UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
Form 10-Q
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
or
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-32601
____________________________________
LIVE NATION ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
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Delaware | | 20-3247759 |
(State of Incorporation) | | (I.R.S. Employer Identification No.) |
9348 Civic Center Drive
Beverly Hills, CA 90210
(Address of principal executive offices, including zip code)
(310) 867-7000
(Registrant’s telephone number, including area code)
____________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | x | Accelerated filer | | ¨ |
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Non-accelerated filer | | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | | ¨ |
| | | Emerging growth company | | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
On October 26, 2017, there were 206,799,926 outstanding shares of the registrant’s common stock, $0.01 par value per share, including 1,102,852 shares of unvested restricted stock awards and excluding 408,024 shares held in treasury.
LIVE NATION ENTERTAINMENT, INC.
INDEX TO FORM 10-Q
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PART I—FINANCIAL INFORMATION | |
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PART II—OTHER INFORMATION | |
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LIVE NATION ENTERTAINMENT, INC.
GLOSSARY OF KEY TERMS
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AOCI | Accumulated other comprehensive income (loss) |
AOI | Adjusted operating income (loss) |
Company | Live Nation Entertainment, Inc. and subsidiaries |
FASB | Financial Accounting Standards Board |
GAAP | United States Generally Accepted Accounting Principles |
Live Nation | Live Nation Entertainment, Inc. and subsidiaries |
SEC | United States Securities and Exchange Commission |
Ticketmaster | The ticketing business of the Company |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (in thousands) |
ASSETS | | | |
Current assets | | | |
Cash and cash equivalents | $ | 1,801,013 |
| | $ | 1,526,591 |
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Accounts receivable, less allowance of $31,693 and $29,634, respectively | 991,215 |
| | 568,936 |
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Prepaid expenses | 714,176 |
| | 528,250 |
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Other current assets | 57,225 |
| | 49,774 |
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Total current assets | 3,563,629 |
| | 2,673,551 |
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Property, plant and equipment | | | |
Land, buildings and improvements | 928,643 |
| | 838,545 |
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Computer equipment and capitalized software | 582,445 |
| | 524,571 |
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Furniture and other equipment | 297,654 |
| | 256,765 |
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Construction in progress | 129,082 |
| | 125,430 |
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| 1,937,824 |
| | 1,745,311 |
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Less accumulated depreciation | 1,093,010 |
| | 993,775 |
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| 844,814 |
| | 751,536 |
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Intangible assets | | | |
Definite-lived intangible assets, net | 756,909 |
| | 812,031 |
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Indefinite-lived intangible assets | 369,003 |
| | 368,766 |
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Goodwill | 1,764,512 |
| | 1,747,088 |
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Other long-term assets | 511,657 |
| | 411,294 |
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Total assets | $ | 7,810,524 |
| | $ | 6,764,266 |
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LIABILITIES AND EQUITY | | | |
Current liabilities | | | |
Accounts payable, client accounts | $ | 860,424 |
| | $ | 726,475 |
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Accounts payable | 93,043 |
| | 55,030 |
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Accrued expenses | 1,227,613 |
| | 781,494 |
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Deferred revenue | 909,037 |
| | 804,973 |
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Current portion of long-term debt, net | 71,674 |
| | 53,317 |
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Other current liabilities | 51,086 |
| | 39,055 |
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Total current liabilities | 3,212,877 |
| | 2,460,344 |
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Long-term debt, net | 2,240,461 |
| | 2,259,736 |
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Deferred income taxes | 202,049 |
| | 197,811 |
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Other long-term liabilities | 170,318 |
| | 149,791 |
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Commitments and contingent liabilities |
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| |
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Redeemable noncontrolling interests | 370,277 |
| | 347,068 |
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Stockholders’ equity | | | |
Common stock | 2,060 |
| | 2,034 |
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Additional paid-in capital | 2,390,224 |
| | 2,381,011 |
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Accumulated deficit | (888,579 | ) | | (1,073,457 | ) |
Cost of shares held in treasury | (6,865 | ) | | (6,865 | ) |
Accumulated other comprehensive loss | (117,866 | ) | | (176,707 | ) |
Total Live Nation stockholders’ equity | 1,378,974 |
| | 1,126,016 |
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Noncontrolling interests | 235,568 |
| | 223,500 |
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Total equity | 1,614,542 |
| | 1,349,516 |
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Total liabilities and equity | $ | 7,810,524 |
| | $ | 6,764,266 |
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See Notes to Consolidated Financial Statements
2
LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in thousands except share and per share data) |
Revenue | $ | 3,559,418 |
| | $ | 3,170,416 |
| | $ | 7,791,292 |
| | $ | 6,557,390 |
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Operating expenses: | | | | | | | |
Direct operating expenses | 2,732,926 |
| | 2,428,003 |
| | 5,801,300 |
| | 4,817,894 |
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Selling, general and administrative expenses | 475,864 |
| | 414,412 |
| | 1,293,557 |
| | 1,126,452 |
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Depreciation and amortization | 109,352 |
| | 104,862 |
| | 305,817 |
| | 295,241 |
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Loss (gain) on disposal of operating assets | 37 |
| | 253 |
| | (507 | ) | | (1 | ) |
Corporate expenses | 39,892 |
| | 31,600 |
| | 97,711 |
| | 85,649 |
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Operating income | 201,347 |
| | 191,286 |
| | 293,414 |
| | 232,155 |
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Interest expense | 26,627 |
| | 25,249 |
| | 80,564 |
| | 75,965 |
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Interest income | (1,471 | ) | | (625 | ) | | (3,447 | ) | | (1,831 | ) |
Equity in losses (earnings) of nonconsolidated affiliates | 816 |
| | 17,471 |
| | (2,060 | ) | | 17,184 |
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Other expense (income), net | 920 |
| | 2,606 |
| | (5,388 | ) | | 1,412 |
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Income before income taxes | 174,455 |
| | 146,585 |
| | 223,745 |
| | 139,425 |
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Income tax expense | 25,685 |
| | 13,824 |
| | 42,190 |
| | 26,157 |
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Net income | 148,770 |
| | 132,761 |
| | 181,555 |
| | 113,268 |
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Net income (loss) attributable to noncontrolling interests | 12,377 |
| | 21,682 |
| | (3,323 | ) | | 8,966 |
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Net income attributable to common stockholders of Live Nation | $ | 136,393 |
| | $ | 111,079 |
| | $ | 184,878 |
| | $ | 104,302 |
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Basic net income per common share available to common stockholders of Live Nation | $ | 0.56 |
| | $ | 0.51 |
| | $ | 0.65 |
| | $ | 0.35 |
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Diluted net income per common share available to common stockholders of Live Nation | $ | 0.53 |
| | $ | 0.49 |
| | $ | 0.62 |
| | $ | 0.34 |
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Weighted average common shares outstanding: | | | | | | | |
Basic | 205,287,843 |
| | 202,118,412 |
| | 204,574,742 |
| | 201,904,305 |
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Diluted | 223,132,186 |
| | 217,690,217 |
| | 213,886,452 |
| | 208,855,401 |
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Reconciliation to net income available to common stockholders of Live Nation: | | | | |
Net income attributable to common stockholders of Live Nation | $ | 136,393 |
| | $ | 111,079 |
| | $ | 184,878 |
| | $ | 104,302 |
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Accretion of redeemable noncontrolling interests | (21,397 | ) | | (8,576 | ) | | (52,811 | ) | | (33,204 | ) |
Net income available to common stockholders of Live Nation—basic | $ | 114,996 |
| | $ | 102,503 |
| | $ | 132,067 |
| | $ | 71,098 |
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Convertible debt interest, net of tax | 3,336 |
| | 3,274 |
| | — |
| | — |
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Net income available to common stockholders of Live Nation—diluted | $ | 118,332 |
| | $ | 105,777 |
| | $ | 132,067 |
| | $ | 71,098 |
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See Notes to Consolidated Financial Statements
3
LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in thousands) |
Net income | $ | 148,770 |
| | $ | 132,761 |
| | $ | 181,555 |
| | $ | 113,268 |
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Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustments | 18,268 |
| | (7,869 | ) | | 58,761 |
| | (32,616 | ) |
Other | — |
| | — |
| | 80 |
| | — |
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Comprehensive income | 167,038 |
| | 124,892 |
| | 240,396 |
| | 80,652 |
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Comprehensive income (loss) attributable to noncontrolling interests | 12,377 |
| | 21,682 |
| | (3,323 | ) | | 8,966 |
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Comprehensive income attributable to common stockholders of Live Nation | $ | 154,661 |
| | $ | 103,210 |
| | $ | 243,719 |
| | $ | 71,686 |
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See Notes to Consolidated Financial Statements
4
LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| (in thousands) |
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 181,555 |
| | $ | 113,268 |
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Reconciling items: | | | |
Depreciation | 107,530 |
| | 104,100 |
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Amortization | 198,287 |
| | 191,141 |
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Deferred income tax benefit | (9,901 | ) | | (14,096 | ) |
Amortization of debt issuance costs, discounts and premium, net | 9,836 |
| | 7,823 |
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Non-cash compensation expense | 23,921 |
| | 25,237 |
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Unrealized changes in fair value of contingent consideration | 12,198 |
| | (5,844 | ) |
Equity in losses (earnings) of nonconsolidated affiliates, net of distributions | 5,333 |
| | 25,742 |
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Provision for uncollectible receivables and advances | 7,226 |
| | 12,743 |
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Other, net | 3,158 |
| | (250 | ) |
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | | | |
Increase in accounts receivable | (394,753 | ) | | (345,343 | ) |
Increase in prepaid expenses and other assets | (280,241 | ) | | (173,683 | ) |
Increase in accounts payable, accrued expenses and other liabilities | 536,944 |
| | 295,025 |
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Increase (decrease) in deferred revenue | 16,169 |
| | (116,347 | ) |
Net cash provided by operating activities | 417,262 |
| | 119,516 |
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CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Advances of notes receivable | (10,943 | ) | | (11,051 | ) |
Investments made in nonconsolidated affiliates | (22,157 | ) | | (18,628 | ) |
Purchases of property, plant and equipment | (184,499 | ) | | (119,740 | ) |
Cash paid for acquisitions, net of cash acquired | (18,809 | ) | | (113,065 | ) |
Other, net | 909 |
| | 2,310 |
|
Net cash used in investing activities | (235,499 | ) | | (260,174 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from long-term debt, net of debt issuance costs | 59,313 |
| | 6,881 |
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Payments on long-term debt | (84,608 | ) | | (28,795 | ) |
Distributions to noncontrolling interests | (22,877 | ) | | (25,279 | ) |
Purchases and sales of noncontrolling interests, net | (10,730 | ) | | (32,266 | ) |
Proceeds from exercise of stock options | 44,746 |
| | 5,676 |
|
Payments for deferred and contingent consideration | (14,149 | ) | | (21,809 | ) |
Other, net | 2,642 |
| | (14,108 | ) |
Net cash used in financing activities | (25,663 | ) | | (109,700 | ) |
Effect of exchange rate changes on cash and cash equivalents | 118,322 |
| | (13,061 | ) |
Net increase (decrease) in cash and cash equivalents | 274,422 |
| | (263,419 | ) |
Cash and cash equivalents at beginning of period | 1,526,591 |
| | 1,303,125 |
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Cash and cash equivalents at end of period | $ | 1,801,013 |
| | $ | 1,039,706 |
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See Notes to Consolidated Financial Statements
5
LIVE NATION ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1—BASIS OF PRESENTATION AND OTHER INFORMATION
Preparation of Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, they include all normal and recurring accruals and adjustments necessary to present fairly the results of the interim periods shown.
The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2016 Annual Report on Form 10-K filed with the SEC on February 23, 2017, as amended by the Form 10-K/A filed with the SEC on June 23, 2017.
Seasonality
Due to the seasonal nature of shows at outdoor amphitheaters and festivals, which primarily occur from May through October, the Concerts and Sponsorship & Advertising segments experience higher revenue during the second and third quarters. The Ticketing segment’s revenue is impacted by fluctuations in the availability of events for sale to the public, which vary depending upon scheduling by its clients. The Company’s seasonality also results in higher balances in cash and cash equivalents, accounts receivable, prepaid expenses, accrued expenses and deferred revenue at different times in the year. Therefore, the results to date are not necessarily indicative of the results expected for the full year.
Cash and Cash Equivalents
Included in the September 30, 2017 and December 31, 2016 cash and cash equivalents balance is $639.9 million and $591.0 million, respectively, of cash received that includes the face value of tickets sold on behalf of ticketing clients and their share of service charges, which amounts are to be remitted to the clients.
Acquisitions
During the first nine months of 2017, the Company completed several acquisitions that were accounted for as business combinations under the acquisition method of accounting. These acquisitions were not significant either on an individual basis or in the aggregate.
Income Taxes
Each reporting period, the Company evaluates the realizability of all of its deferred tax assets in each tax jurisdiction. As of September 30, 2017, the Company continued to maintain a full valuation allowance against its net deferred tax assets in certain jurisdictions due to cumulative pre-tax losses. As a result of the valuation allowances, no tax benefits have been recognized for losses incurred in those tax jurisdictions for the first nine months of 2017 and 2016.
Accounting Pronouncements - Recently Adopted
In March 2016, the FASB issued guidance clarifying that the assessment of whether an embedded contingent put or call option is clearly and closely related to the debt instrument only requires an analysis pursuant to the four-step decision sequence outlined in the guidance for embedded derivatives. The guidance should be applied to existing debt instruments using a modified retrospective method as of the beginning of the period of adoption. The Company adopted this guidance on January 1, 2017, and the adoption did not have an impact on its financial position or results of operations.
In October 2016, the FASB issued guidance that requires a single decision maker evaluating whether it is the primary beneficiary of a variable interest entity to consider its indirect interests held by related parties that are under common control on a proportionate basis as opposed to considering those interests in their entirety as required by current guidance. The guidance should be applied retrospectively. The Company adopted this guidance on January 1, 2017, and the adoption did not have an impact on its financial position or results of operations.
In December 2016, the FASB issued guidance making technical corrections and improvements, which includes an update clarifying how to account for arrangements that include a license to use internal-use software acquired from third parties. The guidance for this specific technical correction should be applied prospectively. The Company adopted this guidance on January 1, 2017, and the adoption did not have a material effect on its financial position or results of operations.
Accounting Pronouncements - Not Yet Adopted
Revenue Recognition
In May 2014, the FASB issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP. The new standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The FASB continues to issue important guidance clarifying certain guidelines of the standard including (1) reframing the indicators in the principal versus agent guidance to focus on evidence that a company is acting as a principal rather than agent and (2) identifying performance obligations and licensing. The standard is effective for annual periods beginning after December 15, 2017 and interim periods within that year. Early adoption of the standard is only permitted for annual periods beginning after December 15, 2016 and interim periods within that year. The guidance should be applied retrospectively, either to each prior period presented in the financial statements, or only to the most current reporting period presented in the financial statements with a cumulative-effect adjustment as of the date of adoption.
To assess the impact of the standard, the Company has dedicated certain of its personnel to lead the implementation effort and has supplemented them with additional external resources. These personnel reviewed the amended guidance and subsequent clarifications and attended multiple training sessions in order to understand the potential impact the new standard could have on the Company’s revenue streams. Surveys were sent to and completed by divisional finance managers in order to obtain a more detailed understanding of the contracts within each division and follow-up meetings with these divisions were then conducted. Based on the results of these surveys and meetings, the Company judgmentally selected a sample of contracts based on size and complexity and ensuring all major revenue streams were represented. The Company has completed its review of all the selected contracts and has compiled and summarized the results for its final review and analysis.
Based on the procedures performed to date, the Company believes it has identified all material contract types and costs that may be impacted by the new guidance and it is nearing the completion of its assessment. The Concerts segment, representing approximately 70% of the Company’s 2016 consolidated revenue, is not expected to experience a change in its revenue recognition as the Company believes this revenue should continue to be deferred until the event date under the new standard. For the Ticketing segment, representing approximately 22% of 2016 consolidated revenue, the Company has concluded that it will no longer present payments to certain third parties as an expense and will begin reflecting these payments as a reduction of revenue. The Company is reviewing the payments that will be reflected as a reduction of revenue and expects to finalize the impact this change will have on both the Company's consolidated revenue and its Ticketing segment's revenue in the fourth quarter of 2017. The timing of revenue recognition is not expected to change for the Ticketing business. The remaining revenue streams of the Company are not expected to be impacted by the new guidance.
The Company will finalize its conclusions in 2017 and ensure that it can produce the data necessary for the required disclosures along with assessing changes to internal controls and processes that may be required to comply with the new revenue recognition and disclosure requirements. The Company will adopt this standard on January 1, 2018, applying it retrospectively to each prior period presented in the financial statements.
Other Pronouncements
In January 2016, the FASB issued amendments for the recognition, measurement, presentation and disclosure of financial instruments. Among other things, the guidance requires equity investments that do not result in consolidation and are not accounted for under the equity method to be measured at fair value with any change in fair value recognized in net income unless the investments do not have readily determinable fair values. The amendments are effective for annual periods beginning after December 15, 2017 and interim periods within that year. Early adoption is not permitted for most of the amendments. The amendments are to be applied through a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption with the exception of equity investments without readily determinable fair values, which will be applied prospectively. The Company will adopt this guidance on January 1, 2018, and does not expect the adoption to have a material impact on its financial position and results of operations.
In February 2016, the FASB issued guidance that requires lessees to recognize most leases on their balance sheet as a lease liability and a right-of-use asset, and to disclose key information about leasing arrangements. The guidance is effective for annual periods beginning after December 15, 2018 and interim periods within that year, and early adoption is permitted. The guidance should be applied on a modified retrospective basis. The Company expects to adopt this guidance on January 1, 2019, and is currently evaluating the impact that this guidance will have on its financial position and results of operations.
In October 2016, the FASB issued guidance that requires companies to recognize the income tax effects of intercompany sales and transfers of assets, other than inventory, in the period in which the transfer occurs. That is a change from current guidance which requires companies to defer the income tax effects of intercompany transfers of assets until the asset has been
sold to an outside party or otherwise recognized. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within that year, and early adoption is permitted. The guidance should be applied on a modified retrospective basis. The Company expects to adopt this guidance on January 1, 2018, and the adoption will not impact its financial position or results of operations.
In January 2017, the FASB issued guidance that changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within that year, and early adoption is permitted. The guidance should be applied prospectively to any transactions occurring within the period of adoption. The Company expects to adopt this guidance on January 1, 2018, and will apply it prospectively to acquisitions occurring on or after January 1, 2018.
In January 2017, the FASB issued guidance that eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The guidance is effective for annual periods beginning after December 15, 2019 and interim periods within that year, and early adoption is permitted. The guidance should be applied prospectively to goodwill impairment tests performed within the period of adoption. The Company will adopt this guidance effective October 1, 2017 and apply it prospectively to impairment tests beginning in the year of adoption.
NOTE 2—LONG-LIVED ASSETS
Definite-lived Intangible Assets
The following table presents the changes in the gross carrying amount and accumulated amortization of definite-lived intangible assets for the nine months ended September 30, 2017:
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue- generating contracts | | Client / vendor relationships | | Trademarks and naming rights | | Non-compete agreements | | Technology | | Venue management and leaseholds | | Other | | Total |
| (in thousands) |
Balance as of December 31, 2016: | | | | | | | | | | | | |
Gross carrying amount | $ | 760,398 |
| | $ | 402,009 |
| | $ | 94,338 |
| | $ | 65,992 |
| | $ | 53,078 |
| | $ | 54,001 |
| | $ | 4,014 |
| | $ | 1,433,830 |
|
Accumulated amortization | (316,800 | ) | | (213,785 | ) | | (23,724 | ) | | (22,099 | ) | | (13,637 | ) | | (29,664 | ) | | (2,090 | ) | | (621,799 | ) |
Net | 443,598 |
| | 188,224 |
| | 70,614 |
| | 43,893 |
| | 39,441 |
| | 24,337 |
| | 1,924 |
| | 812,031 |
|
Gross carrying amount: | | | | | | | | | | | | | | |
Acquisitions— current year | — |
| | 22,635 |
| | — |
| | — |
| | 12,037 |
| | 820 |
| | — |
| | 35,492 |
|
Acquisitions— prior year | (6,724 | ) | | — |
| | 35,464 |
| | — |
| | 1,120 |
| | — |
| | — |
| | 29,860 |
|
Foreign exchange | 21,823 |
| | 9,069 |
| | 1,402 |
| | 2,229 |
| | 2,170 |
| | 2,513 |
| | 22 |
| | 39,228 |
|
Other(1) | (5,027 | ) | | (3,009 | ) | | — |
| | (1 | ) | | (305 | ) | | — |
| | (247 | ) | | (8,589 | ) |
Net change | 10,072 |
| | 28,695 |
| | 36,866 |
| | 2,228 |
| | 15,022 |
| | 3,333 |
| | (225 | ) | | 95,991 |
|
Accumulated amortization: | | | | | | | | | | | | | | |
Amortization | (63,368 | ) | | (45,688 | ) | | (10,008 | ) | | (10,407 | ) | | (9,860 | ) | | (3,524 | ) | | (540 | ) | | (143,395 | ) |
Foreign exchange | (8,966 | ) | | (3,868 | ) | | (499 | ) | | (984 | ) | | (718 | ) | | (1,385 | ) | | (6 | ) | | (16,426 | ) |
Other(1) | 5,067 |
| | 2,969 |
| | 10 |
| | 8 |
| | 312 |
| | — |
| | 342 |
| | 8,708 |
|
Net change | (67,267 | ) | | (46,587 | ) | | (10,497 | ) | | (11,383 | ) | | (10,266 | ) | | (4,909 | ) | | (204 | ) | | (151,113 | ) |
Balance as of September 30, 2017: | | | | | | | | | | | | |
Gross carrying amount | 770,470 |
| | 430,704 |
| | 131,204 |
| | 68,220 |
| | 68,100 |
| | 57,334 |
| | 3,789 |
| | 1,529,821 |
|
Accumulated amortization | (384,067 | ) | | (260,372 | ) | | (34,221 | ) | | (33,482 | ) | | (23,903 | ) | | (34,573 | ) | | (2,294 | ) | | (772,912 | ) |
Net | $ | 386,403 |
| | $ | 170,332 |
| | $ | 96,983 |
| | $ | 34,738 |
| | $ | 44,197 |
| | $ | 22,761 |
| | $ | 1,495 |
| | $ | 756,909 |
|
______________
(1) Other includes netdowns of fully amortized assets.
Included in the current year acquisitions amounts above are definite-lived intangible assets primarily associated with the acquisitions of an artist management business located in the United States, a concert promotion business located in Italy and various ticketing businesses located in the United States and the Czech Republic.
Included in the prior year acquisitions amounts above are changes primarily associated with the acquisitions of festival promotion businesses located in the United States and Australia.
The 2017 additions to definite-lived intangible assets from acquisitions have weighted-average lives as follows:
|
| |
| Weighted- Average Life (years) |
Client/vendor relationships | 6 |
Technology | 4 |
Venue management and leaseholds | 3 |
All categories | 5 |
Amortization of definite-lived intangible assets for the three months ended September 30, 2017 and 2016 was $53.4 million and $47.8 million for each respective period, and for the nine months ended September 30, 2017 and 2016 was $143.4 million and $133.0 million, respectively. Amortization related to nonrecoupable ticketing contract advances for the three months ended September 30, 2017 and 2016 was $20.1 million and $20.5 million, respectively, and for the nine months ended September 30, 2017 and 2016 was $54.9 million and $57.0 million, respectively.
As acquisitions and dispositions occur in the future and the valuations of intangible assets for recent acquisitions are completed, amortization may vary.
Goodwill
In 2016, the Company’s reportable segments were Concerts, Sponsorship & Advertising, Ticketing and Artist Nation. Beginning in 2017, the Company no longer presents Artist Nation as a reportable segment and now includes the business previously reported in the Artist Nation segment in the Concerts segment. See further discussion of the segment change in Note 6—Segment Data. The Company’s reporting units reviewed for goodwill impairment remain unchanged.
The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments for the nine months ended September 30, 2017:
|
| | | | | | | | | | | | | | | |
| Concerts | | Sponsorship & Advertising | | Ticketing | | Total |
| (in thousands) |
Balance as of December 31, 2016: | | | | | | | |
Goodwill | $ | 1,017,020 |
| | $ | 395,826 |
| | $ | 739,105 |
| | $ | 2,151,951 |
|
Accumulated impairment losses | (404,863 | ) | | — |
| | — |
| | (404,863 | ) |
Net | 612,157 |
| | 395,826 |
| | 739,105 |
| | 1,747,088 |
|
Acquisitions—current year | 8,259 |
| | — |
| | 11,239 |
| | 19,498 |
|
Acquisitions—prior year | (22,095 | ) | | (9,821 | ) | | 882 |
| | (31,034 | ) |
Foreign exchange | 9,765 |
| | 9,573 |
| | 9,622 |
| | 28,960 |
|
Balance as of September 30, 2017: | | | | | | | |
Goodwill | 1,012,949 |
| | 395,578 |
| | 760,848 |
| | 2,169,375 |
|
Accumulated impairment losses | (404,863 | ) | | — |
| | — |
| | (404,863 | ) |
Net | $ | 608,086 |
| | $ | 395,578 |
| | $ | 760,848 |
| | $ | 1,764,512 |
|
Included in the current year acquisitions amounts above is goodwill associated with the acquisitions of various ticketing businesses located in the United States, an artist management business located in the United States and a concert promotion business located in Italy.
Included in the prior year acquisitions amounts above are changes primarily associated with the acquisitions of festival promotion businesses located in the United States and Australia.
The Company is in various stages of finalizing its acquisition accounting for recent acquisitions, which include the use of external valuation consultants, and the completion of this accounting could result in a change to the associated purchase price allocations, including goodwill and its allocation between segments.
NOTE 3—FAIR VALUE MEASUREMENTS
The following table shows the fair value of the Company’s significant financial assets that are required to be measured at fair value on a recurring basis, which are classified on the balance sheets as cash and cash equivalents:
|
| | | | | | | |
| Fair Value Measurements at |
| September 30, 2017 | | December 31, 2016 |
| Level 1 |
| (in thousands) |
Assets: | | | |
Cash equivalents | $ | 109,722 |
| | $ | 55,081 |
|
The Company has cash equivalents which consist of money market funds. Fair values for cash equivalents are based on quoted prices in an active market which are considered to be Level 1 inputs as defined in the FASB guidance.
The Company’s outstanding debt held by third-party financial institutions is carried at cost, adjusted for any discounts or debt issuance costs. The Company’s debt is not publicly traded and the carrying amounts typically approximate fair value for debt that accrues interest at a variable rate, which are considered to be Level 2 inputs as defined in the FASB guidance. The estimated fair values of the Company’s 5.375% senior notes, 4.875% senior notes and 2.5% convertible senior notes were $260.5 million, $596.4 million and $364.3 million, respectively, at September 30, 2017. The estimated fair values of the 5.375% senior notes, 4.875% senior notes and 2.5% convertible senior notes were $259.7 million, $578.5 million and $294.6 million, respectively, at December 31, 2016. The estimated fair value of the Company’s third-party, fixed-rate debt is based on quoted market prices in active markets for the same or similar debt, which are considered to be Level 2 inputs. The Company had fixed-rate debt held by noncontrolling interest partners with a face value of $37.5 million and $35.7 million at September 30, 2017 and December 31, 2016, respectively. The Company is unable to determine a fair value for this debt.
NOTE 4—COMMITMENTS AND CONTINGENT LIABILITIES
In December 2015, a company called Songkick filed an antitrust lawsuit against Live Nation and Ticketmaster L.L.C. in the U.S. District Court for the Central District of California. The suit alleged, among other complaints, that the defendants monopolized certain markets and engaged in certain exclusionary and anticompetitive conduct, ultimately causing harm to Songkick in a product market that it refers to as “artist presale ticketing services.” In the spring of 2016, Live Nation and Ticketmaster L.L.C. prevailed in a partial motion to dismiss, and shortly thereafter asserted counterclaims against Songkick, alleging that Songkick tortiously interfered with Ticketmaster’s venue contracts. In February 2017, Songkick filed an amended complaint, adding claims of trade secret misappropriation, statutory violations and related causes of action, arising from certain alleged conduct by a former Songkick employee who had gone to work for Ticketmaster.
In October 2017, the Court granted in part Live Nation’s motion to prevent Songkick’s damages expert from testifying, but declined to grant Live Nation’s motion for summary judgement. Following those rulings, Songkick is solely left with an antitrust claim (subject to treble damages) for lost profits, tort claims seeking the same lost profits, and a claim for unjust enrichment damages arising from alleged trade secret misappropriation. Trial has been set for January 2018. While the Company remains confident in its case and does not believe that a loss is probable of occurring at this time, if the Company is ultimately unsuccessful on any or all claims, the amounts at stake could be material. The Company is currently unable to estimate the possible loss or range of loss for this matter because of the uncertainty regarding the outcome of the claims and damages asserted against the Company.
NOTE 5—EQUITY
The following table shows the reconciliation of the carrying amount of stockholders’ equity attributable to Live Nation, equity attributable to noncontrolling interests, total equity and also redeemable noncontrolling interests for the nine months ended September 30, 2017:
|
| | | | | | | | | | | | | | | |
| Live Nation Stockholders’ Equity | | Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
| (in thousands) | | (in thousands) |
Balance at December 31, 2016 | $ | 1,126,016 |
| | $ | 223,500 |
| | $ | 1,349,516 |
| | $ | 347,068 |
|
Non-cash compensation expense | 23,921 |
| | — |
| | 23,921 |
| | — |
|
Common stock issued under stock plans, net of shares withheld for employee taxes | (5,329 | ) | | — |
| | (5,329 | ) | | — |
|
Exercise of stock options | 44,746 |
| | — |
| | 44,746 |
| | — |
|
Acquisitions | — |
| | 6,036 |
| | 6,036 |
| | (1,985 | ) |
Purchases of noncontrolling interests | (1,402 | ) | | (1,594 | ) | | (2,996 | ) | | (1,329 | ) |
Redeemable noncontrolling interests fair value adjustments | (52,811 | ) | | — |
| | (52,811 | ) | | 52,811 |
|
Contributions received | — |
| | 7,971 |
| | 7,971 |
| | — |
|
Cash distributions | — |
| | (8,226 | ) | | (8,226 | ) | | (14,222 | ) |
Other | 114 |
| | 477 |
| | 591 |
| | (1,339 | ) |
Comprehensive income (loss): | | | | |
| | |
Net income (loss) | 184,878 |
| | 7,404 |
| | 192,282 |
| | (10,727 | ) |
Foreign currency translation adjustments | 58,761 |
| | — |
| | 58,761 |
| |
|
|
Other | 80 |
| | — |
| | 80 |
| | — |
|
Balance at September 30, 2017 | $ | 1,378,974 |
| | $ | 235,568 |
| | $ | 1,614,542 |
| | $ | 370,277 |
|
Accumulated Other Comprehensive Loss
The following table presents changes in the components of AOCI, net of taxes, for the nine months ended September 30, 2017:
|
| | | | | | | | | | | |
| Foreign Currency Items | | Other | | Total |
| (in thousands) |
Balance at December 31, 2016 | $ | (176,246 | ) | | $ | (461 | ) | | $ | (176,707 | ) |
Other comprehensive income before reclassifications | 58,761 |
| | 80 |
| | 58,841 |
|
Net other comprehensive income | 58,761 |
| | 80 |
| | 58,841 |
|
Balance at September 30, 2017 | $ | (117,485 | ) | | $ | (381 | ) | | $ | (117,866 | ) |
Earnings Per Share
Basic net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. The calculation of diluted net income (loss) per common share includes the effects of the assumed exercise of any outstanding stock options, the assumed vesting of shares of restricted stock awards and the assumed conversion of the convertible senior notes where dilutive.
The following table sets forth the computation of weighted average common shares outstanding:
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Weighted average common shares—basic | 205,287,843 |
| | 202,118,412 |
| | 204,574,742 |
| | 201,904,305 |
|
Effect of dilutive securities: | | | | | | | |
Stock options and restricted stock | 9,914,361 |
| | 7,641,823 |
| | 9,311,710 |
| | 6,951,096 |
|
Convertible senior notes | 7,929,982 |
| | 7,929,982 |
| | — |
| | — |
|
Weighted average common shares—diluted | 223,132,186 |
| | 217,690,217 |
| | 213,886,452 |
| | 208,855,401 |
|
The following table shows securities excluded from the calculation of diluted net income (loss) per common share because such securities are anti-dilutive:
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Options to purchase shares of common stock | 8,000 |
| | 1,726,732 |
| | 810,796 |
| | 5,309,138 |
|
Restricted stock awards—unvested | 196,484 |
| | 316,810 |
| | 219,084 |
| | 319,310 |
|
Conversion shares related to the convertible senior notes | — |
| | — |
| | 7,929,982 |
| | 7,929,982 |
|
Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding | 204,484 |
| | 2,043,542 |
| | 8,959,862 |
| | 13,558,430 |
|
NOTE 6—SEGMENT DATA
The Company’s reportable segments are Concerts, Sponsorship & Advertising and Ticketing. Prior to 2017, the Company reported an Artist Nation segment, which is now included in its Concerts segment based on the Company’s belief that the strategy behind artist management is to provide a full range of services related to concert promotion and to expand the Concerts line of business. In connection with this, there has been a change in the way the chief operating decision maker, as defined in the FASB guidance, makes decisions around allocations of resources and management responsibilities for this business.
The Concerts segment involves the promotion of live music events globally in the Company’s owned or operated venues and in rented third-party venues, the production of music festivals, the operation and management of music venues, the creation of associated content and the provision of management and other services to artists. The Sponsorship & Advertising segment manages the development of strategic sponsorship programs in addition to the sale of international, national and local sponsorships and the placement of advertising such as signage, promotional programs, rich media offerings, including advertising associated with live streaming and music-related original content, and ads across the Company’s distribution network of venues, events and websites. The Ticketing segment involves the management of the Company’s global ticketing operations, including providing ticketing software and services to clients, ticket resale services and online access for customers relating to ticket and event information, and is responsible for the Company’s primary ticketing website, www.ticketmaster.com.
Revenue and expenses earned and charged between segments are eliminated in consolidation. The Company’s capital expenditures below include accruals for amounts incurred but not yet paid for, but are not reduced by reimbursements received from outside parties such as landlords or replacements funded by insurance proceeds.
The Company manages its working capital on a consolidated basis. Accordingly, segment assets are not reported to, or used by, the Company’s management to allocate resources to or assess performance of the segments, and therefore, total segment assets have not been presented.
The following table presents the results of operations for the Company’s reportable segments for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Concerts | | Sponsorship & Advertising | | Ticketing | | Other | | Corporate | | Eliminations | | Consolidated |
| (in thousands) |
Three Months Ended September 30, 2017 | | | | | | | |
Revenue | $ | 2,939,387 |
| | $ | 157,981 |
| | $ | 532,285 |
| | $ | 6,545 |
| | $ | — |
| | $ | (76,780 | ) | | $ | 3,559,418 |
|
Direct operating expenses | 2,497,234 |
| | 23,371 |
| | 283,236 |
| | 4,477 |
| | — |
| | (75,392 | ) | | 2,732,926 |
|
Selling, general and administrative expenses | 305,494 |
| | 21,320 |
| | 144,622 |
| | 4,428 |
| | — |
| | — |
| | 475,864 |
|
Depreciation and amortization | 52,344 |
| | 6,601 |
| | 50,318 |
| | 115 |
| | 1,362 |
| | (1,388 | ) | | 109,352 |
|
Loss (gain) on disposal of operating assets | (21 | ) | | — |
| | 58 |
| | — |
| | — |
| | — |
| | 37 |
|
Corporate expenses | — |
| | — |
| | — |
| | — |
| | 39,892 |
| | — |
| | 39,892 |
|
Operating income (loss) | $ | 84,336 |
| | $ | 106,689 |
| | $ | 54,051 |
| | $ | (2,475 | ) | | $ | (41,254 | ) | | $ | — |
| | $ | 201,347 |
|
Intersegment revenue | $ | 73,494 |
| | $ | — |
| | $ | 3,286 |
| | $ | — |
| | $ | — |
| | $ | (76,780 | ) | | $ | — |
|
Three Months Ended September 30, 2016 | | | | | | | |
Revenue | $ | 2,644,151 |
| | $ | 136,087 |
| | $ | 456,443 |
| | $ | 2,138 |
| | $ | — |
| | $ | (68,403 | ) | | $ | 3,170,416 |
|
Direct operating expenses | 2,247,976 |
| | 15,510 |
| | 231,979 |
| | 149 |
| | — |
| | (67,611 | ) | | 2,428,003 |
|
Selling, general and administrative expenses | 265,638 |
| | 20,667 |
| | 124,007 |
| | 4,100 |
| | — |
| | — |
| | 414,412 |
|
Depreciation and amortization | 52,188 |
| | 4,448 |
| | 47,113 |
| | 1,153 |
| | 752 |
| | (792 | ) | | 104,862 |
|
Loss (gain) on disposal of operating assets | 241 |
| | — |
| | 13 |
| | — |
| | (1 | ) | | — |
| | 253 |
|
Corporate expenses | — |
| | — |
| | — |
| | — |
| | 31,600 |
| | — |
| | 31,600 |
|
Operating income (loss) | $ | 78,108 |
| | $ | 95,462 |
| | $ | 53,331 |
| | $ | (3,264 | ) | | $ | (32,351 | ) | | $ | — |
| | $ | 191,286 |
|
Intersegment revenue | $ | 64,676 |
| | $ | — |
| | $ | 3,727 |
| | $ | — |
| | $ | — |
| | $ | (68,403 | ) | | $ | — |
|
Nine Months Ended September 30, 2017 | | | | | | | | |
Revenue | $ | 6,052,515 |
| | $ | 346,532 |
| | $ | 1,510,574 |
| | $ | 13,259 |
| | $ | — |
| | $ | (131,588 | ) | | $ | 7,791,292 |
|
Direct operating expenses | 5,057,567 |
| | 60,516 |
| | 805,964 |
| | 5,759 |
| | — |
| | (128,506 | ) | | 5,801,300 |
|
Selling, general and administrative expenses | 804,562 |
| | 62,989 |
| | 411,336 |
| | 14,670 |
| | — |
| | — |
| | 1,293,557 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Concerts | | Sponsorship & Advertising | | Ticketing | | Other | | Corporate | | Eliminations | | Consolidated |
| (in thousands) |
Depreciation and amortization | 144,917 |
| | 19,512 |
| | 140,881 |
| | 327 |
| | 3,262 |
| | (3,082 | ) | | 305,817 |
|
Loss (gain) on disposal of operating assets | (609 | ) | | — |
| | 65 |
| | — |
| | 37 |
| | — |
| | (507 | ) |
Corporate expenses | — |
| | — |
| | — |
| | — |
| | 97,711 |
| | — |
| | 97,711 |
|
Operating income (loss) | $ | 46,078 |
| | $ | 203,515 |
| | $ | 152,328 |
| | $ | (7,497 | ) | | $ | (101,010 | ) | | $ | — |
| | $ | 293,414 |
|
Intersegment revenue | $ | 122,455 |
| | $ | — |
| | $ | 9,133 |
| | $ | — |
| | $ | — |
| | $ | (131,588 | ) | | $ | — |
|
Capital expenditures | $ | 83,612 |
| | $ | 4,753 |
| | $ | 69,667 |
| | $ | 66 |
| | $ | 26,195 |
| | $ | — |
| | $ | 184,293 |
|
Nine Months Ended September 30, 2016 | | | | | | | | |
Revenue | $ | 5,080,877 |
| | $ | 288,923 |
| | $ | 1,305,577 |
| | $ | 4,485 |
| | $ | — |
| | $ | (122,472 | ) | | $ | 6,557,390 |
|
Direct operating expenses | 4,219,599 |
| | 44,711 |
| | 673,990 |
| | 149 |
| | — |
| | (120,555 | ) | | 4,817,894 |
|
Selling, general and administrative expenses | 701,093 |
| | 50,540 |
| | 363,336 |
| | 11,483 |
| | — |
| | — |
| | 1,126,452 |
|
Depreciation and amortization | 146,013 |
| | 13,777 |
| | 132,789 |
| | 2,053 |
| | 2,526 |
| | (1,917 | ) | | 295,241 |
|
Loss (gain) on disposal of operating assets | (162 | ) | | — |
| | 44 |
| | — |
| | 117 |
| | — |
| | (1 | ) |
Corporate expenses | — |
| | — |
| | — |
| | — |
| | 85,649 |
| | — |
| | 85,649 |
|
Operating income (loss) | $ | 14,334 |
| | $ | 179,895 |
| | $ | 135,418 |
| | $ | (9,200 | ) | | $ | (88,292 | ) | | $ | — |
| | $ | 232,155 |
|
Intersegment revenue | $ | 115,762 |
| | $ | — |
| | $ | 6,710 |
| | $ | — |
| | $ | — |
| | $ | (122,472 | ) | | $ | — |
|
Capital expenditures | $ | 51,353 |
| | $ | 1,318 |
| | $ | 64,513 |
| | $ | 777 |
| | $ | 5,454 |
| | $ | — |
| | $ | 123,415 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
“Live Nation” (which may be referred to as the “Company,” “we,” “us” or “our”) means Live Nation Entertainment, Inc. and its subsidiaries, or one of our segments or subsidiaries, as the context requires. You should read the following discussion of our financial condition and results of operations together with the unaudited consolidated financial statements and notes to the financial statements included elsewhere in this quarterly report.
Special Note About Forward-Looking Statements
Certain statements contained in this quarterly report (or otherwise made by us or on our behalf from time to time in other reports, filings with the SEC, news releases, conferences, internet postings or otherwise) that are not statements of historical fact constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, notwithstanding that such statements are not specifically identified. Forward-looking statements include, but are not limited to, statements about our financial position, business strategy, competitive position, potential growth opportunities, potential operating performance improvements, the effects of competition, the effects of future legislation or regulations and plans and objectives of our management for future operations. We have based our forward-looking statements on our beliefs and assumptions considering the information available to us at the time the statements are made. Use of the words “may,” “should,” “continue,” “plan,” “potential,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “outlook,” “could,” “target,” “project,” “seek,” “predict,” or variations of such words and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those set forth below under Part II Item 1A.—Risk Factors, in Part I Item IA.—Risk Factors of our 2016 Annual Report on Form 10-K, as well as other factors described herein or in our annual, quarterly and other reports we file with the SEC (collectively, “cautionary statements”). Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in any forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. We do not intend to update these forward-looking statements, except as required by applicable law.
Executive Overview
In the third quarter of 2017, our total revenue increased by $389 million, or 12%, on a reported basis as compared to last year, or $353 million, an 11% increase, without the impact of changes in foreign exchange rates. The revenue increase was largely driven by growth in both our Concerts and Ticketing segments. The Concerts growth was due to an increase in the number of events and fans attending these events which also drove our highest quarterly concert attendance ever. In Ticketing, strong primary and secondary ticket sales drove the increase in revenue. Our operating income for the quarter improved by 5% compared to the third quarter of 2016, once again driven by the strong performance of all of our segments. For the first nine months of 2017, our total revenue grew $1.23 billion, or 19%, on a reported basis as compared to last year, or $1.25 billion, a 19% increase, without the impact of changes in foreign exchange rates. All three of our segments delivered strong revenue increases in the first nine months of the year, underscoring the continued success of our strategic initiatives and the underlying health of the live event, advertising and ticketing businesses. As the leading global live event and ticketing company, we believe that we are well-positioned to provide the best service to artists, teams, fans and venues and therefore drive growth across all our businesses. By leveraging our leadership position in the entertainment industry to reach fans through the live concert experience, we believe that we will sell more tickets and grow our Sponsorship & Advertising segment revenue.
Our Concerts segment revenue for the quarter increased by $295 million, or 11%, on a reported basis as compared to last year, or $265 million, a 10% increase, without the impact of changes in foreign exchange rates. This increase was largely due to significant growth in arena and stadium activity in both North America and Europe with shows by artists including U2, Coldplay, Guns N’ Roses, and Metallica. Our onsite initiatives resulted in near double-digit growth in our amphitheater ancillary revenue per fan, which was driven by various programs including our enhanced beverage program, increasing our points of sale, and introducing specialty food concepts. We have also seen success in our effort to improve the sell-through price on our best available seats in our amphitheaters this season. Our premium and platinum initiatives are growing the event revenue and we are implementing our pricing strategies with greater precision and greater sensitivity to unique market and tour conditions. Attendance at our international shows was up in the quarter, driven by significant increases in our arena and stadium events. Our Concerts segment operating results for the quarter exceeded last year and this was again largely driven by the high volume of arena and stadium activity as well as our onsite revenue growth initiatives.
For the first nine months, our Concerts segment was the largest contributor to our overall revenue growth, with an increase of $972 million, or 19%, on a reported basis as compared to last year, or $985 million, a 19% increase, without the impact of changes in foreign exchange rates. As in the second quarter, this higher revenue was largely due to an increase in the
number of arena and stadium shows in North America and Europe. For the first nine months of the year, there has been a 16% increase in the overall number of fans attending our shows as compared to the first nine months of 2016. Operating income for the first nine months of the year was up due to the higher number of shows in arenas and stadiums as well as our ticket pricing and onsite initiatives. We will continue to look for expansion opportunities, both domestically and internationally, as well as ways to market our events more effectively, in order to continue to expand our fan base and geographic reach and to sell more tickets and advertising.
Our Sponsorship & Advertising segment revenue for the quarter was up $22 million, or 16%, on a reported basis as compared to last year, or $20 million, a 15% increase, without the impact of changes in foreign exchange rates. Higher revenue resulted from new clients and growth in our online business, which also improved our operating income.
For the first nine months, Sponsorship & Advertising revenue was up $58 million, or 20%, on a reported basis as compared to last year, or $59 million, a 20% increase, without the impact of changes in foreign exchange rates. Our focus on building new venue products and expanding our digital reach has generated new opportunities for growth. Our festival apps and podcasts are attracting new fans and giving sponsors additional platforms for reaching consumers. Lastly, we are seeing increases from our Germany market expansion. We believe that our extensive onsite and online reach, global venue distribution network, artist relationships and ticketing operations are the key to securing long-term sponsorship agreements with major brands, and we plan to expand these assets while extending further into new markets internationally.
Our Ticketing segment revenue for the third quarter increased by $76 million, or 17%, on a reported basis as compared to last year, or $72 million, a 16% increase, without the impact of changes in foreign exchange rates. This increase was due to growth in fee-bearing ticket sales. We delivered strong growth in ticket sales globally for our Ticketing segment in the quarter, driven by high demand for concert tickets and continued positive fan reaction to our integrated ticketing platform. Our improvements to our fan-focused website continued to favorably impact our conversion rates in the third quarter as well.
For the first nine months, Ticketing revenue was up $205 million, or 16%, on a reported basis as compared to last year, or $212 million, a 16% increase, without the impact of changes in foreign exchange rates. We have sold 147 million fee-bearing tickets worldwide for the first nine months, a 10% increase over last year, and our total fee-bearing gross transaction value grew by 14% in the same period. In the first nine months of the year, we continued to see growth in our mobile ticket sales with an increase of 34% and mobile now represents over 30% of our total ticket sales. Our international markets had a very strong first nine months of the year with double-digit ticket sales growth across Europe. We will continue to implement new features to drive further expansion of mobile ticket transactions and invest in initiatives aimed at improving the ticket search, purchase and transfer process which we expect will attract more ticket buyers and enhance the overall fan and venue client experience.
We continue to be optimistic about the long-term potential of our company and are focused on the key elements of our business model: expand our concert platform, drive conversion of ticket sales through social and mobile channels, sell more tickets for our Ticketmaster clients, deliver to our fans a fully integrated offering of primary and secondary tickets, grow our sponsorship and online revenue, and drive cost efficiencies.
Our History
We were incorporated in Delaware on August 2, 2005 in preparation for the contribution and transfer by Clear Channel Communications, Inc. of substantially all of its entertainment assets and liabilities to us. We completed the separation on December 21, 2005, and became a publicly traded company on the New York Stock Exchange trading under the symbol “LYV.”
On January 25, 2010, we merged with Ticketmaster Entertainment LLC and it became a wholly-owned subsidiary of Live Nation. Effective with the merger, Live Nation, Inc. changed its name to Live Nation Entertainment, Inc.
Segment Overview
Our reportable segments are Concerts, Sponsorship & Advertising and Ticketing. Prior to 2017, we reported an Artist Nation segment, which is now included in our Concerts segment. See further discussion of the segment change in Item 1.—Financial Statements—Note 6—Segment Data.
Concerts
Our Concerts segment principally involves the global promotion of live music events in our owned or operated venues and in rented third-party venues, the operation and management of music venues, the production of music festivals across the world, the creation of associated content and the provision of management and other services to artists. While our Concerts segment operates year-round, we experience higher revenue during the second and third quarters due to the seasonal nature of shows at our outdoor amphitheaters and festivals, which primarily occur from May through October. Revenue and related costs for events are generally deferred and recognized when the event occurs. All advertising costs incurred during the year for shows in future years are expensed at the end of the year.
Concerts direct operating expenses include artist fees, event production costs, show-related marketing and advertising expenses, along with other costs.
To judge the health of our Concerts segment, we primarily monitor the number of confirmed events and fan attendance in our network of owned or operated and third-party venues, talent fees, average paid attendance, advance ticket sales and number of major clients represented. In addition, at our owned or operated venues and festivals, we monitor ancillary revenue per fan and premium ticket sales. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates.
Sponsorship & Advertising
Our Sponsorship & Advertising segment employs a sales force that creates and maintains relationships with sponsors through a combination of strategic, international, national and local opportunities that allow businesses to reach customers through our concerts, venue, artist relationship and ticketing assets, including advertising on our websites. We drive increased advertising scale to further monetize our concerts platform through rich media offerings including advertising associated with live streaming and music-related original content. We work with our corporate clients to help create marketing programs that drive their business goals and connect their brands directly with fans and artists. We also develop, book and produce custom events or programs for our clients’ specific brands which are typically experienced exclusively by the clients’ consumers. These custom events can involve live music events with talent and media, using both online and traditional outlets. We typically experience higher revenue in the second and third quarters, as a large portion of sponsorships are associated with shows at our outdoor amphitheaters and festivals, which primarily occur from May through October.
Direct operating expenses include fulfillment costs related to our sponsorship programs, along with other costs.
To judge the health of our Sponsorship & Advertising segment, we primarily review the revenue generated through sponsorship arrangements, the percentage of expected revenue under contract and online advertising revenue. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates.
Ticketing
Our Ticketing segment is primarily an agency business that sells tickets for events on behalf of its clients and retains a service charge for these services. Gross transaction value, or GTV, represents the total amount of the transaction related to a ticket sale and includes the face value of the ticket as well as the service charge. Service charges are generally based on a percentage of the face value or a fixed fee. We sell tickets through websites, mobile apps, ticket outlets and telephone call centers. Our ticketing sales are impacted by fluctuations in the availability of events for sale to the public, which may vary depending upon scheduling by our clients. We also offer ticket resale services, sometimes referred to as secondary ticketing, primarily through our integrated inventory platform, league/team platforms and other platforms internationally. Our Ticketing segment manages our online activities including enhancements to our ticketing websites and product offerings. Through our websites, we sell tickets to our own events as well as tickets for our clients and provide event information. Revenue related to ticketing service charges is recognized when the ticket is sold for our outside clients. For our own events, where our concert promoters control ticketing, revenue is deferred and recognized as the event occurs.
Ticketing direct operating expenses include ticketing client royalties and credit card fees, along with other costs.
To judge the health of our Ticketing segment, we primarily review GTV and the number of tickets sold through our primary and secondary ticketing operations, the number of clients renewed or added and the average royalty rate paid to clients who use our ticketing services. In addition, we review the number of visits to our websites, the purchase conversion rate, the overall number of customers in our database, the number of tickets sold via mobile and the number of app installs. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates.
Key Operating Metrics
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in thousands except estimated events) |
Concerts (1) | | | | | | | |
Estimated events: | | | | | | | |
North America | 5,275 |
| | 4,950 |
| | 14,207 |
| | 12,835 |
|
International | 1,483 |
| | 1,207 |
| | 6,225 |
| | 5,800 |
|
Total estimated events | 6,758 |
| | 6,157 |
| | 20,432 |
| | 18,635 |
|
Estimated fans: | | | | | | | |
North America | 21,561 |
| | 22,095 |
| | 42,659 |
| | 39,151 |
|
International | 7,980 |
| | 5,808 |
| | 22,379 |
| | 16,724 |
|
Total estimated fans | 29,541 |
| | 27,903 |
| | 65,038 |
| | 55,875 |
|
Ticketing (2) | | | | | | | |
Number of fee-bearing tickets sold | 50,196 |
| | 45,944 |
| | 147,304 |
| | 133,925 |
|
Number of non-fee-bearing tickets sold | 65,304 |
| | 68,102 |
| | 201,088 |
| | 205,193 |
|
Total tickets sold | 115,500 |
| | 114,046 |
| | 348,392 |
| | 339,118 |
|
_________
| |
(1) | Events generally represent a single performance by an artist. Fans generally represent the number of people who attend an event. Festivals are counted as one event in the quarter in which the festival begins, but the number of fans is based on the days the fans were present at the festival and thus can be reported across multiple quarters. Events and fan attendance metrics are estimated each quarter. |
| |
(2) | The number of fee-bearing tickets sold includes primary and secondary tickets that are sold using our Ticketmaster systems or that we issue through affiliates. This metric includes primary tickets sold during the period regardless of event timing, except for our own events where our concert promoters control ticketing and which are reported as the events occur. The non-fee-bearing tickets sold reported above includes primary tickets sold using our Ticketmaster systems, through season seat packages and our venue clients’ box offices, along with tickets sold on our ‘do it yourself’ platform. |
Non-GAAP Measures
Reconciliation of Adjusted Operating Income (Loss)
AOI is a non-GAAP financial measure that we define as operating income (loss) before acquisition expenses (including transaction costs, changes in the fair value of acquisition-related contingent consideration obligations, and acquisition-related severance and compensation), depreciation and amortization (including goodwill impairment), loss (gain) on disposal of operating assets and certain stock-based compensation expense. We use AOI to evaluate the performance of our operating segments. We believe that information about AOI assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income, thus providing insights into both operations and the other factors that affect reported results. AOI is not calculated or presented in accordance with GAAP. A limitation of the use of AOI as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business. Accordingly, AOI should be considered in addition to, and not as a substitute for, operating income (loss), net income (loss), and other measures of financial performance reported in accordance with GAAP. Furthermore, this measure may vary among other companies; thus, AOI as presented herein may not be comparable to similarly titled measures of other companies.
The following table sets forth the reconciliation of AOI to operating income (loss):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Operating income (loss) | | Stock- based compensation expense | | Loss (gain) on disposal of operating assets | | Depreciation and amortization | | Acquisition expenses | | AOI |
| (in thousands) |
Three Months Ended September 30, 2017 | | | | | | | | |
Concerts | $ | 84,336 |
| | $ | 1,886 |
| | $ | (21 | ) | | $ | 52,344 |
| | $ | 15,755 |
| | $ | 154,300 |
|
Sponsorship & Advertising | 106,689 |
| | 346 |
| | — |
| | 6,601 |
| | — |
| | 113,636 |
|
Ticketing | 54,051 |
| | 1,068 |
| | 58 |
| | 50,318 |
| | 274 |
| | 105,769 |
|
Other and Eliminations | (2,475 | ) | | — |
| | — |
| | (1,273 | ) | | — |
| | (3,748 | ) |
Corporate | (41,254 | ) | | 4,520 |
| | — |
| | 1,362 |
| | (72 | ) | | (35,444 | ) |
Total | $ | 201,347 |
| | $ | 7,820 |
| | $ | 37 |
| | $ | 109,352 |
| | $ | 15,957 |
| | $ | 334,513 |
|
Three Months Ended September 30, 2016 | | | | | | | | | | |
Concerts | $ | 78,108 |
| | $ | 2,661 |
| | $ | 241 |
| | $ | 52,188 |
| | $ | (2,281 | ) | | $ | 130,917 |
|
Sponsorship & Advertising | 95,462 |
| | 305 |
| | — |
| | 4,448 |
| | — |
| | 100,215 |
|
Ticketing | 53,331 |
| | 744 |
| | 13 |
| | 47,113 |
| | 500 |
| | 101,701 |
|
Other and Eliminations | (3,264 | ) | | 17 |
| | — |
| | 361 |
| | 25 |
| | (2,861 | ) |
Corporate | (32,351 | ) | | 4,366 |
| | (1 | ) | | 752 |
| | 18 |
| | (27,216 | ) |
Total | $ | 191,286 |
| | $ | 8,093 |
| | $ | 253 |
| | $ | 104,862 |
| | $ | (1,738 | ) | | $ | 302,756 |
|
Nine Months Ended September 30, 2017 | | | | | | | | | | |
Concerts | $ | 46,078 |
| | $ | 6,620 |
| | $ | (609 | ) | | $ | 144,917 |
| | $ | 23,583 |
| | $ | 220,589 |
|
Sponsorship & Advertising | 203,515 |
| | 1,028 |
| | — |
| | 19,512 |
| | — |
| | 224,055 |
|
Ticketing | 152,328 |
| | 3,057 |
| | 65 |
| | 140,881 |
| | 1,782 |
| | 298,113 |
|
Other and Eliminations | (7,497 | ) | | — |
| | — |
| | (2,755 | ) | | — |
| | (10,252 | ) |
Corporate | (101,010 | ) | | 13,216 |
| | 37 |
| | 3,262 |
| | (47 | ) | | (84,542 | ) |
Total | $ | 293,414 |
| | $ | 23,921 |
| | $ | (507 | ) | | $ | 305,817 |
| | $ | 25,318 |
| | $ | 647,963 |
|
Nine Months Ended September 30, 2016 | | | | | | | | | | |
Concerts | $ | 14,334 |
| | $ | 8,604 |
| | $ | (162 | ) | | $ | 146,013 |
| | $ | 3,573 |
| | $ | 172,362 |
|
Sponsorship & Advertising | 179,895 |
| | 995 |
| | — |
| | 13,777 |
| | — |
| | 194,667 |
|
Ticketing | 135,418 |
| | 2,327 |
| | 44 |
| | 132,789 |
| | 720 |
| | 271,298 |
|
Other and Eliminations | (9,200 | ) | | 29 |
| | — |
| | 136 |
| | 207 |
| | (8,828 | ) |
Corporate | (88,292 | ) | | 13,282 |
| | 117 |
| | 2,526 |
| | 64 |
| | (72,303 | ) |
Total | $ | 232,155 |
| | $ | 25,237 |
| | $ | (1 | ) | | $ | 295,241 |
| | $ | 4,564 |
| | $ | 557,196 |
|
AOI Margin
AOI margin is a non-GAAP financial measure that we calculate by dividing AOI by revenue. We use AOI margin to evaluate the performance of our operating segments. We believe that information about the AOI margin assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income, thus providing insights into both operations and the other factors that affect reported results. AOI margin is not calculated or presented in accordance with GAAP. A limitation of the use of AOI margin as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business. Accordingly, the AOI margin should be considered in addition to, and not as a substitute for, operating income (loss) margin, net income (loss) margin, and other measures of financial performance reported in accordance with GAAP. Furthermore, this measure may vary among other companies; thus, AOI margin as presented herein may not be comparable to similarly titled measures of other companies.
Constant Currency
Constant currency is a non-GAAP financial measure. We calculate currency impacts as the difference between current period activity translated using the current period’s currency exchange rates and the comparable prior period’s currency exchange rates. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations.
Segment Operating Results
Concerts
Our Concerts segment operating results were, and discussions of significant variances are, as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
| 2017 | | 2016 | | | | 2017 | | 2016 | | |
| (in thousands) | | | | (in thousands) | | |
Revenue | $ | 2,939,387 |
| | $ | 2,644,151 |
| | 11% | | $ | 6,052,515 |
| | $ | 5,080,877 |
| | 19% |
Direct operating expenses | 2,497,234 |
| | 2,247,976 |
| | 11% | | 5,057,567 |
| | 4,219,599 |
| | 20% |
Selling, general and administrative expenses | 305,494 |
| | 265,638 |
| | 15% | | 804,562 |
| | 701,093 |
| | 15% |
Depreciation and amortization | 52,344 |
| | 52,188 |
| | —% | | 144,917 |
| | 146,013 |
| | (1)% |
Loss (gain) on disposal of operating assets | (21 | ) | | 241 |
| | * | | (609 | ) | | (162 | ) | | * |
Operating income | $ | 84,336 |
| | $ | 78,108 |
| | 8% | | $ | 46,078 |
| | $ | 14,334 |
| | * |
Operating margin | 2.9 | % | | 3.0 | % | | | | 0.8 | % | | 0.3 | % | | |
AOI** | $ | 154,300 |
| | $ | 130,917 |
| | 18% | | $ | 220,589 |
| | $ | 172,362 |
| | 28% |
AOI margin** | 5.2 | % | | 5.0 | % | | | | 3.6 | % | | 3.4 | % | | |
_______
|
| |
* | Percentages are not meaningful. |
** | See “—Non-GAAP Measures” above for definition and reconciliation of AOI and AOI margin. |
Three Months
Revenue
Concerts revenue increased $295.2 million during the three months ended September 30, 2017 as compared to the same period of the prior year. Excluding the increase of $30.6 million related to currency impacts, revenue increased $264.6 million, or 10%, on a constant currency basis. This increase was primarily due to more shows in arenas, stadiums and theaters and clubs globally, higher average attendance at our events and incremental revenue of $64.3 million from acquisitions, primarily of concert and festival promotion businesses. These increases were partially offset by fewer shows in our North America amphitheaters.
Operating results
The increased operating income for Concerts for the three months ended September 30, 2017 was primarily driven by improved operating results for arena events offset by higher compensation costs associated with salary increases and headcount growth, including recent acquisitions, and increased acquisition transaction expenses associated with changes in the fair value of acquisition-related contingent consideration.
Nine Months
Revenue
Concerts revenue increased $971.6 million during the nine months ended September 30, 2017 as compared to the same period of the prior year. Excluding the decrease of $13.1 million related to currency impacts, revenue increased $984.7 million, or 19%, on a constant currency basis. This growth was primarily due to more shows in arenas, stadiums and theaters and clubs globally along with higher average attendance at stadium and arena events. Festival activity also increased in Europe driven by new festivals, and we had higher tour-related merchandise sales and commissions in the management business. Concerts had incremental revenue of $192.0 million from acquisitions, primarily of concert and festival promotion businesses. These increases were partially offset by fewer shows in our North America amphitheaters.
Operating results
The increase in operating income for Concerts for the nine months ended September 30, 2017 was primarily driven by improved operating results at our events and higher management results partially offset by higher compensation costs associated with salary increases and headcount growth, including recent acquisitions, and increased acquisition transaction expenses associated with changes in the fair value of acquisition-related contingent consideration.
Sponsorship & Advertising
Our Sponsorship & Advertising segment operating results were, and discussions of significant variances are, as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
| 2017 | | 2016 | | | | 2017 | | 2016 | | |
| (in thousands) | | | | (in thousands) | | |
Revenue | $ | 157,981 |
| | $ | 136,087 |
| | 16% | | $ | 346,532 |
| | $ | 288,923 |
| | 20% |
Direct operating expenses | 23,371 |
| | 15,510 |
| | 51% | | 60,516 |
| | 44,711 |
| | 35% |
Selling, general and administrative expenses | 21,320 |
| | 20,667 |
| | 3% | | 62,989 |
| | 50,540 |
| | 25% |
Depreciation and amortization | 6,601 |
| | 4,448 |
| | 48% | | 19,512 |
| | 13,777 |
| | 42% |
Operating income | $ | 106,689 |
| | $ | 95,462 |
| | 12% | | $ | 203,515 |
| | $ | 179,895 |
| | 13% |
Operating margin | 67.5 | % | | 70.1 | % | | | | 58.7 | % | | 62.3 | % | |