FINANCIAL REVIEW
As with my Q3 review, in terms of their financial health, I would say that cash is king. Here's what their earnings call said about that topic (Feb 25th):
Looking at free cash and 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. This, along with over $950 million of available debt capacity, gives us $2 billion in readily available liquidity. Our total free cash usage in the quarter was $308 million or $103 million per month. We had $97 million per month average in operational burn plus another $44 million per month of nonoperational cash costs to get us to $142 million average per month in gross burn. 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.
Free cash in Q3 was $951 million so they went through $308 million of their free cash in the quarter. In terms of what they call gross burn, they averaged $142 million per month. This compares to Q3, which was at $175 million per month (which included $40 million in severance expense that would run throughout the year). Severance expense wasn't mentioned during the earnings call so it probably didn't have much impact on Q4 gross cash usage.
Live Nation continues to find ways to cut costs as their gross cash burn average was reduced by $33 million a month. They likely accomplished this via further reduction in discretionary spending, "As part of this, we further reduced discretionary spending by another $50 million and closed 2020 with over $950 million in lower costs."
Is discretionary spending a synonym for employees? TicketNews (Jan 21) had this little note on headcount reduction:
Live Nation Entertainment has laid off more than 96 percent of its staff amid the ongoing COVID pandemic, according to a letter from a regional manager in Connecticut. The manager, Michael Andrews, referenced the cuts in a letter to a Connecticut utility commission asking for forgiveness in over $1,000 in late fees associated with unpaid bills from 2020.
Live Nation is “hemorrhaging money each month,” according to Andrews. As a result, it has either furloughed or laid off thousands of employees – from a pre-pandemic number of approximately 18,700 to a current roster of around 700 – 96.25 percent of the total. This number includes the finance team that approves payment of bills such as the one he was appealing for forgiveness on the late fees being charged.
Is discretionary spending a synonym for employees? TicketNews (Jan 21) had this little note on headcount reduction:
Live Nation Entertainment has laid off more than 96 percent of its staff amid the ongoing COVID pandemic, according to a letter from a regional manager in Connecticut. The manager, Michael Andrews, referenced the cuts in a letter to a Connecticut utility commission asking for forgiveness in over $1,000 in late fees associated with unpaid bills from 2020.
Live Nation is “hemorrhaging money each month,” according to Andrews. As a result, it has either furloughed or laid off thousands of employees – from a pre-pandemic number of approximately 18,700 to a current roster of around 700 – 96.25 percent of the total. This number includes the finance team that approves payment of bills such as the one he was appealing for forgiveness on the late fees being charged.
In my Q3 analysis, I focused on gross burn, but via the above quote I learned that there is an off-set to this called cash contribution margin. They have something called total effective cash burn, which comes out to $103 million per month -- and this ties out to the $308 million reduction in free cash.
Based on their Q3 cash burn of $175 million a month, I figured they had enough free cash ($951 million in free cash + 950 million in debt capacity) to last them 11 months, basically August, 2021. It now looks like Live Nation is very well set up on the cash side to go beyond August as they ended the quarter with $643 million in free cash + they still have the $950 million in debt capacity + they added $500 million in debt in January (wouldn't show up in their Q4 financials). Of this $500 million, $75 million was to repay a loan so my assumption is that the net is $425 million. So $643 million + $950 million + $425 million = $2.018 billion. With $2 billion in free cash and an effective cash burn of only $103 million per month, they could survive well into 2022 without live concerts.
One caveat to that $2 billion in free cash was their acquisition of Livestream Platform Veeps. This was done shortly after the issuance of the $500 million in debt. They didn't get into how much they paid for the platform during the earnings call. They did say the following about VEEPS:
This is just now an opportunity with Veeps to do some of that direct-to-consumer on the club shows, amphitheater, festival shows that we think will have that added capacity and demand that will help increase some of the revenue for the artist. So we think it's kind of like a T-shirt and merchandise in a VIP platform. It's another incremental revenue stream to the current physical show.
I guess we'll need to wait until their Q1 results to back into an estimate of how much they paid for VEEPS.
RETURN OF LIVE MUSIC
Of course, what people care about is when will live music return? It looks like the focus for now is outdoor amphitheaters:
So we're feeling more optimistic than we were a month ago. Lots of artists are calling and looking at how we start up in July, August, September, maybe move things a month. So for right now, we still believe that we'll have enough open throughout the U.K., Australia, Canada, U.S., to keep what we have on the books and the amphitheater booked for now. We might have some certain states that might not be ready, but we have enough states, we think, and enough artists willing to play the open slots if we get to that level in the right markets. So right now, we think we have enough artists. And as long as these states open up to the right capacities, we can start mid-summer into Southern U.S. We could go all the way to November . . . So we have not, as to date, done a lot of work in the 0 to 50% capacity business. We don't see that as a viable model to ramp back up fixed cost. So we think we're close enough though where we are with COVID and with all the governors in the states we're talking to, that there will be a clear outline to a 75% to 100% outdoor green light in '21. So we think we're better off waiting for a high bar capacity moment in most of the states to ramp up and talk to the artists about getting paid properly.
Is this really more optimistic than a month ago? On CNBC (Dec 7th), Live Nation President Joe Berchtold said: In the key US, Western European markets, it continues to be our expectations that by next summer we're back with our major outdoor shows, our amphitheaters here in the US, festivals globally, we'll be able to do those shows.
Is there really any different from that CNBC interview and the Q4 earnings call statement of July, August, September?
Based on their Q3 cash burn of $175 million a month, I figured they had enough free cash ($951 million in free cash + 950 million in debt capacity) to last them 11 months, basically August, 2021. It now looks like Live Nation is very well set up on the cash side to go beyond August as they ended the quarter with $643 million in free cash + they still have the $950 million in debt capacity + they added $500 million in debt in January (wouldn't show up in their Q4 financials). Of this $500 million, $75 million was to repay a loan so my assumption is that the net is $425 million. So $643 million + $950 million + $425 million = $2.018 billion. With $2 billion in free cash and an effective cash burn of only $103 million per month, they could survive well into 2022 without live concerts.
One caveat to that $2 billion in free cash was their acquisition of Livestream Platform Veeps. This was done shortly after the issuance of the $500 million in debt. They didn't get into how much they paid for the platform during the earnings call. They did say the following about VEEPS:
This is just now an opportunity with Veeps to do some of that direct-to-consumer on the club shows, amphitheater, festival shows that we think will have that added capacity and demand that will help increase some of the revenue for the artist. So we think it's kind of like a T-shirt and merchandise in a VIP platform. It's another incremental revenue stream to the current physical show.
I guess we'll need to wait until their Q1 results to back into an estimate of how much they paid for VEEPS.
RETURN OF LIVE MUSIC
Of course, what people care about is when will live music return? It looks like the focus for now is outdoor amphitheaters:
So we're feeling more optimistic than we were a month ago. Lots of artists are calling and looking at how we start up in July, August, September, maybe move things a month. So for right now, we still believe that we'll have enough open throughout the U.K., Australia, Canada, U.S., to keep what we have on the books and the amphitheater booked for now. We might have some certain states that might not be ready, but we have enough states, we think, and enough artists willing to play the open slots if we get to that level in the right markets. So right now, we think we have enough artists. And as long as these states open up to the right capacities, we can start mid-summer into Southern U.S. We could go all the way to November . . . So we have not, as to date, done a lot of work in the 0 to 50% capacity business. We don't see that as a viable model to ramp back up fixed cost. So we think we're close enough though where we are with COVID and with all the governors in the states we're talking to, that there will be a clear outline to a 75% to 100% outdoor green light in '21. So we think we're better off waiting for a high bar capacity moment in most of the states to ramp up and talk to the artists about getting paid properly.
Is this really more optimistic than a month ago? On CNBC (Dec 7th), Live Nation President Joe Berchtold said: In the key US, Western European markets, it continues to be our expectations that by next summer we're back with our major outdoor shows, our amphitheaters here in the US, festivals globally, we'll be able to do those shows.
Is there really any different from that CNBC interview and the Q4 earnings call statement of July, August, September?
Anyways, it definitely seems like the focus will first be on outdoor shows. Also, there seems to be a bit of political diplomacy in the discussion of which states won't open up soon: "We might have certain states that might not be ready, but we have enough states . . . " Then there is the comment about Southern U.S. Reading between the lines, is there a belief at Live Nation that California will be one of those states that won't be ready for outdoor events (at 75% capacity) by summer?
Now my interpretation of this is that Live Nation will start concerts in the Southern states and then spread to other states (California) by November. I sent a Variety link to a follow LA music scene person and he stated that his interpretation was that Southern states could see their season last from July through November and that it wasn't necessarily true that California would need to wait until after tours finish their Southern legs. I noticed that there was an interesting grammar change between what was written in the transcript versus what Variety has: an assumed period between "U.S." and "we."
Kind of changes the interpretation. Anyways, it really does seem that the Southern states will get first dibs at live music.
Also, I think the 75% capacity issue could also be applied to local indoor venues. It might not make financial sense for The Echo, Echoplex and even non-Live Nation venues like the Bootleg Theater, Hotel Cafe, and Moroccan Lounge to open up at less than 75% capacity. Their additional fix costs (labor, electricity, water, etc) might not cover a situation where they're stuck at 50% capacity. This is something to keep in mind as Los Angeles starts to open up from this pandemic shutdown.
No comments:
Post a Comment