FINANCIAL REVIEW
They ended Q4 with 643 million in free cash, but really it was $1.1 billion as they issued debt in early January. When they included debt capacity, they were at $2 billion. Now their free cash plus debt capacity gets them to $2.1 billion. Basically, they ended Q1 2021 in the same position as Q4 2020 (adjusted for their early January debt issuance).
How were they able to keep cash basically flat? It looks like they had some one time benefits. Their non-operational cash costs dropped from $44 million per month in Q4'20 to just $4 million per month in Q1'21. The significant drop was driven by sale of an investment, interest and severance payments (that I'd assume would occur in Q2'21 instead). This led to total free cash usage of $136 million, which reduced their free cash. This was off-set by another timing benefit that allowed them to shift $181 million of deferred revenue into the free cash column.
Here's what their Q1 2021 earnings call had to say about their cash position:
Looking at free cash and liquidity, we ended the first quarter with $1.1 billion in free cash, compared to $643 million at the end of 2020, an increase of $462 million. Our free cash, along with $964 million of available debt capacity gives us $2.1 billion in readily available liquidity, up from $1.6 billion at the end of 2020. Benefiting our free cash position in January, we raised $417 million of net debt and we had a $181 million timing benefit, largely associated with deferred revenue classification.
Our total free cash usage in the quarter was $136 million, or $45 million per month, which included $100 million per month of average operational burn, roughly in line with Q4, plus another $4 million per month of non-operational cash costs to get us to $104 million average per month and gross burn. This gross burn includes the benefits we realized from the sale of a non-strategic minority investment and timing on interest payments and severance costs. In Q1, we had $59 million average cash contribution margin per month, roughly 50% higher CM than we averaged in Q4.They ended Q4 with 643 million in free cash, but really it was $1.1 billion as they issued debt in early January. When they included debt capacity, they were at $2 billion. Now their free cash plus debt capacity gets them to $2.1 billion. Basically, they ended Q1 2021 in the same position as Q4 2020 (adjusted for their early January debt issuance).
How were they able to keep cash basically flat? It looks like they had some one time benefits. Their non-operational cash costs dropped from $44 million per month in Q4'20 to just $4 million per month in Q1'21. The significant drop was driven by sale of an investment, interest and severance payments (that I'd assume would occur in Q2'21 instead). This led to total free cash usage of $136 million, which reduced their free cash. This was off-set by another timing benefit that allowed them to shift $181 million of deferred revenue into the free cash column.
So $136 million in cash used during the quarter was off-set by adding $181 million into the free cash column resulting in basically no cash usage for the quarter.
There are a couple cash questions that pop up to me.
First, how much cash did they use for the purchase of VEEPS -- a question I had set aside from their Q4'20 financial results? Second, why did they decide they could change the classification of deferred revenue?
In terms of VEEPS, there was a question asked by Morgan Stanley. It looks like they are looking to use VEEPS to make additional money from their music festivals. They specifically mention Lollapalooza at a price point of $49 (just a tossed out idea, not that this will be the price).
There was no indication of how much they paid for VEEPS, but in their 10-Q they say the following:
During the three months ended March 31, 2020, we used $32.5 million of cash primarily for the acquisitions of a festival promotion business and a venue management business, both located in the United States.
Okay, basically, the purchase of VEEPS wouldn't have had much of an impact on their free cash position, which makes me wonder what other plans they have in mind for the $425 billion that they raised in January? Are we going to see Live Nation buying up destressed venue assets? Or will this cash be used to survive until Q3'21?
They have this little tidbit about deferred revenue:
For events that have been cancelled as of March 31, 2021, the deferred revenue has been reclassified to accrued expenses on our consolidated balance sheets where not already refunded to the fan.
So I'm guessing that the $181 million benefit for deferred revenue is just a timing issue of getting refunds back into the pockets of music fans. I have a suspicion that their Q2'21 free cash will drop by over $500 million off-set by any cash received via any the restart of music concerts (which based on what I write below won't be that much).
There are a couple cash questions that pop up to me.
First, how much cash did they use for the purchase of VEEPS -- a question I had set aside from their Q4'20 financial results? Second, why did they decide they could change the classification of deferred revenue?
In terms of VEEPS, there was a question asked by Morgan Stanley. It looks like they are looking to use VEEPS to make additional money from their music festivals. They specifically mention Lollapalooza at a price point of $49 (just a tossed out idea, not that this will be the price).
There was no indication of how much they paid for VEEPS, but in their 10-Q they say the following:
During the three months ended March 31, 2020, we used $32.5 million of cash primarily for the acquisitions of a festival promotion business and a venue management business, both located in the United States.
Okay, basically, the purchase of VEEPS wouldn't have had much of an impact on their free cash position, which makes me wonder what other plans they have in mind for the $425 billion that they raised in January? Are we going to see Live Nation buying up destressed venue assets? Or will this cash be used to survive until Q3'21?
They have this little tidbit about deferred revenue:
For events that have been cancelled as of March 31, 2021, the deferred revenue has been reclassified to accrued expenses on our consolidated balance sheets where not already refunded to the fan.
So I'm guessing that the $181 million benefit for deferred revenue is just a timing issue of getting refunds back into the pockets of music fans. I have a suspicion that their Q2'21 free cash will drop by over $500 million off-set by any cash received via any the restart of music concerts (which based on what I write below won't be that much).
Interestingly, their deferred revenue is $1.8 billion so does this imply that about 10% of concerts are getting pushed off? Does that lend any credence to my post that bands are starting to delay their tours until 2022? That question brings up the next topic regarding the return of live music.
RETURN OF LIVE MUSIC
In the US, Bonnaroo, Electric Daisy and Rolling Loud festivals all sold out in record times at full capacity. In the UK, we have 11 festivals planned this summer, including our largest ones Reading, Leeds and Parklife where tickets are already sold out. New Zealand, the country's largest festival, Rhythm and Vines quickly sold out. And as we get further clarity on reopening timelines, we are announcing more tours for late this summer, including Dave Matthews, Luke Bryan, Maroon 5 and others to come, showing artists' increasing confidence in performing this summer.
. . . We have lots of great conversations with probably every artist you can imagine, talking about when they're going to be back on the road. And artist typically tours once every three years on a cycle, so we're kind of condensing 2021 and '22. So the good news is we've got incredible supply and now we're just sorting through what makes sense to go out in '20 -- at the end of '21 still -- into '22, and some artists were talking about moving into '23. So I would say, the artists are patient and they're smart in terms of what their cycle is predicting, maybe they have a record coming out in the fall, maybe it's in Q1. So right now, we have a great supply. We don't have any issues in terms of availability.
If I'm doing my Internet search correctly, the first U.S. music festival on the slate is the Rolling Loud festival with a July 23 - 25 date. Also doing an Internet search, all the UK and New Zealand festivals also have Q3 and Q4 start dates.
RETURN OF LIVE MUSIC
In the US, Bonnaroo, Electric Daisy and Rolling Loud festivals all sold out in record times at full capacity. In the UK, we have 11 festivals planned this summer, including our largest ones Reading, Leeds and Parklife where tickets are already sold out. New Zealand, the country's largest festival, Rhythm and Vines quickly sold out. And as we get further clarity on reopening timelines, we are announcing more tours for late this summer, including Dave Matthews, Luke Bryan, Maroon 5 and others to come, showing artists' increasing confidence in performing this summer.
. . . We have lots of great conversations with probably every artist you can imagine, talking about when they're going to be back on the road. And artist typically tours once every three years on a cycle, so we're kind of condensing 2021 and '22. So the good news is we've got incredible supply and now we're just sorting through what makes sense to go out in '20 -- at the end of '21 still -- into '22, and some artists were talking about moving into '23. So I would say, the artists are patient and they're smart in terms of what their cycle is predicting, maybe they have a record coming out in the fall, maybe it's in Q1. So right now, we have a great supply. We don't have any issues in terms of availability.
If I'm doing my Internet search correctly, the first U.S. music festival on the slate is the Rolling Loud festival with a July 23 - 25 date. Also doing an Internet search, all the UK and New Zealand festivals also have Q3 and Q4 start dates.
Note that in their Q4'21 call, they used the term mid-summer and here they're saying "late this summer." Wonder if things are starting a month or so later than was expected back in February? Anyways, that just putting a negative spin on things when in fact it looks like we're up and running starting in Q3'21.
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