Live Nation Entertainment Inc (LYV) — Q2 2016 Earnings Call Transcript

Thank you. Good afternoon and welcome to our second quarter 2016 conference call. Live Nation accelerated growth in the second quarter with revenue up 23%, AOI up 28%, free cash flow up 22%. Each of our core businesses: concerts, advertising and ticketing contributed to this strong performance with revenue and AOI up double digits in each business. Our concerts business is our flywheel, attracting 19 million fans to shows this quarter, which in turn also drove AOI growth in our ticketing, advertising and on-site businesses. We have built the industry's most scalable and unparalleled live platform, bringing over 500 million fans in 40 countries to live events each year. With concert ticketing sales running well ahead of last year, we are confident that 2016 will be another record year of results for Live Nation overall and for each of its core divisions. Starting with the concerts business, through mid-July we have sold over 50 million tickets for our concerts that take place this year, pacing 17% ahead of last year at this point. As a result, in the second quarter we grew revenue by 26% and AOI by 81% in each of our core businesses. We continue to be the leading promoter in the world, having created a business model that is effective at attracting artists from the club to the stadium level, enabling us to then make money in our high margin on-site, ticketing and advertising businesses. This year we are growing our concerts business across all channels, with an 18% increase in confirmed shows in stadiums, arenas and amphitheaters, while also adding more festivals to our portfolio and continuing to expand our club and theater business. This growth is being delivered both in North America and internationally with concerts and festivals projecting mid-to-high single digit growth in fan attendance for the full year. At the same time, we are seeing the benefits from improving the on-site fan experience. For the quarter, we delivered double-digit growth in net revenue per fan at our amphitheaters, increasing our contribution margin by over $2 per fan. Coming on top of last year's growth of $0.80 per fan, we are seeing results from improving our food and beverage offerings and expanding our product line to provide more options for high-end customers. Our artist management business continued to be strategic to our overall business, providing a strong pipeline of shows and supporting our growth initiatives. In the sponsorship & advertising business, we continued to see strong growth for the quarter with revenue up 17% and AOI up 12%. Live Nation's ongoing success in growing its high margin advertising business is based on its unique scale and breadth in the live experience space. No other advertising platform can match our 60 million on-site engaged fans along with 80 million monthly unique visitors to our websites, and over 500 million direct connections with fans attending events each year. From festivals to branded content to exclusive access to tickets and events, the combined Live Nation concerts and Ticketmaster platforms reach an audience at a level no other music or online company can match. As a result through mid-July contracted net revenue is up 16% and we have sold over 85% of our planned advertising inventory for the year. And because of our platform's unique positioning and demonstrated effectiveness, our Live Nation sponsors continue to renew and expand their commitment to our platform. As of the end of the second quarter, we had roughly 50 sponsors projected to spend over $1 million with us this year, with a cumulative spend growth of 18% to over $200 million for the year. With both sponsorship and online advertising increasing year-on-year, and a strong pipeline of committed business, at this point we are confident that we will deliver AOI growth this year consistent with the past several years. Ticketmaster continues to be the leading global ticketing marketplace, processing $25 billion in total GTV annually for all of its tickets. After adding five more countries this quarter, we now operate in 27 countries worldwide. This quarter we extended our leadership with a 14% growth in total GTV to $5.7 billion, an overall Ticketmaster revenue growth of 23% and AOI growth of 20% for the quarter. Our secondary product has delivered GTV growth of over 20% for the ninth consecutive quarter, and it is up 49% year-on-year in the second quarter to over $300 million. One key component for continuing Ticketmaster's growth is the opening of our marketplace to sell tickets on other distribution platforms, driving increased conversion and tapping into additional fan bases. Through the deployment of APIs with key partners such as Facebook, Bandsintown, and Groupon, we've increased sales by 30% in the first half to more than 5 million tickets. Going forward, we see these and other distribution partners, including teams and artists, as a key way to extend our reach and increase the flexibility of our clients and to continue selling more tickets powered by Ticketmaster. Underlying this success is the continued expansion of our venue client base. During the quarter, we added nearly 400 new clients globally, making us confident that for the seventh consecutive year we will have a net renewal rate of over 100%. With the TM ONE software platform in full rollout, we are delivering an improved workflow for the venues while at the same time selling more tickets, pricing them better, and reducing Ticketmaster's cost base. As a result of all this, in 2016 we have already had five of the top ten GTV months globally in Ticketmaster's history. As well as Ticketmaster has done this year, I have even greater expectations going forward. Every one of our ticketing verticals has a tremendous runway for growth. We now have a technology platform that enables us to deploy web and app products faster and more flexibly, and opening our platform is powering even more sales. This, combined with a strengthening value proposition to our growing base of venue clients, positions Ticketmaster for ongoing growth. After our strong performance in the first half of the year, we expect 2016 to be another year of record growth and record results for the company. Based on our key indicators in concerts, sponsorship, and ticketing, we expect revenue and AOI growth in each of these businesses and overall for Live Nation this year. With that, I'll turn the call over to Joe to take you through additional detail on divisional performance.

Thanks, Michael. Looking at our business segments, first Concerts. Live Nation Concerts revenue in the second quarter was up 26% and AOI was up 61%. The revenue growth was driven by a 22% increase in attendance for the quarter led by stadium and amphitheater shows. Stadium attendance was six times that in the second quarter of last year with almost 3.5 million fans attending 83 shows in what is shaping up to be our largest stadium year ever. Amphitheater attendance was up 17% to almost 4.5 million fans. And while both North America and international attendance were up double-digits, international growth was particularly strong at 45% for the quarter. Looking forward to the second half, as Michael said, ticket sales for shows this year are up 17% through July 18th and we've already sold over 50 million tickets for shows this year. Our pipeline of shows in the second half, particularly stadiums and arenas that cover all groups including amphitheater, clubs, theaters, and festivals continues to be very strong and we expect to increase our show counts to about 26,000 this year. Given the line-up of shows in larger venues this year, we're confident that we'll deliver high single-digit attendance growth for the year. As Michael also mentioned, the success we've had growing per cap profitability at the amphitheaters this year is led by increased concession sales but also benefiting from higher parking, service charge, and merchandise revenue as we continue optimizing revenue per fan. On concession, we worked with Legends to improve the overall offerings and introduce new concepts such as grab-and-go stands while expanding our high-end offers with dedicated wine bars and improved VIP rooms. With this momentum across the board, we expect continued strong growth in our concerts AOI for the year. At Artist Nation, revenue was flat and AOI improved slightly in the second quarter, and we expect similar trends for the full year. Turning to our sponsorship and advertising business, ad revenue was up in the second quarter by 17% and AOI grew by 12%, continuing its strong performance from the first quarter and growing double digits against the very strong growth in Q2 of last year. The second quarter growth was aided by sponsorship this quarter with AOI up 14% driven by new strategic sponsors, increased activity with existing sponsors, and increased festival activity. Online advertising is also continuing its steady growth with an AOI increase of 7%. At this point, with over $275 million in sponsorship and advertising net revenue now contracted for the year, we're confident we will deliver AOI growth consistent with the past few years. Finally, Ticketmaster, for the quarter, Ticketmaster revenue was up 23% and AOI up 20%, with primary ticketing fee bearing GTV for the quarter up 20%. Strong concert activity accounted for the majority of our increase in the quarter and growth was strong globally with North America up 26% and international up 5%. Secondary GTV was up 49% for the quarter, with growth of 48% in North America and 58% in international markets. The business continues to benefit from our strategy of aligning with content, providing fans with their full set of choices with transparency. As a result, we're continuing to see conversion rates on integrated inventory events that have improved significantly compared to those with primary-only options, up now to 50% higher for the first half of this year. We remain focused on delivering great value for the consumer, and one key among these is delivering the best mobile experience for fans. Through our continued lab and app improvements, we've increased mobile sales by 47% this quarter year-over-year, now accounting for 27% of overall ticket sales. Given the ticket pipeline and momentum we have in secondary ticketing, we expect to deliver a high single-digit AOI growth with flat year-over-year margin. In summary, now more than halfway through the year, we're confident that 2016 will be another year of record top-line and bottom-line results overall and for each of our core businesses. We also expect record free cash flow with AOI conversion into free cash flow at about the same rate as last year. From a timing perspective, we ended up heavier weighted into Q2 both from concerts and ticketing perspective than we thought at the start of the quarter and at this time expect most of our remaining growth for the year to come in the third quarter. On FX during the second quarter, we continue to see a 1% to 2% impact on our revenue and AOI, with Q2's impact largely coming from the pound-dollar devaluation in the period. If the current forecast of the FX rates hold true, the total FX impact this year would continue in the 1% to 2% for both revenue and AOI. I'll now turn the call over to Kathy to go through more on our financial results.

Thanks, Joe, and good afternoon everyone. I will start with our results for the second quarter. Revenue was up 23% to $2.2 billion and AOI was up 28% to $181 million. On a constant-currency basis, revenue was $2.2 billion and AOI was $183 million. Free cash flow was $113 million for the quarter, an increase of 22%. 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 second quarter, our deferred revenue was $1.2 billion, an increase of 12% over the $1 billion in June of last year. The majority of our revenue growth in the second quarter was driven by significant stadium and amphitheater activity in concerts and higher primary and resale volume in ticketing. This growth in concerts and ticketing also largely drove the 28% increase in AOI over last year. Our operating income in the second quarter was $74 million, which is 76% higher than the $42 million we reported last year, driven by the increase in AOI. Our net income for the quarter was $38 million compared to $15 million in the second quarter of 2015. In the second quarter, our other expense included net foreign exchange rate losses from revaluation of $7 million, compared to 2015 which included a gain related to acquisitions of $10 million. Moving to the results for the first half of the year, revenue was up 17% to $3.4 billion and AOI up 20% to $254 million. On a constant-currency basis, revenue was $3.4 billion and AOI was $257 million, with free cash flow at $123 million, an increase of 5% over last year. The majority of our revenue growth was driven by concerts, largely from the increase in the number of stadium shows in North America and Europe as well as strong attendance growth in our amphitheaters. Ticketing revenue for the first half of the year was up from increased primary as well as resale volume. Sponsorship and advertising revenue was up 15% as we continue signing new clients, growing our online business, and increasing festival sponsorship. The 20% growth in reported AOI for the first half of 2016 was largely from our strong concerts activity and ticketing volume. All of our segments delivered growth in AOI during the first six months. Operating income was $41 million versus $80 million in the first half of 2015, driven by the increase in AOI. Our net loss for the first half was $7 million, an improvement from the net loss of $43 million last year. For the six months, our other expense included net foreign exchange rate gains from revaluation of $1 million compared to 2015 which had net foreign exchange rate losses of $21 million. For the full year, we currently estimate that we will record $50 million of accretion of redeemable non-controlling interest which impacts the calculation of earnings per share. This accretion is related to certain put/call arrangements from completed acquisitions where the value of the put is recognized over time to APIC. Finally, we currently expect the amortization of non-receivable ticketing contract advances for 2016 to be in line with the total amount in 2015. Moving to our balance sheet, as of June 30, we had total cash of $1.5 billion, including $606 million in ticketing client cash and $759 million in net concert event-related cash leaving a free cash balance of $148 million. Cash flow from operations was $511 million compared to $362 million in the first half of 2015, with the increase driven by our higher event-related deferred revenue and AOI growth. Free cash flow was $123 million in the first half of 2016 as compared to $170 million last year. This increase came from our higher AOI, less increase in maintenance CapEx, and timing of distributions to our partners. As Joe mentioned, for the full year 2015 we currently expect our free cash flow as a percentage of AOI to be similar to what it was in 2015. Our total capital expenditures were $77 million for the first six months with approximately half of that on revenue generating items. We currently expect total capital expenditures to be approximately $175 million to $180 million for the full year in 2016, in line with our previous guidance of about 2% of revenue with about 60% of that overall spend to be on revenue generating CapEx. As of June 30th, our total net debt was $2 billion and our weighted average cost of debt was 4.3%. Thank you for joining us today, and we will now open the call for questions.

Martha on for John. I wanted to discuss our international strategy. Earlier this year, we acquired Big Concerts and Ticket Hour. Given their scale, do these acquisitions enable us to enter nearby countries or regions? Also, are the economics of sports ticketing different outside of the U.S.?

So the Big Concerts again would just be what we've been doing for many years in the major cities around the world that are now becoming ongoing regular places for big artists to tour. We want to make sure that we have a local office so we can capture all of the revenue and economics when that tour comes to town. So Big Concerts in South Africa or Cape Town has been the leader forever and one of our partners, and now we are able to do a deal where we can put our proper base Live Nation business there and now build out the presence of ticketing and sponsorship. So you'll see that happening over the year. You’ll see that continue to happen where we look for the leading promoter, number one or two in that market, and then use our scale to accelerate that business and make it an accretive acquisition. Ticket Hour is almost an acqui-hire in the sense that it brought some advanced ticket sport software to our international business — same economics over here in America and the servicing, obviously, the soccer leagues versus the pro sports here. We had a little void in our software in terms of sport over there, so this helped us to plug a hole and provide us a better overall solution for our soccer leagues in Europe.

Thanks. Two questions. So first on the revenue per fan contribution, it looks like it more than doubled. Do you think it could double again in the next 12 to 24 months? Where do you think it could go, and does it ultimately expand concert margins? My second question is on this digital opportunities that you have laid out. You now have Yahoo!, Vice, it looks like you are partnering up with Hulu on the VR front, and I was just wondering how big you think these deals could ultimately be?

I mean on the onsite, I mean, was not given in the guidance or exact mix here, but I think we've said out loud from our different presentations that we think on-site is a huge opportunity. We've been underdeveloped versus kind of the best in the league. We looked at the sports companies and different venues we've shown in the past. So, yes, we think that we have a huge opportunity to keep growing our per head revenue or contribution margin business annually for the next many years to come because we think we'll probably see at the lower end on a per head versus most of the sports leagues here in Europe. As we invest in higher-end lines, better products, grab-and-go stores that we have now on site, better VIP hospitality, we're seeing that continually tick into that $2 that we reported today. We think growth will continue for multiple years on on-site contribution margin as we excel our offering. Digital, you and I have talked, Amy, about the digital overall. The digital is just a continual expansion of the ad unit for our business. And the reason we've been able to continually grow our core advertising sponsorship business for the last multiple years is we want to keep offering our sponsors a wide variety of on-site to online offering. So, having more — originally I think it was Yahoo! when we started. Having more ways that we're distributing content on a digital basis, from Snapchat to Hulu to VR, using all of the different distribution arms as kind of the publisher of that live experience. We think that it'll be a key foundation of ad units to keep dealing with our double-digit growth in our core sponsorship advertising business.

I just had two questions. Maybe the market is just grasping for things to get excited about as it relates to VR, but as a layman, this seems like a very big opportunity, but it seems, if I'm interpreting your rhetoric correctly, more as just sort of a modest, not a big monetization driver going forward. I was wondering if you could just explain that because it seems like it could be big, but you don't seem to share that view. My second question is on the $150 million on-site revenue opportunity you guys have cited for the next few years. Can you just put a little bit of color around what has to happen? In other words, is it infrastructure that has to get put in your on-site facilities? Is it vendors that need to get swapped out? What is it that is happening behind the scenes that causes that ramp to happen? How much of it is in place today?

I think specifically to your VR, listen, we believe at the core why our business is growing, and it's going to have a long runway of growth is experiential on-site is the magic. So, the 22-year-old that's going to Lollapalooza this weekend or the 52-year-old going to the Guns N’ Roses reunion this weekend is a magical moment, and it’s much like going on vacation — it's a lot better than watching a video. So, we do believe that the moat around the castle and the most advantaged kind of offering we have is our scale in live and live experiential, on-site where you get the goosebumps, you experience with your friends, and create those Kodak moments — has huge opportunity forward for us. Now, of course, when virtual VR comes, can we do better ways to bring the Guns N’ Roses show to you in your living room in a more dynamic mechanism than a DVD or current TV? Sure, and we think those will be great ways to distribute that show, make it into content, and help us deliver some advertising. But I have not been, even been a big proponent who is going to convince you that in any way we're going to take Guns N' Roses and have a big upsell at home, pay-per-view, or selling that to our show, no matter how dynamic it is on its own. I think it is great content to extend the show first and foremost; the biggest advantage to us is that it helps us sell more tickets to later shows and delivers an advertising reach and scale beyond the onset. So I think it's great, I think it's great for the industry, will be an incredible ad unit, will be an incredible way to sell the concert experience. But most of the monetization is always going to be connected to the on-site.

And Jason, just to the second point on the $150 million of incremental on-site revenue, again to dimensionalize that, there are roughly 30 million fans attending our amphitheaters, festivals, theaters, and clubs. So we're talking about roughly $5 per fan incremental revenue from the numbers that Michael gave you. With our amphitheater through the types of products introductions that we've made, we’re well on our way in terms of making progress against that number. I think Michael also gave you a feel for the types of products that we need to be rolling out that give you a better experience for everybody on the food and beverage opportunities, and then particularly at the high end to provide VIP experiences and just some higher-end products that can be purchased. None of these are big capital or complexity to do, but there is just product development and rollout and iterations against what products are working, which ones aren't, and taking the lessons that we've gotten from our amphitheater this summer and bringing those to festivals and theaters and clubs to achieve that overall $150 million number.

To conclude that, I would say that our core kind of strategy that needed to be worked on was just a staffing of the skill set. So when we brought over team members, we kind of created an upper-end vision that is focusing on, as we kind of call it — we do a good job of getting 70 million into the venue, but just like airlines have come back on first class, we needed to have a dedicated unit innovatively best practices thinking about the high-end part of the business and bringing better products and creating product bundles, travel packages, tequila, etc. So first we just have to — we needed to spend more time on the right skill set, and this summer we're very excited about a bunch of the programs we're testing.

A couple of questions. First, related to your UK exposure, it was late in the second quarter when you had that Brexit surprise. What is that doing to the consumers or the fans from your perspective? The market is roughly 10% of your revenue. Secondly, if we could discuss kind of what the opportunity is for the Tickethour acquisition. I know you mentioned you get some advanced software from that they have, but is there any plan as they roll out some of the Ticketmaster products onto what they are doing?

So, on the first on UK exposure, we've seen zero impact on fan demand in the UK as it relates to Brexit or any of those concerns. So, absolutely none, and yes all of that happened late in the second quarter. But even our forward rates, as I mentioned, which show roughly flat to a bit of decline in the pound, still has us at the 1% to 2% for the year. So, we're not seeing anything in terms of either the demand or the translation economics that has us concerned at this point. In terms of Tickethour, 100% the plan is for Tickethour to be integrated into our European Ticketmaster operations and it is the backbone that serves the soccer, rugby, and other major sports leagues through Europe. Again, the counterpart to what we have in the U.S. that serves football, basketball, hockey, and so on. So, yes, it is to be integrated within Ticketmaster.

Joe, you had such a blowout in the concert division in the second quarter, and you made a comment that some of that may have stolen from the third quarter. I'm just trying to get a handle on your sense of momentum in the seasonally biggest quarter of the year. I mean, obviously, it is not going to be up 26% I assume on the top line. But is the pipeline still fairly robust going into the third quarter? I am just trying to get a better sense of what is going on.

100%, we expect third quarter to be very strong, a record third quarter for us. I think we simply just saw even part of it was Ticketmaster on-sale timing even stronger in Q2 than we expected and part of it is just some of our show timing. So, nothing that would be a lost momentum going into Q3; you can tell from some of our numbers that where we're at today in terms of sold versus the guidance we gave you on where we end up. But yes, still a very strong third quarter.

And just as a corollary, historically there has been some linkage between strong touring activities in Artist Nation at least on the merchandise side. I know the business model there has changed, but how come Artist Nation can't kind of kick into gear here?

It's really just, I mean — frankly, in part a timing issue, and when different tours are out as we saw a bit of improvement this quarter, we'll see a bit more improvement we think continuing, but it's not a scale business like our businesses are scale businesses; it's a job shop business. So when you make some of these improvements in the amphitheater, and you have that then rolled out to 15 million people, we just see a very different scale of impact than you see in a job shop type environment.

Joe, I just wanted to kind of ask a question about the outlook that you guys provided. When I look at the commentary regarding the outlook for the concert business, I think previously in the supplemental you were talking about double-digit growth in concert AOI, and the verbiage changed a little bit. I don't want to be too nitpicky but was just wondering, compared to what you felt about the concert business three months ago, has your outlook gotten better, stayed the same, or gotten a little bit worse? Just trying to understand the overall feel on the back of the strong 2Q that you had?

I think the overall feel is very optimistic, very positive. We feel better now than we did three months ago. It's been a very great Q2, and we expect a great Q3.

Great, and I just wanted to ask on the Artist Nation side of things, you talked a couple of quarters ago about getting a little bit more visible on the sports side of the business. I was just kind of curious to know how that initiative is progressing, and with that initiative, is that one of the reasons we are not seeing the Artist Nation AOI kind of pick up? Is there a decent amount of spend there? I'm just trying to understand a little bit more just what is going on with the cost structure there?

It's going very well in terms of the Artists that are being signed, and we’ve had some great successes with some headline clients like Kevin Durant. It is not a cheap business to enter, and the economics do come over time in that one. So, absolutely, that would be a piece of what would be muting some of the overall Artist Nation performance.

Congratulations on the quarter. It looks like things are really humming in the concert industry. In terms of geopolitical, it doesn't look like you are seeing any influence by what is going on. Is that the case or is it the U.S. just very robust right now?

I think you're right, Rich. At this point, we are seeing very robust demands still globally. There have been various events going on around the world, politically and otherwise, but thus far we haven't seen any impact on our demand, current shows, shows down the road of the on-sale, and really nothing that we can discern.

And then by genre, is there anything moving the bar and taking over from something that was strong last year just to get a feel for how it is going?

Our philosophy is that we believe we're operating at a level where we’re going to be number one in all of the genres in our other markets we operate in across all types of buildings. So, we haven't seen any major shifts in genre; we continue to see a very wide set of genres having strong demand from EDM to country to pop to hip-hop to classic rock, but really nothing that has shifted dramatically recently.

And then in terms of digital, how should we be looking at the opportunity set over the next couple of years? Is it the same type of opportunity set with partnerships with groups such as Vice and Yahoo, which is now part of Verizon, or do you think that there is something else to do?

We think we've been making strong measured progress in our mission. Our mission is, we have 25,000 shows and all of these festivals occurring, can you create content, distribute it, and publish it to the growing distribution platforms? One, to drive your core business; and two, to achieve some new ad units. We think we've been making great progress with lots of different partners, and we'll continue to see announcements that say we're going to stream these 20 shows on this platform or do VR on that platform or create some behind-the-scenes documentation on online to Facebook, to Twitter, etc. So, I think you'll see more of the same; I think the progress that was made is that we're very credible now with most distributors. Most distributors want to meet with us and talk about can we bring that great live content to our platform, be it a live stream or behind-the-scenes or live documentaries or artist interviews, access behind the scenes at festivals. So, I think we've been moving very nicely and we're very pleased with our progress, and we'll continue to do more content on platforms and drive more advertising.

So one on the business and one on the numbers. On the business, given some of the geopolitical issues that are going on out there, are you seeing any kind of change in insurance costs at the venues that you either own or operate? Are you seeing any kind of need for greater staffing? I'm kind of curious if you are seeing that change at this point in time?

This is Joe. First of all in terms of the insurance, that's all down the road. If anything, certainly we've got our policies in place now for this year and haven't seen changes for this year, but that's all to be determined. In terms of our security it’s certainly a priority for us as we think about our fans, our staff, and our artists and making sure we've got the right security in place. So, it's been a bigger area of focus. Obviously, we don't talk a lot about specifics, but certainly it's getting a lot more attention today than it did a year ago. I think that you'll see various changes to the experience that will hopefully not be dramatic for the fans going to shows but will give everybody comfort that we're doing reasonable steps to protect everybody.

To add to that, I always like to remind people that there is a vast majority of shows we promote not in our venues. So, there's difference between when we own the amphitheater or festival and our internal security protocols and how we make sure we have metal detectors etc., versus when we're promoting a show at someone else's venue. We have lots of the — if you want to call it the security capital risk costs associated with that. So, a majority of the shows, the high percentage of the 25,000 shows are not within our venue network. So, we've two very different kind of strategies, one you can control and one you can't.

But as you sort of go forward, is sort of how good or not good the venues' ground security will be a bigger choice for you about whether to play that particular venue if you have got choices in the market kind of thing?

I think we'll have — venues will continue to elevate. We see lots of them doing a good job, but the good news is that’s not our cost to bare, and it's just our charge to decide where to put the artist.

And then on the numbers, so very good revenue growth at ticketing, but a bit of margin compression. Was there anything in the quarter either in the mix or anything that you wanted to call out about that?

Well, as mentioned, it’s just a mix and timing issue and we called out that we expect flat margins for the full year. So, you can expect then it'll come back over the next few quarters.

Thank you for taking the questions. A couple of questions. One on margins in general and I guess Ben brought this up in the last question, but with the ticketing and sponsorship top lines growing, so much this quarter, why aren't you seeing more leverage at each of them even with the couple of subscale ticketing platforms that you purchased? And then secondly, I know you had originally expected all the international ticketing would be on one platform by now. When should we expect that, and to catch up to the work you have done in ticketing in the U.S. internationally? Is this critical to your scaling into new international markets? Thank you very much.

I'll answer the second question first on the international ticketing. We actually have the most important markets internationally, which are the UK, Australia, and Canada. They have always been and are on the close platform, so they are on the business. At the end of the day, most of our business is centered in those areas, where we want to share and extrapolate all of our costs and product development. When you get to decisions like Spain, where you're running a separate platform over a very small piece of your business, the urgency to take that onto one platform is not on our list right now; they're running local currency. Most of the Europeans are still on retail systems, where you're buying tickets at the bank or the shopping mall, which is a very retail-oriented approach, not years behind kind of where we're today. So our priority has always been the big markets like the UK, Canada, and Australia to leverage our product development, which we have been doing. We've had great growth in the UK over the last few years. The most important aspect of what has been our priority in international was when we acquired Seatwave and our GetMe product, which integrates secondary, and now in 9+ countries where we're now the market leader in the secondary business over there and are very proud of that. So, our strategy in international is always focused on those big markets, and we are sharing product innovation while implementing our current strategy around primary and secondary ticketing. The slower markets will look to integrate them eventually into a global platform, but those will be minimal upside from a cost advantage in the near term.

What about new markets? Sorry to cut you off, Joe. What about moving into new markets? What is the strategy for that and does any of the re-platforming work that you have to do internationally play a role in that?

I mean, international is like concert business. You only — right now international is always going to be one or two people that are already the leaders. So you may acquire somebody not because you're so much interested in their platform, but you just acquire the contracts and the customers. Historically, when we looked into extension, we may acquire a company just if that's the quickest way to get scale and ticket inventory. We can rollout — our current platform, we can rollout into a new market today. We don’t typically look at a new market and enter with our new platform if we don't have ticket scale behind it. So, our short-term strategy in international — when we took over, was to focus on the 15-20 key markets that we wanted to prioritize first, with particular emphasis on big concerts or events to drive revenue and ultimately market share across the board.

Great, and then on the margins?

First off, just as a reminder, our primary focus is on generating cash for the business and understanding how much we are providing for our shareholders. We certainly consider margins and prioritize return on capital, but our top priority is cash generation for our operations. The sponsorship side of our business showed strong double-digit growth this year, building on a 25% growth in Q2 last year, which makes for a challenging comparison. Several factors contributed to this growth. One was the expansion of branded content creation by that division, where we collaborate with brands and sponsors to create integrated content. Although this is a lower margin sponsorship product, it remains very profitable for us. Additionally, in Q2, we have been building our activities with festivals, in which, apart from our sponsorship payments, we now offer onsite activation for extra payments from sponsors. While this also has lower margins due to the resources required, it is still profitable for us.