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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
Form 10-Q
____________________________________
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2020
or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-32601
____________________________________
LIVE NATION ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
____________________________________
| | | | | | | | |
Delaware | | 20-3247759 |
(State of Incorporation) | | (I.R.S. Employer Identification No.) |
9348 Civic Center Drive
Beverly Hills, CA 90210
(Address of principal executive offices, including zip code)
(310) 867-7000
(Registrant’s telephone number, including area code)
______________________________________________________________
| | | | | | | | | | | | | | |
Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common stock, $.01 Par Value Per Share | | LYV | | New York Stock Exchange |
(Includes Preferred Stock Purchase Rights) | | | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
Large Accelerated Filer | x | | Accelerated Filer | | ¨ |
| | | | | |
Non-accelerated Filer | ¨ | | Smaller Reporting Company | | ☐ |
| | | Emerging Growth Company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No
On October 29, 2020, there were 217,117,403 outstanding shares of the registrant’s common stock, $0.01 par value per share, including 3,700,313 shares of unvested restricted and deferred stock awards and excluding 408,024 shares held in treasury.
LIVE NATION ENTERTAINMENT, INC.
INDEX TO FORM 10-Q
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PART I—FINANCIAL INFORMATION | |
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PART II—OTHER INFORMATION | |
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GLOSSARY OF KEY TERMS |
AOCI | Accumulated other comprehensive income (loss) |
AOI | Adjusted operating income (loss) |
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FASB | Financial Accounting Standards Board |
GAAP | United States Generally Accepted Accounting Principles |
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Live Nation | Live Nation Entertainment, Inc. and subsidiaries |
LNE | Live Nation Entertainment, Inc. |
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SEC | United States Securities and Exchange Commission |
Ticketmaster | Our ticketing business |
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| (in thousands) |
ASSETS | | | |
Current assets | | | |
Cash and cash equivalents | $ | 2,625,082 | | | $ | 2,470,362 | |
Accounts receivable, less allowance of $80,564 and $50,516, respectively | 564,873 | | | 994,606 | |
Prepaid expenses | 605,167 | | | 667,044 | |
Restricted cash | 8,409 | | | 3,880 | |
Other current assets | 56,326 | | | 57,007 | |
Total current assets | 3,859,857 | | | 4,192,899 | |
Property, plant and equipment, net | 1,106,688 | | | 1,117,932 | |
Operating lease assets | 1,461,442 | | | 1,402,019 | |
Intangible assets | | | |
Definite-lived intangible assets, net | 895,086 | | | 870,141 | |
Indefinite-lived intangible assets | 368,884 | | | 368,954 | |
Goodwill | 2,051,903 | | | 1,998,498 | |
Long-term advances | 730,898 | | | 593,699 | |
Other long-term assets | 410,673 | | | 431,473 | |
Total assets | $ | 10,885,431 | | | $ | 10,975,615 | |
LIABILITIES AND EQUITY | | | |
Current liabilities | | | |
Accounts payable, client accounts | $ | 686,105 | | | $ | 1,005,888 | |
Accounts payable | 88,869 | | | 100,237 | |
Accrued expenses | 960,011 | | | 1,391,486 | |
Deferred revenue | 1,631,715 | | | 1,391,032 | |
Current portion of long-term debt, net | 50,789 | | | 37,795 | |
Current portion of operating lease liabilities | 115,736 | | | 121,950 | |
Other current liabilities | 49,652 | | | 59,211 | |
Total current liabilities | 3,582,877 | | | 4,107,599 | |
Long-term debt, net | 4,849,274 | | | 3,271,262 | |
Long-term operating lease liabilities | 1,467,105 | | | 1,374,481 | |
Long-term deferred income taxes | 177,893 | | | 178,173 | |
Other long-term liabilities | 274,271 | | | 130,648 | |
Commitments and contingent liabilities | | | |
Redeemable noncontrolling interests | 286,987 | | | 449,498 | |
Stockholders' equity | | | |
Common stock | 2,138 | | | 2,113 | |
Additional paid-in capital | 2,361,015 | | | 2,245,619 | |
Accumulated deficit | (2,233,501) | | | (949,334) | |
Cost of shares held in treasury | (6,865) | | | (6,865) | |
Accumulated other comprehensive loss | (222,217) | | | (145,713) | |
Total Live Nation stockholders' equity | (99,430) | | | 1,145,820 | |
Noncontrolling interests | 346,454 | | | 318,134 | |
Total equity | 247,024 | | | 1,463,954 | |
Total liabilities and equity | $ | 10,885,431 | | | $ | 10,975,615 | |
See Notes to Consolidated Financial Statements
2
LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | |
| 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | |
| (in thousands except share and per share data) | |
Revenue | $ | 184,018 | | | $ | 3,773,684 | | | $ | 1,623,795 | | | $ | 8,658,521 | | |
Operating expenses: | | | | | | | | |
Direct operating expenses | 130,749 | | | 2,800,429 | | | 1,199,126 | | | 6,279,447 | | |
Selling, general and administrative expenses | 405,934 | | | 542,547 | | | 1,243,307 | | | 1,520,910 | | |
Depreciation and amortization | 119,938 | | | 126,306 | | | 364,785 | | | 329,044 | | |
Loss (gain) on disposal of operating assets | 208 | | | (305) | | | 897 | | | (553) | | |
Corporate expenses | 31,630 | | | 44,666 | | | 80,858 | | | 121,909 | | |
Operating income (loss) | (504,441) | | | 260,041 | | | (1,265,178) | | | 407,764 | | |
Interest expense | 66,093 | | | 36,587 | | | 162,781 | | | 109,894 | | |
| | | | | | | | |
Interest income | (2,810) | | | (5,863) | | | (9,712) | | | (12,229) | | |
Equity in losses (earnings) of nonconsolidated affiliates | 2,615 | | | 2,681 | | | 6,656 | | | (6,291) | | |
Other expense (income), net | (10,977) | | | 5,384 | | | (11,522) | | | 1,551 | | |
Income (loss) before income taxes | (559,362) | | | 221,252 | | | (1,413,381) | | | 314,839 | | |
Income tax expense (benefit) | (16,904) | | | 27,280 | | | (49,417) | | | 59,988 | | |
Net income (loss) | (542,458) | | | 193,972 | | | (1,363,964) | | | 254,851 | | |
Net income (loss) attributable to noncontrolling interests | (13,556) | | | 15,047 | | | (82,761) | | | 25,015 | | |
Net income (loss) attributable to common stockholders of Live Nation | $ | (528,902) | | | $ | 178,925 | | | $ | (1,281,203) | | | $ | 229,836 | | |
| | | | | | | | |
Basic net income (loss) per common share available to common stockholders of Live Nation | $ | (2.45) | | | $ | 0.74 | | | $ | (6.08) | | | $ | 0.86 | | |
Diluted net income (loss) per common share available to common stockholders of Live Nation | $ | (2.45) | | | $ | 0.71 | | | $ | (6.08) | | | $ | 0.83 | | |
| | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | 212,593,719 | | | 210,621,971 | | | 211,781,620 | | | 209,849,058 | | |
Diluted | 212,593,719 | | | 218,957,376 | | | 211,781,620 | | | 218,485,494 | | |
| | | | | | | | |
| | | | | | | | |
Reconciliation to net income (loss) available to common stockholders of Live Nation: | | | |
Net income (loss) attributable to common stockholders of Live Nation | $ | (528,902) | | | $ | 178,925 | | | $ | (1,281,203) | | | $ | 229,836 | | |
Accretion of redeemable noncontrolling interests | 6,990 | | | (23,580) | | | (5,955) | | | (49,407) | | |
Net income (loss) available to common stockholders of Live Nation—basic | (521,912) | | | 155,345 | | | (1,287,158) | | | 180,429 | | |
Convertible debt interest, net of tax | — | | | — | | | — | | | 265 | | |
Net income (loss) available to common stockholders of Live Nation—diluted | $ | (521,912) | | | $ | 155,345 | | | $ | (1,287,158) | | | $ | 180,694 | | |
| | | | | | | | |
See Notes to Consolidated Financial Statements
3
LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| (in thousands) |
Net income (loss) | $ | (542,458) | | | $ | 193,972 | | | $ | (1,363,964) | | | $ | 254,851 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Unrealized loss on cash flow hedge | (2,249) | | | — | | | (38,845) | | | — | |
Realized loss on cash flow hedge | 1,854 | | | — | | | 3,207 | | | — | |
Foreign currency translation adjustments | 21,983 | | | (32,256) | | | (40,866) | | | (35,816) | |
Comprehensive income (loss) | (520,870) | | | 161,716 | | | (1,440,468) | | | 219,035 | |
Comprehensive income (loss) attributable to noncontrolling interests | (13,556) | | | 15,047 | | | (82,761) | | | 25,015 | |
Comprehensive income (loss) attributable to common stockholders of Live Nation | $ | (507,314) | | | $ | 146,669 | | | $ | (1,357,707) | | | $ | 194,020 | |
See Notes to Consolidated Financial Statements
4
LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Live Nation Stockholders’ Equity | | | | | | |
| | Common Shares Issued | | Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Cost of Shares Held in Treasury | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
| | (in thousands, except share data) | | (in thousands) |
Balances at June 30, 2020 | | 212,523,147 | | | $ | 2,125 | | | $ | 2,295,069 | | | $ | (1,704,599) | | | $ | (6,865) | | | $ | (243,805) | | | $ | 341,605 | | | $ | 683,530 | | | $ | 334,228 | |
| | | | | | | | | | | | | | | | | | |
Non-cash and stock-based compensation | | — | | | — | | | 56,696 | | | — | | | — | | | — | | | — | | | 56,696 | | | — | |
Common stock issued under stock plans, net of shares withheld for employee taxes | | 979,124 | | | 10 | | | (25,489) | | | — | | | — | | | — | | | — | | | (25,479) | | | — | |
Exercise of stock options, net of shares withheld for option cost and employee taxes | | 320,731 | | | 3 | | | 6,683 | | | — | | | — | | | — | | | — | | | 6,686 | | | — | |
| | | | | | | | | | | | | | | | | | |
Acquisitions | | — | | | — | | | — | | | — | | | — | | | — | | | 10,480 | | | 10,480 | | | 7,349 | |
Divestitures | | — | | | — | | | — | | | — | | | — | | | — | | | (1) | | | (1) | | | — | |
Purchases of noncontrolling interests | | — | | | — | | | 20,882 | | | — | | | — | | | — | | | (426) | | | 20,456 | | | (33,406) | |
| | | | | | | | | | | | | | | | | | |
Redeemable noncontrolling interests fair value adjustments | | — | | | — | | | 6,990 | | | — | | | — | | | — | | | — | | | 6,990 | | | (6,990) | |
Contributions received | | — | | | — | | | — | | | — | | | — | | | — | | | 1,101 | | | 1,101 | | | 446 | |
Cash distributions | | — | | | — | | | — | | | — | | | — | | | — | | | (3,242) | | | (3,242) | | | (1,916) | |
Other | | — | | | — | | | 184 | | | — | | | — | | | — | | | (2,247) | | | (2,063) | | | 16 | |
Comprehensive loss: | | | | | | | | | | | | | | | | | | |
Net loss | | — | | | — | | | — | | | (528,902) | | | — | | | — | | | (816) | | | (529,718) | | | (12,740) | |
Unrealized loss on cash flow hedge | | — | | | — | | | — | | | — | | | — | | | (2,249) | | | — | | | (2,249) | | | — | |
Realized loss on cash flow hedge | | — | | | — | | | — | | | — | | | — | | | 1,854 | | | — | | | 1,854 | | | — | |
Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | 21,983 | | | — | | | 21,983 | | | — | |
Balances at September 30, 2020 | | 213,823,002 | | | $ | 2,138 | | | $ | 2,361,015 | | | $ | (2,233,501) | | | $ | (6,865) | | | $ | (222,217) | | | $ | 346,454 | | | $ | 247,024 | | | $ | 286,987 | |
See Notes to Consolidated Financial Statements
5
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Live Nation Stockholders’ Equity | | | | | | |
| | Common Shares Issued | | Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Cost of Shares Held in Treasury | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
| | (in thousands, except share data) | | (in thousands) |
Balances at December 31, 2019 | | 211,262,062 | | | $ | 2,113 | | | $ | 2,245,619 | | | $ | (949,334) | | | $ | (6,865) | | | $ | (145,713) | | | $ | 318,134 | | | $ | 1,463,954 | | | $ | 449,498 | |
Cumulative effect of change in accounting principle | | — | | | — | | | — | | | (2,964) | | | — | | | — | | | — | | | (2,964) | | | — | |
Non-cash and stock-based compensation | | — | | | — | | | 106,975 | | | — | | | — | | | — | | | — | | | 106,975 | | | — | |
Common stock issued under stock plans, net of shares withheld for employee taxes | | 1,320,373 | | | 13 | | | (33,154) | | | — | | | — | | | — | | | — | | | (33,141) | | | — | |
Exercise of stock options, net of shares withheld for option cost and employee taxes | | 1,240,567 | | | 12 | | | 8,402 | | | — | | | — | | | — | | | — | | | 8,414 | | | — | |
Fair value of convertible debt conversion feature, net of issuance cost | | — | | | — | | | 33,347 | | | — | | | — | | | — | | | — | | | 33,347 | | | — | |
Acquisitions | | — | | | — | | | — | | | — | | | — | | | — | | | 45,802 | | | 45,802 | | | 19,248 | |
Divestitures | | — | | | — | | | — | | | — | | | — | | | — | | | 592 | | | 592 | | | — | |
Purchases of noncontrolling interests | | — | | | — | | | 13,943 | | | — | | | — | | | — | | | (1,458) | | | 12,485 | | | (129,596) | |
Sales of noncontrolling interests | | — | | | — | | | (8,161) | | | — | | | — | | | — | | | 39,161 | | | 31,000 | | | — | |
Redeemable noncontrolling interests fair value adjustments | | — | | | — | | | (5,955) | | | — | | | — | | | — | | | — | | | (5,955) | | | 5,955 | |
Contributions received | | — | | | — | | | — | | | — | | | — | | | — | | | 2,568 | | | 2,568 | | | 446 | |
Cash distributions | | — | | | — | | | — | | | — | | | — | | | — | | | (15,925) | | | (15,925) | | | (15,548) | |
Other | | — | | | — | | | (1) | | | — | | | — | | | — | | | (2,692) | | | (2,693) | | | 17 | |
Comprehensive loss: | | | | | | | | | | | | | | | | | | |
Net loss | | — | | | — | | | — | | | (1,281,203) | | | — | | | — | | | (39,728) | | | (1,320,931) | | | (43,033) | |
Unrealized loss on cash flow hedge | | — | | | — | | | — | | | — | | | — | | | (38,845) | | | — | | | (38,845) | | | — | |
Realized loss on cash flow hedge | | — | | | — | | | — | | | — | | | — | | | 3,207 | | | — | | | 3,207 | | | — | |
Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | (40,866) | | | — | | | (40,866) | | | — | |
Balances at September 30, 2020 | | 213,823,002 | | | $ | 2,138 | | | $ | 2,361,015 | | | $ | (2,233,501) | | | $ | (6,865) | | | $ | (222,217) | | | $ | 346,454 | | | $ | 247,024 | | | $ | 286,987 | |
See Notes to Consolidated Financial Statements
6
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Live Nation Stockholders’ Equity | | | | | | |
| | Common Shares Issued | | Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Cost of Shares Held in Treasury | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
| | (in thousands, except share data) | | (in thousands) |
Balances at June 30, 2019 | | 210,910,143 | | | $ | 2,101 | | | $ | 2,296,010 | | | $ | (968,312) | | | $ | (6,865) | | | $ | (148,791) | | | $ | 233,613 | | | $ | 1,407,756 | | | $ | 385,328 | |
Non-cash and stock-based compensation | | — | | | — | | | 12,030 | | | — | | | — | | | — | | | — | | | 12,030 | | | — | |
Common stock issued under stock plans, net of shares withheld for employee taxes | | 9,457 | | | — | | | (319) | | | — | | | — | | | — | | | — | | | (319) | | | — | |
Exercise of stock options, net of shares withheld for option cost and employee taxes | | 206,456 | | | 2 | | | 3,039 | | | — | | | — | | | — | | | — | | | 3,041 | | | — | |
Conversion of convertible debt | | — | | | 8 | | | (8) | | | — | | | — | | | — | | | — | | | — | | | — | |
Acquisitions | | — | | | — | | | — | | | — | | | — | | | — | | | 4,790 | | | 4,790 | | | — | |
Purchases of noncontrolling interests | | — | | | — | | | (24,846) | | | — | | | — | | | — | | | (2,695) | | | (27,541) | | | — | |
Redeemable noncontrolling interests fair value adjustments | | — | | | — | | | (23,580) | | | — | | | — | | | — | | | — | | | (23,580) | | | 23,580 | |
Contributions received | | — | | | — | | | — | | | — | | | — | | | — | | | 4,800 | | | 4,800 | | | — | |
Cash distributions | | — | | | — | | | — | | | — | | | — | | | — | | | (8,185) | | | (8,185) | | | (1,624) | |
Other | | — | | | — | | | 135 | | | — | | | — | | | — | | | (279) | | | (144) | | | — | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | |
Net Income | | — | | | — | | | — | | | 178,925 | | | — | | | — | | | 3,515 | | | 182,440 | | | 11,532 | |
Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | (32,256) | | | — | | | (32,256) | | | — | |
Balances at September 30, 2019 | | 211,126,056 | | | $ | 2,111 | | | $ | 2,262,461 | | | $ | (789,387) | | | $ | (6,865) | | | $ | (181,047) | | | $ | 235,559 | | | $ | 1,522,832 | | | $ | 418,816 | |
See Notes to Consolidated Financial Statements
7
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Live Nation Stockholders’ Equity | | | | | | |
| | Common Shares Issued | | Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Cost of Shares Held in Treasury | | Accumulated Other Comprehensive Income | | Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
| | (in thousands, except share data) | | (in thousands) |
Balances at December 31, 2018 | | 209,135,581 | | | $ | 2,091 | | | $ | 2,268,209 | | | $ | (1,019,223) | | | $ | (6,865) | | | $ | (145,231) | | | $ | 243,762 | | | $ | 1,342,743 | | | $ | 329,355 | |
Non-cash and stock-based compensation | | — | | | — | | | 37,022 | | | — | | | — | | | — | | | — | | | 37,022 | | | — | |
Common stock issued under stock plans, net of shares withheld for employee taxes | | 322,314 | | | 3 | | | (10,581) | | | — | | | — | | | — | | | — | | | (10,578) | | | — | |
Exercise of stock options, net of shares withheld for option cost and employee taxes | | 843,833 | | | 9 | | | 13,231 | | | — | | | — | | | — | | | — | | | 13,240 | | | — | |
Conversion of convertible debt | | 824,328 | | | 8 | | | 28,578 | | | — | | | — | | | — | | | — | | | 28,586 | | | — | |
Acquisitions | | — | | | — | | | — | | | — | | | — | | | — | | | 30,958 | | | 30,958 | | | 39,303 | |
Purchases of noncontrolling interests | | — | | | — | | | (24,576) | | | — | | | — | | | — | | | (2,965) | | | (27,541) | | | (1,459) | |
Redeemable noncontrolling interests fair value adjustments | | — | | | — | | | (49,407) | | | — | | | — | | | — | | | — | | | (49,407) | | | 49,407 | |
Contributions received | | — | | | — | | | — | | | — | | | — | | | — | | | 13,124 | | | 13,124 | | | — | |
Cash distributions | | — | | | — | | | — | | | — | | | — | | | — | | | (60,300) | | | (60,300) | | | (12,882) | |
Other | | — | | | — | | | (15) | | | — | | | — | | | — | | | (1,540) | | | (1,555) | | | 2,597 | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | |
Net income | | — | | | — | | | — | | | 229,836 | | | — | | | — | | | 12,520 | | | 242,356 | | | 12,495 | |
Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | (35,816) | | | — | | | (35,816) | | | — | |
Balances at September 30, 2019 | | 211,126,056 | | | $ | 2,111 | | | $ | 2,262,461 | | | $ | (789,387) | | | $ | (6,865) | | | $ | (181,047) | | | $ | 235,559 | | | $ | 1,522,832 | | | $ | 418,816 | |
See Notes to Consolidated Financial Statements
8
LIVE NATION ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | 2019 |
| (in thousands) |
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income (loss) | $ | (1,363,964) | | | $ | 254,851 | |
Reconciling items: | | | |
Depreciation | 184,391 | | | 163,004 | |
Amortization | 180,394 | | | 166,040 | |
Amortization of non-recoupable ticketing contract advances | 38,833 | | | 54,120 | |
Deferred income tax benefit | (22,615) | | | (1,008) | |
Amortization of debt issuance costs and discounts | 24,201 | | | 16,300 | |
| | | |
Non-cash compensation expense | 106,965 | | | 36,924 | |
Unrealized changes in fair value of contingent consideration | (25,745) | | | 7,372 | |
| | | |
Equity in losses of nonconsolidated affiliates, net of distributions | 8,266 | | | 6,526 | |
Provision for uncollectible accounts receivable | 48,413 | | | 14,413 | |
| | | |
Other, net | (15,160) | | | (9,177) | |
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | | | |
Decrease (increase) in accounts receivable | 406,202 | | | (392,065) | |
Decrease (increase) in prepaid expenses and other assets | 1,793 | | | (257,268) | |
| | | |
Increase (decrease) in accounts payable, accrued expenses and other liabilities | (1,213,409) | | | 135,672 | |
Increase (decrease) in deferred revenue | 684,532 | | | (162,782) | |
Net cash provided by (used in) operating activities | (956,903) | | | 32,922 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Advances of notes receivable | (12,232) | | | (24,110) | |
Collections of notes receivable | 13,838 | | | 10,142 | |
| | | |
Investments made in nonconsolidated affiliates | (9,728) | | | (34,742) | |
Purchases of property, plant and equipment | (187,036) | | | (225,822) | |
| | | |
Cash paid for acquisitions, net of cash acquired | (37,283) | | | (108,075) | |
Purchases of intangible assets | (3,903) | | | (22,953) | |
Other, net | 11,812 | | | 2,203 | |
Net cash used in investing activities | (224,532) | | | (403,357) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from long-term debt, net of debt issuance costs | 1,608,462 | | | 604 | |
Payments on long-term debt | (24,202) | | | (30,491) | |
Contributions from noncontrolling interests | 2,568 | | | 13,124 | |
Distributions to noncontrolling interests | (31,473) | | | (73,182) | |
Purchases and sales of noncontrolling interests, net | (106,971) | | | (29,005) | |
Proceeds from exercise of stock options | 18,092 | | | 13,240 | |
| | | |
Taxes paid for net share settlement of equity awards | (42,818) | | | (10,578) | |
Payments for deferred and contingent consideration | (62,035) | | | (23,322) | |
Other, net | 13 | | | — | |
Net cash provided by (used in) financing activities | 1,361,636 | | | (139,610) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (20,952) | | | (59,364) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 159,249 | | | (569,409) | |
Cash, cash equivalents and restricted cash at beginning of period | 2,474,242 | | | 2,378,203 | |
Cash, cash equivalents and restricted cash at end of period | $ | 2,633,491 | | | $ | 1,808,794 | |
See Notes to Consolidated Financial Statements
9
LIVE NATION ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1—BASIS OF PRESENTATION AND OTHER INFORMATION
Preparation of Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, they include all normal and recurring accruals and adjustments necessary to present fairly the results of the interim periods shown.
The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020, as amended by the Form 10-K/A filed with the SEC on June 30, 2020.
Seasonality
Due to the seasonal nature of shows at outdoor amphitheaters and festivals, which primarily occur from May through October, our Concerts and Sponsorship & Advertising segments typically experience higher revenue during the second and third quarters. Our Ticketing segment’s revenue is impacted by fluctuations in the availability of events for sale to the public, which vary depending upon scheduling by its clients. Our seasonality also results in higher balances in cash and cash equivalents, accounts receivable, prepaid expenses, accrued expenses and deferred revenue at different times in the year. Because of these factors, the results to date are not necessarily indicative of the results expected for the full year. Due to the unprecedented stoppage of concert and other events globally beginning in mid-March resulting from the global COVID-19 pandemic, we do not expect that any quarter in 2020 will follow our typical seasonality trend.
Cash, Cash Equivalents and Restricted Cash
Included in the September 30, 2020 and December 31, 2019 cash and cash equivalents balance is $614.4 million and $837.7 million, respectively, of cash received that includes the face value of tickets sold on behalf of ticketing clients and their share of service charges, which amounts are to be remitted to these clients.
Restricted cash primarily consists of cash held in escrow accounts to fund capital improvements of certain leased or operated venues. The cash is held in these accounts pursuant to the related lease or operating agreement.
Acquisitions
During the first nine months of 2020, we completed several acquisitions that were accounted for as business combinations under the acquisition method of accounting. When we make these acquisitions, we often acquire a controlling interest without buying 100% of the business. These acquisitions were not significant either on an individual basis or in the aggregate.
During the first nine months of 2020, we acquired the remaining redeemable noncontrolling interests of certain subsidiaries and settled certain contingent consideration obligations in exchange for debt obligations totaling $11.8 million, which are reflected in current portion of long-term debt, net on our consolidated balance sheets. These non-cash transactions have not been reflected as cash flows from financing activities within our consolidated statements of cash flows.
Income Taxes
Each reporting period, we evaluate the realizability of all of our deferred tax assets in each tax jurisdiction. As of September 30, 2020, we continued to maintain a full valuation allowance against our net deferred tax assets in certain jurisdictions due to cumulative pre-tax losses. As a result of the valuation allowances, no tax benefits have been recognized for losses incurred, if any, in those tax jurisdictions for the first nine months of 2020 and 2019.
Accounting Pronouncements - Recently Adopted
In June 2016, the FASB issued guidance that replaces the current incurred loss impairment model of recognizing credit losses with an expected loss model for financial assets measured at amortized cost. We adopted this standard on January 1, 2020, and recorded a $3.0 million cumulative-effect adjustment to accumulated deficit in the consolidated balance sheets. The adoption is not expected to have a material effect on our future financial position or results of operations.
In August 2018, the FASB issued guidance that aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amortization period of these implementation costs would include periods covered under
renewal options that are reasonably certain to be exercised. The expense related to the capitalized implementation costs also would be presented in the same financial statement line item as the hosting fees. We adopted this guidance prospectively on January 1, 2020. Adoption of this guidance resulted in expense that would have previously been reported as depreciation and amortization to be reported as selling, general and administrative expenses or corporate expenses within our statements of operations going forward. In addition, implementation costs previously recorded as property, plant and equipment, net will now be reported as prepaid expenses and other long-term assets on our balance sheets, prospectively.
Accounting Pronouncements - Not Yet Adopted
In August 2020, the FASB issued guidance that simplifies the accounting for convertible instruments and its application of the derivatives scope exception for contracts in an entity’s own equity. The new guidance reduces the number of accounting models that require separating embedded conversion features from convertible instruments. As a result, only conversion features accounted for under the substantial premium model and those that require bifurcation will be accounted for separately. For contracts in an entity’s own equity, the new guidance eliminates some of the current requirements for equity classification. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. The guidance is effective for annual periods beginning after December 15, 2021 and interim periods within that year. Early adoption is permitted for annual periods beginning after December 15, 2020 and interim periods within that year. The guidance should be applied using either a modified retrospective method or a full retrospective method. We will adopt this guidance on January 1, 2022, and are currently assessing which implementation method we will apply and the impact that adoption will have on our financial position and results of operations.
NOTE 2—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 revenue and financial position.
Operating Results
Our third quarter and nine-month results were materially impacted by these necessary actions. Our overall revenue for the quarter decreased by 95% to $184.0 million and for the nine months decreased by 81% to $1.6 billion. The revenue reduction was across all of our segments as a result of few shows occurring globally beginning in the last half of March and low 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 the global COVID-19 pandemic in the third quarter and first nine months of 2020 to be approximately $3.7 billion and $7.0 billion, respectively. Our operating results for the third quarter and nine months decreased as compared to the same periods of 2019 largely due to the global COVID-19 pandemic impacts to our business, totaling approximately $818.6 million and $1.7 billion, respectively, including $3.6 million and $15.6 million of impairment charges for the third quarter and first nine months of 2020, respectively.
The revenue recognized in our Concerts segment in the first nine months 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 September 30, 2020, for shows expected to occur in the next 12 months. Any refunds committed to for shows cancelled or rescheduled during the first nine months have either been returned to fans or are reflected in accrued expenses on the consolidated balance sheets. In addition, we have recorded an estimate of $74.0 million in Concerts for refunds that may occur in the future based on the limited amount of data available on refunds resulting from the global shutdown of our live events. This estimate only impacts our financial position as a reclassification from deferred revenue or other long-term liabilities to accrued expenses. We expect that the majority of our shows postponed due to the pandemic will be rescheduled. Event-related deferred revenue for tickets sold for shows expected to occur after September 30, 2021 totaled $103 million and is reflected in other long-term liabilities on our consolidated balance sheets.
By the end of the third quarter of 2020, we had cancelled over 5,000 concerts impacted by the stoppage of events starting in mid-March of this year, equating to approximately 15 million tickets. In addition, we had nearly 6,000 shows, equating to approximately 22 million tickets, that have been postponed and rescheduled into 2021 or were in the process of being rescheduled at the end of the third quarter.
The revenue recognized in our Ticketing segment in the first nine months 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 period for our Concerts business where our promoters control the ticketing. Revenue in the period has been reduced by refunds given during the period. In addition, revenue has been reduced for any shows that were cancelled and for refunds requested on rescheduled shows, both during the first nine months 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 our clients, not Ticketmaster, determine when shows are cancelled or rescheduled and we have a limited amount of historical data of refunds resulting from a global shutdown of live events on which to reliably determine an estimate. By the end of the third quarter of 2020 and through the time of this filing, Ticketing had processed or accrued for cancellations or refunds on 23.3 million tickets.
For events that are cancelled, our standard policy is to refund the fan within 30 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, governmental 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 currently expect the negative impact to continue into next year. 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 the global COVID-19 pandemic 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 or a large-scale reduction in the number of events selling tickets, and as a consequence, our ability to be predictive regarding the impact of these circumstances 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 facility in April 2020 and further amended it in July 2020 which, among other things, substitutes our net leverage covenant under our senior secured credit facility with a $500 million liquidity covenant (as defined in the agreement) until the earlier of (a) December 31, 2021 and (b) at our election, any fiscal quarter prior to December 31, 2021. These amendments will allow us the flexibility to manage our business through the disruption that we are experiencing in 2020 and expect to experience in 2021.
In addition, we added a new incremental revolving credit facility of $130 million, extending our undrawn debt capacity. Following this increase, we currently have approximately $962.6 million in available debt capacity, including $400 million in undrawn term loan A capacity and $562.6 million in available revolver capacity, net of outstanding letters of credit. Finally, in May 2020, we issued $