Live Nation Entertainment, Inc.

Good day, everyone. My name is Erica, and I will be your conference operator on today's call. At this time, I would like to welcome everyone to Live Nation Entertainment's second 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 risk 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 Form 10-K, 10-Q, and S-K for a description of risk 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 to the most comparable gap measures in their earnings release. The release reconciliation and other financial or 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 and thank you for joining us. Over the past three months, our top priority has been strengthening our financial position to ensure that we have the liquidity and flexibility to get through an extended period with no live events. Our expectation that live events will return at scale is the summer of 2021. with ticket sales ramping up in the quarters leading up to these shows. Importantly, we remain confident that fans will return to live events when it is safe to do so. Our strongest indicator of demand is that fans are holding on to their tickets, even when given the option of a refund. Through the end of the second quarter, 86% of concert fans are keeping their tickets for rescheduled shows, demonstrating their continued desire to attend concerts in the future despite the current uncertainty. Our expectations for a robust outdoor summer season in 2021 are also reinforced by the two-thirds of fans keeping their tickets for cancelled festivals so they can go to next year's show. Along with the strong early ticket sales for the festivals in the UK next summer, for example, downloads in the Isle of Wight are pacing well ahead of last year. Between the tickets held by fans for the rescheduled shows and these festivals on sales, we have already sold 19 million tickets to more than 4,000 concerts and festivals scheduled for 2021, creating a strong baseload of demand that is pacing well ahead of this point last year. At the same time, surveys continue to show that concerts remain fans' highest priority social event when it is safe to gather. with almost 90% of fans globally planning on attending concerts again. Understanding that it'll be some time before we put on concerts at scale, we're innovating to find new and creative ways to help artists keep fans connected in the meantime. Virtual concerts have proven to be a huge demand with fans, so we established a live-from-home platform to provide a convenient place for fans of all types to find performances from their favorite artists. In the second quarter, we had 67 million fans view over 18,000 concerts and festivals globally. Among our highlights, this past weekend, we streamed 150 performances from our virtual Lollapalooza Festival. Given the tremendous popularity of these shows, we are seeing the potential for live streaming to become an additional long-term component of our concert business, allowing fans in other cities or those who can't attend to enjoy the concert as well. At the same time, recognizing fans want to get back to attending concerts in person as soon as possible, we've launched socially distanced shows when and where permitted, included in New Zealand, France, Denmark, Spain, Germany, Finland, and as well as cities across the U.S. While this is a challenging time for everyone, the live events business in particular, there are a few things that I'm confident about. We are well positioned to weather this crisis, and we will get through this. When it is safe to return, we will have an abundance of fans and artists ready to join Live Music again. And Live Nation will do everything in its power to meet our responsibilities to artists, fans, our employees, and everyone else affected by the shutdown by bringing back as much live music as fast as possible when it is responsible to do so. With that, I will turn the call over to Joe for more detail on our results.

Thanks, Michael, and good afternoon, everyone. As Michael mentioned, our top priority during this time has been strengthening our financial position. We are confident that our actions taking to cut costs and increase liquidity will provide us with the runway we need until the time is right to bring shows back. We have now reduced costs for this year by over $800 million and reduced our cash usage by $1.4 billion relative to our pre-COVID plans. With these reductions, we have lowered the estimate on our operational cash burn rate to $125 million per month and our gross burn rate to $185 million per month on average for the second quarter through the end of the year. At the same time, we raised an additional $1.2 billion, providing us with $1.8 billion of free cash at the end of the second quarter, along with over $950 million of available debt capacity. totaling over $2.7 billion in readily available liquidity. And last week, we amended our credit agreement to suspend our maintenance covenant to a more favorable liquidity metric to Q4 of 2021, providing us with added flexibility until business returns. Turning to our Q2 results, starting with AOI, our AOI for the quarter was a loss of $432 million. driven primarily by operational fixed costs of $334 million, inclusive of approximately $60 million in benefits from various government payroll funding programs. So with our cost initiatives, we expect operational fixed costs to average approximately $125 million per month for the second quarter through the end of the year. We then had negative $98 million in contribution margin, largely driven by one-time events in Ticketmaster and our concerts business. For Ticketmaster, recording refunds for 11 million tickets across 42,000 shows generated a loss of approximately $79 million for our portion of the service fees. In our concerts business, writing off sunk costs associated with concerts that have been canceled or rescheduled for 2021 generated an expense of approximately $87 million, about two-thirds of which is a write-off of advertising expenses given the calendar year shift in show timing. Partially offsetting these expenses, we had $68 million of contribution margin generated by business operations and insurance recoveries for events impacted by the pandemic. Looking at pre-cash, we ended the first quarter with approximately $820 million in pre-cash, added $1.2 billion in cash from additional debt during the second quarter, and then ended the quarter with $1.8 billion of free cash. This implies $250 million in cash used during the quarter. As part of this, we had a timing benefit to free cash of $415 million, which we'll flip back out in Q3 and Q4. Of this timing benefit, $225 million is accrued but not yet paid ticket refunds, and $190 million is working capital timing. This puts our total effective cash burn at $665 million for the quarter. The largest one-time impact was the payment of Ticketmaster refunds, which totaled $110 million for our portion of service fees refunded to PANS during the quarter. We then had our operational cash burn, starting with our $334 million in operational fixed costs, then adding back $54 million of non-cash benefits, our operational cash burn totals $388 million for the quarter. In addition, we had $217 million of ongoing non-operational cash burn items, including capital expenditures, acquisition activity, net advances, and interest payments. These items ran slightly higher for the quarter due to contractually obligated payments for past acquisitions, So we expect this non-operational component to our cash burn to average approximately $60 million per month for the second quarter through the end of the year. Finally, we had $50 million of inflows from operations and improved cash management. Lastly, let me give you an update on ticket refunds and how that's impacted our deferred revenue. Ticket refunds first. The global refund rate for Live Nation concerts that are rescheduled and are in or have gone through a refund window is 14% through the end of Q2. Festivals have generally canceled this year's events, but for festivals where fans can retain their tickets for next year's show, as Michael mentioned, about two-thirds of them are keeping their tickets. Across both concerts and festivals, we've refunded $218 million for rescheduled shows since March. In addition, we have refunded $477 million for canceled shows over this period. Of this $695 million total, $230 million was funds held by third-party venues and $465 million from live nation health funds. We still have some shows in the process of rescheduling or are rescheduled but not yet offering refunds. If we apply the same fan behavior and mix on these events, we forecast approximately $270 million in additional fan refunds of which about $180 million will be from live nation-held funds. Given this estimate, we have shifted these funds from deferred revenue to accrued but not yet paid ticket refunds. Now, to look at how these refunds flow through our event-related deferred revenue, at the end of the first quarter, our deferred revenue for events over the next 12 months was $2 billion. At the end of the second quarter, Deferred revenue for events in the next 12 months was $941 million. Of this approximately $1 billion decrease, $405 million was due to a shift from short-term deferred revenue to long-term deferred revenue as a number of concerts were shifted into the second half of 2021. As a result, we had $486 million of long-term deferred revenue at the end of the second quarter. of which we estimate approximately $400 million will shift back to short-term deferred revenue over the course of the year. The Live Nation concert ticket refunds recorded in the quarter then accounted for $465 million, and estimated additional future refunds from Live Nation held cash totals $180 million. We then had ticket sales in the quarter that generated roughly $30 million of new deferred revenue. Looking at the rest of the year, our forecast for event-related deferred revenue at the end of the year, prior to additional ticket sales and based on our projected refund rates, is approximately $1.3 billion. Given all the uncertainty in the market and timing of shows, we cannot give you any further guidance beyond these burn rates and refund levels we just gave you. And with that, I will turn the call over to Kathy.