Live Nation Entertainment (NYSE:LYV) released first-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.

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Summary

Live Nation Entertainment discussed a venue securitization transaction to fund venue growth, raising over 600 million euros using venues as collateral.

The company plans to replicate successful venue partnerships globally, like the deal in Argentina, to expand its Venue Nation strategy.

Ticketmaster focuses on improving consumer experience and transparency, with AI integration and new initiatives to reduce scalping and enhance primary ticketing.

Despite mid-single-digit headwinds in ticketing from structural changes, the company expects growth and a decrease in legal expenses over the next few quarters.

Strong demand continues globally across all concert types and regions, with no significant pullback noted despite macroeconomic and geopolitical challenges.

Full Transcript

OPERATOR

On that, second is the judge determining the process for the review of the settlement with the Department of Justice. And the third is the remedies portion of the trial that just concluded. So we have views on how we think it should proceed, but the judge will decide that and then that will define the timing and the exact pieces. So until then, we just have to wait a minute and see how he lays it out. Great, thank you. The next question comes from the line of David Karnovsky with JP Morgan. Please proceed.

David Karnovsky (Equity Analyst)

Hey, thank you, Joe. In the 10-Q, there's some detail on a venue securitization transaction. I wanted to see if you could walk through the structure at a high level. And then how does this kind of play into your Live Nation Entertainment's plans over the long term as far as buying or building locations?

Joe

Yeah, sure. This is a great vehicle that the team developed to think about how it is we fund the venue side of the business going forward. You know, I've talked before about how in my mind there's a little bit of a PropCo, OpCo, two businesses that we have here, and there's an opportunity with the PropCo to effectively have a synthetic component of the balance sheet, still keeping it all under one roof for the flexibility and control. But effectively thinking about it is you have a propco that you can have more leverage on, which is collateralized by all your venue holdings. And we have an initial raise that we did of just over 600 million Euros using some of the venues as collateral. And then as we grow the venue portfolio, we can take the venues that we add and put those in as additional collateral, which lets this component of our balance sheet continue to grow as we build out the venue portfolio that obviously being kept separate then and not being used to securitize the more opco side of the business. So this is innovative financing that we came up with, which we think works very well with giving us the first step to really enable our funding on and continue to build out the venue side of the business.

David Karnovsky (Equity Analyst)

Okay. And then maybe just sticking on Live Nation Entertainment, earlier this year you announced in Argentina an agreement with Club Atlético for certain booking and naming rights as it relates to the stadium there. I'm curious how replicable this model is, meaning partnerships with sports teams in Latin America or really even other regions where you're expanding venues, where maybe there's just existing properties sitting there in need of capital or refresh that you can enter as a partner.

Joe

Yeah, we love that deal. And we absolutely think on a global basis it's something we could replicate. Lots of these stadiums around the world, you know, these are not NFL activity kind of venues, so they don't have as much activity going on. So we're a great partner to help make sure we can put some shows in there, bring some sponsorship expertise and some capital if we have to. We have a similar arrangement in Argentina with River Stadium. So, yes, we think on a global basis, we like building arenas, but we like on the stadium side partnering with them and a little less capital intensive, but locks up a lot of the revenue streams. Great, thank you.

OPERATOR

The next question comes from the line of Cameron Manson Perrone with Morgan Stanley. Please proceed.

Cameron Manson Perrone (Equity Analyst)

Thanks. Two on the ticketing business, if I could. Michael, could you just update us on what you and Sommer focused on from a product perspective with Ticketmaster? And then in the past you've talked about, you know, driving ancillary revenues at Ticketmaster. Do you see that as an increasingly important factor for that business going forward given what seems like increased sensitivity around fees? And then one more.

Michael

I'll start, then Joe will jump in. I mean, listen, we're thrilled in general with our new hire. Jamal is just a real strong product engineer. Joe and I have ongoing dialogue with him on the product roadmap on a global basis from how to inject artificial intelligence into the consumer side and the business-to-business side. So I would say our continual top priority is to make that on sale smooth, more transparent, and drive as much consumer confidence as we can in the process. So he's doing a lot of work on that right now, identifying, building out our face value exchange program to be much more robust for artists to use, giving them more tools in general for the on sale. That's our biggest, biggest pain point. We made great progress in the last few years. We're the best in the business at it, but we'll continue to make that a better and better process with more tools for artists and fans. That's the front end. Joe will fill you in on kind of the wider perspective.

Joe

Yeah. And I think on the back end, the biggest unlock that Sommer's been bringing is how we think about a lot of the new markets. We're going into the strategies he's been developing for Latin America, for Asia, particularly for Japan, figuring out how we're not locked into some of our legacy constraints of great platforms, but built in a time before we maybe needed the flexibility we need today. So in part using some AI tools and other just, I think, pretty innovative approaches, he's rapidly accelerating the pace at which we are moving into those markets with a ticketing solution. So that would be the big back end piece and then absolutely. We're continuing to be very focused on how it is we use the platform to continue to drive additional economics from the scale of what we're doing. We know that the venue clients that we have that are really keeping the bulk of the service fee, we'll continue to keep the bulk of the service fee and we need to continue to find ways that we can build value off the platform and keep our fair share of that.

Cameron Manson Perrone (Equity Analyst)

Thanks, that's helpful and interesting. My follow up was just on the challenges you call out in terms of the mid single digit challenge at the ticketing segment this year. I was wondering if you could remind me or us what exactly is incorporated or captured in that or contemplated and then any, any guidance or expectation with regard to how you see the legal expenses that are running through ticketing. Whether we should expect that that's a run rate through the remainder of the year or just any kind of color expectation there would be helpful.

Joe

Thanks. Yeah, those mid single digit headwinds are really talking about steps that we've taken in the secondary that we announced earlier. Some pretty dramatic steps that limit the broker inventory being put on the Ticketmaster system that we said would be a step down, a structural step down that would have that level of impact. That's a one time thing. So as we grow to offset that this year and still have hopefully some growth or expect to have some growth on Ticketmaster for the year and then that weight we compare and is no longer of an issue as we move forward into the future. As it related to some of the one time expenses, I don't think we'll continue to have this level of elevated expenses. We'll continue to have some expenses on the legal side. Those will be related to the Federal Trade Commission and some other activities. But. But I think they should get moderated over the next few quarters from where they're at today.

Cameron Manson Perrone (Equity Analyst)

Got it. That's great. Thanks.

OPERATOR

The next question comes from the line of Peter Cipino with Wolff Research. Please proceed.

Peter Cipino (Equity Analyst)

Hi, I think two for Joe, if I may. 1. On the velocity of new venue openings in the last three years ending in 25, your capital expenditures rose from 400 million a year to 600 to a billion last year. Be equal or higher this year. And so I'm wondering about the dollar value of venues opening in 26 and 27. Are we right to assume that 27 ought to be a bigger opening year in terms of dollar value and revenue than 26 was. And then a longer term question about your cash flow. I'm wondering if the business were not expanding capacity, what you think Live Nation Entertainment could generate in terms of EBITDA free cash flow as a percentage of EBITDA. What do you think the free cash flow margin of this business is? At steady state.

Joe

Thanks. Wow. Algebra tests, real time. I'm not sure. I'm going to try to give you exact numbers. I think that yeah, if we stopped investing this billion dollars obviously and stopped buying venues, we're going to be able to throw off a lot of cash if you take the two pieces. The Ticketmaster's business today is an extremely high cash flow conversion business. We've been using a lot of that cash to drive growth on the venue side, but that would be throwing off a tremendous amount of cash. And then on the concerts side, again, we give you the maintenance. Maintenance capital is really only a couple hundred million, so you'd be throwing off pretty healthy cash on the concerts side as well. Now, that said, we still see a long runway of opportunities for venues. We do expect to see acceleration in their opening. Again, I'm not going to give you the exact 27 versus 28 timing on the venues that we have under construction, but these are all multi year construction projects. So the ones that we started last year and this year will take a few years and we're opening a couple great amps this year. We're opening a number of other theaters and other venues and we expect that to accelerate as we get out into 27 and 28.

OPERATOR

The next question comes from the line of Bhatia Levi with ubs. Please proceed.

Bhatia Levi (Equity Analyst)

Great, thank you. Follow up on the ticketing side, adjusting for that legal span, it looks like margins were up nicely year over year. Can you talk about where the outperformance came from? Are you seeing benefit of these artificial intelligence tools already flowing through? And same maybe on the concert side, can you talk a bit about the outperformance despite tough comps that you had in Latin America and any regions that you will call out for the rest of the year.

Joe

I'll start with the ticketing side. I mean, we're giving you the volume here. The ticketing sales are up nicely, so we continue to grow the business notwithstanding some of the headwinds on the secondary side because of the actions we've taken there. So a lot of the growth on the Ticketmaster side is coming from additional concert tickets that are being sold. And yeah, the business operationally at its fundamentals, continues to be in good shape. We're adding more clients globally, we're selling more tickets. The underlying business is all working very well and setting us up nicely as we go into the latter part of this year and into next year. On the concert side, again, a lot of bouncing around quarter to quarter. This was a very good quarter in Latin America which drove both concerts and sponsorship performance. Some festivals there that we had that did well going forward. We see both North America and international markets performing very strongly this year. Michael talked earlier. Stadiums are up globally, up in the US Despite a very strong year last year, up strongly in international markets. Amphitheaters and arenas are up nicely in the US So that should drive solid growth throughout North America. Latin America, you got Europe, you got parts of Asia. So we're seeing very strong global demand through for the concerts which is then translating into the sponsorship and ticketing businesses. Got it. Thank you.

OPERATOR

The next question comes from the line of Ian Moore with Bernstein Research. Please proceed.

Ian Moore (Equity Analyst)

Hi. Thanks. The secondary ticketing business is clearly undergoing a number of changes, right. In order to, you know, further mitigate scalping and bot activity. In the past you've sized secondary as kind of a low double digit percent of fee bearing gtv. But given the sustainability of primary ticketing growth, where do you see secondary share of fee bearing GTV going as those changes play out? Is it high singles or mid singles?

Joe

Thanks. Yeah, I think it's probably a gradual decline. I don't think there's anything that is notwithstanding some of the changes we're making this year that it'll be a structural drop. I just think over time primary will win content will control its tickets and it will be a slow decline. We've long said we consider this to be a feature, not a stand-alone product. It's part of while secondary is being offered, we want to make sure fans can come to our site for a safe exchange and get a ticket. They know that they're going to have delivered. But it's there because it's part of the ecosystem and we don't have that as a strategy to grow it. So if we're successful, it will decline into the single digits over the next several years. Thank you.

OPERATOR

The next question comes from the line of Kagan Morale with Evercore isi, please proceed.

Kagan Morale (Equity Analyst)

Great. Thanks for taking the questions first. I know Live Nation is really a supply driven business, but I did want to follow up on the demand side just given investor focus. So maybe underneath the surface are you seeing any differences by maybe geography, income cohort, venue type or price points? And given the broader macro and geopolitical volatility, including the disruption in the Middle East. Is there anything you're seeing in either the US or international markets that could affect demand routing or fan behavior as we move throughout the year? And maybe second, I want to ask about premium hospitality within Venue Nation. The release called out the ongoing rollout of the vinyl room, for example, with on site spending at the Hollywood Palladium. Already over 100 bucks per fan, which is highly encouraging. How applicable is that playbook across the broad venue portfolio? And as you scale these types of premium hospitality concepts globally, how meaningful can they become as a driver of per fan monetization and Venue Nation? adjusted operating income over the next few years? Thank you.

Joe

All right, hit a few of those. I'll start with the Middle east because you brought up. It doesn't affect our business today. The Middle east is a very, very, very small touring market overall, so it would have no material effect on our business. We expect over the long term it will be a touring region, but does not affect routing. Today we had no tours, no shows planned in that market. Right now. On the demand side, you know, we have this ongoing reports we get. We understand kind of the, what fan demographics, all of that that come to our shows. It's very broad. As you can imagine, concerts kind of appeal from, you know, 12 to 90 years old, depending on who that artist is and where they're playing. So we see no slowdown in any genre. No demographic we see across the board, whether it's a club show, whether it's an amphitheater in Indianapolis or on an expensive stadium show in New York. We've seen no demand pullback anywhere. Same thing in the rest of the world. Argentina to Milan to Singapore don't see any pullback. Consumers still consider that live show very, very important in their social calendar for the year. Whether they're going to one, two or three shows a year, it's paramount that they get to that show. So we've seen no pullback. Broad, strong demand across the board on all genres, all theater sizes, on the premium. And we've talked about this at length, many investor presentations. But yes, we think in general, the music business and the venues and the festivals can do a better job of providing a better service and a better product. Historically, the concert's been about 99% GA and 1% premium. We now see that, you know, people will pay for a better experience. So I was in a building meeting this morning. We're looking at two new arenas we're building, and our goal there is to have up to 30% of that house in a premium capacity so we can have a better experience where fans want to come for the night and upgrade and sit in a better suite or sit in a box or have a better hospitality. So a lot of the capex we spend at our amphitheaters is doing that. We've outfitted three this summer, Indianapolis and Dallas, where we took the existing business, added upscale premium offerings like a vinyl room that we've scaled or similar clubs, the back lot, and we're taking those amphitheaters from 1 to 5% premium, up to 25% premium. So long work, long haul to get there easier when you're building it from scratch. But yes, we believe that there's tons of opportunity in premium and a better experience. It's not even about just being premium. It's just consumers will pay for a shorter line, better parking, better hospitality. So we're looking at that much like sports arenas have done over the last 10, 15 years. Very helpful. Thank you.

OPERATOR

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

Jason Bazinet (Equity Analyst)

I remember, I think it was back in November when you guys gave the Venue Nation band count of 5 million and it sort of disappointed folks. And I think in the release today you took that number up and I didn't know if that was just sort of M&A is happening a bit more rapidly or building is happening more rapidly and if we should sort of take the 20, 29, 2030 numbers up or it's more just a function of front loading. The Venue Nation fan count relative to what you said in November.

Michael

Well, I think what we said is we're expecting to grow the Venue Nation fan count this year by double digits, Right? Yep. Yep. I think previously it was 5 million on 65 days. Yeah. So that's exactly where I was going. So 65. So that tells you it's going to be somewhat more. It's probably pretty evenly distributed between just increased performance at our existing venues that we're operating and what we've been adding. So we feel good about this year. I don't think we're ready quite yet to start contemplating exactly what we're going to add to that in 27, 28, 29. But we think this year is a great demonstration of the power of what we're doing with the venue strategy. I agree. Thank you.

OPERATOR

Thank you, ladies and gentlemen, this concludes the question and answer session and I'd like to turn the call back to Michael Rapinoe for closing remarks.

Michael Rapinoe

Thank you everyone, for your support. We're looking forward to a great summer, and we will talk to you in August.

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