This press release contains certain non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of each such measure to its most directly comparable GAAP financial measure(s), together with an explanation of why management believes that these non-GAAP financial measures provide useful information to investors, is included at the end of this press release.
The company reported revenues of $516.6 million in the first quarter of 2006, an increase of $72.1 million, or 16%, as compared to the first quarter of 2005. Included in revenue is a $9.1 million decline due to movements in foreign exchange.
Operating income for the quarter increased by $35.6 million to $8.1 million, including a $7.7 million gain from the sale of operating assets. Net income increased by $23.8 million to $1.1 million. Diluted earnings per share for the quarter amounted to $0.02.
OIBDAN (defined by the company as operating income (loss) before depreciation, amortization, loss (gain) on sale of operating assets and non-cash compensation expense) was $16.2 million in the first quarter of 2006, compared to a loss of $12.1 million in the first quarter of 2005. OIBDAN is a non-GAAP financial measure. A reconciliation of OIBDAN to operating income (loss) and net income (loss), its most directly comparable GAAP financial measures, is included at the end of this press release.
"We delivered strong revenue growth in the quarter led by healthy gains across the majority of our businesses," said Michael Rapino, Live Nation’s Chief Executive Officer. "With the reorganization of our company complete and a more efficient cost structure in place we are now focused on aggressively executing our multi-pronged growth strategy. Our position as a global leader in live entertainment, our streamlined management team and our strong balance sheet provide us with a solid foundation from which to build our business. We believe we have an extraordinary opportunity to maximize the value of our assets, including our artist relationships, our network of venues and the millions of fans who attend our events annually. At the core of our business plan is our focus on increasing the value we provide to our customers before, during and after our events. We are vertically integrating toward the fan with the ultimate goal of positioning Live Nation as the place to go for live entertainment, products and services."
Mr. Rapino continued, "While it remains early in the implementation of our business plan, we are making progress across a wide spectrum of initiatives. A culture of accountability is taking hold across our operations and we are actively pursuing higher margin and more profitable opportunities. As we enter the busiest season of the year, we are pleased with the overall trends we are seeing across our businesses. We are confident that we will demonstrate tangible progress in implementing our strategy as the year unfolds."
Following Live Nation’s spin-off from Clear Channel Communications, Inc. in December 2005, the company reorganized its business units and the way in which these businesses are assessed. Accordingly, beginning in 2006, the company changed its reportable operating segments to Events, Venues and Sponsorship, and Digital Distribution. The Events segment principally involves the promotion or production of live music shows, theatrical performances and specialized motor sports events. The Venues and Sponsorship segment principally involves the operation of venues and the sale of premium seats, national and local sponsorships and placement of advertising, including signage, promotional programs and naming of subscription series and venues. The Digital Distribution segment principally involves the management of the company’s on-line and wireless distribution activities, including the development of the company’s website and managing the company’s in-house ticketing operations and third-party ticketing relationships. Included in the Digital Distribution revenue are ticket rebates earned on tickets sold by phone, outlet and over the internet, for events promoted by the Events division.
The company has reclassified all periods presented to conform to the current year presentation. Revenue and expenses earned and charged between segments are eliminated in consolidation.
Segment Financial Information (unaudited) Venues and Digital (in thousands) Events Sponsorship Distribution Other Three months ended March 31, 2006 Revenue $422,260 $77,559 $10,588 $9,006 Direct operating expenses 353,083 26,676 249 671 Selling, general and administrative expenses 53,387 53,061 2,298 7,269 Depreciation and amortization 1,996 12,212 66 235 Loss (gain) on sale of operating assets (13) 4 -- (7,651) Corporate expenses -- -- -- -- Operating income (loss) $13,807 $(14,394) $7,975 $8,482 Three months ended March 31, 2005 Revenue $344,368 $74,613 $9,862 $20,497 Direct operating expenses 285,607 26,488 393 6,960 Selling, general and administrative expenses 66,296 45,638 749 10,363 Depreciation and amortization 2,324 11,307 76 641 Loss (gain) on sale of operating assets (42) (129) -- (183) Corporate expenses -- -- -- -- Operating income (loss) $(9,817) $(8,691) $8,644 $2,716 Segment Financial Information (unaudited) Consolidated (in thousands) Corporate Eliminations and Combined Three months ended March 31, 2006 Revenue $-- $(2,846) $516,567 Direct operating expenses -- (2,847) 377,832 Selling, general and administrative expenses -- 1 116,016 Depreciation and amortization 496 -- 15,005 Loss (gain) on sale of operating assets (68) -- (7,728) Corporate expenses 7,379 -- 7,379 Operating income (loss) $(7,807) $-- $8,063 Three months ended March 31, 2005 Revenue $-- $(4,857) $444,483 Direct operating expenses -- (4,814) 314,634 Selling, general and administrative expenses -- (15) 123,031 Depreciation and amortization 1,129 -- 15,477 Loss (gain) on sale of operating assets (3) -- (357) Corporate expenses 19,224 -- 19,224 Operating income (loss) $(20,350) $(28) $(27,526) Events
Events reported revenue of $422.3 million, an increase of $77.9 million, or 23%, as compared to the first quarter of 2005. This was attributable primarily to increased events, attendance and ticket prices for domestic music and motor sports events, offset by declines in our international music and global theater revenues.
The increase in our domestic music revenue is primarily due to an increase in the number of events by artists such as Billy Joel, Coldplay, Aerosmith, Toby Keith and Rascal Flatts, principally in third-party arenas. The decline in our international music revenue is due primarily to a decline in the number of high profile tours in the United Kingdom during the first quarter of 2006. The decrease in our global theater revenue is due to a decline in the number of events in 2006 as compared to 2005.
Events direct operating expenses increased $67.5 million, or 24%, during the three months ended March 31, 2006, as compared to the three months ended March 31, 2005, mainly due to an increase in our domestic direct operating expenses related to the increased revenues, partially offset by decreases in our international music and global theater direct operating expenses.
Selling, general and administrative expenses for the segment declined by $12.9 million, or 19%, in the first quarter of 2006, principally due to an $11.9 million reduction in legal contingencies and expenses as compared to the first quarter of 2005.
Operating income for the Events segment for the first quarter of 2006 was $13.8 million compared to a loss of $9.8 million for the prior year period. The improvement in operating income was primarily driven by improved results from domestic music and motor sports events and the above-mentioned decrease in legal contingencies and expenses.
Venues and Sponsorship
Venues and Sponsorship reported revenue of $77.6 million for the first quarter of 2006, an increase of $2.9 million, or 3.9%, as compared to the first quarter of 2005, reflecting a year-over-year increase in sponsorship revenues and the impact of the Mean Fiddler venues acquired in the third quarter of 2005. These increases were partly offset by lower revenues at some theatrical venues due to weaker content compared to the first quarter of 2005.
Although direct operating expenses remained flat compared to 2005, selling, general and administrative expenses for the segment increased by $7.4 million, or 16%, in the first quarter of 2006 primarily as a result of the acquisitions of a 50.1% interest in Mean Fiddler in the third quarter of 2005 and 51.0% interest in the Historic Theater Group in 2006, as well as costs associated with building a new global venue management team.
Venues and Sponsorship operating results for the first quarter of 2006 decreased to a loss of $14.4 million from a loss of $8.7 million for the prior year period. The decrease was attributable to the results for a few of our larger theatrical venues being down compared to 2005 based on available content in the first quarter of 2006 and due to additional costs incurred related to building the venue management team in 2006.
Digital Distribution reported revenue of $10.6 million for the first quarter of 2006, an increase of $0.7 million, or 7.4%, as compared to the first quarter of 2005, primarily due to additional ticket service charge rebates arising from the increase in the number of events and attendance within our Events division.
Digital Distribution’s selling, general and administrative expenses increased $1.5 million during the three months ended March 31, 2006, as compared to the three months ended March 31, 2005, due primarily to the hiring of management and staff to run this division and build our on-line presence.
Operating income for the first quarter of 2006 for Digital Distribution was $8.0 million, a decrease of $0.7 million, or 7.7%, from the prior year period. This decrease is attributable to the increased costs related to building the management team and developing our on-line presence.
Our other operations, which includes our sports representation business and a number of other businesses that were sold or terminated in 2005, reported revenue of $9.0 million for the first quarter of 2006, a decrease of $11.5 million, or 56%, as compared to the first quarter of 2005. This was primarily due to a decrease in our sports business resulting from an Australian golf event managed in 2005 that we are no longer managing due to its relocation to another country, as well as the sale of a portion of our sports representation assets in Los Angeles.
Other direct operating expenses decreased $6.3 million, or 90%, during the three months ended March 31, 2006, as compared to the three months ended March 31, 2005, due primarily to the loss of the Australian golf event referred to above.
Operating income for the first quarter of 2006 for other operations increased to $8.5 million, an increase of $5.8 million from the prior year period. This increase is primarily due to the gain on the sale of a portion of the sports representation assets in Los Angeles, partially offset by the loss of income related to the Australian golf event.
Corporate expenses decreased $11.8 million, or 62%, during the three months ended March 31, 2006, as compared to the three months ended March 31, 2005, primarily as a result of a reduction of $12.3 million in litigation contingencies and expenses compared to 2005.
Interest expense increased $7.2 million during the three months ended March 31, 2006 as compared to the same period of 2005, primarily due to interest expense related to our term loan and redeemable preferred stock issued at the time of the spin-off in December 2005. Our interest expense with Clear Channel Communications decreased $11.2 million during the three months ended March 31, 2006 as compared to the three months ended March 31, 2005 as this debt was repaid to, or contributed to our capital by, Clear Channel as of December 21, 2005.
Free Cash Flow
Free cash flow for the quarter amounted to $27.7 million, an increase of $11.8 million, or 74%, over the same period in 2005. This increase was driven by an increase in cash provided by operating activities of $15.7 million offset by an increase in maintenance capital expenditures of $4.0 million. Free cash flow is a non-GAAP financial measure. A reconciliation of free cash flow to net cash provided by operating activities, its most directly comparable GAAP financial measure, is included at the end of this press release.
Cash and Debt
Cash and cash equivalents at March 31, 2006, totaled $408.8 million, an increase of $5.1 million over the balance at December 31, 2005.
Total debt, including preferred stock, at March 31, 2006 totaled $406.3 million, a reduction of $0.5 million compared to the balance at December 31, 2005.
Stock Option Accounting
We adopted Financial Accounting Standards Board Standard No. 123 (revised 2004), Share-Based Payment, Statement 123(R), effective January 1, 2006. Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. We estimate fair value of our stock options at the date of grant using the Black-Scholes option pricing model. We chose the modified-prospective application of Statement 123(R) and recorded $0.5 million as part of non-cash compensation expense during the three months ended March 31, 2006. This expense was recorded to selling, general and administrative expenses in Events and Venues and Sponsorship for $0.3 million and $0.1 million, respectively, and in corporate expenses for $0.1 million.
On December 22, 2005, Live Nation’s board of directors authorized a $150 million share repurchase program, effective through December 31, 2006. As of March 31, 2006, Live Nation had purchased 3.4 million shares for an aggregate purchase price of $42.7 million, including commissions and fees, at an average price of $12.65 per share. Subsequent to the first quarter of 2006, the company has not purchased any additional shares.
Live Nation will continue to base its decisions on amounts of repurchases and their timing on such factors as the stock price, general economic and market conditions and the company’s debt levels. The repurchase program may be suspended or discontinued at any time. Shares of stock repurchased under the plan will be held as treasury shares.
Other Significant Events During and Subsequent to the First Quarter * On January 11, 2006, the company signed an exclusive deal to join a partnership between Korn and EMI. * On January 25, 2006, the company announced a 15-year agreement to manage and promote the world famous Wembley Arena in London. * On February 6, 2006, the company announced a partnership with Nokia to launch new live music service ticketrush.co.uk. * On April 28, 2006, the company divested its interest in Planet Hollywood, Las Vegas, a venue project, to BASE Entertainment. BASE Entertainment also purchased a minority interest in Andrew Lloyd Weber's Phantom at the Venetian and the touring property Cirque de Soleil/Delirium, which is itself a partnership with Cirque de Soleil American. Conference Call
The company will host a teleconference to discuss its first quarter 2006 financial results today Friday, May 5th at 11:00 a.m. Eastern Daylight Time/8:00 a.m. Pacific Daylight Time. To access the teleconference, please dial 973-582-2785 ten minutes prior to the start time. The teleconference will also be available via live webcast under the "About Us" portion of the company’s website located at www.livenation.com.
If you cannot listen to the teleconference at its scheduled time, there will be a replay available through Friday, May 12, 2006, which can be accessed by dialing 877-519-4471 (U.S.) or 973-341-3080 (Int’l), passcode 7304589. The webcast will also be archived on the company’s website for 30 days.
About Live Nation
Live Nation is a leading live event, venue and digital distribution company focused on creating superior experiences for artists, performers, corporations and fans. Live Nation owns, operates or has booking rights for 153 venues worldwide and produced over 29,500 events in 2005. Live Nation operates more than 60 websites globally. Headquartered in Los Angeles, California, Live Nation is listed on the New York Stock Exchange, trading under the symbol "LYV". For more information regarding Live Nation and its businesses, please visit the company’s website at www.livenation.com.
Certain statements in this press release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Live Nation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The words or phrases "believe," "expect," "anticipate," "plans," and "estimates," and similar words or expressions are intended to identify such forward-looking statements. In addition, any statements that refer to expectations or other characterizations of future events or circumstances are forward-looking statements. Various risks that could cause future results to differ from those expressed by forward-looking statements include, but are not limited to, those described in Live Nation’s Form 10-K for the year ended December 31,2005 and in the company’s other filings with the SEC. Other unknown or unpredictable factors could have material adverse effects on Live Nation’s future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed herein may not occur. You are cautioned not to place undue reliance on these forward-looking statements. Live Nation does not undertake any obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (UNAUDITED) Three months ended March 31, 2006 2005 (in thousands except share and per share data) Revenue $516,567 $444,483 Operating expenses: Direct operating expenses 377,832 314,634 Selling, general and administrative expenses 116,016 123,031 Depreciation and amortization 15,005 15,477 Gain on sale of operating assets (7,728) (357) Corporate expenses 7,379 19,224 Operating income (loss) 8,063 (27,526) Interest expense 7,813 619 Interest expense with Clear Channel Communications -- 11,188 Equity in earnings of nonconsolidated affiliates 1,824 510 Other income (expense) - net (239) 944 Income (loss) before income taxes 1,835 (37,879) Income tax benefit (expense): Current (167) 12,151 Deferred (551) 3,001 Net income (loss) 1,117 (22,727) Other comprehensive income, net of tax: Unrealized holding gain on cash flow derivatives 492 -- Foreign currency translation adjustments 3,678 9,583 Comprehensive income (loss) $5,287 $(13,144) Net income per common share: Basic $.02 Diluted $.02 Weighted average common shares outstanding: Basic 63,971,508 Diluted 64,480,376 CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED) Three months ended March 31, 2006 2005 in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $1,117 $(22,727) Reconciling items: Depreciation 14,748 14,780 Amortization of intangibles 257 697 Deferred income tax expense (benefit) 551 (3,001) Amortization of debt issuance costs 105 -- Current tax benefit dividends to owner -- (14,182) Non-cash compensation expense 861 343 Gain on sale of operating assets (7,728) (357) Loss on sale of other investments 2,257 -- Equity in earnings of nonconsolidated affiliates (1,824) (510) Minority interest expense (income) (835) 173 Decrease in other - net -- (17) Changes in operating assets and liabilities, net of effects of acquisitions: Increase in accounts receivable (13,067) (10,777) Increase in prepaid expenses (96,978) (141,555) Decrease (increase) in other assets 7,204 (14,758) Increase (decrease) in accounts payable, accrued expenses and other liabilities (20,061) 7,436 Increase in deferred income 152,744 209,003 Decrease in minority interest liability (194) (1,090) Net cash provided by operating activities 39,157 23,458 CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in notes receivable, net (4,719) 865 Decrease (increase) in investments in, and advances to, nonconsolidated affiliates - net (4,248) 346 Proceeds from disposal of other investments 1,743 -- Purchases of property, plant and equipment (17,158) (22,607) Proceeds from disposal of operating assets 12,136 133 Acquisition of operating assets (2,177) 656 Decrease in other - net 98 12 Net cash used in investing activities (14,325) (20,595) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from debt with Clear Channel Communications -- 37,337 Payments on long-term debt (779) (287) Payments for purchase of common stock (24,717) -- Net cash provided by (used in) financing activities (25,496) 37,050 Effect of exchange rate changes on cash 5,777 2,675 Net increase in cash and cash equivalents 5,113 42,588 Cash and cash equivalents at beginning of period 403,716 179,137 Cash and cash equivalents at end of period $408,829 $221,725 CONSOLIDATED BALANCE SHEETS March 31, December 31, 2006 2005 (unaudited) (audited) (in thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $408,829 $403,716 Accounts receivable, less allowance of $9,184 as of March 31, 2006 and $9,518 as of December 31, 2005 196,229 190,207 Prepaid expenses 212,369 115,055 Other current assets 37,345 46,714 Total Current Assets 854,772 755,692 PROPERTY, PLANT AND EQUIPMENT Land, buildings and improvements 919,220 910,926 Furniture and other equipment 169,534 166,004 Construction in progress 46,939 39,856 1,135,693 1,116,786 Less accumulated depreciation 322,231 307,867 813,462 808,919 INTANGIBLE ASSETS Definite-lived intangibles - net 12,172 12,351 Goodwill 140,655 137,110 OTHER ASSETS Notes receivable, less allowance of $745 as of March 31, 2006 and December 31, 2005 4,028 4,720 Investments in, and advances to, nonconsolidated affiliates 36,903 30,660 Other assets 30,310 27,132 Total Assets $1,892,302 $1,776,584 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $40,563 $37,654 Deferred income 386,150 232,754 Accrued expenses 375,071 405,507 Current portion of long-term debt 25,939 25,705 Total Current Liabilities 827,723 701,620 Long-term debt 340,363 341,136 Other long-term liabilities 40,540 30,766 Minority interest liability 25,618 26,362 Series A and Series B redeemable preferred stock 40,000 40,000 Commitments and contingent liabilities SHAREHOLDERS' EQUITY Common stock 672 672 Additional paid-in capital 748,798 748,011 Retained deficit (86,446) (87,563) Cost of shares held in treasury (42,719) (18,003) Accumulated other comprehensive loss (2,247) (6,417) Total Shareholders' Equity 618,058 636,700 Total Liabilities and Shareholders' Equity $1,892,302 $1,776,584 RECONCILIATIONS OF NON-GAAP MEASURES TO THEIR MOST DIRECTLY COMPARABLE GAAP MEASURES (UNAUDITED) Reconciliation of OIBDAN to operating income (loss) and net income (loss) Three months ended - Consolidated and Combined March 31, 2006 2005 (in thousands) OIBDAN $16,201 $(12,063) Depreciation and amortization 15,005 15,477 Loss (gain) on sale of operating assets (7,728) (357) Non-cash compensation expense 861 343 Operating income (loss) 8,063 (27,526) Interest expense 7,813 619 Interest expense with Clear Channel Communications -- 11,188 Equity in earnings of nonconsolidated affiliates 1,824 510 Other income (expense) - net (239) 944 Income (loss) before income taxes 1,835 (37,879) Income tax benefit (expense): Current (167) 12,151 Deferred (551) 3,001 Net income (loss) $1,117 $(22,727) Reconciliation of free cash flow to Three months ended net cash provided by operating activities March 31, 2006 2005 (in thousands) Free cash flow $27,722 $15,924 Maintenance capital expenditures 11,435 7,534 Net cash provided by operating activities $39,157 $23,458 Definitions and Use of Non-GAAP Measures OIBDAN is a non-GAAP financial measure that the company defines as operating income (loss) before depreciation, amortization, loss (gain) on sale of operating assets and non-cash compensation expense. The company uses OIBDAN to evaluate the performance of its operating segments. The company believes that information about OIBDAN assists investors by allowing them to evaluate changes in the operating results of the company's 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. OIBDAN is not calculated or presented in accordance with U.S. generally accepted accounting principles. A limitation of the use of OIBDAN as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the company's business. Accordingly, OIBDAN 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 U.S. GAAP. Furthermore, this measure may vary among other companies; thus, OIBDAN as presented above may not be comparable to similarly titled measures of other companies. Free cash flow is a non-GAAP financial measure that the company defines as cash flow from operations less maintenance capital expenditures. The company uses free cash flow, among other measures, to evaluate the ability of its operations to generate cash that is available for purposes other than maintenance capital expenditures. Management believes that information about free cash flow provides investors with an important perspective on the cash available to service debt, make acquisitions and repurchase shares.
SOURCE: Live Nation