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.

If you would like to ask a question at this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press the pound key. Thank you. And your first question is from David Cornoski with JP Morgan.

Hi. Thanks for taking the question. Just recognizing, you know, that 2021 may be a fairly unique year in terms of how concerts and festivals are structured. But, you know, when you look to 2022, just a long-term general, you know, are you confident that the general economics that drove the concert industry will return? or should investors expect some sort of change as it pertains to relationships with artists, with venues, or really on any front?

I think, this is Joe. Thanks, David. I think the baseline economics, the promoter, the artist, the venue, those economics will not materially change structurally going forward. I think what you'll see, and we've hit a few points, is we've spent this time continuing to think about our business. We've looked at how it is we can take some costs out. And I gave you some numbers on over $200 million in reduced run rate. And we've also spent our time thinking about just how does each piece of the flywheel operate a bit better going forward? And how do we keep thinking about new ways to drive the overall economics of the business? But I don't see any change in the core historical dynamics on the key players.

Okay. And just to follow up on the 200, should we think of that as permanent cost savings or some of that comes back when the industry begins to scale up again?

You know, I think as we look at 2021, we expect to see those savings to be largely in place. And then 2022 is we've got to wait and see exactly what the scale is. If 2022 is as big as we think it could be, then we'll see what costs are needed. But we think that the bulk of this flows through the business and is a structural savings.

Maybe just to ask one, a little bit long-term in nature, an area that's gotten a little bit more attention lately is virtual concerts. I was just wondering if you could update your views on the opportunities to the live nation, either as it pertains to selling incremental virtual access to your shows or just continuing to stage your own productions like you've done recently. It was live from home.

Thanks. Thank you. It's Michael. We believe that virtual is a great kind of compliment to the core business. You know, there's going to be always Beyonce's and BTS's and Billie Eilish's of the world that can probably do like the old school pay-per-view if you think of it that way. There's always a few global superstars that probably can go direct and and drive some significant dollars, but, but generally, um, this business we think is a compliment to, uh, and a promotion to their core concert. So, so we think it's a great opportunity to listen. We've been dabbling in virtual for years, whether it was streaming through Twitter and Yahoo and streaming ourselves for sponsors. So we've been streaming our festivals on YouTube for years. Um, We now look at that as a continuation of that. And we think going into 21 and 22, we'll be streaming a lot more of our concerts to fans that maybe either can't show up at the event or some that may want to still stream on our app when they're at the event because there's some added value of digital back rooms or camera angles, et cetera. So we think it's a great compliment. Helps us probably drive a few incremental dollars per show. and also has always been a great tool for sponsorship fulfillment.

Thank you. Your next question is from Brandon Rolf with LightShed Partners.

Hey, guys. What I really want to know is who won Georgia, but Short of that, I wanted to take a step back on Ticketmaster. With Jared's departure, you promoted your head of international who's actually based abroad. Is there anything to read into that? Is international a bigger focus? And more broadly, maybe if you could discuss the strategic priorities at Ticketmaster under the new leadership. Thanks, Brandon.

You know, there's nothing to read. This is like everyone is probably saying COVID excelled any strategy you had. In our case, while we've been sitting tight, we've been able to do a bunch of restructuring and rethinking of the business that we had planned over the next three years that we were able to do in the last three months. So going global on Ticketmaster was always the number one priority. We always knew that our greatest opportunity for, you know, kind of a The TAM on Ticketmaster is going to be outside of the US. It's an incredible, powerful brand. We've expanded into markets where Live Nation has content. It's an allocation market. So as your concerts grow, you can feed your ticketing business. So it's been a huge opportunity. We haven't been successful at getting the global technology architecture excelled as fast as we wanted. The US is always such a big kind of drag on resources when we're running at full steam. that we always get that projects get slightly pushed back to solve the latest U.S. technology need. This just let us excel the strategy that says we're going to now have one global technology stack, a much better efficient architecture around it, common global products that we can roll out at once, and help excel our international expansion. So I myself am the product when I moved from Toronto to London and lived there for five years. I think it was the single reason Live Nation is what it is today and plays global is when you see from the outside in all the opportunity, it gets you thinking differently. So I believe that the fastest way we would grow Ticketmaster to a global brand was let someone from the global side who's working in the business every day, take the reins and drive that product. So we've been working with Mark for years, and they've been having a product strategy to get there. We just excelled the leadership team to do it now. As far as the priorities, sorry, go ahead.

Go ahead. No, you go ahead.

Yeah, I think the priorities haven't changed, although when we get back to business, they're going to continually be about We've got an incredible two businesses at Ticketmaster. We're at the core. We're an enterprise platform, white labeling teams and venues all around the world. So whether it's the NFL or the Phoenix Suns or ultimately artists, we're a great software platform to power your ticket needs. And we're going to get better and better at that in terms of our do-it-yourself and white labeling and empowering artists and venues and teams and to deliver their ticketing needs. It's been a great kind of test platform is the virtual business. We've overnight had to become a virtual ticketing company at scale across the globe. And we've been able to do that. We are powering through our portfolio all of these virtual shows and selling tickets to them. So that's been what we do at Accor. And then, too, we've always talked about being a better marketplace, making sure that the marketplace, the app, making sure that we have full inventory on the shelves, adding more inventory to the shelves, whether it's Ticketmaster clients or not, being a true marketplace where consumers can find tickets, buy them, stock the shelf through secondary, third-party partners, adding more content to the shelves is the strategy. So just take that global and those two core strategies continue. We've got lots of clients to service on a global basis. We're underserviced and undervalued. under market shared in many markets where our concerts are strong. And we're rolling out our global marketplace best-in-class practices across our global marketplaces that are sitting on old platforms.

Great. And then a few weeks ago, Mark Geiger had announced his Save Live club roll-up. I'm wondering what impact, if any, you think he can have on the industry with that.

Probably the same one he had at William Morris. But, you know, I think that there's a lot of talk on the independent venues, save our stages, et cetera. And there's no doubt everyone in live service providers and companies are having a rough year. You know, we've been very focused on making sure that the 12 million employees in lives from the hairdresser to the lighting crew to the security guards get some stimulus and help. We think those people are in the most need. So we've been very vocal about that. When it gets to the venues in general, the thesis out there with Mark Geiger and some others is that these independent venues are so distressed that they're going to throw someone the keys at a very cheap price, and you can maybe roll up some of these cheaply and have some scale. Well, the thesis is basically broken at the first point is any great live club is not throwing anybody the keys cheaply. There's a lot of capital out there. So if you own the Troubadour in Los Angeles, it's a legendary business, and you're having a tough year, You're not selling to Mark Geiger or anyone else one or two times multiple your access to capital, PPE loans, lots of ways you can keep your business afloat while you get through the storm. So we don't think that there's a huge opportunity that there's a fire sale happening at that level. Now, number two is, you know, we have a consolidation of clubs in our business. Clubs on their own are a tough business if you scale them up on their own. they're not a really, really fruitful business on their own. So we like them as part of our overall ecosystem. But we don't believe that clubs, whether you own 10, whether you own 20 of them on their own, provide you much global synergy or U.S. synergy to leverage off of. So we hope all these clubs find their way through this pandemic like we hope all live service providers do. find their way through this and that the government and stimulus programs can help them survive it. But we don't think that there's probably many that are going to fire cell to anybody because there's too many great options for them. Great. Thank you.

Your next question in queue is from Ben Swinburne with Morgan Stanley.

Thanks. Good afternoon. First, Michael, just what are you hearing from artists and artist management on getting back out? And I'm specifically wondering, what's your best guess in terms of timing where we start to see, you know, major tours announced and eventually, you know, and tickets put on sale, you know, at quote-unquote at scale? Just wondering what your latest crystal ball tells you.

Well, listen, the important part is the demand there and the supply there, as we know, right? So that's obviously what we're playing for. So we know that the fans still are dying to get to the show, and we know that artists want to get back on the road when it's safe, depending whether you're, you know, what age you are as an artist, you may have a different timeline and risk factor. But many artists that we're talking to are just waiting, as we all are, looking on a week-by-week basis to figure out, when is there a plan in place when they can start looking to uh to get on the road so i i you know we we've been always talking to artists about if you have a 20 tour moved into 21 you know for the summer into the fall let's hold on to that let's see how the next few months go through uh through testing and vaccines and a proper national plan etc um and we're telling any artist that has a new tour that's thinking of going on the road let's look at the fall but we don't need to make those decisions until January, February. So if you have a new, if you have a new tour, well, let's think about the fall into 22, but let's sit tight until January before you start moving any, any costs in place to get ready. So that's kind of the general census. Let's, let's reschedule. Let's get through 21 summer with whatever we rescheduled from 20, add new stuff into the fall to 22 as we get a better visibility of, into January.

That makes sense. Are there any insurance related issues that you guys are having to work through maybe outside the festivals or any large events or you think that's pretty well baked at this point?

You're talking about insurance on the historical, what's happened to us this year?

No, I meant more is, you know, we obviously see like in film production, the studios have to do, are dealing with more and more, you know, health-related protection and insurance, frankly, from having to shut down. I'm just wondering if that's impacting, you know, your business at all.

Well, because we're talking about, as Michael just said, really summer of getting back to scale, I think, first of all, we remain optimistic that the government here in the U.S., like many of them internationally, have sorted out and made sure that there's not spurious liability from everybody doing the appropriate actions. And then that's why we've got the programs in place. And, you know, what we're doing is we're working with the public health officials in every market to figure out what is it that needs to be done for those markets to bring fans back safely as we get to next summer. And I think it's our expectation that as long as we're doing that, that we're going to be in a fine position. Got it.

And, Joe, if I could just ask you one to try to help us think through the fourth quarter use of cash. I know you're looking forward to that question. Is there any way to think about the contribution margin that we might see in Q4 versus what you saw in Q3? Because that seems like one area that might help benefit the cash burn number.

Yeah, the only thing I can say is – that I don't think Q2 and Q3 were that different from each other. Obviously some different pieces moving around, but they weren't wildly different. And I've given you the cash burn numbers, operational and gross for nine months. So you can pretty easily do the calc on what that leaves over for Q4.

Okay. Thanks a lot. And Joe, you've mentioned the sponsorship already.

Yeah. 90% of our sponsorship commitments that we had as of the end of February have stayed in place. They've stayed in 2020 where possible, and that's what's driven some of the CM that we had this quarter in particular, with most of the rest of it rolling into next year.

That's great. Thank you.

Your next question is from David Katz with Jefferies. Mr. Katz, your line is open. Mr. Katz, is your line on mute? We'll move on to the next question. Your next question in queue is from Doug Arthur with Herbert Research.

Yeah, thanks. Can you hear me?

No problem.

Go ahead. Yes. So I guess this is a question for either Michael or Joe. Based on all the costs that you have had to sort of take out to slow the burn, is it fair to conclude that when business gets back to normal and obviously there'll be a surge of activity at some point, that the underlying inherent margins of this company, particularly in the concert segment, may be higher on a longer-term basis based on the kinds of rationalizations you've done, the things you've found, sort of out of necessity? I mean, will there be structural change on a permanent basis?

Doug, this is Joe. I'll start. The answer is yes. That's the over $200 million of cost savings from the severance that I talked about that we said will be out for the foreseeable future. That piece of it is out, and then we'll manage bringing the other costs, obviously, as slowly as possible as needed to ramp up as we get in the next year.

Just to add, I just wanted to add to that. One of the things I want to make sure we're – it's not just about severance. We've had a time to re-engineer. So one of the strengths is, like everyone's learned, that is a new tool for all of us is the work-from-home strategy. We were a very decentralized organization with lots of offices from Tampa Bay to Cleveland. And we're now learning what everyone is learning. We can shut down a lot of those regional offices. We can have a work-from-home strategy. We can reduce our office burn, our monthly burn, and have a much more flexible workforce too. So work-from-home, a decentralized service model like ours has been an incredible new gift to figure out how can we now restructure and still deliver the same volume without some of the costs. We've also re-engineered where we need offices and how we can have a regional model versus maybe a local at times. So between re-engineering work from home, our goal has been both at Ticketmaster Live Nation and globally to run at a $200 million annual run rate reduction on our fixed costs. That's our goal right now into a full wrap-up.

And just sort of following up on Ben's question on artists, and maybe this is probably Anish, but as things start to come back and there's a lot of demand from artists to get out on the road, there's probably some scheduling issues. Do you think artist management teams will be more flexible on payouts, particularly if you're restricted in terms of how many seats you can sell out initially in an amphitheater or what have you? Are your conversations indicating flexibility on that side of the equation?

Yeah, 100%. I mean, everyone has been affected by this, understands the world's going to start differently, and it's going to require a slower ramp up. So we see it already, and you see the drive-in shows we're doing, the social distance shows in Atlanta at the Roxy on the weekend. whether we have maybe 20% to 40% attendance depending on the state. Those are all adjusted artist guarantees based on the capacity. So 100%, the artists will be coming back to work and adjusting their expectations to the realities of the capacity as we all, as an industry, start to scale up from 25 to 100 eventually.

Okay, great. Thank you.

And we have David Katz with Jefferies.

Hi. Can you all hear me? Apologies for prior. No problem. Yes, we can. Very good. Thank you. Look, given the considerable financial endurance you have and, you know, the limited visibility around the trajectory of this recovery, I just wanted to, you know, hear your thoughts or perspectives about any sources of capital or any capital raising at this point.

This is Joe. I think we don't see it as necessary at this point as we gave you pretty detailed numbers on the burn current and our current debt capacity and cash. We think that we've got enough to get us through till we ramp back up. Also remember that a lot of the cash starts flowing back into the business months before the shows themselves start because you've got the concerts going on sale. which generates the cash into Ticketmaster and into sponsorship. So we think that will take us through this period until we can get ramped back up. At the same time, we know the same thing that you and everybody else knows, is that there is tremendous liquidity out in the market should at some point the need arise, but we just don't see it at this point.

Thank you very much. Appreciate that.

And as a reminder, if you would like to ask a question at this time, simply press star, then the number one on your telephone keypad. Your next question in queue is from Stephen Gagola with Cowan.

Hi. Has the pandemic accelerated the shift for event organizers to utilize your digital ticketing technology? And just going back to the prior question on the Ticketmaster changes, moving to the global tech stack, et cetera. Do you expect these changes to push ticketing structural margins above that 29, 30% threshold when business conditions normalize? Thanks.

So first of all, on digital ticketing, I think Michael spoke to the streaming and the fact that we see streaming as being a very interesting compliment to our business going forward. And we think it makes sense as an additional point of revenue for the artist and for the overall ecosystem. And when they do a show, they can also stream it for fans and other markets or can't get to the sold out show and so on. So the ability to provide that digital ticket along with traditional tickets and do more important and something we're doing right now. So no question on that. And then in terms of TM going forward in the globalization, again, Michael spoke to And we've given you some of the numbers on the cost reduction. Obviously, a chunk of that is associated with Ticketmaster and how we think about driving that on a globalized platform and taking some of the rust and inefficiencies that might have existed and accelerating, bringing that all together. I don't think we're going to give you specific numbers here today, but we certainly see overall some further reductions in the cost structure.

All right. Appreciate that, Joe. And just one more, if I can. obviously, you know, most people are, you're seeing most people hold on to their ticket for shows that have been postponed. How many times can you move a show before you expect to see sort of the ticket buying public to give up on the show and demand a refund? Or you would just cancel altogether? I believe maybe you might have moved them once or twice right now. If you do three or four times, does that get into a situation where you just, you know, end up canceling altogether?

Yeah, look, As Michael said, the fundamental supply and demand dynamics have not changed. Artists want to tour. They need to tour for their livelihood. Fans want those tickets. Six months ago, we had a lot of folks saying, oh, no, your refund's going to be 80%. Everybody's going to want their money back. Nobody's going to want. And that's proven fundamentally wrong. We're sitting at 17% six months later, a fraction of what I think almost everybody was saying. We remain very confident that there's not going to be an exact formula, but fans who were able to get a good ticket for an artist they want to go to, they're going to want to go to that show as soon as they possibly can, whenever that is.

Okay. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.