Live Nation Entertainment Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 23, 2023

There are 10 speakers on the call.

Operator

Good day, everyone. My name is John, 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 4th Quarter and Full Year 2022 Earnings Conference Call. Today's conference is being recorded. Following management's prepared remarks, we will open the call for Q and A.

Operator

Instructions will be given at that time. Before we begin, Live Nation and has asked me to remind you that this afternoon's call will contain certain forward looking statements that are subject to risks and uncertainties

Speaker 1

any questions that could cause actual

Operator

results to differ, including statements related to the company's anticipated financial performance, business prospects, new developments and similar matters. Everyone. Please refer to Live Nation's SEC filings, including the risk factors and cautionary statements, including the company's most recent filings on Forms 10 ks, 10 Q and 8 ks 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 our website supplement, which also contains other financial or statistical information to be discussed on this call.

Operator

The release reconciliation and website supplement can be found under the Financial Information section on Live Nation's website at investors. Livenationentertainment.com. Everyone. 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.

Operator

Everyone.

Speaker 2

Good afternoon and thank you for joining us. In 2022, fans around the world continue to prioritize their spend on attending live events, particularly concerts. Our research consistently tells us that concerts are a top priority for discretionary spending and one of the last experiences our fans will cut back on. And we're seeing this play out in both our 2022 results and early indicators for 'twenty three. Everyone.

Speaker 2

With the strong demand, last year in the concert business, we had 121,000,000 fans attend our shows across 45 countries. Our press release. While in ticketing, we helped connect 550,000,000 fans with their favorite artists, teams and performers. In both cases, the majority of our growth Edna from International Markets, further reinforcing the global nature of untapped fan demand and the opportunities we have everyone to our guests for growth as we help artists reach more fans with their live music. Before getting into details on our division, everyone to the operator to discuss our financial results.

Speaker 2

Just to note that 2019 is the best comparison for us in terms of understanding our results, so most of our metrics everybody to the full year 2019. In concerts, despite many markets still closed for part of last year, everyone. We grew attendance by 24% to 121,000,000 fans at 44,000 events, which drove revenue up 43% to 13.5 William. This growth came from all markets and venue types. Every venue type from clubs and theaters to stadiums to festivals had double digit attendance growth.

Speaker 2

Our press release. We invested $9,600,000,000 in putting artist shows on in 2022, working with the largest superstars to artists just getting started and all those in between. This is up 45% and further reinforces our role as the largest contributor to artist income. As part of this, we helped shift $700,000,000 to artists with more market value ticket pricing, even as the entry price to a show stayed below $35 everyone to the U. S.

Speaker 2

Typically 90% of ticket sales for Live Nation shows go to artists. This is particularly important as artists are increasingly reliant on touring everyone to the audience as they get much smaller rev shares from other music revenue streams. Part of our fan growth continues to come from the venues we operate globally, hosting almost 50,000,000 fans in 2022 with international markets again delivering the majority of our growth. Everyone. In Avenue Nation, we continued our focus on elevating the fan experience and providing a range of options for enhanced products and Chris.

Speaker 2

As a result, last year we grew our average revenue per fan by 20% at all venue types.

Speaker 1

Everyone to our next question. In Ticketing, our strategy for success is simple.

Speaker 2

We focus on developing the leading software for venues. To ensure we deliver the best enterprise platform, everyone to the company. We invest tens of 1,000,000 of dollars every year to continue innovating every aspect of ticketing technology products. Our guests. Artists are the venue's largest clients and we're regularly being asked to create new products to help address their ticketing needs.

Speaker 1

Our customers to

Speaker 3

the audience.

Speaker 2

Amongst our innovations are products such as Verified Fan, designed to help artists cut down resale. And we've seen this used successfully for over 400 tours, everyone to the operator to discuss their financial results. Including the most recent on sales for Beyonce, Madonna and Morgan Wallen. Generally, verified fan on sales of approximately 5% of inventory End Up on resale sites versus 20% to 30% that is typical for non verified fan on sales. Venue and their artist clients do result in the ticket sales, which is the large part why so many venues choose to work with us.

Speaker 2

Our Q2 results. We grew fee bearing ticket volume by 28% to $280,000,000 which in turn drove our fee bearing GTD

Speaker 1

our customers to be up by over 50 percent

Speaker 2

to $28,000,000,000 across 38 countries. As a result, our ticketing revenue was $2,200,000,000 up 45%. Everyone. Along with these results for the year, we signed 23,000,000 net new tickets in 2022, 70% everyone to our shareholders with international clients in the stage for continued global growth. In our sponsorship business, we have seen that brands our fans to reengage with platforms.

Speaker 2

In 2022, we had 120 large strategic sponsors globally across our the services 32% more than we had in 2019, including brands such as PayPal, GoPuff, Hulu and Snap. Our shareholders. These large partners drove over 80% of our growth with overall revenue up 64% to 1,000,000,000 everyone. As with concerts and ticketing, our international markets led this growth with international sponsorship airline up 70%. Our press release.

Speaker 2

Looking ahead to 2023, as we now have many of our 2023 shows on sale, we continue to see strong consumer demand globally everyone to the operator to discuss our financial results

Speaker 1

with no sign of

Speaker 2

any slowdown. We have 4 key leading indicators at this time of the year, all pointing towards another record year and even greater success in 2023. Everyone. First, our deferred revenue at the end of 'twenty two was $2,700,000,000 up 125% from 2019 and 18% everyone, which benefited from a high volume of rescheduled shows. Next, as of mid February, ticket sales for our shows this year exceeded 50,000,000 fans, up 20% from this point last year with international growth at 25%.

Speaker 2

Our global ticketing fee bearing GTV is up 33% to $9,800,000,000 for the same period. And finally, over 70% of our planned sponsorship activity for the year is confirmed, again, up double digits relative to this time last year. Everyone. Before I turn it over to Joe, I want to comment on the regulatory environment and industry reforms. On the regulatory front, the ticketing industry is more competitive than ever and our market share has gone down, not up since the merger.

Speaker 2

Because of the competitive bidding process, our employees to the Board of Directors. I will now turn the call over to Mr. President. Thank you, Mr. Chairman.

Speaker 2

Thank you, Mr. Chairman. Thank you, Mr. Chairman. Everyone to the Board of Directors.

Speaker 2

In signing the extended consent decree related to the Ticketmaster merger, we remain in constant conversations with the DOJ monitors and do not believe there have been any violations. Everyone. On ticketing reforms, we believe that greater transparency on the entire ticketing ecosystem will improve the industry, and we've been engaging with policymakers Advocate for Reforms. The biggest challenge facing the industry is the chaos at the on sale, where fans can't get the tickets at the price the artist sets, FCC pages of secondary sites with tickets 5 times face value because of scalpers. This has been a big topic in the industry and conversations you to the PULSELL Live conference this week, focused on how to protect the connection between the artist and their fans.

Speaker 2

Everyone to our speakers. To help drive progress, we launched the Fair Ticketing Act, which says artists should decide resale rules. Selling speculative tickets our customers to be illegal. The scope of the BOTS Act should be expanded and enforced. And it needs to be industry wide all in pricing everyone to the fans see the full cost they are paying upfront.

Speaker 2

Artists create their music and their concerts. It's only fair they create their ticket in roles too. Everyone. We will always be on the side of the artist who is the best advocate for their career and their fan base. With that, I will turn the call over to Joe to take you through more details.

Speaker 4

Everyone. Thanks, Michael, and good afternoon, everyone. Given the uniqueness with our seasonality in 2022 after emerging from the pandemic, everyone. I will largely focus on our annual results. And as with prior quarters, 2019 is the best comparison for us our financial results, so much of our discussion will be relative to full year 2019.

Speaker 4

Everyone to the operator for the company. Our reported revenue of $16,700,000,000 for the year was $5,100,000,000 better than 2019 or an earnings call for an increase of 44%. On a constant currency basis, our revenue was $17,300,000,000 for the year. Everyone to the operator. So there was roughly a 4% unfavorable impact due to the strengthening of the U.

Speaker 4

S. Dollar, primarily against the euro and the pound. Our reported AOI of $1,407,000,000 for the year was also a record for the company,

Speaker 1

our press release at the end of the call today's call. We are

Speaker 4

now at $465,000,000 better than 2019, up 49%, led by an improvement of $345,000,000 in ticketing everyone and $226,000,000 in sponsorship. On a constant currency basis, our full year AOI was $1,464,000,000 our financial results. The FX impact was negative $57,000,000 or 4%. And we've converted roughly 69% of this AOI our financial results to adjusted free cash flow of $967,000,000 leading to a year end free cash balance of nearly $1,800,000,000 our press release. Net income for the year was also a record at $296,000,000 $226,000,000 better than 20 19, everyone to the operator to discuss

Speaker 1

our financial

Speaker 4

results, resulting in earnings per share of $0.64 Let me give a bit more color on each division. Everyone to the operator to discuss our Q1 results.

Speaker 1

First, in concerts, we had the

Speaker 4

most concert fans ever with 121,000,000 fans attending our shows in 2022, everyone to the operator for the call. Up 24% compared to 2019, when we had close to 98,000,000 fans. Show count was 43 our Q1 of 2019, up 8% compared to 2019, with more fans per show due to a heavier mix of stadium and our conference call to our press release and press release. As a result, our concerts revenue for the year grew by 43% to $13,500,000,000 our Q1 results. We delivered $170,000,000 of AOI.

Speaker 4

Looking a bit deeper at our fan metrics, we had strong growth across the board. Our guest speakers. Stadium attendance more than doubled to 18,400,000 fans this year, up from 7,800,000 fans in 2019. Our guest speakers. Our guest speakers' conference call is now open.

Speaker 4

Our guest speakers' conference call is now open. Our guest speakers' conference call is now open. Our guest speakers' conference call is now open. Rock in Rio in Brazil, Rockwirchter in Belgium, Reading and Leeds in the UK and Lollapalooza in Chicago. Our guest speakers.

Speaker 4

Our the Q1 of 2019 2020 2, fueled by tremendous outdoor season in the U. K. And across Mainland Europe and very strong growth in our South America markets as well as the addition of Ocessa in Mexico. Giving you more details on ancillary per fan revenue by venue type, our North America Amphitheaters ancillary per fan revenue was $37 an increase of $8 per fan over our 2019 levels were over 25% growth. At our major festivals globally, increased spending on concessions, the company's music and the VIP experiences drove ancillary per fan revenue up nearly 30%.

Speaker 4

Our guests and our theaters and clubs in the U. S. And the U. K. Ancillary per fan revenue increased by 20%, our call to the operator, driven by higher concession sales, fast lane entry, night of show upgrades and the move to cashless payments.

Speaker 4

Everyone. As we have discussed in past quarters, we've had some headwinds associated with labor and supply chain cost pressures everyone to the various segments of the company's business. We are pleased to

Speaker 1

announce that

Speaker 4

the new opportunities we operate, notably amphitheaters and festivals, as well as costs related to the reopening of our international markets during the year. Our press release. Despite this, we still increased our per fan profitability, taking into account our company wide revenue streams

Speaker 1

everyone to the operator for

Speaker 4

fans attending shows at our venues. We have seen these pressures subside in recent months and do not the same level of impact in 2023. With this, along with our ongoing revenue initiatives and continued cost focus, everyone to the operator to discuss our financial results. We expect to continue to grow per fan profitability in 2023. Next, our guest ticketing, where our numbers reflect sustained fan demand for the live experience.

Speaker 4

In 2022, we sold 281,000,000 fee bearing our Q1 of 2019 and full year 2018. We are pleased to announce that our Q1 of

Speaker 1

2019 was the 1st year that

Speaker 4

our fee bearing ticket sales exceeded non fee bearing ticket sales. Our customers as we continue to build our global non sports client base, particularly in international markets. With this increased ticket volume, GTV for the year was $27,500,000,000 up 54% compared to 2019.

Speaker 1

Our customers.

Speaker 4

Our team continues to be largely a primary ticketing business, the secondary ticketing accounting for only a mid teens the Q1 of 2019 and full year 2019. With this activity level, revenues are over $2,200,000,000 for the year with AOI of 830,000,000 Urs. As we projected last quarter, we delivered full year margins in the high 30s coming in at 37%. Everyone on the pricing front. Average ticket prices on primary tickets rose by 17% compared to 2019, driven by fan demand for the best seats our Premier Concert and Sporting Events.

Speaker 4

Secondary ticketing pricing also rose by 12% on average, everyone to the operator. And so the average secondary ticket price in the U. S. Remained more than double that of a primary ticket. Everyone to the operator to discuss the results

Speaker 1

of the call. This shows the extent to which concerts and other live

Speaker 4

events remain priced below market value. Everyone. We also saw revenue from non service fees grow double digits as we further build ancillary revenue the call to our press release, including insurance upgrades and other upsells. Lastly, as Michael noted, we signed 23,000,000 net new tickets and expect these client wins will help drive an increase in fee bearing tickets sold for this year, positioning us

Speaker 1

everyone for ongoing growth.

Speaker 4

Before leaving ticketing, I wanted to add a few comments on the regulatory front that Michael spoke everyone. There's been a lot of discussion lately about so called junk fees. We tend to get thrown into that conversation everyone to the operator to discuss their business and to Ticketmaster to distribute tickets is separately called out as a service fee our customers to the venues instead of embedded in the price of the ticket. Very few people understand that and even fewer understand that most of the money goes to the venues. Everyone to the operator.

Speaker 4

They think that service charges are just some arbitrary add on to Ticketmaster pockets, which is not the case. Everyone. We agree that real junk fees, hidden charges attached to goods and services that obscure the true price should be illegal. Everyone to the operator as one of the reasons we are advocating for legislation mandating all in pricing where the consumer first sees the total price he or she is going to pay everyone to the operator to discuss the details of the future. There are a range of other policy points that we're advocating for because we're strong opponents of artists and content rights, but none of these have a direct material impact on our business.

Speaker 4

Everyone. Finally, it was a record year for our sponsorship business with top line revenue of $968,000,000 up 64%. Our AOI for this high margin business was $592,000,000 up 62%. Looking back at sponsorships growth during the year, our the entire business increased by 75% and our platform integrations more than doubled. Once again, we had high growth in both on the site and online sponsorship of 61% 64%, respectively, compared to 2019.

Speaker 4

Our international markets had an exceptional growth rate this year, with AOI increasing by over 70% compared to 2019 everyone to greater festival activity across Europe and our expanding business in South America and Mexico. A few other points on 2023. While it's still very early in the year based on current FX rates, we and present very little impact on our revenue and AOI this year, less than 1%. We expect CapEx to be approximately $450,000,000 this year, with 2 thirds on revenue generating projects, including new venue builds and renewals, our shareholders as well as other organic investments to support our growth. This is slightly higher relative to the past few years us as we come out of supply chain constraints and generally tight spend controls.

Speaker 4

However, as a percentage of revenue, everyone to the operator to discuss our financial results. This is well within our historical range and consistent with our growth trajectory. We ended the year with $2,300,000,000 of available liquidity our customers to join us in the Q1 of 2019. We are now in the line of our guidance for the Q1 of 2019. Everyone to the operator to discuss

Speaker 1

our financial results. As you're aware, in January, we issued $1,000,000,000

Speaker 4

principal amount of 3.8 percent convertible senior notes due in 2029.

Speaker 1

Our shareholders and shareholders.

Speaker 4

As part of that transaction, we then developed a hedge to increase the effective convert price to $144 everyone to the operator. We used roughly half the net proceeds to repurchase the 2.5% convertible notes that were due in 2023, our shareholders and shareholders. We expect minimal dilution from this convert offering. We're comfortable with our leverage over 85% of our debt is at a fixed rate everyone with an average cost of debt of roughly 4.7%, positioning us well in this interest rate environment. Everyone to the operator.

Speaker 4

In addition, the majority of our debt is long dated and nothing is maturing within the next 18 months. Everyone to the operator to discuss our financial results. Given that we're at the beginning of the year, we want to provide with more guidance on a few line items below AOI, which impact our earnings per share calculation. We anticipate the non cash compensation to be largely in line with 2022 our financial results and acquisition transaction expenses will run about 2 thirds of last year. As we continue our global expansion, we and expect depreciation and amortization to grow by approximately $50,000,000 for the year, evenly phased amongst the quarters.

Speaker 4

Everyone to the operator to discuss our financial results. Given our recent financing, interest expense will increase to approximately $90,000,000 per quarter. Everyone. We are projecting accretion to be about 25% higher than last year, resulting from stronger forecasted future performance our Board of Directors and Directors at a number of our joint ventures. And we anticipate that NCI and income tax expense will grow in line with AOI.

Speaker 4

Everyone. With that, let me open the call for questions. Operator?

Speaker 3

Thank you. We will now be conducting a question and answer session. Comes from the line of Brandon Ross with LightShed Partners. Please proceed with your question.

Speaker 5

Yes. Thanks for taking the question. Both and fans that think you're way too big despite the slipping share that you highlighted. And I want to know why are both your ticketing and promotion businesses so dominant? And why wouldn't a more competitive industry solve any of these issues at hand with the ticket buying experience.

Speaker 4

Thanks, Brandon. It's Joe. I think when you look at our business, our business the Q3 of the quarter. I mean, if you go back to 10 years, we and AIG were roughly similar size. We've had a very focused strategy of super serving the artist, everyone, which has led to a lot of success in terms of continuing to work with more of the artists.

Speaker 4

In ticketing, we have the best product out there, Michael, full stop. Michael spoke to why it is we've been effective continuing to work with a large number of venues because we have the best software platform for them and we work with them to develop tools and products for artists the consumer of their key constituents when figuring out where they're going to be touring. So I don't it's hard to answer your question with Where would we be if we didn't have someone who developed such great tools for the venues and such and serve the artists so well. I think we would have a smaller industry. I think we have consistently grown the industry through our approaches to the business.

Speaker 4

Everyone to the operator and overall, the ecosystem is better for it.

Speaker 5

Okay. And then you talked about the the amount of junk that's in ticket fees and it's a huge concern of, I think, and regulators, the amount of fees or the the percentage of fees that go into each ticket sale. Can you get a little more granular on why ticket prices are so high? What percentage of the fees the next question from the line of Alex Yao, who will be joining the company's office and what is junk. And then you have these growing junk fees.

Speaker 5

You're giving venues a bigger and bigger cut. And now there's the consumer and regulatory pressure. Why shouldn't investors be worried about the sustainability of the Ticketmaster and the Live Nation Bank O and O venue ticket fees as we look to the future.

Speaker 4

Yes. Just first, Correction, these aren't junk fees. Junk fees are low value hidden fees that show up later. This is our version of the markup of the base wholesale price of the product is shared by us in the venue. So it's no Amazon collects 50 Apple's expense of the retail price.

Speaker 4

Apple collects 30%. So this is a version of the amount of the money that goes to the venue for the the services they provide, Ticketmaster for the services they provide. So it's not junkies. What we've said is the majority of the fees go to the venue and Typically, when you renew with a venue because of the competitive nature of the bidding process, more of the fees goes to the venue. Everyone.

Speaker 4

I don't think it makes much sense for us to give exact breakdowns because then obviously everybody below the average our next discussion wants to get to be above the average. And so, it's not a very commercially wise move for us to give those specific numbers. Everyone to the operator, but generally that's been the trend and that's what's been happening. The venue sets the fees and the venue's costs have been going up, service fees have been going up. I think it would be a very unique a situation where you would tell the building what their fees could be.

Speaker 4

I think it's more likely you've got an all in pricing where they see the total cost upfront quite transparently. And frankly, if you were to have fees, what would end up happening Ian as you then have increased rent and other costs to the artist would go up because the venue needs to recoup their costs as part the overall ecosystem.

Speaker 5

So you're saying if ticket prices or ticket fees were regulated, them ticket prices would just stay the same because they would just be passed on in another way.

Speaker 4

It was very possible that that's what happened. Yes. Okay. Thank you.

Speaker 2

Historically, Brandon, there was a division on what the artist historically. But now as you know, we've said it many times, the artist takes most of that ticket fee face. So the way that the venue, the promoter, the ticketing company earn their revenue fees is through that Extra Fee. You're right. We would love tomorrow just to make it all in pricing for the consumers very clear from the beginning everyone to the audience.

Speaker 2

To go see the true cost of the show isn't $25 it's $50 because that's how all of the participants need to be participate our audience for that show to happen. Now, tomorrow, if someone said, you know what, those $25 fees, you shouldn't have them. Well, then the venue would say, okay, artist, the rent isn't $50,000 anymore, it's $100,000 and the fees would add up and then all of a sudden that ticket price wouldn't be $25,000 it would be 50 everyone on a face value. So, it is inefficient. That's why we're a big proponent of all in pricing and all out pricing at the beginning of the process, everyone, which you don't see right now in most companies other than ours.

Speaker 2

So we believe that we all want to know what is the true cost to see the show everyone to the next question. When I start shopping, we wish that would be mandated tomorrow across the board, that would relieve a lot of the stress, the consumer's perception that there's this magical extra fee added on that is not kind of part of the overall show cost.

Speaker 5

Got it. Thanks for the explanation.

Speaker 2

And to your point on Live Nation owned but operated, just to Tamara, the point home, to your point is right, if tomorrow someone said, you know what, you can't charge 20% service fees on your amphitheater, you have to be 10, Well, then the $75,000 house nut rent that we charge artists would be $100,000 right? So we couldn't we wouldn't absorb the cost. We still have to pay staff capital, run the building. So we have to find the revenue and the other means. So the true cost of going to the show and making the show happen isn't the full price all in.

Speaker 2

We just need to now market that upfront better.

Speaker 3

And the next question comes from the line of David Karnovsky with JPMorgan. Please proceed with your question.

Speaker 6

Hi, thank you. Michael, I think over the years we've become accustomed to seeing some level of criticism against Live Nation or Ticketmaster from politicians, trade press, social media, that's certainly elevated lately though. So I wanted to ask what actions you. Are you thinking about taking to be more proactive in managing the public perception or your relationship with lawmakers that could maybe help limit what's become a periodic concern for investors.

Speaker 7

That's a great question.

Speaker 2

First, I want to kind of look at where is the drama that gets created. If you kind of zoom out, our customers. We did 550,000,000 tickets last year. About 540,000,000 of those were happy customers that were seamlessly delivered. About 10,000,000 of those or 5 tours historically a year have this incredible demand, where supply demand is out of whack everyone and it creates lots of tension and unhappy customers.

Speaker 2

And that's kind of always kind of been the historic challenge in the business. Our listeners and our guests. At Live Nation Ticketmaster, historically, we've really been a B2B business. Our Ticketmaster job is to service the venue our concert job is to service the artist and we've done a fabulous job building those businesses and having very, very happy customers. And part of that our proposition historically has been to take a

Speaker 4

bit of the heat at

Speaker 2

the front end, when the ticket prices are high, when the service fees are high,

Speaker 1

everyone to the operator to take questions. If the

Speaker 2

demand supply is out of whack, Ticketmaster has historically been the one that's taken the punch or the ticket seller in general. You look at all ticket companies, all their NPL scores are all kind of the same. There's only 2 customers, as Fred Rosen famously said. The one that got the ticket that's happy and all the ones that didn't are pissed off, right? So you never always you can never kind of make this is an industry where there's just not enough inventory to make everyone happy.

Speaker 2

And we've lived that historically. But absolutely, we've got to now start adjusting too much on our B2C side. We've got to get much more lean forward on our government relations and our PR side. We've historically not had a big incentive everyone to kind of shout out loud that venues are charging high service fees or artist costs are expensive. That hasn't been a big business incentive to date.

Speaker 2

But I think now education is paramount. We've got to now go out and do a much better job, so the policymakers, And we've got to all probably do a better job going forward. One of the real challenges that I think has kind of highlighted this core problem, right? For 40 years, there's always been a show with not enough tickets and a fan was unhappy. Obviously, in the last while, I think what's kind of set the nuclear chaos on this on sale is the secondary business.

Speaker 2

You think of what happens on those 4 or 5 big demand stores a year. That passionate fan, which is the Hallmark of our business, thank God fans are passionate. They're more passionate about the artist relationship than they are sports or anything else. They're committed And they want to see that artist at all costs. Now what's happening is you put a you announce an on sale.

Speaker 2

I think Irving said it famously yesterday, we haven't announced the U2 on sale yet. We haven't announced when the dates will play. Our secondary sites have you to date up with tickets on sale. So the consumer on these high demand on sales is really over the last couple of years Starting to get pissed off and doesn't understand the process. Why are there so many tickets on spec selling sites?

Speaker 2

Why at 10 o'clock if I didn't get a ticket, are there 5 pages of scalper sites selling tickets for 5 times the face value? Ticketmaster, you must have given them tickets. This must this doesn't seem fair. And that's kind of the digital ticket going online, the advent of SeatGeek's, ThubHub, Vivid, the big scalpers, with all of their ways of getting tickets before or after. That's really highlighted, right?

Speaker 2

That's really become a new thing over the last few years that the consumers could see now online. They don't understand why they couldn't get a ticket and why there's so many tickets on secondary. So I think that's the part that we've got to now really lean in on that. We did that today with the Fair Act. I would tell you yesterday sitting at the industry conference at Polestar, if any of you everyone to hear the panel between Irving, Garth Brooks, Jim Dolan and the DOJ ex employee.

Speaker 2

I think it was fabulous because That I think really shows a united music industry in that conference yesterday was venue, promoters, managers, agents and artists. And I would say it was the most excited and most united I've ever seen them in the sense of we've got to now stand up as an industry. Artists historically have not been great at lobbying together. Really the only lobbyists that exist is the Ticket Broker Association. Them.

Speaker 2

They've done a good job, but I would say yesterday that room was lit up, that the artist and fan relationship and that Garth Brooks' moment when he sat there and said, when I want to charge a certain price for a ticket, I don't want someone in the middle making money off my IP. I I want to deliver that ticket to my fan at my price. So I think we've been too passive in our approach on how we need to educate and act. This week was the start of where we're going to start moving. You're going to see us lean forward a lot more on education reform.

Speaker 2

And then ultimately, the part that matters the most is just being better at our products. We still are the best at the game right now. We're the only ones that have newly developed verified fanart products to try to stop the secondary box. We're going to get better and better at that. We're going to be more transparent.

Speaker 2

We're going to do some new products on the Live Nation venue side that will lead the industry. So I think you'll see this year, a lot more action from our side, our team to be very much pushing back, leaning forward and ultimately to very better products with the artist. But I would tell you if there's one place you want to be standing right now is where we are. Everyone. We work for the artists.

Speaker 2

They're very united behind us. We're doing a fabulous job for them. The Skelpers have done a great job of Hijacking the narrative. Obviously, when Senator Klobuchar, our star witness, is the CEO of SeatGeek, we've not done a good job. We're going to move forward this year much more aggressive telling the artist side of the story.

Speaker 2

I think FairRock today

Speaker 6

Okay. And then for Joe, just on the quarter, the sponsorship AOI margin was a little lower than we normally see. I think there were some festivals and AMP shows that had got scheduled later. So wondering if there was a mix factor there. And then just free cash flow conversion for the year, I think was like 10% higher than you had expected.

Speaker 6

Wondering if you could just walk through the drivers of that and how sustainable that might be. Thanks.

Speaker 4

Yes. I think, obviously, we finished up a fantastic year. As I've told you guys in the past. I don't overly read too much in this quarter specific comparisons. You've got a lot of moving pieces.

Speaker 4

Our next question. We obviously have some changes in the business with the addition of Ocessa, a lot of impact last year, timing of APAC the quarter to close most of the year. Europe only opened in the second half. So it was really just some timing shifts, us nothing to read particularly into it or to read as a go forward indication on the margin side. And then as you said, yes, our free cash flow came in very strong as a conversion to AOI, I think a little higher than expected, the pieces were a bit lower than what we expected.

Speaker 4

So I think we outperformed last year on that free cash flow conversion.

Speaker 2

Thank you.

Speaker 3

And our next question comes from the line of Steven Lacek with Goldman Sachs. Please proceed with your question.

Speaker 8

Everyone. Hey, great. Thank you. Maybe on the demand front for Michael, thanks for the commentary on ticket sales being up 20% year over year on a global basis so far this year. I was hoping you could maybe expand on that a little bit by talking more about what you're seeing in demand you so far through February, particularly in markets that were open this time last year, I think like the U.

Speaker 8

S, Canada and maybe parts of Europe. As a consumer pricing trends remain stable versus what you saw last year as growth accelerated or decelerated, especially now that we're lapping some of the reopening benefits that we saw in 2022.

Speaker 4

Yes. Thanks, Stephen. So, everyone. So let me just start with some of the numbers and then Michael can fill in with some color. So as Michael said, we're up 20% this year relative to where we were at this point last year.

Speaker 4

That's even with last year having the benefit of all those rescheduled shows, our press release, which totaled around 20,000,000 fans. About 20,000,000 fans got rescheduled. We think half of those would have happened last year anyway, but that means the company's call. That 20% growth comp is against a inflated number, if you will. So the actual growth even stronger than that.

Speaker 4

Our press release. As we noted in the release, within that, international is up around 25%, which would mean that North America is still up the high teens, so very good growth. And if you look just at the ticket sales sold in January through mid February this year on a global basis, We've sold roughly twice the number of tickets as we sold last year. So even looking at the most recent activity continues to be very robust globally.

Speaker 2

Yes. And my commentary is similar. We are just amazed at the resilience of the customer this year. I think we all lived in November air pocket thesis and everyone's view on was 'twenty two an exception to the rule, could we keep growing? Where was the customer?

Speaker 2

Was it just a bubble? We see nothing but strong growth the demand everywhere in the world right now. We're up right now with stadiums in Asia, South America, Eastern Europe. All of our festivals are outperforming last year around the world. Our clubs and theaters are doing well.

Speaker 2

Our on-site the expanded most of those clubs and theaters. We see tracking in the right direction. We'd always In this business, you always worry about the first the superstars are going to sell out and then how is the rest of the business do. That's kind of the meat and the potatoes of our business. Us to how the amphitheaters shows, how is all the middle stuff going to do, and we're just seeing incredible strength right now across the board on our our big festivals, our niche festivals, our theaters, clubs.

Speaker 2

We think this is going to be a continual boom year consumers, as we said, still look at concerts. Let's zoom out again as we always do. Let's forget about the 3% of shows that are going to consume political tweets. 97% of the shows are very affordable for consumers. We're still an incredibly affordable option our fans to go have a memorable night out, much more affordable than concerts.

Speaker 2

I said to Joe earlier, We absolutely have done a bad job on PR because the Super Bowl, it was a badge of honor that tickets were 5000 or 6000 each and most people couldn't attain it. But Concerts are still incredibly cheap overall experience versus a basketball game, a dinner, a night out or a theme park. So We think that plays in. We haven't seen any pullback. We've seen more demand top to bottom on a global basis.

Speaker 2

We think that will ride through this year.

Speaker 8

Everyone. Great. Thanks for that. And then maybe one more on regulation for Joe. You recently made a pretty notable hire on the legal front.

Speaker 8

Could you talk a little bit about the rationale for that hire and maybe update us on where you stand in the process for any potential investigation with the DOJ.

Speaker 4

Yes. We're delighted. We hired Dan Wall, for those of you who didn't see it, joined us formally following his retirement from Latham at the end of January. This is this is actually a conversation Dan and I started in May of 2019 at Bottle Rock. So, Dan was planning on retiring from Latham, found working with us to be exciting, fun business.

Speaker 4

And we talked that he in him to the Q and A session of 2020, he was going to renounce his retirement, retire at the end of 2020, come join us. Like so many other people's plans, those got upended. Him. So he didn't end up retiring until January, but this has been something that's been in the works now for 3 years that Dan's wanted to do. Him.

Speaker 4

He'll be instrumental in terms of our ongoing discussion. He's been in nonstop dialogue with the DOJ, it seems like, for the past 13 years. He understands exactly the questions they ask, their motivations. He just put together an op ed piece everybody should certainly read that was in Polestar today laying out on a fact basis as opposed to so many analysts some pundits that people refer to making broad statements about the DOJ and their process, the consent decree, risks of us being broken up. I think he does a fantastic job of laying out in very specific detail everybody to the operator to talk about why so many of those beliefs are unfounded, and I think creates a little higher everyone to the next question.

Speaker 4

I would like to welcome everyone to the next question.

Speaker 1

I would like to

Speaker 4

ask a question and answer session.

Speaker 7

Everyone. Great. Thanks for that.

Speaker 3

And the next question comes from the line of Steven Glagoula with Cowen and Company. Please proceed with your question.

Speaker 9

Yes, thank you. Building off what you said earlier, Michael, about one of your main ticketing competitors testifying against you, just in light of the Fair Ticketing Act. Do you think there's any political will in the United States to allow 4 primary ticketing players like Live Nation to help artists

Speaker 2

Well, I believe that the artist has the best shot when they unite around their IP. I don't think there is the U. S. Is probably about the only a country in the world that doesn't have some level of regulation. I mean most other countries woke up and said, geez, if the artist wants to charge $300 an underpriced product for the fan to get a cheaper ticket, why would a middleman be able to make $1,000 It doesn't seem logical, right?

Speaker 2

So most IP, if you look at the artist, you wouldn't be able to think about how much work Netflix is doing on passwords, password sharing just to save $7.99 So I think there's a lot of pent up artists who are underpriced their product every day. Everyone. I mean, we're pretty much the only product in the world that's worth more the second it's sold. I think they've done that for the betterment of their fan base. Everyone else, they've seen now the sunlight online of the abuse that's been taken them on their IP.

Speaker 2

So I like our position. I like standing up with the artist. I think the artist, Irving, you saw it yesterday with Garth. I do believe everyone that the artists will have more control of their ticket like the Pearl Jam model. They should.

Speaker 2

And that doesn't mean that you are not going to transfer the tickets. We believe in tickets should have a fair exchange platform, and you should be able to exchange and sell tickets. And if an artist doesn't care about secondary, then great. Let the Russian roulette wheel move. If you do care and you want to limit it, you want our Capit 30%, 20%.

Speaker 2

I just think that the artist, since they're making the decision on how to underprice their product for the betterment of the fan, everyone. Should have a seat at saying, well, how does it go to market? Because we don't want the artist to continually say, well, I'm just going to charge 5,000 then. It's not better for the fan to charge market. So if they're going to charge under market, I believe that they have a should have a say in it.

Speaker 2

I do believe they'll be very persuasive over time with lawmakers when that story is presented. As you know, the secondary are out running around trying to make sure that tickets are everyone to the operator to be transferred, so they can sell them. I think that the good news in all of this going on in the last while, don't let a crisis

Speaker 1

go unused. I think that this

Speaker 2

has created lots of great news. Cisco unused. I think that this has created lots of great news, as painful as it is for us some days. The bottle got out of the Genie's out of the bottle. We were kind of suppressed in the back foot, not wanting to talk out loud too much about a lot of this business while we service to our customers.

Speaker 2

I think the champagne bottle has been popped. I think artists, I thought yesterday was very unique. Everyone. I think you're going to see, we've been all sleeping while the scuppers have done a fabulous job lobbying. I think they got woken up yesterday and recently.

Speaker 2

And I think the artist and the venue, remember, have a big stake in this, right, especially sports. So I think the sports teams, the sport leagues, content owners in general, Like any other industry, Makan was very clear yesterday. He talks a lot about the artist IP. We think that's a very valid position. We think that the artist or the content owner

Speaker 9

Michael. Thanks, Michael, for that. And Joe, I just had one on your CapEx spend for $23,000,000 to $450,000,000 So 1 third of that on maintenance CapEx the call to questions. Flat with 2019 and then 2 thirds implies 50% growth, I think the above 22 levels, 82% growth above 2019 levels. Can you just provide some more color here on what those investments are?

Speaker 9

Is this in the Venue Nation business? And then any color on the hurdle rate you guys factor into this capital spend would be appreciated. Thanks.

Speaker 4

Yes. A lot of the growth is certainly in the Venue Nation side. There, as you can imagine in 2021, we had a substantial amount of deferred CapEx that we our press release. We are pleased to announce that the building is needed. Then in 2022, we were faced with a lot of supply chain constraints, had to prioritize where to use the scarce resources that we were able to get.

Speaker 4

So that was limiting factor. So there's some catch up on the maintenance side Amit. The return is really more of a rev gen side than a maintenance side. Most of the maintenance our financial results. On the growth side, we have return requirements that are well above our cost of capital.

Speaker 4

Everyone. I haven't given specific ones, differs a bit by project, whether it's a brand new project or it's just a you're adding a new Bar at a venue. So, those are opportunities that we just think are continuing to present themselves as we expand the global footprint. Everyone. Thank you.

Speaker 3

And the next question comes from the line of Jason Bazinet with Citi. Please proceed with your question.

Speaker 7

I just had a question on concerts AOI per fan. I know you called out some of the headwinds, reopening costs, Jason for the venues you own and said it would get better. But can you just sort of frame what a reasonable AOI per fan is? I I think it was $1.40 this year and maybe $2.50 or something back

Speaker 1

in 2019.

Speaker 4

Yes, I don't think concerts AOI per fan everyone to the operator to take questions. Okay. I think if you look at how we've talked about our business, we've talked about our business across the multiple pieces. Everyone to the audience. So you have to look at it, what's the concerts plus sponsorship plus ticketing AOI per fan, which we've grown.

Speaker 4

Adam. And what we've said is that the concert business has been hit by some of these cost increases, supply chain constraints, increased costs on some of the inputs, We've increased the overall profitability

Speaker 1

per

Speaker 4

fan, both by executing on-site with those fans our guests and guests coming to our venues, but then also by dramatically increasing our sponsorship per fan Ann by growing some of our ticketing revenue per fan, including the non service fee side. So we look at it more holistically, everyone recognizing there are going to be some puts and takes in a given year certainly on the business.

Speaker 7

Can I just follow-up because it seems

Speaker 2

But also, I just want to give some color there just to remind everyone when we sat here a year ago, we didn't think we were going to be open in the operator to the operator to discuss the question and answer session? We had no staff. We ran 100 miles an hour to get open for May, hire 20,000 staff, every our guests to our guests. I mean, we were running hard last year, our shareholders. Getting the show back together was tough last year.

Speaker 2

We still obviously delivered incredible numbers, but we're now back to That 2019 level of staff in place, costs have all come down, suppliers are all back in line, generators are normal costs. So We do obviously expect 23 to be in terms of a cost basis back to a continual normal business.

Speaker 7

Can I just ask one follow-up? Sure. Do you think the right way to look at it is that there's some sort of permanent a shift in profit pools towards sponsorship and advertising and ticketing and away from concerts. In other words, is it

Speaker 4

I think it's premature to say that. Let me give you another just piece on what hit us last year with concerts was we had those I talked about the 20,000,000 fans everyone to the operator for shows that got rescheduled. Those are shows that went on sale in 2019 or early 2020 and were priced at the price level for those shows back then. Our press release. Fast forward a couple of years later, nobody was repricing the rescheduled shows and yet the market, particularly for the best tickets, had moved up substantially.

Speaker 4

Everyone to the operator. So in 2022, you were operating a pretty good chunk of your business with a 2019, 2020 revenue Stream against the 'twenty two cost structure. That's not going to replicate itself. That was a one time unusual event. So I Eddie, you got to take a beat, let this year play out before you start drawing conclusions off of a single data point.

Speaker 7

Okay, perfect. Thank you. Everyone. And at this

Speaker 3

time, we have reached the end of the question and answer session. I would like to turn the floor back over to the management team for closing remarks. Everyone.

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Earnings Conference Call
Live Nation Entertainment Q4 2022
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