Q4 2020 Live Nation Entertainment Inc Earnings Call
[music].
Good day, everyone. My name is Erica and I will be your card.
Operator on today's call.
At this time I would like to welcome everyone to live nation Entertainment's fourth quarter and full year 2020 earnings Conference call. Today's conference is being recorded following management's prepared remarks, we will open the call for two of them.
The actions 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.
The actual results live.
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 the earnings release.
The release reconciliation and other financial and statistical information to be discussed on this call can be found under the financial information section on live nation's website at investors that live nation Entertainment Dot Com. It is now my pleasure to turn the conference call over to Michael Rapino President.
Chief Executive Officer of live Nation Entertainment. Please go ahead Sir.
Afternoon, and thank you for joining us if you look back of 2020. It is clearly not the year of anyone predicted but I am very proud of how live nation has dug in and focused on turning the challenge.
The opportunity to improve our business I want to take a moment to thank our employees for the resilience of creativity and acknowledge all of those affected by Covid from the shutdown of live goods.
Over the last year leaders across all of our business lines concerts ticketing spot ships have been analyzing ways to improve their business. Some of the key initiatives include reorganizing to become more nimble, while also reducing our cost structure by $200 million.
Building concert screaming of direct to consumer businesses to expand our revenue streams.
Advancing our technology initiatives globally, while accelerating the shift to digital tickets to meet changing needs of fan spending for artists.
And reinforcing our balance sheet to endure this period, while maintaining a strong position to build our business for the future and act on opportunities as we identify them such as our recent acquisition of the streaming platform.
The continued pipeline bolt on acquisitions throughout the globe.
While this past year for it's been challenging for the company our employees fans artists and film.
Any others globally impacted by Covid I've never been more excited about the opportunities in front of us.
We continue to have a substantial tailwind in the live event industry of consumers more than ever of looking to spend on experiences.
The supply demand fundamentals of the concert business remained strong with artist ready to get back on the road and fence eager to reconnect at events all of our data continues to show that there are substantial pent up demand for concerts on the consumer demand side.
The two four trillion dollars projected surplus and savings from the U S alone by June of the key indicator of consumer spending of potential.
At the same time sort of baked demonstrate the high demand for concerts globally with 95% of fence likely to attend the show when restrictions are lifted this.
This is proving out the fan behavior as well with 83% of fans continuing to hold onto their tickets with rescheduled shows.
On the artist side Theres, a broad desire to get back on stage to connect with their fans will provide economic support to their bands crew the hub.
It's of others employed each night, putting on the show.
Given the limited touring activity in 2020, and 21 the pipeline for 2022 of its much stronger than usual with almost twice as many major touring artists on cycle in 2022.
Typical year of about 45 of artists versus the usual 25.
And there remains plenty of scheduling availability of arenas amphitheaters stadiums to accommodate these additional tours with over two thirds of these venue nights unused of sporting events for major concerts and the typical year.
It appears of the timing to release, the pent up supply and demand is now approaching vaccine distributions is accelerating and declines in COVID-19 cases throughout most of the world gives us even more confidence that of safe and meaningful return to shows will soon be possible.
For both the U S and U K projections indicate that everyone, who wants the vaccine will be able to get one by may or June in Europe, and most other markets follow in a few months later.
Given the mass social and economic toll the lockdown is put on the public we believe there'll be strong momentum to reopen the society swiftly as soon as vaccines are already available and we believe outdoor activity will be the first to happen.
So while the timing of return to live will continue to vary across global markets every sign points to the beginning safely and many countries sometime this summer the scaling further from there.
With that I will turn of the call of Joe for more detail on our financial results.
Thanks, Michael and good afternoon, everyone.
As we did for Q3, we've added some additional tables of the back of our earnings release, the reconcile in more detail some of the numbers I will refer to on the call.
For the fourth quarter all of the key cost the cash numbers are in line with or better than what we forecast the last quarter. As a result, we are confident that our actions taken to cut costs and increased liquidity will provide us with the runway we need until the time is right to bring shows back.
As part of this we further reduced discretionary spending by another $50 million.
<unk> 2020 with over $950 million and lower costs.
We also reduced our cash usage by $1 $65 billion relative to our pre COVID-19 plans of $150 million more than we were projecting last quarter.
Looking at our Q for AOE results or AOE loss for the quarter was $244 million, which consisted of $290 million in operational fixed costs and $46 million of contribution margin, which included $96 million.
<unk> from operations, along with various one time items.
As we pointed out last quarter. This contribution margin from operations includes our sponsorship business, where we've been able to maintain close to 90% of of the commitments that were in place at the end of February of last year.
Half of the sponsorship moved into 2021, while the portion of we retained in 2020 was repurposed into other assets, including streaming concerts.
Our artist management and merchandise businesses also generated positive contribution margin in the quarter.
Looking at free cash flow liquidity, we ended the fourth quarter with $643 million in free cash, which increased to $1 $1 billion in early January with our debt raise.
Along with over $950 million of available debt capacity gives us $2 billion in readily available liquidity.
Our total free cash usage for in the quarter was $308 million for $103 million per month.
We had $97 million.
Per month, the average and operational burn.
Plus another $44 million per month of non operational cash costs.
Get us to $142 million average per month and growth spur.
And then we had $39 million per month in cash contribution margin.
And ended up with a total effective cash burn of $103 million per month.
Now ticket refunds the.
The global refund rate for live nation concerts that of rescheduled and or an or have gone through a refund of window or windows was unchanged from the prior quarter at 17% through the end of Q4.
For the tourists that have gone through the second refund window. The refund levels were generally much lower for the second window as the casual fans requested their refunds during the first window.
Festivals generally cancel their 2020 events, but for festivals, where fans could retain their tickets for next year show, 63% of fans for doing so.
Deferred revenue at the end of the fourth quarter deferred revenue for events for the next 12 months was $1 5 billion.
Versus the $1 $4 billion, we projected at the end of Q3.
Higher due to a $100 million in ticket sales during the quarter.
Finally, our 2021 outlook, we won't be giving the multi quarter outlook given the uncertainty on specific timing and likely very timing for different markets around the world for.
For Q1, we will remain focused on our cash burn rate and particularly managing our total effect of burn rate to ensure of cash contribution margin growth outstrips any increases in our cost structure as we start to ramp back up.
With that let's open up the call for any questions for Michael Kathy Army.
Operator.
Yeah.
To ask a question you Wendy the press Star one.
Your telephone.
For your question press the pound key.
Sandra will be compile the Q&A roster.
Your first question is from David Karnofsky JP Morgan.
Hi, Thank you Michael of pretty.
The us in the UK markets can you expand a bit on what you think we'll see this summer in terms of concerts can you get back the whole tourism from major festivals or can you sort of envision operating out of more kind of smaller regional basis, and then as a follow up I'd be interested.
Total harvests are approaching the decision on when the right time to get back of of others.
Yes, I think this summer.
We're going to see a bit of a reasonable model of module model.
Every day, we seem to have a new.
The state or country talking about when they will open up.
So we're feeling more optimistic than where were a month ago lots of artist of calling and looking at how we start up in July August September maybe move things of months. So for right now we still believe that we'll have enough open throughout the UK, Australia, Canada U S.
To keep what we have on the books from the App of theater.
But for now we might have some certain states that might not be ready.
But we have enough stakes do we thinking enough artists willing to play the open slots.
If we get to that level and the right in the right. The markets. So right now we think we have enough artist and as long as the states open up to the right capacities, we can start mid summer.
<unk>.
Southern U S. We go all the way to November.
And then Joe the only thing I would add is if you look of the UK as the model I think what they've laid out as a series of thresholds and timeline to reopen the really get almost fully.
June has been very helpful and it's really created a big burst of consumer demand over this week and as a result of if you look at our U K festivals in August Creamfields is already sold out.
Readying the lead side huge jump in consumer demand and those are both likely to be sold out this weekend. So.
We do see the.
The U K.
The help of it.
We're going to be able to get those festivals.
The happening certainly in August.
Okay, and then maybe just a follow up on that point of assuming kind of conditions start to normalize faster than expected can you maybe just how much lead time, you need to ramp up activities that youre various venue types and are there kind of the accident you didn't meet on the filter plan shortly.
Yes, we're running about a three month lead time, so we've been talking to our global employees of both the kind of timeline.
When we kind of had the first show at scale that we think of it is going to happen.
Beyond 50%.
Three months back from that is when we can start bringing back marketing production all of the key venue functions. So everyone is eager employees to get back out and we can wrap up in between the on sale or the announcement and the actual show with no challenges.
Thank you.
Your next question is from Stephen <unk>.
<unk> with Cowen.
Hi, Thanks for the question.
Earlier this month pick of mass rolled out its new live stream product and you purchased the <unk> platform as well a month ago. The online live market appears to be of more nascent market could you discuss how you expect this business the impact the P&L in 'twenty, one maybe high level, just the economics of ticketing and virtual events.
How that compares to sort of ticking of regular live show.
How big of Master is positioned in this market relative to the competition. Thanks.
Right, we look at it obviously, we have to solve two different problems live nation looks to be in the space because we think as I've said before it's a great complement to our core physical product.
We're still not sure. If this is a business or a feature.
But we think we've been streaming our live shows from Yahoo live to Twitter.
Most of our festivals for for many years on Youtube and other platforms. So streaming of the festival or streaming of live show for a sponsor or for other platforms. We've been doing that a long time. This is just an hour now and opportunity with BP to do some of that direct to consumer.
The club shows Amphitheater festival shows that we think we'll have that added capacity and demand debt.
Will help increase some of the revenue for the artist. So we think it's the kind of like a T shirt and the merchandise from the VIP platform. It's another incremental revenue stream to the current physical show we.
We have a unique advantage because we have the 30000 of physical shows so when we're putting those on sale just like today, we try to sell you an upgrade the IP package or a T shirt for.
For those of can't come to the show for possibly even if you come to the show and you want.
To look at some other camera angles on your phone, we think it's a good complement or an add on to our physical show.
Ticketmaster just wanted to make sure. This is the new product.
Other it's like festivals of clubs, we wanted to make sure that they had they had the capability to service events and clients coming to them, saying, Hey, I have a virtual show going on sales for you ticketing for me.
Since you have such a large database and the and the scale of competency. So were proud that that team in Covid was able to take some existing software and quickly ramp up and has been able to service. Many shows around the globe, because thats kind of of instantly of global product when you're putting a virtual show on.
Sale. So we think ticketmaster will probably be one of the leaders in that space most of the platforms, where most of the live shows you've seen have come the Ticketmaster and said, we'd love you to kick at it you have the capability and you had the marketing reach that we don't so that's been successful to date same business model.
The service service fee model most of the platforms you see out there of charging of service fee on the ticket and that's what Ticketmaster is also doing that.
And that seems to be the accepted model today. So we think its a another product.
In the in the channel of the portfolio of the Ticketmaster.
Effectively deliver for the profit for the customer.
How big of the segment. This ultimately is in the end I think of continual would be let's say it's been on Youtube.
Always been a.
The interesting way for a customer to see some of the live show history says that live show, though thanks to tick tuck in Instagram.
Is not consumed in mass most people don't want to watch two hours of their favorite band they want to find that one great shot on Kipp talk so we're still not sure how big of a business. The live show is.
But it's something that is incremental to our course of will be on it same with ticketmaster.
Thanks, Michael that was really helpful and maybe one more for just Joe and Kathy on your guided total capex of $150 million in 'twenty, one and its down 30% of yourself from 'twenty levels down I think over 40% from 2017 of 19 levels.
The 17 to 19, it was a really significant capex ramp period for the business.
As the 'twenty, one capex moderation or deceleration something we should expect going forward as we look out to some of the outer years 'twenty two and beyond.
It's Joe I'll start I think 'twenty 'twenty, one capex is more of a reflection of the fact that we're continuing to be prudent in our cash management of this year I think as we get back the 22, we spend capex based on the opportunities. We see we continue to see great opportunities on the concert side in terms of going into new markets.
The new venues continuing to build out that business, so you'll see that accelerate ramp back up in 'twenty two.
Along with continuing to find ways to invest in the venues that we have to get.
For fan throughout the portfolio.
Alright, Thank you Joe.
Yeah.
Again, ladies and gentlemen that of Star one of you would like to ask a question at this time. Your next question is from Brandon Ross.
Ross with light shed partners.
Hey, guys cut.
Couple of questions first I wanted to ask the follow up on David's question.
Leading off about reopening and Michael you tweet it out earlier in the article about the reading and Leeds festivals being set to take place. This summer there of large scale events.
Can you describe some of the safety plans that are being contemplated for those and whether they are meaningful in terms of cost and kind of how you see the fan experience.
Looking.
When we opened in festivals.
That.
I'm going to let Joe handle the safety part I'm going to come back to the sales on that one though.
Yes.
In terms of the in terms of the protocol is number one obviously, we have some additional cleaning protocols that are in place those are not a.
Those are not a huge cost and then in one of the big changes of the shift to much more contactless. So as we get the digital ticket really fully implemented and out there the ability to have contactless interest the entry contactless purchase of food and beverage contactless purchase of emerge for all of that is going.
To improve the fan experience.
Provide some safety and comfort to the fans.
And.
And I think only be of better overall experience.
And brand of just because you brought it up just to show you what we keep talking about pent up demand reading and Leeds went on sale of St.
Thanks for the government.
Your line the new planned for the summer installed.
Installed 101000 tickets.
In 72 hours Greenfields went on sale and sold out in 48 hours.
Over 70000, so we are seeing the fan and what we've been talking about they are excited to get back to the show as soon as we get the Green light from these markets open up.
Great and you gave some details around the pick of Master globalization initiative, a few months back at the Liberty day I wanted to unpack that a little further can you maybe describe the overall margin opportunity for ticketing.
Is it a business that as the scope monetization effort is implemented.
Ticketmaster half.
A more typical marketplace margin structure, and then maybe describe how long the process will take and whether we're going to see continued benefits at the.
It plays out.
This is Joe Brandon I'll start that we're getting into some of the numbers. So I think part of this is in the $200 million cost reduction that we told you is kind of take place.
Ticketmaster is a large portion of that in ticketmaster's cost for I guess at the revenue was about $1 five in 2019.
So if you apply a good chunk of the cost savings for that you get mid single digit margin expansion from that cost savings off the bat, we expect that over time as we get even more efficient more globalized ticketmaster platform, there will be some additional savings, but as importantly, it'll let us go into new.
That's fine.
And also when we add new capabilities.
In the U S. Those can be instantly rolled out worldwide. So we will be able to drive revenue along with the reduced cost.
And then just finally.
As things reopen and.
And you come out of the pandemic fairly Levered wanted to ask your early thinking on capital allocation.
If there are international assets at attractive prices out there.
Would that take precedence over Delevering and how do you balance of the opportunities that may present themselves abroad. As you continue that international rollout versus sort of a leverage target.
This is Joe I'll start I think that.
We're very comfortable with the leverage that we're at now we are not in a rush to Delever, we think of it will naturally happen over time.
Given the performance levels that we think are going to be happening starting in 2022. So we remain as we said in a very liquid state around $2 billion of total liquidity, including untapped debt right now.
We don't think the the vast majority of that will be necessary. This year. So it gives us a lot of dry powder as we look at our global set of opportunities and bolt on acquisitions.
Awesome. Thank you.
Branded to pick up from that as you've seen us do over the last 10 years. This space on a global basis tends to be a lot of small bolt ons. So we've been granting up our 100 plus million customers double that over the last few years and will continue to grow those numbers, but we don't have to make billions of dollars ACA.
<unk> to make any of that come to life. We're talking in the 20 $20 million range. There's a lot of where we pick up the festival of venue of promoter.
That's accretive and in a key market for us. So we'll continue to be acquisitive on our theater club global business.
Any markets, we think theres opportunities that arise given where the world sits today. So we will be aggressive on a bolt on.
The continued consolidation path, while we while we are able to you know we think 'twenty two the peak year, which lets us start taking a lot of free cash flow and start working towards Delevering also so we think we can accomplish both as we have over the over the years.
Thank you.
Again, ladies and gentlemen that of Star one if you would like to ask the question at this time.
For questions at this time, please press star one.
We do have a question from Paul Golding with Macquarie capital.
Thanks, so much for taking the question. So Michael you talked about the three months lead time on a.
Possibly of 50%.
Passengers show I guess.
When we think about the recent news in New York around a 10% arena.
Capacity.
Limit now being allowed or how should we think about.
How artists or are sort of phasing back in.
We've had here to say that that just isn't enough for for.
The financial reasons to suggest define event, how should we think about sort of the breakeven where artists may decide the.
Get out there early if the states start opening up even earlier.
Well I think you look at the U K and Australia is kind of the key markets right, where they went from one of Covid and they had the right. The game plan. They are now set a clear day when 100% capacity can happen outdoor then it's kind of business as usual. So we're we have not.
To date done a lot of work in the zero to 50, 50% capacity business, we don't see that as a viable model two to wrap back up fixed cost. So we think we're close enough, though where we are with COVID-19 and what all of the governors in the states. We're talking to that there will be of clear outline to a 75 to 100 per cent out.
Sure.
Green light in 'twenty, one so we think we're better off waiting for a for a high bar capacity.
And most of the states to wrap up and talk to the artist of about getting paid properly. So we think that's within sight and is better it's closer than having to dabble in the 10 and 20, but those are great steps forward.
Great and then with the downtime have you see maybe a broader set of venues more aggressively rollout components of the safe ticks or presence.
For in venue.
Okay.
Hi, This is Joe.
Obviously during the the shut down most of the venues have been shut down as well. So there hasn't been a lot of specific rollout during the time as much as there is.
The massive sign up of venues that are looking to shift to a.
Paperless digital ticketing going forward and for those that have already adopted digital ticketing to some extent looking to expand it and really having to be the way that entry take play it takes place.
So maybe some pent the rollout demand when things reopen so that you can roll up quickly.
Great. Thank you.
And there are no further questions in queue at this time management I'll turn the call back over to you for closing remarks.
Alright, Thank you everyone stay safe and we'll talk to you on the next earnings call.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].