any real mark of the, of the industry going forward.

But I would add Brandon, I think the most Brandon, I wouldn't say the most important thing you said is what you led with is the fact that, um, ASM owned by AEG and, uh, and, and a private equity fund, the largest venue management company, um, obviously did their homework and debated their own ticket options and renewed with Ticketmaster because we ultimately provide the best global solution in ticketing for them. I assume they would have liked to have used their own in-house ticketing system, but I think our relationship and what we've done for all those venues for so long won us that business and that renewal. So that was a very important renewal, a very good testament to Ticketmaster's I give the ASM management team credit. They put their bias aside and went with the best option in the marketplace after looking at all options. So we are very proud of that. That's a very good testament to the Ticketmaster core competency. You hit that part for sure. Cool. Thanks. And you can update your Twitter now that we've talked about COVID and Delta. We assumed it would happen on this call.

I apologize. Your next question comes from the line of Ben Swinburne with Morgan Stanley. Please proceed with your question.

Hey, can you hear me?

Yeah, Ben. Big buildup.

Yeah, better not blow it. A couple of questions. Joe, you ended your prepared remarks, I think, by saying you continue to expect 2022 activity levels to exceed 2019. And I apologize if that's a reiteration of prior guidance that I might have missed. But I just wanted to ask you what you meant by that. Is that a comment about revenue and AOI? I know where the street expectations are, but I thought I'd give you a chance to maybe expand on that. And then... My second question is just, you know, you made a helpful comment around sponsorship saying that I think contracted businesses up double digits for 22 relative to where you were in 19 for 20. I guess a similar question to the ticketing question. How much of the forward year is sort of already in the books typically to understand, you know, what that tells us about next year and make sure we don't over extrapolate that comment about growth for a sponsorship? Thank you.

Yeah, just in terms of overall 22 expectations. First, it starts for us with what are the concert bookings? What do the show count look like? And from that, our expectations on the ticket counts, both of which we think, again, are up relative to 2019 based on what we said. And I think as we've gone through the past three months, whatever we said three months ago, we're more confident in that at this point. And as a result, we expect then revenue and AOI growth relative to 2019 as well. And sponsorship then would be a part of that expectation, up double digits and committed sponsorship. Usually you'd have, I mean, we've talked about how much of our sponsorship is in the form of multi-year, multi-million dollar, multi-asset strategic sponsors. That's a large portion of our sponsorship base. So You know us, we probably wouldn't be talking about expectations of growth for next year already at this point unless we had a pretty good feel that a lot of it was committed.

Sure. Makes sense. Great. Thank you very much.

David Katz, if you're on the line, can you go ahead and ask your question? I think you're next in the queue. You can hear us?

Okay. If you can all hear me okay?

Yep, no problem.

I appreciate you taking my question. I appreciate all the detail. What I wanted to ask about, since it is prevalent in a lot of other areas of our coverage, is the issue of human resources and labor, where we have seen a lot of constraints around, frankly, getting people to come back to work. You made a comment about it, and you prepared remarks about bringing people back into at full salaries and so forth. You know, is that a matter that you have had to, you know, deal with, work around, strategize around, and how do you see it?

Yeah, I'd start with, as you know, unfortunately we had to furlough a reasonable number of people over the course of last year. At this point, we've brought back over 90% of our furloughed staff. Of those we've called back, over 90% have returned. For low, we had a fairly low turnover rate. We think turnover rate at or below the overall entertainment industry. So we feel very good about how we've been able to retain staff. I think it's a testimony to people's commitment to our industry and the culture that we've built here. So in terms of the core people, they're the ones that we've talked about bringing back the shows, bringing back the ticketing and the sponsorship. Those people are in place. As we've put on our shows in various amphitheaters and festival sites around the country and around the world, we've been able to get the volume of people we needed. It hasn't been a material cost impact. Taking in total, we've had to work a bit harder at times to find the people, but it has not impacted our ability to put on the shows.

Perfect. Thank you very much. I would add to that, I think the only piece that we're working through right now is all of the part-time employees that are on the front of the line at the amphitheater, at the festival. We're going to be rolling out soon our kind of mandated vaccine for our employees. We're going to move forward and be very progressive on ensuring all our employees are vaccinated. And we're going to move more with artists and managers where we're seeing more the likes of these artists that are going to want fully vaccinated and tested shows as ways to continue to keep the show moving forward. So I think the biggest challenge we've had is just scrambling on a day-to-day basis with part-time employees back and abiding by different local COVID laws, masks, no masks, no test, no test. I think that's been our only real challenge from an HR and a communication. So hats off to my front line. They're doing an incredible job running hard trying to adjust, and we're going to move to more central protocols now on mandating the vaccine and helping them out and ensure they're all safe too. Super helpful. Thank you.

Steve Gagola? Your line is now live. Steve, are we here? Hey, Steve. Go ahead.

Hi. All right, guys. Thank you. Well, you still have the best earnings call music, so if that means anything. I just had a question on, can you discuss how much the ticketing GTV was tied to sports versus concerts in the quarter and how you see that mix over the second half of the year?

Yeah, those are certainly the two largest components, concerts and sports. And we'll, again, in the second half, as we relaunch, the second half, you'll relaunch NBA, NHL, NFL, all of those at scale. So you'll have a big full season of the three major sports. And at the same time, you're going to have a massive on sale for 2022, like I wouldn't try to parse exactly which one's bigger than the other in a given month, but those two will be the two key drivers as they were in the past few months.

Okay. Thanks, Joe. And I don't know if you already said this, so I apologize, but on the guidance for AOI profitability across every segment in the second half, is that for each quarter or is that just the sum of Q3 and Q4?

We just, our comment was for the sum of Q3 and Q4 that each segment we expect to be AOI positive. Okay.

All right. Thank you.

Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to close the call out. You may disconnect your lines at this time. Thank you all for your participation.