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?