Live Nation Entertainment Inc

NYSE:LYV

Earnings Call Analysis

Live Nation sees robust growth despite fewer stadium shows.

Live Nation's Q2 earnings call revealed stable growth. While stadium shows dipped, amphitheater attendance surged 40%, boosting overall fan count. CEO Michael Rapino and CFO Joe Berchtold highlighted strong consumer demand with lower cancellation rates and successful promotions. Sponsorship revenues rose by 3%, with margins at 60%. They project continued growth into 2024, with 14 major venues opening by 2025. Concerts are expected to fuel company growth, moving margins back to 2019 levels. For 2024, high single-digit revenue growth is anticipated.

Introduction

The latest earnings call for Live Nation Entertainment provided a comprehensive overview of the company’s performance in the second quarter of 2024. The following analysis highlights key aspects such as fan count trends, revenue performance, and strategic initiatives. This analysis is designed to help investors understand Live Nation's current state and future prospects, particularly those unfamiliar with the company.

Fan Count and Attendance Trends

Live Nation saw a 5% increase in overall fan count during the second quarter, with North America showing significant growth at 26%. In contrast, international attendance declined by 16%. This variation underscores the importance of regional dynamics in the live events industry. Notably, amphitheater attendance soared by 40%, stabilizing overall attendance despite fewer stadium shows this year【7:1†source】【7:11†source】.

Cancellation Rates and Consumer Demand

Cancellation rates remained low, within historical norms of 4% to 5% of shows and about 1.5% of fans. Despite some industry concerns, Live Nation has not witnessed any unusual cancellation patterns. The company has also seen robust consumer demand, with promotions like summer concert week and 4-pack offers driving strong fan engagement【7:1†source】【7:11†source】.

Sponsorship and Revenue Growth

Sponsorship revenue increased by 3% in the quarter, while Adjusted Operating Income (AOI) rose by 10%. The company expects double-digit bookings growth and stable margins for the year. The sponsorship business continues to exhibit a strong margin of over 60%, driven by efforts to forge longer-term, integrated deals with major brands. Management emphasized the strategic shift from local to national deals as a significant growth driver【7:0†source】【7:2†source】.

CapEx and Venue Developments

Live Nation is actively investing in new venues and improvements, expecting returns of over 20% on major renovations and new constructions. For tactical improvements, the company anticipates returns exceeding 30%. The focus on venue-based capital expenditures is part of a broader strategy to increase shareholder value through high-return investments. The company has plans to open 14 major venues between 2024 and 2025, indicating sustained growth and expansion in their global footprint【7:1†source】【7:3†source】【7:6†source】.

Ticketmaster Performance

Ticketmaster, a subsidiary of Live Nation, continues to perform well, adding numerous clients internationally and maintaining strong renewal rates. Ancillary monetization initiatives, such as upsells and ad units, have contributed to the overall health and profitability of the Ticketmaster business. Despite fewer stadium shows impacting volume, Ticketmaster achieved one of its top five quarters in terms of AOI, showcasing its resilience and strength【7:3†source】【7:9†source】.

Strategic Insights and Future Outlook

Live Nation’s strategic focus remains on expanding its global venue base and enhancing its digital and on-site offerings. The company is optimistic about sustained growth, with predictions of an 8% to 9% annual growth rate in the live events industry. Looking ahead to 2025, Live Nation anticipates a robust year with an extensive pipeline for stadium, amphitheater, and arena shows. The management reiterated that despite the inherent challenges, the fundamentals of supply and demand in the live events sector remain strong, making it one of the most attractive industries for long-term growth【7:4†source】【7:6†source】【7:10†source】.

Earnings Call Transcript 2024-Q2

[Operator]

Greetings, and welcome to the Live Nation Entertainment Second Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Amy Yong, Head of Investor Relations. Thank you, Amy. You may begin.

[Amy Yong, executive]

Good afternoon, and welcome to the Live Nation Second Quarter 2024 Earnings Conference Call. Joining us today is our President and CEO, Michael Rapino; and our President and CFO, Joe Berchtold.

Before we begin, we would like to remind you that this afternoon's call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ, including statements related to the company's anticipated financial performance, business prospects, new developments and similar matters. Please refer to Live Nation's SEC filings, including the risk factors and cautionary statements included in 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. 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 our earnings release. The release reconciliation can be found under the Financial Information section on Live Nation's website.

With that, we are now ready to take your questions. Operator?

[Operator]

[Operator Instructions] Our first question is from Stephen Laszczyk with Goldman Sachs.

[Stephen Laszczyk, analyst]

Joe, on fan count, it looks like it grew 5% in the second quarter with some diverging growth trends between North America up 26%, international down 16%. Just wondering if you could talk a little bit more about the attendance trends you're seeing across region and then within that across venue type. And then maybe related to that, there's been a lot of attention just on tour cancellations and consumer demand over the last few months. Could you comment on what you're seeing on that front, then to what extent you think that demand extends into the back half of the year and what that means ultimately for attendance growth into the back half of '23? And then I have a follow-up for Michael.

[Joe Berchtold, executive]

That's about a 4-part question. Let's start with some of the easier pieces. In terms of cancellation rates, our cancellation rates, we're seeing historical norms below last year. They historically run kind of 4% to 5% of shows, about 1.5% of fans, absolutely in line with historical trends. I think most of the reports that we've seen have been efforts to take 1 or 2 data points out of a very large number of tours and shows, and we're just not seeing anything unusual there.

In terms of overall demand, continues to be extremely strong. We tried to highlight here a couple of casual fan metrics that we think are important where obviously, we've heard a lot of things from other companies over the past weeks or month or so. One is just when we put on promotions or summer concert week back in May or more recently our 4-pack promotion, those tend to be focused on the casual fan, and we've seen increased interest of fans and their purchase behavior. So that's positive signal.

The other signal that we look at is how do shows close in the last couple of weeks before the amps play off, are people buying more of those lawn tickets as they're making the last-minute decision on whether or not to go to the show. That number is up 16% year-to-date. So again, seeing very strong casual demand there. And finally, once they go to the show, what's their behavior, and again, we're seeing no issues that we continue to be on track for a couple of dollars' growth in our APF spend at our amphitheaters.

So I think it's all consistent with our concerts being seen as very good value for money, 2/3 less than $100, 1/3 of them less than $50. It's a much more memorable event than a lot of other experiences you can get at that price point. So we continue to feel very good about the strong level of consumer demand we're seeing.

In terms of the specific fan count numbers that we've seen over the quarter and over the first half of the year, I think it really is venue type driven. It's not so much geographic driven. It's very consistent with what we've been saying for the past year. This was not going to be a big stadium year. You're seeing that play out in terms of lower stadium shows, lower fan count. That impacts our international number.

North America, where we've had very strong performance, particularly on the amphitheater side. As you see here, we said amphitheater attendance up 40% for the second quarter. So it's really that amphitheaters are up very strongly year-to-date. Arenas, theaters and clubs, all up double digits as well. So you're seeing, in totality, continued growth despite the -- not having the stadium shows this year. And just from a geographic standpoint, that happens to benefit the U.S. Doesn't make any comment on any kind of macro longer-term trend.

As we head into the back half of the year, again, no underlying issues on fan demand at all. We expect to see continued growth in the fan count over the course of the second half. I think most of that will come in Q4. Q3, you'll see the continued impact of the stadium show count. And I think we had -- if we just look at the summer season, Q2, Q3, probably about 2/3 of your amp growth in terms of shows and fans was in Q2 as we got started earlier in the year and the majority of arena shows as well. So -- but we expect still solid fan demand growth -- fan growth overall for the second half of the year, again, probably more in Q4 than Q3.

[Stephen Laszczyk, analyst]

Got it. And then maybe just for Michael. As you look out into 2025, any early reads on how the touring pipeline is shaping up. I think in the press release, you mentioned it was expected to be a busy year. Just any more color or commentary around that, particularly on the stadium front and arenas and amps as well.

[Michael Rapino, executive]

Yes. As we said from day 1, this is never going to be a big stadium year. We're thrilled that we can still grow the business coming off 2 years of extraordinary growth given where we were in 2019. So it's still a strong year for us overall. Stadiums were always the challenge, and international was always going to be a stadium issue given Paris Olympics. Most of France shut down for that month, and most of that affected a lot of the stadium business for the summer.

So the good news is, as we predicted, '25 looks like to be a big banner year again. We're looking right now at our stadium pipeline for '25. It's bigger right now than it was 2 years ago for '23. Our amp and arena is bigger right now than it was last year at this time in terms of our pipeline. So we've always thought 2024 would be the year of AOI and amphitheaters and arenas and '25 will be back to a solid continual growth of stadiums. And as we've always predicted post COVID, we'd be back to an 8%, 9% compounded annual growth as an industry on the top line, and we'll see that come back to life next year and probably more.

[Operator]

Our next question is from Brandon Ross with LightShed Partners.

[Brandon Ross, analyst]

I'll try and keep it tight. Just as a follow-up there on Stephen's seventh question, I think that was. Just in terms of the stadium activity, what does that look like for you in terms of ticketing performance the rest of this year? Should we expect a big Q4 this year, similar to the types of Q4s that you were putting up in larger stadium years? And where does that kind of bring ticketing overall for the year since there's relative weakness in Q2 and Q3 in the mix?

[Joe Berchtold, executive]

Sure, Brandon. Let me also just start that with a little bit of context As I think we look over a multiyear trends entering this year since 2019, Ticketmaster AOI was up around 130%, sponsorship around 85% and concerts around 35%. So I think one of the things we're seeing this year is, as you'd expect, as the businesses grow, some normalization and those numbers start to come together more. So that said, we -- our views on Ticketmaster remain unchanged. We think it's going to be a mid-single-digit growth this year. It's going to be Q4 driven by the on sales Michael was just talking about with the stadium activity.

And I think in general, a lot of people have just undermodeled the stadium impact, good and bad. I think it's been undermodeled, the upside in Q4. As I've said in the past, from just purely a ticketing perspective narrowly to how they do their numbers, one stadium show is triple the fan count and triple the average ticket price of an amphitheater show. So while overall, those amphitheater fans are very valuable to us as a company and have helped drive our AOI growth this summer and this year overall. As you look specifically at the ticketing segment, you're going to see it impacted the other way.

[Brandon Ross, analyst]

Great. And then just overall on the lawsuit, I don't want to ask about where you stand with the DOJ, but just wanted to ask how that whole situation overall is impacting your strategic decision making. When you look at M&A opportunities, both domestically and abroad, is that piece of it in the back of your mind and swaying how you allocate capital now at all? Or are you just straight ahead as if there was nothing going on?

[Michael Rapino, executive]

Yes, we're able to isolate. So if you're -- in my legal department, you're working on the DOJ. If you're running any one of my divisions, it's business as usual. So we are -- we've always said for the last while, we've been focusing on Venue Nation, global venues around the world. I think we put in that press release. We've got 15 coming online over the next year. Still 75 or so in the pipe.

I had a venue meeting this morning. We looked at 10 new venues that we're looking to build across the U.S., Latin America and Asia in the pipe. So business as usual. We think there's still a great, great white space on a global venue basis. And ticket, I think you saw last week, we expanded ticketing in South Africa and have a few more of those on an international basis. So lots of opportunities still ahead of us and business as usual in the divisions.

[Operator]

Our next question is from David Karnovsky with JPMorgan.

[David Karnovsky, analyst]

Joe, Michael, we've heard from some other live entertainment companies recently kind of talk to a pull forward in demand post-COVID, and that's starting to normalize. I'm curious for your view on this as it relates to comps. Or do you think there was any pull forward from kind of late '21 through '23? Is there anything in your kind of data to indicate that the frequency of concert going ramp to an unsustainable level and is now kind of moving back to trend line?

[Joe Berchtold, executive]

Yes. I frankly find the concept to pull forward for experiences like concerts to be a little bit of an odd one. I think that we have long said this is a supply-driven business. The demand is there. Notwithstanding the fact we have a lot fewer stadiums this year, we're actually still growing our show count. We're still growing our fan count. We've talked a lot about new artists. We talked a lot about global artists, Afrobeats, Latin, K-Pop, exporting country.

So I think what we're seeing is an acceleration of the continued globalization on the demand side, the artists seeing that they can go everywhere in the world. We'll have some shifts in terms of venue types and exactly which markets have which level of activity. But there's nothing that would suggest that we're really deviating from historical trajectories on the ongoing growth of the business.

[Michael Rapino, executive]

We never predicted that the industry was going to grow at 30% a year going forward. We always wanted to restate that regardless of some of the COVID pent-up demand or some of the shows that got moved around this industry on a global basis, supply/demand are the -- are the basics still sound, are they going to grow at a 9%, 10% a year growth rate. And we see all of those trends we've talked about over the last year. Globalization, consumers wanted to get to the show from Colombia to Pittsburgh, globalization of the artist, supply/demand, experience economy still make this industry overall. Probably one of the best industries you're going to find out there, continued double-digit growth amongst many of the divisions as well as on a global basis on a 9%, 10% annual base.

[David Karnovsky, analyst]

And then your amp show count and attendance growth were particularly strong in the quarter. Joe, I think you might have said before more of the show count growth slowing to Q2 this year due to an earlier season. And can you just frame what that should mean potentially on a relative basis for AOI growth for margin in Q3 relative to Q2?

[Joe Berchtold, executive]

Yes. I think Q3 is pretty much always our high-water mark on margin as we have the high volume of festivals in addition to the amphitheaters. I'd see no reason for that not to continue. We expect to continue to have AOI growth as a result of that margin expansion. I'm just trying to -- I was trying to give you guys a little bit of more specific context for the modeling, but we expect this to be a very strong AOI growth year for concerts. I gave some of the numbers earlier where I talked about more normalization.

So we do expect concerts to carry a lot of growth for the overall company this year. And we think that margins are moving back towards 2019 levels. I always hesitate to give exact margin forecast because a lot of it depends on our volume of on sales in Q4 that results in the expensing of marketing, but expect that we're moving back towards the 2019 margin levels on a full year basis.

[Operator]

Our next question is from Cameron Mansson-Perrone with Morgan Stanley.

[Cameron Mansson-Perrone, analyst]

Two, if I can. Noticed that take rate has been up nicely at Ticketmaster this year, year-to-date. Is that success from some of the efforts that you've taken to kind of improve the ancillary monetization there? Or what's factoring into that? And then, Joe, on the higher CapEx guidance, given the comment about pull forward in the release, does that mean lower growth in CapEx next year? How should we think about that? And on the note that you expect to generate free cash flow conversion consistent with last year despite how CapEx is ramping this year, just any context in terms of how you're achieving that given the CapEx ramp.

[Joe Berchtold, executive]

Yes. I think in terms of the pull forward, what we spoke -- we're speaking to specifically is we're now expecting to have 14 major venues open between '24 and '25 as opposed to the 12 that we had last quarter. I think it's very early to start talking about '25 CapEx. As Michael talked about on an earlier question, we're regularly looking for all the venue opportunities we can find globally. He spends a lot of time with the teams in every market, looking at that. So I think that we'll continue to make those decisions on extra CapEx based on the opportunities. And hopefully, there will continue to be a lot of great opportunities with kind of 20-plus percent return profile that we tend to look at.

In terms of the free cash conversion, I think those numbers, the cash conversion that we use is after maintenance CapEx and before growth CapEx, so the growth CapEx numbers since the growth in the number in the forecast was in growth CapEx. I don't think that impacts how that number flows through.

Back to your first question in terms of the Ticketmaster, Ticketmaster is continuing to perform well. Again, adding a lot of clients internationally, continuing to have strong renewal rates, both in North America and internationally. We're growing our upsells and ancillary spend with the ad units at Ticketmaster. So I think the underlying performance and the health of the business continues to be very strong. The fact that it's -- the AOI in Q2 was actually as high as last year given the volume of stadium shows that they lost in the second quarter, the fact that it's still one of the top 5 quarters that it's had are all indications of the great performance and strength of that business on a multiyear basis.

[Operator]

Our next question is from Peter Supino with Wolfe Research.

[Peter Supino, analyst]

I was -- I wanted to ask 2 questions, one on the concert segment with really high growth. I wondered if you could parse the contribution from Venue Nation versus the promotion function. And then a question on growth CapEx. Your press release talks about 30% returns on venue upgrades. And in prior discussions, you aspired the 30% returns on some greenfield venue builds. If Venue Nation generally does invest capital at a 30% incremental return, should we take the difference between total CapEx and maintenance CapEx and multiply that by 30% to forecast a return on your growth CapEx? Or would that be an oversimplification?

[Joe Berchtold, executive]

So first, on the Venue Nation versus the concert promotion, really because that's transfer pricing, we don't spend a lot of time trying to separate the 2. We don't have, I would say, fully distinct P&Ls that would give you at the AOI level, I think, what you're asking about. We do look at the returns that we generate, the returns that we generate from all aspects of the business to give you a feel that we're creating a lot of shareholder value. We're opening new venues and making other CapEx investments. I think that what we've said historically is we strive for 20% north or higher on major renovations and new builds, and as we showed here, 30% plus on some more tactical improvements. This is also all the venue-based CapEx. There's also Ticketmaster and other CapEx that we make.

So I think it's probably a bit of an oversimplification, particularly if you're trying to apply it to a single time frame given that the CapEx is often ongoing for a couple of years on the major projects. So you have a little bit of timing complexity there. So it's probably just not quite as simple. Over time, you get those returns, but not if you're trying to do this on a quarter-by-quarter basis.

[Operator]

Our next question is from Barton Crockett with Rosenblatt Securities.

[Barton Crockett, analyst]

I wanted to ask maybe a little bit more about what's happening with sponsorship. So the revenue was up 3% in the quarter, but AOI was up 10%, and you're guiding for the year. You're talking about double-digit bookings growth and stable margins. I was just wondering if you could explain what drives the acceleration in the top line but kind of the give back on the margin and just talk generally about the health of what you're seeing in sponsorship at this point.

[Joe Berchtold, executive]

Yes, I'll give you some specifics on the margins, and Michael can comment on overall. I think the business continues to be a 60% plus margin business, very strong. I think as I long said, when overanalyzed single quarters, I think over the course of the year, we'll continue to deliver similar margins as we have in past years. This is all apart to, as Michael talked about, when you have a high single-digit growth business that underline in the industry level and we're overdelivering that, part of that overdelivery is if you look at sponsorship, it's been in the teens historically on an AOI growth basis. And as we continue to grow the fan count and grow the overall business, we expect we'll continue those sort of historical growth rates.

[Michael Rapino, executive]

Yes. And I would just say, as an overall, given I work with the team a lot on our big clients, we're seeing discontinual upgrade moving from a regional deal to a global or a national deal. That has been our biggest strategy over the last 5 years, is upgrading from a local to a national deal with a larger relationship and a longer-term relationship more integrated. And the lineup continues to be strong on all major brands. All CMOs look at us kind of like the NFL and want to find ways to work on our digital, our on-site, our festivals, our tours, the artists, all the different ways they want to attach the live music. So we think continue to be a great business on an AOI basis for a long time.

[Operator]

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Michael Rapino for any closing comments.

[Michael Rapino, executive]

Thank you, everybody. Have a great summer, and we'll talk in the fall.

[Operator]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.