Q2 2021 Live Nation Entertainment Inc Earnings Call
[music].
Good day, everyone. My name is Hector and I will be your conference operator on today's call at this time I would like to welcome everyone to live Nation Entertainment's second quarter 2021 earnings Conference call Today's conference is being recorded.
Following managements prepared remarks, we will open the call for Q&A instructions will be given at that time.
Before we begin live nation has asked me to remind you that this afternoon's call will contain certain forward looking statements 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 the company's 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 and accordance with the SEC regulation G. Live nation has provided definitions of these measures and a full reconciliation to the most comparable GAAP measures and their earnings release or website supplement, which also contains other financial or statistical information.
<unk> to be discussed on this call the.
And the release reconciliation and website supplement can be found under the financial information section on live nation's website at investors Dot live nation Entertainment Dot com.
It is now my pleasure to turn the conference over to Michael Rapino, President and Chief Executive Officer of live Nation Entertainment. Please go ahead Sir.
Good afternoon, and thank you for joining us as communities reopen we're seeing and the pent up demand for live events play out as artists and fans are eager to reconnect and person.
And the U S and the U K, we're seeing strong ticket sales on the restart of our concerts and festivals highlighted over the past weekend, bye Lollapalooza and rolling loud and the U S and latitude and the U K posting 3 quarters of $1 million plans combined.
The vaccine Rollouts accretion throughout Canada, and Europe, we expect additional markets to open up broadly and the coming months and.
And the momentum for the return of live has been building every month with ticket sales and concert attendance pacing faster than expected and.
The score and the strength and resilience of the concert business log of events and 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 the this quarter.
To see further ramp up accelerates and the rest of the year with all segments returning to profitability for the second half of the year setting us up for a full scale 2022.
And you put more shows on sale for this year and next ticket sales of the best early indicator for concert and our overall business.
To that end of June was Ticketmaster, North America's fourth best month in the history for transact the ticket volume, which was driven in part by our U S concert division and the highest number of shows on sale ever share in a single month, 50% more than the next highest mark back in 2019.
And concert a recovery of the summer continued to be led by our outdoor events at our festivals and asked the theaters.
We expect to have over 6 million pounds and turned our festivals through and the second half of the year with about 2 thirds of our festivals increase and their attendance compared to 2019.
Most of our major festivals sold out in record time, well average ticket prices have been 10% higher of the 2019.
And while still early on our amphitheater shows over the past few weeks, we have delivered strong double digit increase and average per fan revenue and on site spending versus 2019.
Looking forward to 2022 and now of 2023, all of our leading indicators continue to point to a roaring era of concerts and other live events.
Starting with the conscious decision every major venue type of arenas amphitheaters and stadiums of pipeline, indicating double digit growth and our show count and ticket sales relative to 2019 levels and.
And in some cases, our pipeline is still strong we are extending our planning into 2023 and even the beginning to discuss tours that extend into 2024.
At the same time ticketmaster's, leading edge technology continues to attract new clients and an 11 million net new fee bearing tickets so far the sheer on.
Already surpassing any previous full year growth.
As a result of Ticketmaster has set the benefit in 2022 from both increased live nation concert ticket sales as well as additional sales from new clients and our spa.
Chip business, our brand partners have maintained and grown their interest and live events with contracted sponsorship up double digits for 2022, where we were at this point in 2019 for 2020.
And so our revenue was rebounding and we continue to evolve our business to maximize opportunities and the global recovery and strengthen our flywheel.
We have structurally reduced our cost basis of about $200 million, making us more nimble and converting more of our revenue.
We have integrated our ticketmaster king globally, enabling us to work towards the global product roadmap and will both reduce our costs and increase our flexibility and speed to deploy new client tools and the proof of our marketplace experience.
We continue to build our direct to consumer business, it's the initiatives ranging from streaming conscious and F piece, the artist merchandise, bringing more value to artist and deeply 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 the attendance revenue and the alloy.
With that I'll, let Joe take you through more details of our results.
Thanks, Michael and good afternoon, everyone.
We've done over the past year, we've added some tables of the back of our earnings release that reconcile and more detail some of the numbers I will refer to today.
And the second quarter, our AOR was positive for the first time since the start of the pandemic as the.
The U S by far our largest market accelerated its reopening also driving our revenue and to the highest level since the first quarter of last year.
As a result, our contribution margin ramped up faster than expected, particularly and 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 3 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 increase liquidity will provide us with the runway we need the shows return.
And as we move toward reopening and more markets. We continue to balance the strong cost and cash management and with making the necessary investments to grow the business.
We expect to generate positive overall.
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 and the second quarter of 2020 for growth of over half of $1 billion.
All 3 of our business segments more than double their revenues from last year.
For the quarter was $10 million compared to a loss of $432 million for the second quarter of 2020.
Our Q2, 2021 and AOE consisted of $351 million of contribution margin, which included $364 million from operations, along with various onetime of items, including gains from insurance recoveries and government support and losses from ticketing and service fee refunds paid out.
This was then offset by $341 million and 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 delivery and $99 million and NOI.
Ticketing and 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 and North America's fourth best month ever for transact and ticket volume.
And general North America drove much of this resurgence accounting for over 75% of total transact of tickets and the quarter as compared to approximately 2 thirds of transact and tickets for 2019.
Concert tickets drove much of this activity and as a result of the top 10 of artist sold over $513 million and G. T V. During the second quarter this year compared to $329 million and the second quarter of 2019.
Secondary ticketing and similarly rebounded our June G. T V was only 8% below June of 2019 that.
And that trend has continued into the third quarter with July 12, and marking the highest resale G. T V day, and our history driven by the U S open along with strong NBA and NFL and concert resale volumes.
These results and ticketing are leading indicators of our concert business for the second quarter.
Concert AOI loss of $84 million was and improvements of 127 million relative to Q2 last year and our revenue was up $145 million relative to Q2 last year as we promoted and nearly 1700 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.
Representing a pipeline of future activity, even higher than the $1.6 billion. We had at the end of the second quarter and 2019.
And part of this event related deferred revenue is associated with over 25 million tickets were sold for a concert and the second half of this year.
Along with also being part of the 14 million tickets that we have already sold for concert in 2020.2.
Which reflects strong double digit growth and our 2022 pipeline for show count and fans relative to 2019.
Sponsorship and advertising and then naturally flow from our ticketing and concert platforms our.
Of 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 of pre sales.
We continue to find brands are committed to maintaining or increasing their span of 5 nation to reach our music fans and other live of and audiences and during the quarter. We added several long term strategic partners, including the Legion, Payor, Adobe and synch and the airline technology and auto sectors respectively.
And more broadly, we expect our sponsorship and advertising and full scale activity to return somewhere between ticketing and concert and 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 and 2022 and beyond.
Looking at free cash and liquidity as of June 30, we had total cash of $4 billion, including $1.1 billion and ticketing client cash and $1.8 billion and net concert event related cash, leaving and 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 and readily available liquidity up from $1.6 billion at the end of 2020 and steady with our Q1, Andy and liquidity.
Benefiting our free cash position and the second quarter was $161 million and 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 a $115 million per month of operational burn.
From a $100 million per month, and the first quarter as furlough. The employees returned to prepare for a reopening and we reinstated full pay for most employees.
And the other $58 million per month of non operational cash costs, including investment and capital expenditures acquisitions and artist and ticket client advances to give us $173 million average per month and gross burn.
And of Q2, we had $119 million average per month cash contribution margin double of 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 will play on the next 12 months was $2.1 billion up from $1.5 billion at the end of the first quarter.
Ticket sales and the second quarter were nearly $900 million, while refunds totaled a $100 million and a shift of deferred revenue from short term to long term for shows that were rescheduled into the back half of 2020.2 totaled $150 million.
This long term deferred revenue of and 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 6 months with $38 million spent on revenue generating items.
The markets of reopened faster than expected, we will similarly be accelerating and some of our investments to take advantage of additional opportunities this year and end of 2022.
As a result, we now expect total capital expenditures for 2021 to be approximately $170 million with over 60% of the spend going into revenue generating capex projects.
Our total debt as of June 30 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 concert the scale further and the second half of this year and 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 of Ticketmaster to run its on sales of the concert division to book and market 2022 tours and sponsorship staff to support delivery for brands onsite and online.
Given the COVID-19 issues and 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.
With that let me open the call for questions operator.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad and <unk>.
Confirmation tone will indicate your line is and the question queue. You May Press Star 2 if you would like to remove your question from the queue.
For participants using speaker equipment and may be necessary to pick up of your handset before pressing the star keys, 1 moment. Please while we poll for questions.
Okay.
Your first question comes from the line of David Karnofsky with J P. Morgan. Please proceed with your question Hi.
Alright, thank you.
And just when Covid kind of being what it is at the moment and the Delta there and can you just maybe talk through how youre thinking about.
Navigating some of the challenges and might come up and the next month or debt.
They are too and I like changing help mandates shifts and the ban any hesitation of 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 entry of either vaccinated or tested or fully vaccinated. We had that of all of palooza over the last weekend and very successfully done over 90% of the people portfolio.
Accelerated which I think it was of great signal in terms of People's commitment and support of being vaccinated in order to go to the shows. So my expectation is that we will see that continue.
Whether it's the artist level at the city level of like New York, just announced or.
The large crowds frankly all of <unk>.
And certainly went above and beyond what was happening and of baseball games and Chicago and.
Similarly, I think and other markets were going above what others are doing so we will continue to focus on that I think it's the great news is that at this point the discussion is around and what are the requirements to hold the events.
And we need to see in terms of vaccinations and testing.
And not hearing discussions certainly in the U S for the U K about the.
Impacting those shows kind of any scale.
Got it.
And I know you just restarted at the aims and the festivals and any early insights and the fan behavior. So far.
Mentioned per caps are up and is there any additional color you can provide on what's driving that and then maybe with digital ticketing any learnings and having that tech and rolled out at scale across your and music.
Music venue footprint.
Yes at this point, we've probably done about 50 am shows that we've gotten the data on and 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 of VIP packages more upsells. So in general of the pocket books are open.
And it's pretty mature to get any real specific and.
And for answers and I think it's also just it's a little bit early to get the specific impact of digital ticketing and we believe that eliminating friction and always helps commerce, but we probably won't have the data on that until our next call.
Thank you.
Your next question comes from the line of Steven Lazar Chick with of Goldman Sachs. Please proceed with your question.
Hey, great. Thank you on the 2020.2 concert pipeline being up double digits versus 2019 I was wondering if you could give us a sense on how much of the pipeline is for sale today are 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 house constraints Youre working with any commentary there would be helpful.
Most of the go ahead and so.
So I'll start Joe and then most of our 2022, new tours and wouldn't be on sale of yet most of what you see on sale is what would've been rescheduled from 'twenty 1 are already on sale.
A large on sales slate plan between now and end of the year for most of the Big Global tours that will go out and 22.
And we're not we're very content with our with our 22 line up right now we're talking mostly about what to add now into 23 and 24, so that debt.
Idea of it it's just 1 year of business isn't really true we've got 3 or 4 years here of strong demand and that will kind of smoothed out over and over the time.
So everyone can get the right markets and the right Friday nights and the right day. So we see of good few year run with all of this pent up inventory.
Got it. Thanks, that's helpful and then on the Ticketmaster side and you mentioned you added $11 million net new fee bearing tickets year to date I think that 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 this of certain types of venues leaks teams maybe.
And maybe some of the things that's resonating with your pitch with these the potential ticketing partners. Thank you.
Yes, it's really happening on a global basis.
We're seeing it and the U S. We're seeing and Europe, we're seeing and 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 1 market or 1 type of clients in particular, it's pretty broad I do think what's resonating is we've been very loud in terms of Arctic clearer on the.
And to which we are and continuing to invest and ticketing and the shift to digital ticketing and the benefits of that is going to be given to the teams the venues and the customers and that seems to be working with the clients we're talking to.
Great. Thank you.
Your next question comes from the line of John <unk> with Wolfe Research. Please proceed with your question.
Thanks, guys. The 2 questions 1 was with the expectations for the tour and Super cycle over the next call. It 2 to 3 years can you talk about how you're thinking about the demand side in terms of fans and the assumed sellouts and through the cycle, alright, and pre pandemic levels or maybe higher or lower and then on the ticketing margin side. There was the lift there is that.
The chunk of the $200 million and cost savings kicking in.
And is something close to that level of new normal or are there any items to call out.
All of the demand side.
On 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 'twenty, 2 is great quality tours and the artist. 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.
And we'd like to always pointed out and we think the product is still under priced given all of the secondary business. So this is still on attractive night out for 4 of fan and now that artist traveling more around the world of the fan basis grown for live at the functional.
Entertainment items. So we think global demand will continue to have double digit growth as an industry for.
And for many years to come as the as the global landscape continues to grow.
And then John on the TM margin.
And clearly I spoke and my comments that we're looking this year that we're going to be reducing our total cost structure by about $800 million relative to where we were pre pandemic and the 200 million structural savings or the subset of that so while we're navigating this year is the pace at which we bring back some of the cost vs.
The pace at which we ramp up activity and it's not going to be totally linear and we had a great month of June and TM and we're finally getting back to scale, there and we expect to have nice scale with Ticketmaster and the second half, but the first part of the year was lower scale. So.
Overall, we expect margins to improve because of a large chunk of that $200 million is going to come out of ticketmaster and that would just naturally flow into our margin I wouldn't try to overly analyze the single quarter and let's get you a few more quarters of at <unk>.
More traditional scale with more traditional costs and staffing.
Over the next 6 months.
And that's helpful. Thanks, Joe.
Your next question comes from the line of Brandon Ross with light shed partners. Please proceed with your question.
Thanks, a couple of questions ago, the conversation centered around ticketing and win and press releases for you guys and.
And I thought 1 of the more interesting developments in the quarter.
And was the extension and expansion of your relationship with ASM.
For 2 reasons 1 is the <unk>, obviously have AEG and it Didnt go to access.
So net ticketmaster could sell tickets for live nation promoted shown in the other ASM venues and the North American ticket models and exclusive.
For as long as I can remember at least.
Is this.
Sign of change and the future do you think that exclusivity model.
And here to stay or do you think depending on events.
The promoter will ultimately control of the ticket.
Yes, 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 and then make the.
The rental costs of approachable for promoters and artist. So it's an ecosystem that's worked well and the U S and the Ticketmaster as you know has been a very large source of funding and the profit stream for the venues I wouldn't read too much into this if you look at ASML. The scale, that's not a common typical of scale in terms of the number.
<unk> of buildings they have.
It's also a fairly unique situation, where you have somebody who owns buildings Hussein we're gonna, let you bring in ticketmaster, regardless of the situation and they control both sides of that decision making.
It's not something that we're looking to do or that we see as any real mark of the of the industry going forward.
But I would add brands and I think the most Brad and I wouldn't say the most important thing you said is what you're left with is the <unk>.
Good.
And Sam on by AEG, and the private equity funds the largest venue management company.
Obviously did their homework and debated there all the ticket auctions and.
And renewed with Ticketmaster, because we ultimately provide the best global solution and ticketing for them I assume they would have liked to abuse of their own and house.
Ticketing system, but I think our relationship and what we've done for all of those venues for so long.
<unk>.
1 of us that business the net renewal so that was a very important renewal.
The good Testament to the Ticketmaster and give the ASM management team credit they put their bias of side, what was the best option and.
And the marketplace after looking.
And that all options. So we are we are very proud of it that's a very good testament to the Ticketmaster core competency and you hit that part for sure.
Cool thanks.
And you can update your Twitter and now that we've talked about the Covid Delta, we assume that with what happened on this call.
[laughter] [laughter].
Yeah.
Yeah.
Your next question comes from.
Yeah.
Okay.
Okay.
Sorry, we missed that is there a question.
Operator.
Yeah.
Okay.
Operator.
Okay.
Okay.
Okay.
Yes.
I apologize. Your next question comes from the line of Ben Swinburne with Morgan Stanley. Please proceed with your question.
Hi can you hear me, yes, Ben Buildout.
Yeah, and setting up below it.
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 thats the reiteration of prior guidance and I might have missed but just wanted to ask you. What you meant by that is that a comment on revenue and NOI and.
I know, where the the street expectations of RFS I would give you a chance maybe.
Expand on that and then.
The second question is just you made a helpful comment around sponsorship, saying that day I think contracted business is up double digits for 'twenty 2 relative to.
And where you were and 19 for 'twenty I guess similar question on the ticketing question, how much of the forward year of sort of already on the books typically sort of understand what that tells us about next year and.
And make sure we don't over extrapolate that comment about growth for of sponsorship.
And.
Yeah, and just in terms of overall 22 expectations first it starts for us with what are the concert bookings what are the show count and look like.
And from now on our expectations on the ticket counts both of which we think again are up relative to 2019 base.
On what we said and I think as we've gone through the past 3 months.
We said 3 months ago, we're more confident and that at this point and as a result, we expect than revenue and AOI growth relative to 2019 as well.
Yes.
And and sponsorship and will be a part of that expectation.
The up double digits and committed sponsorship usually you'd have some and we've talked about how much of our sponsorship is and the form of multiyear multimillion dollar multi asset strategic sponsors that's a large portion of our sponsorship base. So.
And you know us, 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.
Sure makes sense great. Thank you very much.
Operator.
Okay.
Operator, do we have any other questions.
Okay.
Eric Katz of if Youre on the line.
And you go ahead and ask the question I think your next and the Q.
Harris.
Yes, I apologize. Your next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Okay.
You can all hear me okay.
Yes, I appreciate you taking my question I appreciate all of the detail.
What I wanted to ask about since it is prevalent and a lot of other areas of our coverage is the issue of of human resources and labor.
Where we have seen and a lot of constraints around frankly, and getting people to come back to work.
You made a comment about it in your prepared remarks about bringing people back.
And at full salaries and so forth.
Is that a matter that you have had.
The deal with work around strategize around and.
And how do you see it.
Yes.
<unk> 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% of returned.
Furlough, we had a fairly low turnover rate and we think of turnover rate at or below the overall entertainment industry. So we feel very good about how we've been able to retain staff and.
Testimony of the peoples 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 show's bringing back the ticketing and the sponsorship.
People are in place.
We've put on our shows and various amphitheaters and festivals sites around the country and around the world.
We've been able to get the volume of April we needed.
It hasn't been and material cost impact.
And in total and we've had to work a bit harder times to find the people, but it has not impacted our ability to put it on the shows.
Perfect. Thank you very much and.
I would add to that I think the Ali the only piece of where we're working through right now is the.
All of the part time employees that are on the front of the line at the amphitheater and the festival, where we're going to be rolling out Sundar kind of mandated vaccine for our employees, we're going to move forward and be very progressive on ensuring all of our employees are vaccinated.
And we're going on.
While our west of artist and managers, where we're seeing there the likes of these artists that are going to want fully vaccinated and tested shows as ways to continue to keep the.
The show moving forward so.
I think the biggest challenge and we've had is just scrambling on a day to day basis with part time employees back.
And abiding by different local Covid laws mass no mass now tests no test I think thats been our only real challenge from an HR and the communication so hats off to my frontline Theyre doing incredible job.
Ron and running hard and trying to adjust and we're going to move to more central protocols now on mens mandating the vaccine and help them out and ensure they're all safe too.
Super helpful. Thank you.
Okay.
Your next question comes from the line of Steve.
Yes.
And just last month.
And we're back to your operator, and we missed the name.
Well, we can put a concert on banana conference call.
Okay.
Okay.
Okay.
The glaucoma.
Your line is now live.
Steve.
Hey, Steve go ahead.
Hi, guys. Thank you.
And we'll have the best.
Earnings call music, so if that means anything.
I'd say I just had a question on.
Could you discuss how much of the ticketing and GTA V was tied to sports vs concerts and the quarter.
And how you see that mix over the second half of the year.
Yes, those are certainly the 2 largest components.
And since and sports and we'll again and the second half as we re launch second half Youll relaunch NBA NHL NFL all of those at scale. So you'll have a big fall season of the 3 major sports and at the same time, we are going to of a massive on sales for 2022.
And when you try to parse exactly which 1 is bigger than the other on a given month, but those 2 will be the 2 key drivers there how as they were and.
And in the past few months.
Okay. Thanks, Joe and I don't know if you already said this I apologize, but on the guidance for ally profitability across every segment and the second half is that.
For each quarter or is that just the sum of Q3 and Q4 and we just our comment was for the sum of Q3 and Q4 of the each segment and we expect to be ROI positive.
Okay alright, thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like.
To close the call out you may disconnect. Your lines at this time. Thank you all for your participation.
Yes.
Yes.