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'We're Playing Long Ball': 7 Takeaways From Live Nation's Q1 Earnings

Concert Attendees
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With a pandemic hanging over the touring industry, Live Nation's first quarter earnings released Thursday revealed the damage caused since concerts were widely suspended in mid-March: Compared to Q1 2019, concert revenue dropped 24.6% and ticketing revenue fell 15.8%.

This year, Live Nation will host virtual concerts, is testing drive-in concerts -- these started popping up in parking lots as early as mid-June -- and will later give superstar artists multiple theater dates rather than a single arena concert. And nothing in the Q1 earnings call suggested the leadership team feels anxious about guiding the company through a financially dangerous tumult. "We don't want to rush," said CEO Michael Rapino. "We're playing long ball."

Then again, governments aren't exactly letting promoters rush back into venues. Cities and states recently started opening non-essential retail businesses, including restaurants and retail. But music venues, where customers usually stand shoulder to shoulder and wait in tightly-packed lines, remain closed almost everywhere. While some states such as Arkansas and Georgia are allowing concerts to resume in some capacity, entertainment capitals California and New York have no current timelines to allow concerts and other large gatherings' returns.

But the fallout from the hold on live music reaches beyond promoters. Agencies such as CAA, UTA and WME have cut expenses through some combination of furloughs, layoffs and pay cuts. WME parent company Endeavor not only laid off 250 staffers but is planning to sell a minority stake to video game developer Epic Games, maker of Fortnite, for an undisclosed amount.

Here's our takeaways from the filing:

Q2 and Q3 are all about small events, not large tours
Nothing was said during the earnings call that suggests Live Nation's leadership team believes concerts will return at scale in 2020. Speaking about the 2020 timeline, Rapino said Live Nation's goal is "to be ready to be on sale in Q1 for '21 at full scale." In the more immediate future, he said the company will be "testing" new ideas "throughout the summer."

Talking about booking postponed shows in 2021, Rapino said the company will have a "robust '21 backend and [a] robust '21-'22." Berchtold said it's "not our expectation to have a huge volume of shows this year." Entering Q4, ticketing and sponsorship revenue will pick up from ticket sales "in some large scale" for events next year, said Berchtold.

The rest of 2020 is about experimentation, not headcount
Rapino said "in the next six months" Live Nation will host concerts "focusing on the basics" and testing new concepts, rather than roll out tours with venues at full capacity. He said Live Nation is considering opening theaters and arenas with just 20% of capacity, but the economic feasibility of such low-attendance events was not discussed. The company is testing concerts at drive-in theaters, which seem suitable for holding concerts with low transmission risk, but again few details were given. And it will "dabble in fan-less concerts" that have "great broadcast opportunities," and can provide sponsorship revenue, he said.

Rapino mentioned fanless concerts streaming online ("we can make the math work"), drive-in theater concerts, "reduced capacity festival," outdoor concerts, concerts in theaters and "a large stadium floor where there's enough room to be safe." Come fall, concerts will have "more of a theater setting" and some be in arenas.

Ticketing and sponsorship revenue in 2020
It is expected that Ticketmaster, a high-margin division, will generate ticketing revenue in Q3 and Q4 as tours go on sale for 2021 -- and help Live Nation's lucrative sponsorship & advertising division.

Live Nation has ample liquidity for multiple scenarios
Monthly cash burn is $150 million, according to Joe Berchtold, Live Nation's president. As of March 31, Live Nation had $807 million and $900 million available in a revolving credit facility. "So that says you can go through this year without doing any shows on any scale without any concern," he said. But it's clear Live Nation does plan on having concerts in 2020, so there will be revenue opportunities. And deals in 2020 will require some cash for advances to artists. However, as mentioned above, Live Nation is shifting some cash paid to artists out of 2020 and into 2021.

In addition, Berchtold said access to more borrowing means Live Nation will consider additional liquidity "opportunistically."

Cash advances paid to artists are being reduced or deferred to next year. The company had previously mentioned these cash savings when announcing its plan to reduce expenses and cash outlays by $500 million in 2020. Over the next six to 12 months, Live Nation will sign deals that offload some of the financial risks to artists "to get shows back on the road" and "get back, scale fast but not have to worry about losing money on the show."

Debt covenants won't be a problem
Lenders set up guard rails that require companies to maintain a minimum amount of earnings. CFO Kathy Willard said Live Nation "absolutely will not break out covenants" in the scenario there is no "material" concert activity but some ticket sales and corresponding sponsorship revenue. Again, Live Nation is prepared for a slow 2020 and appears to be focused on 2021.

Fans want to feel safe at concerts
Live Nation conducted an online survey of people who have purchased a ticket from Ticketmaster in the last 12 months (for concerts, festivals, sports, arts & theater and family). The findings jibe with the insights from the latest MRC Data survey, which found that 61% of respondents want hand sanitizer placed throughout venues. As well, 51% of people need an open-air venue to feel comfortable to attend a live event.

What's the new normal? Nobody knows
Since the pandemic is uncharted territory for all stakeholders, nobody knows the exact path forward or what exists at the end of the road. People know what they don't know: when tours might resume, what health precautions will be taken. And they don't know what they don't know, meaning unexpected problems and outcomes are certain to arise.

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