Live Nation Entertainment, Inc.

Good day, everyone. My name is Christina, and I will be your conference operator on today's call. At this time, I'd like to welcome everyone to the Live Nation Entertainment's first quarter 2020 earnings conference call. Today's conference is being recorded. Following management's prepared remarks, we will open the call for Q&A. Instructions will be given at that time. Before we begin, Live Nation has asked me to remind you that this afternoon's call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ, including statements related to the company's anticipated financial performance, business prospects, new developments, and similar matters. Please refer to Live Nation's SEC filings, including the risk factors and cautionary statements included in the company's most recent filings on Forms 10-K, 10-Q, and 8-K for a description of risks and uncertainties that could impact the actual results. Live Nation will also refer to some non-GAAP measures on this call. In accordance with the SEC Regulation G, Live Nation has provided a full reconciliation of the most comparable GAAP measures and their earnings release. The release, reconciliation, and other financial statistical information to be discussed on this call can be found under the Financial Information section on Live Nation's website at investors.livenationentertainment.com. It is now my pleasure to turn the conference over to Michael Rapinoe, President and Chief Executive Officer of Live Nation Entertainment. Please go ahead, sir.

Good afternoon. Thank you for joining us. I hope that everyone out there is healthy and safe. On our last call, we were on track for tremendous growth across all our businesses, with both fan demand and artist touring increasing on a global basis. Then in mid-March, we came to a halt. We have held no concerts in almost two months. Despite these challenging times, we continue to have full confidence in the long-term supply and demand of the live concert industry. Live Nation's leadership position and our business model's ability to successfully deliver AOI growth and shareholder value. With that context, let me update you on our top priorities at this point. Our top priority is to ensure the health and safety of our employees, fans, and artists. Like most of the world, we have been working remotely since mid-March, and we will return to work only after there is clear consensus that it is safe to do so, and then in appropriate numbers with expanding cleaning and social distancing protocols. Similarly, we recognize the experience that our venues will change when concerts start back up. And we're working with medical experts and public health officials on procedures to keep people safe while enjoying our shows. When we asked over 8,000 fans across North America about their requirements for returning to shows, they had two clear priorities, with 85% of fans stating they want increased cleaning and sanitizing of the venues and ready access to hand sanitizing stations. while no other action received more than 40%. In addition, we expect to have additional safety protocols in place, potentially including reduced capacity, touchless concessions, and creative ways to apply our digital ticketing technology. Our next priority is planning for the reopening of concerts when the time is right. First and foremost, we will let the facts and science tell us when we should start putting on concerts again. We're working with government at federal and state levels in the U.S., and across all markets, and building plans that fit with their reopening phases. In the meantime, we have fortified our balance sheet to have the resources to ramp up quickly when the time is right. We know from fans that demand will be there when the shows return. Globally, over 90% of fans are holding on to their tickets for rescheduled shows when refunds are available. That's the clearest demonstration of pent-up demand that will enable us to quickly start concerts back up. Looking a bit farther out, given that 80% of shows are rescheduled rather than canceled, and as noted, almost all fans are holding on to their tickets, we believe 2021 can return to show volume and fan attendance at levels consistent with what we've seen in recent years. As we plan the resumption of concerts, we're also seeing a number of innovations within our company as artists look to stay connected to fans. Almost a million fans have come to our Live at Home site to find virtual tours and acoustic performances from their home. And millions of fans in over 100 different countries have joined Insomniac's virtual rave-a-thons, while drive-in concerts are finding a new purpose in socially distanced concert halls. Throughout all this, we're still motivated by the long-term potential of global live events. It's in the DNA of us to want to gather, socialize, and celebrate. And as we provide assurances on health and safety at the venue, we expect our business to build back. Live Nation is in the best position in the live ecosystem to play long and to capture new opportunities, continue leading the industry into the future. I will now hand the call over to Kathy and Joe, who will provide additional full details on our balance sheet.

Thanks, Michael, and good afternoon, everyone. Before getting into the quarter, I want to give a quick update on our cost and cash management programs, which we launched in March. We previously announced initiatives to cut costs by $500 million this year, and we've surpassed that goal and are now targeting $600 million in cost reductions. We've also expanded our cash management program, which including our cost initiatives, now eliminates or defers $1 billion in cash requirements this year. As a result, we project our monthly operational cost burn rate to be approximately $150 million per month for the second quarter and through the remainder of the year. Now I will walk through the impact of the COVID shutdown on each of our businesses during the first quarter. As we previously indicated, at the end of February, we were headed toward delivering Q1 AOI in line with last year, approximately $115 million. With the shutdown, we had a $21 million AOI loss for the quarter. The direct COVID impact in the quarter was approximately $165 million, which was partially offset by approximately $30 million in cost savings during the quarter. Starting with concerts, our concerts division went from $5 million of AOI in the first quarter of last year to a loss of $88 million this year. Through February, we had promoted 5,500 shows for nearly 8 million fans, up year-on-year by 17% and 2% respectively. We then ended the quarter with 7,100 shows for 10.4 million fans, down 14% and 30% respectively from last year. With 2,100 March shows canceled or rescheduled to a future date, we lost approximately $40 million of anticipated contribution margin on those shows. Additionally, we had a one-time expense of approximately $25 million for sunk costs for canceled shows, which included the cost of paying show employees for those shows that didn't happen during the second half of March. We had always expected our concerts AOI to be down in Q1, given the show activity level and increased fixed costs of approximately $40 million, largely associated with acquisitions made over the last year. but unfortunately the March shutdown led to a substantially lower AOI. On a separate matter, our OSESA acquisition was approved by Mexico's regulators in April. We've now entered into discussions with CIEA and Televisa regarding the timing in terms of the previously announced OSESA transaction and do not expect to close the transaction until we have greater clarity on the duration of the shutdown in Mexico and its impact on OSESA's business. Next, Ticketmaster. Our ticketing division AOI fell from $100 million in the first quarter last year to $45 million this year. Similar to our concerts division, through February we were on track for a strong Q1 with fee-bearing GTV up 31% to $3.2 billion. Net of refunds, we then ended the quarter with $3.0 billion in fee-bearing GTV down 22% from Q1 last year. This drastic reduction in fee-bearing GTV led to an approximately $65 million reduction in contribution margin relative to our February forecast for the business. In addition, we refunded 5.2 million tickets for $432 million of GTV during March, and along with an accrual for future refunds of shows canceled in April, this resulted in a $35 million reduction in contribution margin. To give you a little more color on our refunds through this past weekend, Ticketmaster has had 65,000 shows impacted by the virus. Virtually all canceled shows are currently refunding, and about 80% of rescheduled shows or postponed shows are currently offering refunds. For Live Nation concerts, about 9,000 shows have been impacted. Of those shows, about 20% have canceled and 80% are rescheduling. Again, almost all canceled shows are currently refunding, and over 90% of rescheduled shows are offering refunds, with the remaining shows scheduled to be refunding in the near future. As Michael said, less than 10% of fans are taking a refund for the rescheduled or postponed shows when given the choice, with over 90% of them holding onto their tickets for a future date. Finally, sponsorship. Our sponsorship business was the least impacted by the March shutdown, losing less than $5 million in contribution margin as a result. And this quarter delivered $47 million in AOI, up from $40 million in the first quarter last year. Overall, we recognize the next few quarters will not be business as usual, so we won't be giving any direction on key operating metrics until we start selling tickets and promoting concerts again. Our focus is on managing our cost structure and cash burn, ensuring a strong balance sheet as we come out of this shutdown. And with that, I will turn the call over to Kathy.