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 third 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. Live music roared back over the past quarter. driving all our business segments to positive AOI for the first time in two years, with company-wide AOI of $306 million. The 2021 summer concert season rebounded quickly, with 17 million fans attending our shows in the quarter, as a return to live reflected tremendous pent-up demand. Festivals were a large part of our return to live this summer, with many of our festivals selling out in record time and overall ticket sales for major festivals was up 10% versus 2019. And we had a number of our tours already sell over 500,000 tickets for tours this year, including fellow tours by Harry Styles, Chris Stapleton, and others. In addition to increasing attendance, strong demand also enabled improving pricing, with average amphitheater and major festival pricing up double digits relative to 2019. And at our shows, fans spent at record levels, with on-site spending per fan up over 20%, in both amphitheaters and festivals compared to 2019. We delivered these results with an operating environment that required us to ramp up quickly, institute new health and safety protocols, and staff our front line in a tight labor market. On a health and safety front, we set the industry standard by requiring proof of vaccine or testing for our shows with no change in fan purchase behavior. More importantly, our protocols proved effective at mitigating major COVID disruptions to our business in the US and UK and allowed us to work in conjunction with local health officials to mitigate transmission risks from our events. On the labor front, we were able to set staffing requirements for our peak outdoor season without any show disruptions. We also saw strong fan demand in our Ticketmaster results. We delivered its highest AOI quarter ever. Q3 was Ticketmaster's fourth highest fee-bearing GTB quarter, excluding refunds. led by sports leagues restarting and concert on sales for 2022, wrapping up. In addition, Ticketmaster's secondary business delivered its highest GTV month in September, showing continued growth in the segment, even as artists and content owners continue shifting more of the value to primary sales. And as the fans came back, so did our brand partners, who continue to seek to connect to the live music fan. As a result, our sponsorship and advertising business delivered over $100 million in in AOI for the quarter, the first time at this level since Q3 of 2019. The return of sponsorship and advertising has been largely driven by historic major partners, along with the addition of new brands, including Truly Hard Seltzer, as well as Coinbase and Solana in the fintech segment. As we look forward to 2022, we are encouraged by all our leading indicators across each business. Through October, our confirmed show count across amphitheaters, arenas, stadium shows is up double digits relative to the point in 2019 for 2020 shows. And through mid-October, we have already sold 22 million tickets for our shows in 2022. And demand has been stronger than ever for many of these on-sales, with a million tickets sold for each of the Coldplay and Red Hot Chili Pepper tours, and several other tours already selling over 500,000 tickets. Ticketmaster's on sale for 2022 also reinforces this demand, as we expect Q4 transacted fee-bearing GTV to be at record level, even after already selling 65 million fee-bearing tickets for events next year. Ticketmaster has also added clients representing over 14 million net new fee-bearing tickets so far this year, further accelerating its growth on a global basis. And our sponsorship and advertising business has similar success This confirmed pipeline for 2022 up double digits relative to this time in 2019 for 2020. At the same time, we are continuing our cost focus to deliver $200 million in structural savings from our pre-pandemic 2020 plan, making us more nimble and better positioned to invest for future growth. As we get close to turning the page in 2021, I remain more convinced than ever in the power and potential of live entertainment and the strength of our position. No industry was more impacted by the pandemic over the last two years, and no industry has so proven the durability of its demand in the face of such disruption. I fully expect we will continue to have bumps in the road in the coming months, and it will take some time for international artists to be touring on a truly global basis, but the fundamental strength of live entertainment and Live Nation has proven out, and I expect we will only continue to grow from here. With that, I will let Joe take you through more details on our results.

Thanks, Michael, and good afternoon, everyone. Before getting into the detail on each business, a few points of context for the quarter. First, this is primarily a U.S. and U.K.-driven quarter. These markets accounted for 95% of our fans in Q3 versus 75% in Q3 of 2019, and they represented 90% of fee-bearing GTV in Q3 versus 80% in Q3 of 2019. Second, our contracts activity primarily ramped up in August. with 90% of our attendance for shows occurring in August and September. Let me now go into more detail on the divisions. First, concerts. As Michael noted, pricing and onsite spending was up for both our amphitheaters and our major festivals in the US and UK. With almost 1,200 amphitheater shows played off, these shows give us the best data set for comparing to 2019. So I'll give you more detail on trends for these shows, and in general, the same trends also hold for our festivals. On pricing, average ticket pricing at our amphitheaters was up 17% to $63. There are two primary drivers to this. First, ticket pricing, including more platinum and VIP tickets for shows this year, increased average ticket pricing by $7. Secondly, our concert week promotion and other promotions were smaller scale this year, which had an impact of $2 per ticket. Then for on-site spending, average fan spending was up 25% to $36. This growth came from a combination of more orders per fan, more items per order, and higher average spend per order. Many of our fans shifted to buying higher-priced products, which was part of our higher spend per order. And the shift to cashless also helped, as card transactions have historically been larger than cash transactions, and this has held up as we shifted to 100% cashless. Finally, operating costs, including labor costs, were up. These higher labor costs were driven by several factors. Fewer shows per building, our accelerated ramp-up to open the buildings this summer, new health and safety protocols, and a generally tightened labor market. At the same time, as noted with increased average ticket price and higher on-site spending, we increased the contribution margin per fan and did so to such a level that our profitability per fan net of operating expenses rose double digits. Turning now to Ticketmaster, as Michael said, Ticketmaster had a record AOI of $172 million for the quarter, driven by its fourth highest fee-bearing GTV quarter, excluding refunds, and lower cost structure from its reorganization, along with lower ramp-up labor costs as we accelerated activity faster than the return of staff. Primary ticketing was driven substantially by concerts, which accounted for over 70% of fee-bearing GTV, while sports was the second largest category, and together they represented approximately 90% of all fee-bearing GTV. Geographically, North America accounted for 80% of fee-bearing GTV, as activity remained limited internationally outside the UK. In secondary ticketing, we similarly saw concerts and sports account for over 90% of fee-bearing GTV, though in this case, sports was the primary driver with the launch of new football and basketball seasons. Another contributor to our growth in ticketing is the continued signing of new clients, with over 14 million net new fee-bearing tickets added this year through the third quarter. These new client additions have been particularly strong internationally, accounting for two-thirds of our new client tickets. Finally, sponsorship. Sponsorship AOI surpassed $100 million in the quarter for the first time in two years, as it again had available ad units at scale, both on-site and online. Like our other businesses, it was largely U.S. and U.K. driven, together accounting for approximately 90% of total activity. And as activity resumed, we were also able to engage new sponsors, adding eight new strategic sponsors in the quarter. As we look to Q4, we see a continuation of the same trends we had in Q3. With concerts, we expect North America and the U.K. to continue ramping toward historical activity levels, while the rest of Europe and other international markets have limited activity given the lead time to plan concerts. With ticketing, we expect a broader recovery as most European markets put stadium and arena tours on sale in Q4, enabling GTV levels that could approach Q4 2019 levels despite 65 million fee-bearing tickets already being sold for 2022 events. And while Q4 is typically a seasonably slower period for sponsorship, it too should benefit from concerts and ticketing sales ramping up. But it's now turned to our cash and cost management. We had free cash at $1.7 billion at the end of the quarter, which includes $450 million earmarked for the OSESA acquisition. This was our first quarter since 2019, where our cash contribution margin was higher than our cash burn, contributing a net $166 million in free cash. We also added $850 million in cash in the quarter through our $400 million drawdown of our Term A loan and $450 million equity raise for OSESA mentioned previously. We then had free cash reduced by $370 million, largely resulting from long-term deferred revenue shifting into short-term for shows next summer, as we previously indicated would be happening. This improved cash position was also helped by our ongoing cost and cash management program. As of this year, we expect to reduce costs by $900 million and cash spend by $1.5 billion relative to pre-pandemic plans and on the cash side, excluding OSESA. As we prepare for 2022 plans, we remain confident that we have structurally reduced our operating costs by $200 million relative to our pre-pandemic 2020 plans. A few other balance sheet items. Our deferred revenue at the end of the quarter was $1.9 billion. This is compared to $950 million at the end of Q3 of 2019, which gives us the best like-for-like view of the demand pipeline already in place. And then a reminder on our debt that we continue with our liquidity covenants until we report Q4 this year, at which point we switch to a more traditional leverage test. Given our current liquidity and expected Q4 and 2022 activity levels, we do not anticipate any covenant issues through next year and expect to continue investing in growth. With that, let me open the call for questions. Operator? Thank you.