Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

SFX Entertainment (NASDAQ:SFXE)

Q2 2014 Earnings Conference Call

August 14, 2014 9:00 p.m. ET

Executives

Joe Jaffoni – IR

Bob Sillerman – CEO and Chairman

Richard Rosenstein – CFO, Chief Administrative Officer, and EVP, Corporate Strategy and Development

Joe Rascoff – Chairman of Live Entertainment and Vice Chairman of the Board of Directors

Analysts

Rich Tullo – Albert Fried & Co.

Ben Mogil – Stifel Nicolaus

Brian Fitzgerald – Jefferies

Operator

Greetings and welcome to SFX Entertainment's 2014 Second Quarter Conference Call.

[Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.

Joe Jaffoni

Thank you, operator, and good morning everyone. In a moment, SFX Chairman and CEO Robert FX Sillerman and CFO and CAO Richard Rosenstein will review recent operating and financial developments. We'll get to management's presentations and comments momentarily, as well as your questions and answers. But first, I'll review the Safe Harbor disclosure.

This morning SFX issued a press release announcing its second quarter financial results for the period ended June 30, 2014. The release is available in the Investor Relations section of the company's website at sfxii.com.

Before we get started, I would like to remind everyone that this call is being recorded and a webcast replay will be available for 90 days, the details of which are in our press release issued this morning.

During our call we may make certain forward-looking statements about the company's performance. Such forward-looking statements are not guarantees of future performance and therefore one should not place undue reliance upon them. Forward-looking statements are also subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the Securities and Exchange Commission.

Also during today's call, the company may discuss non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures' most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measures can be found on the company's website at www.sfxii.com, by selecting the Press Release, regarding the company's 2014 second quarter financial results.

With that, it's my pleasure to turn the call over to Bob Sillerman. Bob?

Bob Sillerman

Thank you, Joe, and good morning everyone. It is indeed a pleasure to be talking to you again, particularly so close in the recent call we had on the [indiscernible] very exciting MasterCard announcement.

These last four months, culminating in that announcement, actually [indiscernible] proven that SFX sits at the epicenter of a huge cultural revolution, a phenomenon that is affecting literally every corner of the globe, where our rigorous adherence [indiscernible] the hundreds and hundreds of millions of EMC fans at the heart of everything we do. There are now, as I said on the last call [indiscernible] realizing the fruits of those foundational investments by bringing loyal, passionate fans, engaged fans, entertainment they crave, and providing a unique way [indiscernible] amplify their [indiscernible] we have created a way for all constituents that make up this robust revolution the opportunity to effectively and aggressively connect with one another. This has indeed been a remarkable and, as I said, transformative and confirming period.

We released, for instance, the robust API for our BuildPoint [ph] site which as you know is a definitive source of intelligence and music in EMC world. By doing this and by the reaction from the untold numbers of people who are building, authoring [ph] [indiscernible] we've confirmed that BuildPoint [ph] is actually a unique and unreplicable asset that has the opportunity to do more than just [indiscernible] music that fans love.

Music of course is the bonding element, the glue if you will, but over the next months beginning literally in the next few weeks, all of the things that we promised for BuildPoint [ph] will cycle in new consumer offerings, and that includes things that others have announced that they're bolting onto, as well as some exciting surprises that you'll see.

We also have begun several new partnership initiatives, and in a way to try and clarify and be as transparent as possible, precisely what these partnerships mean, we've chosen to do something somewhat different, which is our bond offering has a very specific definition of something called a qualified marketing agreement, QMAs if you will, which is defined as showing the EBITDA, not revenue, only from the guaranteed performance portion, not performance-based elements, and only assigned in place an active agreement and only for the next 12 months, even as these agreements, as they all are, span multiple years.

In place so far our QMAs that will generate somewhere between $50 million and $60 million of EBITDA in the next 12 months. EBITDA, and again that's with $1 from anything that is performance-related. For instance, it includes no benefit of the Great Clear Channel Radio Show which is now on the air running on 88 stations around the U.S., or any of the JV revenue from the global partnerships. With this amount in place, we have actually ticked the box to provide analysts estimated we would achieve this year and consensus estimate from this part of [indiscernible] for 2015 is [ph] around $70 million.

Now obviously we're still selling. Obviously there's performance contribution to take place. And most excitingly, every single partnership that we announced [indiscernible] has been expanded at the request of the partner on the other side, that every partnership that is operative and in place, as they set about [indiscernible] although that does not begin until September. The reason it took the length of time it did was because that was expanded and broadened even before we had the market.

In numbers you'll see the strength of the genre and the territory we trade in, you'll see growth in same-store sales, if you will, or festivals that operated in 2013 and now 2014, in the second quarter, which enjoyed 30% plus growth in revenue and approaching 40% growth in EBITDA. Clearly [indiscernible] grow is pretty exciting.

We drove, as you've read, to invest in a few things, and we also moved certain festivals out of the quarter. And in addition, we had some equity accounting that we took in that was not there in previous quarters. So while that contributed to an apparent decline in pro forma EBITDA, Richard will walk you through very specifically all that we did and why in fact even with all of this growth and with nominal, very nominal [indiscernible] recognition of this QMA revenue and EBITDA, we still improved on last year.

That was accomplishable because the reemphasis on operating strategy [indiscernible] Tim, Rich and Chris, the new fearsome foursome, who have really put their [indiscernible] Rich youthful, but their youthful step on things, as precisely why we're in the position we're in.

Last quarter -- meaning this quarter but the last quarter results, the CEO of two of our partners, global companies, went out their way to reference their emphasis on their partnerships with us in the very limited time available to them on their goals and [indiscernible]. Truly a testimonial to of course the platform and of course the success we're having but also the fearsome four [indiscernible]. You know, I've been through a few of these rollups [ph] and execution issues, and I'm as comfortable, maybe even more comfortable, in just the first month or two of this reemphasis than I have been in anything we've done.

I announced a [indiscernible] program which will have a term of one year where I will acquire -- need to acquire up to 2 million additional shares. There's no greater expression of my confidence in the platform, the people for achieving this, and most importantly, the loyalty and affection of our fans. They are here to stay. They love what we're doing and I know that we have now proven it beyond a shadow of a doubt that we are on our way. It's an exciting period for us and one that, beginning in the quarter we're in and now every quarter going forward we're going to see impact of all of the investments and, very excitingly, all of the QMAs.

With that, I will turn it over to Rich who will give you great detail on precisely what this quarter really means from a pro forma basis, and equally importantly, will outline the drivers that are already in place, as well as exciting ones not yet, taking advantage of [indiscernible] to let us achieve the kind of results that we all want. With that, Rich, take it away.

Richard Rosenstein

Thank you, Bob. As Bob indicated, since we spoke with you last quarter, we've made continued progress with our strategic plan to drive growth from the scale and synergies we're achieving from our integrated platform of live events, online interactions, and a growing number of unique marketing and sponsorship partnerships. As previously reported, during the quarter we closed on the acquisitions of React Presents, Flavorus, [indiscernible] and a few other small additions to our marketing platform efforts.

This morning's release includes the GAAP financial, so I won't review them here. As an acquisitive and growing company, we feel an adjusted pro forma comparison as if we've owned these businesses for both periods and adjusting for one-time or extraordinary items is the most useful way to evaluate our performance.

On a pro forma basis, revenue in the second quarter would have been $82.1 million, virtually the same as our reported figure. We only recognized a modest amount of revenue from our marketing partnerships in the quarter, but as I'll discuss in a moment, these revenues will be more meaningful beginning in the third quarter.

When we adjust for a small number of one-time items which were principally transaction-related costs and severance costs, pro forma adjusted EBITDA for the quarter was a loss of $10.2 million.

The most meaningful way to understand our business is to consider the following two facts. First, on a same-store comparison for the festivals we held both last year and this year in the second quarter, we saw attendance grow 33% and EBITDA by 39%. Second, we invested in initiatives and moved certain profitable events to the second half, and the impact of this totaled $15 million.

We have included a table in the second quarter release to help frame the build-up of EBITDA this year and facilitate a comparison with the second quarter of 2013. Recall that the second quarter, while bigger than the first quarter, is still fairly modest in terms of festival activity for us. To put it in perspective, the third quarter will have 50% more events than we did in the second quarter, while the fourth quarter is also more meaningful and somewhere between the second and third quarter in terms of number of events.

Pro forma EBITDA in the second quarter of 2013 last year was positive $2.1 million. Within last year's EBITDA, there were 11 festivals that were held that repeated again this year. On a same-festival basis, we grew attendance by 33% in the second quarter of 2014 versus the second quarter of 2013, and reflecting the benefit of scale, we generated revenue growth of 39% and EBTIDA growth of 39%, which represented an increase of roughly $2 million.

In addition, we recognized approximately $1 million of marketing partner EBITDA in the second quarter of 2014, and we anticipate EBITDA from our half-dozen major agreements will ramp in the third quarter and beyond.

The items that negatively impacted pro forma adjusted EBITDA in the second quarter include items that we view as investments in our future which have already shown that they should be beneficial next year.

First was the investment we made in the quarter in new festivals, three in particular, that represented a loss of $5 million in the quarter. The two largest of these were Mysteryland at Woodstock over the Memorial Day weekend, which was hugely successful as we moved that festival to the U.S. for the first time, and Electric Zoo which made its debut in Mexico in May.

I'd like to take a moment to explain the rationale behind these investments and why we're confident that they will deliver returns over time. As we've noted in the past, we were very pleased with the reception we received in bringing Tomorrowland from Belgium to the U.S. for the first time last year in our inaugural TomorrowWorld event outside Atlanta in September. That event attracted more than 120,000 people over three days in its first year.

In conjunction with our partner in that event, we made a conscious decision at the time to invest in building the brand in the U.S. to ensure the event was as popular and successful as possible as we knew the expansion potential from the event at the venue was considerable. As a matter of fact, that site can actually accommodate twice as many people, something we're targeting over time. The result was exactly as we had hoped. Frankly, it was even better. It was rated by many independent sources as the best festival of the year, and consistent with our expectations, demand this year is even stronger than last year.

In 2014, with increased attendance, incremental revenue and expense efficiencies that we expect to achieve, we are now in reach of an eight-figure improvement in profitability from TomorrowWorld in just one year. There's such considerable operating leverage in this model that we see a continuation of this improvement as the festival continues to build in the coming years.

Reflecting this model and success, last month we announced the latest expansion of Tomorrowland for dates in Brazil in May of next year. The success we had in Atlanta, our knowledge of the sizable demand for Tomorrowland coming from Brazil, and now coupled with AB InBev as a major one-day sponsor attached to that event means that we can bring this proven festival to another new market far more efficiently and without the same type of startup investment. In essence, we believe we have derisked that startup experience and laid the groundwork to build that brand in a meaningful way in a significant new locale.

In conclusion, on this point, we are confident that the initial losses incurred in the second quarter of 2014 related to Mysteryland and Woodstock and Electric Zoo in Mexico were prudent investments, and we see attractive returns from such investments.

Getting back to the other items. In addition to the $5 million investment in new festivals, we also absorbed over $6 million in platform and other overhead related costs to support our meaningful platform expansion, primarily in the form of personnel and development expenses. Much of these costs are tied to our readiness to deliver the results that our marketing partners are seeking from us, and we are confident the return on these investments will ultimately be reflected in the highly attractive margins we expect to derive from marketing partnerships.

Next is $4 million in EBITDA that we had in last year's second quarter for events that have been scheduled this year in different periods, third quarter and fourth quarter, which should be viewed purely as a timing shift. This is primarily attributable to two specific festivals that have moved, and the rest relates to the timing of certain license shows that have all moved to the second half of the year.

Next is the inclusion in the second quarter of our share of Rock in Rio's EBITDA losses in the quarter. Our equity share of Rock in Rio losses in the period was a little more than $1 million, about double that we would have incurred in last year's second quarter as we owned Rock in Rio at the time. While the quarter did include this year's listed [ph] event, the contribution of this event as in past years is negligible for us. The real impact of Rock in Rio on our results is the investment spending being made right now in advance of the new Las Vegas Rock in Rio show scheduled for May of 2015, which will be followed by the large and historically highly profitable Rock in Rio show in Rio in September of 2015.

Last is the other category which includes growth in [indiscernible] offset by our initiative to centralize a number of certain live event functions which we put in place to create efficiencies in live event production going forward.

Add it all up, including a few small other items such as public company costs and other expenses, we arrive at the $10.2 million EBITDA loss in the quarter.

Moving on to the marketing partner front, we've made continued and significant progress. We now announced Corona, Clear Channel, T-Mobile, viagogo and MasterCard. We've also signed and completed a deal with Diageo, a family of premier brands such as Smirnoff, which spans multiple events around the world, and have expanded our relationship with AB significantly beyond the Corona brand.

In order to help you think about this, today's release includes a new data [indiscernible] as Bob mentioned. It's a definition from our bond indenture [ph] which is the concept of Qualified Marketing Agreements or QMAs. QMAs are defined as marketing agreements that have a guaranteed contracted component to them which can be quantified in the initial year of the agreements.

In aggregate, as Bob mentioned, for the deals we have in place today, we see an EBITDA contribution of $50 million to $60 million from QMAs at margins in line with the range we've previously -- discussed previously for marketing partnerships of 50% to 80%. It's very important to note that this figure excludes the potential performance upside, which is part of several of our agreements, and also excludes any non-guaranteed contributions for items such as the anticipated contribution from the just-launched and ongoing weekly radio program we're doing with Clear Channel and Beatport. As such, it can be considered a base figure and it is our expectation that some of these could deliver considerable upside to SFX.

As Bob mentioned, our marketing and sponsorship agreements are highly complex and expansive, far more so than we originally anticipated. At the same time, the contribution received from these over time is larger, potentially much larger than we first contemplated.

The timing to get there, however, has resulted in about a six-month delay in recognizing that revenue and profit. So the $50 million to $60 million QMA figure is really a contribution we expect over the next 12 months, starting in the third quarter. And I'll reiterate, it's just for the contracted payments, and we have upside based on our ability to perform and deliver.

Given the importance of this and at the risk of being repetitive, what you should take away from this is that, on the agreements announced to date, we expect to exit 2014 with a minimum run rate EBITDA contribution from contracted minimums of approximately $50 million to $60 million, with performance-related upside anticipated to move that figure higher. Unlike 2014 which we entered as we were first selling partnerships and planning their implementation, we will enter 2015 with these deals and our startup investments already in place, and we are confident other meaningful QMAs will be in hand.

I can also tell you that we continue to sell. Indeed, Bob and team are very active in discussions with potential partners, and we will continue to form new partnerships and seek to grow our existing partnerships in 2015 and beyond.

I'd also like to provide a little more color around our marketing partnerships as these are truly partnerships in every sense of the word and we really haven't yet had the opportunity to provide enough clarity around what that means. Let me take our most recent example of MasterCard.

MasterCard is attractive to our audience both as a branding exercise as well as in a direct path towards converting the difficult-to-reach millennial demographic into customers. Indeed that's a common theme across all of our partners. For this reason, if we and MasterCard are successful in this endeavor, millions of consumers will come to rely on MasterCard as their payment solution of choice, whether that be credit cards, debit cards, mobile wallet or cashless pay through some other device.

We too have a vested interest in these solutions as drivers of our business beyond the actual sponsorship payments. For example, our Mystery event -- Mysteryland event at Woodstock was the first festival to offer a truly cashless solution for the entire event, ticketing entry, food and beverage, merchandise, et cetera. All you needed was one of our RFID bracelets, a bracelet embedded with radio frequency identification chip, that we offered, and you could swipe it anywhere to make purchases.

Through the initial setup, you could preload the bracelet with funds and set it up to automatically top up whenever funds were low. The execution was nearly flawless, and as a result, the fan experience was vastly improved as transactions were processed more quickly, and importantly, lines moved more quickly.

As a result of our adoption of this innovation, attendees at Mysteryland spent far more on food and beverage and merchandise than at any of our comparable events. In fact, double what they paid at comparable -- spent at comparable events.

The service we used was great, but we already see ways for the technology to improve. That's where MasterCard can come in. For example, a MasterCard branded cashless solution could be used not only at our events but elsewhere, with the possibility of consumers amassing loyalty rewards and other incentives along the way. While we can't yet get specific about what initiatives we will roll out together, that will come in September and beyond. Until they are offered to consumers, you get the idea.

You also can think about ways in which we might work with T-Mobile, viagogo, et cetera, all in the name of partnership.

Notwithstanding the loss reported in the first half of the year, we think that we've set the stage for very promising growth. Keep in mind that the first half EBITDA loss of $22 million includes around $11 million of platform and related overhead investment spending, $5 million in investments in new festivals, $4 million in the shift of festival profitability to the second half from the first half, and $1 million or so of incremental expense related to Rock in Rio.

Netting these out, first half EBITDA would have been almost breakeven, about the same as last year.

As you think about the second half, recognize that last year, on a pro forma basis, we generated EBITDA of approximately $29 million. Now included in that was a roughly high single-digit $1 million from our equity share in Rock in Rio, driven by the historically highly profitable biennial event in Rio which we don't have this September but will next September. We continue to invest in our growing platform, albeit at a likely reduced rate in the back half of the year from the $5 million to $6 million per quarter you've seen year to date. We also have some small startup festival investments, but not nearly as large as in the second quarter.

On the plus side, we have the benefit of some festivals moving to the second half, including one night [ph] festival that moved from the second quarter last year to the fourth quarter this year in Toronto Sensation, and the expected positive swing in profitability from TomorrowWorld.

The biggest variable component outside of these items would be marketing partner contribution. And given the timing we currently see, we expect that a significant portion of this $50 million to $60 million QMA contribution of the next 12 months will begin to materialize in the second half 2014, with some additional contribution from the variable component, with that variable component expected to be much larger next year.

Last, I'd like to comment on M&A. As we indicated earlier this year, much of our foundation and platform is now well in place, and we have seen considerable demand from consumers to bring our great events into new geographies. Marketing partners also recognize the power of platform today. As a result, we continue to see M&A activity as much more opportunistic, and the pace of activity will likely be much reduced from where it has been as we continue to execute on the exciting slate of near-term events and marketing partnerships.

Before I turn it over to the operator for questions, I'd like to remind you that joining Bob and me today on the call are our colleagues, Chairman of Live Entertainment and Vice Chairman of our Board of Directors, Joe Rascoff. The three of us will be happy to take your questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]

Our first question is from the line of Rich Tullo from Albert Fried & Company. Please proceed with your question.

Rich Tullo – Albert Fried & Co.

Hey guys. Thank you very much for taking my question. It sounds like a very exciting period of the company about to embark on. All right.

So my first question is, you know, more on the context of content. Can you remind people that -- what Rock in Rio is about, who showed up in Portugal this year, and why in Vegas may be a game-changer for that event than the United States?

Bob Sillerman

Sure. Rock in Rio is by far the largest multi-genre music festival in the world [indiscernible] with the Rolling Stones and the list of [indiscernible] is way too long to mention, but the lineup for Las Vegas has not been announced, but in September -- in November -- in September there will be a [indiscernible] in Times Square, late in September, that coincides with the TomorrowWorld Festival. And it has been widely rumored that the Rolling Stones will probably be there, whether they [indiscernible] we can't confirm. What we can say is that in September, in an event that, as never been seen in the United States, in Times Square, there's going to be an A-level talent, and in a great [indiscernible] of technology and [indiscernible] anyone who can be in Times Square and is interested in seeing what happens, and how you can use billboard technology, should be interesting. I hope that that's responsive enough, Rich.

Rich Tullo – Albert Fried & Co.

No, no, that was great. And so basically my view is that, you know, Rock in Rio is really kind of the music industry's Cannes Film Festival, if you will, and as a result, I really like their website. Is there incremental opportunities in their website and via their web radio that's available off their website to monetize this asset in ways that, you know, kind of weren't possible before because it didn't have a U.S. footprint?

Bob Sillerman

Rich.

Richard Rosenstein

Yes. There are a lot of opportunities with Rock in Rio, Rich. You know, Rock in Rio, as you know, was formed principally initially to offer solutions for marketers, and in fact it's the largest festival in the world in terms of sponsorship and largest festival in the world, period. There's so much that Rock in Rio does to connect their audience with the brand and marketers with that audience year-round. It's not just an engagement at the event.

And so the website, everything that Rock in Rio does, is around marketing solutions and the fan. And so there's a lot that we can do together.

Rich Tullo – Albert Fried & Co.

I hate to ask too many questions, but in regards to Beatport and the new launch at the end of the month, is this going to be more akin to a digital download service or IP music service? Because I just want to clarify for everybody what you're trying to accomplish with this asset. And how is that going to kind of -- are you going to cross-market it with the Electronic Zoo at the end of the month as well?

Richard Rosenstein

The answer to the last question is yes. But the -- what we've said is that historically Beatport has been a music store for professional and pro-sumer DJs, which is really a download service. However, the consumer interest in this goes beyond downloads, and in fact, many of our consumers are not interested in downloads and paying for a song, they're interested in streaming.

And so what you've -- what I can say so far is that you've heard from the likes of T-Mobile that -- looking with their un-carrier [ph] offering, they've said that they're offering bandwidth-free streaming for a variety of services, and they specifically called out Beatport for a new streaming service to come as a partnership. So it wouldn't be unreasonable to assume that there's a streaming service coming from Beatport, so.

Rich Tullo – Albert Fried & Co.

And with about 50 -- with about 50 million visits over the last 12 months, if this is a streaming music service, this would put you in perhaps the top five or ten of all IP music services on --

Bob Sillerman

Well, more than that -- more than that, Beatport, well, yes, it does have 50 million unique, in and of itself should be a very profitable [indiscernible] not just a download service. It has never had a mobile site. Think about that. We bought a 50 million populated web-only initiative that will soon be mobile and will take advantage of [indiscernible] interest in everything EMC.

Joe Jaffoni

Operator, next question?

Operator

Thank you. Our next question is from the line of Ben Mogil from Stifel. Please go ahead.

Ben Mogil – Stifel Nicolaus

Hi. Good morning. Thanks for taking my question. Sort of one for Rich and one for Bob.

Rich, in terms of sort of we look at say the second half of the year from an SG&A perspective, when I sort of look at last year, you know, ex stock-based comp, you were running about $42 million for the second half. If I look at this year 2Q, you're running at about $32 million or so ex stock-based comp. Can you kind of give us a kind of a range and how we should be thinking about SG&A in the second half of the year?

Richard Rosenstein

Sure. I look at SG&A in aggregate as the SG&A not only of corporate overhead but the SG&A at each of our operating entities, and so it's a little confusing to look at it in that way. I look at it more simplistically, which is last year we had corporate overhead in the neighborhood of $20 million or so, about $5 million a quarter, $4 million to $5 million a quarter.

This year it's running, up until now, it's been running at about double that, largely due to the investments in platform that we've identified. And so those are likely to remain a bit elevated in the second half of the year but not at the same rate that they were elevated in the first half of the year. And then I think you'll see that starting to move in to the support of the platform revenue over the next year or so.

And also recognize that we're expensing so much of this, whereas, you know, it might be possible to capitalize it, we're just running it through our income statement.

The SG&A at each of the operating units, one of the things that we're doing is we're centralizing a number of core functions to support the operating units, and so increasingly I would expect the -- some of the overhead out of the operating units might be reduced over time as we create some of those efficiencies here at corporate.

Ben Mogil – Stifel Nicolaus

Okay, thanks. That's helpful, Rich.

And another for Rich or for Bob, a decent number of articles in the press about just the sheer number of festivals that have been launched over the last couple of years. When you sort of do your normal channel check [indiscernible] Asians, et cetera, I mean obviously they're loving it from the perspective of more outlets for their acts, but they've been seemingly pricing pretty aggressively on that front as well. Can you talk about your view on that, your view on the supply changes, how you sort of feel you guys can navigate that environment?

And also on the cost side, are you seeing sort of any real change in the cost structure?

Bob Sillerman

Let me ask Joe to respond to that.

Joe Rascoff

Hi, Ben.

Ben Mogil – Stifel Nicolaus

Hi, Joe.

Joe Rascoff

Let's deal with the cost one first. We have seen ups and downs in the costs going forward. The increased cost that we're seeing is in talent cost. There is increasing competition as the number of festivals increase, as you'd pointed out. There's increasing competition for talent. And that has served to drive up talent cost a bit. And we're being judicious in the way we book talents, in offering opportunities for talent to play at multiple festivals. Remember, we do about 1,600 events a year around the world, and so we have the opportunity to employ talent across the board, and thereby try to keep our talent cost down. But we have seen some upward pressure in talent cost.

On the other side of the equation, we've seen some downward savings in production costs, because we have implemented our program that we talked about a few quarters of global purchasing. So we are purchasing lighting, sound, staging and other elements across the platform of our events, and are seeing reductions in production cost in that respect.

Does that answer your question, Ben?

Ben Mogil – Stifel Nicolaus

Yes. No, that's great, Joe. And in general, are you seeing, when you see upstart festivals and, you know, not necessarily the big players like yourself and AUG [ph] and C3 [ph] that are well-capitalized, but sort of more the independents, are you seeing them kind of try one and done, like if it works, great, and if it doesn't, it's gone after the first season?

Joe Rascoff

I don't think we're seeing much of that. What we're seeing is expansion of brands. Just as we're expanding our brands geographically, so too are our other festivals doing that, Electric Daisy Carnival which is not ours, Ultra which is not ours, are going into geographies around the world, and we're seeing that as a bit of competition. But the upstarts don't seem to affect us at all.

But what we need to do is continue being judicious about the territories that we expand in and the new festivals that we bring to the populous, and we will continue to do that.

Ben Mogil – Stifel Nicolaus

That's great, Joe. Thanks for the color.

Joe Rascoff

Sure.

Operator

[Operator Instructions]

Our next question is from the line of Brian Gerald from Jefferies. Please go ahead.

Brian Fitzgerald – Jefferies

Thanks guys. Two quick questions. I think as you added a second weekend of Tomorrowland, did you see the same amount of leverage that you saw as you added a second weekend at Stereosonic, if you could differentiate the two?

And then on the RFIDs at Mysteryland, would like to hear the monetization improvement. Can you talk a bit about away from that RFID bracelet, what you're seeing in terms of monetization improvement at other festivals? Thanks.

Bob Sillerman

Well, Stereosonic is a tour, if you will, not -- plays in different locations. So the comparison to Tomorrowland is not directly accurate, although it certainly adds more dates and spreads many fixed costs other than talent over a larger base. So it's enjoyed that kind of success.

The lessons that we've learned from all of the festivals implemented only [indiscernible] at Mysterytland is that the kind of initiatives like RFID are things that this generation in particular not only understands but demands. That's why the partnership with both MasterCard and viagogo [indiscernible] all cross-border transactions and all possible ways of payment are so important because historically [indiscernible] we dictated the people how they could buy their tickets. Now people will be able to buy everything before, during, after, in between, all of their attendance and unrelated to their attendance. However, they want not, however, we want. It's an impactful difference. As Rich said, just at the festival we saw a doubling of food and beverage and merch revenue. Of course that's very meaningful. But that is just the tip of the iceberg.

Brian Fitzgerald – Jefferies

Great. Thanks, Bob.

Bob Sillerman

Yes.

Operator

Thank you. And our last question is from the line of Todd Morgan from Jefferies. Please go ahead.

Unverified Participant

Hey guys. This is Chris [ph] filling in for Todd Morgan. I wanted to ask about the $50 million to $60 million in contracted marketing agreement that you guys have.

Bob Sillerman

Yes.

Unverified Participant

I would assume the bulk of that contribution shows up in the backend of the first year of the contract. Is that in fact the case? And if so, could you guys talk a little bit about how that sort of flows into EBITDA and the nature of how it fits the book [ph]?

Bob Sillerman

I wouldn't make that assumption. It's true that, from the guaranteed portion and based on activity, that logically more will take place in 2015 than 2014, but I wouldn't necessarily use the phrase the bulk of it. I would also emphasize that, in the indenture, there's a very specific and very limited definition of what we are permitted to pro forma, and that is only revenue that is contracted. That does not include any, for instance, of the under-negotiation increase in additional services and events. But as I said in my initial comments, every single [indiscernible] I've asked for, and in most cases I bought more, with the exception of [indiscernible] that just started. So that definition limits what we can include, whether there will be incremental performance-based to be sure, but I mean we've proven [indiscernible] with the affection [ph] of the partners who are signing up for more.

For instance, in the Corona contract, there is a performance-based fee that is tied to KPIs [indiscernible] but was to be evaluated after the completion of the program. We grew those performance ones early in the program, and as such [indiscernible] robust compensations [indiscernible] we hope will be greatly expanded relationship with them.

Timing on these things is variable, but I stress, we're only permitted to include guaranteed EBITDA, not revenue, guaranteed EBITDA, from these things.

So I hope that's helpful.

Unverified Participant

Yeah, that's helpful. Thank you.

Operator

Thank you. I'm showing that there are no further questions from the phone lines at this time. I'd like to turn the call back to Mr. Rosenstein for closing remarks.

Richard Rosenstein

My closing remark is to turn it over to Bob for closing remarks.

Bob Sillerman

I'll turn it to Joe. No.

This is -- this has been the quarterly call I've been looking forward to. I'm very comfortable [indiscernible] and I'm demonstrating that by [indiscernible] that is put in place and details of which will be forthcoming.

So with that, I appreciate everybody's interest and support. And we look forward to connecting with you in the near future. So, thank you.

Operator

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation, and we ask that you please disconnect your lines. Thank you everyone and have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: SFX Entertainment's (SFXE) CEO Bob Sillerman on Q2 2014 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts