Live Nation Entertainment Inc (LYV) — Q2 2023 Earnings Call Transcript

Thanks, everyone, for joining us. As I think you noticed from our earnings release this time based on some feedback that we've gotten on our release and the materials in general, we've switched it up this time to get a little more comprehensive and data-driven in terms of numbers and the facts. So you see an earnings release that we reduced the narrative and increased, if I give you on a more structured basis all the key numbers and then also put a trending schedule that I think there was a link to you can get as a PDF or an Excel file, so you can track this quarter's numbers relative to history to make some of it easier. So I'll turn it over to Amy to give you a quick reminder, and then Michael and I will go straight into taking questions that folks have. Amy?

Thanks, Joe. We would like to remind you that this afternoon's call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ, including statements related to the company's anticipated financial performance, business prospects, new developments, and similar matters. Please refer to our SEC filings, including the risk factors and cautionary statements included in our most recent filings on Forms 10-K, 10-Q, and 8-K for a description of risks and uncertainties that could impact the actual results. We will also refer to some non-GAAP measures on this call. In accordance with the SEC Regulation G, we have provided definitions of these measures and a full reconciliation to the most comparable GAAP measures in our earnings release issued earlier today. The reconciliation can be found under the Financial Information section on our website. And with that, we are now ready to take questions.

I think investor concern now, if you were to pull the buy side, is that with the past few years coming out of COVID being so strong, you're going to have trouble growing next year. And I think the Street is only at mid- to high single-digit growth. I guess, this is a good problem to have, but you said there are positive indications for '24, and wanted to see if you can kind of break that down into domestic and international. So on the domestic side, what are the positive indications that you're seeing besides this very early pipeline? Will supply match what we've seen in the past couple of years? And then on international, obviously, LatAm has been a huge tailwind post-acquisition. You've seen some other green shoots in Asia and parts of Europe. Should we expect continued growth in those markets or just more M&A on top?

So Brandon, thanks. For starters, as I think you probably noticed we put in the release that at this point, our confirmed shows and shows that we have offers in on our arenas, amphitheaters, stadium shows is up relative to where we are at this point last year coming into '23. So we're seeing continued growth in the show count, which should lead to continued growth in attendance. As you know, our formula is to drive that growth in attendance and from there, accelerate the AOI levels even higher with increasing per fan profitability on-site, increasing sponsorship, and increasing our ticketing business. So I think we're set up for very strong continued growth into 2024 across the board. And a lot of that activity, these are going to be the shows that have the longest lead time on. So a lot of these are going to be global in nature, cutting across both North America and international. As you noted and as I think much of the release lays out, this has been a tremendous quarter for growth in international markets, up I think it was 46% fan growth so far this year, which given that we were closed part of last year, we expected to see very strong growth. But we still think we're in the early innings. If you take Latin America, we're up about 35% this year so far year-to-date with roughly 10 million fans. But we think we're still in the early innings in South America. We launched the Town festival already sold 400,000 tickets on our way to probably 500,000 tickets, which is unheard of for a festival in its first year. So as we continue to layer on our promoting business bringing in our sponsorship business, bringing in our ticketing business throughout Latin America, that just continues to drive it forward. In North America, again, a very good year this year, and we're seeing the sort of growth that we think is possible ongoing year-to-date, up 8% in North America with the fan count expect that to be double-digit fan growth in Q3, probably verging on double-digit fan growth for the full year in North America as we're seeing top to bottom. We're seeing strong growth in theaters and clubs. Our amphitheaters are doing great, substantially up in number of fans attending per show and the high-end stadiums are doing very well. I've seen some things talking about is the middle, how is the low-end demand across all of those continues to be very strong.

And I'll just jump in. And Brandon, just to reiterate the pipe, right? The most important thing for us is just how does the pipe look for next year. As you know, a year ago, we sat here, and I think everyone thought '22 was the record year, and we were headed into an air pocket, and we've blown the doors off in '23. I would just step back. We believe for the next multiple years that this industry, in general, is going to have a growth surge on a global basis. We've talked to all these factors before, international, global artists, consumers. There's a whole bunch of great articles written on why there's a boom happening in a live business on a long-term basis. So we don't think this is just any COVID catch-up. We think that this is going to be the time when live on a global basis is going to have an incredible growth run for years to come. We obviously benefit from that any time the market gets this level of growth because we'll capture that growth also. So we're looking next year, we're seeing top to bottom, as Joe said, an incredible pipe of artists that will be filling all of the different venue types and markets across the world. So we think we're heading to a very, very strong '24, '25 onward, a combination of the market is going to grow, consumer demand is growing, and our ongoing bolt-on acquisitions, venues, new market entries compounded on top of our organic growth is going to give us this continual one-two punch of growth for the next multiple years.

Just maybe on the outlook for consumer spending. There's been a lot made over the last couple of months about the impact of student loan payments starting up in the fall. Maybe for Joe, if you could just remind us what percentage of the comps are going based you think might be skewed toward this cohort? And then maybe more broadly discuss how you're thinking about the risk that consumer spending pulls back maybe into the back half of the year or next year? Are there any parts of your business that you think are more or less exposed and perhaps festivals, and just would be curious if you could dive a little bit more deeply into the demands under the equation.

Sure, Stephen. Thanks. I think first, just for context, I think it's important to remember a relative scale. So if you look at consumer spend, discretionary spend on goods versus experiences. As we know, it was in the high 60s in experience. I mean this is a Goldman report that talks about this pre-pandemic and then how that has dropped and it hasn't yet caught up. So our analysis shows that the tailwind impact from getting experiences back as a portion of discretionary spend is about 10 times the impact of any potential headwind coming from the student loan payments needing to get made. So we think that the tailwinds on that specific macro factor far outweigh any headwinds. As Michael talked on a global basis, we continue to see this as a tremendous tailwind business as you have further and further globalization of demand. As we look at all the different pockets, as I mentioned earlier, that the amphitheaters is an example of a mid-level act. We're seeing high single-digit increases in attendance per show, which is really driven by more lawn tickets being sold. So the people that you might say are going to be the most price-conscious are continuing to spend strongly per caps growing even as we're continuing to increase our number of fans per show, which again means that even the marginal fan is continuing to spend a lot when they show up. So we're not seeing any indicators that would give us any concern on any slowdowns.

Great. Thanks for that. And maybe just one on Concert segment margins. It looks like ALM margins were up year-over-year in the second quarter. I think there might have been some assumptions that margins would be pressured year-over-year just given the mix of the slate towards stadium and arena this year. So I'm curious what drove margin expansion in the quarter? And if you think this is a trend that will be sustainable for the rest of the year? Thank you.

Yes. As we said in the last quarter, our expectation for the full year on concerts is that you will see margin expansion relative to last year. You're correct that any fan in third-party buildings is generally going to be a lower margin than fans in our building. But the countervailing factors are that we continue to increase the per-fan profitability across all of the different venue types. So as we increase that per fan profitability through all the different ways that we have to monetize, then we're going to see some margin expansion. That comes from increased per caps on our own building, it also comes from continuing to focus on the costs. I think in particular, in North America, we've been very effective. We look at our amphitheaters, if we look at our theaters and clubs globally, we've been able to actually drive down our average operating cost per fan this year relative to last year, which certainly helps with our margins.

I'm curious with your voluntary all-in pricing initiative, I know you haven't implemented this yet. But curious what the reception has been so far from fans, clients, lawmakers. And then, can you discuss, have you thought about any potential demand impact as for the shows that your venues as I think now optically at least you're raising prices relative to maybe competing locations? And then maybe for third-party venues that would opt in, how you would think about the demand impact there? Thanks.

Sure. I think the general reaction has been overwhelmingly positive. People understand that getting the all-in price upfront is absolutely the best consumer experience. I think there is a lot of concern that there will be still confusion in the marketplace because there will be a mix of all-in pricing for shows on our sites and on the primary tickets on our sites, and you go to secondary sites, you'll see a different approach. So that's why we continue to support legislation that drives a consistent fan experience. Because we are the primary ticketing provider in these events, I think it's our expectation in general that even that all-in primary price is generally going to still be lower than any secondary price even without service fees. So our experience thus far in New York or Louisiana that's recently implemented it, we haven't seen any impact on our primary ticket sales.

Okay. And then, Joe, for the $300 million of growth CapEx, I wanted to see if you could provide any additional color around that? How would you bucket that between concerts and ticketing and then within concerts, new builds or other growth initiatives? And then your release noted international locations, specifically for the Venue Nation pipeline. I'm interested, you now kind of see international is the key area where you're going to be adding venues?

Sure. I think if you look at the overall $300 million of spend is vast majority of it would be concept-driven, 75%, 80% of it would be on the concert side. If you look then on the concert side, I would put it in 3 buckets. One is where we're doing a lot of tactical improvements across a broad set of our amphitheaters or theaters and clubs around revenue-generating opportunities, putting in new bar designs, putting in additional points of sale, things that are going to tactically help drive our APF levels. Second is, when we renew our amphitheaters or our theaters and clubs, we often go through a CapEx refresh cycle, that because we're going to have a long-term lease, we're going to be able to get a strong return off of that investment. And then, third would be the new builds where whatever level generally coming in and building out the shell and taking on that building would be the third bucket. And it's going to move around year-to-year within those 3, but those would be the 3 large buckets. And then in terms of the priorities, absolutely, international, Latin America, Asia and more in Europe is highest priority for the Venue Nation strategy. In the U.S., you benefit from having a strong arena infrastructure because NBA, NHL, their teams and their affiliate teams provide you with some of that infrastructure that you don't tend to have in the rest of the world. So this lets us both benefit from strongly attractive returns on those venues also, let's just put on more shows for more fans, because we're putting an infrastructure in place that didn't previously exist.

Joe, you're on track for $300 million fee bearing tickets this year which is a 7% growth over 22. In the first half ticket growth on fee bearing is 22% year-over-year. So just maybe help us understand what's the slowdown in the second half in ticketing or is that just some conservatism in the numbers. And then I have one more follow-up. Thanks.

Yes. At this point, we are confident in the $300 million figure based on the visibility we have, but we still don't have a clear picture of what Q4 will look like regarding the timing of sales for next year's shows. By the next time we discuss this, we expect to have better visibility into Q4 and will provide guidance from there.

Thank you. Regarding the ticketing margin, you achieved over 40% again in the second quarter. You're confirming expectations for high 30s in the second half of the year, which suggests a mid-30% margin for that period. Similar to the revenue discussion, could you elaborate on the factors influencing this change? Thank you.

Yes. I think there's a long talk. There's a lot of timing that happens with us in a given quarter. I think you saw last year a lot of the same questions. We had lower margins in the second half as we had a lot of costs associated with contract renewal cycles and other factors. So I think at this point, we're comfortable continuing to reiterate the high 30s for the margin, but not yet ready to get more specific than that.

With international growth being so robust and more major artists touring globally, has your strategy adapted in any way? Does this situation encourage you to allocate more resources towards international mergers and acquisitions? Are there new opportunities to leverage increased visibility into international demand that weren't available before? Additionally, regarding technology, given the recent controversies surrounding bots and scalpers, could the company benefit from investing more in technology to address these issues? Thank you.

On the global front, I don't believe our strategy has changed. If you've been listening to us for the past five years or more, we've consistently discussed operating as a global business, with artists gaining international access. Consumers, driven by social media and other platforms, are promoting global consumption without any barriers. We have 100 offices in over 40 countries and have been advancing in this direction for quite a while. We see significant opportunities, particularly in regions like Latin America, the Pacific Rim, and Eastern Europe. Our plan remains as we anticipated, with artists becoming more global and international markets, akin to New York and Boston, eager to host major artists like U2 and Beyoncé. This allows us to expand in those markets. We see tremendous growth potential for years to come in this area.

And on the bots, certainly, new technologies allow us to continue to get more sophisticated in trying to stop the bots. We're regularly working on both the technologies as well as just new processes to try to weed out humans versus bots. The problem is some of the same technologies are also being deployed by the bad actors trying to jump the line and get those they have a $5 billion a year incentive to cheat get those tickets, which is why we've been continuing to advocate and I think we've seen a lot more visibility on some of the behavior that we need or we'd like at least more legislative support in terms of real punishments for the bad actors or the platforms that enable the bad actors, ending practices like speculative ticketing that is clearly price manipulative and anti-consumer. So we're continuing to do our part to fight it, and we hope that we'll be able to get some help with some rules and with some real penalties for people that are trying to cheat.

I wanted to just get an update, if you don't mind, on the digital process, right, digital ticketing, et cetera, and then the second derivative of being able to harvest and drive better returns off of the information gathered from it. So where is that today and where can it go? And how do you see that opportunity?

Yes. At this point, digital ticketing is largely ubiquitous globally coming out of COVID. I haven't seen the latest numbers, but I expect it to be in the 90s that are now digital tickets. It's a very informed shifting from barcodes to what we call safe ticks, which are rotating barcodes or NFC that keep tickets from being counterfeited and sold over and over. So we have a number of initiatives that have launched to use that data. We've talked extensively about some of the things we've done in marketing, bringing all of our data together to better understand the fan, how we market to that fan. How, with the digital connection, we're able to market to them on behalf of our Digimaster clients, how we're able to market to them on behalf of sponsors, how we're able to send them messages for upsells when they go to shows in our buildings. So that all continues. And then in the background, we have Ticketmaster using the data that it gets for a range of, I’ll call it, machine learning purposes and tools in terms of helping clients figure out how do they price their shows, how do they market their shows, what are the tools that they should use can help our concert folks in terms of understanding likely demand for tours and shows in specific markets. So certainly, now it's the point where that data and now is used is permeated the business.

Got it. And if I can follow up, please. With respect to Platinum, right, we do have discussions about inflation and the cost of things, et cetera, et cetera, which doesn't seem to be at play here. But where is that? Where can it grow? And any pressure points with respect other than the artists themselves authorizing it, right? Any pressure points toward sort of growth in Platinum and how that mixes you higher?

Yes. I want to have characterized it as artists not allowing it. I mean, the artists are the ones who are set the price of their tickets. It's our job to provide the information to them to help them understand the market value of their tickets, so they can figure out the balance that's right for them and their fan base in terms of pricing the tickets. So they're getting the value. Are they giving it to the fans, how do they keep it from going to the scalper. A lot of artists now I would say it's almost becoming the standard that they're understanding they should price the front of their house to capture most of the value. Otherwise, it's the scalper who's going to take it. And then they want to make sure the back of the house is priced so that every fan can afford to buy a ticket can get in. The trend we've seen coming out of COVID is, I think, a switch from it being partially used to being very ubiquitous here in North America. And then over the past year or so is becoming much more heavily adopted in international markets. I think we still have a long way to go in international markets towards full adoption. And if you look at the pricing with platinum, there's still a substantial gap relative to average secondary pricing which would imply that artists are continuing or attempting to give a lot of the value to fans and we'll see how that evolves over time.

Just to jump in on Platinum. The magic of Platinum isn't to increase the first rows. The magic of Platinum is it gives that artist the opportunity to look at the whole house. We have never, and historically jumped on an earnings call and told you we couldn't sell the first 10 rows out. Our job is always to sell the last 10 rows out in the upper nosebleeds as they call them. So what Platinum has enabled the industry to do is as the artist has increased show costs and needs to get a certain gross for that night is we should figure out how to maximize some of the front of the house closer to market, but that's also let us bring the price down in the back end of the house. So the net gross can be more overall, but it's giving fans a better sell-through rate on the back end of the house. We used to be locked into kind of 3 ticket prices that didn't have that opportunity. So the biggest advantage to dynamic pricing and platinum price over the last few years was really just how do you help the whole house gets sold? How do you reduce the prices in the back end of the house? But are always the harder ones to sell so you truly get a full house on the proper gross for the artist and then all of us benefit when more people walk through those doors.

I just had a question on the secondary market. And my question is pretty simple. Is your philosophy or emphasis on this market changed? Because I think in your K, you talked about the GTV on secondary being something like almost $4.5 billion in 22 more than double 19 levels in this release, you're talking about secondary ticketing volumes up double digits. So is this just indicative of the overall strength that we're seeing in consumer interest and going to live events? Or is it something that you're doing as well or both?

Well, first off, again, just to keep it in context, we've long said that, first and foremost, our job is to sell the primary ticket. We're a primary ticketing company and its secondary is kind of low to mid-teens portion of our GTV. So it's relevant, but it's also not the primary focus. We have long thought that we need to be in secondary because fans have a need to buy a ticket. And when a show is sold out if we're not giving them an option to buy a legitimate secondary ticket, then we're forcing them to go to other platforms to buy their tickets, and we think they're better off being served within the Ticketmaster ecosystem. I think as we continue to do a better job with our offer, reducing friction, understanding how to deliver on the fan needs as we've aligned with the NFL, the NBA and others on the sports side have a slightly different model for secondary. I think we've naturally grown our position in the market. But what really matters to us, first and foremost, is that we have a great primary sale, and that's managed in a way that is going to keep content happy.

Congrats on the quarter. I just quickly wanted to see if you had an update on a metric you've given before in terms of the average ticket price and how that's been trending? I think in the past, you've said it's been below $35. And then, secondly, as a follow-up, as we watch sort of the macro tightening in the backdrop and not so much for your business. But in general, in tracking sponsorship, any color you could give on cohorts that are more or less meaningful for that sponsorship growth that you've been seeing as we track forward into this tightening environment. Thank you.

First of all, regarding the average ticket price, we've previously mentioned that the entry ticket price, which is the lowest price a fan can find for our amphitheaters, theaters, and clubs, is generally below $35. This is largely because artists want to ensure that almost all fans can attend their shows. However, due to rising costs and changes in the secondary market, ticket prices in some premium sections have increased. Overall, you can see that the total pricing on Ticketmaster, GTV, and the number of tickets sold has risen by double digits year-on-year, while entry prices remain low. As for sponsorship, I didn't quite catch your question. However, we have not seen any slowdown in our sponsorship business. Over 90% of our expected revenue for the year is already booked, primarily from large multi-asset, multimillion-dollar sponsors with whom we have long-term agreements, and they continue to perform well and sign additional agreements.

We have 900 different sponsor brands, and every category is fairly well distributed. We haven't noticed any sector pullback affecting our overall core business. We've always maintained that our business is a less significant investment compared to many other TV and large campaign investments that brands undertake; it's a much more targeted approach. As a result, we've observed that more brands are reallocating some of their budgets from other categories to the event space, where they can engage directly with consumers, something they may not achieve as effectively through digital channels. Most sectors have increased their spending in our category, which has been growing alongside it. We anticipate that this trend will continue as brands seek ways to connect with consumers in a digital landscape. Sports offer them a unique opportunity to reach consumers at scale, such as during an event on a Thursday in Pittsburgh. Therefore, we expect to see further growth in our category.

Two, if I can. The increase in accretion expectations for the year that you call in the release connected with OCESA, imply that the performance there is pacing pretty well above your expectations earlier in the year. Can you talk a little bit about what specifically has been outperforming with OCESA? And then more generally, in terms of Latin America, it's obviously been a focus for you guys. Do you feel like now with kind of touch points in Mexico, Brazil, Colombia, that you're in a position where you can kind of expand to the rest of that region organically? Or are there other kind of individual markets where it might make more sense to penetrate through M&A? Thanks.

We believe our approach to global expansion has remained consistent. We typically enter new markets with low-cost strategies, possibly involving a local promoter or festival. As we establish a sufficient amount of content, we can introduce tours in those markets and enhance our presence. For instance, in Brazil, we have Rock In Rio as a strong festival base, a growing touring business, and we've recently launched sponsorship and ticketing operations there. This combination looks promising. We expect continued growth in Latin America, with Brazil having a particularly strong year and Argentina showing significant activity in ticket sales. We are optimistic about the entire Latin American market and plan to grow organically. Historically, we have been focused on organic growth while also pursuing strategic acquisitions to enhance and amplify our efforts.

I mean that spend across the board. I think on their concert side, we've done well in terms of starting to get shows on our dream platform down to Mexico. Latin artists are clearly on fire. So they've got a very, very strong set of regional shows they've been doing. Their festival business is doing great. We've worked with them to get the ticketing platform enhanced and that's continuing to perform very well, and they've been bringing in sponsors. So it's really across all elements of their business, I would say, has well outperformed relative to what we thought when we acquired them or even when we thought six months ago, nine months ago or now this year would be.

Remember, we bought OCESA in COVID. We believe in the market, did we model out our IRR to think that the industry would bounce back as big as it has, no. So anything we're doing down there has been above and beyond what we expected for Latin market and industry in general overall. And we've got an incredible management team down there partnership with the CEO. They're a very, very well-run organization. They've got venues, ticketing we've been able to take a really kind of archaic ticketing platform and continually reinvent it now that we're partners on the Ticketmaster side, sponsorship upgrades. So off their incredible base, our expertise and the market dynamics. It's been an incredible return.

If I can follow up quickly on one of those points. Is that generally a one-way bringing sponsors from elsewhere into those new markets? Or is there also kind of a reverse dynamic where you're taking local sponsors and also giving them exposure in North America, Europe that they may not have had previously?

Yes. I don't want to say it's completely one way, but it's our global sponsorship partnership team. When you're sitting with any of these big brands you can imagine and you're trying to sell a global sponsorship that maybe they're only doing with the Olympics and F1 because there's not a lot of global properties, right, the NBA, most sports is regional. So when we can sit in that room, they know we have a big office and in now market in Brazil, and we can get you to Rio, São Paulo and Mexico City and Milan. So the more major markets we can add to our pitch when we're sitting with that CEO, CMO on a global basis, it helps look at our sponsorship business that we can now deliver kind of a global platform and bring bigger sponsors to some maybe local deals they had. So we'll always kind of look to replace a local deal with a global deal would be the return we look for. So adding Latin, adding Mexico City out in these markets, big markets for most big brands gives us more markets to sell our global story too.

You made an acquisition in March for Clockenflap in Hong Kong, which is a great name. Is that a possible expansion opportunity for you? You've mentioned that the market is still in early stages, but could it serve as a growth vector? Additionally, regarding earlier comments from Peter, it seems that some of the challenges in November were less about the passes going through Verified Fan and more about your network's ability to manage the traffic. Have you made enough upgrades so that if the same situation arises, you could scale effectively and avoid discounting to customers? Thank you.

Let me take the second one first. This is Joe. Just to be very specific, what happened was there were two vectors of attack during that on-sale. One was a very large number of bots trying to crash into our verified fan system. That slowed down the fan experience, but that did not crash the system or it could cause it to stop. At the same time, we had what was in effect the attempted cyber hack that was a brute force cyber-attack that had the fact of a denial service attack, not through our front door of our Verified Fan system, but through a specific server that we have. In order to fight off that cyber-attack, we had to stop the on-sale. Within five hours, we had figured it out how to fully reinforce the defenses to and in fact, move out the defense line so that stopping the cyber-attack. We know the attempted cyber-attack, we no longer have any load on our system for the verified fan experience, we started it back up. So the answer to your question is within five hours, we had solved that problem. It's not something that's taken us six months or nine months to figure out how to solve. So we solved it quickly. We ultimately did sell two million tickets that day. And once those five hours were passed, while it was a long wait at times for fans because there were a lot of people trying to buy the tickets, there were not the system overload issues. I'll let Michael speak to it.

Yes. You're deeper in the discussion. What acquisition were you referring to? Which one?

Clockenflap in Hong Kong, festival. I knew it was small, it got a little bit of a test in the trade meeting and you did put out the press release. I assume it obviously isn't that much of an expansion platform, but if you have any specifics on your ability to do anything on that market and expand more in Asia, outside of Australia and Japan, I thought that would be interesting. Thanks.

I would say it was part of a broad bolt-on strategy in Asia. As Michael said earlier, we'll go in and we'll look for local promoters, local festivals that we can bring on and then we can then tie in with our broader concerts platform, bring our sponsorship team into. So it was an example, I would say, of the type of activity or type of M&A that we're doing in the region.

We discussed Latin America earlier, but the Pacific Rim and other regions are equally important to us. It's a global business, and Japan is a crucial market for us. We are already established in many Pacific Rim markets; we have offices in Singapore and a successful operation in Korea, which has helped us become the promoter for various artists worldwide. We view the Pacific Rim as equally significant as Latin America and will continue to integrate additional promoters and festivals as we expand that business and enhance our content offerings.