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 first quarter 2022 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 can 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 of 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. Momentum has picked up for all of our businesses over the course of the first quarter, and as a result, we have delivered financial performance that greatly surpassed our previous expectations and with AOI of 209 million. Artists are back on the road, and fan demand has never been stronger, a reflection that live events remain a clear priority for consumers as our social lives restart. Ticket buying serves as a leading indicator to our overall business. Ticketmaster's strong first quarter performance drove the company's overall profitability and shows how well our concert and sponsorship businesses are positioned to deliver record results this year. Despite some markets taking longer to reopen, the quarter was our second highest ever for transacted GTV, excluding refunds, trailing only Q4 2021, with March being our highest transacted GTV month ever. In primary ticketing, we're now benefiting from the 17 million new fee-bearing tickets we gained in 2021, which helped us drive transacted GTV for the quarter up 33% relative to 2019. This quarter was also added 7 million new additional tickets through new contracts with venues as well as content creators, setting us up for ongoing growth this year and into 2023. Our secondary ticketing GTV growth was even higher, up 106% relative to 2019, driven largely by average retail ticket price up 20% relative to 2019, and tremendous fan demand pushed up the market pricing. Ticketmaster gained additional market share by effectively leveraging its team and league partnerships across NFL, NBA, and other sporting events. And the market continued growing at double-digit pace, demonstrating high demand for live events as well as how much runway there is for continued pricing efficiently. Fan demand and signing of new contracts accelerated even faster than expected this quarter, reinforcing that Ticketmaster is the enterprise platform for choice. of teams, artists, and content creators, and continuing to be the most effective fan marketplace. Our sponsorship activity fully returned to Q1, delivering financial results that well exceeded 2019. We're seeing growth across a number of dimensions, expansion of existing relationships, new categories expanding our breadth of partners, and new ad units being created both on-site and online. The number of strategic sponsors that generated over $1 million of revenue per year has risen by almost 30% since 2019, with their committed spend up 70% and accounting for 80% of our total sponsorship revenue. About 60% of this growth has come from three categories of particular priority over the past two years, technology, telecom, and purchase path integration, which has collectively more than doubled their sponsorships since 2019. Much of our focus with brand partners is how we collectively elevate the fan experience. We've had great success with this in recent years, and so far this year, through our partnership with Verizon, we started powering our venues with cutting-edge 5G connectivity and are launching an initiative with Snap to give artists augmented reality capabilities at shows and festivals. At this point, sponsorship sales are up double digits relative to 2019, and we have a solid 90% of our planned sponsors for the year. positioning us for continued strong financial performance. The concert division, all leading indicators point to double-digit growth in fan attendance at our concerts relative to 2019. Approximately 11 million fans attended our shows in the first quarter, compared to 15 in 2019. This was expected as we planned for limited concert activity in the early months of the year to allow for markets to open. But more importantly, we continue to build our flywheel, with over 70 million tickets now sold for shows in 2022, up 36 compared to 2019. And committed show count is up 44% through the end of April relative to 2019, setting us up for continued ticket sales over the year. We continue to see the fans are showing up for the concerts they have tickets for, with attendance rates in the U.S. across all venue types at 2019 levels increasing. with no shows generally in the low-mid single digits. The industry continues to embrace market-based pricing, particularly on the best tickets, shifting $500 million to artists for shows this year, resulting from a double-digit increase in ticket pricing and reducing the price arbitrage in the secondary market. At the same time, in the U.S., the average entry-level price to get in and enjoy the show remains under $35, approachable for almost all fans. Early reads on consumer spending on our shows across the U.S. and U.K. also indicate fans continue their spending when they get to the show. We had 2 million fans attend shows at our theaters and clubs in the first quarter, with average per-fan revenue up 30% relative to 2019. And we've had four festivals over the past few months, totaling over 300,000 fans, with average per-fan revenue up 30% also. Looking ahead to the summer and the rest of the year, we remain optimistic that we are just getting going as all leading indicators reinforce record activity levels and financial results. Ticket sales were at record levels in Q1, with momentum building over February and March. We sold almost 20 million more tickets to our concerts this year than this point in time in 2019, with a large number of tours still to go on sale. And concert fans are showing no sign of slowing down, They're paying for the best tickets, attending the shows, and spending more on site as they create lifetime memories. We're continuing to build Venue Nation, our platform of operated venues, with a pipeline of 20 venues, including the recently opened Moody Center in Austin, in addition to adding 38 more festivals this year. Sponsors are looking to spend more this year on live entertainment than ever, and Live Nation's scale and global platform is making us the partner of choice. While the U.S. and U.K. have driven much of our activity over the past year, the rest of the world is now rapidly opening up. OSESA's financial performance for the quarter exceeded its 2019 results, and both Latin America and Western Europe are expected to have record attendance for our concerts this year. I continue to expect this just to be the start of our run. The global addressable markets for concerts, ticketing, and sponsorship all provide a long runway for continued growth. We have over 60 tours already under discussion for 2023, our earliest indicators of next year and great positioning for ongoing growth. With that, I'll turn it over to Joe.

Thanks, Michael, and good afternoon, everyone. Given the unique situation in 2020 and 2021, Q1 of 2019 is the best comparison for us in terms of understanding our operations and key performance indicators. So while I will provide some commentary around our results relative to Q1 of 2021, most of our focus will be relative to 2019. Overall, our AOI of $209 million for the quarter was $361 million better than 2021, led by an improvement of $269 million in ticketing, $66 million in sponsorship, and $26 million in concerts. This was our highest Q1 AOI ever, exceeding Q1 of 2019 by $94 million, which had been our previous record first quarter. Let me give a bit more color on each division, then I will give you more on 2022 leading indicators. First, ticketing was again the star of the quarter, delivering $206 million in AOI, making it the second best quarter ever for ticketing, and more than doubling the Q1 2019 AOI results of $100 million. The first quarter of 2021 was heavily impacted by the pandemic resulting in an AOI loss of $63 million. Ticketing was successful across the board. Let me give a few key statistics for the quarter. Our growth came from both primary and secondary ticketing with transacted GTV excluding refunds up 33% and 106% respectively. Transacted ticket volume excluding refunds was 63 million tickets our fourth highest quarter ever and 7 million tickets higher than Q1 of 2019. Transacted ticketing GTV, excluding refunds, was $6.3 billion, our second highest quarter ever after Q4 of 2021 and 39% higher than Q1 2019. This was driven by concerts and sporting events whose GTV were up 49% and 73% respectively relative to Q1 2019. A continued shift toward more market-based pricing helped grow GTV levels, with average primary ticket prices up double digits for the first quarter relative to Q1 2019. And in resale, our average price increased 18%, while our overall resale GTV doubled compared to the first quarter of 2019, indicating that demand for the top seats across all live events increased continues to outpace efforts by sports teams, artists, and others to capture more of the full value from their events. As the first effectively normal Q1 since 2019, we are seeing that digital tickets have now become the norm across live events, with the NFL and NBA leading the way with 96% of fans using digital tickets to enter games, up from 53% in Q1 of 2019. More broadly, 72% of our tickets globally were digital in Q1 of 2022, relative to 33% in Q1 2019. With this level of digital adoption, we can now accelerate our efforts to foster our direct fan relationships this year and into 2023. Next, sponsorship continued to ramp up with the reopening of venues and expanded online opportunities. As a result, 2022 Q1 sponsorship and advertising AOI of $70 million grew by 75% relative to 2019 Q1 AOI of $40 million. This strength comes across both on-site and online, each delivering record Q1 AOI. The growth versus 2019 was driven by expansion of our online business, new festivals that launched in the quarter, and the addition of OSES's brand partners. Finally, in concerts, our AOI was a loss of $49 million, which compares to a loss of $74 million in Q1 of 2021 and positive AOI of $5 million in Q1 of 2019. As we indicated on the last call, we plan for fewer arena tours in Q1 this year, which typically drives our first quarter performance, resulting in concert seasonality that will be even more Q2 and Q3 driven this year than has historically been the case. In the quarter, we had nearly 11 million fans attend 6,600 events, continuing to be led by the US and the UK, which accounted for almost 80% of these fans. In comparison, Q1 of 2019 had 15 million fans and 8,200 shows when all of our markets and all venue types were fully open. For ticket sales through late April for shows playing off this year, our average ticket price was up double digits relative to the first quarter of 2019, Again, mainly driven by demand for the best seats. At the same time, our average entry price remains less than $35 overall and less than $30 for amphitheater and club shows. Michael mentioned that no-show rates were back to pre-COVID levels, so I wanted to give a few more specifics to hopefully set the record straight. Looking at the full year through mid-April for the U.S., our no-show rates were the same or better than the same period for 2019. For arenas, they were 1% better. For amphitheaters, they were 4% better. For theaters and clubs, they were on par. And all up, we are 2% better. We haven't had enough volume on other outdoor events to have meaningful metrics yet, but generally those venues had strong reopenings last summer, so we don't expect any issues there. In general, the U.S. was ahead of the rest of the world, but the U.K. is now fully back to pre-pandemic no-show rates as well, And we have not seen any evidence in any markets of any long-term impact on our shows. Michael gave you the top line on our first quarter average revenue per fan growth, up 30% for both theaters and clubs and festivals. For theaters and clubs, key drivers include on-site concessions and upsells. And for festivals, the growth was heavily driven by on-site concessions and increased VIP purchases. All indicators of continued strong fan spending as they look to make the most of going to the show. Finally, COVID continues to have less and less impact on our concert schedule, and by March in the U.S., we canceled only around 1% of our planned concerts. As we look to the remainder of 2022, looking at our leading indicators through the end of April, first, confirmed show bookings are up over 40% overall and up double digits for each amphitheaters, arenas, stadiums, and festivals. Second, ticketing has sold 130 million fee-bearing tickets for events this year, up 26% from this point in 2019. Of these, 88 million tickets are for concert events, which is 40% higher than 2019. Related to this, we have $3.5 billion in event-related deferred revenue, almost twice the level of Q1 2019. These are largely tickets that have been sold by Ticketmaster for Live Nation concerts, but the revenue in AOI hasn't flowed through yet and will do so over the course of this year as events happen. On the sponsorship side, commitments are up double digits from this point in 2019, and overall we have more than 90% of our planned sponsorship net revenue for 2022 set. On the cost side, we're obviously tracking closely cost increases associated both with labor and in general with supply chain challenges and inflation. These costs tend to hit us primarily in the venues we operate, amphitheaters, theaters and clubs, and festivals. For amphitheaters and theaters and clubs, labor is the largest factor given we have our venues in place. Across this entire fan base, we expect our variable cost per fan, excluding talent, to increase by $2 to $2.50 relative to 2019. This remains well below our average revenue per fan growth, And so we still expect to grow average per fan profitability across our operated venues this year. Festivals have a broader range of costs given the wider set of equipment and services involved in building these events. Current projections are that variable costs per fan excluding talent will be up 7% this year, which is well below our expected increase in ticket revenue per fan. Helping offset all these costs, is the $200 million cost reduction exercise that we executed last year, which remains well in place. A few other points on 2022. We now expect OSESA will deliver full-year results in line with 2019 levels as Mexico is fully active, with most of their AOI flowing through our sponsorship and ticketing divisions. In light of the OSESA acquisition, we want to provide more guidance on a few line items below AOI which impact our earnings per share calculation. First, on depreciation and amortization, we expect the combination of these accounts to be roughly in line with 2019. The addition of OSESA is offset by the impacts of our reduced investment in CapEx and M&A over the past two years. With the acquisition of OSESA and anticipated strong performance of our festivals, many of which are joint ventures, we expect non-controlling interest expense will be roughly double 2019 levels. We are projecting accretion to be about $150 million this year. Again, the increase compared to 2019 is largely attributable to the OSESA acquisition. As a result of the additional financing opportunities over the past two years, our interest expense is now roughly $70 million per quarter. Finally, in comparison to 2019, we expect income tax expense will grow in line with our AOI growth. In anticipation of the growth opportunities ahead of us this year, we continue to expect 2022 capital expenditures to be approximately $375 million, with two-thirds of this spent on revenue generating projects. We generated $89 million of adjusted free cash flow this quarter and expect free cash flow conversion from AOI to be back in the 50s for the full year. We ended Q1 with $1.9 billion of available liquidity between free cash and untapped revolver capacity, giving us sufficient flexibility to invest in growth. We are comfortable with our leverage, with over 85% of our debt at a fixed rate, and our average cost of debt is roughly 4.3%, positioning us well in this interest rate environment. With that, let me open the call for questions.