IMPACT OF THE GLOBAL COVID-19 PANDEMIC
|3 Months Ended|
Mar. 31, 2020
|Impact Of The Global COVID-19 Pandemic [Abstract]|
|IMPACT OF THE GLOBAL COVID-19 PANDEMIC||IMPACT OF THE GLOBAL COVID-19 PANDEMIC
The unprecedented and rapid spread of COVID-19 and the related government restrictions and social distancing measures implemented throughout the world have significantly impacted our live event business. We initially saw event restrictions in Asia and parts of Europe. Beginning in March, large public events were cancelled, governmental authorities began imposing restrictions on non-essential activities, and businesses suspended activities around the world. As the impact of the global COVID-19 pandemic became clearer, we ceased all Live Nation tours and closed our venues in mid-March to support global efforts at social distancing and mitigating the virus, and to comply with restrictions put in place by various governmental entities, which has had a materially negative impact on our revenues and financial position.
Our first quarter results were materially impacted by these necessary actions. Our overall revenue for the quarter decreased by 21% to $1.4 billion. The revenue reduction was largely in our Concerts and Ticketing segments as a result of no shows occurring globally in the last half of March and a considerable slowing of ticket sales for future shows during the same period, along with the impact of ticket refunds and show cancellations. We estimate the lost revenue impact from COVID-19 in the first quarter of 2020 to be approximately $435 million. Our operating loss for the quarter increased as compared to the first quarter of 2019 largely due to the COVID-19 impacts to our Concerts and Ticketing businesses, totaling approximately $175 million, including $10.1 million of definite-lived intangible assets impairment charges.
The revenue recognized in our Concerts segment in the first quarter of 2020 included the results of all the shows that occurred prior to the stoppage of events in mid-March. Our event-related deferred revenue for Concerts, which is reported as part of deferred revenue on our consolidated balance sheets, includes the face value and Concerts’ share of service charges for all tickets sold by March 31, 2020, for shows expected to occur in the next 12 months. Any refunds committed to for shows cancelled or rescheduled during the first quarter have either been returned to fans or are reflected in accrued expenses on the consolidated balance sheets. We have not recorded an estimate for refunds that may occur in the future since we have never experienced a global shutdown of live events and are unable to estimate it. We expect that the majority of our shows postponed due to the pandemic will be rescheduled. Any ticket proceeds for shows expected to occur after March 31, 2021 are reflected in other long-term liabilities on our consolidated balance sheets.
As of March 31, 2020, we had sold over 45 million tickets to shows scheduled for 2020, down 2% from the same time last year, net of cancelled shows and shows rescheduled into 2021. By the end of the first quarter of 2020, we had processed cancellations on 1,500 concerts impacted by the event stoppage starting in mid-March of this year, equating to 1.6 million tickets. Another 6,800 shows equating to approximately 13.4 million tickets had been postponed and were in the process of being rescheduled.
The revenue recognized in our Ticketing segment in the first quarter of 2020 includes our share of ticket service charges for tickets sold during the period for third-party clients and for shows that occurred in the quarter for our Concerts business where our promoters control the ticketing. Revenue in the period has been reduced by refunds given during the quarter. In addition, revenue has been reduced for any shows that were cancelled both during the quarter and up to the time of the filing of these financial statements, and funds have either been returned to the customer or are reflected in accrued expenses on the consolidated balance sheets. Our ticketing clients determine if shows will be rescheduled or cancelled and what the refund policy will be for those shows. We have not recorded an estimate for refunds that may occur in the future since we have never experienced a global shutdown of live events and because our clients, not Ticketmaster, determine when shows are cancelled or rescheduled so we are unable to estimate it.
By the end of the first quarter of 2020 and through the time of this filing, Ticketing had processed or accrued for cancellations or refunds on 7.2 million tickets.
For events that are cancelled, our standard policy is to refund the fan within 30 days days, though subject to regulations in various markets and in some cases at the discretion of venue or event organizer clients. Our ticket refund policies for rescheduled shows vary by ticketing client and country. In multiple international markets, including Germany, Italy and Belgium, government regulations which allow for the issuance of vouchers in place of cash refunds for rescheduled shows, and in some cases for cancelled shows, have been put in place or drafted. The volume and pace of cash refunds could have a material negative effect on our liquidity and capital resources.
The length and severity of the reduction in live events due to the pandemic is uncertain; accordingly, we expect the negative impact to continue through the second quarter of 2020. While we are planning for a modest recovery in demand later in the second half of 2020, the exact timing and pace of the recovery is uncertain given the significant impact of the pandemic on the overall United States and global economies. We believe the ongoing effects of COVID-19 on our operations have had, and will continue to have a material negative impact on our financial results and liquidity, and such negative impact may continue beyond the containment of such outbreak. We have never previously experienced a complete cessation of our live events and unprecedented reduction in the number of events selling tickets, and as a consequence, our ability to be predictive regarding the impact of such a cessation is uncertain and we are unable to estimate the impact on our business, financial condition or near- or longer-term financial or operational results.
Cash and available liquidity
We amended our senior secured credit agreement in April 2020 which will, among other things, suspend our net leverage covenant under our existing senior secured credit agreement for the second and third quarters of 2020, while adding a liquidity test for those quarters. Commencing with the fourth quarter of 2020, through the second quarter of 2021, the net leverage covenant will be calculated by substituting consolidated EBITDA, as defined in the credit agreement, from the second and third quarters of 2020 with consolidated EBITDA from the second and third quarters of 2019. As a result, this amendment will eliminate the use of consolidated EBITDA from the second and third quarters of 2020 in any net leverage covenant test, allowing us the flexibility to manage our business through the disruption we will experience in 2020.
In addition, we added a new incremental revolving credit facility of $130 million, extending our undrawn debt capacity. Following this increase, we have approximately $963 million in available debt capacity, including $400 million in undrawn term loan A capacity and $563 million in available revolver capacity, net of outstanding letters of credit. We will continue to evaluate future financing opportunities to further expand liquidity at reasonable costs.
As of March 31, 2020, our total cash and cash equivalents balance was $3.3 billion, which included $842 million of ticketing client cash. This cash, net of client cash, together with our now available debt capacity of $963 million, we believe gives us the liquidity to fund our operations during the pandemic. Our total cash includes event-related deferred revenue for which the amount can fluctuate over the course of the year, but given the timing of shows in 2020 and expected substantial volume of on-sales for 2021 shows in the second half of this year, we expect this number to remain above seasonally normal levels throughout this year.
Event-related deferred revenue consists of cash held by our Concerts business for future shows, with roughly half the funds associated with upcoming shows in the United States and half for international shows as of March 31, 2020. In the United States, the funds are largely associated with shows in our owned or operated venues, notably amphitheaters, festivals, theaters and clubs. Internationally, the funds held are from a combination of both shows in our owned or operated venues, as well as shows in third-party venues associated with our promoter share of tickets in allocation markets. We do not otherwise generally hold funds for concerts being held in third-party buildings. In the United States, venues traditionally hold all funds, and internationally either the venue holds all funds or holds the portion of funds associated with their ticket allocation.
Cost and Cash Management Programs
Given the uncertainty associated with the duration of current conditions globally, we have launched a number of initiatives to reduce fixed costs and conserve cash. As part of these cost reduction efforts, we have implemented salary reductions, with salaries for senior executives reduced by up to 50%, and our CEO voluntarily forgoing 100% of his salary for the duration of the salary reduction program. Additional cost reduction efforts include hiring freezes, reduction in the use of contractors, rent re-negotiations, furloughs, and reduction or elimination of other discretionary spending, including, among other things, travel and entertainment, repairs and maintenance, and marketing.
We are also making full use of government support programs globally. In most European and Asian markets, including the United Kingdom, Germany, Italy, France, Spain and Australia, there are robust payroll support programs to mitigate a substantial portion of employee costs. Additionally, in the United States, we expect to receive payroll support under the Employee Retention Credit program established as part of the 2020 CARES Act. Finally, the CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022.
We are further protecting our cash outflows by reducing advances in both our ticketing and concert businesses, re-assessing all capital expenditure projects and evaluating all other cash deployment activities. As a result of these initiatives and government support programs, we are targeting $600 million in cost reductions in 2020 and the elimination or deferral into 2021 of $1.0 billion in cash outflows. We believe this aggressive cost and cash management program, combined with a strong liquidity profile, positions us to manage through the COVID-19 related hold on show activity and provides the flexibility to scale-up quickly when shows restart.
Based on these actions and assumptions regarding the impact of COVID-19, we believe that we will be able to generate sufficient liquidity to satisfy our obligations and remain in compliance with our existing debt covenants for the next twelve months prior to giving effect to any additional financing that may occur. Our forecasted expense management and liquidity measures may be modified as we get more clarity on the timing of events. We cannot assure you that our assumptions used to estimate our liquidity requirements will be correct because we have never previously experienced a complete cessation of our live events and the magnitude, duration and speed of the global pandemic is unknown, and as a consequence, our ability to be predictive is uncertain.
Health and Safety and Planning for a Return to Business
We are currently planning for the health and safety of our employees as they return to work in our offices in the future and for our artists and fans as they return to live events. We will return to work in local markets only after there is clear consensus that it is safe to do so, and then in appropriate numbers with expanded cleaning and social distancing protocols. Similarly, we are planning for the resumption of concerts when the time is right. We will let the facts and science tell us when we should start putting on concerts again. We recognize the experience at our venues will change when concerts start back up, and are working with medical experts and public health officials to keep people safe while enjoying our shows. Recent fan surveys indicate that the demand will be there when the shows return, with over 90% of fans expecting to attend concerts again once the pandemic is over. We expect the re-opening of concerts will happen on a market by market basis, and given we operate in 40 countries globally, the timelines will vary from relatively soon to not for several months or beyond.
While this temporary disruption has had a material impact on our business, as the leading global live event and ticketing company we believe that we are well-positioned to provide the best service to artists, teams, fans and venues once business resumes. Twenty years of global growth demonstrates the resilience of fan demand for the live entertainment experience. We are actively taking steps to ensure that when it is safe for us to do so, we will be ready to ramp back up quickly and once again connect audiences to artists at the concerts they are looking forward to.