Live Nation Entertainment Inc

NYSE:LYV

Earnings Call Analysis

Strong Year-End Performance With Future Growth

The story of the company's recent performance starts with an upward trend in concert margins; they expect an annual improvement of at least 50 basis points from the previous year, moving towards 2019 levels. Growth is predominantly driven by third-party venues, like stadiums, which have significantly increased their fan base to about 75% of the total 7.5 million new fans added in the quarter, despite lowering margins. Looking ahead, a confident forecast anticipates double-digit growth in ticket sales for the upcoming year with stadiums gaining momentum and big tours on the horizon. Ticketmaster, as a revenue arm, leverages not just service fees but also upsells and other services, boosting profitability per ticket. Mastercard has joined significant payment partners like Citibank and PayPal, fortifying the sponsorship portfolio with better economics than before. Dedicated to further expansion, the company concentrates efforts on adding more owned venues, targeting the highest profit and margin opportunities.

Concert Segment Performance and Future Growth

In the earnings call, it was highlighted that the Concert margins have improved year-over-year, with an expected margin expansion of at least 50 basis points for the full year. This improvement is particularly noteworthy given that this growth was achieved despite a shift towards third-party venues and stadiums implying a solid operational performance. Looking ahead, the company anticipates double-digit growth in ticket sales for the forthcoming year, indicating strong momentum as it continues to attract extensive audiences to its venues.

Diversifying Revenue and Strategic Partnerships

Ticketmaster, a key business segment, is seeing benefits from diversifying its revenue streams beyond service fees. Upsells and services to fans and promoters are contributing to increased profitability per ticket sold. A significant development is the addition of Mastercard to an array of payment partners, which includes Citibank and PayPal. This partnership is expected to bolster the international footprint of the company and is part of a larger trend of strong growth in the sponsorship and payment side of the business, adding to the company's robust financial position.

Focus on Venue Expansion and Deferred Revenue

The company continues to concentrate on adding venues, which typically yield the highest profit and margins. The number of fans in owned and operated venues is anticipated to rise, enhancing the company's long-term growth trajectory. Concurrently, deferred revenue has increased by 39%, driven by early ticket sales for future events. As a significant portion of tickets for 2023 events have already been sold, the deferred revenue is expected to show growth over the next several months, laying the groundwork for the company's revenue generation in the near future.

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon. My name is John, and I'll be your conference operator today. At this time, I would like to welcome everyone to Live Nation's Third Quarter 2023 Earnings Call. And I would now like to turn the call over to Amy Yong, Head of Investor Relations. You may begin your conference.

[Amy Yong, executive]

Good afternoon, and welcome to the Live Nation Third Quarter 2023 Earnings Conference Call. Joining us today is our President and CEO, Michael Rapino and our President and CFO and Joe Berchtold. We'll start with prepared remarks from Michael, and then we will take your questions. Before we begin, we would like to remind you that this afternoon's call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ, including statements related to the company's anticipated financial performance, business prospects, new developments and similar matters. Please refer to Live Nation's SEC filings, including the risk factors and cautionary statements included in the company's most recent filings on Forms 10-K, 10-Q and 8-K for a description of risks and uncertainties that could cause actual results to differ.

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 the earnings release or website supplement, which also contains other financial or statistical information to be discussed on this call. The release reconciliation and website supplement can be found under the Financial Information section on Live Nation's website.

And with that, I will now turn it over to our President and CEO, Michael Rapino.

[Michael Rapino, executive]

Thank you for joining us. As you can see from our results, the structural tailwinds behind our business are accelerated faster than ever. And as the fan demand truly globalizes and artists are able to more broadly than ever, this is fueling an unprecedented global desire for concerts. This has happened in all levels with both casual and die-hard fans and from small clubs to massive staining events. We will start the conversation today and the next week get deeper into our results and how these trends are setting up the industry for ongoing growth. Joe, anything to add?

[Joe Berchtold, executive]

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

[Operator]

[Operator Instructions] And the first question comes from the line of Brandon Ross with Lightshed Partners.

[Brandon Ross, analyst]

Just to start off, since you guys last reported, there's been at least 2 major articles on the DOJ investigation into your company as well as some movements in both the legislative and executive branches on industry-wide regulation, can you just give us an update on what you know about the Justice investigation? And then separately, the potential impact of the proposed congressional legislation. And then I have a follow-up.

[Joe Berchtold, executive]

Sure, I'll start. First of all, just on the legislative, which I think is pretty straightforward. Right now, there's an all-in pricing bill by centers [ can well ] and cruise under consideration. We're fully supportive of there's a [ Bosch ] Senator Blackburn introduced, I think you call Main, which we're also fully supportive of. And in general, everything we're hearing legislatively are things that I think are pretty consistent with what we outlined in the Fair ticketing Act and things that we would definitely be supportive of.

On the DOJ and the article that came out yesterday, I think not surprisingly, it's our impression that the DOJ is taking at least the first level look at almost everything that our competitors complain about. And from there, they look further at some issues and not others. And if they tell us they have a problem with something, we talk to them about it. But let me emphasize that as far as we can tell, nobody thinks that the fundamentals that drive our promotions business are unlawful.

We pay top dollar to artists and provide them with top-notch tour support, and those are good things. I think the article also seems to reinforce that the investigation is looking at specific business practices versus our overall business model, which, as I've said previously, is my impression based on what I've heard. On the specifics of that article on the agencies getting document retention letters, I think generally, anyone the DOJ seeks documents from gets a cover letter like this, saying they should retain documents related to the investigation. So all this tells us is they think the agencies have relevant information, which seems pretty obvious given the topics that are being discussed and competitors complain about.

Finally, we obviously find it interesting as I think you tweeted that the timing of this always seems to come up at earnings. We don't think there's any real news right now concerning the investigation. We're completing our document production that they've asked for. We haven't even started debt positions. And our impression is that the investigation is kind of in its mid stages at this point. And yet we have another new story on the day before earnings, which we don't seem to think is a coincidence.

[Brandon Ross, analyst]

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

[Joe Berchtold, executive]

Sure. We're seeing no issues. But let me give you that in the 2 pieces, I think you asked about, first of all, Q3 and then, call it, October. So Q3 was a very strong volume quarter. So it was really driven by ticket volume, 90 million fee-bearing tickets that we sold in the quarter, which -- and the growth came from both North America and internationally. So we're seeing that band demand consistent globally. 90% of the growth came from concerts, which again tells you that the fans are looking to go to the concerts.

The one thing I would note on Q3 is just a reminder that last year, we had an unusual concentration of client renewal expenses, which are normally spread out over the second half but largely came together last year. But really, the quarter was about the tremendous volume and tremendous fan demand that flowed through Ticketmaster. Looking then more specifically at just October, if we look at our Ticketmaster platform for the month of October, ticket sales were again up year-on-year relative to last year. They were up double digits in North America. So we're seeing no sign of weaknesses.

Other metric that we look at is as we look at just for our U.S. concerts division, we track every week year-on-year sales. And again, over the past 5 weeks, since the end of the quarter, those sales continue to be up double digits. So we're seeing no weakness at all. We gave you the leading indicators for show commitments for next year and we'll get into it more, but feeling good about everything that we're putting on sale.

[Michael Rapino, executive]

And Brandon, just for more color. Yes, I have weekly booking calls with over the 40 presidents around the world and we talk both from clubs up to stadiums and festivals. And we have not seen anything taper off in any sense or on sales for next year, whether it's an early festival across the pond or whether it's a club tour playing in Pittsburgh on a Tuesday, you say, or maybe the Blink-182 who toured last year now is back on to again this year playing burst to Cleveland on Wednesdays and Tuesdays, big on sales for that tour. So we are not seeing any pullback in any way from a club to a stadium tour from Milan to Argentina right now. The consumer supply/demand seems to be consistent across the globe, small to big.

[Operator]

And the next question comes from the line of Stephen Laszczyk with Goldman Sachs.

[Stephen Laszczyk, analyst]

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

[Joe Berchtold, executive]

Sure. I think let me start by just noting that year-to-date, our concert margins are up year-on-year. And for the full year, I expect margin expansion of at least 50 basis points relative to last year. So making good progress, verging on halfway back towards the 2019 levels. And that's despite growth for the overall year that will be definitely skewed to third-party venues driven heavily by stadiums.

If we look at the quarter, I think if we look at Q3, about 47% of our fans were in arenas or stadiums, which is a pretty good proxy for third-party buildings. The comparable last year for that number was 42%. So we had a lot more fans mix in arenas or stadiums this year. Those 2 buildings accounted for about 75% of the 7.5 million fans that we added in the quarter.

And that does 2 things, as we've talked about in the past. It drives our AOI up, because we're making money on these fans, and it negatively impacts margins. So that's why you'll see the quarter-to-quarter fluctuations. We don't worry a lot about. But I think if you take the overall combination of high growth in third-party buildings shift some mix towards more third-party buildings and make substantial progress in our margins for the full year. I think we're pretty happy as we look at the totality of that.

[Stephen Laszczyk, analyst]

Great. And then maybe one for Michael. You're coming up on lapping the launch of 2 fairly significant tours and Taylor Swift and Beyoncé. Think there's some concern that those stores will be hard to replicate as we look ahead to next year. I was wondering if you could talk a little bit more about how impactful these tours were in your business this current year and maybe looking ahead how the slate shaping up and sort of the opportunity to compensate for some of the notable tours year-over-year?

[Michael Rapino, executive]

Well, I've seen this written, but we didn't promote the Taylor's tours. So I don't have that comparable to worry about in '24. Beyoncé was our tour wildly successful, but when we look at any artist across Ticketmaster or Live Nation, no artist is going to account for more than 1% of tickets. So no one tour will ever hurt us year-over-year. It's about our macro portfolio of artists and tours. And we have a very good pipe as we've been saying for next year. We think next year, crazy to say, but sitting here looking at this year that we're looking at double-digit growth over this year next year on ticket sales, and our stadiums are gaining a lot of steam.

So we're very confident we're going to have big record-breaking tours on the road next year, as Bad Bunny just went up again and more to come announced, more to be announced. So we're very confident that both Ticketmaster, Live Nation are going to have big, strong years next year with a pipe full that will overcome this year's numbers.

[Operator]

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

[David Karnovsky, analyst]

Maybe following up on ticketing. It looks like your revenue growth well outpaced through GTV growth. So interested to understand how non-service revenue might have helped in the quarter? And then, Michael, I don't know if you could say any take on the Mastercard agreement today -- from today. And I don't know what other opportunities do you see for sponsorship deals to kind of cover your international footprint?

[Joe Berchtold, executive]

Sure, I'll start. Just on the ticketing, absolutely, Ticketmaster continues to benefit from the non-service fee revenue sources it has on the upsells and other services that it sells to fans as well as increasing array of services that it's providing to venues and promoters are all good sources that are helping us increase the profitability per ticket that we're selling.

[Michael Rapino, executive]

At Mastercard, we're thrilled to have them on board. We've been working over the last couple of years to have a great diversity across our partners on the payment side, thankfully, we didn't take any of the easy crypto money at the time. We worked hard to make sure we had a stable of great partners. Today, looking at Citibank, PayPal and now MasterCard for International rounds out our global portfolio in that category.

At an overall economics surpassing what we've historically had -- so very happy to have them on board, a big part of our business and continue to show strong growth in our sponsorship side and sponsors lined up to be part of this live boom.

[Operator]

And the next question comes from the line of Ashton Welles with Evercore ISI.

[Ashton Wolcott Welles, analyst]

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

[Joe Berchtold, executive]

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

[Operator]

And the next question comes from the line of David Joyce with Seaport Research.

[David Joyce, analyst]

A couple of related questions. The ticketing revenue particularly blew away our estimates. So I was wondering how much of that is for 2023 events and how much for 2024? Then similarly, with deferred revenue being up 39%, I know that some of that is due to the function of when the shows go on sales. It's not an indicator of what the revenue growth would be. But how much of that would be due to venue mix or the tour type for '23 shows versus 2024. In other words, how do we use these metrics on an apples-to-apples basis to help with our outlook for 2024?

[Joe Berchtold, executive]

Sure. So first of all, at this point, through Q3, we've not sold a ton of tickets for 2024. That's why we focus more on what the show bookings are. So we've sold -- we sold more tickets this year, which is part of what goes into the deferred revenue, I'll come back to. But we've sold on the order of, I think, 18 million tickets for shows next year. So relatively small portion of what we're ultimately going to sell. So that's not the driver of our Ticketmaster results for Q3 to a very great extent. It's more of the other factors that I talked about.

And then deferred revenue is up because, yes, we have sold more tickets for the shows next year. We've also sold more tickets for the shows that are occurring in Q4. And it's our expectation that because of that pipeline and because, as Michael noted, it's turned into a pretty solid period for stadiums as well as arenas. We expect to see that deferred revenue number continue to grow for the next 7, 8 months.

[Operator]

Ladies and gentlemen, at this time, we have reached the end of the question-and-answer session. Now I'd like to turn the floor back over to Michael for any closing comments.

[Michael Rapino, executive]

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

[Operator]

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