Live Nation Entertainment Inc (LYV) — Q3 2023 Earnings Call Transcript

Good afternoon. And welcome to the Live Nation third quarter 2023 earnings conference call. Joining us today is our President and CEO, Michael Rapino; and our President and CFO, Joe Berchtold. We will start with prepared remarks from Michael and then we will take your questions. Before we begin, 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 Live Nation’s 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. Live Nation will also refer to some non-GAAP measures on this call. In accordance with SEC Regulation G, Live Nation has provided definitions of these measures and a full reconciliation to the most comparable GAAP measures in the earnings release or website supplement, which also contains other financial or statistical information to be discussed on this call. The release reconciliation and website supplement can be found under the Financial Information section on Live Nation’s website. And with that, I will now turn it over to our President and CEO, Michael Rapino.

Thank you for joining us. As you can see from our results, the structural tailwinds behind our business are accelerating faster than ever and as fan demand truly globalizes and artists are able to tour more broadly than ever, there is still an unprecedented global desire for concerts. This is happening at all levels with both casual and diehard fans and from small clubs to massive stadium events. We will start the conversation today by diving deeper into our results and how these trends are setting up the industry for ongoing growth. Joe, anything to add.

Thanks, Michael, and good afternoon, everyone. The only thing for me to add is that given the investor presentations next week, we’ll keep today’s call more brief than usual. So, with that, I think we’re ready to take questions. Operator?

Hey. Thanks. Just to start off, since you last reported, there have been at least two major articles on the DOJ investigation into your company, as well as some movements in both the legislative and executive branches and industry-wide regulation. Can you just give us an update on what you know about the Justice investigation and then separately, the potential impact of the proposed Congressional legislation? Then I have a follow-up.

Sure. Thanks, Brandon. I’ll start first of all just on the legislative, which I think is pretty straightforward. Right now, there is an all-in pricing bill by Senators Cantwell and Cruz under consideration. We are fully supportive of that, as well as a BOTS Act that Senator Blackburn introduced, and in general, everything we’re hearing legislatively aligns with what we outlined in the FAIR Ticketing Act and things that we would definitely support. On the DOJ and the article that came out yesterday, it's our impression that the DOJ is taking at least a first-level look at almost everything that our competitors complain about. From there, they look further at some issues and not others, and if they tell us they have a problem with something, we talk to them about it. But let me emphasize this, as far as we can tell, nobody thinks that the fundamentals driving our promotions business are unlawful. We pay top dollar to artists and provide them with top-notch tour support, and those are good things. I think the article also seems to reinforce that the investigations are looking at specific business practices versus our overall business model, which is, as I’ve said previously, my impression-based on what I’ve heard. On the specifics, the agencies getting document retention letters generally indicates they have relevant information, which seems pretty obvious given the topics being discussed and competitors' complaints about. Finally, we find it interesting that the timing of this seems to come up around earnings. We don’t believe there's any real news right now concerning the investigation. We’re completing our document production they've asked for. We haven’t started depositions yet, and our impression is that the investigation is kind of in its mid-stages at this point. And yes, we have another news story the day before earnings which we don’t think is a coincidence.

Okay. And getting to the business, your forward-looking metrics and especially the Q3 ticketing results point to real continued strength for your business. But there’s a lot of trepidation now about consumer weakness, especially after some weak guidance from others in the experience economy. Is there anything in real-time that you’re seeing to suggest a fall-off in trends at Ticketmaster? I know the arenas of the world will continue to sell, but are Tuesdays in Pittsburgh still holding up, especially for Ticketmaster as you look forward?

Sure. We’re seeing no issues. Let me break it down in two parts. First, Q3 and then October. So Q3 was a very strong volume quarter. It was driven by ticket volume—$90 million in fee-bearing tickets that we sold in the quarter which showed growth both in North America and internationally. The demand remains consistent globally. Ninety percent of the growth came from concerts, which tells you that fans are looking to go to concerts. One thing I’d note about Q3 is just a reminder that last year, we had an unusual concentration of client renewal expenses, which are usually spread out over the second half, but largely came together last year. However, the quarter was about the tremendous volume and tremendous fan demand flowing through Ticketmaster. Looking specifically at October, if we look at our Ticketmaster platform for the month, ticket sales were again up year-on-year relative to last year. They were up double digits in North America, so we see no signs of weakness. Another metric we track is our U.S. Concerts division, where we monitor weekly year-on-year sales, and over the past five weeks since the end of the quarter, those sales continue to be up double digits. So we’re seeing no weakness at all. We provided leading indicators for show commitments for next year and we’re feeling good about everything we’re putting on-sale.

Thank you.

And Brandon, just for more color.

Yeah.

I have weekly booking calls with over 40 Presidents around the world. When we talk from clubs to stadiums and festivals, we have not seen anything taper off in any sense or on-sales for next year, whether it’s for an early festival across the pond or, say, a club tour playing in Pittsburgh on a Tuesday or maybe the Blink-182 who toured last year, now is back on tour again this year playing in Pittsburgh or Cleveland on Wednesdays. There’s been no pullback in any way from club tours to stadium tours. The consumer supply-demand seems consistent across the globe from small to big.

Thanks very much.

Great. Thank you. Joe, there has been a lot of focus on how the Concert segment profitability would shake out this quarter, given the mix shift towards stadium shows in the slate this year and possibly offsetting that some dynamics around having a more matched revenue and expense structure compared to last year. I was hoping you could help us unpack some of those dynamics and maybe size some of those factors. Just as we think about Concerts profitability this quarter, it would be helpful to contextualize this year and then look forward to next year?

Sure. Let me start by just noting that, year-to-date, our Concert margins are up year-on-year and for the full year, I expect margin expansion of at least 50 basis points relative to last year, so we’re making good progress verging on halfway back towards the 2019 levels. This is despite growth for the overall year that will be skewed to third-party venues driven heavily by stadiums. In Q3, about 47% of our fans were in arenas or stadiums, which is a good proxy for third-party buildings. The comparable last year for that number was 42%. So we had a lot more fans in arenas or stadiums this year. Those two building types accounted for about 75% of the 7.5 million fans that we added in the quarter. This impacts our AOI positively because we’re making money on these fans, but negatively impacts margins. So that’s why you’ll see quarter-to-quarter fluctuations that we don’t worry a lot about. If you look at the overall combination of high growth in third-party venues, which shifts the mix towards more third-party buildings, and substantial progress in our margins for the full year, we’re happy with the whole picture.

Great. Thanks for that. And then maybe one for Michael. You’re coming up on lapping the launch of two fairly significant tours in Taylor Swift and Beyonce. I think there’s some concern that those tours will be hard to replicate as we look ahead to next year. I was wondering if you could talk a little bit more about how impactful these tours were to your business this year and maybe looking ahead, how the slate for 2024 is shaping up and how you see the opportunity to compensate for some of the notable tours year-over-year? Thank you.

Yeah. Thank you. I’ve seen this written, but we didn’t promote the Taylor tour, so I don’t have that comparable to worry about in 2024. Beyonce was our tour, and it was wildly successful. However, when we look at any artist across Ticketmaster Live Nation, no artist is going to account for more than 1% of the tickets. So no one tour will impact us year-over-year; it’s about our macro portfolio of artists and tours. We have a very good pipeline as we’ve said for next year. We’re looking at double-digit growth over this year on ticket sales and our stadiums are gaining significant momentum. We are very confident that Ticketmaster Live Nation are going to have strong years next year with a lineup that will help us overcome this year’s numbers.

Thank you.

Hey. Thank you. Maybe following up on ticketing. It looks like your revenue growth well outpaced GTV growth, so I’m interested to understand how non-service fee revenue might have helped in the quarter? And then, Michael, can you share anything on the Mastercard agreement from today and what other opportunities you see for sponsorship deals to expand your international footprint?

Yeah. Sure. I’ll start just on ticketing. Absolutely, Ticketmaster continues to benefit from non-service fee revenue sources. The upsells and other services it offers to fans, as well as an increasing array of services that it’s providing to venues and promoters are all good sources that are helping us increase profitability per ticket sold.

And regarding Mastercard, we're thrilled to have them onboard. We’ve been working over the last couple of years to diversify our partners on the payment side. Thankfully, we didn’t take any of the easy crypto money at the time; we worked hard to ensure we had a stable group of great partners. Now, looking at Citibank, PayPal and now Mastercard for international rounds out our global portfolio in that category, with overall economics surpassing what we historically had. So we’re very happy to have them onboard, which is a big part of our business, continuing to show strong growth in our sponsorship side with sponsors lined up to be part of this Live boom.

Thanks.

Thank you. I think you guys are on track to add 6 million fans or so this year at your owned and operated venues. Is this sort of the right run rate to think about going forward, or could this step up in coming years?

This is an area that we’re absolutely focused on continuing to add venues. So the hope is that we continue to build on that number. I think it will probably not be linear year-to-year as we add to our portfolio, but we’re very focused on building this as that tends to be our highest profit and highest margin fans that we serve.

Thank you. A couple of related questions: the ticketing revenue particularly blew away our estimate. How much of that is for 2023 events and how much is for 2024? Similarly, with deferred revenue being up 39%, I know that some of that is due to the timing of when shows go on sale. That’s not an indicator of what the revenue growth would be, but how much of that would be due to venue mix or tour type for 2023 shows versus 2024? How do we use these metrics on an apples-to-apples basis to help with our outlook for 2024? Thanks.

Sure. First, at this point through Q3, we haven’t sold a ton of tickets for 2024. That’s why we focus more on what the show bookings are. We have sold more tickets this year, which is a part of what goes into deferred revenue. But we’ve sold about 18 million tickets for shows next year, which is relatively a small portion of what we ultimately sell. So that’s not a driver of our Ticketmaster results for Q3. More of the other factors that I talked about are contributing. Deferred revenue is up because, yes, we have sold more tickets for shows next year, but we’ve also sold more tickets for shows occurring in Q4. It’s our expectation that, because of that pipeline and, as Michael noted, it’s become a solid period for stadiums as well as arenas, we expect to see that deferred revenue number continue to grow for the next several months.

Understood. I appreciate it.

Thank you, everyone. We look forward to seeing you in New York next week. We’re excited about where we are as an industry, and we look forward to taking you through details next Thursday. Thank you.