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 third 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 8K 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 GAAP 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. There have been no major changes in our business conditions or outlook since the last time we spoke. And while we see signs of promise around the world, some live events return. Most regions we operate in continue to have various restrictions on live events. For now, we continue to maintain a strong cash management discipline while planning for the ramp-up to resume live shows as soon as possible. Joe will have a further update on cost and cash management efforts later in the call. We also continue to see strong fan demand across the board. Our sales and survey data tell us fan demand will be there when the time is right. Our refund rate on rescheduled shows remain consistently low, with 83% of fans globally keeping their tickets. Our recent global survey indicates that 95% of fans are planning to return to live events when restrictions are lifted, the highest point of confidence since the start of the pandemic. Festival on sales for next year have been strong, with EDC Las Vegas 2021 selling out in 24 hours at a higher capacity than last year. and ticket sales for Reading, Greenfield, and Isle of Wight festivals pacing ahead of last year. And we are encouraged by the enthusiasm for recent events and gatherings that have started to take place, including our first sold-out arena tour with 20,000 fans in New Zealand, where business is headed back to normal. Meanwhile, we are working on a roadmap to get back to live safely. We are encouraged by progress on testing technology, treatments, and vaccines, which will help us build our plans. We still expect shows at scale next summer, but recognize that some exact timeline of this return will vary by region, so we continue to focus on remaining flexible. In preparation, there are two areas we are focusing on. On the technology front, Ticketmaster is creating the tools we need to make sure live events can deliver a variety of safe precautions when returning. New products such as our social distancing seat mapping tool and timed entry technology. been created to give venues the flexibility to plan how to manage everything from venue access to box office interactions existing products including our safe text digital ticket technology can fulfill new needs including being a key facilitator for contact tracing and the ability to integrate third-party applications with our digital ticketing platform enables a range of customizable features from contactless concessions to testing and health questionnaire tracking on the concert front Live Nation is developing a set of standards for executing shows at our venues. We are collaborating with health experts to develop show guidelines to put in place procedures which can adopt to various situations across all regions. From venue sanitation procedures to fan-friendly policies on ticket purchases and the latest testing options, we are setting standards that will give bands, crews, and artists peace of mind before, during, and after the show. As we look ahead, it is clear the path to live will not be a straight one. As such, we will maintain flexibility and focus on innovating during these times. On November 19th at our investor event, we will outline in more detail the opportunities we see emerging for our business. With that, I'll turn it over to Joe.

Thanks, Michael, and good afternoon, everyone. We've added some additional tables to the back of our earnings release, so this quarter I will hit the key numbers as opposed to reconciling every number as I did last quarter. As Michael noted, we've continued to strengthen our financial position during the third quarter, and all the key numbers are in line with or better than what we forecast last quarter. As a result, we are confident that our actions taken to cut costs and increase liquidity will provide us with the runway we need until the time is right to bring shows back. As part of this, we have further reduced all discretionary spending by another approximately $100 million and have now lowered costs for this year by over $900 million and reduce our cash usage by $1.5 billion relative to our pre-COVID plans. With these reductions, we have lowered the estimate on our operational cash burn rate to $110 million per month and our gross burn rate to $175 million per month on average for the last nine months of the year and prior to the benefit of contribution margin generated by the business. Included in our gross burn estimate is approximately $40 million in severance expense estimated through year end, which we expect to generate over $200 million in annual run rate savings. Our free cash at the end of the third quarter is $951 million, and along with over $950 million of available debt capacity, we have $1.9 billion in readily available liquidity. At the same time, refund rates through Q3 remain low at 17% globally. As a result, deferred revenue is at $1.4 billion as of the end of Q3, and we have increased our forecast on what we expect at the end of the year, now $1.4 billion. Turning to our Q3 results, starting with AOI, our AOI loss for the quarter was $319 million, which consisted of $337 million in operational cash burn, $50 million in other non-cash fixed costs, and $68 million of contribution margin, which included $73 million from operations along with other one-time items. One point to note here is that this CM from operations includes our sponsorship business, where we've been able to maintain 90% of the commitments that were in place at the end of February. The bulk of this sponsorship moved into 2021, but some of it was repurposed into other assets, including streaming concerts. Looking at free cash, we ended the third quarter with $951 million in free cash compared to $1.8 billion at the end of Q2, in line with what we expected and consistent with what we told you last quarter. This translates to an $821 million reduction in our free cash metric for the quarter. As part of this, we had a reduction in free cash of $333 million due to working capital timing, which is part of the $415 million flip we told you last quarter would be happening in Q3 and Q4. We expect the remaining $80 million of this timing impact will affect free cash in Q4. The majority of this timing shift resulted from shows scheduled for Q3 of 2021, shifting from long-term deferred revenue to current deferred revenue. So is an accounting shift as opposed to actual use of cash. As a result, Our total effective cash burn was $488 million for the quarter, approximately $160 million per month, which aligns with our gross cash burn net of contribution margin generated in the quarter. Now ticket refunds, as I indicated, the global refund rate for Live Nation concerts that are rescheduled and are in or have gone through a refund window is 17% through the end of Q3. Festivals have generally canceled this year's event. But for festivals where fans can retain their tickets for next year's show, 63% of fans are doing so and keeping their tickets. A bit more detail on deferred revenue, which is tracking ahead of where we told you last quarter we were going to be. At the end of the third quarter, deferred revenue for events in the next 12 months was $1.4 billion. Of the $421 million increase, $383 million was due to a shift from long-term deferred revenue to current deferred revenue for concerts rescheduled to Q3 of 2021. At the end of the third quarter, we still had $103 million of long-term deferred revenue, most of which will flip to short-term deferred revenue by the end of the year. Given this, along with a projected Q4 outflow of $74 million from additional ticket refunds, we now forecast deferred revenue of $1.4 billion at the end of the year prior to any additional ticket sales. Given the uncertainty in the market on timing of shows returning, we cannot give any more guidance beyond the burn rates and refund levels we just gave you. With that, let's open the call for any questions for Michael, Kathy, or me.