Live Nation Entertainment Inc (LYV) — Q2 2021 Earnings Call Transcript

Good afternoon and thank you for joining us. As communities reopened, we're seeing the pent-up demand for live events play out as artists and fans are eager to reconnect in person. In the U.S. and the U.K., we're seeing strong ticket sales and the restart of our concerts and festivals highlighted over the past weekend by Lollapalooza and Rolling Loud in the U.S. and Latitude in the U.K. hosting three-quarters of a million fans combined. With the vaccine rollouts increasing throughout Canada and Europe, we expect additional markets to open up broadly in the coming months. And momentum for the return of live has been building every month, with ticket sales and concert attendance pacing faster than expected, underscoring the strength and resilience of the Concert business, live events in general. This progress combined with our cost discipline has enabled us to deliver positive AOI for the second quarter, well ahead of where we thought we would be for this quarter. We expect to see the ramp-up accelerate to the rest of the year with all segments returning to AOI profitability for the second half of the year, setting us up for a full-scale 2022. As we put more shows on sale for this year and next, ticket sales are the best early indicator for concerts and our overall business. To that end, June was Ticketmaster North America's fourth-best month in history for transacted ticket volume. This was driven in part by our U.S. Concert division, putting the highest number of shows on sale ever during a single month—50% more than the next highest mark back in 2019. In Concerts, our recovery this summer continues to be led by our outdoor events at our festivals and amphitheaters. We expect to have over 6 million fans attend our festivals during the second half of the year, with about two-thirds of our festivals increasing their attendance compared to 2019. Most of our major festivals sold out in record time, while average ticket prices have been 10% higher than 2019. And while still early at our amphitheater shows over the past few weeks, we have delivered strong double-digit increases in average per fan revenue and onsite spending versus 2019. Looking forward to 2022 and 2023, all our leading indicators continue to point to a roaring era for concerts and other live events. Starting with our Concerts division, every major venue type—arenas, amphitheaters, and stadiums—our pipeline indicates double-digit growth in our show count and ticket sales relative to 2019 levels. In some cases, our pipeline is so strong, we are extending our planning into 2023 and even beginning to discuss tours that extend to 2024. At the same time, Ticketmaster's leading-edge technology continues to attract new clients, adding 11 million net new fee-bearing tickets so far this year, already surpassing any previous full-year growth. As a result, Ticketmaster is set to benefit in 2022 from both increased Live Nation concert ticket sales as well as additional sales from new clients. In our Sponsorship business, our brand partners have maintained and grown their interest in live events, with contracts and sponsorship up double-digits for 2022 than we were at this point in 2019 for 2020. As our revenue rebounds, we continue to evolve our business to maximize opportunities and the global recovery and strengthen our flywheel. We have structurally reduced our cost basis by $200 million, making us more nimble and converting more of our revenue to AOI. We have integrated our Ticketmaster team globally, enabling us to work toward a global product roadmap that will both reduce our costs and increase our flexibility and speed to deploy new client tools and improve our marketplace experience. And we continue to build our direct-to-consumer business initiatives ranging from streaming concerts, NFTs, to artist merchandise, bringing more value to artists and deepening fan relationships. These enhancements combined with our strongest supply and demand dynamics our industry has ever seen are fueling our core flywheel strategy and setting us up for multiple years of growth, attendance revenue, and AOI. And with that, I'll let Joe take you through more details of our results.

Thanks, Michael, and good afternoon, everyone. As we've done over the past year, we've added some tables at the back of our earnings release that reconcile in more detail some of the numbers I will refer to today. In the second quarter, our AOI was positive for the first time since the start of the pandemic, as the U.S., by far our largest market, accelerated its reopening, also driving our revenue to the highest level since the first quarter of last year. As a result, our contribution margin ramped up faster than expected, particularly in ticketing. Even with the increased activity, our monthly gross burn for the first half of the year was lower than the monthly burn during the last three quarters of 2020 due to our structural cost savings and continued cost discipline. As a result, we remain confident that actions taken to reduce cash burn and increased liquidity will provide us with the runway we need as shows return. And as we move toward reopening in more markets, we continue to balance the strong cost and cash management with making the necessary investments to grow the business. While we expect to generate positive AOI overall and for each segment for the second half of the year, we will also reduce costs this year by over $800 million and reduce cash spend by $1.5 billion relative to pre-pandemic plans. Looking at our Q2 results, revenue for the quarter was $576 million compared to $74 million in the second quarter of 2020 for growth of over $0.5 billion. All three of our business segments more than doubled their revenues from last year. Our AOI for the quarter was $10 million compared to a loss of $432 million for the second quarter of 2020. Our Q2, 2021 AOI consisted of $351 million of contribution margin, which included $364 million from operations, along with various one-time items that included gains from insurance recoveries and government support and losses from ticketing service fee refunds paid out. This was then offset by $341 million in operational fixed costs. Getting into our business segments a bit deeper, starting with ticketing, which was the primary driver of our results this quarter, contribution margin for the quarter was $204 million or nearly 60% of our total contribution margin delivering $99 million in AOI. Ticketing revenue for the quarter was $244 million or just over 40% of our total revenue for the quarter. Each month of the quarter, Ticketmaster had progressively stronger results, culminating with June being Ticketmaster North America's fourth-best month ever for transacted ticket volume. In general, North America drove much of this resurgence, accounting for over 75% of total transacted tickets in the quarter as compared to approximately two-thirds of transacted tickets for 2019. Contract tickets drove much of this activity, and as a result, the top 10 artists sold over $513 million in GTV during the second quarter this year compared to $329 million in the second quarter of 2019. Secondary ticketing has similarly rebounded. Our June GTV was only 8% below June of 2019. That trend has continued into the third quarter, with July 12th marking the highest resale GTV day in our history, driven by the U.S. Open along with strong NBA, NFL, and concert presale volumes. These results in ticketing are a leading indicator to our concerts business. For the second quarter, our concerts AOI loss of $84 million was an improvement of $127 million relative to Q2 last year, and our revenue was up $145 million relative to Q2 last year, as we promoted nearly 1,700 shows for 1.3 million fans during the quarter. More importantly, these ticket sales drove our event-related deferred revenue up to $2.1 billion, representing a pipeline of future activity, even higher than the $1.6 billion we had at the end of the second quarter in 2019. In part, this event-related deferred revenue is associated with over 25 million tickets we have sold for our concerts in the second half of this year, along with also being part of the 14 million tickets that we have already sold for concerts in 2022, which reflects strong double-digit growth in our 2022 pipeline for show count and fans relative to 2019. Sponsorship and advertising then naturally flow from our ticketing and concert platforms. Our sponsorship and advertising AOI for the quarter was $13 million and revenue was $45 million, with the bulk of our activity tied to our ticketing platform and concert presales. We continue to find brands are committed to maintaining or increasing their spending with Live Nation to reach our music fans and other live event audiences. And during the quarter, we added several long-term strategic partners, including Allegiant Air, Adobe, and Cinch in the airline, technology, and auto sectors, respectively. And more broadly, we expect our sponsorship and advertising full-scale activity to return somewhere between ticketing and concerts timing. Most importantly, as we look out at our 2022 pipeline, confirmed activity is pacing well ahead of where we were in 2019 at this point. And with many multiyear contracts on the books, we are lining up to be growing this business in 2022 and beyond. Looking at free cash and liquidity, as of June 30th, we had total cash of $4 billion, including $1.1 billion in ticketing client cash and $1.8 billion in net concert event-related cash, leaving free cash of $1.1 billion. This was flat relative to our first-quarter reported number. Our free cash, along with $971 million of available debt capacity, gives us $2.1 billion in readily available liquidity, up from $1.6 billion at the end of 2020, and steady with our Q1 ending liquidity. Benefiting our free cash position, the second quarter was $161 million in favorable timing, largely the result of classification of our event-related deferred revenue between short-term and long-term. Our total free cash usage in the quarter was $163 million or $54 million per month, which included $115 million per month of operational burn up from $100 million per month in the first quarter, as furloughed employees returned to prepare for our reopening, and we reinstated full pay for most employees, plus another $58 million per month of non-operational costs, including investment in capital expenditures, acquisitions, and artists and ticket client advances to give us $173 million average per month in gross burn. In Q2, we had $119 million average per month cash contribution margin, double our Q1 average. Turning to other balance sheet items, more on deferred revenue. At the end of the second quarter, event-related deferred revenue for shows that we'll play in the next 12 months was $2.1 billion, up from $1.5 billion at the end of the first quarter. Ticket sales in the second quarter were nearly $900 million, while refunds totaled $100 million and shifted deferred revenue from short-term to long-term for shows that were rescheduled into the back half of 2022, totaling $150 million. This long-term deferred revenue will then largely shift back to short-term during Q3 and Q4 reversing the timing benefit and free cash this quarter. Our total capital expenditures were $52 million for the first six months, with $38 million spent on revenue-generating items. The markets have reopened faster than expected. We will similarly be accelerating some of our investments to take advantage of additional opportunities this year and into 2022. As a result, we now expect total capital expenditures for 2021 to be approximately $170 million, with over 60% of this spend going into revenue-generating CapEx projects. Our total debt as of June 30th was $5.3 billion, and our weighted average cost of debt was 4.4%, with about 90% of that debt at a fixed rate. Finally, looking forward, as Michael said, we continue to expect concerts to scale further in the second half of this year in key markets, notably outdoor, and led by the U.S. and U.K. With this activity, we will continue to ramp up our operations, enabling Ticketmaster to run its on sale, the concerts division to book market 2022 tours and sponsorship staff to support delivery for brands onsite and online. Given the COVID issues in our key markets appear to be short-term at this point, we continue to expect 2022 activity and results to exceed 2019 levels with continued growth opportunities from there.

Hi. Thank you. Just with COVID kind of being what it is at the moment, the Delta variant, can you just maybe talk through how you're thinking about navigating some of the challenges that might come up in the next a month or two, like changing health mandates, shifts in demand, any hesitation or concerns on the part of the artist?

Sure. David, this is Joe. I think what we're seeing is a shift to increasing requirements for the entry of either vaccinated or tested or fully vaccinated individuals. We had Lollapalooza over the last weekend, very successfully done, with over 90% of the people fully vaccinated, which I think was a great signal in terms of people's commitment and support of being vaccinated in order to go to these shows. So, my expectation is that we will see that continue, whether at the artist's level or at the city level, like New York just announced for large crowds. Frankly, Lollapalooza certainly went above and beyond what was happening at baseball games in Chicago. And similarly, I think, in other markets we're going above what others are doing. So, we'll continue to focus on that. I think the great news is that at this point, the discussion is around what are the requirements to hold the events? What do we need to see in terms of vaccinations and testing? We're not hearing discussions, certainly in the U.S. or the U.K. about impacting those shows to any scale.

Got it. And I know you just restarted the amp and the festivals, but any early insights into fan behavior so far? You mentioned per caps are up at the amp, is there any additional color you can provide in what's driving that? And then, maybe with digital ticketing, any learnings from having that tech kind of rolled out at scale across your own music venue footprint? Thanks.

Yeah. At this point, we've probably done about 50 amp shows that we've gotten the data on in time for today's call. And as we said, all of that looks to be continuing to trend up. People are buying more food and beverage. We're selling more VIP packages, more upsells. So, in general, the pocketbooks are open. I think it's pretty mature to get any real specific inferences. And I think it's also just—it's a little bit early to get the specific impact of digital ticketing. We believe that eliminating friction always helps commerce, but we probably won't have the data on that till our next call.

Hey, great. Thank you. On the 2022 concert pipeline being up double-digits versus 2019, I was wondering if you could give us a sentence on how much of the pipeline is for sale today or sold today versus how much is still to come. And then, as you maybe look out over the next few quarters, how much headroom do you think is left to grow the concert slate in 2022, given some of the scheduling and health constraints you're working with, any commentary, there would be helpful.

Sure. We are—go ahead.

So, I'll start Joe, and then you jump. Most of our 2022 new tours wouldn't be on sale yet. Most of what you see on sale is what would have been rescheduled from 2021 and are already on sale. So, we have a large on-sale slate plan between now and the end of the year for most of the big global tours that will go out in 2022. And we're very content with our 2022 lineup right now. We're talking mostly about what to add now into 2023 and 2024. So that idea that it's just one year of our bigness isn't really true. We've got three or four years here of strong demand that we're going to smooth out over time, so everyone can get the right markets, the right Friday nights, and the right dates. So, we see a good few-year run with all this pent-up inventory.

Got it. Thanks. That's helpful. And then, on the Ticketmaster side, and you mentioned you had 11 million net new fee-bearing tickets year-to-date. I think I was up from around 5 million last quarter. I was wondering if you could talk a little bit about who you're winning this ticket business from. Is this a certain type of venues, league teams, maybe some of the things that are resonating with your pitch with these potential ticketing partners? Thank you.

Yeah. It's really happening on a global basis. We're seeing it in the U.S. We're seeing it in Europe. We're seeing it in Asia. We put out various releases in terms of—as we've been picking up some clients, but I wouldn't say that there's one market or one type of client in particular. It's pretty broad. I do think what's resonating is we've been very vocal in terms of artist clearing the extent to which we're continuing to invest in ticketing, in the shift to digital ticketing and the benefit that that's going to provide to the teams, the venues, and the customers. And that seems to be working with the clients we're talking to.

Thanks. I have two questions. First, with the expectations for the touring supercycle over the next two to three years, can you discuss how you view the demand from fans? Do you expect sales during this cycle to match pre-pandemic levels or to be higher or lower? Secondly, regarding the ticketing margin, there's been an increase. Is this part of the $200 million in cost savings, and can we expect something similar to this as the new normal, or are there specific items to mention?

I'll do demand side. I think we—from the data we're seeing so far, everything we seem to be putting on sale is doing better than pre-pandemic. So, demand seems to be pent-up most of what we see going up for 2022 is great quality, tourists, and artists. So, we would expect, as we've seen over the last 10 years, demand overall for live on a global basis has continually been growing. We like to always point out that we think the product is still underpriced, given all of the secondary business. So, this is still an attractive night out for a fan. And now that artists are traveling more around the world, the fan base has grown for live as a functional entertainment item. So, we think global demand will continue, with double-digit growth as an industry for many years to come as the global landscape continues to grow.

And then, John, on the TM margin, I mean, clearly, I spoke in my comments that we're looking this year to reduce our total cost structure by about $800 million relative to where we were pre-pandemic. And the $200 million structural savings is a subset of that. So, what we're navigating this year is the pace at which we bring back some of the costs versus the pace at which we ramp up activity. And it's not going to be totally linear. We had a great month of June in TM, and we're finally getting back to scale there and we expect to have nice scale with Ticketmaster in the second half, but the first part of the year was lower scale. So, overall, yeah, we expect margins to improve because a large chunk of that $200 million is going to come out of Ticketmaster and that will just naturally flow into a margin. I wouldn't try to overly analyze the single quarter and let's get you a few more quarters at more traditional scale, with more traditional costs and staffing over the next six months.

Thanks. A couple of questions ago, the conversation centered around ticketing wins and press releases for you guys. And I thought one of the more interesting developments in the quarter was the extension and expansion of your relationship with ASM. For two reasons, one is that ASM's obviously half AEG and it didn't go to access. But more so that Ticketmaster could sell tickets for Live Nation-promoted shows in the other ASM venues. And the North American ticket model's been exclusive for—as long as I can remember, at least. Is this a sign of change in the future? Do you think that exclusivity model is here to stay, or do you think depending on event type, the promoter will ultimately control the ticket?

Yeah. I think the exclusive approach has worked well for the venues and the ecosystem is a large part of how the venues get funded and how the venues then make the rental costs approachable for promoters and artists. So, it's an ecosystem that's worked well in the U.S. and Ticketmaster, as you know, has been a very large source of funding and profit stream for the venues. I wouldn't read too much into this. If you look at ASM scale, that's not a common, typical scale in terms of the number of buildings they have. It's also a fairly unique situation where you have somebody who owns buildings who is saying, we're going to let you bring in Ticketmaster regardless of the situation. And they control both sides of that decision-making. It's not something that we are looking to do or that we see as any real mark of the industry going forward.

What I would add, Brandon, I think the most—Brandon, I wouldn't say the most important thing you said is what you lead with is the fact that ASM is owned by AEG and a private equity fund, the largest venue management company, obviously did their homework and debated their own ticket options and renewed with Ticketmaster because we ultimately provide the best global solution in ticketing for them. I assume they would have liked to have used their own in-house ticketing system. But I think our relationship and what we've done for all those venues for so long, won us that business, the met renewal. So, that was a very important renewal, a very good testament to Ticketmaster. I give the ASM management team credit, they put their bias aside and what was the best option in the marketplace after looking at all options. So, we're very proud that that's a very good testament to the Ticketmaster core competency. You hit that part for sure.

Hi. Can you hear me?

Yeah. Ben, big build-up.

Yeah. Better not follow it. A couple of questions. So, you ended your prepared remarks, I think by saying you continue to expect 2022 activity levels to exceed 2019. And I apologize if that's a reiteration of prior guidance that I might have missed. But just wanted to ask you what you meant by that. Is that a comment about revenue and AOI? I know where—the street expectations are, but I thought I'd give you a chance to maybe expand on that. And then, the second question is just, you made a helpful comment around sponsorship saying that I think contracted business is up double-digits for 2022 relative to where you were in 2019 for 2020. I guess similar question, the ticketing question, how much of the forward year is sort of already in the books typically to understand what that tells us about next year and make sure we don't over-extrapolate that comment about growth for a sponsorship. Thank you.

Yeah. Just in terms of overall 2022 expectations. First, it starts for us with what are the concert bookings. What do the show counts look like? And from that, our expectations on the ticket counts, both of which we think, again, are up relative to 2019 based on what we said. And I think as we've gone through the past three months, whatever we said three months ago, we're more confident in that at this point. And as a result, we expect then revenue and AOI growth relative to 2019 as well to be and sponsorship, then will be a part of that expectation, up double-digits and committed sponsorship. Usually, you'd have—I mean, we've talked about how much of our sponsorship is in the form of multiyear, multi-million dollar, multi-asset strategic sponsors. That's a large portion of our sponsorship base. So, last—we probably wouldn't be talking about expectations of growth for next year already at this point unless we had a pretty good feel that a lot of it was committed.

Okay. If you can all hear me okay.

Yep. No problem.

Appreciate you taking my question. Appreciate all the detail. What I wanted to ask about since it is prevalent in a lot of other areas of our coverage is the issue of human resources and labor, where we have seen a lot of constraints around, frankly getting people to come back to work. You made a comment about it in your prepared remarks, bringing people back at full salaries and so forth. Is that a matter that you had to deal with work around, strategize around, and how do you see it?

Yeah. Start with, as you know, unfortunately, we had to furlough a reasonable number of people over the course of the last year. At this point, we've brought back over 90% of our furloughed staff, of those we've called back, over 90% have returned from furlough. We had a fairly low turnover rate, and we think turnover rate is at or below the overall entertainment industry. So, we feel very good about how we've been able to retain staff. I think it's a testimony to people's commitment to our industry and the culture that we've built here. So, in terms of the core people that are the ones that we've talked about, bringing back the shows, bringing back the ticketing and the sponsorship, those people are in place. As we've put on our shows in various amphitheaters and festivals sites around the country and around the world, we've been able to get the volume of people we needed. It hasn't been a material cost impact, taking in total. And we've had to work a bit harder at times to find the people, but it has not impacted our ability to put on the shows.

And I would add to that. I think the only piece that we're working through right now is all the part-time employees that are on the front of the line at the amphitheater and at the festival. We're going to be rolling out soon our kind of mandated vaccine for our employees. We're going to move forward and be very progressive on ensuring all our employees are vaccinated. And we're going to move lower with artists and managers, where we're seeing there—the likes of these artists are going to want fully vaccinated and tested shows as ways to continue to keep the show moving forward. So, I think that the biggest challenge we've had is just scrambling on a day-to-day basis with part-time employees back, and abiding by different local COVID laws, masks, no masks, now tests, no tests. I think that's been our only real challenge from an HR and communication perspective. So, hats off to my frontline. They're doing an incredible job, running hard, trying to adjust, and we're going to move to more central protocols now on mandating the vaccine and helping them out to make sure they're all safe too.

Hi, guys. Thank you. Well, you still have the best earnings call music, so if that means anything. I'd say—I just had a question on, can you discuss how much the ticketing GTV was tied to sports versus concerts in the quarter, and how you see that mix over the second half of the year?

Yeah. Those were certainly the two largest components, concerts and sports. And we'll again in the second half as we relaunch—the second half relaunch, NBA, NHL, NFL, all of those at scale. So you'll have a big full season of the three major sports. And at the same time, you're going to have a massive on-sale for 2022. I wouldn't try to parse exactly which one's bigger than the other in a given month, but those two will be the key drivers as they were in the past few months.

Okay. Thanks, Joe. And I don't know if you've already said this, so I apologize. But on the guidance for AOI profitability across every segment in the second half, is that for each quarter or is that just the sum of Q3 and Q4?

We just—our comment was for the sum of Q3 and Q4 that each segment, we expect to be AOI positive.