Los Angeles Music Scene: Live Nation reports Q3 results and along the way questions Mark Geiger's $75 million

(Yes, I know, this is a photo of The Satellite.
It is my current LA Music Scene update photo)

Live Nation Entertainment reported Q3 financials on November 5th. They reported earnings per share of -$2.45 and revenues of $184 million. Revenues were down 95% on a year-over-year basis. That wasn't exactly surprising. In Los Angeles, the company runs such venues as Hollywood Palladium, The Belasco and The Wiltern. For those of us who love the local music scene, we're well aware that they also own The Echo, Echoplex, and The Regent Theater. 

When it comes to financials in this time of COVID-19 where no significant concerts are going on in the United States and Europe, I suspect that the most important part of your financial statements isn't your P&L, but your cash situation. As of the end of Q3, they reported having $2.625 billion on their balance sheet. But that $2.625 billion isn't all that it seems.

During their earnings call, they had some clarifications on that cash.

They look at what they call "free cash." Free cash makes various adjustments to their cash. For example, they adjust for "ticket-related client funds." I interpret that as the portion of ticket sales that don't belong to Live Nation -- probably advance ticket sales at this point. Anyways, after making those adjustments, their "free cash at the end of the third quarter is $951 million." They also have "over $950 million of available debt capacity." So they really have $1.9 billion in available cash.

Now how quickly are they going through their $1.9 billion in cash? "As part of this, we have further reduced all discretionary spending by another approximately $100 million and have now lowered to us for this year by over $900 million and reduce our cash usage by $1.5 billion relative to our pre-COVID plants. 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."

They are looking at a gross burn rate of $175 million per month, which should get reduced by around $5 million per month for temporary severance expense so we're looking at $170 million per month. So they should be able to last around 11 months; however, it appears that they don't feel like they will burn cash for that long. 

Here's what they have to say about the re-start of concerts, "So if you have a new if you have a new tour well let's think about the fall into 2022 but let's sit tight until January before you start moving any costs in place to get ready. So that's kind of a -- that the general sense is let's -- let's reset, let's get through 2021 summer with whatever we reschedules from 2020, add new stuff into the fall to 2022 as we get a better visibility into January." 

According to Live Nation, concerts that were planned for 2020 will shift to the summer of 2021 and any new concerts will start in 2022. That seems to imply that cash infusions related to early sales will start in Q1 2021. Based on that, they're probably looking at a cash drain of let's say 4 months worth of cash (October through January) or $680 million. That would eat up most of their free cash, but wouldn't require them to dip into the $950 million debt capacity.

I should note that Deadline (Nov 5) wrote the following: At the end of the second quarter, Live Nation said it had total cash and cash equivalents of $3.3 billion, including $1.8 billion of free cash and $966 million of available debt capacity. All in, the company has over $2.7 billion in available liquidity. Its cash burn rate is about $125 million a month to keep running. So they're saying that Live Nation has nearly $2.7 billion in free cash and available debt capacity, but this was as of Q2. So their free cash and available debt capacity dropped from $2.7 billion to $1.9 billion in 3 months (Q2 to Q3). So that's just under $270 million a month in Q2 cash usage, which they're now slashing to around $170 million. 

Okay, so enough with the cash flow analysis. Let's get to a more intriguing subject where one might argue that Live Nation is doing a little mocking of a potential competitor. As I reported earlier, Marc Geiger, the former global music chief of the giant talent agency WME, was able to secure $75 million to invest in a network of clubs. This is what Live Nation had to say 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 in the keys cheaply. There's a lot of capital out there. 

"So if you on 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, if one or two time 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 that there's a fire sale happening at that level.

"Now number two as you know we -- we’re the -- 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 -- they're not a really, really fruitful business on their own. So, we like them as part of our -- our overall ecosystem. But we're -- we don't believe that clubs whether you own 10, or whether you own 20 of them on their own provides you much global synergy or US synergy to leverage off of.

"So we hope all of these clubs find their way through this pandemic like we -- we hope all Live service providers find their way through this and that the government and stimulus programs and can help them survive it. But we don’t think that that there’s probably many that are going to fire to anybody, because there’s too many great options for them."

Hmm . . . does this quote sound like they have inside information on what's going on at the Troubadour or are they just discussion the Troubadour, because it is a well-known independent venue? Wouldn't I like to know the answer to that.

Also, considering the length of the above quote, Live Nation had a planned response regarding Geiger's $75 million.

Back to cash flow to close this out. If you read my blog post regarding Marc Geiger, his opinion is that concerts start back up in 2022. Now he doesn't appear to clarify when in 2022, but let's just say he's talking January 2022. Please notice that Live Nation is talking summer of 2021 and Geiger is talking 2022. If Geiger is correct, this adds an additional six months before Live Nation starts to collect any significant cash flow. Let's say that instead of 4 months, Live Nation needs to wait 10 months. That would result in them using $1.7 billion in cash ($170 million x 10 months). Of course, they would likely have to take another scrub at their cash spending at some point, but just for this mental exercise they would nearly run through their total $1.9 billion in available cash and would need to do some combination of issuing additional debt and asset sales to survive.