Live Nation Entertainment Inc (LYV) — Q1 2016 Earnings Call Transcript

Thank you. Live Nation has continued growing its business in 2016, with first quarter revenue up 10% and Adjusted Operating Income (AOI) up 7% on a constant currency basis. With strong operating performance across all three divisions—Concerts, Advertising, and Ticketing. More importantly, four months into the year, we have enough information from leading indicators to be confident that we are on track to deliver record top line and bottom line results in 2016 as we continue building global market share in all our businesses. We have built the industry's most scalable and unparalleled live platform, connecting over 500 million fans to that magical two-hour event each year. Concerts continue to be the flywheel for our high-margin On-Site Retail, Advertising, and Ticketing segments, and this year will be another step forward in the company delivering strong long-term growth. Starting with our concerts business, ticket sales are pacing 10% ahead of last year through April 29, with over 35 million tickets already sold. We continue to be the world's leading promoter with 21 of the top 25 global tours in 2016, including Beyoncé, Coldplay, Guns N' Roses, Rihanna, and Drake, driving a 13% increase in stadium, arena, and amphitheater shows for the year as of the end of April. Festivals continue to have a strong appeal for fans, artists, and advertisers, and we continue to build on our leadership position with 78 festivals with 7 million fans attending. We see continued growth in festivals across the globe in both large and niche size, with many markets still under-serviced. Along with attendance growth, we also expect to continue growing high-margin on-site revenue this year as we continue to roll out new tech-powered product offerings at both amphitheaters and festivals. Such items include ordering from your seats at the amphitheater via your app and expanded cashless ordering at our festivals. At the same time, we are expanding our global footprint, most recently adding South Africa as the 37th country we promote in, and our acquisition of Founders Entertainment, which builds our presence in New York and adds Governors Ball to our festival portfolio. Our Artist Nation division continues to attract managers organically and through targeted acquisitions that continue to feed our core businesses. The Sponsorship & Advertising business continued its strong growth in the first quarter, with revenue up 13%, AOI up 9% on a constant currency. Through April, we have sold over 70% of our expected advertising for the year, positioning us for another year of double-digit growth. Our contracted online advertising is up 14% through April as we further leverage our ability to integrate ticket-buying customer data to create more targeted profiles, leading to increased effectiveness of digital buys in music. Our contracted sponsorship is up 10% through April as more brands see the value from our scale platform of over 60 million fans as an effective way to directly connect with their customers. Ticketmaster continued to build its global marketplace in the first quarter, increasing Gross Transaction Value (GTV) by 18% at constant currency. This growth was led by continued strength in our secondary ticketing business, with GTV up 43% at constant currency, making this quarter the eighth consecutive quarter with growth over 20% in secondary GTV. Primary ticketing GTV grew by 16% for the quarter at constant currency. The month of February was the largest ever at Ticketmaster, selling over 17 million tickets globally, and during the quarter we had five of the top 20 days in the history of Ticketmaster. Over the past year, we have reinforced our position as the top global ticketing partner for venues and content, adding over 150 new clients to our strong venue base of 12,000. On the product side, one of our main areas of focus continues to be delivering a great mobile experience for fans buying at Ticketmaster. At this point, our websites are largely mobile-responsive, and we have continued to upgrade our iOS and Android apps. As a result, we have increased our mobile ticketing sales by 30% year-on-year, now accounting for over 25% of all ticket sales. During the first quarter, we also made huge strides in realizing our vision of an open API marketplace. We launched our first fully functional API with Bandsintown, enabling fans to directly search Ticketmaster's inventory and buy tickets without leaving the Bandsintown app. This week, we are launching the same functionality with Facebook, both with their app and online, and expect to rapidly scale from there. While still early, initial results show strong conversion and uplift in incremental sales. With Ticketmaster off to a great start in the first four months of 2016, we expect to continue the profit growth trend of the past several years and continued opportunities for years to come. Overall, 2016 is on track to be another record year of growth and record results for the company. All the leading indicators for our concerts, sponsorship, and ticketing businesses are performing ahead of last year's record year, as we expect each of these businesses to deliver revenue, AOI, and free cash flow growth this year. Our results are demonstrating the fundamental strength and growth of the live entertainment space and Live Nation's positioning to deliver long-term profit and cash flow growth. Now over to Joe Berchtold to take you through more details in the divisions.

Thanks, Michael. Looking at our business segments, first Concerts. Live Nation Concerts revenue was up 12% on a constant currency basis, and AOI was down due to show mix, notably lower arena activity in North America. Given Q1 is traditionally our slowest quarter for concert activity, what matters most at this point of the year is our pipeline of shows and tickets sold to date for shows this year. Our show count for the year is tracking toward a mid-single digit growth rate, with double-digit growth in our core arena, amphitheater, and stadium shows. This growth is particularly strong internationally this year, where we expect over 20% growth in arena and stadium shows, and given the strong show count growth, particularly in our larger venues, we expect high single-digit growth in fan attendance for the year, and based on this, we expect to deliver double-digit AOI growth in the Concert segment for the year, with a particularly strong third quarter. At Artist Nation, revenue is essentially flat while AOI showed slight improvement. Similar to Concerts, the first quarter is typically our lowest activity, so what matters more is our pipeline for the rest of the year. Based on what we see now, we expect a strong Q2 and Q3 for the business, with Q2 back to profitability, and for the full year, growing AOI at double-digit rates. Turning to our Sponsorship & Advertising business, revenue in constant currency grew by 13%, and AOI grew by 9% for the first quarter. Here again, over 85% of our AOI is typically in the second through fourth quarters. So, it is our confirmed sales pipeline that is our key leading indicator, and the pipelines for both sponsorship and online advertising are looking strong. In sponsorship, the growth is particularly coming from North America, as we have added several new multi-million dollar strategic partnerships and continue to see strong growth in our festival sponsorship. With online advertising, we're seeing double-digit growth in contracted sales for both North America and international as we continue to leverage our database of consumer spending on live events and tie that to targeted online ad placement. Based on commitments to date and our strong pipeline, we expect to deliver AOI growth for Sponsorship & Advertising consistent with the past several years. Finally, Ticketmaster. For the quarter, revenue in constant currency was up 10% and AOI was up 6%. Primary ticketing fee-bearing GTV was up 16% to $2.8 billion at constant currency for the quarter. Over half of this growth came from the Concerts segment with most of the rest coming from sports and arts. This primary growth was consistently strong globally with North America GTV up 10% and international GTV up 29%. In secondary ticketing, GTV increased by 43% for the quarter with 40% plus growth in both North America and internationally. In North America, this growth was largely from our TM+ integrated inventory product, which drove most of our increased GTV in the quarter. As we scale Ticketmaster and add additional targeted verticals, we also remain focused on the cost structure of our operating model. After delivering our planned cost per ticket savings over the past three years, we will extract further savings in our core business this year. This combined with the higher growth rate of lower scale secondary festival and do-it-yourself businesses, we expect to deliver stable margins for the overall division for the year. For the full year, we expect the amortization of non-recoupable ticketing advances to be flat to last year and when adjusted for purchase price accounting largely flat since 2013, as we expect to drive 20% plus growth in both revenue and AOI over that same period. Taken together, we expect to deliver mid to high single digit AOI growth in ticketing this year. In summary, four months into the year, given the strength in all of our leading indicators, we feel confident we will deliver another record result in 2016. Looking at seasonality, we expect Q2 to deliver AOI at roughly the same percentage of full-year AOI as last year. We also saw a 1% to 2% impact on the business in Q1 and, based on rates today, expect Q2 to be about the same. I'll now turn the call over to Kathy to go through more on our financial results.

Thanks, Joe. And good afternoon, everyone. Our key financial highlights for the first quarter of 2016: our revenue is up 10% to $1.2 billion and AOI is up 7% to $74 million, both at constant currency. As reported, revenue is $1.2 billion and AOI is $73 million, and free cash flow is $10 million for the quarter. Our Concerts deferred revenue for tickets sold for events in the future at our owned or operated venues is one of our most important leading financial indicators. As of the end of the first quarter, our deferred revenue was $1.2 billion, an increase of 29% over the balance in March of last year of $919 million. The majority of our revenue growth in the first quarter to $1.2 billion was driven by concerts and ticketing. Concerts had increased international activity, largely in Australia and Asia, and we also had more shows in our theaters and clubs business. Ticketing revenue growth was driven by higher resale GTV in both sports and concerts, and we also had higher primary ticket sales globally. Reported AOI for the first quarter was $73 million, up 5% over last year, largely due to the increased primary and secondary ticketing activity. Our operating loss in the first quarter was $33 million. This loss is higher than the $24 million operating loss last year, largely due to higher acquisition-related intangibles impacting 2016. Our net loss for the quarter was $45 million, an improvement from the net loss of $58 million in the first quarter of 2015, primarily due to net foreign exchange rate gains of $8 million from the revaluation of foreign currency-denominated assets. We currently estimate that we will record approximately $45 million of accretion of redeemable noncontrolling interest during 2016, based on our current asset base, which impacts the calculation of earnings per share. Moving to our key balance sheet items, as of March 31, we had a total cash of $1.7 billion, including $663 million in ticketing client cash and $758 million in net concert event related cash, leaving a free cash balance of $278 million. Cash flow from operations was $517 million compared to $348 million in the first quarter of 2015, with the increase driven from our higher event-related deferred revenue. Free cash flow was $10 million in the first quarter of 2016 as compared to $25 million last year. As we often don't buy 100% in an acquisition to keep our entrepreneurial partners motivated, we will make distributions to our partners at different times in the year and the payments will vary from quarter to quarter. These distributions were higher in the first quarter of 2016, which impacted free cash flow for the quarter. For full year 2016, we expect our free cash flow as a percentage of AOI to be higher than 2015. Our total capital expenditures for the quarter were $25 million, with maintenance CapEx of $14 million and revenue-generating CapEx of $10 million. We currently expect total capital expenditures of approximately $170 million to $175 million for the full year 2016, with about 60% of that to be spent on revenue-generating CapEx. As of March 31, our total net debt was $2 billion, and our weighted average cost of debt was 4.3%. We are comfortably in compliance with our debt covenant that requires a maximum leverage ratio of 4.75 times. Thank you for joining us today, and we will now open the call for questions.

Thank you, and congrats on another great quarter. So, two questions, first, on digital initiatives and the second question is on Ticketmaster. Can you update us on how your digital initiatives are going, particularly the one with Vice? What's been the feedback from consumers, and how big do you think this ad opportunity could be? And my second question is on some of the cost savings for Ticketmaster longer-term. I know you're calling for stable margins this year, but perhaps if you can talk about some of the margin expansion opportunities going forward, that would be great? Thank you.

Hi, Amy. It's Michael. I'll take the first one, and Joe will talk about the second. Digital, I assume you meant the video content we're producing? So we're going to be flying tonight – or tomorrow we're going to go and we'll be at the New Front in front of a bunch of advertisers, taking them through our portfolio of content. The thesis is simple: We have 25,000 shows, 78 festivals that we own. There's lots of great social content happening from all of those great events. We have 900 advertisers, and over the last couple of years, obviously those 900 advertisers would say to you they'd love to buy some advertising, we love to buy sponsorship, we wish you had some content, some video from these great events. So that's when we started, whether it was Yahoo for proof-of-concept, or Vice as a producing partner. We hired a great executive internally, Heather Parry, who was at MTV for years. We're about to announce some other distributor deals. What we've been able to build and create, whether it's live streaming those 25,000 shows or shoulder content around the live experience, live from the festival, backstage, interviews, all the ways that you would expect. So, we're very happy that we've been walking slowly, self-funding it through advertising, building a roster. We have over I think 80 pieces of content from our Vice original series. We've now streamed 400 to 500 shows. We're publishing that in lots of places, whether it's Snapchat for festivals or whether it's Facebook and others. So we're very happy that we have a very strong internal skillset and partners now that can help us create great content from our business, publish that whether it's for brands or whether it's published across all of the forms where the fans are, adding an ad unit to our roster of ad units that our 900 sponsors now can purchase while they're buying a sponsorship, a digital advertising, or a deeper content ad unit. We're going to talk about it more tomorrow at our New Front, and talk about our wider portfolio of partners, but we think it's an incredibly important piece to our overall mission. We said three years ago that we would double advertising, that it would be one of our largest high-margin growth opportunities, and we still have been very bullish to tell you that over the next three years we think we can continue to double that business. We think it's going to be the biggest high-margin piece of our growth story. It's fed from our concerts and our ticketing database, and we think having video content of a live concert has to be a fundamental ad unit in our roster of ad units. That will be one component to how we keep growing double digits over the next two to three years.

Amy, this is Joe. On the Ticketmaster question, I think as you know, our primary obsession is continuing to drive Ticketmaster's global market share in ticketing, which then in turn drives the top line of that business, the AOI, and the cash generation. So we've talked a lot lately about how we're expanding in secondary and festival and do-it-yourself; all businesses that have lower scale, and therefore not yet their margin maturity of the core Ticketmaster business. As we take cost out of that core traditional Ticketmaster business, there is some offset with the margin mix in terms of where the growth is going to come from? We're going to continue to be obsessed at looking at every additional vertical, looking at new markets, expanding our international positioning both in the core business as well as in those different verticals. We're going to be very focused on managing the cost structure and operating model of our traditional business as we get more and more technology out there and more self-serve with it, which will let us lower the cost of that. But I think as you look at the division overall for the next several years, again what you'll see, our focus has been on growing the top line, AOI, and cash flow from building the business, much more than anything else.

Great. Thank you.

Thank you. Michael, I wanted to ask a little bit about some of the success you had in some of the pilots last year with some of the on-site ways to reach the customer and get them to spend more. It sounds like you're rolling that out to even more venues this year. Is there any color you can give us on, kind of, the numbers behind it? What sort of success you had last year? And how big this initiative in terms of rollout will be in 2016?

Yes. Well, we always like to highlight it because, quite honestly, it's one of those core businesses that we do that don't really get the focus. Most people talk about the ticket sale, and what we're really always been about is the per-head spend, right. That's why we're more interested in getting you in the venue and then figuring out how to increase our $15 to $20 per head, whether it's in our venue or someone else's. We've been, year after year, growing our on-site per head business. One of the roadblocks over the last five years was when we would be able to really get the Wi-Fi connection and at what cost that would come at. We waited, we didn't – five years ago, we looked at it, and four years ago, and the CapEx cost to make sure our theaters, our clubs, our amphitheaters, and our festivals had really great Wi-Fi was too capital intensive, so we knew that would come down. We're at that position now where we've been able to strike a great deal with Cisco in terms of getting our amps and venues Wi-Fi enabled. It's going to be a great sponsorship relationship with them, as we go deeper with Cisco. It's going to be a positive revenue business for us, so we can install that Wi-Fi at our venues, and we start to make money from both sponsorship and then selling on-site, advertising in the app, upgrading your seat, selling you food and beverage. Last year, we piloted it with our app, instant delivery to your seat, ordering from your seat, express lanes. We had to get the plumbing in place. We had Legends last year, our new provider, who was much more innovative and able to deliver us this unique experience. We had to get the Wi-Fi provider. We spent the last six months reviewing all options and picked Cisco. This summer, we will have that rolled out across 20 of our amphitheaters and a lot of our festivals. Our initial results continue to indicate that it is a great way to add $1 or $2 per head when you have the business and that opportunity of those new products presented to that fan on-site. If you look at our core festival business, you can start seeing over the next two to three years, one of the great growth movers is going to be looking at how many customers walk in our venue and getting closer to that Disneyland model, as we've said in our assessments before, moving us one step closer to the major league baseball leadership in sports and the Disney model – on getting us closer to $20-$25 per head. This time, we think we'll have some great bottom line results in our Concert division, and those continue to scale over the next few years.

Thank you for that. I wanted to ask a big picture question to you and the team. If I think about the phase of each of your businesses right now, you guys have spent a lot of time and a lot of money kind of recalibrating them, and they're all doing really well right now. So if I think about kind of the next three years – if I think about technology, if I think about content, and if I think about even the things like the Roc Nation sports deal that you guys have been doing, how would you prioritize the business units in terms of capital spend and investment right now?

If you look at where we're going to spend our dollars, I mean, one of the realities is – most of our growth has still been organic. So, I forget the latest percentage we said out loud, Joe.

But it's, yeah, I mean, 90%-plus of our AOI this year is organic. And the vast majority of our growth year-on-year is organic.

Organic. Just to state, the business and the execution is why the cash flow and AOI has been growing, not the bolt-on acquisitions over the last three years. So we continue to think we have lots of room to execute better and continue to have record years for the next years to come. In terms of capital allocation of resources, fundamentally, number one is to continue to make sure we consolidate and scale our global concert business. Because the number one competitive advantage we have in the world is, we have 73 million customers walking in our door, and we're providing 1,500 artists a year an incredible platform to get on the road and tour. That is the part that is very hard to replicate. We're going to make sure that continues to grow because we think there are great global opportunities. That is why you see us do most of our M&A there, on a global basis, because we still think those are really accretive opportunities. When you buy a Gov Ball, which has been on Eventbrite ticketing, you now make it a Ticketmaster opportunity. You add sponsors because they were underserved – and overnight, you've got a very accretive business. You'll continue to see us build our global business—that is our competitive advantage. From that, that feeds our higher-margin ticketing business, helps us either renew clients, find new clients or proof of concept that lets us sell to other clients who see what we're doing with our business. We don't need to do as much M&A on Ticketmaster. It's been more of a fixed cost, get the right engineers in, keep the team competitive, upgrade the team, and make sure we have the quality team that can build. One of the real advantages we don't mention is, now that the platform is in place, the real benefit is being able to do an API for Facebook—with a very small team and a quick timeline—but you can build that product now. That was unobtainable with legacy Ticketmaster. A lot of the plumbing that's been invested in is going to let us continue to build good products that we can roll out fast to meet the market opportunity. We'll continue to look internationally at M&A for ticketing. We tend to still find most of them overvalued. We believe that our platform in the international and U.S. markets is world-class, and we'll continue to add clients to the platforms versus probably spending high multiples for ticketing M&A around the world. We do review them, and if we think there's a good ticketing company that can help us advance our global strategy, we'll look at it. Usually, our platform with more content and concerts in a market helps us get there. Sponsorships ends up being, again, mostly a people business. If we have the right festivals, the right assets, and the right digital pieces, then our ad team can continue to create better value for our clients. Our model is complicated, but it's really simple. The more people that walk in the door and the more concerts we put on means the more tickets we sell, the bigger our fan base is, which means we have more advertising opportunity.

Got you. Thank you guys.

Yeah. I just had one question. You said your priority was to consolidate and scale the Global business, and I was wondering if you could take a second and share with us anything that you see evolving or developing on the competitive front in terms of other players out in the marketplace trying to mimic what you're trying to build?

Thank you. Listen, I think one of the smartest things we've done for 10 years is have a very small to-do list and a big don't-do list. I think the reason we can sit here 10 years later with 70 million customers going to our shows and be a clear global leader is because we stayed true to our core business. We started at the same time, 10 years ago, with our competitors. We were all the same size. Some of them decided to—I don't know—go after NFL teams, etc. We stayed core to our business, and that's why 10 years later we are the best in the world at what we do. We've attracted the best talent, and we're going to keep making sure that we don't lose our position. I think the competitive set is probably more obviously in the ticketing space. You'll always see somebody with a new app or someone trying to replicate the Ticketmaster model. Again, we think the combination of having Live Nation's content feeding Ticketmaster, Ticketmaster's incredible global position and scale around its commerce, and really the reality of our real focus over the last three years to get the best talent in the world reengaged at Ticketmaster. When we took over Ticketmaster, we couldn't hire somebody from Amazon or Apple; we couldn't hire the best-in-class. Today, we can hire the best-in-class every day of the week, who understand now Ticketmaster is a revived new spirit with a great mission. Great technology people want great missions. We have a great mission at Ticketmaster: to evolve and become even better at helping the customer find a ticket and get to the show. I think that's the place that's the most competitive. We see it when we're re-signing clients and we see it on the consumer front. If we continue to invest in great products and always continue to never lose sight of our core business, which is having more concerts, the more we can control and leverage our ecosystem, we're confident we can continue to grow all three businesses.

Great. Maybe if I can just ask one follow-up, if someone like Stubhub in the secondary ticket market sort of went backwards and tried to acquire someone in the primary ticket market to replicate the model that you have, would you characterize that as a meaningful challenge? Or given the primary ticketing assets that are out there, sort of not that meaningful?

Well, every action has a reaction. We assumed when we went from primary to adding secondary on our seat map that everybody scurried at Stubhub headquarters, and it's taken them this long to go, oh, crap, we better add primary to our seat map. So we predicted that was coming. I think I've said out loud many times that we welcome secondary and primary merging together. We think we're the beneficiary of that over time. We like the idea that, over time there is one place to buy a ticket to the Beyoncé show, as opposed to historically having a primary provider that wasn't working with all of the same tools of secondary. We think Stubhub has always been our main competitor in the U.S., but not around the world. We like to remind everyone we have a global business in Ticketmaster. We're really growing strong throughout Europe. We're number one in secondary in most of the markets in Europe where Stubhub was late to the market, so we made sure that we didn't sit tight over in Europe. We launched and are the leader now in most of the markets that we participate in. So, we're very confident that globally there are some regional players, but we're the only global platform. We assumed secondary providers would try to add some primary. That does one great thing for us: the more we can convince primary to add secondary to the equation—so think of what our biggest challenge to growth is—convincing primary to add secondary to the equation. Letting the primary provider, when you meet with them, convince them that it's okay to put primary and secondary at one offering for the fan. Every time that the market goes towards that, we win, because our client, team, and artist together can see, the more they get comfortable with seeing primary and secondary together, the more our market share grows.

Understood. Thank you.

Thank you. I have just a couple of things. You mentioned that you've got 37 countries in which you have promotional activity. How many of those do you have ticketing at this point?

We have ticketing in 22 countries. It's not 100% overlapped, but it's probably 20 out of the 22 we have ticketing in, we do concerts in. So it's about 40 overall countries, with ticketing in about half of them.

Okay. And you mentioned some new strategic sponsors that came in recently. Could you talk about how broad your activities are with them, anything interesting to drive the business model going forward? Are they multinational in nature? What kind of duration do those have?

They tend to be multi-year and multi-million dollar global deals. We haven't announced all of them yet, which is why we haven't given you the exact details, but they tend to be new categories for us. A lot in the technology space we're finding is looking for ways to reach that millennial audience, finding our platform to be attractive for that. In our sponsorship group, one of the things we've been doing over the past year is really ramping up category specialists. So, whereas traditionally, you had some core categories like beer and consumer goods—obviously financial services and automotive—we've hired a number of experts that understand in greater detail the business models of different segments, which allows us to engage with the CMOs office at those companies on a more informed basis and discuss how the Live Nation platform of 63 million fans can deliver them real value. Several of those have been coming to fruition over the past few months.

And you had also mentioned, about 25% of your ticketing now is done on mobile. Could you talk about your outlook for the evolution of going to new paperless ticketing throughout the industry?

Our view is that the ticket is an ideal product to be on your phone. It's really a matter of the adoption curve, which is impossible to exactly predict, but it is eminently logical to purchase a ticket on the phone, find it on the phone, transfer it to your friends, sell it, and use it to get in. There are a number of things that we don't control on the consumer adoption curve, but we've been working hard with venues to ensure they're able to read those tickets when you show up with them. Obviously, there are things around just people's use of phones, battery life and so on, but we absolutely expect that to continue to grow as the millennial wants to interact and manage their information.

How should we think about the kind of investment that would be required on that? How would you share that with your venues? What efficiencies do you get from going paperless?

I think in most of our ticketing venue deals right now, we're very much involved in the access control point. We need to provide something that gets the person a ticket. I think what it does is ultimately create a much better fan experience. It increases conversion because the search and purchase process are easier, and it increases certainty because there are no longer fake tickets when it's a digital right being transferred around. It can move to a much more fan-friendly system, and better for the venues and better for content as well.

All right. Thank you.

Thanks. Two questions on ticketing. First on, we've kind of beaten this around a little bit, but on the cost side, the 11% growth in direct operating costs in the quarter, is that primarily driven by royalties in the resale market, or international expansion or both? Then I've got a follow-up with Ticketmaster.

It's going to be made up of all of the above. It's going to be made up of the royalty rates, both North America and internationally, mixed with our secondary business and just general higher operating costs as we continue to build the global teams.

Okay. And then, Michael, you talked about landing another 150 venues in the quarter to Ticketmaster. How much of the new Ticketmaster platform is contributing to that? What are the benefits that venues are seeing from the new platform?

Sorry, this is Joe. Just to make sure we have the facts right, the 150 year-on-year, so since Q1 of last year the 150 additional clients, which are a combination of on the traditional Ticketmaster system as well as, again, as we've been focused on the specialty vertical. Our festival vertical has been very effective in building and adding new customers as well. You want to talk about the TM one?

Doug, we've talked just philosophically, I mean, again, when we took Ticketmaster over, it had been losing customers. The renewal rate was down to 70%. Its EBITDA had declined 20% a year for the five years before that. Here we are with Ticketmaster, where its EBITDA has grown. We've had a record ticket-selling month. Our renewal rates are over 100%. If you ask our clients, the number one reason they will tell you they renewed, signed up, or have a new appreciation for Ticketmaster is that, for the first time in 20 years, we were the management team that was serious about investing and upgrading the tools that would help them sell more tickets. So for a venue, we've shown you in the past the green screen they had, but today they have an iPad with an app that lets them price their own tickets, publish their own shows, and instant ticket sale delivery. There's multiple ways it's been enhanced and elevated. I would not be sitting here years later with a green screen telling you just because we have a few concerts at Live Nation were able to fix the business. But the new platform, all the new tools we've been developing and modularly delivering to our client over the last year, is the fundamental reason that the business is now excelling. A lot of that development also gets shipped internationally, and the reason we're able to scale faster there and grow our business is, we can use what we learned and some product development from America on our international expansion, which again, never happened in the old Ticketmaster. They were very separate–14 separate platforms that shared no product development.

Got it. Thanks.

Hi. Good afternoon. Thank you for taking my question. First one I think probably either for Michael or for Joe. We've certainly seen some of the music labels talking about doing more in the sponsorship area, more 360 deals. Universal has talked some about Honda Stage. They've talked about that vis-à-vis Vevo as well. From a competitive perspective, how are you viewing them within the dynamic? It's a big pie obviously, but I'm curious how you are viewing the labels within that dynamic right now?

We're not really in their business. I know they have a few sales people trying to sell some IP. But at our core, again, going back to our priority, the reason we have 900 sponsors—if we surveyed them tomorrow—899 of them would tell you because we have incredible on-site customer reach. We are 70 million customers, we're bigger than the NFL and NBA. So most of our advertising has always been driven by our incredible ability to reach on a Thursday night, in-seat seven, a customer-specific. When you added on Ticketmaster and we started to get rich in data about that customer, our business grew. When we added on digital platform, an ability to say to a sponsor, we can deliver you on-site, and amplify that connection digitally, our business grew. Our core business, the customers, the brands that are looking to partner with us, that's a competitive proposition that we have. There will always be Vevo, MTV, and many digital video platforms for brands, and some continue to do well, and the pie is big. However, we see huge opportunities as we're the only one with 70 million or so end-level scale on site and added 66 million monthly digital customers. Nobody has that one-two punch to deliver to an advertiser, so we think there will be many playing on smaller scale on-site.

Okay. That's very fair. Thank you, Michael. And then probably a Kathy question. Thank you very much for the commentary on ticketing in terms of margins and what to expect for this year and what the non-recoups look like. On that sort of roughly $80 million to $82 million of non-recoups that you'll do here in the amortization line, how much of that is actually cash?

So, obviously, the cash is paid for contract through generally three to five years. At this point with that history, cash is basically equivalent to expense.

Okay. And so, basically, we've seen flat to the last year, so the year-over-year cash outflow and your cash flow from ops is basically pretty nil. Is that a reasonable way to look at it?

Yeah. It's essentially steady-state by this point in the history.

Okay. That's great. Thank you very much.

Hi guys. Thanks for taking the question. I just wanted to follow up on the investments you guys have made in your ticketing technology. I was wondering if you could talk about where the technology in your established international ticketing business stands relative to domestic? Assuming it's behind, what kind of investment do you need to make from here in that established international business to bring it up to speed with the domestic business? Also, I wanted to confirm that you guys have completed the re-platforming and major upgrades in the domestic ticketing business?

I'll start with the second and work backwards. So, on one level, yes, we've completed the re-platforming. We've completed the work that we set out to do in 2011. As we've talked on other calls during the process, what we learned about Ticketmaster is, it's a true technology company; it's driven by the products that it creates for its venue clients, which, as Michael talked, are critical for the best ticketing platform. It's critical for fans—they drive that conversion rate to drive ticket sale. Going forward, if we look at our Ticketmaster system as a technology business, we'll continue to invest in those productions. Now, as you noted, we started with North America. A lot of that technology both at the website level, as well as at the app for fan-facing as well as venue-facing, has already been brought over to the U.K., Ireland, and Australia. Those use the same core underlying system that we've historically called the host system. Continental Europe operates largely on a different system. That system already has a great deal more flexibility than what the historical host system had, but it is something that we'll look to migrate a lot of the functionality over the next couple of years. Because we've built this in such a modular fashion, there's not a big bang; you turn off one system and turn on another. It's a matter of replacing components over time. We don't see a substantial shift from our current run rate of capital expenditures at Ticketmaster or capital expenditures as a percentage of our revenue to be substantially different. We think we can get it done within those spend levels.

And how long do you think it's going to take to get to a real peak margin at Ticketmaster?

I think I talked about that earlier, which is the focus over the next few years is on driving market share and revenue growth and AOI growth. So separate out what's the exactness of one piece of Ticketmaster, the operating model and how we're driving down costs from the fact that as we build other verticals, those businesses inherently have lower scale, often different fee structures, and maybe lower margin yet faster-growing. As we move into new international markets, with whatever system we deploy we're likely to start in those new markets at a lower scale, which is going to have some higher fixed costs associated with it. Our number one objective is going to be driving cash side of the business, as we absolutely believe what matters most to our shareholders at the end of the day is the cash we generate, and we will take higher growth with more cash over shrinking to maximize the margin.

Got it. Thank you.

Thank you, everybody. We'll talk to you in Q2.