Live Nation Entertainment, Inc.
Q4 2021 Earnings Call Transcript

Published: 23 Feb 2022

[Operator:]

Good day, everyone. My name is Diego, 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 Fourth Quarter and Full Year 2021 Earnings Conference Call. Today’s conference is being recorded. Following management’s 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 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 the Company’s most recent filings on Form 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 the SEC Regulation G, Live Nation has provided definitions of these measures and a full reconciliation to the most comparable GAAP measures in their 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 website at investors. livenationentertainment.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.

[Michael Rapino:]

Good afternoon, and thank you for joining us. The past two years have only reinforced the power of live music, and it’s been great to see artists and fans reconnecting at scale around the world. Over the course of 2021, we saw the strength of live events. The year started in the midst of the pandemic, but by summer fans were returning to shows, and by the end of the year, we had a record pipeline of concerts, ticket sales and advertising commitments for 2022. Restarting our concerts business in the second half of the year, we put over 17,000 concerts for 35 million fans in 2021, mainly in the U.S. and UK markets. In the final five months of the year, in the U.S. and UK, we had over 15 million fans attend our outdoor events

[Joe Berchtold:]

Thanks, Michael, and good afternoon, everyone. Given the unique seasonality we experienced last year, I’ll provide an overview of our annual results, but also give some specifics on the fourth quarter as we believe that is a better indicator of what lies ahead for 2022 and beyond. Overall, our AOI of $324 million for the year was $1.3 billion better than 2020, led by an improvement of $800 million in ticketing, over $400 million in concerts and $150 million in sponsorship. For the fourth quarter, we delivered AOI of $160 million, led by a record quarterly AOI results in ticketing and strong performance in sponsorship. On the balance sheet, we ended the year with $1.5 billion in free cash and $2.3 billion in event-related deferred revenue. This deferred revenue is almost twice the level of Q4 2019, giving us one of several leading indicators for how strong 2022 is lucky. Let me give a bit more color on each division and then I will give you more on the 2022 leading indicators. First, in concerts, we had 16 million fans attend 9,300 events in the quarter, continuing to be led by the U.S. and the UK, which accounted for almost 90% of these fans. The strength of fan spending we discussed in Q3 continued through Q4, with consistent increases in ticket pricing and average per fan spending. Concert ticket pricing was up 11% overall for the year relative to 2019 14% in North America. As demand in many major venue types

[Operator:]

Thank you. And ladies and gentlemen, at this time, we will be conducting our question-and-answer session. Our first question comes from David Karnovsky with JPMorgan. Please state your question.

[David Karnovsky:]

Hey, thank you. Some of forward commentary wrote 45% increase in ticket sold versus 30% increase in large venue supply. I’m wondering to understand more of what you’re seeing on the demand side, given your own customer data, the average concert goers buying more shows than they were buying earlier. Are you seeing more first-time concert goers, any additional you could provide would be great?

[Joe Berchtold:]

Yeah, this is Joe. We’re certainly seeing them buy earlier. We’re seeing these numbers benefit from the pent-up supply and the pent-up demand that exists out in the marketplace. I think given that we’re just getting going, it’s probably too early to call whether they’re going to multiple concerts more likely, I think, we’re going to have to play through the year and see more data before we can really make that determination.

[David Karnovsky:]

Okay. And then you told the assessment for a few months now, would just be interested to hear any update on how you view the asset in terms of revenue synergies or how maybe their cost structure looks relative to when you first executed the deal in 2019? And then could you provide an update on how we should think about the Mexico market ramp-up?

[Joe Berchtold:]

Yeah, I think we continue to be very excited by assessment. We’ve spent a lot of time with their team. We do think the top line opportunities are exactly as we’ve been laying out. First, we have the opportunity to bring more of our terrain through Mexico was a natural part of our terrain activities. And then second, because of their great strength with LatinX, which are red hot right now, more opportunities to build our market share in the Latin business and bring those into not just Mexico, but in the U.S. So we’re excited about that top line opportunity. They’re getting going as we get into Q2, they’ll get going first with festivals, and then ramp-up the touring business. We expect them to have a very good year, this year. Again, the way they’re structured, their economics really flow through – their – if you look at them, their sponsorship and their ticketing divisions, but we expect them to have a very solid year.

[David Karnovsky:]

And anything on the cost side, I mean, you see on their commentary sort of indicated taking out a lot of expenses during the pandemic as well. I wasn’t sure if we should be thinking of the kind of AOI structure that business is different than maybe it exists to pre-pandemic?

[Joe Berchtold:]

I think it’s probably premature to change your cost structure assumptions with them. As we further integrate Ticketmaster, I would expect that and as we get the concert machine more finely tuned that expected, but it’s – the first focus is driving the top line. if we get the top line right, that business will do great, and then we’ll follow with costs. We’re not going to start with cost because you can’t pick it – you can’t catch up this year.

[Michael Rapino:]

And it’s Michael stepping in. And also, we know this company very well. Alex , the CEO is a professional. You don’t get to be the third largest promoter in the world without being kind of an all round good businessman and operator. So he runs an incredible good business. But yes, like myself and our team through COVID, he was able to dig in and decide what’s – where’s some rust and some bureaucracy? And how can we streamline some of the business? So like us, I would expect him to hold on to some cost savings and run more efficient, regardless of the merger. And we think now together, we’ve already started the process of how do we elevate the ticket business? How do we upgrade the software? How do we introduce secondary? How do we excel the hospitality and sponsorship business? So I’m sure there’s some cost savings, but we’re more excited about, as Joe said, we think we can bring another gear to his already well-run machine.

[David Karnovsky:]

Great. Thanks.

[Operator:]

Thank you. Our next question comes from Steven Laszczyk with Goldman Sachs. Please state your question.

[Stephen Laszczyk:]

Great, thank you. I wanted to ask a little bit more about international and maybe from Michael, could you give us an update on when you expect concerts to resume at scale across your global footprint? I know you laid out a timeline late last year. But I was curious if that changed at all, given the latest COVID wave? And then if all that goes according to plan, how do you expect your international business in 2022 will compare to 2020 – 2019?

[Michael Rapino:]

You know, and I will preface here. We have our Investor Day tomorrow. So we’re going to dig into all of these topics probably in much more detail. So if we’re a little shorter tonight, just expect us tomorrow, you’ll have a much more opportunity to dig into all of these levers. International, it looks like everything is opening up fast and we see a full summer/spring business across the globe. Australia and New Zealand have only been – has been the only real I would say slower some of the Pacific Rim a little slower in some of the markets, China, Japan. But for our business, we think most of the business across Europe, international, South America, we start Coldplay March 18 in Costa Rica going down to Latin America. We believe most of our big Lollapalooza is in South America in March and April will happen. And all of our summer festivals in Europe are scheduled to happen. So it looks like 70% to 80% of the business around the world will be open, little bit of Pacific Rim might have some delays.

[Stephen Laszczyk:]

Got it. Thanks for that. And then just one on sponsorship and advertising. Could you maybe give us an idea on what the remaining inventory in 2022 looks like? Is it inventory from earlier in the year, later in the year? What types of tours are formats? And then I know some of your sponsorship and advertising relationships can be multi-year in nature. Is there anything you can tell us about how the funnel shaping up for 2023 and beyond?

[Joe Berchtold:]

Yeah, in terms of remaining inventory, as you know, a lot of our inventory is what we create and what our sponsorship team has the ability to come up with ideas for how we expand into new categories, and how we take existing categories and break them down in pieces. So we don’t feel generally speaking inventory constrained. The team is often working on a variety of areas, fintech and others that we think can steer still deliver a lot this year and into next year. As Michael said, we’ll get more into that tomorrow. But we still think there’s a great runway in that business. And as you also noted, a lot of these deals are multi-year. So as we establish a new baseline this year, we just have the opportunity to keep growing from that next year and beyond.

[Stephen Laszczyk:]

Great, thank you.

[Operator:]

Our next question comes from Brandon Ross with LightShed Partners. Please go ahead.

[Brandon Ross:]

Yeah. Thank you, guys. So ticket pricing for the top 10 tours you said was up, I think, 20% over 2019, and we definitely took notice when you use the word inelasticity in your prepared remarks. Platinum is obviously a big part of what you’re doing there. Can you frame where you are in unlocking tailwinds from Platinum tickets specifically? What percentage of major artists are you using it? And how much further impact do you see platinum having over time?

[Joe Berchtold:]

Well, I think, again, Brandon, you’ll be there tomorrow. Well I think you just have to look at the size of the prize right now. I mean, if you look at it, just from a secondary perspective, how much unrealized underpriced are the tickets, unrealized pricing opportunity, if you want to call it. So I would say right now, Platinum is adopting a great tool to get a higher ticket price, but we still have very low penetration across a global business, huge upside still.

[Brandon Ross:]

Okay. And then there have been a lot of reports about insurance rates going up, especially because of COVID and the Travis Scott incident, et cetera. Can you comment on how impactful you expect that to be to your cost structure this year and going forward?

[Joe Berchtold:]

Yeah, this is Joe. We see what everybody else sees, which is yes, insurance costs going up. We don’t think it’s material to the business overall. I think we’re in a good position as it relates to inflation more broadly. If you look at inflation of inputs versus your ability to price on the outputs, I think, we’re in a very good position that while you have some price pressures on your inputs, whether it’s insurance or labor. We have, for your first question, a much greater level of pricing ability on the outside, which led us as we talked about, use the same logic as we had last summer at the amps, still drove CM per fan up double digits. So we’re watching every cost is everybody else’s, we understand which ones are movie where, and we’re just figuring out how we make sure we’re pricing overall to to keep our AOI.

[Brandon Ross:]

Perfect. Thank you.

[Operator:]

Our next question comes from David Katz with Jefferies. Please go ahead.

[David Katz:]

Evening, everyone. Thanks for taking my question. Just two interesting things I wanted to go back to and hope you could elaborate on. One is, you talked about the lower cost structure and you said that, I think, Joe, that it includes some labor cost increases. Can you just elaborate a bit more on what kinds of labor costs those is – and those are and where they are from in magnitude, et cetera?

[Joe Berchtold:]

Sure. We like every business. I’ve seen employees are demanding some higher wages as you’ve come back from COVID. And as we built our cost – structural cost savings, we knew that was going to be the case. And we built that in and we talked in the past about the levels of those cost savings. So I just rather than get into every quarter trying to reconcile for you guys, well, how does your cost of living adjustment this year impact your structural savings? I want to make it clear we’re delivering those savings, having expected that there was going to be some labor cost increases as we were going through, no different for us than anybody else.

[David Katz:]

Understood. And the second issue I wanted to touch on is I think you mentioned that the secondary ticket market is going faster than primary. I’m curious, what’s driving that and what order of magnitude there as well?

[Joe Berchtold:]

Well, yeah, it’s the same point as what Brandon asked about. It’s the inelasticity of demand for the best tickets, plus the general overall desire for fans to get back to live events. So if they didn’t buy a ticket for the sporting event, or for the concert, they missed out, they’re buying it on secondary, and they’re paying whatever it takes on those best tickets to get in. So as we strive on the primary to be pricing it such that to bring the dollars back the content to the artists, so we think deserve every dollar for their performance. We’re doing that through platinum and through other tools. As we do that, secondary continues to grow rapidly. We’re not shrinking secondary yet. So we have the opportunity to continue to move pricing and primary as I was talking about earlier, while looking at secondary and figuring out how far do we go.

[David Katz:]

Okay, thank you.

[Operator:]

Our next question comes from Stephen Glagola with Cowen. Please state your question.

[Stephen Glagola:]

Hi, thanks for the question. There’s been some reports that the industry has been recently seen 20% no-show rates at concerts. And you noted in your prepared remarks and no-show rates that Live Nation promoted concerts in the U.S. are back to 2019 levels. Just want to ask like what are those levels if you can pinpoint it? And can you reconcile maybe if there is a divergence between what you’re seeing and what the industry is seeing, and how no-show rates are trending internationally? Thanks.

[Joe Berchtold:]

So let me give you some facts on that. Thanks for that question. Because I think there’s been a lot of reporting by anecdote out there, as opposed to reporting by collective facts. And I don’t think our experience is any different than the industry is, as a total. I think that on occasion, you have aberrations for a variety of reasons. But just to give you a macro feel, I’ll give you the – for first of all, arenas in 2019, if you look at the number of people that showed up for a concert versus the number of people that bought tickets, it ran at 93% in 2019. That number thus far, in 2022, over the past six weeks is running at 91%. So not materially different from the 93% for the total of 2019. For our theaters and clubs, the smaller shows, you tend to have a slightly higher no-show rate. And that number was 87% in 2019. It’s running at 83% in 2022. So I think if you first of all recognize that there were a number of shows that have taken place over the past few months that were rescheduled, and when shows get rescheduled, people will naturally forget about the show or have a conflict different than what they originally had. It’s probable that accounts for all or almost all of that difference in the attendance level. So we don’t think that reporting is at all accurate.

[Stephen Glagola:]

Appreciate the color, Joe. And can you just provide…

[Michael Rapino:]

Just had that color that I remember reading those articles, they dramatize, I think they were saying as 15%, 20% weren’t showing, but again, they weren’t taking into account that on a normal year, 7%, 8% of people don’t show up to shows. So you’re already starting at that level. So if you look at what our current data says, we’re basically back to 2019 levels and people are showing up at the same rates are not showing up in that 7% to 8%. The history has always kind of shown.

[Stephen Glagola:]

Thanks, Michael. And can you guys just provide on Q4 concerts, the AOI margin was a little bit, the loss I think was a little wider and some expectations. I know you have – I think you have advertising dollars that flowed through there. But can you maybe just any comments on that, which drove that? And then how should we think about Q4 and I know it’s far away, but 2022 as well as that could be just similar cadence of losses in that quarter for concerts?

[Joe Berchtold:]

I mean, I think if you look at Q4 versus 2019, you – Q4 is generally a loss. It’s a lower activity quarter. You have, as you noted, prepaid advertising running through. If you look at our fan base in 2021 versus 2019, Q4 back that off. It’s not surprising, you’re still carrying your fixed cost plus you have your end advertising all against the lower volume.

[Stephen Glagola:]

All right, Thanks, Joe, and looking forward to the Investor Day Tomorrow.

[Joe Berchtold:]

Thanks.

[Operator:]

Our next question comes from Ben Swinburne with Morgan Stanley. Please go ahead.

[Ben Swinburne:]

Thanks. Good afternoon. I had a couple of questions. First, Michael, I also noticed you mentioned the secondary market growing faster than primary a couple of times in your prepared remarks. And I was thinking of Ticketmaster as the clear market leader in primary and I know you’re in secondary, but I – maybe I just don’t think about Ticketmaster as the leading, is particularly focused on the secondary market. I’m wondering if you could just talk about whether you see that accurately as I described it, or if you think you – there’s anything you would change in the strategy for that business going forward, given what we’re seeing in secondary, I noticed Joe also mentioned, we haven’t seen the secondary shrink yet. So maybe that’s tells me the answer. But I’m just wondering if you guys are pivoting at all, as you think about the growth of those two parts of the ticketing business, because it does seem like secondary is quite robust?

[Michael Rapino:]

Yeah, I would – we’ll get into this tomorrow, again, in our slides, but we have the two sides of the equation here, right? Ultimately, long-term. I don’t think secondary is a great business, because I believe content will figure out how to price it better. So on the concert side, we’re waking up every day, our goal isn’t to increase secondary sales, it’s to increase the gross for the artists in the show. That’s why we talked about platinum and VIP and better analysis for the artist to capture more of the dollars. So – and we’ve seen that over the last 5, 10 years, every year, the artist is capturing more of it. Now that doesn’t mean that it’s an efficient market yet. It’s going to take some more time for the artist to be more comfortable charging those prices where the market is affected, but it’s happening you see it over time. And then 5, 10 years from now, if you are an artist manager, you wouldn’t want to be waking up seeing lots of secondary tickets for your artists captured outside of your bundle. So our job mostly is to figure out how to get all of that secondary into the primary bucket for the artist. So they make the dollars and then we, obviously, that fires our flywheel. But the reality is, it’s not an efficient market yet. And most of secondary is really in the sports business. So when we talk about the ticket side growing, we were never in secondary, as you said, when we took this business over. We integrated it, we built it, and we – and then we ramped it up fast for all of our sports clients. So we’re the official secondary of the NFL, the NBA of the NHL, and others. And we have been able to grow that business over the last few years, fairly well in the sports business where most of the dollars are. So that business though, again, continues to be a business where the sports teams are getting more and more dollars directly. The NBA, the NFL are all looking at ways to capture the secondary for the team and/or for the league. So we think it’s a business right now that is in transition, lots of dollars outside of the content. We think long-term content captures more of it. But we’re also going to be part of that marketplace that if a fan or somebody wants to trade and sell their tickets, then we want to make sure we’re part of that vertical solution at our marketplace.

[Ben Swinburne:]

Got it. That makes sense. And then just wanted to go back to the forward bookings, numbers and leading indicators you guys talked about the 45% and the 30%. We heard some stats at least directionally similar on NSGs call, and I’m wondering if there’s a timing element to this. Just should we be extrapolating those into full year growth rates? Or are we seeing some activity happening sooner because we’re still sort of dealing with the pandemic hangover or the pandemic? And so concerts are filling up the calendar sooner and going on sale sooner. I’m just wondering if there’s any sort of caveat you’d want to give us to think about translating those into a forecast? That makes sense?

[Joe Berchtold:]

Yeah, I certainly don’t think of it as a caveat. But unquestionably, you’ve got a timing advantage this year, you’ve got a benefit from some shows that moved and you have a timing in general of a wide open market that we put shows on sale earlier. But that said, we look at all of that and we continue to see every indicator well up. So we think it’ll plateau or normalize some, but it’s still looking to be a very strong high growth relative to 2019.

[Ben Swinburne:]

Yep, makes sense. Thanks, guys.

[Joe Berchtold:]

Thank you.

[Operator:]

Our next question comes from Ryan Sundby with William Blair. Please go ahead with your question.

[Ryan Sundby:]

Yeah. Hey, guys. Thanks for the questions. Just wanted to follow-up on the 25% growth in the U.S. and UK fan base over the last five months. Are there any comparison issues there we should think through in terms of maybe show count or, or mix of festivals that got moved around? We set a pretty apples-to-apples comparison.

[Ryan Sundby:]

Yeah, so just to be fair, that was the outdoor activity over the last five months of last year. So stadiums, amphitheaters and festivals, there was definitely some benefits. You got a few festivals like Electric Daisy that moved into the fourth quarter from May and we pushed the amphitheater season later in the year. So I wouldn’t try to take anything arithmetically from that as much as a very – 2021 was a year of very strong fan return to outdoor events. 2022 setting up to be a very strong fan return to every site, every sort of venue, every sort of event.

[Ryan Sundby:]

Got it. That’s helpful. And then, in terms of the average fan revenue up double digits this year, I guess, I know, it’s kind of early to make a call last quarter, but now that you’ve had some more time to kind of look at the data there. Is that something you think you can hold on to permanently, or do you think this is some kind of indulgent spinning that we’re seeing here just that number?

[Joe Berchtold:]

We think overall that number is real. We think that there is higher fan spending and there is greater fan acceptance of some higher pricing and there’s greater fan demand for real hospitality some higher end luxuries. We gave some specific math last time that wouldn’t have changed much in terms of what was the incremental span versus what was some mix issues, but it is largely what fans spending more money at out the shows and we think that continues.

[Ryan Sundby:]

Okay. That’s good to hear. Thanks.

[Operator:]

Thank you. Our next question comes from Jason Bazinet with Citi. Please go ahead with your question.

[Jason Bazinet:]

If there was one mistake that I think investors make during COVID, it was sort of taking strength that we saw during the COVID period and sort of extrapolating it into future periods. And I’m just wondering, when you guys look at the very robust numbers that you’re putting up and all those leading indicators, how you guys sort of parsing out the sort of we’ve all been locked up for two years, or we’re going to go out and go crazy and spend a lot of money on food and beverage and merch and pay a higher price to get a premium seat versus everything sort of settling down to the sort of long run averages. Like do you think there’s that dynamic going on? Or do you think this is really like something a permanent shift in sort of consumers behavior?

[Joe Berchtold:]

Well, I think the first thing you got to start with, Jason, is we don’t have a hockey stick. We’re not a COVID business that was floating along with near zero, and all of a sudden took off like a hockey stick. And everybody thought the hockey stick was going to continue forever. When you look at the long-term growth of the business, start with the most macro of GDP spending on goods shifting to experience, on increased demand for luxuries, on desire to go to concerts, on increased ticket pricing to concerts, everything on a global basis, s Michael said, all of this has been we’ve been drawing the same chart since 2010. And most of our investors today, I think, have been looking at that chart and saying the best predictor of the future is the past. And we had a very bumpy couple of years from macro over time. This is a company and this is an industry that is able between their tailwinds, their ability to drive increase market share, their ability to drive global, to bring the supply to the latent demand that exists in the marketplace to continue to grow the business.

[Jason Bazinet:]

I don’t disagree with anything you said. If I can just sort of give you observations, we’re seeing like a record per caps in inside movie theaters and regional theme parks and things that don’t have that same sort of tailwinds.

[Joe Berchtold:]

But Jason, had those businesses that they tell you for the past five years, they went from $18 to $22 to $24 to $26 to $29. I mean, do they tell you – do they give you for the past six years, every year how they were consistently delivering growth? So we could debate is that growth rate continued? Is there some normalization? Is there a reversion to a mean over a number of years? You can have all of those debates, but don’t frame it as a hockey stick, or somehow as the bumps in the road, the world is going to collapse back down to $18. I think you got to give us the credit that we’ve set a strategy and we’ve executed very consistently for a considerable period, and delivered on sustained growth. So yes, there’s some catch up of a couple of years, because 2020 and 2021 didn’t exist as much. Sure. But that doesn’t mean that they’re aberrations.

[Jason Bazinet:]

I don’t mean aberrations, but I just I mean, maybe we’ll learn more about this tomorrow. But it just seems like to comp, if we have these really robust numbers this year, I’d just be curious what counsel you have, as we think about 2023 and 2024 to build off those elevated numbers not taking away from…

[Joe Berchtold:]

So right now, I have in front of me a list of 40 some tours for 2023 that are either confirmed or in our pipeline. Normally, at this point, a year from earlier, we’d have a list of five to 10. So yes, we have a lot of confidence that 2023 and beyond look very good because there is a lot of pent-up supply, there is a lot of pent-up demand, and we expect it’s a multi-year run.

[Jason Bazinet:]

Awesome. Thank you.

[Operator:]

Thank you. And ladies and gentlemen, that was our last question for today. And that also concludes today’s conference. All parties may now disconnect. Have a great evening. Thank you.