SFX Revenues Rise, But Deepens Loss in Second Quarter
SFX, the young conglomerate built around EDM concert promotion, multiplied its revenue but experienced a deeper net loss in the second quarter. Revenue grew 199 percent, to $82 million, while net loss increased 77.6 percent, to $43.7 million.
"We're on our way," said Robert Sillerman, chairman and CEO, during the earnings call. "It's an exciting period for us." The results sent SFX shares up 6.8 percent to $6.93 Thursday morning. However, the share price is down about 42 percent since the company's initial public offering in October.
Most of the revenue gain in the second quarter can be attributed to acquisitions that were not acquired or fully under SFX's control in the second quarter of 2013. Pro forma revenue, which includes the revenue of those acquisitions, grew 17.9 percent to $82 million from $69.6 million. Put another way, if you assume acquisitions were included in SFX's second quarter of 2013 revenue, year-over-year organic revenue growth was 17.9 percent.
But, while acquisitions accounted for much of its growth, SFX did increase same-store sales, so to speak. Attendance at existing festivals grew 33 percent, while both revenue and earnings (before interest, taxes, depreciation and amortization, or EBITDA) grew 39 percent.
Another factor that impacted the second quarter is the company's seasonality. SFX has a highly seasonal business cycle that is heavily weighted toward the third and fourth quarters. Of this year's 76 festivals, 50 will occur in the second half of the year, 9 occurred in the first quarter and 17 took place in the second quarter. Thus, the company's business model won't truly kick in until the second half of the year.
Pro-forma EBITDA of -$10.2 million included $4.8 million of investments in new festivals, a $4.1-million impact from the shift of concerts to the second half of the year (thus hurting the comps) and a $500,000 charge related to SFX's share in Rock in Rio losses during the quarter and startup costs for SFX's Rock in Rio concert in Las Vegas next year.
Losses are to be expected in the company's early days. SFX is building a diversified company and following the template established by Live Nation: Draw fans to concerts, generate money through ticketing and leverage concerts and online properties to attract sponsorship dollars. It has a revenue share deal with viagogo for secondary ticket sales. And it has brought on board such brands as MasterCard, Anheuser-Busch InBev and T-Mobile.
To better disclose the impact of brand partnerships, SFX introduced to the earnings release a metric called Qualified Marketing Agreement, or QMA. A QMA is a contractually guaranteed agreement with a quantifiable value in the year of agreement. The QMAs in place are expected to contribute between $50 million to $60 million to EBITDA over the next 12 months starting with the third quarter. Those estimates exclude upside potential included in several of the brand partnerships as well as non-guaranteed payments. "As such, it can be considered a base figure," said CFO Richard Rosenstein.