Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
“Live Nation” (which may be referred to as the “Company,” “we,” “us” or “our”) means Live Nation Entertainment, Inc. and its subsidiaries, or one of our segments or subsidiaries, as the context requires. You should read the following discussion of our financial condition and results of operations together with the unaudited consolidated financial statements and notes to the financial statements included elsewhere in this quarterly report.
Special Note About Forward-Looking Statements
Certain statements contained in this quarterly report (or otherwise made by us or on our behalf from time to time in other reports, filings with the SEC, news releases, conferences, internet postings or otherwise) that are not statements of historical fact constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, notwithstanding that such statements are not specifically identified. Forward-looking statements include, but are not limited to, statements about our financial position, business strategy, competitive position, potential growth opportunities, potential operating performance improvements, the effects of competition, the effects of future legislation or regulations and plans and objectives of our management for future operations. We have based our forward-looking statements on our beliefs and assumptions considering the information available to us at the time the statements are made. Use of the words “may,” “should,” “continue,” “plan,” “potential,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “outlook,” “could,” “target,” “project,” “seek,” “predict,” or variations of such words and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those set forth below under Part II—Other Information—Item 1A.—Risk Factors, in Part I—Item IA.—Risk Factors of our 2020 Annual Report on Form 10-K as well as other factors described herein or in our annual, quarterly and other reports we file with the SEC (collectively, “cautionary statements”). Based upon changing conditions, should any risk or uncertainty that has already materialized, such as, for example, the risks and uncertainties posed by the global COVID-19 pandemic, worsen in scope, impact or duration, or should one or more of the currently unrealized risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in any forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We do not intend to update these forward-looking statements, except as required by applicable law.
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 business. Beginning in March 2020, 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 2020 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 first quarter results were materially impacted by these necessary actions. Our overall revenue for the first quarter of 2021 decreased by 79% to $290.6 million as compared to the same period of the prior year. The revenue reduction was primarily in our Concerts and Ticketing segments as a result of few shows occurring globally beginning in the last half of March 2020 and low ticket sales for future shows during the same period.
The revenue recognized in our Concerts segment in 2020 included the results of the shows that occurred prior to the stoppage of events in mid-March. We had a limited number of shows in the first quarter of 2021, largely in Australia, New Zealand and the United States. 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, 2021, for shows expected to occur in the next 12 months. Any refunds committed to for shows cancelled or rescheduled during the first three months of 2021 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 $89.0 million in Concerts for refunds that may occur in the future for shows we believe may be cancelled or rescheduled based on the 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
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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 March 31, 2022 totaled $229.8 million and is reflected in other long-term liabilities on our consolidated balance sheets.
The revenue recognized in our Ticketing segment during the first three months of 2021 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 up to the time of the filing of these consolidated 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.
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 in response to the global COVID-19 pandemic. The volume and pace of cash refunds has had and may continue to 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 in 2021. The exact timing and pace of the recovery is uncertain given the significant impact of the pandemic and the uncertainty on the timing of the roll out of vaccines 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 currently have approximately $963.6 million available for future borrowings under our senior secured credit facility, including $400 million in undrawn term loan A capacity and $563.6 million in available revolver capacity, net of outstanding letters of credit. In January 2021, we issued $500 million principal amount of 3.75% senior secured notes due 2028. We will continue to evaluate future financing opportunities to further expand liquidity at reasonable costs. Additionally, our senior secured credit facility has 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, when we will revert to a net leverage covenant. We believe these allow us the flexibility to manage our business through the disruption that we continue to experience into 2021.
As of March 31, 2021, our total cash and cash equivalents balance was $3.0 billion, which included $724.4 million of ticketing client cash. We believe this cash, net of client cash, together with our available debt capacity of $963.6 million, 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 shift of shows into the second half of 2021 and 2022, we expect this number to remain above seasonally normal levels throughout the first half of 2021.
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, 2021. 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.
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Cost and Cash Management Programs
Given the uncertainty associated with the duration of current conditions globally, we have implemented a number of initiatives to reduce fixed costs and conserve cash. As part of these cost reduction efforts, we have implemented salary reductions for most of our employees, with salaries for senior executives reduced by up to 60% during 2020. We began eliminating the salary reductions in January 2021 and expect to have salaries fully restored during the second quarter. Additional cost reduction efforts include hiring freezes, reduction in the use of contractors, rent re-negotiations, furloughs, termination of certain employees and reduction or elimination of other discretionary spending, including, among other things, travel and entertainment, repairs and maintenance, and marketing.
We are also making use of government support programs globally. In most European and Asian markets, including the United Kingdom, Germany, Italy, France, Spain and Australia, there were payroll support programs to mitigate a substantial portion of employee costs, some of which are continuing into 2021. Additionally, in the United States, we have filed for 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 achieved over $950 million in cost reductions in 2020 and the elimination or deferral into 2021 of $1.6 billion in cash outflows, which primarily includes the cost reductions discussed above along with lower capital expenditures, acquisition payments, and concert and ticketing advances. We believe this aggressive cost and cash management program, combined with a strong liquidity profile, positions us to manage through the global COVID-19 pandemic-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 the global COVID-19 pandemic, we believe that we will remain in compliance with our debt covenants throughout 2021 and be able to generate sufficient liquidity to satisfy our obligations for the next twelve months, prior to giving effect to any additional financings 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 guidance that the time is right to do so, and then in appropriate numbers with expanded cleaning and any social distancing or other regulations. 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 implement safety precautions and protocols necessary for fans to return to enjoy our shows. Recent fan surveys indicate that the demand will be there when the shows return, with 95% 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 46 countries globally, the timelines will vary from now to not for several months or beyond. The length and severity of the impact to live events and our related sponsorship and ticketing businesses is still uncertain. We currently do not anticipate a significant change in activity levels until early in the second half of 2021 led by outdoor events and festivals in the United States and United Kingdom. We expect that most global tours will resume and larger venues will reopen in the second half of 2021 and that the underlying business will begin generating operating income once again.
While this 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 the time is right 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.
Executive Overview
Due to the global COVID-19 pandemic, we ceased all Live Nation tours and closed all our venues beginning in mid-March 2020 to support worldwide efforts to mitigate the spread of the virus. To ensure the safety of our artists, fans, and employees, we have held very few traditional events since the onset of this global health crisis, including during the first quarter of 2021. Our results for the first quarter of 2020 were very strong prior to the shutdown, and as a result, our year-over-year
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variances for the first quarter of 2021 against that period are almost entirely due to COVID-19’s impact on our business. Fortunately, while the effects of the pandemic are still impacting our operations, we are beginning to see pockets of recovery, particularly in the United States and United Kingdom. If these trends continue, we anticipate favorable year-over-year results in the second half of this year.
Our overall revenue for the first quarter of 2021 decreased by 79%, from $1.4 billion in 2020 to $291 million in 2021. The reduction was largely in our Concerts and Ticketing segments as a result of minimal show activity in the quarter and lower ticket sales for future shows due to the pandemic. Our operating loss grew from $173 million in the first quarter of 2020 to $303 million in the first quarter of 2021 also due to the lack of shows and ticket sales, however the lost revenue was partially offset by cost reductions we implemented starting in the second quarter of last year.
While the unparalleled disruption of the pandemic has had a material impact on our business, as the leading global live event and ticketing company, we firmly believe that we are well-positioned to provide the best service to artists, teams, fans and venues as business resumes. Twenty years of global growth demonstrates the resilience of fan demand for the live entertainment experience. As the vaccine rollout has accelerated in the United States and COVID-19 statistics improve, we have begun to see a ramp up of venues reopening, shows confirming to occur later this year and on-sales increasing. While other parts of the world may be further behind on their path to re-opening, we are actively taking steps to ensure that when the time is right for us to do so in each market, we will be ready to move quickly and responsibly to connect audiences to artists at the concerts they cherish.
Our Concerts segment revenue for the first quarter of 2021 was $239 million, compared to $993 million for 2020, a reduction of 76%. The unfavorable revenue results were almost entirely due to the impact of the global COVID-19 pandemic. Our operating loss for the quarter was $145 million compared to an operating loss of $161 million for the first quarter of last year. The improvement was primarily due to cost savings that exceeded the impact of our lost business. While we had 10.4 million fans attend our events in the first 10 weeks of 2020, we had 760 thousand fans for the first quarter of 2021, largely in Australia, New Zealand and the United States. Towards the end of this quarter, we began to see encouraging signs of recovery including that our Bonnaroo festival to be held in Tennessee in September 2021 broke all historical sales records. While we had no venues open at the beginning of the year in the United States, we now have 23% of our United States venues either open or confirmed to open soon. Our Reading and Leeds festivals as well as Creamfields in the United Kingdom have also sold out while Rhythm & Vines, New Zealand's premier multi-day music festival, had record presales in January 2021.
Our Ticketing segment revenue for the first quarter of 2021 was $28 million, compared to $284 million for the first quarter of last year, a reduction of 90% driven by a lack of ticket sales, partially offset by lower refunds year-over-year for shows that were cancelled or rescheduled. Our operating loss for the quarter was $121 million compared to an operating loss of $16 million for the first quarter of last year. The decline in operating results was largely driven by the lack of ticket sales, partially offset by cost savings. A total of 3.0 million tickets were refunded in the quarter, equating to just slightly over $260 million of gross transaction value. This was our lowest quarter for refunds since the pandemic began. To compare, we refunded 10.7 million tickets in the second quarter of 2020, equating to over $1.1 billion of gross transaction value – our highest refund quarter to date. We have recently seen ticket sales begin to rebound, particularly in the United States and United Kingdom.
Our Sponsorship & Advertising segment revenue for the first quarter of 2021 was $23 million, compared to $90 million for the first quarter of last year, a reduction of 75%. Despite the lack of live events, we have still been able to engage our fans and brand partners with streaming events for some of our most popular brands including Insomniac and Rolling Loud in the first quarter of 2021. Our operating loss for the quarter was $6 million compared to operating income of $38 million for the first quarter of last year. As with Concerts and Ticketing, the reduction in revenue-generating activity has been partially offset by cost reductions.
Even as we begin to see signs of sales returning and events happening in some markets, we continue to be focused on mitigating the financial impact of the shutdown. We have undertaken cost-savings initiatives across the organization and are also protecting our liquidity by tightly managing cash outflows associated with all our major expenditures: operating expenses, capital expenditures, acquisitions, and advances in both our ticketing and concert businesses. The length and severity of the impact to live events and our related sponsorship and ticketing businesses is still uncertain in most of the world. The magnitude and pace of the recovery will depend on each market and their containment efforts, the nature of the events being held, ongoing efforts to develop rapid testing technologies and rollout of approved vaccines and treatments for COVID-19. We remain optimistic about the long-term potential of our company and the unique power of live shows to unite people. We believe our aggressive cost-savings and cash management programs, combined with a strong liquidity profile, position Live Nation to manage through the global COVID-19 pandemic and its impact on live events and provides us the flexibility to scale up quickly when our shows resume.
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Segment Overview
Our reportable segments are Concerts, Ticketing and Sponsorship & Advertising.
Concerts
Revenue and related costs for events are generally deferred and recognized when the event occurs. All advertising costs incurred during the year for shows in future years are expensed at the end of the year. If a current year event is rescheduled into a future year, all advertising costs incurred to date are expensed in the period when the event is rescheduled.
Concerts direct operating expenses include artist fees, event production costs, show-related marketing and advertising expenses, along with other costs.
To judge the health of our Concerts segment, we primarily monitor the number of confirmed events and fan attendance in our network of owned or operated and third-party venues, talent fees, average paid attendance, market ticket pricing, advance ticket sales and the number of major artist clients under management. In addition, at our owned or operated venues and festivals, we monitor ancillary revenue per fan and premium ticket sales. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates.
Ticketing
Revenue related to ticketing service charges is recognized when the ticket is sold for our third-party clients. For our own events, where our concert promoters control ticketing, revenue is deferred and recognized when the event occurs. Gross transaction value (“GTV”) represents the total amount of the transaction related to a ticket sale and includes the face value of the ticket as well as the service charge. We use GTV to evaluate changes in ticket fee revenue that are driven by the pricing of our service charges.
Ticketing direct operating expenses include call center costs and credit card fees, along with other costs.
To judge the health of our Ticketing segment, we primarily review the GTV and the number of tickets sold through our ticketing operations, the number of clients renewed or added and the average royalty rate paid to clients who use our ticketing services. In addition, we review the number of visits to our websites, cost of customer acquisition, the purchase conversion rate, the overall number of customers in our database, the number and percentage of tickets sold via mobile and the number of app installs. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates.
Sponsorship & Advertising
Revenue related to sponsorship and advertising programs is recognized over the term of the agreement or operating season as the benefits are provided to the sponsor unless the revenue is associated with a specific event, in which case it is recognized when the event occurs.
Sponsorship & Advertising direct operating expenses include fulfillment costs related to our sponsorship programs, along with other costs.
To judge the health of our Sponsorship & Advertising segment, we primarily review the revenue generated through sponsorship arrangements and online advertising, and the percentage of expected revenue under contract. For business that is conducted in foreign markets, we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates.
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Key Operating Metrics
Three Months Ended
March 31,
2021 2020
(in thousands except estimated events)
Concerts (1)
Estimated events:
North America 300 4,772
International 364 2,323
Total estimated events 664 7,095
Estimated fans:
North America 331 5,729
International 429 4,677
Total estimated fans 760 10,406
Ticketing (2)
Estimated number of fee-bearing tickets sold 6,581 36,204
Estimated number of non-fee-bearing tickets sold 10,556 55,254
Total estimated tickets sold 17,137 91,458
_________
(1) Events generally represent a single performance by an artist. Fans generally represent the number of people who attend an event. Festivals are counted as one event in the quarter in which the festival begins, but the number of fans is based on the days the fans were present at the festival and thus can be reported across multiple quarters. Events and fan attendance metrics are estimated each quarter.
(2) The fee-bearing tickets estimated above include primary and secondary tickets that are sold using our Ticketmaster systems or that we issue through affiliates. This metric includes primary tickets sold during the year regardless of event timing, except for our own events where our concert promoters control ticketing which are reported when the events occur. The non-fee-bearing tickets estimated above include primary tickets sold using our Ticketmaster systems, through season seat packages and our venue clients’ box offices, along with tickets sold on our “do it yourself” platform. These ticketing metrics are net of any refunds requested and any cancellations that occurred during the period and up to the time of reporting of these consolidated financial statements. Fee-bearing tickets sold above are net of refunds of 3.0 million and 7.3 million tickets for the first quarter of March 31, 2021 and 2020, respectively.
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Non-GAAP Measures
The following table sets forth the reconciliation of AOI to operating income (loss):
Operating
income
(loss) Stock-
based
compensation
expense Loss
on disposal of
operating
assets Depreciation
and
amortization Amortization of non-recoupable ticketing contract advances Acquisition
expenses AOI
(in thousands)
Three Months Ended March 31, 2021
Concerts $ (145,359) $ 17,475 $ 138 $ 62,886 $ — $ (9,679) $ (74,539)
Ticketing (120,656) 7,806 — 36,478 12,423 1,197 (62,752)
Sponsorship & Advertising (6,441) 2,793 — 7,164 — — 3,516
Other and Eliminations (431) — — 11 (1,802) — (2,222)
Corporate (30,285) 11,943 — 2,337 — 258 (15,747)
Total $ (303,172) $ 40,017 $ 138 $ 108,876 $ 10,621 $ (8,224) $ (151,744)
Three Months Ended March 31, 2020
Concerts $ (161,131) $ 2,360 $ 127 $ 72,216 $ — $ (1,745) $ (88,173)
Ticketing (15,860) 1,731 2 38,176 20,220 722 44,991
Sponsorship & Advertising 38,226 872 — 7,512 — — 46,610
Other and Eliminations (1,470) — 1 53 (1,409) — (2,825)
Corporate (32,435) 6,769 — 4,123 — 410 (21,133)
Total $ (172,670) $ 11,732 $ 130 $ 122,080 $ 18,811 $ (613) $ (20,530)
Adjusted Operating Income (Loss)
AOI is a non-GAAP financial measure that we define as operating income (loss) before certain stock-based compensation expense, loss (gain) on disposal of operating assets, depreciation and amortization (including goodwill impairment), amortization of non-recoupable ticketing contract advances and acquisition expenses (including transaction costs, changes in the fair value of accrued acquisition-related contingent consideration obligations, and acquisition-related severance and compensation) . We use AOI to evaluate the performance of our operating segments. We believe that information about AOI assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income (loss), thus providing insights into both operations and the other factors that affect reported results. AOI is not calculated or presented in accordance with GAAP. A limitation of the use of AOI as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business. Accordingly, AOI should be considered in addition to, and not as a substitute for, operating income (loss), net income (loss), and other measures of financial performance reported in accordance with GAAP. Furthermore, this measure may vary among other companies; thus, AOI as presented herein may not be comparable to similarly titled measures of other companies.
AOI Margin
AOI margin is a non-GAAP financial measure that we calculate by dividing AOI by revenue. We use AOI margin to evaluate the performance of our operating segments. We believe that information about AOI margin assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income (loss), thus providing insights into both operations and the other factors that affect reported results. AOI margin is not calculated or presented in accordance with GAAP. A limitation of the use of AOI margin as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business. Accordingly, AOI margin should be considered in addition to, and not as a substitute for, operating income (loss) margin, and other measures of financial performance reported in accordance with GAAP. Furthermore, this measure may vary among other companies; thus, AOI margin as presented herein may not be comparable to similarly titled measures of other companies.
Constant Currency
Constant currency is a non-GAAP financial measure. We calculate currency impacts as the difference between current period activity translated using the current period’s currency exchange rates and the comparable prior period’s currency exchange rates. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations.
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Segment Operating Results
Concerts
Our Concerts segment operating results were, and discussions of significant variances are, as follows:
Three Months Ended
March 31, %
Change
2021 2020
(in thousands)
Revenue $ 239,416 $ 993,393 (76)%
Direct operating expenses 113,904 750,905 (85)%
Selling, general and administrative expenses 207,847 331,276 (37)%
Depreciation and amortization 62,886 72,216 (13)%
Loss on disposal of operating assets 138 127 *
Operating loss $ (145,359) $ (161,131) 10%
Operating margin (60.7 %) (16.2 %)
AOI ** $ (74,539) $ (88,173) 15%
AOI margin ** (31.1 %) (8.9 %)
_______
* Percentages are not meaningful.
** See “—Non-GAAP Measures” above for the definition and reconciliation of AOI and AOI margin.
Three Months
Revenue
Concerts revenue decreased $754.0 million during the three months ended March 31, 2021 as compared to the same period of the prior year primarily due to the unprecedented stoppage of our concert events globally in 2020 and 2021. Due to the global COVID-19 pandemic, beginning in mid-March 2020, we ceased all of our tours, closed our venues and cancelled or postponed our festivals to support global efforts at social distancing and mitigating the virus, and to comply with restrictions put in place by various governmental entities.
Operating results
The increase in Concerts operating results for the three months ended March 31, 2021 as compared to the same period of the prior year, was primarily driven by cost reduction measures implemented in the second quarter of 2020 and continuing in 2021, including salary reductions, hiring freezes, furloughs, and reduction or elimination of other discretionary spending along with participating in government support programs globally. In addition, we recorded a $10.1 million impairment charge in the first quarter of 2020 primarily associated with revenue-generating contract intangible assets. There were no significant impairments recorded for the three months ended March 31, 2021. This increase in operating results was partially offset by the reduction in revenue caused by the global COVID-19 pandemic discussed above.
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Ticketing
Our Ticketing segment operating results were, and discussions of significant variances are, as follows:
Three Months Ended
March 31, %
Change
2021 2020
(in thousands)
Revenue $ 28,322 $ 284,277 (90)%
Direct operating expenses 17,832 104,413 (83)%
Selling, general and administrative expenses 94,668 157,546 (40)%
Depreciation and amortization 36,478 38,176 (4)%
Loss on disposal of operating assets — 2 *
Operating loss $ (120,656) $ (15,860) *
Operating margin * (5.6 %)
AOI ** $ (62,752) $ 44,991 *
AOI margin ** * 15.8 %
_______
* Percentages are not meaningful.
** See “—Non-GAAP Measures” above for the definition and reconciliation of AOI and AOI margin.
Three Months
Revenue
Ticketing revenue decreased $256.0 million during the three months ended March 31, 2021 as compared to the same period of the prior year primarily due to the lack of tickets available for sale to the public driven by the unprecedented stoppage of concerts, sports and other events globally beginning in mid-March 2020 and continuing in 2021 due to the global COVID-19 pandemic.
Operating results
The decrease in Ticketing operating results for the three months ended March 31, 2021 as compared to the same period of the prior year, was primarily driven by the reduction of revenue caused by the global COVID-19 pandemic discussed above. This decrease was partially offset by cost reduction measures implemented in the second quarter of 2020 and continuing in 2021, including salary reductions, hiring freezes, furloughs, and reduction or elimination of other discretionary spending along with participating in government support programs globally.
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Sponsorship & Advertising
Our Sponsorship & Advertising segment operating results were, and discussions of significant variances are, as follows:
Three Months Ended
March 31, %
Change
2021 2020
(in thousands)
Revenue $ 22,647 $ 90,261 (75)%
Direct operating expenses 2,821 21,536 (87)%
Selling, general and administrative expenses 19,103 22,987 (17)%
Depreciation and amortization 7,164 7,512 (5)%
Operating income (loss) $ (6,441) $ 38,226 *
Operating margin (28.4 %) 42.4 %
AOI ** $ 3,516 $ 46,610 (92)%
AOI margin ** 15.5 % 51.6 %
_______
* Percentages are not meaningful.
** See “—Non-GAAP Measures” above for the definition and reconciliation of AOI and AOI margin.
Three Months
Revenue
Sponsorship & Advertising revenue decreased $67.6 million during the three months ended March 31, 2021 as compared to the same period of the prior year primarily due to a reduction in sponsorship revenue associated with our venues, festivals and lack of online activity as ticket sales declined driven by the unprecedented stoppage of events beginning in mid-March 2020 and continuing in 2021 due to the global COVID-19 pandemic.
Operating results
The decrease in Sponsorship & Advertising operating income for the three months ended March 31, 2021 as compared to the same period of the prior year, was primarily driven by the reduction in revenue caused by the global COVID-19 pandemic discussed above.
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Three Months
Three Months Ended March 31, % Change
2021 2020
As Reported Currency Impacts At Constant Currency** As Reported As Reported At Constant Currency**
(in thousands)
Revenue $ 290,609 $ (8,630) $ 281,979 $ 1,365,693 (79)% (79)%
Operating expenses:
Direct operating expenses 133,966 (4,488) 129,478 873,820 (85)% (85)%
Selling, general and administrative expenses 322,853 (6,683) 316,170 514,021 (37)% (38)%
Depreciation and amortization 108,876 (1,976) 106,900 122,080 (11)% (12)%
Loss on disposal of operating assets 138 (2) 136 130 6% 5%
Corporate expenses 27,948 (12) 27,936 28,312 (1)% (1)%
Operating loss (303,172) $ 4,531 $ (298,641) (172,670) (76)% (73)%
Operating margin * * (12.6 %)
Interest expense 70,830 43,999
Interest income (1,149) (4,473)
Equity in earnings of nonconsolidated affiliates (581) (2,572)
Gain from sale of investments in nonconsolidated affiliates (55,933) (3,555)
Other expense (income), net (6) 8,183
Loss before income taxes (316,333) (214,252)
Income tax expense (benefit) 6,389 (3,330)
Net loss (322,722) (210,922)
Net loss attributable to noncontrolling interests (15,529) (26,138)
Net loss attributable to common stockholders of Live Nation $ (307,193) $ (184,784)
____________
* Percentages are not meaningful.
** See “—Non-GAAP Measures” above for the definition of constant currency.
Interest expense
Interest expense increased $26.8 million, or 61%, during the three months ended March 31, 2021 as compared to the same period of the prior year due to additional interest costs from the issuance of our 2.0% convertible senior notes in February 2020, the issuance of our 6.5% senior secured notes in May 2020 and the issuance of our 3.75% senior secured notes in January 2021.
Gain from sale of investments in nonconsolidated affiliates
Gain from sale of investments in nonconsolidated affiliates increased $52.4 million during the three months ended March 31, 2021 as compared to the same period of the prior year primarily due to the sale of certain cost basis investments during the first three months of 2021.
Income tax expense (benefit)
For the three months ended March 31, 2021, we had a net tax expense of $6.4 million on a loss before income taxes of $316.3 million compared to net tax benefit of $3.3 million on loss before income taxes of $214.3 million for the three months ended March 31, 2020. For the three months ended March 31, 2021, the income tax expense consisted of $4.4 million related to foreign entities, $1.7 million related to United States federal taxes, and $0.3 million related to state and local income taxes. The net increase in tax expense of $9.7 million was primarily due to unbenefited losses in certain non-United States jurisdictions and other discrete tax adjustments recorded in the first quarter of 2021.
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Liquidity and Capital Resources
In response to the impact that the global COVID-19 pandemic has had on our business, and the uncertainty of the duration of current conditions globally, we have taken certain actions to strengthen our liquidity position and preserve our capital resources.
In April 2020, we amended our senior secured credit facility to provide an incremental $130 million revolving credit facility. We further amended our senior secured credit facility in July 2020, which, among other things, substitutes our net leverage covenant 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. In February 2020, we issued $400 million principal amount of 2.0% convertible senior notes due 2025, in May 2020, we issued $1.2 billion principal amount of 6.5% senior secured notes due 2027 and in January 2021, we issued $500 million principal amount of 3.75% senior secured notes due 2028. As a result, we believe these amendments and additional debt issuances will allow us the flexibility to manage our business through the disruption we expect to experience in 2021 until we are able to resume our operations.
Our cash is centrally managed on a worldwide basis. Our primary short-term liquidity needs are to fund general working capital requirements, capital expenditures and debt service requirements while our long-term liquidity needs are primarily related to acquisitions and debt repayment. Our primary sources of funds for our short-term liquidity needs will be cash flows from operations and borrowings under our amended senior secured credit facility, while our long-term sources of funds will be from cash flows from operations, long-term bank borrowings and other debt or equity financings. We may from time to time engage in open market purchases of our outstanding debt securities or redeem or otherwise repay such debt.
Our balance sheet reflects cash and cash equivalents of $3.0 billion at March 31, 2021 and $2.5 billion at December 31, 2020. Included in the March 31, 2021 and December 31, 2020 cash and cash equivalents balances are $724.4 million and $673.5 million, respectively, of cash received that includes the face value of tickets sold on behalf of our ticketing clients and their share of service charges, which we refer to as client cash. We generally do not utilize client cash for our own financing or investing activities as the amounts are payable to clients on a regular basis. Our foreign subsidiaries held approximately $919.2 million in cash and cash equivalents, excluding client cash, at March 31, 2021. We generally do not repatriate these funds, but if we did, we would need to accrue and pay United States state income taxes as well as any applicable foreign withholding or transaction taxes on future repatriations. We may from time to time enter into borrowings under our revolving credit facility. If the original maturity of these borrowings is 90 days or less, we present the borrowings and subsequent repayments on a net basis in the statement of cash flows to better represent our financing activities. Our balance sheet reflects total net debt of $5.3 billion and $4.9 billion at March 31, 2021 and December 31, 2020, respectively. Our weighted-average cost of debt, excluding unamortized debt discounts and debt issuance costs on our term loans and notes, was 4.4% at March 31, 2021.
Our cash and cash equivalents are held in accounts managed by third-party financial institutions and consist of cash in our operating accounts and invested cash. Cash held in non-interest-bearing and interest-bearing operating accounts in many cases exceeds the Federal Deposit Insurance Corporation insurance limits. The invested cash is in interest-bearing funds consisting primarily of bank deposits and money market funds. While we monitor cash and cash equivalents balances in our operating accounts on a regular basis and adjust the balances as appropriate, these balances could be impacted if the underlying financial institutions fail. To date, we have experienced no loss or lack of access to our cash and cash equivalents; however, we can provide no assurances that access to our cash and cash equivalents will not be impacted by adverse conditions in the financial markets, including those resulting from the global COVID-19 pandemic.
For our Concerts segment, we often receive cash related to ticket revenue in advance of the event, which is recorded in deferred revenue until the event occurs. In the United States, this cash is largely associated with events in our owned or operated venues, notably amphitheaters, festivals, theaters and clubs. Internationally, this cash is from a combination of both events in our owned or operated venues, as well as events in third-party venues associated with our promoter’s share of tickets in allocation markets. We do not otherwise generally hold cash for events being held in third-party venues. In the United States, most venues traditionally hold all the cash, and internationally either the venue holds all the cash or holds the portion of the cash associated with their ticket allocation. With the exception of some upfront costs and artist advances, which are recorded in prepaid expenses until the event occurs, we pay the majority of event-related expenses at or after the event. Artists are paid when the event occurs under one of several different formulas, which may include fixed guarantees and/or a percentage of ticket sales or event profits, net of any advance they have received. When an event is cancelled, any cash held in deferred revenue is reclassified to accrued expenses as those funds are typically refunded to the fan within 30 days of event cancellation. In certain markets, we are offering fans an incentive to receive a voucher for a future ticket purchase to one of our events in lieu of receiving a refund for a cancelled event. Where a fan has elected to receive the incentive voucher, the cash from the original ticket purchase remains in deferred revenue. When a show is rescheduled, fans have the ability to request a refund if they do not want to attend the event on the new date, although historically we have had low levels of refund requests for rescheduled events.
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We view our available cash as cash and cash equivalents, less ticketing-related client cash, less event-related deferred revenue, less accrued expenses due to artists and cash collected on behalf of others, plus event-related prepaid expenses. This is essentially our cash available to, among other things, repay debt balances, make acquisitions, pay artist advances and finance capital expenditures.
Our intra-year cash fluctuations are impacted by the seasonality of our various businesses. Examples of seasonal effects include our Concerts segment, which reports the majority of its revenue in the second and third quarters. Cash inflows and outflows depend on the timing of event-related payments but the majority of the inflows generally occur prior to the event. See “—Seasonality” below. We believe that we have sufficient financial flexibility to fund these fluctuations and to access the global capital markets on satisfactory terms and in adequate amounts, although there can be no assurance that this will be the case, and capital could be less accessible and/or more costly given current economic conditions, including those resulting from the global COVID-19 pandemic. We expect cash flows from operations and borrowings under our amended senior secured credit facility, along with other financing alternatives, to satisfy working capital requirements, capital expenditures and debt service requirements for at least the succeeding year.
We may need to incur additional debt or issue equity to make other strategic acquisitions or investments. There can be no assurance that such financing will be available to us on acceptable terms or at all. We may make significant acquisitions in the near term, subject to limitations imposed by our financing agreements and market conditions.
The lenders under our revolving loans and counterparty to our interest rate hedge agreement consists of banks and other third-party financial institutions. While we currently have no indications or expectations that such lenders will be unable to fund their commitments as required, we can provide no assurances that future funding availability will not be impacted by adverse conditions in the financial markets, including those resulting from the global COVID-19 pandemic. Should an individual lender default on its obligations, the remaining lenders would not be required to fund the shortfall, resulting in a reduction in the total amount available to us for future borrowings, but would remain obligated to fund their own commitments. Should the counterparty to our interest rate hedge agreement default on its obligation, we could experience higher interest rate volatility during the period of any such default.
Sources of Cash
During 2020, we amended our senior secured credit facility, issued $1.2 billion principal amount of 6.5% senior secured notes due 2027 and issued $400 million principal amount of 2.0% convertible senior notes due 2025. A portion of the proceeds were used to pay transaction fees of $35.5 million, leaving approximately $1.6 billion for general corporate purposes.
In January 2021, we issued $500 million principal amount of 3.75% senior secured notes due 2028. The proceeds were used to pay estimated fees of $7.7 million and repay $75.0 million aggregate principal amount of our senior secured term loan B facility, leaving approximately $417.3 million for general corporate purposes, including acquisitions and organic investment opportunities.
Amended Senior Secured Credit Facility
In April and July 2020, we amended our senior secured credit facility and now have (i) a $400 million delayed draw term loan A facility, (ii) a $950 million term loan B facility, (iii) a $500 million revolving credit facility and (iv) a $130 million incremental revolving credit facility. The delayed draw term loan A facility is available to be drawn until October 2021. In addition, subject to certain conditions, we have the right to increase such facilities by an amount equal to the sum of (x) $425 million during the Restricted Period and $855 million after the Restricted Period, (y) the aggregate principal amount of voluntary prepayments of the delayed draw term loan A and term loan B and permanent reductions of the revolving credit facility commitments, in each case, other than from proceeds of long-term indebtedness, and (z) except during the Restricted Period, additional amounts so long as the senior secured leverage ratio calculated on a pro-forma basis (as defined in the agreement) is no greater than 3.75x. The combined revolving credit facilities provide for borrowings up to $630 million with sublimits of up to (i) $150 million for the issuance of letters of credit, (ii) $50 million for swingline loans, (iii) $300 million for borrowings in Dollars, Euros or British Pounds and (iv) $100 million for borrowings in those or one or more other approved currencies. The amended senior secured credit facility is secured by a first priority lien on substantially all of the tangible and intangible personal property of LNE and LNE’s domestic subsidiaries that are guarantors, and by a pledge of substantially all of the shares of stock, partnership interests and limited liability company interests of our direct and indirect domestic subsidiaries and 65% of each class of capital stock of any first-tier foreign subsidiaries, subject to certain exceptions.
The interest rates per annum applicable to revolving credit facility loans and the delayed draw term loan A under the amended senior secured credit facility are, at our option, equal to either Eurodollar plus 2.25% or a base rate plus 1.25%. The interest rates per annum applicable to the term loan B are, at our option, equal to either Eurodollar plus 1.75% or a base rate plus 0.75%. The interest rates per annum applicable to the incremental revolving credit facility are, at our option, equal to either Eurodollar plus 2.5% or a base rate plus 1.5%. We are required to pay a commitment fee of 0.5% per year on the undrawn
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portion available under the revolving credit facility and delayed draw term loan A, 1.75% per year on the undrawn portion available under the incremental revolving credit facility and variable fees on outstanding letters of credit.
For the delayed draw term loan A, we are required to make quarterly payments at a rate ranging from 0.625% of the original principal amount during the first three years to 1.25% during the last two years, with the balance due at maturity in October 2024. For the term loan B, we are required to make quarterly payments of $2.4 million with the balance due at maturity in October 2026. Both the existing and incremental revolving credit facilities mature in October 2024. We are also required to make mandatory prepayments of the loans under the amended credit agreement, subject to specified exceptions, from excess cash flow and with the proceeds of asset sales, debt issuances and specified other events.
There were no borrowings under the revolving credit facilities as of March 31, 2021 and we have not drawn down on the delayed draw term loan A. Based on our outstanding letters of credit of $66.4 million, $963.6 million was available for future borrowings from our delayed draw term loan A and revolving credit facilities.
6.5% Senior Secured Notes Due 2027
In May 2020, we issued $1.2 billion principal amount of 6.5% senior secured notes due 2027. Interest on the notes is payable semi-annually in cash in arrears on May 15 and November 15 of each year beginning on November 15, 2020, and will mature on May 15, 2027. We may redeem some or all of the notes, at any time prior to May 15, 2023, at a price equal to 100% of the aggregate principal amount, plus any accrued and unpaid interest to the date of redemption, plus a “make-whole” premium. We may redeem up to 35% of the aggregate principal amount of the notes from the proceeds of certain equity offerings prior to May 15, 2023, at a price equal to 106.5% of the aggregate principal amount, plus accrued and unpaid interest thereon, if any, to the date of redemption. In addition, on or after May 15, 2023 we may redeem some or all of the notes at any time at redemption prices starting at 104.875% of their principal amount, plus any accrued and unpaid interest to the date of redemption. We must make an offer to redeem the notes at 101% of their aggregate principal amount, plus accrued and unpaid interest to the repurchase date, if we experience certain defined changes of control. The notes are secured by a first priority lien on substantially all of the tangible and intangible personal property of LNE and LNE’s domestic subsidiaries that are guarantors, and by a pledge of substantially all of the shares of stock, partnership interests and limited liability company interests of our direct and indirect domestic subsidiaries and 65% of each class of capital stock of any first-tier foreign subsidiaries, subject to certain exceptions.
3.75% Senior Secured Notes Due 2028
Information regarding our 3.75% senior secured notes due 2028 can be found in Part I — Financial Information — Item 1.— Financial Statements — Note 5 —Long-Term Debt.
2.0% Convertible Senior Notes Due 2025
In February 2020, we issued $400 million principal amount of 2.0% convertible senior notes due 2025. Interest on the notes is payable semiannually in arrears on February 15 and August 15, at a rate of 2.0% per annum. The notes will mature on February 15, 2025. The notes will be convertible, under certain circumstances, until November 15, 2024, and on or after such date without condition, at an initial conversion rate of 9.4469 shares of our common stock per $1,000 principal amount of notes, subject to adjustment, which represents a 50.0% conversion premium based on the last reported sale price for our common stock of $70.57 on January 29, 2020 prior to issuing the notes. Upon conversion, the notes may be settled in shares of common stock or, at our election, cash or a combination of cash and shares of common stock. Assuming we fully settled the notes in shares, the maximum number of shares that could be issued to satisfy the conversion is currently 3.8 million.
We may redeem for cash all or a portion of the notes, at our option, on or after February 21, 2023 and before the 41st scheduled trading day before the maturity date, if the sales price of our common stock reaches specified targets as defined in the indenture. The redemption price will equal 100% of the principal amount of the notes plus accrued interest, if any.
If we experience a fundamental change, as defined in the indenture governing the notes, the holders of the notes may require us to purchase for cash all or a portion of their notes, subject to specified exceptions, at a price equal to 100% of the principal amount of the notes plus any accrued and unpaid interest.
Debt Covenants
Our amended senior secured credit facility contains a number of restrictions that, among other things, require us to satisfy a financial covenant and restrict our and our subsidiaries’ ability to incur additional debt, make certain investments and acquisitions, repurchase our stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of our business, enter into sale-leaseback transactions, transfer and sell material assets, merge or consolidate, and pay dividends and make distributions (with the exception of subsidiary dividends or distributions to the parent company or other subsidiaries on at least a pro-rata basis with any noncontrolling interest partners). Certain of these restrictions are further limited temporarily by the July 2020 amendment. Non-compliance with one or more of the covenants and restrictions could result in
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the full or partial principal balance of the credit facility becoming immediately due and payable. The amended senior secured credit facility agreement has one covenant, measured quarterly, that relates to net leverage. The July 2020 amendment substitutes the consolidated net leverage ratio covenant with a liquidity covenant (as defined in the agreement) that requires our consolidated liquidity be at least $500 million until the earlier of (a) December 31, 2021 and (b) at our election, any fiscal quarter ending prior to December 31, 2021 so long as such election is made during the last month of such fiscal quarter or within 30 days following the end of such fiscal quarter. The July 2020 amendment also requires the liquidity covenant to be measured monthly beginning January 31, 2021 until the earlier of (x) November 30, 2021 and (y) the last day of the month before the consolidated net leverage ratio covenant applies. For fiscal quarters after resumption of the consolidated net leverage covenant, we will be required to maintain a ratio of consolidated total net debt to consolidated EBITDA (both as defined in the amended credit agreement) for the trailing four consecutive quarters of 6.75x with step downs to 6.25x after four quarters, 5.75x after eight quarters, 5.50x after twelve quarters and 5.25x after fourteen quarters through maturity, except that calculations of consolidated EBITDA (as defined in the agreement) for the first three fiscal quarters after resumption of the covenant will be substituted with an annualized consolidated EBITDA (as defined in the agreement). For the avoidance of doubt, the consolidated net leverage covenant will resume for the quarter ended December 31, 2021 at the latest.
The indentures governing our 6.5% senior secured notes, 3.75% senior secured notes, 4.75% senior notes, 4.875% senior notes and 5.625% senior notes contain covenants that limit, among other things, our ability and the ability of our restricted subsidiaries to incur certain additional indebtedness and issue preferred stock, make certain distributions, investments and other restricted payments, sell certain assets, agree to any restrictions on the ability of restricted subsidiaries to make payments to us, merge, consolidate or sell all of our assets, create certain liens, and engage in transactions with affiliates on terms that are not on an arms-length basis. Certain covenants, including those pertaining to incurrence of indebtedness, restricted payments, asset sales, mergers, and transactions with affiliates will be suspended during any period in which the notes are rated investment grade by both rating agencies and no default or event of default under the indenture has occurred and is continuing. All of these notes contain two incurrence-based financial covenants, as defined, requiring a minimum fixed charge coverage ratio of 2.0x and a maximum secured indebtedness leverage ratio of 3.5x.
Some of our other subsidiary indebtedness includes restrictions on entering into various transactions, such as acquisitions and disposals, and prohibits payment of ordinary dividends. They also have financial covenants including minimum consolidated EBITDA to consolidated net interest payable, minimum consolidated cash flow to consolidated debt service, maximum consolidated debt to consolidated EBITDA and minimum liquidity, all as defined in the applicable debt agreements.
As of March 31, 2021, we believe we were in compliance with all of our debt covenants related to our senior secured credit facility and our corporate senior secured notes, senior notes and convertible senior notes. We expect to remain in compliance with all of these covenants throughout 2021.
Uses of Cash
Acquisitions
When we make acquisitions, the acquired entity may have cash on its balance sheet at the time of acquisition. All amounts related to the use of cash for acquisitions discussed in this section are presented net of any cash acquired. During the three months ended March 31, 2021, we used $6.1 million of cash primarily for the acquisition of a venue in the United Kingdom.
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. As of the date of acquisition, the acquired businesses had a total of $63.7 million of cash on their balance sheets, primarily related to deferred revenue for future events.
Capital Expenditures
Venue and ticketing operations are capital intensive businesses, requiring continual investment in our existing venues and ticketing systems in order to address fan and artist expectations, technological industry advances and various federal, state and/or local regulations.
We categorize capital outlays between maintenance capital expenditures and revenue generating capital expenditures. Maintenance capital expenditures are associated with the renewal and improvement of existing venues and technology systems, web development and administrative offices. Revenue generating capital expenditures generally relate to the construction of new venues, major renovations to existing buildings or buildings that are being added to our venue network, the development of new ticketing tools and technology enhancements. Revenue generating capital expenditures can also include smaller projects whose purpose is to increase revenue and/or improve operating income. Capital expenditures typically increase during periods when our venues are not in operation since that is the time that such improvements can be completed.
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Our capital expenditures, including accruals for amounts incurred but not yet paid for, but net of expenditures funded by outside parties such as landlords and noncontrolling interest partners or replacements funded by insurance proceeds, consisted of the following:
Three Months Ended
March 31,
2021 2020
(in thousands)
Maintenance capital expenditures $ 5,657 $ 30,447
Revenue generating capital expenditures 11,438 43,387
Total capital expenditures $ 17,095 $ 73,834
Maintenance capital expenditures during the first three months of 2021 decreased from the same period of the prior year primarily due to reductions for certain office facilities and venue-related projects as part of our cash savings initiatives implemented in connection with the global COVID-19 pandemic.
Revenue generating capital expenditures during the first three months of 2021 decreased from the same period of the prior year primarily due to lower spending in our amphitheater venues and a reduction in technology-related projects as part of our cash savings initiatives implemented in connection with the global COVID-19 pandemic.
We currently expect capital expenditures to be approximately $150 million for the full year of 2021.
Cash Flows
Three Months Ended
March 31,
2021 2020
(in thousands)
Cash provided by (used in):
Operating activities $ 74,574 $ 631,675
Investing activities $ 10,108 $ (122,371)
Financing activities $ 417,017 $ 382,422
Operating Activities
Cash provided by operating activities decreased $557.1 million for the three months ended March 31, 2021 as compared to the same period of the prior year primarily due to the continued impacts of the global COVID-19 pandemic resulting in a lower increase in deferred revenue along with lower cash-related income during the first three months of 2021, partially offset by a decrease in prepaid expenses as compared to an increase in the same period of the prior year.
Investing Activities
Cash provided by investing activities was $10.1 million for the three months ended March 31, 2021 as compared to cash used in investing activities of $122.4 million in the same period of the prior year primarily due to proceeds from the sale of investments in nonconsolidated affiliates, fewer acquisitions and less cash paid for capital expenditures. See “—Uses of Cash” above for further discussion.
Financing Activities
Cash provided by financing activities increased $34.6 million for the three months ended March 31, 2021 as compared to the same period of the prior year primarily due to receipt of proceeds from sale of noncontrolling interests in 2021 as compared to purchases of noncontrolling interests in the prior year as well as an increase in proceeds received from exercise of stock options. See “—Sources of Cash” above for further discussion.
Seasonality
Information regarding the seasonality of our business can be found in Part I—Financial Information—Item 1.—Financial Statements—Note 1—Basis of Presentation and Other Information.
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Market Risk
We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates and interest rates.
Foreign Currency Risk
We have operations in countries throughout the world. The financial results of our foreign operations are measured in their local currencies. Our foreign subsidiaries also carry certain net assets or liabilities that are denominated in a currency other than that subsidiary’s functional currency. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we have operations. Currently, we do not have significant operations in hyper-inflationary countries. Our foreign operations reported an operating loss of $85.2 million for the three months ended March 31, 2021. We estimate that a 10% change in the value of the United States dollar relative to foreign currencies would change our operating loss for the three months ended March 31, 2021 by $8.5 million. As of March 31, 2021, our most significant foreign exchange exposure included the Euro, British Pound, Australian Dollar and Canadian Dollar. This analysis does not consider the implication such currency fluctuations could have on the overall economic conditions of the United States or other foreign countries in which we operate or on the results of operations of our foreign entities. In addition, the reported carrying value of our assets and liabilities, including the total cash and cash equivalents held by our foreign operations, will also be affected by changes in foreign currency exchange rates.
We primarily use forward currency contracts, in addition to options, to reduce our exposure to foreign currency risk associated with short-term artist fee commitments. We also may enter into forward currency contracts to minimize the risks and/or costs associated with changes in foreign currency rates on forecasted operating income. At March 31, 2021, we had forward currency contracts outstanding with a notional amount of $53.2 million.
Interest Rate Risk
Our market risk is also affected by changes in interest rates. We had $5.5 billion of total debt, excluding debt discounts and issuance costs, outstanding as of March 31, 2021, of which $5.1 billion was fixed-rate debt and $0.4 billion was floating-rate debt.
Based on the amount of our floating-rate debt as of March 31, 2021, each 25-basis point increase or decrease in interest rates would increase or decrease our annual interest expense and cash outlay by approximately $1.0 million. This potential increase or decrease is based on the simplified assumption that the level of floating-rate debt remains constant with an immediate across-the-board increase or decrease as of March 31, 2021 with no subsequent change in rates for the remainder of the period.
In January 2020, we entered into an interest rate swap agreement that is designated as a cash flow hedge for accounting purposes to effectively convert a portion of our floating-rate debt to a fixed-rate basis. The swap agreement expires in October 2026, has a notional amount of $500.0 million and ensures that a portion of our floating-rate debt does not exceed 3.397%.
Accounting Pronouncements
Information regarding recently issued and adopted accounting pronouncements can be found in Part I — Financial Information—Item 1.—Financial Statements—Note 1—Basis of Presentation and Other Information.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates that are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of revenue and expenses that are not readily apparent from other sources. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such difference could be material.
Management believes that the accounting estimates involved in business combinations, impairment of long-lived assets and goodwill, revenue recognition, and income taxes are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. These critical accounting estimates, the judgments and assumptions and the effect if actual results differ from these assumptions are described in Part II Financial
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Information — Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2020 Annual Report on Form 10-K filed with the SEC on March 1, 2021.
Impacts to our critical accounting policies and estimates are discussed below and in Part I—Financial Information—Item 1. Financial Statements—Note 3—Long-Lived Assets.
Goodwill
We currently have seven reporting units with goodwill balances: International Concerts, North America Concerts, Artist Management and Artist Services (non-management) within the Concerts segment; Sponsorship & Advertising; and International Ticketing and North America Ticketing within the Ticketing segment. We review goodwill for impairment annually, as of October 1, using a two-step process.
We also test goodwill for impairment in other periods if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount or when we change our reporting units. The rapid and severe impacts of the global COVID-19 pandemic, and more specifically the need to support global social distancing efforts, mitigate the spread of the virus, and comply with restrictions put in place by various governmental entities, led to our decision to stop all tours and close our venues beginning in mid-March 2020. As such actions are having a material impact on our cash flows during the suspension of operations, we performed qualitative and sensitivity reviews in the first quarter of 2021 to assess whether we believed these actions caused the fair value of any of our reporting units to fall below its carrying value.
These qualitative and sensitivity reviews considered relevant events and circumstances such as recent historical financial performance, industry and market conditions, macroeconomic conditions, reporting unit-specific events, historical results of goodwill impairment testing, and the timing of the last performance of a quantitative assessment. Inherent in such assessments are certain judgments and estimates relating to future cash flows, including our interpretation of current economic indicators and market influences and valuations, and assumptions about our near-term and strategic plans with regard to our operations. This included our expectations of the timing for resuming operations, including the differences in that timing worldwide and the rescheduling efforts for our events, as well as our current aggressive cost-savings and cash management programs. Due to the uncertainties associated with such estimates, actual results could differ from such estimates.
Specifically, these reviews included updating recent quantitative tests for current discount rates and financial results and forecasts, performing tests of model sensitivities to changes in discount rates, revenue and terminal growth rates and market multiples, or a consideration of the impact from changes in financial forecasts, discount rates and carrying values. As a result of these interim assessments, we concluded that, during the three months ended March 31, 2021, no conditions existed that would more likely than not reduce the fair value of any of our reporting units below its carrying amount and therefore we do not believe that our goodwill is impaired. We are unable to predict how long the impacts from the global COVID-19 pandemic will impact our operations or what additional restrictions may be imposed by governments. Significant variations from current expectations could impact future assessments.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Required information is within Part I — Financial Information—Item 2.—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Risk.